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

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

                                  FORM 10-K/SB

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

For the fiscal year ended June 30, 2001

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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 609, Clearwater, Florida         33760
---------------------------------------------------     ------------
     (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 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, 2001.....................................................$744,200

Aggregate market value of the voting stock held by non-affiliates of the
registrant at June 30, 2001 was $1,348,000.

             13130 - 56th Court, Suite 609, Clearwater, Florida 33760
--------------------------------------------------------------------------------
          (Former name or former address, if changed since last report)








<PAGE>   2

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

<TABLE>
<S>       <C>
                                     Part I

Item 1.   Description of Business

Item 2.   Description of Property

Item 3.   Legal Proceedings

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

                                     Part II

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

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

Item 7.   Financial Statements and Supplementary Data

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

                                    Part III

Item 9.   Directors and Executive Officers of the Registrant

Item 10.  Executive Compensation

Item 11.  Security Ownership of Certain Beneficial Owners and Management

Item 12.  Certain Relationships and Related Transactions

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

          Signatures
</TABLE>




                                       2
<PAGE>   3

                             INNOVA PURE WATER, INC.

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 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,
manufactures, and markets 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
highly efficient water filtering and treatment technology. The Company is
expanding into multipurpose filtration products which include biological
treatment as well as high performance carafe type products

         The Company has become recognized as an innovator in the water
filtration field holding in excess of thirty patents directly associated with
water treatment and purification which provides 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 and protect its product advantage. The Company has
also demonstrated the ability to address and open significant new markets.
Examples of these markets are portable personal and sport type filter bottles
for both mass market and outdoor market where biological contaminant protection
is a critical issue. Innova has attracted interest from large consumer products
companies enabling the Company to differentiate itself as a product innovator
and creator and licensor as well as product producer, thus making the Company
attractive as a strategic alliance partner to strong multi-national marketing
companies such as Culligan, Sawyer Products and others.

         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 premium priced bottled waters, while costing a fraction of the price.
The products currently produced are primarily designed to treat tap water,
reducing chlorine, lead, taste and odor.



                                       3
<PAGE>   4

         The Company is currently developing filtration products for the removal
of biological contaminants including protozoa, cysts, and bacteria. These types
of product would satisfy the needs of the outdoor, emergency, and international
markets requiring highly effective products for the treatment of biologically
contaminated water. Other future products under development include a Carafe'
and specialty filter bottle products. Although Innova has very high expectations
regarding the introduction of new products, there is no guarantee that these
products will be fully developed or make it into the market place. All products
Innova develops are created to meet world market requirements as well as the
needs of the U.S. domestic market. If these products make it to market, there is
no assurance 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. The world wide 2001 market for bottled water is estimated
at over $22 billion (source: Catherine Ferrier, University of Geneva, in a study
commissioned by the World Wildlife Federation) registering an increase over 2000
and achieving strong market penetration. The water filter market continues to
grow reflecting consumer need for effective and efficient portable filtration
devices. It is management's opinion that there will be substantial growth in
sales in the water filtration product category, both domestically and
internationally. The water treatment industry is embryonic with major growth
still to come.

         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, Giardia, or 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. Lead, in water, has become a
serious health concern to a large percentage of the populace and especially to
mothers concerned for the health of their children.

         The retail customer base for the Company's products consists of many
major mass merchants, grocery, drug, and department store retailers as well as
hardware and home centers as well as a wide range of markets seeking products
eliminating biological contaminants from naturally occurring water. This also
constitutes the basic domestic market universe of strategic alliance partners
that typically have wide distribution in retail stores and the outdoor and
international traveler markets. While there is no assurance that Innova's
products will be purchased by retail customers, the Company hopes to be a
substantial participant in the alternative to bottled drinking water market as
the market for water treatment products increases.

         The Company is currently negotiating with Wall, a Swiss marketing and
distribution company, regarding merchandising of the Innova's full current
product line. The elimination of the need for the Company to finance its own
sales and marketing program has allowed the Company to achieve profitability in
the past, while attaining distribution that would otherwise be impossible.
Existing distribution agreements exist with Culligan for the mass market and
Sawyer Products for the unconventional outdoor market. There is no assurance
that a final agreement will be reached with Wall or that the Company will
achieve profitability in the future.



                                       4
<PAGE>   5

         The Company's products have been directly marketed via television and
print media by GoodTimes Licensing & Entertainment ("GoodTimes") with Richard
Simmons as the marketing spokesperson. In past years their infomercial
incorporating the Company's water treatment products was the top rated
infomercial for an extended period. Innova continues its relationship with
GoodTimes.

         In order to overcome the disadvantage of being a small company, and
lack of capital to adequately support a national sales program, the Company's
strategy remains to create strategic alliances with nationally recognized
companies. As a result, the Company obtains the distribution and sales of its
products on a national and international basis without incurring the sales and
marketing costs usually associated with the sales of consumer products. The
Company also benefits by the consumer acceptance of the brand names and the
reputation of the strategic alliance partners such as Culligan(R) and Sawyer
Products.

         In addition to the sales of products either directly or through
strategic alliance partners, Innova has chosen to license competitive companies
allowing them to sell into the market in return for financial remuneration. In
this regard, Innova has licensed Brita Products and Seychelle Environmental.
Seychelle also provides product to Nikken for which Innova is compensated.

         On July 21, 1997, the Company entered into a strategic alliance, which
included manufacturing, developing, marketing, and distributing provisions with
Rubbermaid Incorporated ("Rubbermaid"). This agreement granted Rubbermaid
certain rights for the marketing and distribution of selected products
throughout the United States and internationally.

         Unfortunately, Newell Company, which acquired control of Rubbermaid in
May 1999, dictated that Rubbermaid immediately withdraw from the water
filtration market. This new category did not fit with their established product
lines and their need to reduce costs and return Rubbermaid to profitable
operations. This action was taken although the sales of Rubbermaid/Innova Water
Filtration Products had increased significantly over the preceding year
(Wal-Mart +97%). In June of 1999, Newell Rubbermaid released Innova from the
agreement and exited the consumer water filtration category. The termination of
the Rubbermaid alliance seriously affected Innova's sales and profits for the
fiscal year ended June 30, 2000.

         Innova found itself in a difficult position. It had a line of products
for a category becoming recognized as a major opportunity with unmet consumer
needs. As Innova did not have in house sales and marketing personnel, the
Company elected to seek other strategic alliances to replace Rubbermaid. While
it was known that this would not be a task which would be rapidly accomplished,
the Company believed that it would prove to be the best decision. To do
otherwise would have required Innova to return to developing a retail marketing
and sales capability. This would take time and considerable expense. Innova's
re-entry into the retail market with its own brand would also tend to confuse
the customers and be detrimental to establishing the follow-on strategic
alliances that would prove successful.

