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 three months ended September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________, 20__, to _________,
20__.
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 10,453,458 shares of the Registrant's $.0001 par value common stock
outstanding as of September 30, 2001.
Transitional Small Business Format (check one) Yes [ ] NO [X]
INNOVA PURE WATER, INC.
CONTENTS
Part I - Financial Information
Item 1. Condensed 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
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Innova Pure Water, Inc.
Condensed Financial Statements
Three Months Ended September 30, 2001
and 2000 (Unaudited)
CONTENTS
Condensed Financial Statements:
Condensed Balance Sheet for September 30, 2001 (Unaudited)...............1
Condensed Statements of Operations for the Three Months
Ended September 30, 2001 and 2000 (Unaudited)........................2
Condensed Statement of Changes in Stockholders' Equity for the
Three Months Ended September 30, 2001 (Unaudited)....................3
Condensed Statements of Cash Flows for the Three Months Ended
September 30, 2001 and 2000 (Unaudited)..............................4
Notes to Condensed Financial Statements..................................5
Innova Pure Water, Inc.
Condensed Balance Sheet
September 30, 2001
(Unaudited)
ASSETS
Current assets:
Cash $ 19,500
Accounts receivable, trade, net of allowance for
doubtful accounts of $3,200 81,100
Other receivables, net of allowance for doubtful accounts
of $41,800, including related party of $78,900 95,600
Inventories 141,800
Other current assets 2,800
-----------
Total current assets 340,800
Property and equipment, net 57,200
Other assets:
Patents, net 413,000
Other receivables, related party 18,100
Other 5,700
-----------
Total other assets 436,800
$ 834,800
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 129,900
Accrued expenses, including related party of $126,100 190,900
Current portion of obligation under capital lease 1,200
-----------
Total current liabilities 322,000
-----------
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
10,453,458 shares outstanding 1,000
Capital in excess of par value 8,369,100
Deferred financing costs (187,700)
Accumulated deficit (7,654,300)
-----------
528,100
Treasury stock, at cost, 45,085 shares (15,300)
-----------
Total stockholders' equity 512,800
$ 834,800
===========
The accompanying notes are an integral part of the condensed financial
statements.
1
Innova Pure Water, Inc.
Condensed Statements of Operations
(Unaudited)
Three Months Ended
September 30,
-----------------------------
2001 2000
-----------------------------
Net sales $ 166,500 $ 199,300
Cost of sales 103,500 109,300
-----------------------------
Gross profit 63,000 90,000
-----------------------------
Operating expenses:
Selling expenses 6,400 2,400
General and administrative expenses 208,600 211,300
Research and product development 27,800 26,500
-----------------------------
242,800 240,200
-----------------------------
Net loss from operations (179,800) (150,200)
-----------------------------
Other income:
Loss/(Gain) on sale of assets 1,000 (300)
Interest, net (400) (2,900)
Royalties and other income (23,000) (2,000)
-----------------------------
(22,400) (5,200)
-----------------------------
Net loss $(157,400) $(145,000)
=============================
Loss per common share $ (.02) $ (.01)
=============================
The accompanying notes are an integral part of the condensed financial
statements.
2
Innova Pure Water, Inc.
Condensed Statement of Changes in Stockholders' Equity
Three Months Ended September 30, 2001
(Unaudited)
Common Stock Capital In Deferred
-------------------------- Excess Of Accumulated Treasury Financing
Shares Amount Par Value Deficit Stock Costs
-----------------------------------------------------------------------------------------
Balance, June 30, 2001 10,498,543 $ 1,000 $8,180,900 $ (7,496,900) $ (16,500) $ --
Issuance of treasury stock
for services, 8,500 shares 1,200
500
Deferred financing costs 187,700 (187,700)
Net loss for period (157,400)
-----------------------------------------------------------------------------------------
Balance, September 30, 2001 10,498,543 $ 1,000 $8,369,100 $ (7,654,300) $ (15,300) $(187,700)
=========================================================================================
The accompanying notes are an integral part of the condensed financial
statements.
3
Innova Pure Water, Inc.
Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
------------------------------
2001 2000
------------------------------
OPERATING ACTIVITIES
Net loss $(157,400) $(145,000)
------------------------------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 32,600 31,300
Loss/(Gain) on disposal of equipment 1,000 (300)
Increase in provision for doubtful accounts 7,700
Stock and stock options issued for services 1,700 8,400
(Increase) decrease in:
Accounts and other receivables 161,200 306,500
Inventories (13,600) (26,700)
Other assets 9,200 2,500
Decrease in accounts payable and accrued expenses (48,800) (204,400)
------------------------------
Total adjustments 151,000 117,300
-----------------------------
Net cash used by operating activities (6,400) (27,700)
------------------------------
INVESTING ACTIVITIES
Proceeds from sale of equipment 1,500
Acquisition of equipment (24,600)
Acquisition and defense of patents (43,700)
-------------------------------
Net cash used by investing activities (24,600) (42,200)
FINANCING ACTIVITIES
Advances from related parties 3,700
Payments on long-term debt (1,600)
Payments on capital lease obligations (1,100) (1,100)
-------------------------------
Net cash provided (used) by financing activities 2,600 (2,700)
NET DECREASE IN CASH (28,400) (72,600)
CASH, BEGINNING OF PERIOD 47,900 194,500
------------------------------
CASH, END OF PERIOD $ 19,500 $ 121,900
==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
AND NONCASH FINANCING ACTIVITIES:
Cash paid during the period for interest $ 100 $ 500
==============================
During the three months ended September 30, 2001, the Company incurred
$18,100 of payables for the acquisition of patents.
The accompanying notes are an integral part of the condensed financial
statements.
4
Innova Pure Water, Inc.
Notes to Condensed Financial Statements
Three Months Ended September 30, 2001 and 2000 (Unaudited)
1. CONDENSED 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-month periods ended September 30, 2001 and 2000, (b)
the financial position at September 30, 2001, and (c) cash flows for the
three-month periods ended September 30, 2001 and 2000, have been made.
The unaudited condensed financial statements and notes are presented as
permitted by Form 10-QSB. Accordingly, certain information and note disclosures
normally included in condensed financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been omitted. The accompanying condensed 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, 2001. The results of operations for
the three-month period ended September 30, 2001 are not necessarily indicative
of those to be expected for the entire year.
2. CONTINGENCIES
The Company is currently the plaintiff in a 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.
During the three-month period ended September 30, 2001, the Company entered into
a month-to-month employment agreement with an individual to provide part-time
advisory services to the chairman and treasurer of the Company. In exchange for
these services, the employee would receive a monthly salary of $1,667 ($20,000
annualized) with an appropriate bonus if the Company obtains profitability
commensurate with the employee's contribution to the Company. This agreement may
be discontinued at any time by either party without cause. The agreement will
expire on July 31, 2002 unless extended by the parties.
As part of the employment agreement, if the employee is employed by the Company
for twelve months, he would receive 25,000 shares of the Company's common stock
as additional compensation.
3. STOCK OPTIONS AND WARRANTS
During the quarter ended September 30, 2001, the Company extended the term, by
two years, on 250,000 expired warrants. No expense was recognized with the
extension of these warrants.
The Company granted 755,000 stock options at $0.25 under the 1999 Stock Option
Plan. These options are exercisable anytime through August 31, 2006. Under APB
25, no expense was recognized.
During the quarter ended September 30, 2001, the Company entered into an
agreement, which provides financing of $600,000. In return for a five-year loan
at 0% financing, ballooning in five years, the Company issued 1.2 million
warrants expiring in five years, with the following terms:
400,000 warrants may be converted into 400,000 shares of Innova stock at $0.50
400,000 warrants may be converted into 400,000 shares of Innova stock at $0.75
400,000 warrants may be converted into 400,000 shares of Innova stock at $1.00
The deferred financing costs recognized with these warrants is $187,697,
amortized over five years.
