<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                --------------

                                  FORM 10-KSB

      [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

      For the fiscal year ended June 30, 1999

      [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

                         Commission File Number 0-29746

                            INNOVA PURE WATER, INC.
               --------------------------------------------------
               (Exact name of registrant as specified in charter)

                      Florida                               59-2567034
        ---------------------------------              -------------------
           (State or other jurisdiction                   (IRS Employer
        of incorporation or organization)              Identification No.)

13130 - 56th Court, Suite 605, Clearwater, Florida            33760
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    (Address of principal executive offices)               (Zip Code)

       Registrant's telephone Number, including area code: (727) 572-1000

Securities registered pursuant to Section 12(b) of the Exchange Act: None

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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

         Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ X ]

State issuer's revenues for its most recent reporting period June 30,
1999........$2,587,400.

Aggregate market value of the voting stock held by non-affiliates of the
registrant at June 30, 1999 was $2,313,730

                                      N/A
         -------------------------------------------------------------
         (Former name or former address, if changed since last report)

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                            INNOVA PURE WATER, INC.
                              FORM 10-KSB - INDEX

                                     PART I

                                                                            Page
                                                                            ----

Item 1.    Description of Business                                            1

Item 2.    Description of Property                                            8

Item 3.    Legal Proceedings                                                  8

Item 4.    Submission of Matters to a Vote of Security Holders                8

                                    PART II

Item 5.    Market of the Registrant's Securities and Related
           Stockholder Matters                                                9

Item 6.    Management's Discussion and Analysis of
           Financial Condition and Results of Operations                     10

Item 7.    Financial Statements and Supplementary Data                       14

Item 8.    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosures                                         14

                                    PART III

Item  9.   Directors and Executive Officers of the Registrant                14

Item 10.   Executive Compensation                                            16

Item 11.   Security Ownership of Certain Beneficial Owners
           and Management                                                    18

Item 12.   Certain Relationships and Related Transactions                    19

Item 13.   Exhibits, Consolidated Financial Statements,
           Schedules and Reports on Form 8-K                                 20

           Signatures                                                        22

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                            INNOVA PURE WATER, INC.

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This Annual Report on Form 10-KSB and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to
the provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates and
projections about Innova Pure Water's industry, management's beliefs, and
assumptions made by management. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results and outcomes may differ materially from what
is expressed or forecasted in any such forward-looking statements.

                                     PART I

                        ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

         Innova Pure Water, Inc. a Florida corporation (the "Company" or
"Innova") was incorporated August 13, 1985. The Company designs, develops and
manufactures unique consumer water filtration and treatment products. These
products have been historically of the portable nature and generally consist of
a container serving as a water reservoir incorporating an integral highly
efficient water-filtering device. The container may be in the shape and size of
a bottle, pitcher or carafe. The Company also has and continues to investigate
counter top and in-line filtration systems.

         The Company has become recognized as an innovator in the water
filtration field with numerous patent rights assigned to it from its founder,
John E. Nohren, Jr., which potentially provide the Company with competitive
advantages. It has been the Company's ability to create both new products and
develop technology that has permitted it to differentiate itself from other
competitors within the field. The Company has also demonstrated the ability to
address and open significant new markets previously overlooked or ignored.
Examples of these markets are portable personal and sport type filter bottles;
and products for the infant, children's, and teen market. On the technology
side, Innova has attracted interest from large consumer products companies.
This has led to the Company differentiating itself as a product innovator and
creator as well as product producer, thus making the Company attractive as a
strategic alliance partner to a strong multi-national marketing company such as
Rubbermaid and others. Such an alliance was created under which the Company
creates and manufactures while Rubbermaid markets and distributes the products.
Additional alliances of the same nature are being negotiated. The elimination
of the need for the Company to finance its own sales and marketing program has
allowed the Company to achieve profitability while attaining distribution that
would otherwise be impossible. However, there is no assurance that the Company
will continue to achieve profitability.

                                       1
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         The water filtration products of the Company are designed to provide
an improved quality and much better tasting water for the average consumer at
an affordable price. The Innova filtration process has been shown under
independent taste tests to have no discernible taste or quality differences
from the expensive designer bottled waters, while costing a fraction of the
price. The products currently produced are primarily designed to treat tap
water, reducing chlorine, taste and odor. Portable highly effective filtration
products will be introduced shortly for the removal of biological contaminants
including protozoa and bacteria. Future products are under development, which
are focused upon the removal of heavy metals, such as lead, as well as arsenic,
and radioactive contaminants, which are beyond the capabilities of competitive
technology. Also, the Company has created a unique line of filters to adapt to
5 gallon water bottles commonly used in conjunction with coolers and crocks.
The products are adaptable to the world market requirements as well as domestic
market needs. There is no assurance that additional alliances will be
consummated or that the Company will be able to commercially exploit its water
purification technologies on a profitable basis.

CUSTOMERS, STRATEGIC ALLIANCES AND MARKETING

         The Company believes that as a result of the diminishing quality of
tap water, both domestically and world wide, the opportunities for the
application of the Company's water filtration products and technology will
continue to grow for a number of years. Domestically, the current annual market
for bottled water is estimated at $4 billion, with the market penetration of
bottled water at approximately 20%. The water filter market is currently
estimated to be $1.4 billion with 14% market penetration. The rate of growth of
consumer water filtration products is exceeding that of bottled water. As it is
anticipated that the penetration of water filter products will be at least that
of popular appliances, approximating 80%, it is management's opinion that the
major growth and sales in the water filtration product category are yet to
come. In addition, the market is worldwide and estimated at more than $20
billion.

         It is the Company's opinion that to the consumer, drinking tap water
has become both distasteful and suspect as a result of the use of chlorine,
which forms carcinogenic by-products and is strongly suspected by some members
of the medical community to be a cause of arterial and heart disease. In
addition, the dangers and frequency of lead in tap water, as well as the
presence of Cryptosporidium, or Giardia, harmful protozoa, have made the
consumer aware of the potential dangers associated with drinking tap water. The
typical consumer of the Company's products primarily seeks clean, fresh tasting
water. A growing number of health conscious consumers are also becoming
concerned about the inherent quality of tap water.

         The retail customer base for the Company's products consists of all
major consumer product retailers. This includes the mass merchants, grocery,
drug, and department store retailers. This also constitutes the basic domestic
market universe of Rubbermaid, Innova's Strategic Alliance Partners, that
typically have wide distribution in retail stores. While there is no assurance
that Innova's products will be purchased by retail customers, extensive
penetration is anticipated.

         The Company's products are directly marketed using television and
print media by Goodtimes Licensing & Entertainment ("Goodtimes") with Richard
Simmons as the marketing spokesperson. Last year their infomercial
incorporating the Company's water treatment products was the top rated
infomercial for an extended period.

         In order to overcome the disadvantage of being a small company, and
lack of capital to adequately support a national sales program, the Company has
created a series of strategic alliances with nationally recognized companies
referenced above and as set forth below (the "Strategic Alliance Partners"). As
a result, the Company obtains the distribution and sales of its products on a
national and international basis without the costs and burdens associated with
the sales of consumer products, and with a market penetration several
magnitudes beyond what the Company could achieve independently. The Company
also benefits by the consumer acceptance of the brand names and the reputation
of the Strategic Alliance Partners.

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         On July 21, 1997, the Company entered into a strategic alliance, which
includes manufacturing, developing, marketing, and distributing provisions with
Rubbermaid Incorporated ("Rubbermaid"). This agreement grants Rubbermaid
certain rights to market the products of the Company. The agreement provides
for the marketing and distribution of certain selected products throughout the
United States and internationally. In June of 1999, Rubbermaid released Innova
from the exclusive provisions of the agreement permitting Innova to seek
markets and distribute the Innova line of products as Innova may wish including
through other strategic alliances marketing through the same channels.

         The agreement with Rubbermaid provides that the Company will receive
an additional $.10 on each of its filter products for the first 10,000,000
units sold by Rubbermaid as compensation for previous Innova product research
and development. These payments are in addition to the normal contract sales
price.

         The last quarter ending June 30, 1999 suffered from a major reduction
in sales to Rubbermaid and the redefining of priorities and product lines.
These changes were directed by the Newell Co. who acquired control of
Rubbermaid in May 1999. Although the sales of Innova Water Filtration Products
had increased significantly over the preceding year (Wal-Mart +97%) strategic
focus was to be placed elsewhere, on Rubbermaid's historic product lines.

         As a result while Innova will continue to supply Rubbermaid with their
Water Filtration Product requirements, Rubbermaid has released Innova from all
provisions of our Strategic Alliance agreement relative to exclusivity, as well
as to any rights to the several new and advanced products created for
Rubbermaid but not introduced into the market. It had been the goal of Innova
to make Rubbermaid pre-eminent in both the domestic and the international
market with products and new technology which Innova believed was advantaged
over competitive products and technology. This array of products has been
covered by pending patents both domestically as well as internationally.

         Thus, Innova has embarked upon a mission to establish new Strategic
Alliance Partners to market Innova products both domestically and
internationally. In this regard Innova has reestablished negotiations with
companies that had previously solicited Innova during our period of exclusivity
with Rubbermaid, and other major and multi national companies headquartered
both domestically and abroad.

         The validation of Innova's patent covering the portable personal and
sport bottle segment as a result of winning Innova's patent infringement suit
against Aladdin Industries, and others provides a strong incentive to seek an
alliance with Innova for any company contemplating or desirous of entering into
this market. Innova also possesses unique proprietary technology and product
designs which out perform and have significantly greater utility than present
carafe products currently in the market. This also provides a significant
negotiating advantage for Innova. Continuing along product lines Innova has
also created a family of Sport type water treatment products operating on the
systems principal. Under the "System" approach the user of an Innova Sport type
bottle, so designed, may incorporate any one or more of a series of filters and
treatment devices designed to treat most problems faced by users, including
biological contamination.

         At present negotiations are underway with potential Strategic Alliance
partners in the United States, China, India, and Europe. A number of major
distributors in several other countries have agreed to distribute Innova
products.

         While revenue for the first quarter will be quite low, we believe that
the steps being taken and the new alliances being formed will place Innova in a
very strong position. Innova will continue to continue to supply Rubbermaid for
Canadian as well as domestic accounts. Although the relationship is continuing
Rubbermaid has agreed to pay Innova $256,000 as unpaid R&D costs, which they
had agreed to previously pay for the rights to use existing technology and
patents created by Innova prior to the entry into the Alliance agreement.

                                       3

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         On September 26, 1997, the Company entered into a supply agreement
with Bowline Family Products ("Bowline") to furnish Innova's standard water
filters for inclusion into Bowline's tote covered water bottle products. A
modified filter will also be produced for Bowline for inclusion into their new
Sports team licensed products which include three dimensional designs
associated with teams in the NFL, HNL, NBA, Major League Baseball, NASCAR, Sony
and others.

         In October 29, 1997 the Company reached an understanding with
Goodtimes Entertainment and Licensing ("GT") to continue to use Richard Simmons
for direct media sales. In October, 1997 GT obtained 1.5 million shares of the
Company's stock in a cashless exchange for warrants then held to purchase 11
million shares of company stock, for which the Company was paid $500,000 in
August of 1996.

         During the years ended June 30, 1999 and June 30, 1998, sales to GT
amounted to approximately 13% and 26% of the Company's net sales, respectively.
This reduction was due to the completion of the infomercial cycle and the
inclusion of the Company's products in a combined retail promotion, which is
still ongoing.

