-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SvsI+ySlxRIwPqF/QXNiGtlKcI0fwxvaRiJHJg/eskauq6R2mC3q74p0aBh+VnGv MIYcWMi4KGrO+8PThkDecw== 0001017951-98-000241.txt : 19981216 0001017951-98-000241.hdr.sgml : 19981216 ACCESSION NUMBER: 0001017951-98-000241 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNOVATIVE MEDICAL SERVICES CENTRAL INDEX KEY: 0001006028 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 330530289 STATE OF INCORPORATION: CA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-21019 FILM NUMBER: 98769336 BUSINESS ADDRESS: STREET 1: 1725 GILLESPIE WAY CITY: EL CAJON STATE: CA ZIP: 92020 BUSINESS PHONE: 6195968600 MAIL ADDRESS: STREET 1: 1725 GILLESPIE WAY CITY: EL CAJON STATE: CA ZIP: 92020 10QSB 1 FORM 10-QSB DATED OCTOBER 31, 1998 U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended October 31, 1998 ----------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from _______________ to Commission File number 0-21019 ------- INNOVATIVE MEDICAL SERVICES --------------------------- (Name of small business issuer in its charter) California 33-0530289 - --------------------------------- --------------------------------- (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 1725 Gillespie Way, El Cajon, California 92020 ---------------------------------------------- (Address of principal executive offices) 619 596 8600 ------------ Issuer's telephone number Check whether the issuer (1) filed all reports to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: 3,916,351 as of December 14, 1998. INNOVATIVE MEDICAL SERVICES INDEX PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets as of July 31, 1998 and October 31, 1998 Statements of Operations for the three months and nine months ended October 31, 1997 and 1998 Statements of Cash Flows for the three months and nine months ended October 31, 1997 and 1998 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART 2. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities: None Item 4. Submission of Matters to a Vote of Security Holders: None Item 5. Other information Item 6. Exhibits and Reports on Form 8-K Signatures INNOVATIVE MEDICAL SERVICES CONSOLIDATED BALANCE SHEETS - ----------------------------------------------------------------------------- (UNAUDITED) OCTOBER 31 JULY 31 1998 1998 --------------------------- ASSETS Current Assets Cash and cash equivalents $ 41,567 $ 48,250 Restricted cash 204,722 206,230 Accounts receivable, net of allowance for doubtful accounts of $17,850 637,037 276,619 Notes receivable 123,428 106,918 Inventories 525,341 360,566 Prepaid expenses 10,526 11,556 ----------- ----------- Total current assets 1,542,620 1,010,139 ----------- ----------- Property, Plant and Equipment Property, plant and equipment 810,079 791,599 ----------- ----------- Total property, plant and equipment 810,079 791,599 ----------- ----------- Noncurrent Assets Deposits 17,075 14,075 Patents and licenses 405,077 57,806 Goodwill 261,322 - Other intangible assets 360,000 - Deferred acquisition costs 45,430 1,096,852 ----------- ----------- Total noncurrent assets 1,088,904 1,168,733 ----------- ----------- Total assets $ 3,441,603 $ 2,970,471 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 656,458 $ 495,287 Accrued liabilities 5,647 47,060 Notes payable 508,620 294,986 ----------- ----------- Total current liabilities 1,170,724 837,333 ----------- ----------- Long-Term Debt - - ----------- ----------- Stockholders' Equity Class A common stock, no par value: authorized 20,000,000 shares, issued and outstanding 3,916,351 6,125,718 6,125,718 Class A warrants: issued and outstanding 3,687,500 warrants 108,750 108,750 Accumulated deficit (3,963,589) (4,101,330) ----------- ----------- Total stockholders' equity 2,270,879 2,133,138 ----------- ----------- Total liabilities and stockholders' equity $ 3,441,603 $ 2,970,471 =========== =========== INNOVATIVE MEDICAL SERVICES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - ----------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED OCTOBER 31, 1998 1997 --------------------------- Net sales $ 795,519 $ 435,259 Cost of sales 282,289 248,418 ----------- ----------- Gross profit 513,230 186,841 ----------- ----------- Selling expenses 71,306 152,463 General and administrative expenses 268,638 389,199 Research and development 38,037 53,265 ----------- ----------- Total operating costs 377,982 594,927 ----------- ----------- Operating income (loss) 135,248 (408,086) ----------- ----------- Other income and (expense) Interest income 2,693 - Miscellaneous income - 21,709 ----------- ----------- Total other income (expense) 2,693 21,709 ----------- ----------- Income (loss) before income taxes 137,941 (386,377) Federal and