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 Ended
September 30,
-----------------------------------
2001 2000
-----------------------------------
Total revenue $ 166,500 $ 199,300
===================================
Net loss $ (157,400) $ (145,000)
===================================
Loss per common share - basic $ (.02) $ (.01)
===================================
Shares used in per share computation 10,449,936 10,043,401
===================================
BALANCE SHEET DATA
September 30,
2001
-------------
Total assets $834,800
========
Working capital $ 18,800
========
Long-term debt $ 0
========
Stockholders' equity $512,800
========
RESULTS OF OPERATIONS
Net Sales
Net sales for the three-month period ended September 30, 2001 were $166,500, a
decrease of 16 percent from the $199,300 of net sales for the comparable period
in 2000. This decrease is attributable to the decrease in sales to U.S. Filter
(Culligan) mostly offset by sales to Avon Products.
Cost of Sales
For the three months ended September 30, 2001, the cost of sales decreased to
$103,500 from the $109,300 of costs for the three months ended September 30,
2000. This decrease is mainly due to the decrease in sales.
Gross profit margin decreased 7 percentage points for the three months ended
September 30, 2001, to a gross profit margin of 38 percent from an overall gross
profit margin of 45 percent for the three months ended September 30, 2000. This
is principally attributable to the restructuring of our product pricing in
response to market conditions and the lower sales volume available to absorb the
fixed cost of manufacturing.
Operating Expense
Operating expenses for the three months ended September 30, 2001 were $242,800
as compared to $240,200 for the similar period last year. The one percent
increase of operating expenses is principally attributable to a slight increase
in sales and marketing expenditures.
Other Income
For the three months ended September 30, 2001, net interest income amounted to
$400 as compared to net interest income of $2,900 for the three months ended
September 30, 2000. This decrease is due to the decrease in cash invested in
interest bearing securities or accounts with a major bank.
Other income for the three months ended September 30, 2001 of $23,000 was due to
royalties received 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 Loss
Net loss for the three months ended September 30, 2001 amounted to $157,400 as
compared to net loss of $145,000 for the three months ended September 30, 2000.
This increase in net loss is principally attributable to the decrease in sales
partially offset by royalties received from the licensing of the Company's
technology.
Loss Per Share
For the three months ended September 30, 2001, basic loss per share amounted to
$(.02). For the comparable period in 2000, basic loss per share amounted to
$(.01). The increase in loss per share is due principally to the decrease in
sales partially offset by royalties received from the licensing of the Company's
technology.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
For the three months ended September 30, 2001, net cash used by operating
activities amounted to approximately $6,400, compared to the net cash used by
operating activities of approximately $27,700 for the comparable period in 2000.
This decrease is primarily a result of royalty income received from the
licensing of the Company's technology.
Investment Activities
The Company's investment activities include equipment purchases, patent
acquisitions and defense, and net changes in related party advances.
Net cash used by investing activities for the three months ended September 30,
2001 was approximately $24,600, as compared to net cash used by investing
activities of approximately $42,200 for the comparable period in 2000. This
decrease in cash expended for investing activities is due primarily to decreased
expenditures on patent infringement litigation partially offset by increased
expenditures for new equipment.
Financing Activities
The Company's financing activities include payments on borrowings and capital
leases and the acquisition of treasury stock.
Net cash of approximately $2,600 was provided by financing activities for the
three months ended September 30, 2001, as compared to net cash used by financing
activities of approximately $2,700 for the three months ended September 30,
2000. This change result primarily from advances from related parties.
CAPITAL RESOURCES
At September 30, 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 believes that with the $600,000 financing from the agreement
mentioned in the Notes to the Condensed Financial Statements under Stock Options
and Warrants and revenues generated from its operations, there will be
sufficient capital to satisfy its currently anticipated cash requirements for
the next 12 months. 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently the plaintiff in a 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 three-month period ended September 30, 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 three-month period ended September 30, 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 three-month period ended September 30, 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
three-month period ended September 30, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herewith are:
(27) Financial Data Schedule
(b) Reports on Form 8-K - None
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: November 16, 2001 By: /s/ Rose Smith
------------------- ---------------------------------------
Rose C. Smith
President, Chief Executive Officer
Director
Dated: November 16, 2001 By: /s/ John E. Nohren, Jr.
-------------------- ---------------------------------------
John E. Nohren, Jr.
Chairman of the Board of Directors
Chief Financial Officer
Dated: November 16, 2001 By: /s/ Robert Connell
------------------- ---------------------------------------
Robert Connell
Controller