         Due to GT's continuing stock ownership in the Company, management
believes GT has a continuing financial incentive to continue marketing the
Company's products. Accordingly, the Company has agreed not to sell its
products via direct television advertising while promoted by GT. The Company
and GT continue to discuss and evaluate the development of products and
advertising campaigns which could utilize television as a marketing platform to
increase sales. However, at the present time there are no current television
advertising campaigns planned with GT. The Company is completing the
development of new products which it believes GT could market profitably and
successfully as they represent a major step forward in the field meeting the
desires and needs of water conscious consumers.

CURRENT PRODUCTS

         The Company currently produces products for distribution and sales
through its Strategic Alliance Partners, as well as directly to select classes
of trade on both a domestic and international basis. All products are patent
protected under one or more issued patents. Additional patents are also
pending. See "Business-Intellectual Property." The products currently in
distribution are:

         1. A 2 liter portable or refrigerator bottle with filter and pour
            through sealing cap;
         2. A 16 oz. standard 28 mm neck water bottle with replaceable filter
            in a push-pull valve cap;
         3. A 20 oz. sport type bottle with integral replaceable
            filter mounted to the bottle to with a push-pull valve cap;
         4. Filters for installation into Rubbermaid Sport type bottles;
         5. Replacement filters for sport and refrigerator bottles;
         6. Baby bottles with filters for infants;
         7. Filters for sport promotion bottles.

         The Company manufactures and assembles its product line in Clearwater,
Florida. It also utilizes several component vendors and contract manufacturers.
As a result of the vendor relationships established over the years, management
believes the Company is assured of reliable and available capacity to sustain
the significant projected growth. However, there is no assurance that such
vendor relationships will continue in such a successful manner.

PRODUCT DEVELOPMENT

         The Company is actively engaged in additional new product development
and the application of new and emerging technology for its Strategic Alliance
Partners. It is the opinion of management that the technology and product
concepts controlled by the Company can permit its strategic alliance partners
to become or remain the dominant companies in the consumer water treatment
category on a domestic as well as an international basis. The Company has a
continuing major product development program to assure, to the degree possible,
that the Company remains the principal source for water treatment products for
each of its Strategic Alliance Partners, and that its Strategic Alliance
Partners maintain competitive product advantages.

                                       4

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      Four new products have been developed or are production ready. The
products providing the opportunity to access new markets as a result of new
technology and products are as follows:

         1. Drop-in filter to fit 28 mm bottleneck opening, retained in place
            by cap. To be used with baby bottles and figural bottle top
            designs, i.e., football helmets, etc.

         2. Filter assembly for protozoa adaptable to sports bottles
            incorporating a high performance carbon composite filter.

         3. Reversible filter housing or shroud providing suction fill to the
            surface surrounding a radial flow for bottle filter when used at
            either the top or base of a bottle.

         4. Single orifice filter for inverted bottle use; i.e., cooler crock
            containers of 2-5 gallon nominal size.

         Several additional products and technologies are in various stages of
development with the goal to be production ready within 6 - 18 months.

         1. A sport type bottle employing the "System Concept" utilizing
            interchangeable filter elements to fill numerous consumer needs.

              i.  Biological filters
             ii.  Heavy metal filters
            iii.  Nitrate filters
             iv.  Filter adapter housing for cooling water
              v.  Filter with Dispensing Element

         2. Products using new proprietary Macro-Porous technology.

              i.  High performance Carafe
             ii.  High performance Carafe with Biological capability
            iii.  High performance Table Bottle
             iv.  High performance "Chug" Bottle

         3. Chemical disinfection for the devitalization of bacteria and virus
            in conjunction with Innova's product line.

         The Company has developed a family of filters to fit one through five
gallon cooler or crock style bottles. These products will be available with or
without biological treatments for the removal of protozoa and, potentially, the
devitalization of bacteria and virus. These new Innova filtration products will
permit the adaptation of the millions of cooler bottles currently in the home
or office, which are delivered by truck, to be retrofitted with a high
efficiency filtration unit which will treat between 10 and 50 bottles or 250
gallon, depending upon designs, prior to replacement. The user can refill the 5
gallon bottle with only the quantity of water easily lifted into place, while
at the same time significantly reducing costs and freeing storage space. In the
developing countries the ability to disinfect the water could be very
advantageous as well as cost effective.

         New rapid filtration media adaptable to carafes and pitchers has also
been developed. The major problem with the water filtration carafes currently
being marketed is the slow filtration period required to process water before
it is available for drinking. There is also a useful volume constraint as,
typically only 50% of the volume of the carafe is available for filtered water.
Thus, frequently, insufficient amounts of filtered water is available and the
process time to filter additional water to satisfy the demand is simply too
long. The new Company technology under development fills rapidly, fully
processing the water in less than approximately three minutes, and pours
freely. The process used is Static Filtration(TM). Patents have been issued and
others are pending.

         There is also a demand for a means to alert the consumer/user when a
water filter should be replaced. To satisfy this requirement the Company has
reviewed and prototyped several devices and is currently in the process of
evaluating technology available for license.

         The Company is a party to a non-exclusive license agreement with A.C.
International which grants A.C. International ("AC") the right to market and
distribute the Company's filters as part of AC's bottle and caps. The Company
is entitled to a royalty of $.30 for each filter sold for sales up to 500,000

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units. Total royalties received during fiscal year ended June 30, 1999 were
approximately $7,000. Management does not anticipate significant license fees
from this arrangement in the current fiscal year.

SALES AND BACKLOG

         The sales for fiscal year ended June 30, 1999 were $2,587,400. The
sales for the preceding fiscal year ending June 30, 1998 were $3,194,000. Total
revenue for fiscal  year ending June 30, 1999 was $3,021,000 as compared with
total revenue of $3,210,000 for the preceding year ended June 30, 1998.

         Revenue was enhanced in the past fiscal year by the receipt of
$100,000 as a result of the successful litigation of a patent suit against
Aladdin Industries, and other parties. The findings of the court validating the
Innova Patent covering personal water filter bottles places the company in
possession of owning the only validated patent for products of this nature with
the water treatment element mounted at the top or neck of the bottle.
Rubbermaid also paid $256,000 to the Company as a result of contractual
commitments.

         Orders forecasted (as differentiated from actual order backlog)
through September 30 1999 are very low as a result of the decision of
Rubbermaid to de-emphasize the category. This was primarily a result of the
acquisition by Newell of Rubbermaid and a sizable inventory that had previously
been accumulated by Rubbermaid anticipating a major growth and expansion of the
business into Canada and Europe. As noted in Footnote 1 of the accompanying
financial statements, significant portions of the Company's sales are to
limited customers. The loss of one of these significant customers could have a
significantly disruptive effect on the normal functioning of the Company.

COMPETITION

         The Company competes with many other companies that supply water
filtration products. The principal competitive product would be the "pour
through" carafe type product normally kept in the refrigerator and used in the
kitchen.

         Several companies, including Brita, Discovery Engineering (Pur),
Rubbermaid and others compete in the pitcher or carafe products market segment
which, while not portable outside the home and decidedly more expensive, are
otherwise directly competitive to the Innova two liter bottle. However, the
Company has the only product in a two liter size that is a truly portable
pitcher type product with a spill proof locking cap. The leading company in the
pitcher category is Clorox, selling the Brita line under license from Brita
GmbH, Germany.

         The Company also competes indirectly with other companies that supply
bottled water, including The Perrier Group of America, Inc. (which includes
Arrowhead Mountain Spring Water, Poland Spring, Ozark Spring Water, Zephyrhills
Natural Spring Water, Deer Park, Great Bear and Mountain Ice) and Great Brands
of Europe (which includes Evian Natural Spring Water and Dannon Natural Spring
Water). The Company also competes with numerous regional bottle water companies
located in the United States and Canada.

         The Company was the early leader in sales of portable bike, sport and
16 oz. personal filter water bottles, as well as the two liter portable pitcher
all of which are covered by patents held by the Company. The category remains
relatively new and embryonic with the majority of growth to come over the next
several years. The portable personal water filter bottles were initially
introduced by Richard Simmons under contract with the Company's Strategic
Partner, Goodtimes Licensing and Entertainment, in the first year over
2,000,000 16 oz. personal water filter bottles and thousands of 30 oz. sport
type bottles were sold. Since then, Aladdin Industries and others have entered
this expanding new market. The Company's position in this market has been
vigorously defended against competition attempting to enter this market. Innova
has been victorious in litigation, protecting its patent position  which has
caused most companies with potentially infringing products to withdraw from
this market. As a result the Company is now in an excellent position to
structure strategic alliances with other major companies to capitalize upon its
strengthened patent and plethora of new products. However, many of the
companies with whom the Company currently competes, or may compete in the
future, have greater financial, technical, marketing, and sales resources, as
well as greater name recognition than the Company. There can be no assurance
that the Company will have the resources required to respond effectively to
market or technological changes or to compete successfully in the future,
although it's existing and pending alliances provide certain advantages in
these regards as does the Company's patent position.

INTELLECTUAL PROPERTY

         The Company has rights to numerous patents in the consumer product
water treatment field in which twelve issued patents and four pending patents
are specifically related to consumer water treatment products. In total the
Company pursuant to a royalty agreement with its founder, Mr. John E. Nohren,
has obtained more than 20 patents of which the intellectual base may be
applicable to consumer water treatment products. It also has four additional
patents pending both domestically and internationally.

         The Company was the plaintiff in a patent infringement and unfair
competition lawsuit entitled Innova/Pure Water, Inc. v. Aladdin Sales &
Marketing, Inc., Filtex USA, Ltd., ACT Marketing, Inc., ACT Marketing, Ltd.,
Advanced Consumer Technologies, Inc., and Robert Luzenberg, Case No.
97-924-Civ-T-25D (M.D. Fla.)

                                       6
<PAGE>   9
filed by the Company on April 18, 1997. The Company claimed patent infringement
for one patent and false advertising on the part of the Defendants. Prior to
trial, the Company resolved the false advertising claims on terms deemed
favorable to the Company by management. Effective June 30, 1999, the United
States Appellate Court entered a judgment in favor of the Company. A subsequent
judgment was handed down by the Circuit Court ruling that the Company's patent
was infringed by the Aladdin and Filtex products. Damage payments were
negotiated for payment of damages to the satisfaction of the Company.

         The termination of a former employee led to a claim filed for
termination compensation. While the Company contended that such compensation
was not due rather than to litigate and face the exposure to potentially higher
costs, the Company settled the suite for $35,000 and options for 100,000 shares
of the Company's stock exercisable at $.50 per share through April 2009.

MANUFACTURING

         Operations have been centered between the Company's facility, which
historically has performed the quality assurance, inspection, testing,
assembly, packaging and shipping functions. The Company's products consist
principally of: (1) one or more water treatment media; and (2) injection molded
plastic components, blow molded or injection molded containers which hold the
water to be processed as well as to support and position the water filtration
element. In addition, labels, bags, and a variety of boxes are also used to
package various products. The filtration media consist of proprietary
monolithic filter elements containing activated carbon and one or more other
compounds depending upon the use to which the filter is to be applied. The
media compounds may include ion-exchange resins, zeolytes, iodinated resins, or
embody hydrophilic sub-micron ceramic components. Other process media employed
include Company developed proprietary macro filtration media. The media are
obtained from a variety of sources. Typically, each is procured under the terms
of a confidentiality agreement and to the Company's specifications.

         In preparation for growth, additional molding capacity is being
acquired both domestically and in China. The Company has enhanced its domestic
filter element production capacity and may expand filter capacity to over
20,000,000 per year. Continental Plastics ("Continental") of Sarasota, Florida
has been the Company's primary contract supplier of molds and injected molded
components for the past ten years. While the Company enjoys a close working
relationship with Continental, several other companies are available to furnish
competitive pricing and added production capacity. There is no assurance, that
such competitive pricing and production capacity will be available in the
future.