         Innova began negotiations with Culligan with verbal agreements being
reached early in 2000. After the creation of packaging and ancillary marketing
support was completed, shipments to Culligan commenced in May 2000. During the
fiscal year ended June 30, 2001, shipments of the Company's filtration products
to Culligan and Avon Products comprised the majority of the Company's total
sales for the fiscal year.

         Innova continues to search for major multinational companies for
distribution in foreign markets. There are agreements with several distributors
in other countries, such as Canada,



                                       5
<PAGE>   6

Korea, South Africa, Israel, Australia, New Zealand, and Japan, who have
commenced distribution of Innova products. Sales on a year-to-year basis to
these distributors have not yet developed into what management hopes will be
substantial and consistent amounts.

         Due to GoodTimes' stock ownership in the Company, management believes
GoodTimes has a 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 GoodTimes. The Company and
GoodTimes continue to discuss and evaluate the development of products and
advertising campaigns, which could utilize television as a marketing platform to
increase sales. The Company is completing the development of new products which
it believes GoodTimes could market profitably and successfully as they represent
a major step forward in 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 16 oz. standard 28 mm neck PET water bottle with replaceable
         filter, "A Filter" and a push-pull valve cap;
         2. A 16 oz. LDPE sport type bottle with "B filter" with a push-pull
         valve cap.
         3. A 27 oz. LDPE sport type bottle with a "B" filter" with a push-pull
         valve cap.
         4. Replacement filters "A", "B" Chlorine, and "B" Lead and Chlorine for
         installation into Culligan and Innova WaterWay(R) Sport type bottles.


         Innova has been successful in improving the functionality and
contaminant removal capability of its standard "A" and "B" filters used in the
sport and personal line of water filter bottles. Both filters now remove over
90% of chlorine when new and remain above the 75% minimum required over 20
gallons for certification by NSF International. Both also remove over 90% of
lead at a flow of 10ml/sec over the suggested 20 gallon life of the product. No
competitive product is certified for lead, nor can equal the Innova filters
certified chlorine removal capability.

         (NSF International, founded in 1944 as the National Sanitation
Foundation, is known for the development of standards, product testing, and
certification services in the areas of public health safety and protection of
the environment. The NSF International Mark is placed on millions of consumer,
commercial, and industrial products annually and is trusted by users,
regulators, and manufacturers alike.)

         The Company manufactures and assembles its current 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 growth of the current product lines. Future products may use
overseas assembly and overseas manufacturing. Although the Company expects an
advantage in manufacturing costs from overseas relationships, there is no
assurance that these relationships will be sufficiently tractable for the
Companies needs, further, there is no assurance that such vendor relationships
will continue in a successful manner.



                                       6
<PAGE>   7

PRODUCT DEVELOPMENT

         The Company is actively engaged in 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,
and remain, the dominant companies in the consumer water treatment category
domestically and internationally.

         The Company has a product development program to assure, to the degree
possible, that it remains the leader and principal source for portable water
treatment products. The validation of Innova's patents covering the portable
personal and sport bottle segment as a result of winning Innova's patent
infringement suit against Aladdin Industries and the favorable settlement of its
patent litigation against Brita Products, and others provide a strong incentive
to form an alliance with Innova for most companies contemplating or desirous of
entering this market. Innova also possesses unique proprietary technology and
product designs which outperform and have significantly greater utility than
present carafe products currently in the market. This also provides a
significant negotiating advantage for Innova as well as providing the
opportunity for enhanced future revenue. Continuing along product lines Innova
has in development a family of sport-type water treatment products operating on
the "Systems" principal. Under the "System" approach the user of an Innova
designed sport-type bottle may incorporate one or more of a series of filters,
independently or in conjunction with a second treatment device. The
thusly-configured "System" can be used to treat most problems faced by users,
including biological contamination.

Products under development include:

1.       High performance carafe and water filter bottles;
2.       Filter assembly for bacteria, and protozoa removal adaptable to sports
         bottles incorporating a high performance carbon composite filter;
3.       Means to disinfect water.

         New rapid filtration carafes and pitchers are under development. 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 three minutes, and pours freely. The process used is Static
Filtration(TM)with macro-porous media. Patents have been issued and others are
pending. Although the Company has taken steps to improve the time to market of
its development efforts there is no assurance that the Company will ever
successfully bring these products to market.

         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 has entered into a worldwide license
agreement and has filed an U.S. patent application. The end product has the
potential for timing the life of toothbrushes and other time sensitive products
which come in contact with water. Innova, as a component of its license has
filed patents domestically, but currently questions the value of the technology
beyond the Company's own use.



                                       7
<PAGE>   8

         During fiscal years ended June 30, 2001 and 2000, the Company spent
$89,500 and $170,500, respectively, on research and product development. At this
time, management does not anticipate any major increases or decreases in the
level of spending for research and development in the future.

SALES AND BACKLOG

         The net sales for the fiscal year ended June 30, 2001 were $744,200.
The net sales for the preceding fiscal year ending June 30, 2000 were $872,800.
Gross revenue for fiscal year ending June 30, 2001 was $1,254,800 as compared
with gross revenue of $895,300 for the preceding year ended June 30, 2000.

          As has been noted in Footnote 1 of the accompanying annual financial
statements, 72% of the Company's sales were to Culligan and Avon Products for
the fiscal year ended June 30, 2001. The loss of either of these customers would
have a materially adverse impact on our financial position.

COMPETITION

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

         Several companies, including Brita, Procter & Gamble (Pur), Culligan
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 . The leading company in the
domestic pitcher category is Clorox, selling the Brita line acquired from Brita
GmbH, located in Germany, within the past twelve months.

         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, Ozarka 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, all of which are covered by patents held
by the Company. The category remains relatively new with the majority of growth
expected by the Company over the next several years. The Innova 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, Brita Products and others have entered this expanding new
market category. The Company's position in this market has been vigorously
defended against competition attempting to enter this market. Innova has
prevailed in litigation, protecting its patent position even against market
leaders such as Brita. The strength of the Company's intellectual property has
caused most companies with potentially infringing products to withdraw from this
market. However, many of the companies with whom the Company currently competes,
or may compete in the future, have greater financial, technical, marketing, and
sales



                                       8
<PAGE>   9

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 its existing and pending alliances provide certain advantages
in these regards as does the Company's patent position.

INTELLECTUAL PROPERTY

         The Company has a strong intellectual property position. This position
includes rights to numerous patents in the consumer product water treatment
field with over 30 issued or allowed patents and three pending patents which are
specifically related to consumer water treatment products. In total the Company
holds over 40 patents.

         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.) filed by the Company on April 18, 1997. The United
States Appellate Court entered a Judgment in favor of the Company. A subsequent
judgement 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 and paid to the satisfaction of the Company and the defendants
withdrew their infringing product from the market.

