U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 2004
----------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ________________ to _____________
COMMISSION FILE NUMBER 000-33231
INNOVA HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 95-4868120
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
17105 SAN CARLOS BLVD., SUITE A 6151, FORT MYERS, FLORIDA 33931
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(Address of principal executive offices)
(239) 466-0488
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(Issuer's telephone number)
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: 378,824,906 AS OF OCTOBER 15,
2004
Transitional Small Business Disclosure Format (check one). Yes__ ; No X
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INNOVA HOLDINGS, INC.
SEPTEMBER 30, 2004
QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Page
Special Note Regarding Forward Looking Statements.................................................................3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements................................................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............12
Item 3. Controls and Procedures............................................................................14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................................................14
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
To the extent that the information presented in this Quarterly Report
on Form 10-QSB for the quarter ended September 30, 2004, discusses financial
projections, information or expectations about our products or markets, or
otherwise makes statements about future events, such statements are
forward-looking. We are making these forward-looking statements in reliance on
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Although we believe that the expectations reflected in these
forward-looking statements are based on reasonable assumptions, there are a
number of risks and uncertainties that could cause actual results to differ
materially from such forward-looking statements. These risks and uncertainties
are described, among other places in this Quarterly Report, in "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
In addition, we disclaim any obligations to update any forward-looking
statements to reflect events or circumstances after the date of this Quarterly
Report. When considering such forward-looking statements, you should keep in
mind the risks referenced above and the other cautionary statements in this
Quarterly Report.
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
----
Unaudited Consolidated Balance Sheet as of September 30, 2004............................................5
Unaudited Consolidated Statements of Operations for the three months and nine months
ended September 30, 2004 and September 30, 2003....................................................6
Unaudited Consolidated Statements of Cash Flows for the nine months ended September
30, 2004 and September 30, 2003....................................................................7
Notes to Unaudited Consolidated Financial Statements.....................................................8
4
INNOVA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 22,224
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Total Current Assets 22,224
PROPERTY AND EQUIPMENT, NET 8,029
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TOTAL ASSETS $ 30,253
==========
LIABILITIES & STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts Payable $ 281,518
Line of Credit 190,467
Accrued Expenses 698,125
-----------
Total Current Liabilities 1,170,110
LONG-TERM DEBT 1,219,100
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TOTAL LIABILITIES 2,389,210
STOCKHOLDERS' DEFICIT
Preferred Stock, $.001 par value, 10,000,000 shares authorized,
411,834 shares issued and outstanding 412
Common Stock, $.001 par value, 900,000,000 shares authorized,
378,824,906 shares issued and outstanding 378,825
Additional Paid-In Capital 3,687,771
Accumulated deficit (6,425,965)
-----------
Total Stockholders' Deficit (2,358,957)
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 30,253
===========
5
INNOVA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
Revenues $ - $ 1,250 $ 3,300 $ 4,200
Operating expenses 200,811 54,338 495,508 109,573
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Loss from operations $ 200,811 $ 53,088 $ 492,208 $ 105,373
Other Expense 21,663 3,090 70,008 43,184
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Net loss $ (222,474) $ (56,178) $ (562,216) $ 148,557)
============= ============= ============= =============
Net loss per share:
Net loss basic and diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
Weighted average shares outstanding:
Basic and diluted 355,455,036 205,295,000 255,713,698 205,295,000
============= ============= ============= =============
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INNOVA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(562,216) $(148,557)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 1,022 469
Changes in operating assets and liabilities:
Accounts payable and accrued expenses (117,305) 145,408
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NET CASH USED IN OPERATING ACTIVITIES (678,499) (2,680)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,895) -
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (5,895) -
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt (429,966) -
Proceeds from issuance of debt - 1,500
Proceeds from issuance of convertible debt 230,000 -
Proceeds from issuance of preferred stock 286,836 -
Proceeds from issuance of common stock 656,665 -
Payments to officers (7,500) -
Net payments on line of credit (34,533) -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 701,502 1,500
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NET INCREASE (DECREASE) IN CASH 17,108 (1,180)
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Cash, beginning of period 5,116 1,480
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Cash, end of period $ 22,224 $ 300
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
--------- ---------
Interest paid $ 70,008 $ 10,402
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Income taxes paid $ - $ -
========= =========
NONCASH TRANSACTIONS:
Issuance of common and preferred stock for assumption
of liabilities in connection with recaptialization $ 444,709 $ -
========= =========
7
INNOVA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
Basis of Accounting
The Company maintains its accounts on the accrual method of accounting in
accordance with accounting principles generally accepted in the United States of
America. The accompanying unaudited interim financial statements of Innova
Holdings, Inc. have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the
Securities and Exchange Commission ("SEC"), and should be read in conjunction
with the Company's Form 8-K filed with the Securities and Exchange Commission on
July 21, 2004. The Company will file the historical financial statements of
Innova Holdings, Inc. as of December 31, 2003 and the two years then ended in a
Form 8-K/A. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of financial position
and the results of operations for the interim periods presented have been
reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Innova Holdings, Inc. and its wholly-owned subsidiary Robotic Workspace
Technologies, Inc. All significant intercompany balances and transactions have
been eliminated in consolidation.