         Presently, two companies supply the blow molded components. The
bottles and pitchers are secured from various companies, each somewhat of a
specialty. Typically, the Company owns the tooling to produce the injection
molded and certain of the blow molding components.

         The Company has changed from principally manual assembly and packaging
operations to mechanized assembly and packaging operations. These operations
include assembling; (1) the media elements into the housings; (2) the closure
to the filter housings; (3) the top and valve components together; and (4) the
variety of components into the bottle or pitcher. Packaging consists of
semi-automatic assembly of certain filters into hermetically sealed bags, date
and lot stamping labels and shipping boxes, packaging the finished products
with instructions in display boxes and then placing a prescribed quantity into
a shipping box which is, in-turn palletized. The Company intends to add
automation for high speed bagging equipment for filter packaging as demand
requires. Further, filter designs have been altered to adapt to automatic
assembly methods. The Company has a current maximum production capacity of
10,000,000 units a year. Management anticipates increasing capacity to over
20,000,000 units as demand requires.

         The Company possesses considerable in-house manufacturing know-how.
The expertise spans from tool and mold design to automated dispensing and
compacting of media, through inspection, assembly, and packaging. As such the
Company acts in an advisory capacity with many of its vendors, or dictates the
methodology to be used. This internal capability also keeps the Company from
becoming a "hostage" to any supplier and permits the Company to make justified
"make or buy" decisions based upon the true economic impact. This permits the
Company to purchase high quality components at a competitive price while
remaining independent.

                                       7

<PAGE>   10
         All Company vendors operate under confidentiality agreements. No
suppliers produce directly competitive products for any third parties. Several
organizations also support the Company in its product development program on an
as needed basis. The Company has relied on a limited number of vendors to
supply the components necessary for its products. A lack of necessary
components at favorable prices would adversely affect the Company.

PRODUCT LIABILITY INSURANCE AND WARRANTIES

         The Company maintains a $2,000,000 product liability insurance policy.
In the thirteen years in which the Company has produced and furnished products
to the retail trade and consumers, both domestically and internationally, no
product suits have been filed, nor consumer complaints received which would
lead to litigation.

         The Company warrants to its strategic alliance partners that the
products will be produced to mutually acceptable standards. Innova operates a
formal quality control program monitoring through AQL standards, incoming
components, in process parts, and completed units. Detail product specification
sheets are in place as well as "Physical Proofs" which have been signed off and
accepted by both parties. In case of a question, the "Proof" samples are used
for comparison purposes to determine acceptability.

EMPLOYEES

         As of June 30, 1999, the Company had 14 employees, including its 4
executive officers. These employees include 2 persons in sales and marketing, 4
persons performing development, and 4 administrative and clerical persons.
There are 3 manufacturing and production supervisors which are supplemented by
as many as 35 contract employees, as required.

                        ITEM 2. DESCRIPTION OF PROPERTY

         The Company occupies approximately 22,000 feet of air conditioned
office, manufacturing and warehouse space located at 13130 - 56th Court, Suite
604-605, Clearwater, Florida 33760. The product development laboratory is also
located in an adjacent building. The facilities are leased and a new five year
lease commenced March 1, 1998. The monthly rent for these facilities is
approximately $10,000.

                           ITEM 3. LEGAL PROCEEDINGS

         The Company was a defendant in a lawsuit filed by a former employee
who alleged breach of his employment contract. The case was Alan R. Kelley v.
Innova Pure Water, Inc., Pinellas County Circuit Court Case No. 98-2771-C1-007.
The plaintiff was seeking severance pay, bonus pay, stock options, and attorney
fees. In April 1999, the Company and the former employee reached a settlement
agreement. In accordance with the settlement agreement, the Company paid Mr.
Kelley $35,000 and issued him options to purchase 100,000 shares of the
Company's common stock at an exercise price of $.50 per share. The options
expire in April 2009.

          ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

         None.

                                       8

<PAGE>   11

                                    PART II

ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
                          OTHER SHAREHOLDER MATTERS

MARKET PRICE OF THE REGISTRANT'S COMMON STOCK

         The Common Stock is traded in the over-the-counter market in the so
called "pink sheets," or on the "Electronic Bulletin Board" of the National
Association of Securities Dealers, Inc. (the "NASD") under the symbol "IPUR."
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company of New York. The following table sets forth for the
periods indicated the high and low sale prices for shares of the Common Stock
as reported on the OTC.

<TABLE>
<CAPTION>
                                                          Sales Price
                                                     High             Low
--------------------------------------------------------------------------------
<S>                                                 <C>              <C>
FISCAL YEAR ENDED JUNE 30, 1997
              Fourth Quarter                        1.325            0.375
              Third Quarter                         1.835            0.543
              Second Quarter                        1.750            0.438
              First Quarter                         0.688            0.438

FISCAL YEAR ENDED JUNE 30, 1998
              Fourth Quarter                        1.030            0.690
              Third Quarter                         1.938            1.016
              Second Quarter                        1.313            1.063
              First Quarter                         1.938            0.531

FISCAL YEAR ENDED JUNE 30, 1999
              Fourth Quarter                        0.906             0.25
              Third Quarter                         0.531             0.23
              Second Quarter                        0.812             0.25
              First Quarter                         0.968             0.50
--------------------------------------------------------------------------------
</TABLE>

         The Company's Common Stock is not listed on NASDAQ, but is traded in
the over-the-counter market on the "Electronic Bulletin Board" of the National
Association of Securities Dealers, Inc. (the "NASD"). Accordingly, an investor
may find it more difficult to dispose of, or obtain accurate quotations as to
the market value of the common stock. Further, in the absence of a security
being quoted on NASDAQ, a market price of at least $5.00 per share or the
Company having in excess of $2,000,000 in net tangible assets, trading in the
Company's securities may be covered by a Securities and Exchange Commission
("SEC") rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with net worth in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse). For transactions covered by the rule, the broker-dealer
must make a special suitability determination for the purchaser and receive the
purchasers' written agreement to the transaction prior to the sale.
Consequently, the rule affects the ability of broker-dealers to sell the
Company's securities and also may affect the ability of purchasers in his
offering to sell their securities in the secondary market.

         Previously, the SEC adopted seven rules ("Rules") under the Securities
Exchange Act of 1934 requiring broker/dealers engaging in certain recommended
transactions with their customers in specified equity securities falling within
the definition of "penny stock" (generally non-NASDAQ securities priced below
$5.00 per share) to provide to those customers certain specified information.
Unless the transaction is exempt under the Rules, broker/dealers effecting
customer transactions in such defined penny stocks are required to provide
their customers with: (1) a risk disclosure document; (2) disclosure of current
bid and ask quotations, if any; (3) disclosure of the compensation of the
broker/dealers and its sales person in the transaction; and (4) monthly account
statements showing the market value of each penny stock held in the customer's
account.

         As a result of the aforesaid rules regulating penny stocks, the market
liquidity for the Company's securities could be severely adversely affected by
limiting the ability of broker-dealers to sell the Company's securities and the
ability of shareholders sell their securities in the secondary market.

                                       9

<PAGE>   12

         Recent SEC and NASD revisions and interpretations of Rule 15c2-11
require us to maintain our status as a reporting company under Section 12(q) of
the Securities Exchange Act of 1934. Our failure to timely file annual,
quarterly or other reports may affect our ability to maintain listing in the
OTC "Electronic Bulletin Board".

DILUTION AND ABSENCE OF DIVIDENDS

         The Company has not paid any cash dividends on its common or preferred
stock and does not anticipate paying any such cash dividends in the foreseeable
future. Earnings, if any, will be retained to finance future growth. The
Company may issue shares of its common stock and preferred stock in private or
public offerings to obtain financing, capital or to acquire other businesses
that can improve the performance and growth of the Company. Issuance and or
sales of substantial amounts of common stock could adversely affect prevailing
market prices in the common stock of the Company.

SHAREHOLDERS

         As of June 30, 1999, and there were approximately 400 beneficial
owners of the Company's common stock with 10,078,401 shares issued and
outstanding.

         ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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,
INCLUDING, WITHOUT LIMITATION, THE RISKS DESCRIBED UNDER THE CAPTION
"BUSINESS." 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 1999 and beyond, to differ
materially from those expressed in any forward-looking statements made by, or
on behalf of, Innova.

                                      10

<PAGE>   13

INCOME STATEMENT DATA

<TABLE>
<CAPTION>
                                                        Year Ended June 30,
                                                      1999              1998
--------------------------------------------------------------------------------
<S>                                                <C>              <C>
Total revenue                                      $2,587,400       $3,194,100
Net income                                         $  161,300       $  124,600
Earnings per common share - basis                  $      .02       $      .01
Shares used in per share computation               10,067,847        9,499,374
Earnings per common share - assuming dilution      $      .02       $      .01
Shares used in diluted computation                 10,211,539        9,933,414
--------------------------------------------------------------------------------
</TABLE>

BALANCE SHEET DATA

<TABLE>
<CAPTION>
                                                                   June 30, 1999
--------------------------------------------------------------------------------
<S>                                                                <C>
Total assets                                                        $1,745,100
Working capital                                                     $1,243,400
Long-term debt                                                      $   19,800
Stockholders' equity                                                $1,621,500
--------------------------------------------------------------------------------
</TABLE>

YEAR 2000

         The "Year 2000" issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Programs with
this problem may recognize a date using "00" as the year 1900 rather than the
Year 2000, resulting in system failures or miscalculations. Given this
uncertainty, the Company has recognized the need to remain vigilant in its Year
2000 analysis.

DETERMINATION OF YEAR 2000 READINESS

         The Company has completed a review of its information technology (IT)
and non-information technology systems (non-IT). An inventory was taken of the
Company's essential data processing equipment as well as the equipment used in
the Company's manufacturing processes.

         The Company has information on the Year 2000 compliance of its
essential data processing hardware, which include its computers, printers,
scanners, modems, copiers, and facsimile machines or any other equipment that
may process date data. This information was gathered by actual testing by the
Company or from the manufacturer either by direct correspondence or information
that is available from the manufacturer's Internet website. The Company has
found that all essential data processing hardware is Year 2000 compliant.

         A review of the Company's essential data processing equipment firmware
and software has found it to be either Year 2000 compliant when it was
purchased or was able to be fixed by the download of a "patch" from the
software manufacturer's Internet website.

         A review of the equipment used in the Company's manufacturing
processes did not find any potential problem areas due to date processing,
including embedded technologies. The potential for problems occurring in this
area is decreased because the Company essentially assembles complete components
from outside manufacturers into its finished products.

         The manufacturer of the Company's telephone equipment does not list
our particular system as Year 2000 compliant. The flaw concerns the printing
out of voicemail reports where the year would be listed as 00 instead of 2000.
Since the system should operate fine after January 1, 2000 and the Company does
not use this particular reporting function, it is not necessary to replace the
telephone system. This was the only potential problem area found in the review
of the Company's non-information technology systems.

         As a result of these reviews, the Company feels that we are Year 2000
compliant and that nothing further must be done to our IT and non-IT systems in
order to be prepared for the Year 2000 internally.

                                      11

<PAGE>   14

         An assessment of external risks, which are outside the Company's
control, was conducted. The Company has identified four major suppliers and two
major customers that were contacted and asked to fill out a questionnaire about
their Year 2000 capabilities and remediation programs. All but one responded
that they were Year 2000 compliant as of June 30, 1999. The Company feels that
the one unresponsive supplier could be replaced without any major interruption
to the business should the need arise.

         A survey of the Company's financial institution and utility companies,
by direct correspondence, Internet website, or published statements, found that
they are or will be Year 2000 compliant by December 31, 1999 with little risk
of service interruption due to untested systems or processes.

