SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 5
FORM S-3 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
INNOVATIVE MEDICAL SERVICES
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 3841 33-0530289
(State of Incorporation) (Primary Standard (IRS Employer ID No.)
Classification Code)
1725 Gillespie Way, El Cajon, California 92020
(619) 596 8600
(Address and Telephone Number of Registrant's Principal
Executive Offices and Principal Place of Business)
MICHAEL L. KRALL
1725 Gillespie Way, El Cajon, California 92020
(619) 596 8600
(Name, Address and Telephone Number of Agent for Service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this Form are to be offered pursuant
to dividend or interest reinvestment plans, please check the following box: |_|
If any of the securities being offered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: X
CALCULATION OF REGISTRATION FEE
-------------------------------
Title of each Proposed Proposed
class of Amount Maximum Maximum Amount of
securities to be offering price aggregate registration
to be registered registered per Share offering price fee
---------------------------------------------------------------------------
common stock of
selling securities
holders 327,280 $2.05 $670,924.00 $167.73
* Estimated price in accordance with Rule 457(c)and based upon the last reported
sale on the NASDAQ SmallCap Market on May 23, 2001.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
securities act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said section 8(a),
may determine.
The exhibit index appears on page II-4 of the sequentially numbered pages of
this registration statement. This registration statement, including exhibits,
contains 38 pages.
TABLE OF CONTENTS
Prospectus Summary..................................................... 1
Risk Factors........................................................... 4
Where You Can Get More Information..................................... 9
Certain Information We Are Incorporating by Reference.................. 10
Forward Looking Statements............................................. 10
Description of Securities. ............................................ 11
Selling Securities Holders............................................. 13
Plan of Distribution................................................... 14
Transfer Agent ........................................................ 15
Experts................................................................ 15
Legal Matters.......................................................... 15
Legal Proceedings...................................................... 15
Business of Innovative Medical Services................................ 18
Material Changes from Annual Report.................................... 29
["LOGO WITH TEXT OF "INNOVATIVE MEDICAL SERVICES"]
PROSPECTUS
327,280 shares of common stock offered by the selling securities holders.
Innovative Medical Services will not receive any of the proceeds from the sale
of shares by the selling securities holders.
Our Shares are traded on the Nasdaq SmallCap Market under the symbol PURE.
On October 29, 2001, the closing sale price of the common stock, as reported on
the Nasdaq SmallCap Market, was $2.10 per share.
These are speculative securities, involve a high degree of risk and should be
purchased only by persons who can afford to lose their entire Investment. Please
see the section titled "Risk Factors", page 4.
These securities have not been approved or disapproved by the securities And
exchange commission nor has the commission passed upon the accuracy or Adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
The selling securities holders may sell the shares of common stock described
in this prospectus in public or private transactions, on or off the Nasdaq
SmallCap Market, at prevailing market prices, or at privately negotiated prices.
The selling securities holders may sell shares directly to purchasers or through
brokers or dealers. Brokers or dealers may receive compensation in the form of
discounts, concessions or commissions from the selling securities holders. More
information is provided in the section titled "Plan of Distribution page 14."
The date of this prospectus is _____, 2001
Prospectus Summary
Innovative Medical Services is based in El Cajon, California. We market water
treatment and disinfecting solutions to a broad range of customers, including
pharmaceutical, healthcare and consumer markets. We have expanded from our niche
pharmacy market into other, broader markets with new products, including
residential and commercial water filtration systems, health and wellness-related
retail merchandise, e-commerce products, and silver ion bioscience technologies.
Please see section titled "The Business of Innovative Medical Services" on page
18 for a complete description of our history and business.
Historically, our Fillmaster (R) pharmaceutical water purification, dispensing
and measuring products and the National Sanitation Foundation certified
replacement filters sold to Fillmaster(R) users has generated the most revenues
for us. This is shown in the revenue chart below as Commerical Water
Treatment.
During the fiscal year ended July 31, 2001, our water treatment division sales
mix has expanded to include our Nutripure(R)line of consumer water treatment and
filtration systems sold by retail stores, independent water softening equipment
dealers, and direct to consumer catalogue and our e-commerce health website,
Nutripure.com(R), as distributor of Bergen Brunswig vitamins, minerals,
nutritional supplements, homeopathic remedies and natural products.
We have worldwide manufacturing and marketing rights for advanced silver ion
technologies which are the basis for our Axen and Axenohl products. Axenohl is a
patent-pending, non-toxic aqueous disinfectant. Axen is our trademarked,
formulated hard surface disinfectant product containing Axenohl for commercial,
industrial and residential applications. The U.S. Environmental Protection
Agency registrations for Axen and Axenohl as hard surface disinfectants were
granted to our wholly owned subsidiary, ETI-H2O Corporation in June of 2001.
This antimicrobial technology uses the biocidal properties of ionic silver to
kill bacteria viruses and fungi. These rights are the subject of pending legal
proceedings. Please see the section titled "Risk Factors", page 4 and the
section titled "Legal Proceedings", page 15.
In January 2001, we acquired RoachX, a pesticide technology which conforms to
recent U.S. Environmental Protection Agency criteria for environmentally safe
pesticides. The U.S. Environmental Protection Agency approved RoachX is over 96%
effective in three to four days with one application for indoor/outdoor
eradication of cockroaches. We market RoachX to retailers, commercial pest
control companies and businesses in the United States and abroad.
2
REVENUES BY DIVISION
--------------------
Fiscal Year Ended % Total Fiscal Year Ended % Total
July 31, 2001 Sales July 31, 2000 Sales
----------------- -------- ------------------ -------
Water Treatment Division
Commercial Water Treatment $1,698,900 71% $1,597,500 96%
Residential Retail Water $190,800 8% $29,800 2%
Treatment
Nutripure Dealer Program $167,400 7% $34,200 2%
Bioscience Division
Silver Ion Technology $320,300 13% - -
Pest Management Technology $32,300 1% - -
---------- ----------
Total Revenues $2,409,700 $1,661,500
Securities Offered: 327,280 shares offered by the selling securities holders.
We are not offering any of the selling securities holders securities. These
shares may be sold by the holders from time to time at prevailing market prices.
We will not receive any of the proceeds from any sale of the selling securities
holders shares. See "Selling securities holders" page 13 and "Plan of
Distribution" page 14.
Use Of Proceeds: Innovative will not receive any of the proceeds from any sale
of the selling securities holder shares.
3
Risk Factors
These securities involve a high degree of risk. Prospective purchasers should
consider carefully, among other factors set forth in the prospectus, the
following:
Risks of Our Business
1. We had a loss of $1,782,200 in our most recent fiscal year and may continue
to have losses in the future which may impair the value of an investment in the
shares.
During the fiscal year ended July 31, 2001 we incurred a loss of $1,782,200.
This loss resulted primarily from declining sales of our Fillmaster(R) products
and significant expenditures on future products in anticipation of creating
future revenue. If our revenue growth is slower than we anticipate or our
operating expenses exceed our expectations, it may take an unforeseen period of
time to achieve or sustain profitability or we may never achieve or sustain
profitability. This may result in an adverse effect on the market value of an
investment in the shares.
2. Our market for Fillmaster(R)Products is maturing and only marginal sales
growth expected.
Fillmaster sales only increased 6% from fical year 2000 to fiscal year 2001
Fillmaster revenues have represented almost 100% of our revenue for the past six
fiscal years and 71% of our revenue for fiscal year 2001. We believe the level
growth in Fillmaster revenues is due to multiple factors, including the fact
that the market for pharmacy products is maturing in that there is a decreasing
number of pharmacy chains that do not have water filtration products, and that
we have sold systems to most major chains. In addition, we are facing our first
significant competiro in the pharmacy industry, FreshWater Systems. The
competitor's impact on the market has affected our volume of filter replacement
sales. Limited growth or a decline in Fillmaster sales may have an adverse
effect upon our ability to not only achieve profitability but also to finance
the development and marketing of new products. This may result in an adverse
effect on the market value of an investment in the shares.
3. We are marketing new products and technology which have not been accepted
into the marketplace.
We have begun marketing several new antimicrobial silver ion technologies to
industrial markets including healthcare, dental, veterinary and food processing
as well as to consumer products markets as well as environmentally safe
pesticides. Revenues from these new products during the fiscal quarter ended
April 30, 2001. Risks involved in introducing these new products include
liability for product effectiveness and competition from existing or emerging
sources.
4. Some of our new bioscience products must be approved by government agencies,
and we may be delayed or prevented from selling the new products until such
approvals are obtained.
Some of our new bioscience applications for the healthcare markets and food
preparation markets will require government agencies approvals prior to
marketing or sale in the United States. We have not yet applied for Food and
4
Drug Administration or Department of Agriculture approval. If these applications
are not approved we will not be able to market or sell such products which would
limit the revenues which may be realized from bioscience products. Even after
approval, we will remain subject to changing governmental policies regulating
antimicrobial products. We also intends to take these technologies to the
international marketplace, and international business carries a great deal of
risk with regard to foreign governments, banking and markets.
5. Our new products will be competing against well established and extremely
large chemical and pharmaceutical companies.
Our silver ion products and pesticide products will be competing in markets
dominated by extremely large, well financed and internationally recognized
chemical and pharmaceutical companies. Our ability to compete will depend upon
developing our brand recognition and distribution methods while are competitors
already have well established brands and distribution and many times our
financial ability. Focused competition by such chemical and pharmaceutical
giants could substantial limit our potential market and ability to profit from
these products.
6. We are involved in litigation with NVID International, Inc., the licensor of
our rights to the Axenhnol, our silver ion antimicrobial technology. Loss or
impairment of our license to manufacture and market Axenhnol could have a
materially adverse effect on our revenues and profitability.
In April 2001, NVID International, Inc., the licensor of our Axenhnol, silver
ion antimicrobial technology filed a Declaratory Judgment action against us. The
lawsuit seeks a judicial declaration that the Manufacturing, Licensing and
Distribution Agreement, dated March 26, 2000 between us, NVID, International,
Inc. and ETI-H2O, Inc., does not constitute a binding contract and seeks
unspecified damages. Any loss or impairment of our license to manufacture and
market Axenhnol based products could have a materially adverse effect on our
revenues and profitability. Please see the section titled Legal Proceedings on
page 15.
7. We may not be able to protect and enforce our patents and intellectual
property.
We rely or may in the future rely on a combination of patent,
trademark, trade secret and copyright law and contractual restrictions to
protect the proprietary aspects of our technology and business. These
legal protections afford only limited protection for our intellectual property
and trade secrets. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our proprietary technology
or otherwise obtain and use information that we regard as proprietary.
