-----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, KXAPRAh3XmTioY0jrF+xroVrxtnuuCwU0B+IjgbdVTH7D/TjHT/oMSBz0TtrnnOY MzvIWgZj0CAHrcnKLbRUrQ== 0001017951-99-000055.txt : 19990317 0001017951-99-000055.hdr.sgml : 19990317 ACCESSION NUMBER: 0001017951-99-000055 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990316 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: 99566445 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 JANUARY 31, 1999 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 January 31, 1999 ---------------- [ ] 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: 4,149,476 as of March 15, 1999. Innovative Medical Services INDEX PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets as of July 31, 1998 and January 31, 1999 Statements of Operations for the three months and nine months ended January 31, 1998 and 1999 Statements of Cash Flows for the three months and nine months ended January 31, 1998 and 1999 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 BALANCE SHEETS - ---------------------------------------------------------------------------- (unaudited) January 31, July 31, 1999 1998 ASSETS ---- ---- Current Assets Cash and cash equivalents $ 18,877 $ 48,250 Restricted cash 203,589 $206,230 Accounts receivable, net of allowance for doubtful accounts of $17,850 719,363 276,619 Notes receivable 125,079 106,918 Inventories 564,282 360,566 Prepaid expenses 24,101 11,556 ----------- ----------- Total current assets 1,655,291 1,010,139 ----------- ----------- Property, Plant and Equipment Property, plant and equipment 808,587 791,599 ----------- ----------- Total property, plant and equipment 808,587 791,599 ----------- ----------- Noncurrent Assets Deposits 18,525 14,075 Patents and licenses 405,077 57,806 Goodwill 261,322 - Other intangible asstes 360,000 - Deferred acquisition costs 45,430 1,096,852 ----------- ----------- Total noncurrent assets 1,090,354 1,168,733 ----------- ----------- Total assets $ 3,554,232 $ 2,970,471 =========== =========== LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities Account payable $ 545,286 $ 495,287 Accrued liabilities 5,449 47,060 Notes payable 552,204 294,986 ----------- ----------- Total current liabilities 1,102,939 837,333 ----------- ----------- Long-Term Debt - - ----------- ----------- Stockholders' Equity Class A common stock, no par value: authorized 20,000,000 shares, issued and outstanding 4,149,476 at January 31, 1999 and 3,916,351 at July 31, 1998 6,149,730 6,125,718 Class A warrants: issued and outstanding 3,687,500 warrants 108,750 108,750 Accumulated deficit (3,807,187) (4,101,330) ----------- ----------- Total stockholders' equity 2,451,293 2,133,138 ----------- ----------- Total liabilities and stockholders' equity $ 3,554,232 $ 2,970,471 =========== =========== INNOVATIVE MEDICAL SERVICES STATEMENTS OF INCOME (Unaudited) - ----------------------------------------------------------------------------
For the Three For the Six Months Ended Months Ended January 31 January 31 1999 1998 1999 1998 ------------------------ ------------------------ Net sales $ 767,979 $ 423,790 $1,563,498 $ 859,048 Cost of sales 271,631 267,750 553,920 516,167 ---------- ---------- ---------- ---------- Gross profit 496,348 156,040 1,009,578 342,881 ---------- ---------- ---------- ---------- Selling expenses 116,466 221,826 187,772 374,289 General and Administrative expenses 179,067 310,712 447,705 699,911 Research and development 46,902 39,321 84,939 92,586 ---------- ---------- ---------- ---------- Total operating costs 342,435 571,859 720,416 1,166,786 ---------- ---------- ---------- ---------- Operating income (loss) 153,913 (415,819) 289,162 (823,905) ---------- ---------- ---------- ---------- Other income and (expense) Interest income 2,688 - 5,381 - Dividend income - 7,894 - 29,603 ---------- ---------- ---------- ---------- Total other income (expense) 2,688 7,894 5,381 29,603 ---------- ---------- ---------- ---------- Income (loss) before income taxes 156,601 (407,925) 294,543 (794,302) Federal and state income taxes 200 200 400 400 ---------- ---------- ---------- ---------- Net income (loss) $ 156,401 $ (408,125) $ 294,143 $ (794,702) ========== ========== ========== ========== Net income per common share(primary) $ 0.04 $ (0.10) $ 0.07 $ (0.20) ========== ========== ========== ========== Net income per common share (diluted) $ 0.02 $ (0.07) $ 0.04 $ (0.13) ========== ========== ========== ==========