Use of Estimates
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 at the date of the balance sheet. Actual results could differ from
those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all highly liquid financial
instruments with purchased maturities of three months or less.
Allowance for Doubtful Accounts
Earnings are charged with a provision for doubtful accounts based on a current
review of collectibility of accounts receivable. Accounts deemed uncollectible
are applied against the allowance for doubtful accounts.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Major
renewals and improvements are capitalized; minor replacements, maintenance and
repairs are charged to current operations. Depreciation is computed by applying
the straight-line method over the estimated useful lives which are generally
three to seven years.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset
and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the currently enacted tax rates and laws.
A valuation allowance is provided for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized.
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Basic Loss Per Share
The Company is required to provide basic and dilutive earnings (loss) per common
share information.
The basic net loss per common share is computed by dividing the net loss
applicable to common stockholders by the weighted average number of common
shares outstanding.
Diluted net loss per common share is computed by dividing the net loss
applicable to common stockholders, adjusted on an "as if converted" basis, by
the weighted average number of common shares outstanding plus potential dilutive
securities. For the periods ended September 2003 and 2004, potential dilutive
securities had an anti-dilutive effect and were not included in the calculation
of diluted net loss per common share.
Basic loss per share has been calculated based on the weighted average number of
shares of common stock outstanding during the period. In a reverse merger, the
weighted average shares outstanding utilized in the computation of loss per
share are being adjusted to give effect as if the September 2004 combination of
Innova Holdings, Inc. and Robotics Workspace Technologies, Inc. had occurred as
of the beginning of the year, similar to a stock split. For the periods
presented prior to the combination the weighted average shares outstanding have
not been adjusted to reflect the recapitalization as of the earliest period
presented.
Recent Accounting Pronouncements:
In January 2003, the Financial Accounting Standards Board ("FASB") issued
interpretation No. 46 ("FIN 46") "Consolidation of Variable Interest Entities."
Until this interpretation, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. FIN 46 requires a variable interest entity, as defined, to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns. Certain provisions of FIN 46 became
effective during the quarter ended March 31, 2004, the adoption of which did not
have a material impact on the financial position, cash flows or results of
operations of the Company.
In March 2004, the FASB issued a proposed Statement, "Share-Based Payment, an
amendment of FASB Statements Nos. 123 and 95," that addresses the accounting for
share-based payment transactions in which a Company receives employee services
in exchange for either equity instruments of the Company or liabilities that are
based on the fair value of the Company's equity instruments or that may be
settled by the issuance of such equity instruments. The proposed statement would
eliminate the ability to account for share-based compensation transactions using
the intrinsic method that the Company currently uses and generally would require
that such transactions be accounted for using a fair-value-based method and
recognized as expense in the consolidated statement of operations. The effective
date of the proposed standard is for periods beginning after June 15, 2005. It
is expected that the final standard will be issued before December 31, 2004 and
should it be finalized in its current form, it will have a significant impact on
the consolidated statement of operations as the Company will be required to
expense the fair value of stock option grants and stock purchases under employee
stock purchase plan.
In April 2004, the Emerging Issues Task Force ("EITF") issued Statement No.
