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 March 31, 2001
[ ] 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 Identification Number)
Incorporation or Organization)
13130 56th Court, Suite 609, Clearwater, Florida 33760
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(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 10,470,208 shares of the Registrant's $.0001 par value common stock
outstanding as of March 31, 2001.
Transitional Small Business Format (check one) Yes [ ] NO [X]
2
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
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Innova Pure Water, Inc.
Financial Statements
Three and Nine Months Ended
March 31, 2001 and 2000 (Unaudited)
CONTENTS
Financial Statements:
Balance Sheet for March 31, 2001 (Unaudited)................................................ 1
Statements of Operations for the Three and Nine Months
Ended March 31, 2001 and 2000 (Unaudited)............................................... 2
Statement of Changes in Stockholders' Equity for the
Nine Months Ended March 31, 2001 (Unaudited)............................................ 3
Statements of Cash Flows for the Nine Months Ended
March 31, 2001 and 2000 (Unaudited)..................................................... 4
Notes to Financial Statements............................................................... 5-6
4
Innova Pure Water, Inc.
Balance Sheet
March 31, 2001
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 133,900
Accounts receivable, trade 19,900
Other receivables, including related party of $ 88,000, net of
allowance for doubtful accounts of $ 24,800 146,000
Inventories 186,500
Other current assets 11,000
-----------
Total current assets $ 497,300
Property and equipment, net 52,000
Other assets:
Patents, net 427,900
Other receivables, related party 31,100
Other 5,700
-----------
Total other assets 464,700
-----------
$ 1,014,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 120,000
Accrued expenses, including related party of $ 141,600 233,000
Current portion of obligation under capital lease 3,400
-----------
Total current liabilities 356,400
-----------
Stockholders' equity:
Preferred stock; $.001 par value; 2,000,000 shares
authorized; 0 shares issued and outstanding
Common stock; $.0001 par value; 50,000,000 shares
authorized; 10,498,543 shares issued; and
10,470,208 shares outstanding 1,000
Capital in excess of par value 8,177,200
Accumulated deficit (7,516,900)
-----------
661,300
Treasury stock, at cost, 28,335 shares (3,700)
-----------
Total stockholders' equity 657,600
-----------
$ 1,014,000
===========
The accompanying notes are an integral part of the financial statements. 1
5
Innova Pure Water, Inc.
Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- -------------------------------
2001 2000 2001 2000
------------------------------- -------------------------------
Net sales $ 101,500 $ 55,600 $ 380,900 $ 190,700
Cost of sales 58,700 46,900 215,900 156,500
------------------------------- -------------------------------
Gross profit 42,800 8,700 165,000 34,200
------------------------------- -------------------------------
Operating expenses:
Selling expenses 4,700 4,500 11,300 41,800
General and administrative
expenses 250,700 278,100 695,100 811,100
Research and product
development 20,300 53,100 65,100 139,900
------------------------------- -------------------------------
275,700 335,700 771,500 992,800
------------------------------- -------------------------------
Net loss from operations (232,900) (327,000) (606,500) (958,600)
------------------------------- -------------------------------
Other income:
Interest, net (700) (2,200) (4,600) (12,400)
Loss on sale of assets 1,300 1,000
Other (398,600) (407,100) (7,400)
------------------------------- -------------------------------
(398,000) (2,200) (410,700) (19,800)
------------------------------- -------------------------------
Net income/(loss) $ 165,100 $ (324,800) $ (195,800) $ (938,800)
=============================== ===============================
Income/(Loss) per common share $ .02 $ (.03) $ (.02) (.09)
=============================== ===============================
Weighted average number of
common shares outstanding 10,217,607 10,043,401 10,100,622 10,057,237
=============================== ===============================
The accompanying notes are an integral part of the financial statements. 2
6
Innova Pure Water, Inc.
Statement of Changes in Stockholders' Equity
Nine Months Ended March 31, 2001
(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 30,500
Stock issued for services 420,142 79,600
Treasury stock issued
For services (6,665 shares) 1,100 1,200
Net loss (195,800)
---------------------------------------------------------------------------------
Balance, March 31, 2001 10,498,543 $ 1,000 $ 8,177,200 $ (7,516,900) $ (3,700)
=================================================================================
The accompanying notes are an integral part of the financial statements. 3
7
Innova Pure Water, Inc.
Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
-------------------------------
2001 2000
-------------------------------
OPERATING ACTIVITIES
Net loss $ (195,800) $ (938,800)
-------------------------------
Adjustments to reconcile net loss to net cash and
cash equivalents used by operating activities:
Depreciation and amortization 94,300 111,500
Loss on disposal of equipment 1,000
Increase in provision for doubtful accounts 16,100
Compensation for stock and stock options issued for services 30,500 31,200
Treasury stock issued for services 2,300
(Increase) decrease in:
Accounts and other receivables 235,900 368,700
Inventories (26,300) 40,300
Other assets (3,500) (3,500)
(Decrease) increase in accounts payable and accrued expenses (179,300) 16,200
-------------------------------
Total adjustments 171,000 564,400
-------------------------------
Net cash and cash equivalents used by operating activities (24,800) (374,400)
-------------------------------
INVESTING ACTIVITIES
Proceeds from sale of equipment 1,500
Acquisition of equipment (7,400) (11,900)
Acquisition of patents (179,100) (54,300)
Advances (payments) from (to) related parties (3,100) (37,300)
-------------------------------
Net cash and cash equivalents used by investing activities (188,100) (103,500)
-------------------------------
FINANCING ACTIVITIES
Payments on long-term debt (13,400) (4,900)
Payments on capital lease obligations (3,100) (2,700)
Advances from related parties 168,800
Acquisition of treasury stock (6,400)
-------------------------------
Net cash and cash equivalents provided by financing activities 152,300 (14,000)
-------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (60,600) (491,900)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 194,500 692,700
-------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 133,900 $ 200,800
===============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
AND NONCASH INVESTING ACTIVITIES:
Cash paid during the period for interest $ 900 $ 1,700
===============================
During the nine months ended March 31, 2001, the Company incurred
$13,100 of payables for the acquisition of patents.
The Company issued 420,142 shares of common stock in lieu of $79,600 of
deferred compensation. This transaction was accounted for as a non-cash
transaction.
The accompanying notes are an integral part of the financial statements. 4
8
Innova Pure Water, Inc.
Notes to Financial Statements
Three and Nine Months Ended
March 31, 2001 and 2000 (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 nine-month periods ended March 31, 2001 and 2000,
(b) the financial position at March 31, 2001, and (c) cash flows for the
nine-month periods ended March 31, 2001 and 2000, 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 generally accepted
accounting principles 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 nine-month periods ended March 31, 2001 and 2000
are not necessarily indicative of those to be expected for the entire year.
2. CONTINGENCIES
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 claimed patent infringement of U.S. Patent 5,609,759 on the part of the
Defendants. On February 26, 2001, the Company and Brita reached a settlement
agreement on terms management feels is favorable to the Company.
The Company is currently the plaintiff in a second patent infringement lawsuit
entitled Innova/Pure Water, Inc. 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.
5
9
Innova Pure Water, Inc.
Notes to Financial Statements
Three and Nine Months Ended
March 31, 2001 and 2000 (Unaudited)
3. EMPLOYMENT AGREEMENT
During the 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 would 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 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.
4. STOCKHOLDERS' EQUITY
During the nine months ended March 31, 2001, the Company recognized $30,500 of
compensation expense for stock options issued in a prior period. Other than
those issued in connection with the employment agreement described in Note 3, no
new stock options were granted in the current period.
During the nine months ended March 31, 2001, 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.
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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 2001 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 Nine Months
Ended March 31, Ended March 31,
--------------------------------------------------------------------
2001 2000 2001 2000
--------------------------------------------------------------------
Total revenue $ 101,500 $ 55,600 $ 380,900 $ 190,700
====================================================================
Net income/(loss) $ 165,100 $ (324,800) $ (195,800) $ (938,800)
====================================================================
Income/(Loss) earnings per
common share -
basic $ .02 $ (.03) $ (.02) $ (.09)
====================================================================
Shares used in per
share computation 10,217,607 10,043,401 10,100,622 10,057,237
====================================================================
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BALANCE SHEET DATA
March 31,
2001
-----------
Total assets $ 1,014,000
===========
Working capital $ 140,900
===========
Long-term debt $ 0
===========
Stockholders' equity $ 657,600
===========
RESULTS OF OPERATIONS
Net Sales
Net sales for the three-month period ended March 31, 2001 totaled $101,500, an
increase of 83 percent from the $55,600 of net sales for the comparable period
in 2000. Net sales for the nine-month period ended March 31, 2001 totaled
$380,900, a 100 percent increase from the $190,700 of net sales for the
comparable period in 2000. This increase in sales for both the three- and
nine-month periods ended March 31, 2001 is primarily attributable to sales to
U.S. Filter (Culligan).
Cost of Sales
For the three months ended March 31, 2001, the cost of sales increased to
$58,700 from the $46,900 of costs for the three months ended March 31, 2000.
This increase is mainly due to the increase in sales during the quarter.
Gross profit margin increased 26 percent for the three months ended March 31,
2001 to a gross profit margin of 42 percent, from an overall gross profit margin
of 16 percent for the three months ended March 31, 2000. This is principally
attributable to higher sales volume that was available to absorb the fixed cost
of manufacturing.
For the nine months ended March 31, 2001, the costs of sales increased to
$215,900 from the $156,500 of costs for the nine months ended March 31, 2000.
This increase is mainly due to the increase in sales.
Operating Expense
Operating expenses for the three months ended March 31, 2001 were $275,700,
which is comparable to the $335,700 of operating expenses for the similar period
last year.