STATEMENTS OF ACCUMULATED DEFICITS - ---------------------------------------------------------------------------- (unaudited) Six Months Ended Year Ended January 31 July 31 1999 1998 --------------------------- Balance, beginning of period $(4,101,330) $(2,198,588) Net income (loss) 294,143 (1,902,742) ----------- ----------- Balance, end of period $(3,807,187) $(4,101,330) =========== =========== INNOVATIVE MEDICAL SERVICES STATEMENTS OF CASH FLOWS (Unaudited) - ---------------------------------------------------------------------------- For The Six Months Ended January 31 1999 1998 ------------------------ Cash flows from operating activities Net income (loss) $ 294,143 $ (794,702) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 70,550 58,044 Stock issued for services - 450,000 Changes in assets and liabilities: (Increase) decrease in restricted cash 2,641 - (Increase) decrease in accounts receivable (442,744) (55,651) (Increase) decrease in notes receivable (18,161) (392,129) (Increase) decrease in prepaid expense (12,545) 54,696 (Increase) decrease in inventory (203,716) (61,412) (Increase) decrease in deposits (4,450) (48,000) (Increase) decrease in patent costs (347,271) - (Increase) decrease in deferred acquisition costs 1,051,422 (433,101) Increase (decrease) in accounts payable 49,999 62,148 Increase (decrease) in notes payable 257,216 94,025 Increase (decrease) in accrued liabilities (41,610) (63,295) ----------- ----------- Net cash provided (used) by operating activities 655,474 (1,129,377) ----------- ----------- Cash flows from investing activities Purchase of property, plant and equipment (87,538) (165,899) Purchase of goodwill (261,322) - Purchase of other intangible assets (360,000) - ----------- ----------- Net cash (used) in investing activities (708,860) (165,899) ----------- ----------- Cash flows from financing activities Increase (decrease) in long-term notes payable - (1,589) Sales of common stock 24,013 - ----------- ----------- - Net cash provided by financing activities 24,013 (1,589) ----------- ----------- Net increase (decrease) in cash and cash equivalents (29,373) (1,296,865) Cash at beginning of period 48,250 1,982,660 ----------- ----------- Cash at end of period $ 18,877 $ 685,795 =========== =========== 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 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. The Company also contracted with Yahoo!(R), Lycos(R) and AOL.com(R) to develop an internet advertising campaign to dramatically increase brand awareness of Nutripure 2000 and to drive targeted consumers to the online store sites. Also in December, the Company placed its Nutripure 2000 countertop water filtration system in approximately 100 Fred Meyer stores. After tracking sale rates from its December opening order for stores in the Portland and Seattle regions, Fred Meyer has begun reordering in multi-case lots for those stores and has expanded retail placement of Nutripure 2000 to all Fred Meyer Stores. Innovative Medical Services continues to negotiate placement in other regional and national chains. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 1999 VERSUS THREE MONTHS ENDED 31 JANUARY, 1998 Revenues of $768,000 in the first quarter ended January 31, 1999 were 81% higher than the $424,800 in revenues reported for the same quarter ended January 31, 1998. Fillmaster Purification System sales in the 1999 quarter were $475,400 and replacement filter sales were $260,100. In the 1998 quarter, Fillmaster Purification System sales were $289,000 and replacement filter sales were $113,000. The 64%increase in systems sales was largely due to the popularity of the new electronic dispenser. The 130% 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 $496,300 versus $156,000 in the year-earlier quarter. Gross profit percentage of 65% in the 1998 quarter was higher versus the 37% gross profit percentage in the 1998 quarter. The gross profit percentage increase reflects the increased proportion of dispenser and filter sales associated with higher margins during the quarter. Income for the quarter ended January 31, 1999 was $156,400 versus a net loss of $408,100 for the same quarter in 1998. 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. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 31, 1999 VERSUS SIX MONTHS ENDED JANUARY 31, 1998 Revenues of $1,563,500 in the six months ended January 31, 1999 were 82% higher than the $859,000 in revenues reported for the six months ended January 31, 1998. Fillmaster(R) Purification System sales in the six months ended January 31, 1999 were $1,099,500 and replacement filter sales were $417,700. In the prior period, Fillmaster(R) Purification System sales were $579,000 and replacement filter sales were $238,000. Sales of filters rose 143% in fiscal 1998/99 as expected due to the continually increasing number of Fillmaster(R) Purification Systems in use. Gross profits for the six months ended January 31, 1999 were $1,009,600 versus $342,900 in 1997/98. The gross profit of 65% in 1998/99 was higher versus the 39% gross profit in 1997/98. The gross profit increase reflects increased filter sales in the recent six-month period. As