CONTINGENCIES

         At this time, the Company has determined that it does not need to have
increased inventory levels on December 31, 1999 or purchase any additional
liability insurance due to any litigation that may result from the Year 2000
changeover.

         The Company feels that the internal risk of a Year 2000 system failure
is minimal, but is going to take the following steps in order to recover from
such a failure:

         1. All records will be backed up before the end of business on
            December 31, 1999.
         2. Some essential systems will have their internal system clocks
            turned back two weeks and maintained in December 1999 "time" until
            a determination can be made if there were any system failures,
            related to the Year 2000 changeover, on similar systems on January
            1, 2000. This will cause an error in date reporting, but essential
            services can still be performed.

RESULTS OF OPERATIONS

NET SALES

         Net sales for the twelve-month period ended June 30, 1999 were
$2,587,400, a decrease of 18 percent from the $3,194,100 of net sales for the
comparable period in 1998. This decrease is attributable to a decrease in sales
during the fourth quarter to Rubbermaid under our strategic alliances.

COST OF SALES

         For the year ended June 30, 1999, the cost of sales decreased to
$1,458,500 from the $1,477,800 of costs for the year ended June 30, 1998. This
decrease is mainly due to the decrease in sales volume offset by increased
investment in new facilities and increased production capabilities intended to
sustain the anticipated higher sales volume from our strategic alliances.

         Gross profit margin decreased 10 percent for the year ended June 30,
1999, to 44 percent from an overall gross profit margin of 54 percent for the
year ended June 30, 1998. This is principally attributable to the decrease in
sales volume and the increased costs associated with the enhanced production
capabilities, combined with the constant cost of sales.

OPERATING EXPENSE

         Operating expenses for the year ended June 30, 1999 were $1,401,200,
or 47 percent of net sales. For the comparable period in 1998, operating costs
amounted to $1,558,600, or 49 percent of net sales. The two percent decrease as
a percentage of sales between these periods is principally attributable to the
cutback of lower and middle management personnel whose function had become
under-utilized or less critical to the operation of the Company.

                                      12

<PAGE>   15

OTHER INCOME

         For the year ended June 30, 1999, net interest income amounted to
$39,100 as compared to net interest income of $15,900 for the year ended June
30, 1998. This increase is due to the increase in cash invested in interest
bearing securities or accounts with a major national bank.

         Other income for the year ended June 30, 1999 of $366,900 was due to
billings to Rubbermaid for research and development price recovery adjustments,
as well as settlements of patent infringement lawsuits.

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 year ended June 30, 1999 increased by 29 percent to
$161,300 from $124,600 for the comparable period in 1998. This increase is
principally attributable to billings to Rubbermaid for research and development
price recovery adjustments and settlements of patent infringement lawsuits.

EARNINGS PER SHARE

         For the year ended June 30, 1999, basic and diluted earnings per share
amounted to $.02. For the comparable period in 1998, basic and diluted earnings
per share amounted to $.01. The increase in earnings per share is due
principally to an increase in income during the year ended June 30, 1999.

LIQUIDITY AND CAPITAL RESOURCES

OPERATING ACTIVITIES

For the year ended June 30, 1999, net cash provided by operating activities
amounted to approximately $311,600, an increase over the net cash provided by
operating activities of approximately $130,700 for the comparable period in
1998. The increase is primarily a result of collections on accounts receivable
and increased profits for the year.

INVESTMENT ACTIVITIES

         The Company's investment activities include equipment sales and
purchases, patent acquisitions, and net changes in related party advances.

         Net cash used by investing activities for the year ended June 30, 1999
was approximately $89,400, as compared to net cash used by investing activities
of approximately $400,700 for the comparable period in 1998. The decrease in
cash expended for investing activities is due primarily to a decrease in
equipment purchases and a decrease in expenditures on patent infringement
litigation.

FINANCING ACTIVITIES

         The Company's financing activities include proceeds from borrowings,
payments on borrowings and capital leases, and proceeds from sales of common
stock warrants.

                                      13

<PAGE>   16

         Net cash of approximately $17,700 was used by financing activities for
the year ended June 30, 1999, as compared to net cash provided by financing
activities of approximately $5,500 for the year ended June 30, 1998. The
increase in cash used for financing activities results from the Company's
repurchase of shares of its common stock and a decrease in proceeds from the
issuance of common stock.

CAPITAL RESOURCES

         At June 30, 1999, 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 its current operations and cash balances
will be sufficient 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.

              ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is presented at page F-1.

    ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                              FINANCIAL DISCLOSURE

                                     NONE

                                    PART III

      ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

         The following table sets forth certain information with respect to
each person who is a director or an executive officer of the Company as of June
30, 1999.

<TABLE>
<CAPTION>
        Name                  Age                            Position
---------------------------------------------------------------------------------------------
<S>                           <C>    <C>
John E. Nohren, Jr.            67    Chairman of the Board, Director, Chief Financial Officer
Rose C. Smith                  47    President, Chief Executive Officer, Director
James Keene                    62    Chief Operating Officer
Robert Connell                 43    Controller
Tricia Skoda                   48    Secretary
Peter Christensen              49    Director
Andrew Greenberg               44    Director
Mort Langer                    56    Director
Frank Legnaioli                68    Director
Clarence W. McKee              74    Director
---------------------------------------------------------------------------------------------
</TABLE>

         Executive officers are elected by the Board of Directors and serve
until their successors are duly elected and qualify, subject to earlier removal
by the Board of Directors. Directors are elected at the annual meeting of
shareholders to serve for their term and until their respective successors are
duly elected and qualify, or until their earlier resignation, removal from
office, or death. The remaining directors may fill any vacancy in the Board of
Directors for an unexpired term. See "Board of Directors" for a discussion of
the Directors' terms.

BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS AND DIRECTORS

         John E. Nohren, Jr. has been Chairman of the Board of the Company
since its inception. Effective December 1996, with Mr. Nohren's consent and
approval, he resigned as President and Rose

                                      14

<PAGE>   17

C. Smith was appointed his successor. He subsequently resigned as Chief
Executive Officer in June of 1997 when Rose C. Smith was appointed his
successor. In June 1998, Mr. Nohren was elected Treasurer and interim Chief
Financial Officer. He was also the founder and the major shareholder of a prior
Company, Innova, Inc., founded in 1969 to service the increasing requirement of
the U.S. Department of Defense for sophisticated automation and hazardous waste
management. With government funding, Mr. Nohren made technological advances for
dealing with water contamination of various nature. The applications included
the treatment of water in a chemical, biological, or nuclear war scenario.
Also, the removal of a variety of contaminants from the production of military
products. The obvious voids, and needs for the application of those
technologies to consumers lead to the formation of the Company in 1985. He is
the named inventor on several of the Company's patents. See "Certain
Relationships and Related Transactions."

         Rose C. Smith was appointed President in June 1996, and President and
Chief Executive Officer effective June 30, 1997. Ms. Smith began her career in
the financial community at Bache and Co., Inc. (Prudential Securities, Inc.)
and was a financial adviser to the principals of the Moore McCormick Shipping
Lines. She functioned in a number of consulting roles relative to product
acquisition, licensing, and line extensions and has been retained by Aguecheek
Ltd. in England, which owned the licensing rights to Armani, Valentino, Ungaro,
Tiffany and others. Ms. Smith was also a consultant regarding potential
corporate acquisitions for Marubeni in Tokyo. She became associated with the
Company in 1993 as a marketing consultant, hence became the Director of
Business Development until elected President in 1996, and Chief Executive
Officer in June 1997.

         James Keane, joined the Company in January, 1998. Prior to joining the
Company, he was with Evenflo Company Inc., where he served for eight years as
Vice President of Operations and Engineering for the Infant Feeding Division.
He has over thirty years experience in the design and manufacturing of plastic
consumer products. Mr. Keane resigned subsequent to June 30, 1999.

         Robert Connell, Controller, joined Innova Pure Water, Inc. September
1, 1993 as a corporate accountant and was appointed company controller in
August, 1996. Mr. Connell began his career in August 1978 with Consolidated
Coal Company, a subsidiary of E.I. du Pont de Nemours and Company. He left the
company as a senior accountant in the cost and budget section of the Northern
West Virginia Region Controller's Department in September, 1988. Mr. Connell
then attended Santa Fe Community College in Gainesville, Florida, taking
computer programming languages and application courses until May, 1990. From
1990 to 1993, he was employed by Florida Savings and Loan (1990/91); Main
Street Mortgage (1991/92); and Kmart Corporation (1992 until hired by Innova).

         Tricia Skoda was elected Corporate Secretary in September 1998. Prior
to joining Innova in July 1998, she was the Business Unit Coordinator for the
Cleveland, Akron, Pittsburgh business unit of Storage Technology Corp. for the
period of July 1996 through May, 1998. From January, 1994 through July, 1995
she was the executive assistant to the president of PDI Ground Support, Inc., a
specialty manufacturer of axle systems. Ms. Skoda has over 12 years experience
in office administration and marketing.

         Peter Christensen has been a director of the Company since June 1995.
Since September 1997, he has been the Chief Executive Officer of ComTech,
Incorporated, a software company that provides integrated art print and mail
services as well as art electronic imaging, E-mail delivery, and electronic
payment services, integrated with credit card and personal financial software.
Since August 1995, Mr. Christensen has been a member of the board of Digital
Privacy, Inc., a smart card based computer and communications security company,
securing communications across the internet. Prior to joining ComTech,
Incorporated in 1997 he was a managing director at Paine Webber, for the period
1993 through 1997.

         Andrew Greenberg has been a director of the Company since 1997. Since
1986, he has been employed as President at GoodTimes Entertainment, a New York
based, privately held company which is a diversified international multimedia
entertainment organization.

                                      15

<PAGE>   18

         Mort Langer has been a director of the Company since 1987. Since 1993,
Mr. Langer has owned and operated Langer Partners, the management arm of Langer
Capital Management, L.L.P. where he serves as a partner. Prior to forming
Langer Partners, he worked at Bear, Stearns & Co., Inc. as Research Director
for their 35 other equity analysts.

         Frank Legnaioli has been a director of the Company since 1986. Mr.
Legnaioli is presently retired. Prior to his retirement, he worked for Paxton
Van Lines, Inc. in Springfield, Virginia for forty years. During his tenure at
Paxton Van Lines, Inc., it became the top grossing Atlas Van Lines agent in the
United States and abroad. He was one of the architects of the buy out of Atlas
Van Lines and turning it into a public company.

         Clarence W. ("C.W.") McKee was a founding director and remained as a
director until 1987, and again became a director of the Company in 1997. He has
been retired since 1989. Prior to his retirement Mr. McKee was employed by
Florida Progress Corporation and Florida Power Corporation where he served as
Executive Vice President and Chief Financial Officer.

BOARD OF DIRECTORS

         The Company's Bylaws fix the size of the Board of Directors at no
fewer than one and no more than nine members, to be elected annually by a
plurality of the votes cast by the holders of Common Stock, and to serve until
the next annual meeting of stockholders and until their successors have been
elected or until their earlier resignation or removal. Currently, there are
seven directors who were elected on February 28, 1998.