03-06 "Participating Securities and the Two-Class Method Under FASB Statement
No. 128, Earnings Per Share" ("EITF 03-06"). EITF 03-06 addresses a number of
questions regarding the computation of earnings per share by companies that have
issued securities other than common stock that contractually entitle the holder
to participate in dividends and earnings of the company when, and if, it
declares dividends on its common stock. The issue also provides further guidance
in applying the two-class method of calculating earnings per share, clarifying
9
what constitutes a participating security and how to apply the two-class method
of computing earnings per share once it is determined that a security is
participating, including how to allocate undistributed earnings to such a
security. EITF 03-06 became effective during the quarter ended June 30, 2004,
the adoption of which did not have an impact on the calculation of earnings per
share of the Company.
In July 2004, the EITF issued a draft abstract for EITF Issue No. 04-08, "The
Effect of Contingently Convertible Debt on Diluted Earnings per Share" ("EITF
04-08"). EITF 04-08 reflects the Task Force's tentative conclusion that
contingently convertible debt should be included in diluted earnings per share
computations regardless of whether the market price trigger has been met. If
adopted, the consensus reached by the Task Force in this Issue will be effective
for reporting periods ending after December 15, 2004. Prior period earnings per
share amounts presented for comparative purposes would be required to be
restated to conform to this consensus and the Company would be required to
include the shares issuable upon the conversion of the Notes in the diluted
earnings per share computation for all periods during which the Notes are
outstanding. Since the first quarter of 2004, the Company has included the
shares issuable upon conversion of the Notes in its computation of diluted
earnings per share.
In September 2004, the EITF delayed the effective date for the recognition and
measurement guidance previously discussed under EITF Issue No. 03-01, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" ("EITF 03-01") as included in paragraphs 10-20 of the proposed
statement. The proposed statement will clarify the meaning of
other-than-temporary impairment and its application to investments in debt and
equity securities, in particular investments within the scope of FASB Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and
investments accounted for under the cost method. Currently, there would be no
effect of this proposed statement on its financial position and results of
operations.
NOTE 2 - CHANGE IN CONTROL OF REGISTRANT
On August 25, 2004, Innova Holdings, Inc., a public corporation, issued
280,000,000 shares of common stock for 100% of the outstanding stock of Robotics
Workspace Technology, Inc ("RWT"). For financial reporting purposes this
transaction was treated as an acquisition of Innova and a recapitalization of
RWT using the purchase method of accounting. RWT's historical financial
statements replace Innova's in the accompanying financial statements.
NOTE 3 - CAPITAL STOCK
The total number of shares of stock of all classes which the Company shall have
the authority to issue is Nine Hundred Ten Million (910,000,000), of which Ten
Million (10,000,000) shall be shares of Preferred Stock with a par value of
$.001 per share ("Preferred Stock"), and Nine Hundred Million (900,000,000)
shall be shares of Common Stock with a par value of $.001 per share ("Common
Stock").
On June 23, 2004, the Company entered into a private placement of 125,000 shares
of its Series A Preferred Stock for an aggregate issue price of $125,000 with
the holders of the Convertible Debentures.
During 2004, the Company entered into a private placement of 74,705,000 shares
of its common stock for an aggregate issue price of $656,665.
NOTE 4 - NOTES PAYABLE
On April 17, 2002, the Company borrowed $989,100 under a note agreement with the
Small Business Administration. The balance outstanding as of September 30, 2004
was $989,100 The annual interest rate on unpaid principle is 4%, due and payable
in monthly installments of $4,813 beginning September 17, 2002, continuing until
April 17, 2032.
On July 22, 2002, the Company entered into a revolving line of credit of
$225,000 with Fifth Third Bank, Florida. The annual interest rate on unpaid
principle is the prime rate plus 2%, due in monthly installments. Principle and
interest were due on July 22, 2003. The debt is currently in default.
In September 2004, the Company issued convertible debentures of $230,000 due in
September 2009. The convertible debentures are convertible into common stock at
the lesser of (1) seventy five percent of the average closing bid price of the
common stock over the twenty trading days immediately preceding the date of
conversion, or (2) $.005.
NOTE 5 - COMMITMENTS:
LEASE AGREEMENTS
For the nine months ending September 30, 2004, and September 30, 2003, rental
expenses of approximately $11,080 and $2,122 respectively, were incurred.
10
The Company leases office space at 11595 Kelly Road, Ft. Myers, Florida as its
primary operations. The office space lease is with Sunset Concepts, LLC, with
initial base rent monthly payments during month 1 - 12 of $1,343. The lease
commenced on May 1, 2004 and expires on August 31, 2005.
