1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________, 19__, to __________, 19__.
Commission File Number 0-29746
INNOVA PURE WATER, INC.
-----------------------
(Exact Name of Registrant as Specified in Charter)
Florida 59-2567034
------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
13130 56th Court, Suite 609, Clearwater, Florida 33760
------------------------------------------------------
(Address of Principal Executive Offices)
(727) 572-1000
--------------
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
[X] YES [ ] NO
There were 10,043,401 shares of the Registrant's $.0001 par value common stock
outstanding as of December 31, 2000
Transitional Small Business Format (check one) YES [ ] NO [X]
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INNOVA PURE WATER, INC.
Contents
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion & Analysis of Financial
Condition and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Matters
Item 6. Exhibits and Reports on Form 8-K
Signatures
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Innova Pure Water, Inc.
Financial Statements
Three and Six Months Ended December 31, 2000 and 1999 (Unaudited)
CONTENTS
Financial Statements:
Balance Sheet for December 31, 2000 (Unaudited)........................ 1
Statements of Operations for the Three and Six Months
Ended December 31, 2000 and 1999 (Unaudited)....................... 2
Statement of Changes in Stockholders' Equity for the
Six Months Ended December 31, 2000 (Unaudited)..................... 3
Statements of Cash Flows for the Six Months Ended
December 31, 2000 and 1999 (Unaudited)............................. 4
Notes to Financial Statements.......................................... 5-6
4
Innova Pure Water, Inc.
Balance Sheet
December 31, 2000 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 25,800
Accounts receivable, trade 18,800
Other receivables, including related party of $77,900,
net of allowance for doubtful accounts of $20,000 85,300
Inventories 160,600
Other current assets 5,000
-----------
Total current assets 295,500
Property and equipment, net 64,000
Other assets:
Patents, net 427,800
Other receivables, related party 31,100
Other 5,700
-----------
Total other assets 464,600
-----------
$ 824,100
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 160,300
Accrued expenses, including related party of $107,400 180,400
Current portion of obligations under capital leases 4,400
-----------
Total current liabilities 345,100
-----------
Long-term liabilities:
Accrued expenses, related party 79,600
-----------
Stockholders' equity:
Preferred stock; $.001 par value; 2,000,000 shares
authorized; 0 shares issued and outstanding 0
Common stock; $.0001 par value; 50,000,000 shares
authorized; 10,078,401 shares issued; and
10,043,401 shares outstanding 1,000
Capital in excess of par value 8,085,500
Accumulated deficit (7,682,200)
-----------
404,300
Treasury stock, at cost, 35,000 shares (4,900)
-----------
Total stockholders' equity 399,400
-----------
$ 824,100
===========
The accompanying notes are an integral part of the financial statements.
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Innova Pure Water, Inc.
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net sales, other $ 80,100 $ 46,200 $ 279,400 $ 135,100
Cost of sales 47,900 41,600 157,200 109,600
------------ ------------ ------------ ------------
Gross profit 32,200 4,600 122,200 25,500
------------ ------------ ------------ ------------
Operating expenses:
Selling expenses 4,200 13,800 6,600 37,300
General and administrative
expenses 233,100 264,500 444,400 533,000
Research and product
development 18,300 36,000 44,800 86,800
------------ ------------ ------------ ------------
255,600 314,300 495,800 657,100
------------ ------------ ------------ ------------
Net loss from operations (223,400) (309,700) (373,600) (631,600)
------------ ------------ ------------ ------------
Other income:
Gain on sale of assets (300)
Interest, net (1,000) (5,200) (3,900) (10,200)
Other (6,300) (1,300) (8,300) (7,400)
------------ ------------ ------------ ------------
(7,300) (6,500) (12,500) (17,600)
------------ ------------ ------------ ------------
Net loss $ (216,100) $ (303,200) $ (361,100) $ (614,000)
============ ============ ============ ============
Loss per common share $ (.02) $ (.03) $ (.04) $ (.06)
============ ============ ============ ============
Weighted average number of
common shares outstanding 10,043,401 10,055,575 10,043,401 10,064,270
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
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Innova Pure Water, Inc.
Statement of Changes in Stockholders' Equity
Six Months Ended December 31, 2000 (Unaudited)
Common Stock Capital In
-------------------- Excess Of Accumulated Treasury
Shares Amount Par Value Deficit Stock
---------- ------ ---------- ------------ --------
Balance, June 30, 2000 10,078,401 $1,000 $8,066,000 $(7,321,100) $4,900
Compensation for stock
options vested 19,500
Net loss (361,100)
---------- ------ ---------- ------------ ------
Balance, December 31, 2000 10,078,401 $1,000 $8,085,500 $(7,682,200) $4,900
========== ====== ========== =========== ======
The accompanying notes are an integral part of the financial statements.
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Innova Pure Water, Inc.
Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31,
2000 1999
--------- ---------
OPERATING ACTIVITIES
Net loss $(361,100) $(614,000)
--------- ---------
Adjustments to reconcile net loss to net cash and cash
equivalents used by operating activities:
Depreciation and amortization 60,900 80,900
Gain on disposal of equipment (300)
Increase in provision for doubtful accounts 11,200
Compensation for stock options issued for services 19,500 20,800
(Increase) decrease in:
Accounts and other receivables 292,500 369,200
Inventories (400) 33,400
Other assets 2,500
Decrease in accounts payable and accrued expenses (253,700) (60,200)
--------- ---------
Total adjustments 132,200 444,100
--------- ---------
Net cash and cash equivalents used by operating activities (228,900) (169,900)
--------- ---------
INVESTING ACTIVITIES
Proceeds from sale of equipment 1,500
Acquisition of equipment (7,100) (10,900)
Acquisition of patents (47,400) (33,600)
Advances (payments) from (to) related parties 7,000 (37,100)
--------- ---------
Net cash and cash equivalents used by investing activities (46,000) (81,600)
--------- ---------
FINANCING ACTIVITIES
Payments on long-term debt (13,400) (3,300)
Payments on capital lease obligations (2,100) (1,700)
Acquisition of treasury stock (6,400)
Advances from related parties 121,700
--------- ---------
Net cash and cash equivalents provided (used) by
financing activities 106,200 (11,400)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (168,700) (262,900)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 194,500 692,700
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,800 $ 429,800
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
AND NONCASH FINANCING ACTIVITIES:
Cash paid during the year for interest $ 700 $ 1,200
========= =========
During the six months ended December 31, 2000, the Company
incurred $122,300 of payables for the acquisition of patents.
The accompanying notes are an integral part of the financial statements.
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Innova Pure Water, Inc.
Notes to Financial Statements
Three and Six Months Ended December 31, 2000 and 1999 (Unaudited)
1. FINANCIAL STATEMENTS
In the opinion of management, all adjustments consisting only of normal
recurring adjustments necessary for a fair statement of (a) the results of
operations for the three- and six-month periods ended December 31, 2000 and
1999, (b) the financial position at December 31, 2000, and (c) cash flows for
the six-month periods ended December 31, 2000 and 1999, have been made.
The unaudited financial statements and notes are presented as permitted by Form
10-QSB. Accordingly, certain information and note disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been omitted. The
accompanying financial statements and notes should be read in conjunction with
the audited financial statements and notes of the Company for the fiscal year
ended June 30, 2000. The results of operations for the three- and six-month
periods ended December 31, 2000 and 1999 are not necessarily indicative of
those to be expected for the entire year.
2. SUBSEQUENT EVENT
The Company was the plaintiff in a patent infringement lawsuit entitled
Innova/Pure Water, Inc. v. Brita Products Company ("Brita"), Defendant; Case No.
00-157-Civ-T-26C filed by the Company on February 29, 2000. The case was filed
with the U.S. District Court, Middle District of Florida, Tampa Division. The
Company has claimed patent infringement of U.S. Patent 5,609,759 on the part of
the Defendants. Subsequent to December 31, 2000, the Company and Brita reached a
settlement agreement on terms favorable to the Company.
Subsequent to December 31, 2000, the Company issued 420,142 shares of its
common stock in settlement of compensation owed to the Company's chairman and
an employee totaling $79,600. This amount has been reflected as long-term on
the accompanying balance sheet as it has subsequently been relieved without the
use of current assets.
3. CONTINGENCIES
The Company is currently the plaintiff in a patent infringement lawsuit
entitled Innova/Pure Water, Inc., Plaintiff v. Safari Water Filtration Systems,
Inc. d/b/a Safari Outdoor Products, Defendant; Case No. 99-1781-Civ-T-23F filed
by the Company on August 4, 1999. The case was filed with the U.S. District
Court, Middle District of Florida, Tampa Division. The Company has claimed
patent infringement of U.S. Patent 5,609,759 on the part of the Defendants. It
is not yet possible to evaluate the likelihood of a favorable or unfavorable
outcome.
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Innova Pure Water, Inc.
Notes to Financial Statements
Three and Six Months Ended December 31, 2000 and 1999 (Unaudited)
4. EMPLOYMENT AGREEMENT
During the six-month period ended December 31, 2000, the Company entered into a
month-to-month employment agreement with an individual to provide advisory
services to the chairman and treasurer of the Company. In exchange for these
services, the employee will receive a monthly salary of $6,250 to be paid in
the form of shares of the Company's common stock. Both parties agreed to the
termination of this agreement as of November 28, 2000. As of December 31, 2000,
72,809 shares of the Company's common stock valued at $12,916 were due and
payable to the employee.