We have filed for U.S. and foreign patent applications and trademark
registrations for our patents and trademarks. It is also possible that
competitors or others will create and use products in violation of our patents
and adopt service names similar to ours. Such patent infringement could have a
material, adverse effect on our business. Adopting similar names and trademarks
by competitors could lead to customer confusion. Any claims or customer
confusion related to our trademarks could negatively affect our business.
Litigation may be necessary to enforce our intellectual property rights and
protect our trade secrets. If third parties prepare and file applications in the
United States, or other countries that claim trademarks used or registered by
5
us, we may oppose those applications and be required to participate in
proceedings before the regulatory agencies who determine priority of rights to
the trademarks. Any litigation or adverse priority proceeding could result in
substantial costs and diversion of resources and could seriously harm our
business and operating results.
Finally, to the extent that we operate internationally, the laws of
many countries may not protect our proprietary rights to as great an extent as
do the laws of the United States. Many countries have a "first-to-file"
trademark registration system. As a result, we may be prevented from registering
or using our trademarks in certain countries if third parties have previously
filed applications to register or have registered the same or similar trademark.
Our means of protecting our proprietary rights may not be adequate, and our
competitors could independently develop similar technology.
8. We may face liability for content on our Nutripure.com website.
Third parties may claim that posting health and wellness information on our
website makes us liable for damage caused by use of the products sold or that
such information is practicing medicine without a license. Any such claim,
whether meritorious or not, could be time-consuming, result in costly
litigation. Although we maintain general liability insurance, our insurance may
not cover potential claims of the types described above or may not be adequate
to indemnify us for all liability that may be imposed. Any imposition of
liability that is not covered by insurance or is in excess of insurance coverage
could harm our business.
9. Breaches of security on the internet may slow the growth of e-commerce and
subject us to liability.
The need to securely transmit confidential information such as credit card and
other personal information over the Internet has been a significant barrier to
e-commerce and communications over the Web. Any well-publicized
compromise of security could deter more people from using the Web or from using
it to conduct transactions that involve transmitting confidential information,
such as purchases of goods or services. To the extent that our Nutripure.com
activities involve personal consumer information, such as credit card numbers,
security breaches could disrupt our business, damage our reputation and expose
us to a risk of loss or litigation and possible liability. We could be liable
for claims based on unauthorized purchases with credit card information,
impersonation or other similar fraud claims. Claims could also be based on other
misuses of personal information, such as for unauthorized marketing purposes. We
may need to spend a great deal of money and use other resources to protect
against the threat of security breaches or to alleviate problems caused by
security breaches.
10. We face risks associated with government regulation of and legal
uncertainties surrounding the internet.
Any new law effecting the internet could increase our cost of
doing business or otherwise adversely affect our business. Laws directly
applicable to internet communications, commerce and advertising are becoming
more prevalent. The law governing the internet, however, remains largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws governing intellectual
property, copyright, privacy, obscenity, libel and taxation apply to the
internet. In addition, the growth and development of e-commerce may prompt calls
for more stringent consumer protection laws and taxation of internet commerce.
Governments in foreign jurisdictions may regulate Internet or other online
6
services in such areas as content, privacy, network security, encryption or
distribution more stringently than in the United States. This may affect our
ability to conduct business internationally. We also may be subject to future
regulation not specifically related to the Internet, including laws affecting
direct marketers.
11. We may face product liability for the products we manufacture and sell.
As a business which manufactures and markets products for use by consumers, we
may become liable for any damage caused by our products when used in the manner
intended. Any such claim of liability, whether meritorious or not, could be
time-consuming, result in costly litigation. Although we maintain general
liability insurance, our insurance may not cover potential claims of the types
described above or may not be adequate to indemnify us for all liability that
may be imposed. Any imposition of liability that is not covered by insurance or
is in excess of insurance coverage could harm our business.
12. We may face liability for marketing our Nutripure consumer water filtration
products with the phrase "Pharmacist Recommended".
We use the phrase "Pharmacist Recommended" in our marketing materials for
Nutripure consumer water filtration products. We base our use of the phrase on
limited focus group information and comments received from individual
pharmacists regarding the benefits of purified water. No independent pharmacist
organization has ever issued us a recommendation or even evaluated our products.
As a result there is a risk that allegations of deceptive advertising could be
made against us by state or federal agencies responsible for enforcing truth in
advertising laws. Whether such allegations would be meritorious or not, the
negative publicity of such allegations could have a material adverse effect on
our sales of consumer water filtration products. In addition fines could be
imposed upon us and we could be required to change our marketing material which
would represent a material cost to us.
13. Doing business in Brazil present risks for a small company doing business in
other countries.
Doing business in Brazil while being a small business headquartered in the
United States presents risks associated with the cost of developing and
maintaining operations in a foreign country with an unfamiliar legal and
business environment. In addition, volatility in the value of the Brazilian
currency creates uncertainty as to the profitability of operating in Brazil. If
our Brazilian operations are not successful it could have a materially adverse
effect upon our business.
Risks of Investing in our Common Stock
1. The price and trading volume of our common stock has been highly volatile and
could adversely effect an investor's ability to sell the shares and the
available price for the shares when sold.
Since going public in August 1996, the price and trading volume has been highly
volatile. The price range has been from below $1 per share to over $7 per share.
In addition, the monthly trading volume has varied from under 200,000 shares to
over 3,000,000 shares. Investors need to consider this volatility which could
result in lower prices being available to the investor if the investor desires
to sell their shares at a given time.
7
2. The listing of our common stock on the Nasdaq SmallCap Market is subject to
our meeting their continued listing requirements and failure to maintain our
listing could adversely effect an investor's ability to sell the shares and the
available price for the shares when sold.
Our common stock is listed on the Nasdaq SmallCap Market and is subject to being
removed from this market if we do not continue to meet the continued listing
requirements. These continued listing requirements include maintaining a stock
price over $1 per share as well as maintaining at least $4,000,000 in assets
with $2,000,000 of net assets as well as other requirements. If we should fail
to maintain these requirements and our common stock was moved from the Nasdaq
SmallCap market and was traded on the Over-The-Counter Electronic Bulletin Board
Market which does not have similar continued listing requirements, an investor's
available price and ability to sell the shares could be adversely effected as
many broker-dealers and many investors will not trade or invest in securities
traded on the Over-The-Counter Electronic Bulletin Board Market.
3. Our common stock may be classified as a "Penny Stock" which could adversely
affect an investor's ability to sell the shares and the available price for the
shares when sold.
In the event that our common stock was removed from the Nasdaq SmallCap Market
for failure to meet the continued listing criteria, we believe that our common
stock would be characterized as "penny stock" under U.S. Securities and Exchange
Commission regulations. As such, broker-dealers dealing in our common stock will
be subject to the disclosure rules for transactions involving penny stocks which
require the broker-dealer to determine if purchasing our common stock is
suitable for a particular investor. The broker-dealer must also obtain the
written consent of purchasers to purchase our common stock. The broker-dealer
must also disclose the best bid and offer prices available for our stock and the
price at which the broker-dealer last purchased or sold our common stock. These
additional burdens imposed upon broker-dealers may discourage them from
effecting transactions in our common stock, which could make it difficult for an
investor to sell their shares.
4. The number of shares issuable upon exercise of stock options and outstanding
common stock purchase warrants may adversely effect the market price for our
shares.
We have adopted a 1996 Incentive Stock Option Plan, a 1996 Directors and
Officers Stock Option Plan, a 1998 Directors and Officers Stock Option Plan, a
2000 Directors and Officers Stock Option Plan, a Scientific Consultants and
Advisors Stock Option Plan and an ETI H2O Corporation Stock Option Plan for our
subsidiary which manufactures Axenhol. We have reserved 6,500,000 common shares
for issuance under these plans. As of the date of this prospectus options to
acquire over 4,200,000 shares have been awarded pursuant to these plans. In
addition, common stock purchase warrants to acquire up to 83,334 shares of
common stock for $4.00 per share on or before January 28, 2003 are currently
outstanding and common stock purchase warrants to acquire up to 88,640 shares
of common stock for $3.468 per share on or before July 31, 2002 are also
outstanding. The exercise of options and common stock purchase warrants and sale
of underlying shares could have an adverse effect on the market for the shares.
8
5. Previously outstanding convertible debentures contain an anti-dilution
provision which could result in additional shares being issued to the holder in
the event we declare a reverse split of the outstanding common stock, thereby
further diluting the ownership of our common stock and possibly depressing the
price of the common stock.
The convertible debentures converted on July 31, 2001 contained an anti-dilution
provision. This provision states that in the event we declare a reverse split of
the outstanding common stock within 180 days of a conversion of the convertible
debenture into common stock, the holder of the convertible debenture may elect
to have their conversion recalculated using the average closing bid price of the
common stock as reported on the NASDAQ SmallCap Market for the ten trading days
immediately following the effective date of the reverse split. If such
recalculation would result in a greater number of shares than received from the
prior conversion, we are required to issue such additional shares to the holder
within five business days of receipt of re-calculated conversion notice.
Where You Can Get More Information
We are subject to the reporting requirements of the Securities Exchange Act of
1934 and files annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy these reports, proxy statements
and other information at the SEC's public reference
facilities at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549. You can request copies of these documents by writing to the SEC and
paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for
more information about the operation of the public reference facilities. SEC
filings are also available at the SEC's Web site at http://www.sec.gov.
Our common stock is listed on the Nasdaq SmallCap Market, and you can read and
inspect our filings at the offices of the National Association of Securities
Dealers, Inc. at 1735 K Street, Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" information that we file with
them. Incorporation by reference allows us to disclose important information to
you by referring you to those other documents. The information incorporated by
reference is an important part of this prospectus, and information that we file
later with the SEC will automatically update and supersede this information. We
have filed a registration statement on Form S-3 under the Securities Act of 1933
with the SEC with respect to the common stock being offered pursuant to this
prospectus. This prospectus omits certain information contained in the
registration statement on Form S-3, as permitted by the SEC. Refer to the
registration statement on Form S-3, including the exhibits, for further
information about us and our common stock being offered pursuant to this
prospectus. Statements in this prospectus regarding the provisions of certain
documents filed with, or incorporated by reference in, the registration
statement are not necessarily complete and each statement is qualified in all
respects by that reference. Copies of all or any part of the registration
statement, including the documents incorporated by reference or the exhibits,
may be obtained upon payment of the prescribed rates at the offices of the SEC
listed above.