                        ITEM 10. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

         The following table shows the compensation paid or accrued by the
Company for the fiscal years ended June 30, 1998 and June 30, 1999 to or for
the account of the President, Chief Executive Officer and John E. Nohren, Jr.,
Chairman of the Board. No other executive officer or director of the Company
received benefits or an annual salary and bonus in excess of $100,000 or more
during the stated period. Accordingly, the summary compensation table does not
include compensation of other executive officers.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                          ANNUAL COMPENSATION                            LONG-TERM COMPENSATION AWARDS

                                                            Restricted
                                             Other Annual      Stock       OPTIONS/     LTIP        All Other
Name & Principal            Salary   Bonus   Compensation     Award(s)       SARS     Payouts     Compensation
Position (1)                  ($)     ($)        ($)            ($)          (#)        ($)            ($)
--------------------------------------------------------------------------------------------------------------
<S>                        <C>       <C>     <C>            <C>            <C>        <C>         <C>
Fiscal 1999
John E.  Nohren, Jr.          ---     ---        ---            ---        190,000      ---        $122,133(2)
Chairman, BOD
Rose Smith                 $176,353   ---        ---            ---        190,000      ---
President and CEO
---------------------
Fiscal 1998
John E. Nohren, Jr.           ---     ---        ---            ---        190,000      ---        $152,908(2)
Chairman BOD
Rose Smith                 $211,603   ---        ---            ---        190,000      ---
President and CEO (1)
--------------------------------------------------------------------------------------------------------------
<FN>
(1) Ms. Smith replaced Mr. Nohren as the President in June, 1996, and as CEO,
    effective June 30, 1997.

(2) Represents payments made to Mr. Nohren pursuant to his royalty agreement.
</FN>
</TABLE>

                                      16

<PAGE>   19

EMPLOYMENT AND OTHER AGREEMENTS

         The Company entered into an employment agreement with Rose C. Smith
effective June 30,1997, which provides for her employment as President and
Chief Executive Officer for a five year term ending June 29, 2002. Under the
agreement Ms. Smith is to receive a base salary of $150,000 per year. Ms. Smith
is also to receive a bonus of two percent of net sales of the Company adjusted
by the annual gross margin achieved by the Company. The agreement contains a
restrictive covenant not to compete for the term of the agreement and for five
years following termination of service without cause. The agreement provides
for severance payments equal to 200% of the annual base compensation due under
the Agreement in the event there is a "change of control" of the Company, as
defined therein, and she is subsequently terminated without cause.

         The Company entered into a royalty agreement with John E. Nohren, Jr.
effective June 30, 1997, expiring on December 31, 2002. This agreement
obligates the Company to pay Mr. Nohren, in return for the assignment of his
patent rights, a minimum of $100,000 of royalties per year, with a cap of
$300,000 per year, during the term of his employment. The royalty payments will
be calculated based on five percent of net sales of products that incorporate
these assigned patents. Upon his termination, a three percent royalty shall be
paid over the residual life of his patents.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

         The information provided in the table below provides information with
respect to each exercise of stock options during fiscal 1999 and fiscal 1998 by
each of the executive officers named in the summary compensation table and the
fiscal year end value of unexercised options.

<TABLE>
<CAPTION>
                                                                               Value of
                                                                              Unexercised
                                                           Number of         In-the Money
                                                          Unexercised          Options
                                                       Options at FY-End     at FY-End($)
                                                          Exercisable        Exercisable
                                            Value         on or after        on or after
                     Shares Acquired/     Realized       July 1, 1998      July 1, 1998(1)
      Name           Exercised            ($) (1)       or July 1, 1999    or July 1, 1999
------------------------------------------------------------------------------------------
<S>                  <C>                  <C>          <C>                 <C>
Fiscal 1999
John E. Nohren, Jr.        ---               ---            190,000             14,535
Rose Smith                                                  190,000             14,535
-------------------
Fiscal 1998
John E. Nohren, Jr.       20,750             158            190,000             14,535
Rose Smith                 2,000              15            190,000             14,535
------------------------------------------------------------------------------------------
<FN>
(1) The aggregate dollar values in column (c) and (e) are calculated by
    determining the difference between the fair market value of the Common
    Stock underlying the options and the exercise price of the options at
    exercise or fiscal year end, respectively. In calculating the dollar value
    realized upon exercise, the value of any payment of the exercise price is
    not included.
</FN>
</TABLE>

STOCK OPTIONS

         The Company has in effect a stock option plan which authorizes the
grant of incentive stock options under Section 422 of the Internal Revenue Code
(the "1996 Plan"). The Plan was adopted in 1996. A total of 750,000 shares have
been reserved under the Plan. As of June 30, 1999, options to purchase a total
of approximately 606,500 shares at $.50 a share were issued and outstanding
under the 1996 Plan. The 1996 Plan provides that (a) the exercise price of
options granted under the Plan shall not be less than the fair market value of
the shares on the date on which the option is granted unless an employee,
immediately before the grant, owns more than 10% of the total combined voting
power of all classes of stock of the Company or any subsidiaries, whereupon the
exercise price shall be at least 110%

                                      17

<PAGE>   20

of the fair market value of the shares on the date on which the option is
granted; (b) the term of the option may not exceed ten years and may not exceed
five years if the employee owns more than 10% of the total combined voting
power of all classes of stock of the Company or any subsidiaries immediately
before the grant; (c) the shares of stock may not be disposed of for a period
of two years from the date of grant of the option and for a period of one year
after the transfer of such shares to the employee; and (d) at all time from the
date of grant of the option and ending on the date three months before the date
of the exercise, the employee shall be employed by Company, or a subsidiary of
the Company, unless employment is terminated because of disability, in which
cased such disabled employee shall be employed from date of grant to a year
preceding the date of exercise, or unless such employment is terminated due to
death.

         In April, 1999, the Board of Directors adopted a new stock option plan
(the "1999 Plan"). Under the 1999 Plan, 1,000,000 shares have been reserved for
issuance. The Plan provides that the exercise price of options cannot be less
than the greater of $.50 or the fair market value of the shares from the date
on which the option is granted. The 1999 plan is similar to all of the other
terms and conditions as described above for the 1996 Plan. As of June 30, 1999,
options to purchase a total of approximately 103,000 shares at $.50 a share
were issued and outstanding under the 1999 Plan.

         As of the date of this filing, the Company has outstanding options and
warrants to acquire 1,079,500 shares of Common Stock at an exercise price of
$.50 per share. Options to acquire 606,500 shares of Common Stock vest over a 3
year period commencing with the fiscal year beginning July 1, 1998 and ending
June 30, 2001. Option holders may exercise their option at any time following a
vesting year so long as the individual remains employed. Four years of
employment are required for vesting. All options must be exercised and payment
made no later than June 30, 2001. Unexercised options after that date shall
terminate. Employees have a 60 day period after termination of employment to
exercise options. The vesting schedule is subject to acceleration in the event
of a merger, sale or a change of control of the Company. The remaining 473,000
options and warrants are exercisable at various times at an exercise price of
$.50 per share and expire beginning October 30, 1998 through April 1, 2001.
For all options and warrants issued, the exercise price of $.50 was determined
to be greater than the fair market value as of date of issuance

DIRECTOR COMPENSATION

         A director who is an employee of the Company receives no additional
compensation for services as director or for attendance at or participation in
meetings except reimbursement of out-of-pocket expenses. An outside director is
reimbursed for out-of-pocket expenditures incurred in attending or otherwise
participating in meetings. All directors hold options to acquire up to 15,000
shares of Common Stock exercisable at $.50 per share. The Company has no other
arrangements regarding compensation for services as a director.

    ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information with respect to the
beneficial ownership of shares of Company Common Stock owned as of June 30,
1999 beneficially by (i) each person who beneficially owns more than 5% of the
outstanding Company Common Stock, (ii) each director of the Company, (iii) the
President and Chief Executive Officer of the Company (the only executive
officer of the Company whose cash and non-cash compensation for services
rendered to the Company for the year ended June 30, 1999, exceeded $100,000)
and (iv) directors and executive officers of the Company as a group:

                                      18

<PAGE>   21

<TABLE>
<CAPTION>
                                    Amount and Nature of
Name of Beneficial Owner (3)        Beneficial Ownership (1)       Percent of Class (2) (8)
-------------------------------------------------------------------------------------------
<S>                                 <C>                            <C>
John E. Nohren, Jr. and
Francis Weaver Nohren (4)(5)                2,143,216                         21.2
Rose C. Smith (6)                             604,850                          5.9
Peter Christensen (9)                         624,500                          6.2
Mort Langer (10)                              245,000                          2.4
Frank Legnaioli (9)                           591,000                          5.9
C. W. McKee (9)                                41,000                           .5
Joe Cayre (7)                               1,350,000                         13.5
Andrew Greenberg (9)                          167,000                          1.7
Barbara Albin                                 555,956                          5.5
All directors and executive officers
As a group (10 persons)                     4,383,066                         43.9
------------------------------------------------------------------------------------------
<FN>
         (1)  Represents sole voting and investment power unless otherwise
              indicated.
         (2)  Based on approximately 10,078,401 shares of Company Common Stock
              outstanding as of June 30, 1999 plus, as to each person listed,
              that portion of the unissued shares of Company Common Stock
              subject to outstanding options which may be exercised by such
              person, and as to all directors and executive officers as a
              group, unissued shares of Company Common Stock as to which the
              members of such group have the right to acquire beneficial
              ownership upon the exercise of stock options within the next 60
              days.
         (3)  The address of each individual is in care of the Company.
         (4)  May be deemed to be a "founder" of the Company for the purpose of
              the Securities Act.
         (5)  Represents aggregate shares held between Mr. Nohren individually,
              his wife individually and shares held in joint tenancy. Also
              includes options to acquire 190,000 shares of Common Stock
              exercisable at $.50 held by Mr. Nohren.
         (6)  54,350 of the shares of common stock as set forth above are owned
              by Elliot Smith, husband of Rose C. Smith, President and Chief
              Executive Officer of the Company. Also includes 190,000 shares
              underlying options issued to Ms. Smith with an exercise price of
              $.50.
         (7)  Represents shares held directly and indirectly by Joe Cayre and
              his family pursuant to an agreement reached between the Company
              and the Good Times family of companies. See "Certain
              Relationships & Related Transactions."
         (8)  Excludes 1,079,500 shares reserved for issuance under outstanding
              options and warrants.
         (9)  Includes options to acquire 15,000 shares of Common Stock at an
              exercise price of $.50 over a 3 year vesting term conditioned
              upon continued service as an outside director.
         (10) Includes options to acquire up to 115,000 shares of Common Stock
              at an exercise price of $.50 per share.
</FN>
</TABLE>

            ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Mr. John E. Nohren, Jr., Chairman of the Board, has assigned the
rights to certain patents owned by him, to the Company. The patents are used by
the Company for its products. The Company entered into a royalty agreement with
John E. Nohren, Jr. on June 30, 1997, expiring on December 31, 2002. This
agreement obligates the Company to pay Mr. Nohren in return for the assignment
of his patent rights, a minimum of $100,000 of royalties per year, with a cap
of $300,000 per year, during the term of his active involvement. The royalty
payments will be calculated based on five percent of sales of products that
incorporate these assigned patents. Upon his full retirement, a three percent
royalty shall be paid over the residual life of his patents. See "Executive
Compensation-Employment Agreements."

         On October 30, 1997, the Company entered into a stock purchase
agreement with Innova Holdings, LLC. In connection with this agreement, the
Company issued 1,500,000 shares of its common stock to Innova Holdings, LLC in
exchange for the surrender of previously issued warrants to purchase the
11,000,000 shares of the Company's common stock as set forth above. The shares
were subsequently transferred to Joe Cayre and other family members. The
1,500,000 shares cannot be sold, transferred, assigned, or pledged until
October 30, 1999.

                                      19

<PAGE>   22

  ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

    (1)(2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.

    Financial Statements filed as part of this Report are set forth in Item 7
    and are presented at page F-1 of this Report; which list is incorporated
    herein by reference. The Financial Statement Schedules and the Report of
    Independent Auditors as to Schedules follow the Exhibits.

(a)(3) EXHIBITS.

(b) Reports on Form 8-K

            None

(c) Exhibits. See the Indexes to Exhibits below.

