Form 10-KSB

                Annual Report Pursuant to Section 13 or 15 (d) of
                       the Securities Exchange Act of 1934
                     For the fiscal year ended July 31, 2000
                         Commission file number 0-21019

                           INNOVATIVE MEDICAL SERVICES
                           ---------------------------
             (Exact name of registrant as specified in its charter)

                    California                      33-0530289
                    ------------------------------------------
              (State or other jurisdiction of      (I.R.S. Employer
               incorporation or organization)       Identification No.)

                 1725 Gillespie Way, El Cajon, California 92020
                 ----------------------------------------------
               (Address of principal executive offices) (Zip Code)

                  Registrant's Telephone Number: (619) 596-8600

           Securities registered pursuant to Section 12(b)of the Act:

                                      None
                               -----------------
                                (Title of Class)

           Securities registered pursuant to Section 12(g)of the Act:

                         Common Stock, Class A Warrants
                         ------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Form 10-KSB or any  amendments to
this Form 10-KSB. [ X ]

State issuer's revenues for its most recent fiscal year: $1,661,462

State the aggregate market value of the voting stock held by  non-affiliates  of
the registrant: Approximately $15,181,557 as of October 25, 1999.

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock: 5,982,728 shares of Class A common stock as of October 25, 1999.

Documents  incorporated  by  reference:
                    Exhibits to Form SB-2 Registration Statement File # 33-00434
                    Part III of this report is  incorporated  by reference  from
                    the  Registrant's  Proxy  Statement to be filed on or before
                    November 29, 2000.


<PAGE>


PART I

ITEM 1.  DESCRIPTION OF BUSINESS
Company Overview
----------------
Innovative   Medical   Services  (the   Company)  is  the  nation's   leader  in
pharmaceutical  water  purification.  The  Company has  expanded  from its 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.  The  Company  also  markets  proprietary  NSF
certified replacement filters for the Fillmaster Systems.

The Company's "Pharmacist Recommended"  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. The Company distributes its various Nutripure products in
several ways, including retail sales, catalogue placement,  business-to-business
sales, internet promotion and in-home sales presentations.

The Company,  through its  subsidiary  Nutripure.com(R),  operates an e-commerce
health supersite, which provides consumers a wide variety of vitamins, minerals,
nutritional supplements,  homeopathic remedies and natural products. In addition
to  merchandise,   the  supersite  offers   comprehensive  health  and  wellness
information in an easy-to-access, intuitive reference format.

Innovative Medical Services has obtained  worldwide  manufacturing and marketing
rights for advanced silver ion  technologies.  Potential  applications for these
products include municipal and point-of-use/point-of-entry water treatment, food
processing,  personal  disinfecting  retail products,  and commercial and retail
hard surface disinfecting products. In addition, these technologies may prove to
be revolutionary  in the healthcare  market for treatment of including human and
animal  infections  and  wounds,  and  for  and  disinfecting   applications  in
hospitals,  clinics,  surgical  centers  and other  medical  and health  related
facilities.

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.

In  the  past  four  years,  Innovative  Medical  Services  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,  the Company launched
a line of residential water treatment and filtration  products and several other
health related retail products. The Company distributes many of the new products
through  distribution  channels  established  by sales of Fillmaster  Systems to
retailers.  The Company 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,
Innovative  Medical  Services plans to distribute water treatment and silver ion
products to Brazil through AMPROMED.

<PAGE>

In December 1999,  Innovative Medical Services formed a wholly owned subsidiary,
Nutripure.com,  to capitalize  on internet  commerce  opportunities  focusing on
health and wellness.  In January 2000, the Company 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, the Company's 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.

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 the
Company's  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.  The Company sells
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.

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.  The
Company has 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' 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 The Company also markets unique and proprietary NSF
certified filter replacements for the Fillmaster's Pharmapure water purification
system, 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 the Company.

<PAGE>

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  and  account  status;  automatic
replacement filter shipments; and simplified, annual invoicing. Motivated by the
cost savings and the extended  warranty  coverage,  most of the Company's  chain
customers have entered into multi-year contracts for the CSP 2000.

Residential Water Treatment Products
------------------------------------
Nutripure(R)  3000S  Series  Innovative  Medical  Services  has created the most
comprehensive marketing program ever introduced to the water treatment industry.
The  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'  reputable  "Pharmacist  Recommended"  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.  The Company realizes revenues from both
the sale of Nutripure equipment and the financing.

IMS 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.  The
elite marketing strategy provides  consumers and independent  dealers a name and
image they can trust.  Combined with proven in-home  marketing  practices,  this
strategy provides a powerful  advantage to the Nutripure direct sales force. The
Nutripure  3000S Series is  top-of-the  line  equipment  that ensures  excellent
performance,  customer  satisfaction and no-hassle  installation and aftermarket
maintenance.  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.  Dealers can
dramatically bolster their sales results by promoting the professional image and
excellent reputation of the Nutripure brand name.