As part of the employment agreement, if the employee was employed by the
Company for more than 12 months, he would be granted an option to purchase
100,000 shares of the Company's common stock at an exercise price of $.50 per
share. These options were exercisable beginning September 26, 2001 through
September 25, 2003; however, these options are no longer outstanding or
exercisable as the employment agreement was terminated.
5. STOCKHOLDERS' EQUITY
During the six months ended December 31, 2000, the Company recognized $19,500
of compensation expense for stock options issued in a prior period. Other than
those issued in connection with the employment agreement described in Note 4,
no new stock options were granted in the current period.
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PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS "ANTICIPATED,"
"BELIEVE," "EXPECT," "PLAN," "INTEND," "SEEK," "ESTIMATE," "PROJECT," "WILL,"
"COULD," "MAY," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION
REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH
FLOW. SUCH STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO
FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES,
INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS,
CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY
INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO
ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER
MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. SHOULD ONE OR MORE OF
THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO
BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE
ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF
THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE
CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR
DEVELOPMENTS.
Innova cautions readers that in addition to important factors described
elsewhere, the following important facts, among others, sometimes have
affected, and in the future could affect, the Company's actual results, and
could cause the Company's actual results during 2000 and beyond, to differ
materially from those expressed in any forward-looking statements made by, or
on behalf of, Innova.
INCOME STATEMENT DATA
Three Months Six Months
Ended December 31, Ended December 31,
---------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ -----------
Total revenue $ 80,100 $ 46,200 $ 279,400 $ 135,100
============ ============ ============ ===========
Net loss $ (216,100) $ (303,200) $ (361,100) $ (614,000)
============ ============ ============ ===========
Loss per common
share - basic $ (.02) $ (.03) $ (.04) $ (.06)
============ ============ ============ ===========
Shares used in per
share computation 10,043,401 10,055,575 10,043,401 10,064,270
============ ============ ============ ===========
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BALANCE SHEET DATA
December 31,
2000
----------
Total assets $ 824,100
==========
Working capital $ (49,600)
==========
Long-term debt $ 0
==========
Stockholders' equity $ 399,400
==========
RESULTS OF OPERATIONS
Net Sales
Net sales for the three-month period ended December 31, 2000 totaled $80,100,
an increase of 73 percent from the $46,200 of net sales for the comparable
period in 1999. Net sales for the six-month period ended December 31, 2000
totaled $279,400, a 107 percent increase over the $135,100 of net sales for the
comparable period in 1999. This increase in sales for both the three- and
six-month periods ended December 31, 2000 is attributable to sales to U.S.
Filter (Culligan) during the quarter.
Cost of Sales
For the three months ended December 31, 2000, the cost of sales increased to
$47,900 from the $41,600 of costs for the three months ended December 31, 1999.
This increase is mainly due to the increase in sales.
Gross profit margin increased 30 percent for the three months ended December
31, 2000 to a gross profit margin of 40 percent from an overall gross profit
margin of 10 percent for the three months ended December 31, 1999. This is
principally attributable to higher sales volume that was available to absorb
the fixed cost of manufacturing.
For the six months ended December 31, 2000, the cost of sales increased to
$157,200 from the $109,600 of costs for the six months ended December 31, 1999.
This increase is mainly due to the increase in sales.
Operating Expense
Operating expenses for the three months ended December 31, 2000 were $255,600
as compared to $314,300 for the similar period last year. This 19 percent
decrease of operating expenses is principally attributable to cut backs in
overhead expenditures for sales and marketing, research and development, and
general and administrative expenses.
Operating expenses for the six months ended December 31, 2000 were $495,800, or
177 percent of net sales. For the comparable period in 1999, operating costs
amounted to $657,100, or 486 percent of net sales. The 309 percent decrease as
a percentage of sales between these periods is due to the increase in sales and
the cut back in overhead expenditures for sales and marketing, research and
development, and general and administrative expenses.
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Other Income
For the three months ended December 31, 2000, net interest income amounted to
$1,000 as compared to net interest income of $5,200 for the three months ended
December 31, 1999. This decrease is due to less cash invested in interest
bearing securities or accounts with a major national bank.
For the six months ended December 31, 2000, net interest income amounted to
$3,900, as compared to net interest income of $10,200 for the six months ended
December 31, 1999. Again, this decrease is attributable to less cash being
invested in interest bearing securities or accounts with a major national bank.
Other income for the three and six months ended December 31, 2000 of $6,300 and
$8,300, respectively, was due to reimbursement of a legal retainer, patent
renewal fees, and royalty income. Other income of $1,300 and $7,400 for the
three and six months ended December 31, 1999 was due to the distribution of
income from a trust fund administered by a legal firm representing the Company.
Income Taxes
Due to the Company's history of operating losses, management has established a
valuation allowance in the full amount of the deferred tax assets arising from
these losses because management believes it is more likely than not that the
Company will not generate sufficient taxable income within the appropriate
period to offset these operating loss carryforwards.