Future obligations under the cancelable lease terms areas follows:
Period Ending December 31, Amount
-------------
2004 $ 4,029
2005 10,744
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Total $ 14,773
=============
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND
We were formed in 1992 as a supplier to the information technology
business. On January 31, 2003, we completed a reverse acquisition into SRM
Networks, an Internet service provider, in which we were deemed the "accounting
acquirer". We have discontinued SRM Network's Internet business. In connection
with the transaction, SRM Networks, Inc. changed its name to Hy-Tech Technology
Group, Inc.
On August 25, 2004, we completed a reverse acquisition into Robotic
Workspace Technologies, Inc. ("RWT"), a robotics technology provider, in which
we were deemed the "accounting acquirer." Simultaneously, we sold our Hy-Tech
Computer Systems, Inc. subsidiary and discontinued our computer systems sales
and services business. In connection with these transactions, Hy-Tech Technology
Group, Inc. changed its name to Innova Holdings, Inc.
RESULTS OF OPERATIONS
Three months ended September 30, 2004 compared to three months ended
--------------------------------------------------------------------
September 30, 2003
------------------
During the three month period ended September 30, 2004 (the "2004
Period") revenues were $0 compared to revenues of $1,250 during the three month
period ended September 30, 2003 (the "2003 Period").
Operating expenses were $200,811 during the 2004 period compared to
$54,338 during the 2003 period. The increase in operating expenses primarily
resulted from increased professional fees due to our acquisition of RWT.
Net loss for the 2004 Period was $222,474 compared to a net loss of
$56,178 for the 2003 Period, due to the factors described above.
Nine months ended September 30, 2004 compared to nine months ended
------------------------------------------------------------------
September 30, 2003
------------------
During the nine month period ended September 30, 2004 (the "2004
Period") revenues were $3,300 compared to revenues of $4,200 during the nine
month period ended September 30, 2003 (the "2003 Period").
Operating expenses were $495,508 during the 2004 period compared to
$109,573 during the 2003 period. The increase in operating expenses primarily
resulted from increased professional fees due to our acquisition of RWT.
12
Net loss for the 2004 Period was $562,216 compared to a net loss of
$148,557 for the 2003 Period, due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2004, we had current assets of $22,224 and current
liabilities of $1,170,110. At September 30, 2004, we had negative working
capital of $1,147,886 and an accumulated deficit of $6,425,965.
In February 2004, the Company announced its planned changes which
included its planned acquisition of Robotic Workspace Technologies (RWT) and the
intended divestiture of Hy-Tech Computer Systems (HTCS). These changes closed on
August 25, 2004. These changes support the Company's plan to grow by acquisition
and differentiate the company with unique technologies. The Company remains in
discussion with various financing sources to allow it access to the financing
needed to complement the use of its stock in achieving these plans. The Company
intends to raise additional working capital through private placements, public
offerings and/or bank financing.
There are no assurances that the Company will be able to obtain
additional financing through private placement, public offerings and/or bank
financing necessary to support the Company's plan. No assurance can be given
that financing will be available, or if available, will be on terms acceptable
to the Company. If adequate financing is not available, the Company may be
required to curtail its operations. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
We cannot guaranty that additional funding will be available on
favorable terms, if at all. If we are unable to obtain debt and/or equity
financing upon terms that our management deems sufficiently favorable, or at
all, it would have a materially adverse impact upon our ability to pursue our
business strategy and maintain our current operations.
13
ITEM 3. CONTROLS AND PROCEDURES
Our principal executive officer and principal financial officer
evaluated the effectiveness of the Company's disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended) as of the end of the period covered by this report. Based
on this evaluation, the Company's principal executive officer and principal
financial officer have concluded that the Company's controls and procedures are
effective in providing reasonable assurance that the information required to be
disclosed in this report has been recorded, processed, summarized and reported
as of the end of the period covered by this report.
During the period covered by this report, there have not been any
significant changes in our internal controls or, to our knowledge, in other
factors that could significantly affect our internal controls.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal
Executive Officer
31.2 Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal
Financial Officer
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
(b) Reports on Form 8-K
On September 28, 2004, the Company filed a Report on form 8-K
regarding a Change in Certifying Accountants, the Election and Appointment
of new Officers and Directors and a Change in Fiscal Year.
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
Innova Holdings, Inc.
Dated: November 22, 2004 By: /s/ Walter Weisel
------------------------
Walter Weisel
Chief Executive Officer
15