Upon request, we will provide without charge to each person to whom a copy of
this prospectus has been delivered a copy of any information that was
incorporated by reference in the prospectus (other than exhibits to documents,
unless the exhibits are specifically incorporated by reference into the
prospectus). We will also provide upon request, without charge to each person to
whom a copy of this prospectus has been delivered, a copy of all documents filed
from time to time by us with the SEC pursuant to the Exchange Act of 1934.
Requests for copies should be directed to Donna Singer Vice President,
Innovative Medical Services, 1725 Gillespie Way, El Cajon, California 92020.
Telephone requests may be directed to Ms. Singer at (619) 596 9600.
9
Certain Information We Are Incorporating By Reference
We incorporate by reference the documents listed below and any future filings we
will make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934:
-- Form 10-KSB Annual Report for the fiscal year ended July 31, 2001 filed on
October 29, 2001
-- All other documents filed by us after the date of this prospectus under
Section 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934,
are incorporated by reference herein to be a part thereof from the date of
filing of such documents.
You may request a copy of these filings at no cost, by writing, telephoning or
e-mailing us at the following address:
Innovative Medical Services
1725 Gillespie Way, El Cajon, California 92020
e-mail: dsinger@imspure.com
This prospectus is part of a registration statement we filed with the United
States Securities and Exchange Commission. You should rely only on the
information incorporated by reference or provided in this prospectus. No one
else is authorized to provide you with different information. We are not making
an offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the front of this document.
Forward-Looking Statements
This prospectus contains and incorporates by reference forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including statements
regarding our drug development programs, clinical trials, receipt of regulatory
approval, capital needs, collaborative agreements, intellectual property,
expectations and intentions. Forward-looking statements may be identified or
qualified by words such as "likely", "will", "suggests", "may", "would",
"could", "should", "expects", "anticipates", "estimates", "plans", "projects",
"believes", or similar expressions and variants of those words or expressions.
Forward-looking statements necessarily involve risks and uncertainties, and our
actual results could differ materially from those anticipated in the
forward-looking statements due to a number of factors, including those set forth
below under "Risk Factors" and elsewhere in this prospectus. The factors set
forth below under "Risk Factors" and other cautionary statements made in this
prospectus should be read and understood as being applicable to all related
forward-looking statements wherever they appear in this prospectus. The
forward-looking statements contained in this prospectus represent our judgment
as of the date of this prospectus. We cautions readers not to place undue
reliance on such statements. We undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
10
Description Of Securities
Common Stock: We are authorized to issue up to 20,000,000 shares of its no par
value common stock. Each share is entitled to one vote on matters submitted to a
vote of the shareholders. There is no cumulative voting of the common stock. The
common stock shares have no redemption provisions nor any preemptive rights. We
are also authorized to issue up to 5,000,000 shares of preferred stock, the
rights and preferences of which may be set from time to time prior to issuance
by the Board of Directors.
Private Placement Warrants: 83,334 Private Placement Warrants were sold in
January, 2001. These January 2001 Private Placement Warrants entitle the holder
to acquire an additional share of common stock for $4.00 per share on or before
January 28, 2003.
Convertible Debentures: In April 2001, two convertible debentures, each with a
principal amount of $100,000 were issued. The debentures accrued interest at the
rate of 10% per annum resulting in $2,465.75 of accrued interest throught the
date of conversion on July 31, 2001. The debentures were converted into 44,320
units each consisting of one share of common stock and a common stock purchase
warrant to acquire 44,320 shares on or before July 31, 2002. The conversion
price for each unit was $2.312 per unit which was equal to 80% of the average
closing bid price of the common stock as reported on the NASDAQ SmallCap Market
for the five trading days immediately preceding the date of receipt of a notice
of conversion on July 31, 2001. The $3.468 exercise price of the common stock
purchase warrant contained in the units is equal to 120% of the average closing
bid price as reported on the NASDAQ SmallCap Market for the five trading days
immediately preceding the date of receipt of a notice of conversion on July 31,
2001.
In the event of default defined as including failure to repay upon maturity,
bankruptcy or insolvency, default interest at the rate of 20% per annum would
have accrued on the debentures as well as all costs of collection and attorneys
fees.
In addition the Convertible Debentures contained an anti-dilution provision.
This provision stated that in the event we declare a reverse split of the
outstanding common stock within 180 days of a conversion of the Convertible
Debenture into common stock, the holder of the Convertible Debenture may elect
to have their conversion recalculated using the average closing bid price of the
common stock as reported on the NASDAQ SmallCap Market for the ten trading days
immediately following the effective date of the reverse split. The holder would
provide notice to us of its election. At this time we would recalculate the
prior conversion using the post reverse split pricing. If such recalculation
would result in a greater number of shares than received from the prior
conversion, we are required to issue such additional shares to the holder within
five business days of receipt of re-calculated conversion notice. The purpose of
this provision is to protect the holder from loss of value of converted shares
due to a reverse split based upon the assumption that the market price of shares
following a reverse split will quickly be substantially less than the reverse
split multiple following the effective date of the reverse split.
11
For example:
- The holders received 88,640 shares for its conversion on July 31, 2001
at a conversion price of $2.312 per share;
- Assume a two to one reverse split is effective prior to January 29,
2002;
- Assume the ten day average closing bid price following the effective
date of the reverse split is $3.00;
- The holders now have 44,320 shares for which it effectively paid
$4.624 per share less than 180 days ago;
- A recalculation of the conversion based upon post reverse split
pricing would result in recalculated conversion price of $2.40 per
share and 85,388 shares due to the holders;
- We would be obligated to issue an additional 41,068 shares to the
holder.
12
Selling Securities Holders
The following Selling securities holders whose shares have been registered for
public resale are set forth below:
SELLING SECURITIES SECURITIES %Before %After
SECURITIES HOLDER OWNED OFFERED Offering Offering
Solinvest Group, Ltd. 88,640 88,640 1.2% 0%
Multiasian Ventures Ltd. 88,640 88,640 1.2% 0%
Harold Singer 115,000 65,000 1.6% <1%
Harold W. Clark 30,000 30,000 <1% 0%
Albert Pick III 46,667 30,000 <1% <1%
Keystone Capital Mgmt. 25,000 25,000 <1% 0%
Solinvest Group, Ltd., is a corporation for which Mr. Alfred Peeper is the
control person. The shares offered by Solinvest Group, Ltd., include 44,320
shares acquired from the July 31, 2001 conversion of a $100,000 principal amount
convertible debenture issued in April 2001 and potential exercise of 44,320
common stock purchase warrants also obtained in the conversion.
Multiasian Ventures Limited, is a corporation for which Mr. Alfred Peeper is the
control person. The shares offered by Multiasian Ventures Limited include 44,320
shares which acquired from the July 31, 2001 conversion of a $100,000 principal
amount convertible debenture issued in April 2001 and potential exercise of
44,320 common stock purchase warrants also obtained in the conversion.
Mr. Singer's shares include exercisable options to acquire 50,000 shares and the
65,000 shares acquired in a private placement in April 2001 for $1..50 per
share.
Keystone Capital Management is a corporation for which Mr. Ralph Hibbitts is the
control person. Keystone Capital Management acquired its shares in a private
placement in April 2001 for $1.50 per share.
Mr. Clark and Mr. Pick acquired their shares in a private placement in April
2001 for $1.50 per share.
None of the Selling securities holders nor any of their affiliates have ever
held any position, office, or other material relationship with Innovative
Medical Services nor hold any additional shares of Innovative Medical Services.
13
Selling Securities Holders Plan Of Distribution
The Selling securities holders may sell or distribute its shares in transactions
through underwriters, brokers, dealers or agents from time to time or through
privately negotiated transactions, including in distributions to shareholders or
partners or other persons affiliated with the Selling securities holder.
The distribution of the Selling securities holders shares may be effected from
time to time in one or more transactions (which may involve crosses or block
transactions) in the following types of transactions:
1. Over-the-counter market sales
2. Privately negotiated sales
3. By writing of options on the shares (whether such options are listed on an
options exchange or otherwise).
Any of such transactions may be effected at market prices prevailing at the time
of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices.
If the selling securities holders effect such transactions by selling the shares
to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the Selling securities holders or commissions
from purchasers of the shares for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents might be in excess of those customary in the types of transactions
involved).
A selling securities holder and any brokers, dealers or agents that participate
in the distribution of the securities might be deemed to be underwriters, and
any profit on the sale of the securities by them and any discounts, concessions
or commissions received by any such underwriters, brokers, dealers or agents
might be deemed to be underwriting discounts and commissions under the
Securities Act.
A selling securities holder may pledge the shares from time to time in
connection with such Selling securities holder's financing arrangements. To the
extent any such pledgees exercise their rights to foreclose on any such pledge,
and sell the shares, such pledgees may be deemed underwriters with respect to
such shares and sales by them may be effected under this prospectus. We
will not receive any of the proceeds from the sale of any of the shares by the
selling securities holder.
Under the Exchange Act and applicable rules and regulations promulgated
thereunder, any person engaged in a distribution of any of the shares may not
simultaneously engage in market making activities with respect to the shares for
a period, depending upon certain circumstances, of either two days or nine days
prior to the commencement of such distribution. In addition, and without
limiting the foregoing, the selling securities holders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
promulgated thereunder, including without limitation Regulation M, which
provisions may limit the timing of purchases and sales of any of the shares by
the selling securities holder.
Under the securities laws of certain states, the shares may be sold in such
states only through registered or licensed brokers or dealers. In addition, in
certain states the shares may not be sold unless the shares have been registered
or qualify for sale in such state or an exemption from registration or
qualification is available and is complied with.
14
Transfer Agent: The transfer agent with respect to the shares is Computershare
Investor Services Inc., Lakewood, Colorado.
Experts: We are relying on the report of Miller and McCollom, Certified Public
Accountants, for their report on the fiscal years ended July 31, 2001 and 2000,
given on the authority of said firm as experts in auditing and accounting which
is incorporated by reference in this prospectus from the Annual Report of Form
10-KSB for the year ended July 31, 2001.
Legal Matters: The legality of the shares offered will be passed on for the
Company by Dennis Brovarone, Attorney at Law, Littleton, Colorado. Mr. Brovarone
is also a Director of Innovative Medical Services.
Legal Proceedings
Reitz Litigation: A legal proceeding in the Circuit Court of Pinellas County,
Florida was filed by Zedburn Corporation, against us for breach of contract in
October 1997. The breach of contract alleged was for payment of fees for Mr.