         On July 30, 1999, Innova brought a similar action for infringement of
Innova patent #5,609,759 against Safari Water Filtration Systems, Inc. d/b/a
Safari Outdoor Products of Broom Field, Colorado. This case is pending in Tampa
Federal Court, Case No.99-1781-CIV-T-23A.

         On January 24, 2000, Innova brought a patent infringement suit against
the Brita Products Company of Oakland California. This case has been settled and
a non-disclosure agreement is in place. On February 26, 2001, this case was
settled to the Company's satisfaction and the Company is currently receiving
quarterly royalty payments from Brita Products resulting from the final
disposition of the suit.

MANUFACTURING

         Operations are centered in the Company's facility in Clearwater,
Florida, where historically the quality assurance, inspection, testing,
assembly, packaging and shipping functions have been performed. The Company's
products consist principally of: (1) one or more elements containing 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 with a plastic binder 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 hollow fiber membrane filters. Other process media employed include
company developed proprietary macro filtration media. The medias are obtained
from a variety of sources. Typically, each is procured under the terms of a
confidentiality agreement and to the Company's specifications.

         The Company has a domestic filter element production capacity of over
9,000,000 units



                                       9
<PAGE>   10

per year. This capacity may be increased should demand increase beyond the
existing capacity. Two or more suppliers are available for most components. By
so doing the Company has established a close working relationship with competent
suppliers to assure price and quality competition and sufficient capacity to
meet current and future requirements. All injection and bottle molds and tooling
are owned by Innova and may be removed and moved at Innova's option. Even so
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 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.

         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 specifies 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.

         All Company vendors operate under confidentiality agreements. 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 fifteen 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 Acceptable/Acceptance Quality
Level (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, 2001, the Company had eight employees. This includes its
two executive officers, an administrative manager, two persons performing
development, and one



                                       10
<PAGE>   11

administrative and clerical person. There are two manufacturing and production
supervisors who are supplemented by as many as 35 contract employees, as
required.

ITEM 2.  DESCRIPTION OF PROPERTY

         The Company occupies approximately 6,400 feet of air-conditioned
office, manufacturing and warehouse space located at 13130 - 56th Court, Suite
607-610, Clearwater, Florida 33760. The product development laboratory is also
located in the building. The facilities are leased and a new five-year lease
commenced March 1, 1998. The monthly rent payment for these facilities is
approximately $4,900.

ITEM 3.  LEGAL PROCEEDINGS

Innova brought an action for infringement of Innova patent #5,609,759 against
Safari Water Filtration Systems, Inc. d/b/a Safari Outdoor Products of Broom
Field, Colorado. This case is filed in Tampa Federal Court, Case
No.99-1781-CIV-T-23A on August 4, 1999. The Company has claimed patent
infringement of U.S. Patent 5,609,759 on the part of the defendants. It is not
yet possible to evaluate the likelihood of a favorable or unfavorable outcome.

On January 24, 2000, Innova brought a patent infringement suit against the Brita
Products Company of Oakland California. This case was pending in Tampa, Fl. Case
No.8:00-157-CV-T-23A claiming infringement of Innova patent #5,609,759. In the
Brita suit Innova sought treble damages believing the infringement was willful.
On February 26, 2001, the Company and Brita reached a settlement agreement on
terms management feels are favorable to the Company which includes quarterly
royalty payment.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                     PART II

ITEM 5.  MARKET PRICE OF THE REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER
         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.




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<TABLE>
<CAPTION>
                                                    Sales Price
                                                    -----------
                                               High              Low
----------------------------------------------------------------------------

<S>                                            <C>              <C>
FISCAL YEAR ENDED JUNE 30, 1999
              Fourth Quarter                   0.906            0.250
              Third Quarter                    0.531            0.230
              Second Quarter                   0.812            0.250
              First Quarter                    0.968            0.500

FISCAL YEAR ENDED JUNE 30, 2000
              Fourth Quarter                   0.510            0.220
              Third Quarter                    0.900            0.063
              Second Quarter                   0.240            0.090
              First Quarter                    0.438            0.125

FISCAL YEAR ENDED JUNE 30, 2001
              Fourth Quarter                   0.270            0.130
              Third Quarter                    0.470            0.150
              Second Quarter                   0.281            0.070
              First Quarter                    0.280            0.180

--------------------------------------------------------------------------------
</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 shareholders 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 to sell their securities in the secondary market

         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".



                                       12
<PAGE>   13

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, 2001, and there were approximately 400 beneficial owners
of the Company's common stock with 10,498,543 shares issued and 10,444,958
shares outstanding.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

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 2001 and beyond, to differ materially from
those expressed in any forward-looking statements made by, or on behalf of,
Innova.




                                       13
<PAGE>   14

INCOME STATEMENT DATA

<TABLE>
<CAPTION>
                                                       Year Ended June 30
                                                --------------------------------
                                                     2001                2000
                                                --------------------------------
<S>                                             <C>                 <C>
Total sales revenue                             $    744,200        $    872,800
                                                ================================
Net loss                                        $   (175,800)       $   (922,200)
                                                ================================
Loss per common share - basic                   $       (.02)       $       (.09)
                                                ================================
Shares used in per share computation              10,192,771          10,046,886
                                                ================================
Loss per common share - assuming dilution       $       (.02)       $       (.09)
                                                ================================
Shares used in diluted computation                10,192,771          10,046,886
                                                ================================
</TABLE>


BALANCE SHEET DATA

<TABLE>
<CAPTION>
                                                              June 30,
                                                                2001
                                                            -------------
<S>                                                         <C>
        Total assets                                        $   1,018,600
                                                            =============
        Working capital                                     $     183,600
                                                            =============
        Long-term debt                                      $           0
                                                            =============
        Stockholders' equity                                $     668,500
                                                            =============
</TABLE>



RESULTS OF OPERATIONS

NET SALES

Net sales for the twelve-month period ended June 30, 2001 were $744,200, a
decrease of 15 percent from the $872,800 of net sales for the comparable period
in 2000. This decrease was due to a decrease in sales to foreign customers and
U.S. Filter (Culligan) during the year, which was partially offset by sales to
Avon Products during the fourth quarter of fiscal year 2001.

COST OF SALES

For the year ended June 30, 2001, the cost of sales decreased to $443,000 from
the $501,600 of costs for the year ended June 30, 2000. This decrease is mainly
due to the decrease in sales.

Gross profit margin decreased 3 percent for the year ended June 30, 2001, to 40
percent from an overall gross profit margin of 43 percent for the year ended
June 30, 2000. This is principally attributable to the restructuring of our
product pricing in response to market conditions and the lower sales volume that
had to absorb the fixed costs of manufacturing.