state income taxes 200 200 ----------- ----------- Net income (loss) $ 137,741 $ (386,577) =========== =========== Net income per common share (primary) $ 0.04 $ (0.11) =========== =========== Net income per common share (fully diluted) $ 0.02 $ (0.07) =========== =========== CONSOLIDATED STATEMENTS OF ACCUMULATED DEFICITS - ----------------------------------------------------------------------------- (UNAUDITED) THREE MONTHS ENDED YEAR ENDED OCTOBER 31 JULY 31 1998 1998 --------------------------- Balance, beginning of period $(4,101,330) $(2,198,588) Net income (loss) 137,741 (1,902,742) ----------- ----------- Balance, end of period $(3,963,589) $(4,101,330) =========== =========== INNOVATIVE MEDICAL SERVICES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - ----------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED OCTOBER 31, 1998 1997 -------------------------- Cash flows from operating activities Net income (loss) $ 137,741 $ (386,577) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 35,786 27,542 Changes in assets and liabilities: (Increase) decrease in restricted cash 1,507 - (Increase) decrease in accounts receivable (360,418) (204,059) (Increase) decrease in notes receivable (16,510) (130,105) (Increase) decrease in prepaid expense 1,030 32,568 (Increase) decrease in inventory (164,775) (43,005) (Increase) decrease in deposits (3,000) - (Increase) decrease in patents and licenses (347,271) - (Increase) decrease in deferred acquisition costs 1,051,422 (21,069) Increase (decrease) in accounts payable 161,171 123,507 Increase (decrease) in accrued liabilities (41,413) (33,163) ----------- ----------- Net cash provided (used) by operating activities 455,269 (634,361) ----------- ----------- Cash flows from investing activities Goodwill (261,322) - Other intangible assets (360,000) - Purchase of property, plant and equipment (54,266) (70,215) ----------- ----------- Net cash (used) in investing activities (675,588) (70,215) ----------- ----------- Cash flows from financing activities Increase (decrease) in notes payable 213,634 (792) ----------- ----------- Net cash provided by financing activities 213,634 (792) ----------- ----------- Net increase (decrease) in cash and cash equivalents (6,683) (705,368) Cash and cash equivalents at beginning of period 48,250 1,982,660 ----------- ----------- Cash and cash equivalents at end of period $ 41,567 $ 1,277,292 =========== =========== Interest Paid $ 9,797 $ 120 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the audited and unaudited financial statements of the Company. OVERVIEW Innovative Medical Services, through an aggressive, growth-oriented business strategy, has built a strong market presence in the manufacturing and marketing of pharmacy efficiency products, as well as water filtration systems. Since its founding in August 1992, and subsequent to its initial public offering in August 1996, the Company has invested in its research and development department, production facilities and sales and marketing resources. The Company's principal products are the Pharmapure(R) pharmacy water purification system, the Fillmaster(R) dispensing units for reconstituting oral suspensions, and the Nutripure(R) line of residential drinking water systems. The Company also markets, for all water filtration products, proprietary filters that require changing at intervals of nine to twelve months. Filter replacements represent a significant continuing source of revenue to the Company. In addition, Innovative Medical Services markets the Medifier(TM), a unique magnifying device for use with any size prescription bottle label, targeted to the growing elderly population. The Medifier represents a low-cost entry into the retail pharmacy market and will be sold through the Company's current distribution channels as well as through catalogues and promotional products distributors. Innovative Medical Services also owns Export Company of America, Inc. (EXCOA), a Nevada corporation that holds and operates the Company's Brazilian export/import operation. The Company distributes medical, dental and veterinary supplies into Brazil and plans to use this distribution conduit for the Company's water filtration products. Innovative Medical Services' customer base for its pharmaceutical water purification systems includes Wal-Mart, Walgreens, American Stores, Eckerd, Kroger, Fred Meyer, Target and CVS, and IMS' expertise in pharmaceutical water systems provides a strong foundation for its "pharmacist recommended" Nutripure line of residential water filtration systems. The Company's Nutripure Elite reverse osmosis residential water system usually retails for $499, and is available as either a convenient, compact, unit easily installed beneath the sink, or as an attractive, counter-top appliance requiring no installation. The Nutripure 2000 countertop water filter retails for $79.99 and competes with PUR(R), Brita(R) and Culligan(R) products. In December, the Company launched a major internet marketing strategy beginning with its new internet shopping sites and its links to Lycos(R), Excite(R), Netscape(R), Info Seek(R) and Alta Vista(R). The Company's opened its first online store on Yahoo!