David Reitz's and Mr. Steven Durland's services of arranging a public offering
of our common stock. We has filed counterclaims based upon the Racketeer
Influenced and Corrupt Organization (RICO) Act against David Reitz, Zedburn
Corporation, Capital Development Group, Steven Durland and other defendants. It
is our position that Mr. Reitz and others perpetrated a scheme to defraud us of
cash fees and securities in connection with purported services of arranging a
public offering of our common stock. In October 1997, Mr. Reitz and Zedburn
filed for protection under the Federal bankruptcy laws. In August 1998, Mr.
Reitz voluntarily dismissed his bankruptcy and as a result thereof we named Mr.
Reitz as a defendant to our counterclaims.
We believe that the defendants had perpetrated similar schemes against other
parties. We also believe it has substantially completed discovery and complied
compelling evidence to prove its claims.
Several of the Defendants filed Motions to Dismiss our counterclaims. A hearing
on the Motions was held on October 1, 1998. Certain of the Motions were granted
pending our amendment of its Counterclaim. We amended our Counterclaims in
accordance with the judge's rulings. Certain Defendants filed second Motions to
Dismiss the amended Counterclaims. A hearing on these latest motions was held in
March 1999, before a different judge than the judge who ruled on the first
motions. On April 20,1999, Orders were entered granting the Defendants' Motions
to Dismiss. However these Orders did not state the basis for the Orders, nor was
our legal counsel provided notice of the Orders or a copy of the new judge's
correspondence offering a "formal ruling" upon request. In May 1999 we filed an
Appeal of the Orders and Motions for Reconsideration based upon inconsistency of
the Orders with the previous judge's rulings and the lack of notice to us. In
August 2001, the Court of Appeals reversed the trial court's ruling and
reinstated our claim against the defendants with the exception of our RICO
action. We intend to pursue a trial as soon as possible.
We have neither accrued a liability in its financial statements regarding this
litigation nor disclosed the matter in the footnotes thereof. We have not done
so because we do not believe there is any merit to Mr. Reitz's claims and that
the likelihood that we will realize a loss from these matters is believed
remote. In addition, we believe that in the unlikely event that we settle, the
amount of any such settlement would not be material to our financial statements.
15
Fresh Water Systems Litigation: We filed an action against John Woodard, our
former Vice President of Sales, in Superior Court in the State of California in
April 2000. We alleged Mr. Woodard violated his non-competition/non-disclosure
agreement and provided proprietary information, including information regarding
our Fillmaster line of products and Fillmaster customer base, to Fresh Water
Systems, Inc. We alleged the misappropriation of customer lists, equipment
service and maintenance schedules, equipment data, business plans and research
and development secrets. We are seeking monetary damages and injunctive relief.
We have also filed an action against Fresh Water Systems, Inc., Steven Norvell,
Brian Folk and Eric Norvell in Superior Court in the State of California. The
action was filed in August 2000 and amended in October 2000. We allege Fresh
Water Systems and it's officers and directors misappropriated our trade secrets
obtained from our former employees, engaged in unfair competition in violation
of the California Unfair Practices Act, tortious interference with contractual
relations, tortious interference with prospective business advantage, fraud,
trade libel and conspiracy with regard to the Fillmaster line of products and
Fillmaster customer base. We are seeking monetary damages and injunctive relief.
NVID Litigation: On April 12, 2001, NVID, International, Inc. filed a
declaratory judgment action in the Circuit Court of Pinellas County, Florida
against Innovative Medical Services and ETI-H2O, Inc. The lawsuit seeks a
judicial declaration that the Manufacturing, Licensing and Distribution
Agreement, dated March 26, 2000 between us, NVID, International, Inc. and
ETI-H2O does not constitute a binding contract and seeks unspecified damages.
The lawsuit does not challenge the binding effect of the Standard Manufacturing
Agreements dated November 30, 1998 and September 17, 1999 between NVID,
International, Inc. and ETI-H2O and the November 24, 1999 License Agreement
between us and NVID, International, Inc.
On May 17, 2001, we and ETI-H2O removed NVID'S declaratory judgment action from
Pinellas County Circuit Court to the United States District Court for the Middle
District of Florida. We and ETI-H2O has filed a Motion To Dismiss, which is
currently pending.
On May 7, 2001, we and EIT-H2O filed a separate action, a Petition to Compel
Arbitration, in the United States District Court for the Southern District of
California based on arbitration clauses contained in the March 26, 2000 and
November 24, 1999 agreements. Contemporaneously with filing the Petition, we and
ETI-H2O filed a demand for arbitration against NVID, International, Inc. with
the American Arbitration Association ("AAA") in San Diego, California. NVID,
International, Inc. has notified AAA that it objects to the arbitration demand.
Our Petition to compel Arbitration was granted in July 2001.
16
On August 2, 2001, Innovative Medical Services and Eckerd Corporation settled
the previously reported litigation. We had filed an action against Eckerd
Corporation in Superior Court in the State of California in August 2000, in
which we alleged Eckerd Corporation had not paid for Fillmaster products ordered
by and shipped to Eckerd pharmacies. Executives of both companies determined it
was in their mutual best interest to avoid the costs and risks associated with
litigation and settle the dispute. The terms of the settlement include a payment
to Innovative Medical Services by Eckerd of a compromised amount of the claim
and a commitment by Innovative Medical Services to supply product to Eckerd.
17
The Business of Innovative Medical Services
Overview
Innovative Medical Services began as a provider of pharmaceutical water
purification products. Although our current revenues are still primarily from
the pharmacy industry, we have expanded from our niche pharmacy market into
other, broader markets with new products, including residential and commercial
water filtration systems, health and wellness-related retail merchandise,
e-commerce products, and silver ion bioscience technologies.
The Fillmaster(R) pharmaceutical water purification, dispensing and measuring
products include the Pharmapure(R) water purification system, the FMD 550
dispenser, the patented Fillmaster 1000e computerized dispenser and the patented
Scanmaster(TM) bar code reader. We also market proprietary National Sanitation
Foundation certified replacement filters for the Fillmaster Systems.
Our Nutripure(R) line of water treatment and filtration systems includes the
Nutripure 3000S-Series whole-house water softening systems, the Nutripure Elite
reverse osmosis point-of-use systems, the Nutripure 2000 countertop water
filtration system and the Nutripure Sport filtered sport bottle.
We distribute our various Nutripure products in several ways, including retail
sales, catalogue placement, business-to-business sales, internet promotion and
in-home sales presentations.
Through our subsidiary Nutripure.com(R), we operate an e-commerce health
website, Nutripure.com(R), that distributes Bergen Brunswig products which
provides consumers a wide variety of vitamins, minerals, nutritional
supplements, homeopathic remedies and natural products. In addition to
merchandise, the site offers comprehensive health and wellness information in an
easy-to-access, intuitive reference format.
We have obtained worldwide manufacturing and marketing rights for advanced
silver ion technologies. Axenohl (TM) is a patent-pending, non-toxic aqueous
disinfectant. Axen (TM) is our trademarked, formulated hard surface disinfectant
product containing Axenohl for commerical, industrial and residential
applications. The EPA registration for use of Axenohl(TM) and Axen(TM) as hard
surface disinfectants has been issued, and we plan to pursue additional EPA,
USDA and FDA regulatory approvals for other applications Additional possible
uses for this product include wound care, topical infection care, and personal
disinfecting retail products, which may require FDA approvals as well as
municipal water treatment, point-of-use/point-of-entry water treatment products,
which may require additional EPA approvals.
We expanded our bioscience division by acquiring a new pesticide technology
during the year. The product line contains particular formulas for specific
pests and targets cockroaches, ants, palmetto bugs, silverfish, waterbugs,
ticks, fleas, lice and garden pests. We are marketing the first product from the
line, the EPA-approved RoachX(TM), to the pest control industry through the two
largest pest control wholesalers in the United States. We have submitted for and
anticipate EPA approval for AntX(TM), the next product in the line. We are ready
to begin selling AntX as soon as approval is received.
History
Innovative Medical Services was incorporated in the State of California on
August 24, 1992, to pursue the immediate business of manufacturing and marketing
the Fillmaster and subsequently a broadly based business of delivering advanced
technology, equipment and supplies to not only the pharmacy industry, but also
other healthcare markets and to retail consumers.
18
In the past five years, we have transitioned from a one-product company
supplying a niche market to a multi-division company managing new products and
programs. In addition to expanding the Fillmaster product line with the
Fillmaster 1000e and the Scanmaster, we launched a line of residential water
treatment and filtration products and several other health related retail
products. We distribute many of the new products through distribution channels
established by sales of Fillmaster Systems to retailers. We also launched a
strong e-commerce initiative and entered the bioscience arena with its silver
ion disinfecting technologies.
In October 1998, Innovative Medical Services acquired AMPROMED, Rio de Janeiro,
Brazil, and certain assets of Export Company of America Inc. (EXCOA), Fort
Lauderdale, FL, and established a new Nevada corporation to hold and operate the
export/import operation. AMPROMED's primary business is the sale of medical,
dental and veterinary disposable products. In addition to medical supplies, we
plan to distribute water treatment and silver ion products to Brazil through
AMPROMED. Since the acquisition, the economic conditions in the region have
declined and implementation of the project has been delayed. We no longer have
immediate plans to import medical and dental supplies into Brazil but we
believe, however, that Ampromed is a vital part of our plan to market and sell
"Axenohl", RoachX and the Nutripure line of water treatment products. Because we
suspended our plans to market medical and dental supplies in Brazil in May of
2000, we determined the goodwill and customer list assets of AMPROMED should be
written off, and the value of the license to do business in Brazil should be
written down to what it would cost to acquire in today's market. This was
estimated to be approximately $150,000, which is being amortized over its
expected useful life of 15 years.
In December 1999, we formed a wholly owned subsidiary, Nutripure.com, to
capitalize on internet commerce opportunities focusing on health and wellness.
In January 2000, we began the process to spin off Nutripure.com as a separate
public company. During the intervening time, adverse market conditions for
solely internet-based ventures have eroded Management's confidence in the
viability of a public market for Nutripure.com common stock. Therefore, in
October 2000, our Board of Directors elected to retain Nutripure.com as an
operating division of Innovative Medical Services in order to minimize the
substantial administrative expense associated with launching and operating a
public company.
In July 2000, we formed a Scientific Advisory Board to assist us with our new
Bioscience division and all aspects of the development and identification of
uses for the Division's new products. The first product under review is Axenohl.