OPERATING EXPENSE

Operating expenses for the year ended June 30, 2001 were $987,600, or 133
percent of net sales. For the comparable period in 2000, operating costs
amounted to $1,304,000, or 149 percent of net sales. The 16 percent decrease as
a percentage of sales between these periods is principally due to the cutback in
overhead expenditures for sales and marketing, research and development, and
general and administrative expenses.



                                       14
<PAGE>   15

OTHER INCOME

For the year ended June 30, 2001, net interest income amounted to $5,100 as
compared to net interest income of $14,000 for the year ended June 30, 2000.
This decrease is due to the decrease in cash invested in interest bearing
securities or accounts with a major national bank.

Other income for the year ended June 30, 2001 of $501,400 was due principally to
a one-time, lump-sum payment received because of the favorable settlement of a
patent infringement case involving Brita Products Company and the receipt of
royalty income from the licensing of the Company's technology.

INCOME TAXES

Due to the Company's history of operating losses, management has established a
valuation allowance in the full amount of the deferred tax assets arising from
these losses because management believes it is more likely than not that the
Company will not generate sufficient taxable income within the appropriate
period to offset these operating loss carryforwards.

NET LOSS

Net loss for the year ended June 30, 2001 amounted to $(175,800), as compared to
net loss of $(922,200) for the comparable period in 2000. The decrease in net
loss is primarily a result of income received as a result of the favorable
settlement of a patent infringement case involving Brita Products Company, the
receipt of royalty income from the licensing of the Company's technology, and
the reductions in overhead expenditures for sales and marketing, research and
development, and general and administrative expenses.

LOSS PER SHARE

For the year ended June 30, 2001, basic and diluted loss per share amounted to
$(.02). For the comparable period in 2000, basic and diluted loss per share
amounted to $(.09). The decrease in loss per share is due to the decrease in net
loss between the comparable periods.

LIQUIDITY AND CAPITAL RESOURCES

OPERATING ACTIVITIES

For the year ended June 30, 2001, net cash provided by operating activities
amounted to $40,600, as compared to the $304,100 used by operating activities
for the comparable period in 2000. This is primarily a result of income received
as a result of the favorable settlement of a patent infringement case involving
Brita Products Company, the receipt of royalty income from the licensing of the
Company's technology, and the reductions in overhead expenditures for sales and
marketing, research and development, and general and administrative expenses.

INVESTMENT ACTIVITIES

The Company's investment activities include equipment purchases, litigation
involving patents, and patent acquisitions.

Net cash used by investing activities for the year ended June 30, 2001 was
approximately



                                       15
<PAGE>   16

$175,600, as compared to net cash used by investing activities of approximately
$142,600 for the comparable period in 2000. The increase in cash expended for
investing activities is due primarily to an increase in expenditures on patent
infringement litigation and new patent acquisitions, partially offset by the
proceeds from the sale of equipment.

FINANCING ACTIVITIES

The Company's financing activities include payments on borrowings and capital
leases, the acquisition of treasury stock, and changes in related party
transactions.

Net cash of approximately $11,600 was used by financing activities for the year
ended June 30, 2001, as compared to net cash used by financing activities of
approximately $51,500 for the year ended June 30, 2000. The decrease in cash
used for financing activities results primarily from an decrease in advances
made to related parties.

CAPITAL RESOURCES

At June 30, 2001, the Company does not have any material commitments for capital
expenditures other than for those expenditures incurred in the ordinary course
of business.

The Company believes that 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 DISCLOSURES

None.



                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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,
2001.



                                       16
<PAGE>   17

<TABLE>
<CAPTION>
         Name          Age                        Position
----------------------------------------------------------------------------------------
<S>                     <C>     <C>
John E. Nohren, Jr.     69      Chairman of the Board, Chief Financial Officer, Director
Rose C. Smith           48      President, Chief Executive Officer, Director
John T. Smith           45      Vice President- Manufacturing
Bradley Mierau          42      Vice President- Research and Development
Robert Connell          45      Controller
Peter Christensen       51      Director
Andrew Greenberg        46      Director
Mort Langer             58      Director
Frank Legnaioli         70      Director
Emanuel Mersis          57      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 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.

         John T. Smith, Vice President- Manufacturing, has been responsible for
the Company's plant operations including manufacturing, distribution, and
purchasing since he joined Innova in 1988. Prior to joining Innova, Mr. Smith
was the Production Manager for Nemco, and while there contributed significantly
to their growth and development of their automated assembly production of
consumer products.

         Bradley Mierau, Ph.D., Vice President- Research and Development, joined
the Company in 1990. Dr. Mierau has been responsible for assessing and
developing methods for removing



                                       17
<PAGE>   18

chemical and biological contaminants, designing consumer testing products for
biological infestation, and the development of several new media. He is
currently involved with development activities to provide the Company with
novel, state of the art, filtration processes. Dr. Mierau holds Bachelors and
Masters degrees in Microbiology from the University of Nebraska and a Ph.D. in
Chemical Engineering from the University of South Florida.

         Robert Connell, Controller, joined Innova Pure Water, Inc. in September
1993 as a corporate accountant and was appointed company controller in August
1996. Mr. Connell began his career in August 1978 with Consolidation Coal
Company, now known as Consol Energy Incorporated. 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. Prior to joining Innova, he
was employed by Florida Savings and Loan, Main Street Mortgage Company, and
Kmart Corporation.

         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.

         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.

         Emanuel Mersis has been a director of the Company since 2000. Mr.
Mersis has over 30 years experience in consumer packaged goods general
management, finance, operations, marketing, sales, and
acquisitions/divestitures. Mr. Mersis has held senior management positions with
Aqua Clara Bottling and Distribution, Inc., Westvaco Corporation's Consumer
Packaging Division, and Signature Brands LLC. Mr. Mersis has also served in
senior sales and marketing positions with RJR Foods/Del Monte, Alberto-Culver
Company, and the Procter & Gamble Company.


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



                                       18
<PAGE>   19

successors have been elected or until their earlier resignation or removal.
Currently, there are seven directors who were elected as of June 30, 2001.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, officers, and holders of more than 10% of the
Company's common stock to file with the Securities and Exchange Commission
initial reports of ownership and changes in ownership.

         Based solely upon a review of the forms, reports, and certificates
filed with the Company by such persons, all such 16(a) filing requirements were
complied with by such persons in the Company's fiscal year ended June 30, 2001.