(R) Store at STORES.YAHOO.COM/NUTRIPURE, from which all of the Company's residential and pharmacy water systems may be purchased. The Company's products, including the popular Nutripure(R) 2000 residential water filtration system, may also be purchased from its recently expanding corporate web site at WWW.IMSPURE.COM. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 1998 VERSUS THREE MONTHS ENDED OCTOBER 31, 1997 Revenues of $795,500 in the first quarter ended October 31, 1998 were 83% higher than the $435,300 in revenues reported for the same quarter ended October 31, 1997. Fillmaster Purification System sales in the 1998 quarter were $620,100 and replacement filter sales were $157,600. In the 1997 quarter, Fillmaster Purification System sales were $290,000 and replacement filter sales were $125,000. The 115% increase in system sales was largely due to the popularity of the new electronic dispenser. The 26% increase in replacement filter sales was expected due to the continually increasing number of Fillmaster(R) Purification Systems in use. Gross profit in the most recent quarter was $513,200 versus $186,800 in the year-earlier quarter. Gross profit percentage of 65% in the 1998 quarter was higher versus the 43% gross profit percentage in the 1997 quarter. The gross profit percentage increase reflects an increased proportion of filter sales (associated with higher margins) during the quarter, new product launch pricing, and lower component costs resulting from economies of scale realized with volume purchasing. Income for the quarter ended October 31, 1998 was $137,700 versus a net loss of $386,600 for the same quarter in 1997. The increased income was due to increased sales of Fillmaster pharmacy water purification and dispensing systems and disposable filter replacements, and to growing revenues from sales of new products, including the Nutripure line of residential water filtration systems. LIQUIDITY AND CAPITAL RESOURCES During the three months ended October 31, 1998, the Company's current assets to liabilities ratio rose from 1.21 to 1.32. Current assets increased $532,500 from $1,010,100 to 1,542,600. Current assets at October 31, 1998 include an increase of $360,400 of accounts receivable on higher sales volume. Inventories increased $164,700 from $360,600 to $525,300 on anticipation of increased sales of the new electronic dispenser. Current liabilities increased $333,400 from $837,300 to $1,170,700. The increase in current liabilities was the result of increased accounts payable associated with a corresponding increase in inventories. Also, the company established an additional credit facility during the period on which it has drawn $260,900. Cash flows provided from operations were $455,300 in the first three months of fiscal year 1998. Cash flows used from operations were a negative $634,400 for the same period in 1997. For those periods, cash flows used in investing activities included, respectively, $54,300 and $70,200 for the purchase of machinery and equipment and for leasehold improvements. Cash flows used in investing activities for the recent quarter also consisted of $261,300 of goodwill and $360,000 of other intangible assets related to the purchase of EXCOA, a privately held Florida-based distributor, and AMPROMED, a Rio de Janeiro-based import company. The purchase did not have a material impact on the income statement of the Company for the quarter. The total decrease in cash and cash equivalents for the 1998 three month period was $6,700. PART 2 OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS The following is an update of developments in the previously disclosed litigation involving the Company filed in the Circuit Court of Pinellas County, Florida by Zedburn Corporation, against the Company for breach of contract in October, 1997. The Company has filed counterclaims based upon the Racketeer Influenced and Corrupt Organization (RICO) Act against Mr. Reitz, Zedburn Corporation, Capital Development Group, Steven Durland and other defendants. It is the Company's position that Mr. Reitz and others perpetrated a scheme to defraud the Company of cash fees and securities in connection with purported services of arranging a public offering of the Company's common stock. The