The Advisory Board examines the potential uses and avoidance of toxicity as well
as support our efforts to obtain governmental approvals for Axen. We expect the
leadership and experience of the members of the Scientific Advisory Board to
play a key role in moving Axen-containing products to market.
In January 2001, we acquired all manufacturing and marketing rights to the
patented and U.S. Environmental Protection Agency approved RoachX pesticide
product from the inventor, Gerald Weaver, PhD. The consideration for the
assignment of these rights was an employment agreement with Innovative, options
to acquire up to 200,000 shares of our common stock, $50,000 payable within 30
days of the agreement and $450,000 to be paid in $50,000 increments due upon
each $1,000,000 of net sales of RoachX. A patent application for RoachX was
filed in February 1998 to protect this nonaqueous form of insecticide consisting
of a desiccant, preferably boric acid, with additional ingredients for binding,
stability and target insect attraction.
19
Principal Products and Markets
Water Treatment Division
Pharmaceutical Water Treatment
Fillmaster(R) The Fillmaster dispensing apparatus, connected to the
Pharmapure(R) reverse osmosis water filtration system, provides measured amounts
of "Purified Water" as defined by the United States Pharmacopoeia, ("USP") for
reconstitution of liquid oral antibiotics and certain other pharmacy
applications. Pharmapure is a six-stage water purification unit featuring an
electronic water purity testing module and an auxiliary faucet for dispensing
purified water. Fillmaster is a calibrated volumetric measuring and dispensing
apparatus. The entire system (the "Fillmaster System") integrates with the
building's tap water plumbing and is closed and pressurized to prevent
contamination.
The Fillmaster System saves time and money for pharmacies. According to our
testing, the Fillmaster has a fill rate at least three times that of previous
bottle-and-hose methods, and direct and indirect costs associated specifically
with bottled water are reduced or eliminated. Pharmacy storage space can be
reallocated to more profitable items, labor savings accompany the efficiencies,
and the expense of bottled water purchases of up to $1.25 per gallon is replaced
by one annual filter change. Under optimum usage, a pharmacy reduces the cost of
"purified water" to approximately $.04 per gallon.
In addition to efficiency and cost savings, the Fillmaster System increases
prescription integrity by greatly reducing the possibility of human error while
dispensing prescriptions. The patented Fillmaster 1000e employs multiple
microprocessors to provide accurate and even-flow dispensing. We sell Fillmaster
1000e dispensers as an upgrade to existing installations and as a component of
new installations. The Scanmaster, launched in August 1999, is a pager-sized,
modular upgrade to the Fillmaster 1000e. A user simply scans a prescription's
NDC bar code in front of the dispenser, and the Fillmaster 1000e displays the
product name and required water quantity. The Fillmaster System then dispenses
the prescription with one touch of a button. The advanced technology of the
Fillmaster 1000e computerized dispenser and the Scanmaster bar code reader
ensures accuracy of measurement and assurance of compliance to minimize
liability.
This is a finite, niche market in which our significant customers to date
consist primarily of domestic retail chain pharmacies. There are approximately
72,000 pharmacies in the United States and Canada, with many thousands more
worldwide. Water-mixed antibiotic prescriptions, for which the Fillmaster is
primarily used, make up approximately 12.6% of a pharmacy's total prescriptions
and approximately 20% of a pharmacy's gross profit. We have installed over
20,000 Fillmaster dispensers in pharmacies across the nation, including
Wal-Mart, Walgreens, Albertson's/American Stores, Eckerd, Fred Meyer, Target,
CVS, Kroger, Smith's Food and Drug, Longs Drugs, Rite-Aid, Drug Emporium, Fry's,
Hi-School Pharmacies, H-E-B, Fleming, Giant and Snyders. Also included in the
customer base are many United States Military Clinics, including Bethesda Naval
Hospital; the Kaiser Foundation for Medical Care; the Mayo Clinic and several
hundred Independent and Hospital Pharmacies.
Fillmaster(R) System Filters We also market unique and proprietary NSF certified
filter replacements for the Fillmaster's Pharmapure water purification system,
20
which require changing at intervals of approximately 12 months or sooner as
indicated by the purity testing module. The filter replacements represent a
significant continuing source of revenues to us.
Customer Service Plan 2000(TM) Innovative Medical Services offers outstanding
service to its pharmacy customers with its exclusive Customer Service Plan 2000
(CSP 2000). The CSP 2000 provides an unlimited warranty on all Innovative
Medical Services pharmacy products, regardless of age or quantity; significant
discounts on maintenance item costs; free software upgrades for the Fillmaster
1000e and Scanmaster; a secure web site that allows pharmacy customers to
monitor history, scheduled maintenance and account status; automatic replacement
filter shipments; and simplified, annual invoicing. Motivated by the cost
savings and the extended warranty coverage, most of our chain customers have
entered into multi-year contracts for the CSP 2000.
Residential Water Treatment Products
Nutripure(R) 3000S Series Innovative Medical Services' Nutripure Water Dealer
Program program offers existing independent water treatment dealers a line of
residential water softening and other point-of-use water treatment equipment for
sale to the public under IMS' Nutripure brand. In addition, the program provides
complementary, industry-unique financing that extends credit to consumers for
the purchase of water treatment equipment from participating dealers. We realize
revenues from both the sale of Nutripure equipment and the financing.
The Nutripure 3000S-Series whole-house water softening systems, like most water
softening systems on the market, are typically professionally installed in a
customer's basement or garage and require electricity. The Nutripure water
softening systems, comprised of a resin tank, brine tank and controller, extract
minerals from the water through an ion exchange process. Nutripure 3000 systems
are often installed in conjunction with Nutripure Elite systems.
We have formed alliances with independent dealer groups, finance companies and
leading equipment component manufacturers to create a marketing program to sell
and finance whole-house water treatment systems through existing dealers. We
believe this marketing strategy provides consumers and independent dealers a
name and image they can trust. The programmable systems come equipped with
microprocessors and electronic water meters to monitor daily water usage and
provide automatic, demand-based water conditioning. An electronic memory stores
operating system information, and battery backup keeps it current if power is
lost.
In May 2001, we announced our Nutripure water dealer program and our partnering
with USFilter of Palm Desert, California for the water softening and filtering
equipment being sold under the program. Our arrangement with USFilter is that we
will only buy USFilter equipment for the program which labeled as Nutripure
equipment and that USFilter will sell the equipment within the United States
only to us. USFilter ships equipment in their ordinary course of business upon
receipt of purchase orders generated from the program. Other than the purchase
orders there is no written agreement between Innovative and USFilter. We then
resell the Nutripure equipment to participating water treatment equipment
dealers. The Nutripure water dealer program is offered to existing independent
water softener, water treatment equipment distributors. The independent dealers
must sign an exclusive equipment agreement with us. Thereafter the independent
dealer has access to the MBNA and Automated Payment Services financing system.
21
Nutripure(R) Elite The Nutripure Elite line of residential drinking water
systems combines reverse osmosis technology with carbon filtration to improve
the taste, smell, quality and safety of standard tap water. Reverse osmosis is a
water treatment process that removes contaminants from water by using pressure
to force the water molecules through a semi-permeable membrane. Carbon,
sometimes referred to as activated carbon, is a water treatment medium commonly
used for dechlorination and for reducing trace and soluble materials from water.
The Nutripure Elite reverse osmosis filtration system is comprised of a storage
tank, a faucet and a water filtration apparatus which includes a sediment
filter, pre- and post-carbon filters and a reverse osmosis membrane. Nutripure
Elite requires neither professional installation nor electricity to operate. The
Nutripure Elite system filters to .001 micron and reduces heavy metals,
chemicals and microorganisms, such as cryptosporidium and giardia, as well as
reducing bad taste and odor from drinking water. A micron is measurement unit
equal to one millionth of a meter. Micron measurements are applied to water
filtration systems to indicate the particle size at which suspended solids
larger than that size will be removed.
We distribute Nutripure Elite systems through independent pharmacists, providing
them an exclusive health product. Our direct sales force of independent water
treatment dealers also distributes the Nutripure Elite system in conjunction
with sales of the Nutripure 3000S Series water softening equipment.
Nutripure(R) Elite Filters We also market unique and proprietary filter
replacements for the Nutripure Elite residential drinking water systems that
require changing every 12 months.
Nutripure(R) 2000 Innovative Medical Services entered the retail venue with its
Nutripure 2000 Countertop Water Filtration System. Nutripure 2000, developed
specifically for mass merchandising, offers water filtration technology at
competitive pricing. Nutripure's professional one-micron, carbon microfilter
reduces dirt, chemicals, lead and parasites to improve the taste, quality and
safety of tap water.
The product has been tested by Spectrum Laboratories to meet or exceed National
Sanitation Foundation Standard No. 53 Health Effects and Standard No. 42
Aesthetic Effects. These tests determine if the product meets the most stringent
standards set by the NSF for consumer water filtration. Spectrum Labs, Inc. is
an independent laboratory in New Brighton, Minnesota. The testing on the
Nutripure product was paid for by Omnipure Filter Company, Caldwell, Idaho.
Omnipure is the manufacturer of the major components of Innovative Medical
Services' Nutripure 2000 water filtration system. The test reports were
submitted by Spectrum Labs, Inc. to Omnipure on April 6, 1998. We had no prior
relationship with Spectrum Labs when the tests were conducted.
Spectrum Labs' Product Testing Department conducted testing on the product for
chlorine reduction in accordance with test protocol contained in NSF
International Standard Number 42 "Drinking Water Treatment Units/Aesthetic
Effects," Appendix B, "Chemical Unit Test Methods," Section I, "Procedure -
Plumbed-In and Faucet Mounted Taste, Odor and Chlorine Reduction Units Without
Reservoir," revised June 1988. The product was found to meet the requirements
for compliance under Standard Number 42 for taste, odor and chlorine reduction
for Class I filters.
22
In addition, Spectrum Labs evaluated the product for cyst and turbidity
reduction and structural integrity in accordance with test protocol contained in
NSF International Standard Number 53, "Drinking Water Treatment Unites/Health
Effects," Section 6.12, "Mechanical Filtration Test Methods," and Section 6.6,
"Structural Integrity Performance. The filter media evaluation was performed
based on test protocol contained in NSF Standard Number 53, Section 6.7, "Filter
Media." Influent and effluent samples were analyzed for cyst reduction using
American Society for Testing and Materials Method Number F796 which is a
standard particle counting method. Samples evaluated for turbidity were analyzed
using EPA Method Number 180.1 which is a nephelometric method. NSF Standard
Number 53, Section 6.6.1.2 protocol was used to perform the pressure evaluation
for structural integrity. The product was found to meet the requirements for
compliance under NSF Standard Number 53 for cyst and turbidity reduction, filter
media evaluation and structural integrity performance.