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, 1999, June 30, 2000 and June 30,
2001 to or for the account of the Rose Smith, President and 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 2001
John E. Nohren, Jr.               --            --        --        --        --        --       $100,000 (2)
Chairman, CFO, BOD
Rose Smith                  $110,000       $14,888        --        --        --        --
President and CEO
---------------------------
Fiscal 2000
John E. Nohren, Jr.               --            --        --        --        --        --       $100,000 (2)
Chairman BOD, CFO
Rose Smith                  $110,000       $17,456        --        --        --        --
President and CEO (1)
---------------------------
Fiscal 1999
John E. Nohren, Jr.               --            --        --        --        --        --       $122,133 (2)
Chairman BOD
Rose Smith                  $127,500       $48,853        --        --        --        --
President and CEO (1)

--------------------------------------------------------------------------------------------------------------
</TABLE>

(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.



                                       19
<PAGE>   20

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. For the fiscal year
ending June 30, 2001 and 2000, Ms. Smith voluntarily reduced her base salary to
$110,000 per year.

         The Company entered into a royalty agreement with John E. Nohren, Jr.
effective June 30, 1997, expiring on June 30, 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 or retirement, 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 2001 and fiscal 2000 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($)
                                                           Exercisable        Exercisable
                                            Value         on or after         on or after
                       Shares Acquired/    Realized       July 1, 2000       July 1,2000(1)
         Name             Exercised         ($)(1)      or July 1, 2001      or July 1, 2001
--------------------------------------------------------------------------------------------
<S>                    <C>                 <C>          <C>                  <C>
Fiscal 2001
John E. Nohren, Jr.         _____            ____                0                   0
Rose Smith                  _____                                0                   0
-------------------
Fiscal 2000
John E. Nohren, Jr.         _____            ____             190,000                0
Rose Smith                  _____            ____             190,000                0
--------------------------------------------------------------------------------------------
</TABLE>


(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.



                                       20
<PAGE>   21

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, 2000, options to purchase a total
of approximately 584,600 shares at $.50 a share were outstanding under the 1996
Plan. The 1996 Plan provided 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% 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.

         During the fiscal year ended June 30, 2001, the 584,600 stock options
provided for under the 1996 Plan expired without being exercised.

         In April 1999, the Board of Directors adopted a new stock option plan
(the "1999 Plan"). Under the 1999 Plan, 1,000,000 shares had 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, 2001,
options to purchase a total of approximately 100,000 shares at $.50 a share were
outstanding under the 1999 Plan. These options expire in 2009.

         As of the date of this filing, the Company has outstanding options and
warrants to acquire 350,000 shares of Common Stock at an exercise price of $.50
per share. These options and warrants are exercisable at any time at an exercise
price of $.50 per share and expire beginning August 18, 2000 through April 2009.
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.

         During the year ended June 30, 2001, a total of 704,600 of previously
issued stock options had expired without being exercised.

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. The Company has no other arrangements regarding
compensation for services as a director.



                                       21
<PAGE>   22

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, 2001
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, 2001, exceeded $100,000) and (iv) directors
and executive officers of the Company as a group:

<TABLE>
<CAPTION>
                                        Amount and Nature of         Percent of
Name of Beneficial Owner (3)           Beneficial Ownership(1)      Class (2)(8)
--------------------------------------------------------------------------------
<S>                                    <C>                          <C>
John E. Nohren, Jr. and
Francis Weaver Nohren (4)(5)                 2,300,549                  22.0
Rose C. Smith (6)                              414,850                   4.0
Peter Christensen (9)                          609,500                   5.8
Mort Langer (9)(10)                            115,000                   1.1
Frank Legnaioli (9)                            546,000                   5.2
Joe Cayre (7)                                1,350,000                  12.9
Andrew Greenberg (9)                           152,000                   1.5
Emanuel Mersis                                  72,809                   0.7
Barbara Albin                                  555,956                   5.3
All directors and executive officers
As a group (8 persons)                       4,308,108                  41.2
--------------------------------------------------------------------------------
</TABLE>

(1)      Represents sole voting and investment power unless otherwise indicated.

(2)      Based on approximately 10,444,958 shares of Company Common Stock
         outstanding as of June 30, 2001 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. Does not include
         options to acquire 190,000 shares of Common Stock exercisable at $.50
         held by Mr. Nohren. These stock options expired without being exercised
         during the fiscal year ended June 30, 2001.

(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. Does not include 190,000 shares underlying
         options issued to Ms. Smith with an exercise price of $.50. These stock
         options expired without being exercised during the fiscal year ended
         June 30, 2001.

(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 shares reserved for issuance under outstanding options and
         warrants.

(9)      Does not include 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. These stock options expired
         without being exercised during the fiscal year ended June 30, 2001.

(10)     Does not include options to acquire up to 15,000 shares of Common Stock
         at an exercise price of $.50 per share. These stock options expired
         without being exercised during the fiscal year ended June 30, 2001.

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, which are used in certain
company products. The Company entered into a royalty agreement with John E.
Nohren, Jr. on June 30, 1997, expiring on June 30, 2002, and which is renewable
at the Company's option. This agreement obligates the Company to pay Mr. Nohren
in return for the assignment of his patent rights to the Company, a minimum of
$100,000 of royalties per year, with a cap of $300,000 per year, during the term
of his active involvement in the Company. The royalty payments are calculated
based



                                       22
<PAGE>   23

on five percent of the net 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 And
Other Agreements."

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits.

<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(1)

------------------------------------------------------------------------------------------------
</TABLE>

(1)      All of the items below are incorporated by reference to the Company's
         Registration Statement on Form 10SB (SEC File No. 000-14988).

(2)      Filed herewith

(b)      Reports on Form 8-K

         None



                                       23
<PAGE>   24

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                    INNOVA PURE WATER, INC



Dated:   September 26, 2001         By: /s/ Rose C. Smith
                                        ----------------------------------------
                                        Rose C. Smith
                                        President, Chief Executive Officer,
                                        Director


         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.

Dated:   September 26, 2001      By:      /s/ John E. Nohren, Jr
                                          -------------------------------------
                                          John E. Nohren, Jr.
                                          Chairman of the Board of Directors,
                                          Chief Financial Officer


Dated:   September 26, 2001      By:      /s/ Frank Legnaioli
                                          -------------------------------------
                                          Frank Legnaioli, Director


Dated:   September 26, 2001      By:      /s/ Emanuel Mersis
                                          -------------------------------------
                                          Emanuel Mersis, Director


Dated:   September 26, 2001      By:      /s/ Robert Connell
                                          -------------------------------------
                                          Robert Connell
                                          Principal Accounting Officer







                                       24
<PAGE>   25

                             Innova Pure Water, Inc.
                              Financial Statements

                       Years Ended June 30, 2001 and 2000

Contents

<TABLE>
<S>                                                                       <C>
Independent Auditors' Report on Financial Statements.......................26

Financial Statements:

    Balance Sheet..........................................................27
    Statements of Operations...............................................28
    Statements of Changes in Stockholders' Equity..........................29
    Statements of Cash Flows...............................................30
    Notes to Financial Statements.......................................31-39
</TABLE>











                                       25
<PAGE>   26

                          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, 2001 and the related statements of operations, changes in stockholders'
equity, and cash flows for the years ended June 30, 2001 and 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2001 and the results of its operations and its cash flows for the years
ended June 30, 2001 and 2000 in conformity with accounting principles generally
accepted in the United States of America.



Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
August 24, 2001








                                       26
<PAGE>   27

                             Innova Pure Water, Inc.

                                  BALANCE SHEET

                                  June 30, 2001

<TABLE>
<S>                                                                    <C>
Assets
Current assets:
    Cash                                                               $    47,900
    Accounts receivable, trade, net of allowance for doubtful
        accounts of $3,200                                                 189,000
    Other receivables, including related party of $78,900, net
          of allowance for doubtful accounts of $34,100                    156,600
    Inventories                                                            128,200
    Other current assets                                                    12,000
                                                                       -----------
Total current assets                                                       533,700

Property and equipment, net                                                 39,900

Other assets:
    Patents, net                                                           421,200
    Other receivables, related party                                        18,100
    Other                                                                    5,700
                                                                       -----------
Total other assets                                                         445,000
                                                                       $ 1,018,600
                                                                       ===========

Liabilities and Stockholders' Equity
Current liabilities:
    Accounts payable, trade                                            $   154,700
    Accrued expenses, including related party of $122,400                  193,100
    Current portion of long-term debt                                        2,300
                                                                       -----------
Total current liabilities                                                  350,100
                                                                       -----------
Stockholders' equity:
    Preferred stock; $.001 par value; 2,000,000 shares authorized;
        0 shares issued and outstanding
    Common stock; $.0001 par value; 50,000,000 shares authorized;
        10,498,543 shares issued and 10,444,958 shares outstanding           1,000
    Capital in excess of par value                                       8,180,900
    Accumulated deficit                                                 (7,496,900)
                                                                       -----------
                                                                           685,000
    Treasury stock, at cost; 53,585 shares                                 (16,500)
                                                                       -----------
Total stockholders' equity                                                 668,500
                                                                       -----------
                                                                       $ 1,018,600
                                                                       ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.




                                       27
<PAGE>   28

                             Innova Pure Water, Inc.

                            Statements of Operations

<TABLE>
<CAPTION>
                                                                Year Ended June 30,
                                                         ------------------------------
                                                             2001              2000
                                                         ------------------------------
<S>                                                      <C>                    <C>
Sales                                                    $    744,200           872,800
Cost of sales                                                 443,000           501,600
                                                         ------------------------------
Gross profit                                                  301,200           371,200
                                                         ------------------------------
Operating expenses:
    Selling expenses                                           18,800            54,700
    General and administrative expenses                       879,300         1,078,800
    Research and product development                           89,500           170,500
                                                         ------------------------------
                                                              987,600         1,304,000
                                                         ------------------------------
Net loss from operations                                     (686,400)         (932,800)
                                                         ------------------------------
Other (income) expenses:
    Interest, net                                              (5,100)          (14,000)
    (Gain) loss on disposal of fixed assets                    (4,100)           11,900
    Royalties and other income                               (501,400)           (8,500)
                                                         ------------------------------
                                                             (510,600)          (10,600)
                                                         ------------------------------
Net loss                                                 $   (175,800)     $   (922,200)
                                                         ==============================
Loss earnings per common share                           $       (.02)     $       (.09)
                                                         ==============================
Weighted average number of common shares outstanding       10,192,771        10,046,886
                                                         ==============================
</TABLE>

The accompanying notes are an integral part of the financial statements.



                                       28
<PAGE>   29

                             Innova Pure Water, Inc.

                  Statements of Changes in Stockholders' Equity

                       Years Ended June 30, 2001 and 2000


<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, 1999             10,078,401    1,000      8,019,400     (6,398,900)          0

Compensation for stock
    options issued                                             41,600

Acquisition of treasury
    stock, 60,000 shares                                                                  (9,500)

Issuance of treasury stock
    for services, 25,000 shares                                 5,000                      4,600

Net loss                                                                    (922,200)
                                   ------------------------------------------------------------
Balance, June 30, 2000             10,078,401  $ 1,000     $8,066,000    $(7,321,100)    $(4,900)

Compensation for stock
    options issued                                             34,100

Stock issued for services
    and payment of royalties          420,142                  79,600

Issuance of treasury stock
     for services, 7,665 shares                                 1,200                      1,400

Acquisition of treasury
    stock, 26,250 shares                                                                (13,000)

Net loss                                                                    (175,800)
                                   ------------------------------------------------------------
Balance, June 30, 2001             10,498,543   $1,000     $8,180,900    $(7,496,900)  $(16,500)
                                   ============================================================
</TABLE>



The accompanying notes are an integral part of the financial statements.




                                       29
<PAGE>   30

                             Innova Pure Water, Inc.

                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                           Year Ended June 30,
                                                                         -----------------------
                                                                             2001         2000
                                                                         -----------------------
<S>                                                                       <C>          <C>
Operating activities
    Net loss                                                              $(175,800)   $(922,200)
                                                                         -----------------------
    Adjustments to reconcile net loss to net cash provided
        (used) by operating activities:
           Depreciation and amortization                                    128,100      144,400
           (Gain) loss on disposal of equipment                              (4,100)      11,900
           Increase in provision for doubtful accounts                       28,500
           Compensation for stock issued or subscribed for services          36,700       51,200
           Stock issued for services rendered and royalty payments           62,900
           Increase of deferred compensation of related parties              86,700
           (Increase) decrease in:
               Accounts and other receivables                                34,700       99,500
               Inventories                                                   32,000      (35,300)
               Other assets                                                  (4,500)       9,900
           Increase (decrease) in accounts payable and
               accrued expenses                                            (184,600)     336,500
                                                                         -----------------------
    Total adjustments                                                       216,400      618,100
                                                                         -----------------------
        Net cash provided (used) by operating activities                     40,600     (304,100)
                                                                         -----------------------
Investing activities
    Proceeds from sale of equipment                                          15,500
    Acquisition of equipment                                                (12,000)     (15,900)
    Acquisition and defense of patents                                     (179,100)    (126,700)
                                                                         -----------------------
        Net cash used by investing activities                              (175,600)    (142,600)
                                                                         -----------------------
Financing activities
    Acquisition of treasury stock                                                         (9,500)
    Payments on long-term debt                                              (13,400)      (6,600)
    Payments on capital lease obligations                                    (4,200)      (3,600)
     (Advances) payments (to) from related parties                            6,000      (31,800)
                                                                         -----------------------
           Net cash used by financing activities                            (11,600)     (51,500)
                                                                         -----------------------
Net decrease in cash                                                       (146,600)    (498,200)

Cash, beginning of year                                                     194,500      692,700
                                                                         -----------------------
Cash, end of year                                                        $   47,900    $ 194,500
                                                                         =======================
Supplemental disclosures of cash flow information and noncash financing
    activities:
        Cash paid during the year for interest                            $     900    $   2,200
                                                                         =======================
</TABLE>

At fiscal year-end June 30, 2001, the Company incurred $32,300 of payables for
the acquisition and defense of patents.