Company believes that it has substantially completed discovery and complied compelling evidence to prove its claims. Several of the Parties, including the Company, had filed Motions to Dismiss the Zedburn and Reitz claims and the Company's counterclaims. A hearing on the Motions was held on October 1, 1998. On November 23, 1998, the judge ruled on the various motions. The judge denied the Company's motion to dismiss the Zedburn claim and granted the Company's motion to dismiss Mr. Reitz's claim. The judge granted motions to dismiss certain of the Company's claims for rescission, constructive trust, and attorney's fees and denied motions to dismiss the principal count of the Company's claims including the Company's allegation that a contingent fee contract to perform an audit is a violation of state and federal law. The judge also granted one defendant's motion to dismiss the Company's RICO claim for failure to allege sufficient facts to sustain the claim. All parties were granted twenty days to amend their pleadings to correct the deficiencies as stated in the judge's orders. The Company intends to amend its complaint as to the one dismissed Defendant and to vigorously pursue a trial in the State Court action as soon as possible. The Company has neither accrued a liability in its financial statements regarding this litigation nor disclosed the matter in the footnotes thereof. The Company has not done so because it does not believe there is any merit to Zedburn's claims and that the likelihood that the Company will realize a loss from these matters is believed remote. In addition, the Company believes that in the unlikely event that the Company settles, the amount of any such settlement would not be material to the Company's financial statements. ITEM 2. CHANGES IN SECURITIES During the quarter in August 1998 the Company issued an option to acquire 40,000 shares of common stock to Glenn Hall in connection with a Consulting Agreement regarding the Company's debt and receivable financing. The option is non-transferable and permits the holder to acquire the shares for $0.625 per share on or before August 3, 2003 and provided a registration statement covering the underlying shares is effective at the time of exercise. In November 1998, the Company issued an option to acquire 300,000 shares of common stock to The Minneapolis Company, Inc., in connection with an investment banking agreement. The option is non- transferable and permits the holder to acquire the shares for $1.1875 per share. The option shall be exercisable upon the effective date of a registration statement covering the underlying shares and expire as to 100,000 shares sixty days after the effective date; 100,000 shares one hundred twenty days after the effective date; and 100,000 shares one hundred eighty days after the effective date. The Company relied upon the exemption from registration contained in Section 4(2) of the Securities Act of 1933, in that the options are non-transferable and were issued with restrictive legends. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS EXHIBITS DESCRIPTION 11 Statement re: computation of per share earnings 27 Financial data schedule (B) REPORTS ON FORM 8-K None. SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INNOVATIVE MEDICAL SERVICES (Registrant) By:/s/ MICHAEL L. KRALL ---------------------------------------- Michael L. Krall, President/CEO By:/s/ GARY BROWNELL ---------------------------------------- Gary Brownell, Chief Financial Officer EX-11 2 COMPUTATION OF EARNINGS PER COMMON SHARE INNOVATIVE MEDICAL SERVICES EXHIBIT 11 COMPUTATION OF EARNINGS PER COMMON SHARE FOR THE THREE MONTHS ENDED OCTOBER 31, 1997 AND 1998 For the Three Months Ended October 31, -------------------------- 1998 1997 -------------------------- Shares outstanding 3,916,351 3,520,851 =========== =========== Weighted average shares outstanding 3,916,351 3,284,158 Stock Options 1,514,375 406,250 Warrants 1,798,125 1,798,125 ----------- ----------- Total weighted average shares outstanding 7,228,851 5,488,533 =========== =========== Net Income (Loss) $ 137,741 $(1,407,314) =========== =========== Net Earnings (Loss) per share (primary) $ 0.04 $ (0.11)* =========== =========== Net Earnings (Loss) per share (fully diluted) $ 0.02 $ (0.07)* =========== =========== * SFAS 128 dictates the use of primary versus diluted shares due to loss EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS JUL-31-1999 AUG-01-1998 OCT-31-1998 41,567 0 654,887 (17,850) 525,341 1,542,620 1,095,314 (285,235) 3,441,603 1,170,724 0 0 0 6,125,718 (3,854,839) 3,441,603 795,519 282,289 282,289 377,982 0 0 0 135,248 200 135,448 0 0 0 137,741 0.04 0.02
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