Operating expenses for the nine months ended March 31, 2001 were $771,500, or
203 percent of net sales. For the comparable period in 2000, operating costs
amounted to $992,800, or 521 percent of net sales. The 318 percent decrease as a
percentage of sales between these periods is due to the increase in sales and
the cutback in overhead expenditures for sales and marketing, research and
development, and general and administrative expenses.
Other Income
For the three months ended March 31, 2001, net interest income amounted to $700
as compared to net interest income of $2,200 for the three months ended March
31, 2000. This decrease is due to less cash invested in interest bearing
securities or accounts with a major bank.
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For the nine months ended March 31, 2001, net interest income amounted to $4,600
as compared to net interest income of $12,400 for the nine months ended March
31, 2000. Again, this decrease is attributable to less cash invested in interest
bearing securities or accounts with a major bank.
For the three months ended March 31, 2001, other income amounted to $398,600 as
compared to no other income for the three months ended March 31, 2000. This
increase is due to a one-time, lump-sum payment received because of the
favorable settlement of a patent infringement case involving Brita Products
Company and the receipt of royalty income from the licensing of the Company's
technology.
Other income for the nine months ended March 31, 2001 of $407,100 was due
primarily to the favorable settlement of a patent infringement case involving
Brita Products Company and the receipt of royalty income from the licensing of
the Company's technology.
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 Income
Net income for the three months ended March 31, 2001 amounted to $165,100 as
compared to a net loss of $324,800 for the three months ended March 31, 2000.
This net income for the period compared to the net loss for the comparable
period is principally attributable to the increase in sales, income from the
favorable settlement of a patent infringement case involving Brita Products
Company, and the receipt of royalty income from the licensing of the Company's
technology.
Net loss for the nine months ended March 31, 2001 amounted to $195,800, as
compared to net loss of $938,800 for the comparable period in 2000. The decrease
in net loss is primarily a result of the increase in sales, income from the
favorable settlement of a patent infringement case involving Brita Products
Company, and the receipt of royalty income from the licensing of the Company's
technology.
Earnings Per Share
For the three months ended March 31, 2001, basic and diluted income per share
amounted to $.02. For the comparable period in 2000, basic and diluted loss per
share amounted to $.03. The income per share versus the loss per share for the
comparable period is due principally to the increase in sales, income from the
favorable settlement of a patent infringement case involving Brita Products
Company, and the receipt of royalty income from the licensing of the Company's
technology.
For the nine months ended March 31, 2001, basic and diluted loss per share
amounted to $.02. For the comparable period in 2000, basic and diluted loss per
share amounted to $.09. This decrease is due to the increase in sales, income
from the favorable settlement of a patent infringement case involving Brita
Products Company, and the receipt of royalty income from the licensing of the
Company's technology.
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LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
For the nine months ended March 31, 2001, net cash used by operating activities
amounted to $24,800, compared to the net cash used by operating activities of
$374,400 for the comparable period in 2000. The decrease in cash used is
primarily due to the income from the favorable settlement of a patent
infringement case involving Brita Products Company and the receipt of royalty
income from the licensing of the Company's technology.
Investment Activities
The Company's investment activities include equipment purchases, litigation
involving patents, and net changes in related party advances.
Net cash used by investing activities for the nine months ended March 31, 2001
was $188,100 as compared to net cash used by investing activities of $103,500
for the comparable period in 2000. The increase in cash expended for investing
activities is due primarily to the litigation involving patents as well as the
acquisition of new patents.
Financing Activities
The Company's financing activities include payments on borrowings and capital
leases and the acquisition of treasury stock.
Net cash of $152,300 was provided by financing activities for the nine months
ended March 31, 2001 as compared to net cash used by financing activities of
$14,000 for the nine months ended March 31, 2000. The increase in cash provided
for financing activities results from funds advanced from related parties.
CAPITAL RESOURCES
At March 31, 2001, 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. However, 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 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 claimed patent infringement of U.S. Patent 5,609,759 on the part of the
Defendants. On February 26, 2001, the Company and Brita reached a settlement
agreement on terms management feels is favorable to the Company.
The Company is currently the plaintiff in a second patent infringement lawsuit
entitled Innova/Pure Water, Inc. 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.
ITEM 2. CHANGES IN SECURITIES
During the nine-month period ended March 31, 2001, 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 UPON SENIOR SECURITIES
During the nine-month period ended March 31, 2001, the Company was not in
default on any of its indebtedness.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the nine-month period ended March 31, 2001, 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
nine-month period ended March 31, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herewith are:
None
(b) Reports on Form 8-K - None
15
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: May 15, 2001 By: /s/ Rose C. Smith
------------- ----------------------------------------
Rose C. Smith
President, Chief Executive Officer
Director
Dated: May 15, 2001 By: /s/ John E. Nohren, Jr.
------------- ----------------------------------------
John E. Nohren, Jr.
Chairman of the Board of Directors
Chief Financial Officer
Dated: May 15, 2001 By: /s/ Robert Connell
-------------- ----------------------------------------
Robert Connell
Principal Accounting Officer