The Nutripure 2000 requires no assembly and mounts directly to a
faucet. Nutripure 2000 features a 2,000-gallon capacity filter, an automatic
bypass shutoff valve, an electronic monitor that reminds users when to change
the filter, and an exclusive filter design that prevents leaking and
contamination because water flows only through the completely sealed filter
cartridge.
We distribute Nutripure 2000 through retail outlets and catalogues in the United
States and Canada. In many cases, product placement is established through
existing channels of distribution in retail chains that use Fillmaster equipment
in their pharmacies.
Nutripure(R) 2000 Replacement Filters We also manufacture and market replacement
filters for the Nutripure 2000 water system. The Nutripure 2000 contains a
2,000-gallon filter that must be changed every year.
Nutripure(R) Sport Filtered Sport Bottle The Nutripure Filtered Sport Bottle,
also offered as a private label or premium item, provides clean, great-tasting
water for on-the-go consumers. The Nutripure Filtered Sport Bottle features a
small carbon filter at the bottom end of the plastic straw so that, as the
consumer drinks through the straw, the water is drawn up through the filter. An
innovative alternative to buying expensive bottled water, Nutripure Sport
filters an average of approximately 30 microns, reducing sediment and chlorine,
and can be refilled 60 times before an inexpensive filter change is required.
The Nutripure Sport program provides recurring revenue through sales of the
replacement filter twin pack.
Retail Products Division
Medifier(TM) We also market the Medifier, a patented universal prescription
bottle label magnifier. The Medifier holds various sized prescription bottles in
position under a magnifier strip that enlarges dosage and use instructions to a
clearly readable size. The Medifier is distributed through Innovative Medical
Services' existing sales channels, as well as through catalogue sales and
promotional products distributors.
E-Commerce Division
Nutripure.com(R) Innovative Medical Services operates Nutripure.com, an
e-commerce website providing consumers a wide variety of vitamins, minerals,
nutritional supplements, homeopathic remedies and natural products. In addition
to products, the website offers comprehensive health and wellness information in
23
an easy-to-access, intuitive reference format. The website also presents the
Nutripure 2000 water filtration system.
Nutripure.com has formed a strategic alliance with Bergen Brunswig Corporation
to provide a seamless online interface for efficient, direct-to-consumer
distribution of products through Bergen Brunswig's strategically located
state-of-the-art distribution facility in Louisville, Kentucky. The alliance
combines the strengths of Nutripure.com's aggressive sales, marketing and
customer support programs with Bergen Brunswig's leadership, buying power and
order fulfillment and delivery system.
Bioscience Division
Axenohl(TM) Innovative Medical Services obtained worldwide manufacturing and
marketing rights to Axenohl and Axen(TM), advanced silver ion technologies.
Axenohl is a patent-pending, non-toxic aqueous disinfectant. Axen is a
formulated hard surface disinfectant product containing Axenohl for commerical,
industrial and residential applications. Based upon proprietary ionization
stabilization technology, Axenohl does not include the use of traditional
disinfectants such as quaternary ammonium salts, phenols, glutaraldehyde,
chlorine or bromine compounds. Axenohl enhances the disinfection properties of
halogens, such as chlorine at reduced levels and is a cost effective, stand
alone alternative to halogens in many markets where conventional disinfection
methodologies are employed.
We obtained its worldwide manufacturing and marketing rights to Axen from NVID
International, Inc., in a License Agreement dated November 24, 1999 and a
Manufacturing, Licensing and Distribution Agreement dated March 26, 2000 which
supersedes the November 1999 Agreement.
In November, 2000, we closed an acquisition agreement whereby we acquired all of
the outstanding common stock of ETIH20, Inc., in exchange for 51,240 shares of
its common stock and employment agreements with Andrew Arata and George Duren,
the executive officers of ETIH2O, Inc.
The EPA registrations for Axen and Axenohl as hard surface disinfectants were
granted in June of 2001. We plan to pursue FDA approval in the future, but no
applications have been made to date. We are currently researching the FDA
approval process and plans to hire an experienced FDA consultant to assist with
the process. With EPA approval the potential uses of Axen could make dramatic
improvement in retail hard surface disinfecting products as well as in
disinfecting hard surfaces in hospital ERs, surgeries, laboratories, dental and
medical offices. We have funded testing with the United Stated Department of
Agriculture for use of Axenohl in poultry processing. The USDA reported that the
testing was to be completed in June 2001, and we are is awaiting the final
report that will document the testing results. We anticipate FDA approval will
be necessary for the use of Axen and Axenohl in food processing. Additional
potential applications for this product include wound care, topical infection
care, and personal disinfecting retail products, which we anticipate will
require FDA approvals as well as municipal water treatment,
point-of-use/point-of-entry water treatment products, which we anticipate will
require additional EPA approvals.
We have developed equipment to dispense Axen in measured doses to municipal,
commercial and point-of-use water supplies to kill bacteria, viruses and fungi
originating from the water source or the delivery infrastructure.
24
Upon receiving appropriate approvals, we plan to launch a consumer line of
products featuring Axen. The first products to be introduced will be the
improved Nutripure antimicrobial soap and hand sanitizer featuring Axen. We have
also established a line of veterinary products featuring Axen including
antimicrobial shampoo, hoof spray, wound salve, and stall and kennel spray.
Boric Acid Based Pesticide Technologies During the year, we completed the
acquisition of a new pesticide technology. The EPA-approved RoachX(R) was the
first product to launch from the line, and we have submitted for and anticipate
EPA approval for AntX. RoachX is over 96% effective in three to four days with
one application for indoor and outdoor eradication of cockroaches, and can be
used near children and food preparation areas. Boric acid is a well-known and
effective deterrent of cockroaches and will kill them on contact, but
cockroaches do not naturally eat the repellent. Although many pesticide products
contain boric acid as the listed active ingredient, we believe RoachX to be new
because of the combination of boric acid and glycerin in a colloidal suspension
to create three unique results: 1) The formula protects the boric acid from
water and humidity, 2) The cockroaches perceive formulation as food and will
actually eat the glycerin-encapsulated boric acid, and 3) The formula acts as a
time-released pesticide, allowing the cockroach to return to the nest before it
dies and then becomes a "bait station" for other roaches in the colony. We
believe the product line, containing particular formulas for specific pests, is
effective against cockroaches, ants, palmetto bugs, silverfish, waterbugs,
ticks, fleas, lice and garden pests. RoachX is available through Vopak (formerly
Van, Waters & Rogers) and members of the Speckoz group of nine regional
independent wholesalers.
We believe that with RoachX and AntX we are well positioned to capitalize on the
recent federal restrictions on poisonous pesticides and the subsequent industry
trend of eliminating spray pesticides and increasing the use of bait-style
products like RoachX and AntX. The U.S. Environmental Protection Agency
classifies chemicals according to its published "Toxicity Rating Scale". The
scale lists Categories I, II, III and IV and defines them as Highly Toxic,
Moderately Toxic, Slightly Toxic and Not Toxic. The EPA has placed Boric Acid,
the active ingredient in RoachX, in Toxicity Category III: Slightly Toxic. Boric
Acid is in the "least toxic" EPA category and is 96-100% effective, as tested by
the USDA. Many states, including California, New York and Florida, have
legislated to eliminate pesticide spraying in public schools and move to 100%
IPM (integrated pest management) practices, such as using baits.
Competition
Although we have only one known competitor in its pharmaceutical water
purification market, we face very strong competition in the residential water
treatment markets where many large, long-established competitors currently hold
most of the market share and have the capital resources available to invest in
large national marketing campaigns.. The market for Axenohl is highly
competitive because we must work to displace traditional disinfecting
technologies sold by well-known international industry leaders. The market is
similar for RoachX. Although recent changes in EPA regulations may ease our
ability to enter the market, ongoing strong market presence of existing
pesticide companies may make it difficult to compete. On June 8, 2000, the
United States EPA reclassified the Dow Chemical product Dursban (also sold as
Lorsban). Over 800 products containing the organophosphate pesticide
chlorpyrifos are reclassified and now may only be sold in a significantly
diluted form. Sales of original, stronger formulations of such products to
retailers ended February 1, 2001, and retailers must remove the products from
shelves by December 31, 2001. The current formulations are also banned for
commercial and agriculture professionals as of December 31, 2000. Professional
25
pest control companies must use a 100 to 1 diluted version of the current
product strength and obtain a waiver of responsibility from the home or business
owner. As of June 6, 2001, the product underwent a further 10 to 1 dilution,
creating a 1000 to 1 diluted treatment. The online marketing arena is highly
competitive, and with our minimal promotion of Nutripure.com, revenues are not
expected to be realized in the foreseeable future. We recognize that innovative
marketing methods are required in such competitive markets. We work to focus on
the high quality and value price of its products in their markets.
Patents and Intellectual Property
We own patents on Medifier and the Fillmaster 1000e Electronic Dispenser and has
a patent application pending for Roach X. Except for the Nutripure whole-house
water treatment systems, our other water treatment products are comprised of
combinations of our proprietary components, custom made components and patented,
off-the-shelf components and are assembled and packaged by us. The Nutripure
whole-house water treatment system sold through the Nutripure dealer program is
purchased from USFilter as a private label product manufactured specifically for
Innovative Medical Services. USFilter uses patented key components in its
product.
The Medifier patent, which expires in March 2010, protects a device for use as a
magnifying implement which has a housing member designed to accommodate
prescription bottles of various popular sizes therein in a fixed position. A
longitudinally moveable magnifying lens slideably mounted in the housing member
is utilized to magnify the print contained on an instruction label located on
the side of the prescription bottle. Alternate embodiments allow different size
medicine bottles to be alternately mounted in concentric fashion, or with the
side of the medicine bottles facing the lens in a fixed position.