During the fiscal year ended June 30, 2001, the Company issued 88,359 shares of
common stock in lieu of $16,700 of deferred compensation and acquired 26,250
shares of treasury stock in lieu of $13,000 of other receivables. These
transactions were accounted for as non-cash transactions.

The accompanying notes are an integral part of the financial statements.



                                       30
<PAGE>   31

                             Innova Pure Water, Inc.

                          Notes to Financial Statements

                       Years Ended June 30, 2001 and 2000

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. Sales are also made to distributors
in several foreign countries.

For the years ended June 30, 2001 and 2000, sales to two and one customers
amounted to approximately 72 and 64 percent of net sales, respectively. Accounts
receivable from these customers amounted to approximately $156,700 and $288,000
at June 30, 2001 and 2000, respectively.

For the years ended June 30, 2001 and 2000, sales to foreign customers amounted
to approximately 2 and 21 percent of net sales to unaffiliated customers,
respectively. These sales were made to customers in various locations as
follows:

<TABLE>
<CAPTION>
                                                       2001            2000
                                                     -----------------------
<S>                                                  <C>           <C>
        Japan                                                         79,800
        New Zealand                                  $  7,100         47,900
        Israel                                                        15,000
        South Korea                                                   23,000
        Other                                           6,300         13,600
                                                     -----------------------
                                                     $ 13,400      $ 179,300
                                                     =======================
</TABLE>

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 accounting
        principles generally accepted in the United States of America 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.



                                       31
<PAGE>   32

                             Innova Pure Water, Inc.

                          Notes to Financial Statements

                       Years Ended June 30, 2001 and 2000

2.      Significant Accounting Policies (continued)

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

        The Company extends credit to its various customers based on the
        customer's ability to pay. Based on management's review of accounts
        receivable, an allowance of $37,300 for doubtful accounts is considered
        necessary.

        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 2 to 10 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 $46,200 and
        $87,100 for the years ended June 30, 2001 and 2000, respectively.

        The Company follows Statement of Financial Accounting Standards Board
        No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived
        Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
        requires that long-lived assets and certain identifiable intangibles to
        be held and used by an entity be reviewed for impairment whenever events
        or changes in circumstances indicate that the carrying amount of these
        assets may not be recoverable. In performing the review of
        recoverability, the Company estimates the future undiscounted cash flows
        that are expected to result from the use of the assets and their
        eventual disposition. Because events and circumstances frequently do not
        occur as expected, there will usually be differences between the
        estimated and actual future undiscounted cash flows, and these
        differences may be material. If an asset is determined to be impaired,
        the Company recognizes a loss for the difference between the carrying
        amount and the fair value of the asset. The fair value of the asset is
        measured using quoted market prices or, in the absence of quoted market
        prices, fair value is based on an estimate of discounted cash flow
        analysis. During the periods presented, the Company determined that its
        long-lived assets were not impaired.

        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.



                                       32
<PAGE>   33

                             Innova Pure Water, Inc.

                          Notes to Financial Statements

                       Years Ended June 30, 2001 and 2000

2.      Significant Accounting Policies (continued)

        Intangible assets that 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 $34,100 and $41,600 of compensation expense for
        the years ended June 30, 2001 and 2000, respectively.

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

        Costs of discounts and point-of-sale rebates are recognized at the date
        at which the related sales revenue is recognized and are recorded as a
        reduction of sales revenue. The Company does not currently offer any
        discounts or point-of-sale rebates to its customers.

        Basic loss per share is calculated by dividing net loss by the average
        number of common shares outstanding during the year. Diluted loss per
        common share is calculated by adjusting outstanding shares, assuming
        conversion of all potentially dilutive stock options. At June 30, 2001
        and 2000, there were no dilutive instruments outstanding.

        The Company records amounts billed to customers for shipping and
        handling costs as sales revenue. Costs incurred by the Company for
        shipping and handling are included in cost of sales.



                                       33
<PAGE>   34

                             Innova Pure Water, Inc.

                          Notes to Financial Statements

                       Years Ended June 30, 2001 and 2000

3.      Inventories

<TABLE>
<S>                                                                        <C>
Inventories consist of:
        Raw materials                                                      $ 100,400
        Work in process                                                       26,300
        Finished Goods                                                         1,500
                                                                           ---------
                                                                           $ 128,200
                                                                           =========
</TABLE>

4.      Property and Equipment

<TABLE>
<S>                                                                        <C>
Property and equipment consist of:
        Tooling                                                            $ 256,100
        Machinery and equipment                                              119,500
        Equipment under capital lease                                         18,100
                                                                           ---------
                                                                           $ 393,700
           Less:
               Accumulated depreciation                                      345,900
               Accumulated depreciation on equipment under capital lease       7,900
                                                                           ---------
                                                                           $  39,900
                                                                           =========
</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 commission of two percent of net
sales of the Company, adjusted by the annual gross margin achieved. During the
years ended June 30, 2001 and 2000, the President and Chief Executive Officer
agreed to a temporary voluntary reduction in base salary to $110,000 per year.
For the years ended June 30, 2001 and 2000, commissions earned under the
agreement amounted to approximately $14,900 and $17,400, respectively, 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.

At June 30, 2001, Ms. Smith had $114,000 in deferred salary and commissions
payable included in accrued expenses.

The Company has been assigned the rights to certain patents owned by the
majority stockholder of



                                       34
<PAGE>   35
                            Innova Pure Water, Inc.

                          Notes to Financial Statements

                       Years Ended June 30, 2001 and 2000

5.       Related Party Transactions and Commitments (continued)

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 $421,200, net of accumulated amortization of $217,000. 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. In the event of his
termination, a three percent royalty shall be paid over the residual life of his
patents. In connection with the assignment, the Company paid $100,000 of royalty
expense to the Chairman for the years ended June 30, 2001 and 2000. At June 30,
2001 and June 30, 2000, there is $8,400 and $16,700 in deferred royalties
payable included in accrued expenses, 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.

During the fiscal year ended June 30, 2001, Mr. Nohren received 347,333 shares
of common stock as settlement of $66,670 in deferred royalties due him through
December 2000. In addition, 72,809 shares of common stock were issued to a
director of the Company for consulting services provided by him during the
fiscal year.