INDEX TO EXHBITS

(1) All of the items below are incorporated by reference to the Registrant's
    Registration Statement on Form 10SB, File No. 0-29746, except for Exhibit
    99(b), which is included with the filing.

(2) Filed herewith.

                                    PART III

ITEM 1.  Index of Exhibits:

         The following exhibits are included as part of this report:

                  ITEM 15B. EXHIBITS AND SEC REFERENCE NUMBERS

<TABLE>
<CAPTION>

Number                          Title of Document                                 Location
--------------------------------------------------------------------------------------------
<S>      <C>                                                                      <C>
3(a)     Articles of Incorporation, as amended (1)
3(b)     Bylaws (1)
10(a)    [Reserved]
10(b)    Agreement with Rubbermaid Incorporated dated July 21, 1998 (1)
10(c)    [Reserved]
10(d)    Stock Purchase/Warrant Exchange Agreement with Goodtimes
              Entertainment, Inc. dated October 11, 1997 (1)
10(e)    Employment Agreement with Rose c. Smith dated June 30, 1997 (1)
10(f)    Royalty Agreement with John E. Nohren, Jr. dated June 30, 1997 (1)
10(g)    License Agreement with A. C. International dated May 21, 1998 (1)
10(h)    Supply and Distribution Agreement with Bowline Family Products, Inc.
              Dated September 26, 1997 (1)
10(i)    [Reserved]
10(j)    Purchase and Supply Agreement with Rose Group dated January 22,
              1997 (terminated) (1)
10(k)    Real Estate Lease with Carr Rubin Associates dated January 21,
              1998 (1)
15       Specimen Certificate (1)
99(a)    1996 Incentive Stock Option Plan (1)
99(b)    1999 Incentive Stock Option Plan (2)
--------------------------------------------------------------------------------------------
</TABLE>

                                      20

<PAGE>   23

                                    PART F/S

ITEM 1.  Financial Statements:

         The following is a list of each financial statement filed under ITEM
13 of this Registration Statement:

         1. Audited Financial Statements consisting of the Company's statements
of operations, changes in stockholders equity, and cash flows for the year
ended June 30, 1998, as audited by Pender Newkirk & Company, Certified Public
Accountant, along with its report thereon.

         2. Audited Financial Statements consisting of a Balance Sheet as of
June 30, 1999 and the related statements of operations, changes in
stockholders' equity, and cash flows for the year ended June 30, 1999, as
audited by Pender Newkirk & Company, Certified Public Accountant, along with
its report thereon.

                                      21

<PAGE>   24

                                   SIGNATURES

         Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

                                    INNOVA PURE WATER, INC.

Dated: October 8, 1999              By: /s/  Rose C. Smith
                                        ----------------------------------------
                                             Rose C. Smith
                                             President, Chief Executive Officer,
                                             Director

Dated: October 8, 1999              By: /s/  John E. Nohren, Jr.
                                        ----------------------------------------
                                             John E. Nohren, Jr.
                                             Chairman of the Board of Directors,
                                             Chief Financial Officer

Dated: October 8, 1999              By: /s/  Robert Connell
                                        ----------------------------------------
                                             Robert Connell
                                             Principal Accounting Officer

                                      22
<PAGE>   25


                              FINANCIAL STATEMENTS

                            INNOVA PURE WATER, INC.

                       Years Ended June 30, 1999 and 1998
                          Independent Auditors' Report


<PAGE>   26






                            Innova Pure Water, Inc.

                              Financial Statements

                       Years Ended June 30, 1999 and 1998



                                    CONTENTS


<TABLE>
<S>                                                                      <C>
Independent Auditors' Report on Financial Statements........................1

Financial Statements:

    Balance Sheet...........................................................2
    Statements of Operations................................................3
    Statements of Changes in Stockholders' Equity...........................4
    Statements of Cash Flows................................................5
    Notes to Financial Statements........................................6-16
</TABLE>


<PAGE>   27



                             (PNCCPA'S LETTERHEAD)



                          Independent Auditors' Report




Board of Directors
Innova Pure Water, Inc.
Clearwater, Florida


We have audited the accompanying balance sheet of Innova Pure Water, Inc. as of
June 30, 1999 and the related statements of operations, changes in
stockholders' equity, and cash flows for the years ended June 30, 1999 and
1998. These financial statements are the responsibility of the management of
Innova Pure Water, Inc. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Innova Pure Water, Inc. as of
June 30, 1999 and the results of its operations and its cash flows for the
years ended June 30, 1999 and 1998 in conformity with generally accepted
accounting principles.



/s/ Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
September 2, 1999

            PENDER NEWKIRK & COMPANY * CERTIFIED PUBLIC ACCOUNTANTS

100 South Ashley Drive * Suite 1650
Tampa, Florida 33602
(813) 229-2321 * Fax (813) 229-2359
Web Site: www.pnccpa.com

    MEMBER OF PRIVATE COMPANIES PRACTICE SECTION AND SEC PRACTICE SECTION OF
              AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>   28

                            Innova Pure Water, Inc.

                                 Balance Sheet

                                 June 30, 1999


<TABLE>
<S>                                                                         <C>
ASSETS
Current assets:
    Cash and cash equivalents                                               $   692,700
    Accounts receivable, trade, net of allowance for
        doubtful accounts of $8,800                                              52,000
    Other receivables, including related party of $84,200                       461,600
    Inventories                                                                 124,900
    Other current assets                                                         16,000
                                                                            -----------
Total current assets                                                          1,347,200

Property and equipment, net                                                     168,600

Other assets                                                                    229,300
                                                                            -----------
                                                                            $ 1,745,100
                                                                            ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable, trade                                                 $    51,800
    Accrued expenses                                                             41,700
    Current portion of obligation under capital lease                             3,700
    Current portion of long-term debt                                             6,600
                                                                            -----------
Total current liabilities                                                       103,800
                                                                            -----------
Long-term liabilities:
    Obligation under capital lease, net of current portion                        6,400
    Long-term debt, net of current portion                                       13,400
                                                                            -----------
Total long-term liabilities                                                      19,800
                                                                            -----------

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; 10,078,401 shares issued and outstanding                      1,000
    Capital in excess of par value                                            8,019,400
    Accumulated deficit                                                      (6,398,900)
                                                                            -----------
Total stockholders' equity                                                    1,621,500
                                                                            -----------
                                                                            $ 1,745,100
                                                                            ===========
</TABLE>


Read independent auditors' report.  The accompanying
notes are an integral part of the financial statements.                        2
<PAGE>   29

                            Innova Pure Water, Inc.

                            Statements of Operations




<TABLE>
<CAPTION>
                                                                  Year Ended June 30,
                                                            -----------------------------
                                                                1999               1998
                                                            -----------------------------

<S>                                                         <C>               <C>
Net sales, related parties                                  $   329,000       $   840,700

Net sales, other                                              2,258,400         2,353,400
                                                            -----------------------------
                                                              2,587,400         3,194,100

Cost of sales                                                 1,458,500         1,477,800
                                                            -----------------------------

Gross profit                                                  1,128,900         1,716,300
                                                            -----------------------------

Operating expenses:
    Selling expenses                                            137,300           203,600
    General and administrative expenses                       1,114,200         1,265,500
    Research and product development                            149,700            89,500
                                                            -----------------------------
                                                              1,401,200         1,558,600
                                                            -----------------------------

Net (loss) income from operations                              (272,300)          157,700
                                                            -----------------------------

Other (income) expenses:
    Interest, net                                               (39,100)          (15,900)
    (Gain) loss on disposal of fixed assets                     (27,600)           49,000
    Other                                                      (366,900)
                                                            -----------------------------
                                                               (433,600)           33,100
                                                            -----------------------------

Net income                                                  $   161,300       $   124,600
                                                            =============================

Earnings per common share                                   $       .02       $       .01
                                                            =============================

Earnings per common share, assuming dilution                $       .02       $       .01
                                                            =============================
</TABLE>


Read independent auditors' report.  The accompanying
notes are an integral part of the financial statements.                        3

<PAGE>   30

                            Innova Pure Water, Inc.

                 Statements of Changes in Stockholders' Equity

                       Years Ended June 30, 1999 and 1998




<TABLE>
<CAPTION>
                                           Common Stock               Capital In
                                     -------------------------         Excess Of       Accumulated      Treasury
                                       Shares           Amount         Par Value         Deficit         Stock
                                     ---------------------------------------------------------------------------
<S>                                  <C>              <C>            <C>            <C>                  <C>
Balance, June 30, 1997                8,496,371       $    800       $ 7,904,300       $(6,684,800)      $5,700

Stock surrendered to the
    Company                             (91,666)

Stock issued:
    In exchange for warrants          1,500,000            200              (200)
    For services and exercised
        options                         160,166                           75,900

Net income                                                                                 124,600
                                     ---------------------------------------------------------------------------

Balance, June 30, 1998               10,064,871          1,000         7,980,000        (6,560,200)       5,700

Compensation for stock
    options issued                                                        31,200

Stock issued for services
    and exercised options                14,230                            7,900

Acquisition of treasury
    stock, 23,500 shares                                                                                  8,000

Issuance of treasury stock
    for services, 23,333
    shares                                                                 6,000                         (8,000)

Retirement of treasury
    stock                                  (700)                          (5,700)                        (5,700)

Net income                                                                                 161,300
                                     ---------------------------------------------------------------------------
Balance, June 30, 1999               10,078,401       $  1,000       $ 8,019,400       $(6,398,900)      $    0
                                     ===========================================================================
</TABLE>





Read independent auditors' report.  The accompanying
notes are an integral part of the financial statements.                        4
<PAGE>   31

                            Innova Pure Water, Inc.

                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                       Year Ended June 30,
                                                                                  ----------------------------
                                                                                     1999               1998
                                                                                  ----------------------------
<S>                                                                               <C>                <C>
OPERATING ACTIVITIES
    Net income                                                                    $ 161,300          $ 124,600
                                                                                  ----------------------------
    Adjustments to reconcile net income to net cash and
        cash equivalents provided by operating activities:
           Depreciation and amortization                                            132,100            119,000
           Provision for losses on accounts receivable                               (1,200)           (45,000)
           (Gain) loss on disposal of equipment                                     (27,600)            49,000
           Stock issued or subscribed for services                                   51,900             56,600
           (Increase) decrease in:
               Accounts and other receivables                                       400,700           (439,900)
               Inventories                                                          229,200            (40,000)
               Other assets                                                          (5,800)            (1,500)
           Increase (decrease) in accounts payable and
               accrued expenses                                                    (629,000)           307,900
                                                                                  ----------------------------
    Total adjustments                                                               150,300              6,100
                                                                                  ----------------------------
    Net cash and cash equivalents provided by operating activities                  311,600            130,700
                                                                                  ----------------------------

INVESTING ACTIVITIES
    Proceeds from sale of equipment                                                  49,800
    Acquisition of equipment                                                        (70,200)          (205,200)
    Acquisition of patents                                                          (77,800)          (157,300)
    Advances to related parties                                                       8,800            (38,200)
                                                                                  ----------------------------
    Net cash and cash equivalents used by investing activities                      (89,400)          (400,700)
                                                                                  ----------------------------

FINANCING ACTIVITIES
    Acquisition of treasury stock                                                    (8,000)
    Proceeds from long-term debt                                                                        27,000
    Payments on long-term debt                                                       (6,100)           (35,100)
    Payments on capital lease obligations                                            (4,800)            (5,700)
    Proceeds from issuance of common stock                                            1,200             19,300
                                                                                  ----------------------------
    Net cash and cash equivalents (used) provided by
        financing activities                                                        (17,700)             5,500
                                                                                  ----------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                204,500           (264,500)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                        488,200            752,700
                                                                                  ----------------------------

CASH AND CASH EQUIVALENTS, END OF YEAR                                            $ 692,700          $ 488,200
                                                                                  ============================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
    AND NONCASH FINANCING ACTIVITIES:
        Cash paid during the year for interest                                    $   3,300          $   4,700
                                                                                  ============================
</TABLE>

    During the year ended June 30, 1998, the Company issued 1,500,000 shares of
    common stock in exchange for 11,000,000 outstanding warrants (see Note 12).