The Fillmaster 1000e patent expires in August 2017 and protects a method and
apparatus for dispensing fluids in response to a user request for a specified
amount of the fluid. A microprocessor opens and closes a fluid port for
predetermined amounts of time to control the amount of fluid dispensed. The
microprocessor monitors the elapsed time and the amount of fluid that has been
dispensed since the last time the filter was serviced. In one preferred
embodiment, the amount of fluid that is dispensed is measured by continuously
monitoring the volume of fluid flowing through the apparatus. A pressure
measurement device allows the microprocessor to monitor the fluid pressure. The
microprocessor prevents fluid from being dispensed if the pressure is not within
a predetermined range of tolerances. The fluid port is opened and closed by
activating and deactivating a solenoid. A keypad allows the user to input the
amount of fluid that is to be dispensed. A "Wait" period is imposed between the
time that the user initiates the first stage and the time the user may initiate
the second stage. The microprocessor does not open the fluid port if a "Failure"
condition exists. An LCD is provided to display the amount of fluid that the
user has requested. In an alternative embodiment, a bar code scanner or other
input device allows the user to automatically input the amount of fluid that is
to be dispensed.
A patent application for RoachX was filed in February 1998 to protect a
nonaqueous form of insecticide consisting of a desiccant, preferably boric acid,
with additional ingredients for binding, stability and target insect attraction.
We have licensed patented Axenohl/Axen silver ion technology from NVID
International, Inc. The patent for Axenohl/Axen expires in March 2018 and
26
protects a non-toxic environmentally friendly aqueous disinfectant for specific
use as prevention against contamination by potentially pathogenic bacteria and
virus. The aqueous disinfectant is formulated by electrolytically generating
silver ions in water in combination with a citric acid. The aqueous disinfectant
may include a suitable alcohol and/or a detergent. We obtained its worldwide
manufacturing and marketing rights to Axen/Axenohl from NVID International,
Inc., in a License Agreement dated November 24, 1999 and a Manufacturing,
Licensing and Distribution Agreement dated March 26, 2000 which supersedes the
November 1999 Agreement.
The November 1999 license agreement granted us a three year marketing and
distribution license for the following markets:
Point of Use Market, defined as water purification and disinfectant
systems for consumer and commercial use. Worldwide exclusive rights.
Healthcare Market, defined as all water purification and disinfectant
systems for hospitals, clinics, surgical centers, doctors' offices or
other similar medical or health related facilities, including military
medical and health facilities. Exclusive rights for Australia, North,
Central and South America and non-exclusive rights for Costa Rica,
Mexico and other world markets.
Food Processing Market, defined as water purification and disinfectant
systems for commercial human or animal food preparation or processing
operations. Exclusive rights for Australia, North, Central and South
America and non-exclusive rights for Costa Rica and other world
markets.
Dental Market, defined as water purification and disinfectant systems
for use by dentists and oral surgeons. Worldwide exclusive rights.
We were obligated to begin paying a licensing fee of $70,000 to NVID at the rate
of $10,000 per month one month after we begin selling Axenohl in the Point of
Use or Healthcare Markets. As we had not begun sales in these markets prior to
the superceding March 2000 agreement, payment of the licensing fee has not
begun. We were also obligated to pay up to $20,000 to NVID and $50,000 to the
third party laboratory conducting the EPA certification testing and $29,500 to
the Department of Agriculture for a one year research and testing agreement. We
have made these payments as well as funding all other testing expenses. We are
also obligated to pay a royalty to NVID equal to fifteen percent of the
manufactured cost of Axenohl sold pursuant to the agreement and up to twenty
percent of any licensing fees we receive granting licenses to use Axenohl in the
Food Processing Market. The agreement automatically renews for additional three
year terms provided there have been no breaches of the agreement which have not
been cured within thirty days of notice thereof.
The superseding March 2000 agreement was an agreement by and among Innovative
Medical Services, NVID International, Inc. and ETIH2O, Inc. ETIH20, Inc. is the
manufacturer of Axen/Axenohl. The agreement granted us an exclusive worldwide
license to market and distribute Axen/Axenohl and all related products for all
markets. This agreement also granted us the right to manufacture Axenohl in the
event NVID was unable to deliver Axenohl to us. The agreement included the prior
agreement obligations of ours to begin paying a licensing fee of $70,000 to NVID
at the rate of $10,000 per month one month after we begin selling Axenohl in the
Point of Use or Healthcare Markets. We agreed to pay up to $70,000 to the third
party laboratory conducting the EPA certification testing. The agreement also
confirmed that we had paid NVID and ETIH2O approximately $80,000 which included
the $29,500 which was to have been paid to the Department of Agriculture for a
27
one year research and testing agreement. We originally agreed to pay the
Department of Agriculture fee directly, but, subsequently, at the request of
NVID, we paid NVID the $29,500 specifically designated for the Department of
Agriculture research project. NVID acknowledged receipt of the $29,500 in the
March 2000 contract. The agreement requires a royalty to NVID equal to fifteen
percent of the manufactured cost of Axenohl sold pursuant to the agreement and
up to fifty percent of any licensing fees we receive granting licenses to use
Axenohl in all markets.
In November, 2000, we closed an acquisition agreement whereby it acquired all of
the outstanding common stock of ETIH20, Inc., in exchange for 51,240 shares of
its common stock and employment agreements with Andrew Arata and George Duren,
the executive officers of ETIH2O, Inc. The primary objective of the ETIH2O
purchase was to acquire the testing data, manufacturing rights and capacity to
Axenohl held by ETIH2O and to maintain and assure product availability and
quality.
In June 2001, our wholly owned subsidiary, ETIH2O Corporation received
Environmental Protection Agency registrations as the only EPA approved producer
for Axhenhol TM and its formulated hard surface disinfectant product Axen TM for
commercial, industrial and residential applications. These registrations are
required before a disinfectant product can be sold in the United States. In
issuing the registrations, the EPA has concluded the products are effective
against the organisms on the label and be safely if the directions for use are
followed.
Manufacturing
The Fillmaster and Nutripure water systems are assembled primarily from custom
manufactured components. It is our goal to perform minor manufacturing in our
facility to minimize wages, equipment expense and insurance. No components of
the systems have permanent or unequivocally restricted availability. Many
manufacturers are available to produce the components, and a change in suppliers
would result in virtually no lost production.
The original Fillmaster dispenser and the new Fillmaster 1000e dispenser are
both assembled mostly from proprietary and custom parts fabricated to our
specifications from injection-molded plastic and fabricated acrylic.
The Nutripure Sport bottle, Nutripure lancets and Nutripure antibacterial hand
soap and sanitizer are also assembled from proprietary and custom components
manufactured under exclusive agreements with several different manufacturers.
Alternative manufacturers exist, and a change in suppliers would result in
virtually no lost production. There are no plans to alter production methods.
We manufacture RoachX at our El Cajon, California facility from common and
readily available chemicals and ingredients that may be purchased from multiple
manufacturers in the United States.
We produce Axenohl in our manufacturing facility at our corporate offices.
Silver, the primary active ingredient, is a readily available commodity, and the
other active and inactive ingredients of Axenohl are readily available from
chemical supply companies.
We buy water softening and filtering equipment from its manufacturer, USFilter
of Palm Desert, California for the Nutripure water dealer program which we label
as Nutripure equipment and then resell to participating water treatment
equipment dealers.
28
Research and Development
Research and Development costs that have no alternative future uses are charged
to operations when incurred and are included in operating expenses. The total
amounts charged to Research and Development expense were $292,964 and $114,756
in the fiscal years ended July 31, 2001 and 2000, respectively. Our investment
in Research and Development during the past year resulted in the release of five
major additions to our product line, the Fillmaster 1000e, the Scanmaster and
the Nutripure line of drinking water systems. Innovative Medical Services
anticipates more new products in the coming year.
Employees
As of October 19, 2001, we employed thirty-two people, twenty-nine of whom are
full-time individuals: nine employees in product assembly and shipping ten
employees in sales, marketing and customer service eight employees in research
and development and seven employees in administration. We choose to outsource
more expensive, specialized functions including public relations, graphic design
and selected engineering projects.
Material Changes
There have been no material changes since the filing of our annual report on
Form 10KSB for the fiscal year ended July 31, 2001 and the date of this
prospectus.
29
No person is authorized to give any information or to make any representation
other than those contained in this prospectus, and if given or made such
information or representation must not be relied upon as having been authorized.
This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the shares offered by this prospectus or
an offer to sell or a solicitation of an offer to buy the shares in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
TABLE OF CONTENTS
Prospectus Summary..................................................... 1
Risk Factors........................................................... 4
Where You Can Get More Information..................................... 9
Certain Information We Are Incorporating by Reference.................. 10
Forward Looking Statements............................................. 10
Description of Securities. ............................................ 11
Selling Securities Holders............................................. 13
Plan of Distribution................................................... 14
Transfer Agent ........................................................ 15
Experts................................................................ 15
Legal Matters.......................................................... 15
Legal Proceedings...................................................... 15
The Buiness of Innovative Medical Services............................. 17
Material Changes from Annual Report .................................. 28
UNTIL xxxx, 2001 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
["Logo with text of "Innovative Medical Services""]
-------------------------
PROSPECTUS
-------------------------
30
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other arrangement under
which any controlling persons, director or officer of the Registrant is insured
or indemnified in any manner against any liability which he may incur in his
capacity as such, is as follows:
(a) The Company's Certificate of Incorporation provides the Company's Officers
and Directors the full extent of the protection offered by the General
Corporation Law of the State of California.
(b) The General Corporation Law of the State of California provides that a
corporation may include a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the directors' duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under the Corporation Law dealing with the
liability of directors for unlawful payment of dividend or unlawful stock
purchase or redemption, or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or limit
the liability of a director for any act or omission occurring prior to the date
when such provision becomes effective.
(c) The Company's Bylaws provide that the Company may indemnify its Officers and
Directors to the full extent permitted by the General Corporation Law of the
State of California.
(d) The General Corporation Law of the State of California provides that a
corporation may indemnify its directors and officers against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
incurred by them in connection with any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the rights of the corporation), by reason of
being or having been directors or officers, if such directors or officers acted
in good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, they had no reasonable cause to believe their conduct was unlawful.
The indemnification provided the General Corporation Law of the State of
California is not exclusive of any other rights arising under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by the
Registrant, are as follows:
SEC Filing Fee $167.73
NASD Filing Fee na
Printing Expenses 1,000
Accounting Fees and Expenses 0
Legal Fees and Expenses 25,000
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant sold securities which were not
registered under the Securities Act of 1933, as amended, as follows:
CERTAIN OPTION HOLDERS
# OF UNDERLYING
NAME OF OPTIONEE DATE COMMON STOCK CONSIDERATION
Glenn Hall 08/03/98 40,000 Services (1)
Minneapolis Company 11/16/98 300,000 Services (2)
Global Consultants Inc. 10/31/99 66,664 Services (3)
(1) 5 year options to acquire common stock at $0.625 per share granted in
consideration of services rendered in connection with the Company's obtaining a
line of credit.