6.      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 $2,400 for the year ending
June 30, 2002, which includes $100 in interest.

7.      Lease Commitments

The Company rents its operating facilities under a non-cancelable operating
lease expiring in March 2003.



                                       35
<PAGE>   36

                             Innova Pure Water, Inc.

                          Notes to Financial Statements

                       Years Ended June 30, 2001 and 2000

6.       Lease Commitments (continued)

The following is a schedule by year of future minimum rental payments required
under this lease as of June 30, 2001:

<TABLE>
<CAPTION>
        Year Ending
          June 30,
          --------
<S>                                                             <C>
            2002                                                   59,000
            2003                                                   44,000
                                                                ---------
                                                                $ 103,000
                                                                =========
</TABLE>

Rent expense amounted to approximately $53,100 and $121,300 for the years ended
June 30, 2001 and 2000, respectively.

8.      Income Taxes

The Company has incurred significant operating losses since its inception that
have been carried forward for income tax purposes 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>
                                                2001                2000
                                             ------------------------------
<S>                                          <C>               <C>
        Deferred tax asset                   $ 2,562,000       $  2,756,200
        Allowance                             (2,562,000)        (2,756,200)
                                              -----------------------------
                                             $         0       $          0
                                             ==============================
</TABLE>

The Company has available at June 30, 2001 and 2000 approximately $6,020,000 and
$6,790,000, respectively, of unused operating loss carryforwards that may be
applied against future taxable income, which would reduce taxes payable by
approximately $2.5 million in the future. These operating loss carryforwards
begin expiring after June 30, 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 year ended June 30,
2001, the Company utilized approximately $113,000 of these loss carryforwards.
Approximately $630,000 of the unused net operating loss carryforwards expired in
the fiscal year ended June 30, 2001.

The Company has provided a full valuation allowance related to the realizability
of the deferred tax asset. The valuation allowance is based on evidence that the
deferred tax asset will more likely than not, not be realized. Such valuation
allowance may be increased or decreased in the future based on the likelihood of
achieving future taxable earnings.



                                       36
<PAGE>   37

                             Innova Pure Water, Inc.

                          Notes to Financial Statements

                       Years Ended June 30, 2001 and 2000

9.      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, 2001, there were
no shares of preferred stock issued or outstanding.

10.     Stock Options and Warrants

On April 22, 1999, the Company adopted the "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, 2001, 100,000 options were outstanding under
the plan. These options expire in 2009.

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
years ended June 30, 2001 and 2000, no stock options were exercised under this
plan, and 0 and 24,900 stock options were forfeited due to termination of
employment, respectively. At June 30, 2001, 584,600 stock options expired
without being exercised.

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. During the year ended June 30, 2001, all options expired
without being exercised.




                                       37
<PAGE>   38

                             Innova Pure Water, Inc.

                          Notes to Financial Statements

                       Years Ended June 30, 2001 and 2000

10.      Stock Options and Warrants (continued)

The following is a summary of stock option activity during 2001 and 2000:

<TABLE>
<CAPTION>
                                          1996 and 1999
                                     Stock Option Plans             Other
                                    --------------------    ----------------------
                                                Weighted                  Weighted
                                                 Average                  Average
                                      Number    Exercise     Number      Exercise
                                    of Shares     Price     of Shares      Price
                                    -----------------------------------------------
<S>                                 <C>         <C>         <C>         <C>
       Options granted and
         outstanding,
         June 30, 1999                 709,500     $.50       120,000      $.50
       Options forfeited during
         the year                      (24,900)    (.50)
                                    -----------------------------------------------
       Options granted and
         outstanding,
         June 30, 2000                 684,600      .50       120,000       .50
       Options expired during
         the year                     (584,600)    (.50)     (120,000)     (.50)
                                    -----------------------------------------------
       Options granted and
         outstanding,
         June 30, 2001                 100,000     $.50             0      $.00
                                    ===============================================
</TABLE>




The following table summarizes the status of options outstanding at June 30,
2001:

<TABLE>
<CAPTION>
                                                 Outstanding Options                Exercisable Options
                                       --------------------------------------     -------------------------
                                                                  Weighted                      Weighted
                                                                    Average                      Average
                                                                  Remaining                     Remaining
                                       Exercise                  Contractual                   Contractual
                                        Price       Number          Life          Number          Life
                                       --------------------------------------------------------------------

<S>                                    <C>          <C>           <C>             <C>           <C>
    1996 and 1999 Stock Option Plan    $.50         100,000       7.75 years      100,000       7.75 years
</TABLE>

In addition to the above, the Company has outstanding at June 30, 2001 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 18, 2001, at
which time the warrants expire. At June 30, 2001, 250,000 shares of the
Company's common stock have been reserved for issuance under these warrants.



                                       38
<PAGE>   39

                             Innova Pure Water, Inc.

                          Notes to Financial Statements

                       Years Ended June 30, 2001 and 2000

10.      Stock Options and Warrants (continued)

FASB 123 requires disclosure of pro forma net income (loss) 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, 2001 and 2000:

<TABLE>
<CAPTION>
                                                   2001             2000
                                                ----------------------------
<S>                                             <C>             <C>
As reported:
   Net loss                                     $  (175,800)    $  (922,200)
                                                ============================
   Basic and diluted loss per common share      $      (.02)    $      (.09)
                                                ============================
Pro forma:
   Net loss                                     $  (212,800)    $(1,021,400)
                                                ============================
   Basic and diluted loss per common share      $      (.02)    $      (.10)
                                                ============================
</TABLE>


11.     Legal Settlements and Contingencies

The Company is currently the plaintiff in a patent infringement lawsuit entitled
Innova/Pure Water, Inc., Plaintiff v. Safari Water Filtration Systems, Inc.
d/b/a Safari Outdoor Products, Defendant; Case No. 99-1781-Civ-T-23F filed by
the Company on August 4, 1999. The case was filed with the U.S. District Court,
Middle District of Florida, Tampa Division. The Company has claimed patent
infringement of U.S. Patent 5,609,759 on the part of the defendants. It is not
yet possible to evaluate the likelihood of a favorable or unfavorable outcome.

The Company was the plaintiff in a patent infringement lawsuit entitled
Innova/Pure Water, Inc., Plaintiff v. Brita Products Company, Defendant; Case
No. 00-157-Civ-T-26C filed by the Company on February 29, 2000. The case was
filed with the U.S. District Court, Middle District of Florida, Tampa Division.
The Company had claimed patent infringement of U.S. Patent 5,609,759 on the part
of the Defendants. On February 26, 2001, the Company and Brita reached a
settlement agreement on terms management feels are favorable to the Company
which includes quarterly royalty payment. Any amounts received as a result of
the settlement during the fiscal year ended June 30, 2001 are included in other
income.





                                       39