the number of Fillmaster(R) system installations increases, so does the volume of replacement filter sales. The Company anticipates a strong influx of filter orders in the coming months resulting from sales of systems during the second half of fiscal 1997/98. Net income for first six months ended January 31, 1999 was $294,100 versus a net loss of $794,700 for the same period last year. This turnaround was the result of increased sales and improved gross profit margins. Also, while increasing sales, the Company cut Selling Expenses by $186,500, or 50%, from $374,300 in the prior six-month period to $187,800 in the current period. The Company also reduced General and Administrative expenses by $252,200, or 36%, from $699,900 to $447,700. The Company expensed $84,900 of Research and Development costs associated with production and development of new products during the current six-month period. LIQUIDITY AND CAPITAL RESOURCES During the six months ended January 31, 1999, the Company's current assets to liabilities ratio rose from 1.21 to 1.50. Current assets increased $645,200 from $1,010,100 to $1,655,300. Current assets at January 31, 1999 include an increase of $442,800 of accounts receivable due mainly to a large order from a major drug store chain during the quarter. Inventories increased $203,700 from $360,600 to $564,300 on anticipation of increased sales of the new electronic dispenser. Current liabilities increased $265,600 from $837,300 to $1,102,900. 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 $202,700. Cash flows from operations were $294,100 in the first six months of fiscal year 1998/99. Cash flows used from operations were a negative $794,700 for the same period in 1997/98. For those periods, cash flows used in investing activities included, respectively, $87,500 and $165,900 for the purchase of machinery and equipment and for leasehold improvements. Cash flows used in investing activities for the recent quarter also included $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 period. The company has temporarily minimized its current activity in Brazil due to recent economic developments in the region. The total decrease in cash and cash equivalents for the 1999 six month period was $29,400 as compared to decrease of $1,296,900 during the same period in 1998. * 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. 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 the Company has named Mr. Reitz as a defendant to its counterclaims. The Company believes that the defendants had perpetrated similar schemes against other parties. The Company believes that it has substantially completed discovery and complied compelling evidence to prove its claims. Several of the Defendants filed Motions to Dismiss the Company's counterclaims. A hearing on the Motions was held on October 1, 1998. Certain of the Motions were granted pending the Company's amendment of its Counterclaim. The Company amended its Counterclaims in accordance with the judge's rulings. Certain Defendants filed second Motions to Dismiss the amended counterclaims. A hearing on these latest motions is scheduled for March 1999. It is the Company's belief that the latest Motions to Dismiss will be denied and it is the Company's intention 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 Mr. Reitz'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 None 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 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS INNOVATIVE MEDICAL SERVICES EXHIBIT 11 COMPUTATION OF EARNINGS PER COMMON SHARE FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999 For the Six Months Ended January 31 -------------------------- 1999 1998 ---- ---- Shares outstanding 4,149,476 3,832,851 ----------- ----------- Weighted average shares outstanding 3,949,293 3,655,134 Stock Options 1,306,250 406,250 Warrants 1,798,125 1,798,125 ----------- ----------- Total weighted average shares outstanding 7,053,668 5,859,509 =========== =========== Net Income (Loss) $ 294,143 $ (794,702) =========== =========== Primary Net Earnings (Loss) per share $ 0.07 $ (0.22) =========== =========== Fully Diluted Net Earnings (Loss) per share $ 0.04 $ (0.14) =========== =========== EX-27 3 FINANCIAL DATA SCHEDULE FOR JANUARY 31, 1999
5 3-MOS 6-MOS JUL-31-1999 JUL-31-1999 NOV-01-1998 AUG-01-1998 JAN-31-1999 JAN-31-1999 222,466 222,466 0 0 719,363 719,363 (17,850) (17,850) 564,282 564,282 1,655,291 1,655,291 1,128,493 1,128,493 (319,906) (319,906) 3,554,232 3,554,232 1,102,939 1,102,939 0 0 0 0 0 0 6,149,730 6,149,730 (3,698,437) (3,698,437) 3,554,232 3,554,232 767,979 1,563,498 767,979 1,563,498 271,631 553,920 342,435 720,416 0 0 0 0 0 0 156,601 294,543 200 400 156,401 294,143 0 0 0 0 0 0 156,401 294,143 0.04 0.07 0.02 0.04
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