Net Loss
Net loss for the three months ended December 31, 2000 amounted to $216,100 as
compared to a net loss of $303,200 for the three months ended December 31,
1999. This decrease in the net loss is principally attributable to the increase
in sales and decrease in operating expenses.
Net loss for the six months ended December 31, 2000 amounted to $361,100 as
compared to net loss of $614,000 for the comparable period in 1999. The
decrease in net income is primarily a result of the increase in sales and
decrease in operating expenses.
Loss Per Share
For the three months ended December 31, 2000, basic and diluted loss per share
amounted to $(.02). For the comparable period in 1999, basic and diluted loss
per share amounted to $(.03). The decrease in loss per share is due principally
to the decrease in losses between the comparable periods.
For the six months ended December 31, 2000, basic and diluted loss per share
amounted to $(.04). For the comparable period in 1999, basic and diluted loss
per share amounted to $(.06). This turnaround is due to the decrease in losses
between the comparable periods.
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LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
For the six months ended December 31, 2000, net cash used by operating
activities amounted to $228,900, an increase from the net cash used by
operating activities of $169,900 for the comparable period in 1999. The
increase in net cash used is primarily a result of increases in accounts
payable and accrued expenses.
Investment Activities
The Company's investment activities include equipment purchases, patent
acquisitions, and net changes in related party advances.
Net cash used by investing activities for the six months ended December 31,
2000 was $46,000, as compared to net cash used by investing activities of
$81,600 for the comparable period in 1999. The decrease in net cash expended
for investing activities is due primarily to a decrease in advances made to
related parties during the comparable periods.
Financing Activities
The Company's financing activities include payments on borrowings and capital
leases, advances received from related parties, and the acquisition of treasury
stock.
Net cash of $12,700 was provided by financing activities for the six months
ended December 31, 2000, as compared to net cash used by financing activities
of $11,400 for the six months ended December 31, 1999. The increase in net cash
provided by financing activities results from funds advanced from related
parties.
CAPITAL RESOURCES
At December 31, 2000, the Company does not have any material commitments for
capital expenditures other than for those expenditures incurred in the ordinary
course of business.
The Company is currently seeking additional revenue sources, expanding its
customer base, and seeking additional equity capital. Additional capital could
be required in excess of the Company's liquidity, requiring it to raise
additional capital through an equity offering, secured or unsecured debt
financing. The availability of additional capital resources will depend on
prevailing market conditions, interest rates, and the existing financial
position and results of operations of the Company.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently the plaintiff in a patent infringement lawsuit
entitled Innova/Pure Water, Inc., Plaintiff v. Safari Water Filtration Systems,
Inc. d/b/a Safari Outdoor Products, Defendant; Case No. 99-1781-Civ-T-23F filed
by the Company on August 4, 1999. The case was filed with the U.S. District
Court, Middle District of Florida, Tampa Division. The Company has claimed
patent infringement of U.S. Patent 5,609,759 on the part of the defendants. It
is not yet possible to evaluate the likelihood of a favorable or unfavorable
outcome.
The Company was the plaintiff in a patent infringement lawsuit entitled
Innova/Pure Water, Inc. v. Brita Products Company ("Brita"), Defendant; Case No.
00-157-Civ-T-26C filed by the Company on February 29, 2000. The case was filed
with the U.S. District Court, Middle District of Florida, Tampa Division. The
Company has claimed patent infringement of U.S. Patent 5,609,759 on the part of
the Defendants. Subsequent to December 31, 2000, the Company and Brita reached a
settlement agreement on terms favorable to the Company.
ITEM 2. CHANGES IN SECURITIES
During the six-month period ended December 31, 2000, there was no modification
of any instruments defining the rights of holders of the Company's common stock
and no limitation or qualification of the rights evidenced by the Company's
common stock as a result of the issuance of any other class of securities or
the modification thereof.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
During the six-month period ended December 31, 2000, the Company was not in
default on any of its indebtedness.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the six-month period ended December 31, 2000, the Company did not submit
any matters to a vote of its security holders.
ITEM 5. OTHER MATTERS
The Company does not have any material information to report with respect to
the six-month period ended December 31, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herewith are:
None
(b) Reports on Form 8-K - None
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereto duly authorized:
INNOVA PURE WATER, INC.
Dated: February 14, 2001 By: /s/ Rose C. Smith
----------------- ------------------------------------
Rose C. Smith
President, Chief Executive Officer
Director
Dated: February 14, 2001 By: /s/ John E. Nohren, Jr.
----------------- ------------------------------------
John E. Nohren, Jr.
Chairman of the Board of Directors
Chief Financial Officer
Dated: February 14, 2001 By: /s/ Robert Connell
----------------- ------------------------------------
Robert Connell
Principal Accounting Officer