Read independent auditors' report.  The accompanying
notes are an integral part of the financial statements.                        5
<PAGE>   32

                            Innova Pure Water, Inc.

                         Notes to Financial Statements

                       Years Ended June 30, 1999 and 1998



1.       NATURE OF OPERATIONS

Innova Pure Water, Inc. was incorporated in Florida in 1985 for the purpose of
developing, manufacturing, and marketing proprietary, state-of-the-art,
effective and economical in-the-house and portable water purification products.
The corporate headquarters is located in Clearwater, Florida. Sales are to both
wholesale and retail markets throughout the United States, principally on
credit and primarily through strategic alliances, two of which are billion
dollar companies. Sales are also made to distributors in several foreign
countries. Significant revenues are also generated by direct television
marketing.

For the years ended June 30, 1999 and 1998, sales to two customers amounted to
approximately 89 and 69 percent of net sales, respectively. Accounts receivable
from these customers amounted to approximately $50,600 at June 30, 1999.
Included in the above amounts for the years ended June 30, 1999 and 1998 are
sales to related stockholders of approximately $329,000 and $840,700,
respectively.

For the years ended June 30, 1999 and 1998, sales to foreign customers amounted
to approximately seven and eight percent of net sales to unaffiliated
customers, respectively. These sales were made to customers in various
locations as follows:

<TABLE>
<CAPTION>
                                                 1999          1998
                                              -----------------------
         <S>                                  <C>           <C>
         Brazil                               $   1,000
         Japan                                   72,800     $ 102,100
         New Zealand                             31,000        41,600
         England                                  7,800        28,300
         Other                                   40,690        15,600
                                              ---------     ---------
                                              $ 153,290     $ 187,600
                                              =========     =========
</TABLE>

On July 21, 1997, the Company entered into a strategic alliance which includes
manufacturing, developing, marketing, and distributing provisions with
Rubbermaid Incorporated(R) ("Rubbermaid"). This agreement grants Rubbermaid
certain rights to the products and technology of the Company as well as to
market and distribute certain products throughout the United States and
specific other countries during the term of the agreement. The Company also
granted Rubbermaid the non-exclusive right to market and distribute certain
products throughout the rest of the world with the exception of specific
products and/or markets reserved under pre-existing agreements under other
strategic alliances. In addition to the product price, the agreement calls for
a limited price adjustment of $.10 per unit for the first 10 million units of
products purchased by Rubbermaid. During the year ended June 30, 1999,
Rubbermaid and the Company agreed that the


Read independent auditors' report.                                             6
<PAGE>   33

                            Innova Pure Water, Inc.

                         Notes to Financial Statements

                       Years Ended June 30, 1999 and 1998



1.       NATURE OF OPERATIONS (CONTINUED)

Company is entitled to a minimum of $500,000 less any limited price adjustments
already paid. Included in net sales for the years ended June 30, 1999 and 1998
are approximately $144,000 and $100,000, respectively, of revenues relating to
this limited price adjustment. In addition, included in other income for the
year ended June 30, 1999 is $256,000 for the remaining balance of the agreed
upon payment. As of June 30, 1999, Rubbermaid had informally waived the
exclusive terms of this agreement.

The Company currently holds numerous patents in the field of water treatment
and has additional domestic and foreign patents pending. The Company pursues an
aggressive product development program with the goal to provide its strategic
partners with unique competitive advantages.


2.       SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies followed are:

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and the reported amounts of revenues
         and expenses during the reporting period. Actual results could differ
         from those estimates.

         Cash and cash equivalents consist of checking and operating accounts.
         The cash deposits are with a single financial institution and are in
         excess of the Federal Deposit Insurance Corporation's insurance
         coverage limit of $100,000 at June 30, 1999.

         Inventory is stated at the lower of cost, determined by the first-in,
         first-out method, or market.

         Property and equipment are recorded at cost. Depreciation is
         calculated by the straight-line method over the estimated useful lives
         of the assets, ranging generally from three to ten years. Additions to
         and major improvements of property and equipment are capitalized.
         Repair and maintenance expenditures are charged to expense as
         incurred. As property or equipment is sold or retired, the applicable
         cost and accumulated depreciation are eliminated from the accounts and
         any gain or loss is recorded. Depreciation expense amounted to
         approximately $107,900 and $93,000 for the years ended June 30, 1999
         and 1998, respectively.


Read independent auditors' report.                                             7

<PAGE>   34

                            Innova Pure Water, Inc.

                         Notes to Financial Statements

                       Years Ended June 30, 1999 and 1998



2.       SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         When the Company has long-lived assets which have a possible
         impairment indicator, the Company estimates the future cash flows from
         the operation of these assets. If the estimated cash flows recoup the
         recorded value of the assets, they remain on the books at that value.
         If the net recorded value cannot be recovered, the assets are written
         down to their fair market value if lower than the recorded value.

         Deferred tax assets and liabilities are recognized for the estimated
         future tax consequences attributable to differences between the
         financial statements carrying amounts of existing assets and
         liabilities and their respective income tax bases. Deferred tax assets
         and liabilities are measured using enacted tax rates expected to apply
         to taxable income in the years in which those temporary differences
         are expected to be recovered or settled. The effect on deferred tax
         assets and liabilities of a change in tax rates is recognized in
         income in the period that includes the enactment date.

         Intangible assets which are included in other assets in the
         accompanying financial statements are being amortized over their
         estimated useful life of five years.

         The Company recognizes revenue at the time products are shipped. Any
         deposits received in advance of product shipment are reflected as
         liabilities until the products are shipped.

         Financial Accounting Standards Board Statement 123 (FASB 123),
         "Accounting for Stock-Based Compensation," provides that expense equal
         to the fair value of all stock-based awards on the date of the grant
         be recognized over the vesting period. Alternatively, this statement
         allows entities to continue to apply the provisions of Accounting
         Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
         Employees," whereby compensation expense is recorded on the date the
         options are granted equal to the excess of the market price of the
         underlying stock over the exercise price. The Company has elected to
         continue to apply the provisions of APB Opinion No. 25 and provide pro
         forma disclosure of the provisions of FASB 123. Under APB Opinion No.
         25, the Company recorded approximately $31,200 of compensation expense
         for the year ended June 30, 1999. No compensation expense under APB
         Opinion No. 25 was recognized by the Company for the year ended June
         30, 1998.

         The Company records shares of common stock as outstanding at the time
         the Company becomes contractually obligated to issue shares.


Read independent auditors' report.                                             8
<PAGE>   35

                            Innova Pure Water, Inc.

                         Notes to Financial Statements

                       Years Ended June 30, 1999 and 1998



3.        INVENTORIES

Inventories consist of:

<TABLE>
        <S>                                                                      <C>
        Raw materials                                                            $  83,100
        Finished goods                                                              36,500
        Work in process                                                              5,300
                                                                                 ---------
                                                                                 $ 124,900
                                                                                 =========
</TABLE>


4.       PROPERTY AND EQUIPMENT

Property and equipment consist of:

<TABLE>
        <S>                                                                      <C>
        Tooling                                                                  $ 309,700
        Machinery and equipment                                                    285,100
        Vehicles                                                                    32,900
        Equipment under capital lease                                               18,100
                                                                                 ---------
                                                                                   645,800
        Less:
           Accumulated depreciation                                                473,000
           Accumulated depreciation on equipment under capital lease                 4,200
                                                                                 ---------
                                                                                 $ 168,600
                                                                                 =========
</TABLE>


5.       RELATED PARTY TRANSACTIONS AND COMMITMENTS

The Company entered into an employment agreement with its President and Chief
Executive Officer effective June 30, 1997, which provides for her employment
for a five-year term ending June 29, 2002. Under the agreement, she is to
receive a base salary of $150,000 per year, as well as a bonus of two percent
of net sales of the Company, adjusted by the annual gross margin achieved. For
the years ended June 30, 1999 and 1998, commissions earned under the agreement
amounted to approximately $26,400 and $61,600 and are included in accrued
expenses in the accompanying financial statements. The agreement contains a
restrictive covenant not to compete for the term of the agreement and for five
years following termination of service without cause. The agreement provides
for severance payments equal to 200 percent of the annual base compensation due
under the agreement in the event there is a "change of control" of the Company,
as defined therein, and she is subsequently terminated without cause.


Read independent auditors' report.                                             9
<PAGE>   36

                            Innova Pure Water, Inc.

                         Notes to Financial Statements

                       Years Ended June 30, 1999 and 1998



5.       RELATED PARTY TRANSACTIONS AND COMMITMENTS (CONTINUED)

The Company has been assigned the rights to certain patents owned by the
majority stockholder of the Company who is also the Chairman of the Board of
Directors of the Company. The cost of maintaining these and other patents are
included in other assets and amounts to $222,200. The cost is being amortized
on a straight-line basis over a five-year period.

Effective June 30, 1997, the Company entered into an agreement with the
Chairman of the Board of Directors expiring on December 31, 2002. This
agreement obligates the Company to pay him, in return for the assignment of his
patent rights, a minimum of $100,000 of royalties per year, with a cap of
$300,000 per year. The royalty payments will be calculated based on five
percent of sales of products that incorporate these assigned patents. Upon his
termination, a three percent royalty shall be paid over the residual life of
his patents. In connection with the assignment, the Company paid $122,100 and
$152,900 to the Chairman for the years ended June 30, 1999 and 1998,
respectively.

The above employment agreements and assignment of rights to patents and royalty
payments are not necessarily indicative of the agreements that would have been
entered into by independent parties.


6.       LONG-TERM DEBT

Long-term debt consists of:

<TABLE>
         <S>                                                                                    <C>
         Note payable; 7.25% interest; monthly payments
           of principal and interest of $652 through
           April 30, 2002; collateralized by a vehicle                                          $   20,000
         Less amounts currently due                                                                  6,600
                                                                                                ----------
                                                                                                $   13,400
                                                                                                ==========
</TABLE>

The following is a schedule by year of the principal payments required under
this note as of June 30, 1999:

<TABLE>
         <S>                                                                                    <C>
         2000                                                                                   $    6,600
         2001                                                                                        7,100
         2002                                                                                        6,300
                                                                                                ----------
                                                                                                $   20,000
                                                                                                ==========
</TABLE>


Read independent auditors' report.                                            10
<PAGE>   37

                            Innova Pure Water, Inc.

                         Notes to Financial Statements

                       Years Ended June 30, 1999 and 1998



7.       CAPITAL LEASE

The Company has capitalized a rental obligation under a lease of equipment. The
obligation, which matures in 2002, represents the total present value of future
rental payments discounted at the interest rate implicit in the lease. Future
minimum lease payments under the capital lease are as follows:

<TABLE>
         <S>                                                                                     <C>
         Year Ending
          June 30,
         -----------
            2000                                                                                 $   4,700
            2001                                                                                     4,700
            2002                                                                                     2,300
                                                                                                 ---------
         Total minimum lease payments                                                               11,700
         Less:
           Amount representing interest                                                              1,600
           Amount currently due                                                                      3,700
                                                                                                 ---------
         Present value of net minimum lease payments                                             $   6,400
                                                                                                 =========
</TABLE>


8.       LEASE COMMITMENTS

The Company rents its operating facilities under a noncancelable operating
lease expiring in March 2003.