(2) Options to acquire common stock at $1.1875 per share granted in
consideration of investment banking services to be rendered. In February 1999,
the Minneapolis Company surrendered the options in consideration of the
Registrant's agreement to terminate the investment banking agreement.
(3) Options to acquire common stock at $1.62 were granted in consideration of
public relations services. The Consulting Agreement was terminated by the
Company in July 2000 and the options expire on August 1, 2001.
JANUARY 1999 PRIVATE PLACEMENT
COMMON TOTAL
NAME OF PURCHASER DATE STOCK CONSIDERATION
Mitchell Kaminsky 01/29/99 117,766 175,000
Mathew Kanter 01/29/99 125,000 185,750
SEPTEMBER 1999 PRIVATE PLACEMENT
COMMON TOTAL
NAME OF PURCHASER DATE STOCK CONSIDERATION
Adler Corporation PYT, Ltd. 09/24/99 160,000 $200,000
MARCH 2000 PRIVATE PLACEMENT
TOTAL
NAME OF PURCHASER DATE UNITS(1) CONSIDERATION
Richard Rogers & Julie Rogers 03/30/00 14,815 $50,000
Mark Vittert & Carol Vittert 03/30/00 14,815 $50,000
Glen Wegner 03/30/00 14,815 $50,000
Orienstar Finance Limited 03/30/00 14,815 $50,000
Stanford E. Bazilian 03/30/00 103,704 $350,000
Sofisco Nominees Limitied 03/30/00 296,297 $1,000,000
Richard W. Strang Sr Trustee 03/30/00 14,815 $50,000
II-2
Strang Mech. Emp. Ret. Trust
William A. Shewalter 03/30/00 29,630 $100,000
John W. Dowd III 03/30/00 14,815 $50,000
Antonio C Alvarel 03/30/00 14,815 $50,000
Roy Thung 03/30/00 14,815 $50,000
Michael Rothaus 03/30/00 14,815 $50,000
Billy W. Ward 03/30/00 14,815 $50,000
James Pritsiolas 03/30/00 14,815 $50,000
George Tagaris 03/30/00 14,815 $50,000
(1) Each Unit consists of one share of common stock and one Warrant to acquire
and additional share of common stock for $5.25 on or before March 31, 2001.
ETIH20, INC. SHARE EXCHANGE
TOTAL
NAME OF PURCHASER DATE # of Shares CONSIDERATION
Diana L. Korpal 10/16/00 1,000 Share Exchange
Manuel A. Carrillo 10/16/00 2,000 Share Exchange
Ana Lorena Carrillo Pacheco 10/16/00 1,000 Share Exchange
Joan M. Curtis, 10.16/00 240 Share Exchange
Lawrence A. Stranch 10/16/00 1,000 Share Exchange
Jackson Allen Tuggle &
Lisbeth S. Tuggle 10/16/00 500 Share Exchange
Jerry K. Spivey 10/16/00 1,000 Share Exchange
Barbara L. Woolson 10/16/00 22,000 Share Exchange
Robert H. Cook, Jr. 10/16/00 1,500 Share Exchange
Brad Riggle 10/16/00 500 Share Exchange
Arthur Riley and Clarissa Riley 10/16/00 500 Share Exchange
Edwin A. Woolson 10/16/00 5,143 Share Exchange
Charles Stutts 02/09/01 20,000 Share Exchange
The Shares issued were in exchange for 100% of the outstanding common stock of
ETI H2O, Inc., a Florida corporation. Charles Stutts is a Receiver appointed to
collect outstanding debt of Andrew Arata in the case of the SEC v. NVID
International, Inc., Case No. 8:97-CV-758-T-27F. Mr. Stutts was issued these
shares pursuant to court order upon motion by Mr. Stutts. The Company issued
these shares in consideration of Mr. Arata's surrender of his shares in ETIH2O,
Inc.
OCTOBER 2000 PRIVATE PLACEMENT
COMMON TOTAL
NAME OF PURCHASER DATE STOCK CONSIDERATION
Genevieve Schiffmann 11/03/00 37,736 $100,000
Professional Trust Mgmt 11/03/00 18,868 $50,000
M.H. & Phyllis S. Singleton 11/03/00 9,434 $25,000
Bavarian Capital Partners 11/03/00 9,434 $25,000
Andrew DeVries III 11/20/00 18,868 $50,000
II-3
October 2000 Nutripure.com Share Exchange
TOTAL
NAME OF PURCHASER DATE # of Shares CONSIDERATION
Adler Corporation Pty, Ltd. 10/24/00 41,667 Share Exchange
Mathew Kanter 10/24/00 33,334 Share Exchange
William Schewalter 10/24/00 25,000 Share Exchange
James Pritsiolas 10/24/00 8,334 Share Exchange
FTP, Inc. 10/24/00 25,000 Share Exchange
Richard W. Strang, Sr., Trustee 10/24/00 8,334 Share Exchange
Giltner B. Stevens 10/24/00 8,334 Share Exchange
Albert Pick III 10/24/00 16,667 Share Exchange
N. Herrick Irrevocable 10/24/00 16,667 Share Exchange
Securities Trust
C/o Howard Herrick, Trustee
The Shares were issued in exchange for shares of Nutripure.com common stock, a
wholly owned subsidiary of the Registrant on the basis of one share of the
Registrant's common stock for every six shares of Nutripure.com common stock
exchanged.
JANUARY 2001 PRIVATE PLACMENT
TOTAL
NAME OF PURCHASER DATE UNITS(1) CONSIDERATION
Peter Rozok and
Susan Rozak 01/24/01 10,000 $ 30,000
Richard Strang 01/22/01 10,000 $ 30,000
James Pritsiolas 01/22/01 15,000 $ 45,000
William Shewalter 01/22/01 10,000 $ 30,000
Solinvest Group Ltd. 01/30/01 33,334 $100,002
Donnie R. Cox 01/30/01 5,000 $ 15,000
(1) Each Unit consists of one share of common stock and one Warrant to acquire
and additional share of common stock for $4.00 on or before January 28, 2002.
APRIL 2001 PRIVATE PLACEMENTS
NAME OF PURCHASER DATE SECURITIES CONSIDERATION
Solinvest Group, Ltd. 04/27/01 Conv. Deb. $100,000
Multiasian Ventures Ltd. 04/27/01 Conv. Deb. $100,000
Harry Singer 04/30/01 65,000 shares $ 97,500
Harold Clark 04/30/01 30,000 shares $ 45,000
Albert Pick 04/30/01 30,000 shares $ 45,000
Keystone Capital Mgmt. 04/30/01 25,000 shares $ 37,500
With respect to the above sales, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended and Rule 505 of Regulation D for the March
2000 Private Placement. No advertising or general solicitation was employed in
offering the securities. The securities were offered to accredited investors or
existing shareholders of the Company who were provided all material information
regarding the private placements and all of the Company's reports filed with the
Securities and Exchange Commission to date. The securities were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Company.
II-4
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this registration statement pursuant
to Item 601 of Regulation S-B:
3.1(1) -- Articles of Incorporation, Articles of Amendment and Bylaws
4.1(1) -- Form of Class A Warrant
4.2(1) -- Form of Class Z Warrant
4.3(1) -- Form of Common Stock Certificate
4.4(1) -- Warrant Agreement
4.6(3) -- January 2001 Warrant
4.7 -- Convertible Debenture (previously filed)
4.8 -- Convertible Debenture Purchase Agreement (previously filed)
4.9 -- Convertible Debenture Warrant (previously filed)
5.1 -- Opinion of Dennis Brovarone, Attorney at Law
10.1(1) -- Employment Contract/Michael L. Krall
10.2(4) -- Manufacturing, Licensing and Distribution Agreement
10.3(5) -- Axhenhol License Agreement
10.4(5) -- Weaver - Roach X Assignment
10.5(6) -- Dodo Agreement [CONFIDENTIAL TREATMENT REQUESTED FOR CERTAIN
SECTIONS]
10.6(5) -- Promissory Note of Michael Krall
10.7(5) -- Promissory Note of Gary Brownell
10.8(9) -- Nutripure Dealer Agreement
10.9(9) -- Sales Finance Agreement
10.10(10)-- ETIH2O, Inc., Acquisition Agreement
23.1 -- Consent of Dennis Brovarone, Attorney at Law (see opinion)
23.2 -- Consent of Steven Holland, Certified Public Accountant
23.3 -- Consent of Miller and McCollom, Certified Public Accountants.
(1) Incorporated by reference from Form SB-2 registration statement SEC File #
333-00434 effective August 8, 1996
(2) Incorporated by reference from S-3 registration statement, SEC File
#333-36248 effective on May 17, 2000
(3) Incorporated by reference from S-3 registration statement, SEC File
#333-55758 effective on February 26, 2001
(4) Incorporated by reference from Current Report on Form 8-K filed on May 24,
2001
(5) Incorporated by reference from the Amended Annual Report on Form 10KSB for
the fiscal year ended July 31, 2000 filed on August 13, 2001
(6) Incorporated by reference from Form 10QSB/A for the nine month period ended
April 30, 2001 filed on August 13, 2001
(7) Incorporated by reference from Current REport on Form 8-K filed on May 24,
2001 as amended on October 19, 2001
(8) Incorporated by reference from the Amended Annual Report on Form 10KSB
for the fiscal year ended July 31, 2000 filed on October 19, 2001
(9) Incorporated by reference from Amended Form 10QSB for the nine month period
ended April 30, 2001 filed on October 19, 2001
(10) Incorporated by reference from the Amended Annual report on Form 10KSB for
the fiscal year ended July 31, 2001 filed on November 15, 2001
II-5
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933 as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and authorized this registration
statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of El Cajon, State of California on November 13, 2001.
INNOVATIVE MEDICAL SERVICES
By: /s/ MICHAEL L. KRALL
---------------------------------
Michael L. Krall
Executive Officer
In accordance with the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
/s/ MICHAEL L. KRALL President, Chief Executive November 13, 2001
----------------------- Officer and Director
Michael L. Krall
/s/ GARY BROWNELL Chief Financial Officer, November 13, 2001
----------------------- Director
Gary Brownell
/s/ DENNIS BROVARONE Director November 13, 2001
-----------------------
Dennis Brovarone
/s/ DONNA SINGER Director November 13, 2001
-----------------------
Donna Singer
II-7