The following is a schedule by year of future minimum rental payments required
under this lease as of June 30, 1999:

<TABLE>
         <S>                                    <C>
         Year Ending
           June 30,
            2000                                $   124,900
            2001                                    129,800
            2002                                    134,900
            2003                                    104,200
                                                -----------
                                                $   493,800
                                                ===========
</TABLE>

Rent expense amounted to approximately $120,200 and $99,000 for the years ended
June 30, 1999 and 1998, respectively.


Read independent auditors' report.                                            11
<PAGE>   38

                            Innova Pure Water, Inc.

                         Notes to Financial Statements

                       Years Ended June 30, 1999 and 1998



9.       INCOME TAXES

Other than the three most recent reporting years, the Company has incurred
operating losses since its inception that have been carried forward and,
therefore, no tax liabilities have been incurred for the years presented. These
operating losses and timing differences due to the excess of amortization for
financial reporting purposes over the amount for tax purposes give rise to a
deferred tax asset and are as follows:

<TABLE>
<CAPTION>
                                                                              1999                1998
                                                                         ---------------------------------
         <S>                                                             <C>                 <C>
         Deferred tax asset                                              $   2,409,500       $   2,480,000
         Allowance                                                          (2,409,500)         (2,480,000)
                                                                         ---------------------------------
                                                                         $           0       $           0
                                                                         =================================
</TABLE>

The Company has available at June 30, 1999 approximately $6,024,000 of unused
operating loss carryforwards that may be applied against future taxable income
which would reduce taxes payable by approximately $2.4 million in the future.
These operating loss carryforwards expire beginning in 2001. Income tax
benefits resulting from the utilization of these carryforwards will be
recognized in the year in which they are realized for federal and state tax
purposes. For the years ended June 30, 1999 and 1998, the Company utilized
approximately $148,500 and $108,000 of these loss carryforwards, respectively.


10.      EARNINGS PER SHARE

The following data shows the amounts used in computing earnings per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock:

<TABLE>
<CAPTION>
                                                                                1999               1998
                                                                           -------------------------------
         <S>                                                               <C>                 <C>
         Net income                                                        $     161,300       $   124,600
                                                                           ===============================

         Weighted average number of common
            shares used in basic EPS                                          10,067,847         9,499,374
         Effect of dilutive stock options and warrants                           143,692           434,040
                                                                           -------------------------------
         Weighted average number of common shares
            and dilutive potential common stock used
            in diluted EPS                                                    10,211,539         9,933,414
                                                                           ===============================
</TABLE>


Read independent auditors' report.                                            12
<PAGE>   39

                            Innova Pure Water, Inc.

                         Notes to Financial Statements

                       Years Ended June 30, 1999 and 1998



11.      PREFERRED STOCK

Effective October 24, 1996, the Board of Directors authorized 2,000,000 shares
of preferred stock with a par value of $.001 per share. The Board of Directors
is authorized to issue the preferred stock in series and to fix, in the manner
and to the full extent provided and permitted by law, the rights, preferences,
and limitations of each series of preferred stock. At June 30, 1999, no shares
of preferred stock were issued or outstanding.


12.      STOCK OPTIONS AND WARRANTS

On October 31, 1996, the Company reached an agreement with Innova Holdings,
LLC, a company owned by the Cayre family who also owns the Good Times family of
companies. Good Times has agreed to provide the Company with certain sales and
marketing assistance to sell via direct television, including certain Richard
Simmons promotions. In connection with this agreement, the Company was paid
$500,000 for warrants for the right to purchase 11,000,000 shares of common
stock. The warrants, which were non-dilutive, had the following exercise prices
and expiration dates:

        3,300,000 shares at an exercise price of $.40 per share expiring one
           year from date of grant;
        3,300,000 shares at an exercise price of $.75 per share expiring two
           years from date of grant; and
        4,400,000 shares at an exercise price of $1.00 per share expiring three
           years from date of grant.

On October 30, 1997, the Company entered into a stock purchase agreement with
Innova Holdings, LLC. In connection with this agreement, the Company issued
1,500,000 shares of its common stock to Innova Holdings, LLC in exchange for
the surrender of these warrants to purchase 11,000,000 shares of the Company's
common stock. The 1,500,000 shares issued cannot be sold, transferred,
assigned, or pledged for a two-year period beginning October 30, 1997.

On April 22, 1999, the Company adopted a "1999 Stock Option Plan." Under the
plan, options to issue up to 1,000,000 shares of the Company's common stock may
be granted. The option price shall not be less than the greater of $.50 per
share or 100 percent of the fair market value of the underlying common stock on
the date of grant. As of June 30, 1999, 103,000 options had been granted under
the plan with various terms and expiration dates.


Read independent auditors' report.                                            13
<PAGE>   40

                            Innova Pure Water, Inc.

                         Notes to Financial Statements

                       Years Ended June 30, 1999 and 1998



12.      STOCK OPTIONS AND WARRANTS (CONTINUED)

During the year ended June 30, 1997, the Company reserved 750,000 common shares
for issuance under the Company's 1996 incentive stock plan. During the year
ended June 30, 1998, 715,000 stock options, net of forfeitures, were granted
under this plan at an exercise price of $.50 per share. The options vest over a
three-year period beginning July 1, 1998 and expire on June 30, 2001. During
the year ended June 30, 1999, 12,600 stock options were exercised under this
plan and 95,900 stock options were forfeited due to termination of employment.

Additionally, the Company has an incentive stock option plan for key employees
and advisory members. The plan allows stock options to be granted to officers,
employees, directors, and members of the technical and marketing advisory
boards of the Company. As of June 30, 1999, all options under this plan had
expired.

In addition to the above stock option plans, the Company grants options to
various individuals to purchase the Company's common stock at the discretion of
the Board of Directors. During the year ended June 30, 1999, the Company
granted 120,000 stock options to certain individuals. These options are
exercisable at $.50 per share and may be exercised at any time through April
2001.

The following is a summary of stock option activity during 1999 and 1998:


<TABLE>
<CAPTION>
                                                   Directors, Technical
                                                   Advisory Board, and
                              Employee Incentive    Marketing Advisory         1996 and 1999
                             Stock Option Plan    Board Stock Option Plan    Stock Option Plans             Other
                            --------------------  -----------------------   --------------------    ---------------------
                                        Weighted                Weighted                Weighted                 Weighted
                                         Average                 Average                 Average                  Average
                             Number     Exercise     Number     Exercise     Number     Exercise     Number      Exercise
                            of Shares    Price      of Shares     Price     of Shares    Price      of Shares      Price
                            ---------------------------------------------------------------------------------------------
<S>                         <C>         <C>         <C>         <C>         <C>         <C>         <C>          <C>
Options granted and
    outstanding,
    June 30, 1997             62,500     $ .50       122,500     $ .50
Options granted during
    the year                                                                 775,000    $ .50
Options expired during
    the year                 (34,000)     (.50)       (4,000)     (.50)
Options forfeited during
    the year                                                                 (60,000)    (.50)
Options exercised during
    the year (at a price of
    $.50 per share)          (28,500)     (.50)      (10,000)     (.50)
                              ---------------------------------------------------------------
Options granted and
    outstanding,
    June 30, 1998                  0       .00       108,500       .50       715,000      .50
</TABLE>


Read independent auditors' report.                                            14
<PAGE>   41

                            Innova Pure Water, Inc.

                         Notes to Financial Statements

                       Years Ended June 30, 1999 and 1998



12.      STOCK OPTIONS AND WARRANTS (CONTINUED)

<TABLE>
<CAPTION>
                                                   Directors, Technical
                                                   Advisory Board, and
                             Employee Incentive    Marketing Advisory         1996 and 1999
                             Stock Option Plan    Board Stock Option Plan    Stock Option Plans             Other
                            --------------------  -----------------------   --------------------    ---------------------
                                        Weighted                Weighted                Weighted                 Weighted
                                         Average                 Average                 Average                  Average
                             Number     Exercise     Number     Exercise     Number     Exercise     Number      Exercise
                            of Shares    Price      of Shares     Price     of Shares    Price      of Shares      Price
                            ---------------------------------------------------------------------------------------------
<S>                         <C>         <C>         <C>         <C>         <C>         <C>         <C>          <C>
Options granted during
    the year                                                                 103,000       .50        120,000      $ .50
Options expired during
    the year                                        (108,500)     (.50)
Options forfeited during
    the year                                                                 (95,900)     (.50)
Options exercised during
    the year (at a price of
    $.50 per share)                                                          (12,600)     (.50)
                            --------------------------------------------------------------------------------------------
Options granted and
    outstanding,
    June 30, 1999                 0       $ .00            0     $ .00       709,500     $ .50        120,000      $ .50
                            ============================================================================================
</TABLE>

The following table summarizes the status of options outstanding at June 30,
1999:

<TABLE>
<CAPTION>
                                               Outstanding Options                 Exercisable Options
                                      -------------------------------------     -------------------------
                                                                 Weighted                      Weighted
                                                                  Average                       Average
                                                                 Remaining                     Remaining
                                      Exercise                  Contractual                   Contractual
                                       Price          Number        Life            Number       Live
                                      -------------------------------------------------------------------
        <S>                           <C>             <C>       <C>                <C>        <C>
         1996 and 1999 Stock
            Option Plans               $ .50          709,500    3.09 years        303,166     4.56 years
         Other                         $ .50          120,000    2.75 years        120,000     2.75 years
                                                      -------                      -------
                                                      829,500                      423,166
                                                      =======                      =======
</TABLE>

In addition to the above, the Company has outstanding at June 30, 1999 warrants
to purchase 250,000 shares of the Company's common stock at a price of $.50 per
share. The warrants are exercisable at any time through August 15, 2001, at
which time the warrants expire. At June 30, 1999, 250,000 shares of the
Company's common stock have been reserved for issuance under these warrants.


Read independent auditors' report.                                            15
<PAGE>   42

                            Innova Pure Water, Inc.

                         Notes to Financial Statements

                       Years Ended June 30, 1999 and 1998



12.      STOCK OPTIONS AND WARRANTS (CONTINUED)

FASB 123 requires disclosure of pro forma net income as if the fair value based
method had been applied in measuring compensation costs for common stock
options and warrants granted. Pro forma net income (loss) and net income (loss)
per common share are as follows for the years ended June 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                           1999                1998
                                                                         ----------------------------
         <S>                                                             <C>                 <C>
         As reported:
           Net income                                                    $161,300            $124,600
                                                                         ============================
           Basic earnings per common share                               $    .02            $    .01
                                                                         ============================
           Diluted earnings per common share                             $    .02            $    .01
                                                                         ============================

         Pro forma:
           Net income (loss)                                             $ 43,600            $(50,400)
                                                                         ============================
           Basic income (loss) per common share                          $    .00            $   (.01)
                                                                         ============================
           Diluted income (loss) per common share                        $    .00            $   (.01)
                                                                         ============================
</TABLE>

The weighted average fair value of the options and warrants at their grant date
during 1999 and 1998 was $.17 and $.71, respectively. The estimated fair value
of each option and warrant granted is calculated using the Black-Scholes
option-pricing model. The following summarizes the weighted average of the
assumptions used in the model:

<TABLE>
<CAPTION>
                                                                                   1999           1998
                                                                                  --------------------
         <S>                                                                      <C>            <C>
         Risk-free interest rate                                                   5.44%          5.78%
         Expected years until exercise                                              5.0            4.0
         Expected dividend yield                                                      0              0
         Estimated fair market value of underlying stock                          $ .21          $ .79
</TABLE>


Read independent auditors' report.                                            16