Nutripure(R)  Elite The  Nutripure  Elite  line of  residential  drinking  water
systems combines  high-quality reverse osmosis technology with carbon filtration
to improve  the taste,  smell,  quality and safety of  standard  tap water.  The
Company's  drinking water systems  provide the best reverse  osmosis  technology
available  at a  moderate  price,  and are  therefore  strong  value  purchases.
Incorporating  the  same  filtration  technology  as  the  Company's  Fillmaster
pharmaceutical  water  purification  system,  Nutripure  Elite  systems  provide
healthy,  safe  and  great  tasting  drinking  water.  The  Company  distributes
Nutripure  Elite systems  through  independent  pharmacists,  providing  them an
exclusive  health product  dealership  with a high profit  margin.  Although the
market for water systems is quite competitive,  the pharmacists'  recommendation
of a system they use in their  pharmacies  to  reconstitute  prescriptions  sets
Nutripure apart from all other residential drinking water systems. The Company's
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 The Company also markets 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  excellent  water  filtration
technology  at  competitive   pricing  through  a  unique  marketing   approach.
Nutripure's professional one-micron, carbon microfilter reduces dirt, chemicals,
lead and parasites to improve the taste,  quality and safety of tap water.  Most
importantly,  Nutripure  is the only  filtration  system  in its  class  that is

<PAGE>
"Pharmacist  Recommended".  The product has been tested by Spectrum Laboratories
to meet or exceed ANSI/NSF  Standard No. 53 Health Effects and ANSI/NSF Standard
No. 42 Aesthetic Effects.

The "Pharmacist  Recommended"  Nutripure 2000 requires no assembly and leads its
category  with other unique  enhancements  including:  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.

Innovative  Medical Services  distributes  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 The Company also manufactures and markets
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 "Pharmacist  Recommended" Nutripure
Filtered Sport Bottle, also offered as a private label or premium item, provides
clean, great-tasting water for on-the-go consumers. An innovative alternative to
buying expensive bottled water,  Nutripure Sport 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.  Excellent
margins and high-impact merchandising,  including hot colors and small-footprint
shipper/floor displays, make Nutripure Sport a category leader.

RETAIL PRODUCTS DIVISION

Medifier(TM)The  Company also markets the Medifier,  a unique 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.

Nutripure(R)Lancets  "Pharmacist  Recommended"  Nutripure  Lancets for  diabetic
glucose testing combine  superior  design  technology and customer  satisfaction
with maximized margins.  The 100-count box of sterile-tip,  one-time use lancets
provides retailers with ongoing profitability.

Nutripure(R)Antibacterial  Hand  Soap  Nutripure  Antibacterial  Hand  Soap is a
hypoallergenic,   all  natural,   gentle  hand  soap  that  provides   excellent
antibacterial  protection  in a  luxurious  formula  containing  goat's milk and
coconut oil to smooth and soften dry skin.  Available in  attractive  8oz.  pump
dispenser  bottles  and  30  oz.  refills,  "Pharmacist  Recommended"  Nutripure
Antibacterial  Hand Soap provides  superior  quality and big profits compared to
leading national brands.

Nutripure(R)Antibacterial  Hand Sanitizer Nutripure Antibacterial Hand Sanitizer
provides gentle, long-lasting protection from germs. Available in 4oz. and 8 oz.
bottles,  "Pharmacist  Recommended" Nutripure Hand Sanitizer will maximize sales
in the growing antibacterial personal products category.

E-COMMERCE DIVISION

Nutripure.com(R)The  Company  operates  Nutripure.com,  an e-commerce  supersite
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  an
easy-to-access,  intuitive  reference  format.  The website  also  presents  the
Nutripure 2000 water filtration system.

<PAGE>

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  ("Axen(TM)"),  an advanced  silver ion technology.
Axenohl  is  a  patent-pending,   non-toxic  aqueous  disinfectant.  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  (chlorine) at reduced  levels and is a cost  effective,
stand  alone  alternative  to  halogens  in  many  markets  where   conventional
disinfection methodologies are employed.

Submissions  have  been  made  to the  Food  and  Drug  Administration  and  the
Environmental  Protection  Agency for a variety of Axenohl  uses. If approved by
the FDA as safe and efficacious, and the EPA as non-toxic, the potential uses of
Axen could make dramatic  improvement in many aspects in the treatment of wounds
and burns in humans and animals and in  disinfecting  hard  surfaces in hospital
ERs, surgeries, laboratories, dental and medical offices and for decontamination
of municipal water supplies.  Additional  applications  for this product include
point-of-use/point-of-entry   water  treatment,   personal  disinfecting  retail
products, and commercial and retail hard surface disinfecting products.

The Company  has  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.

Upon  receiving  appropriate  approvals,  the Company plans 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. The
Company  has also  established  a line of  veterinary  products  featuring  Axen
including  antimicrobial  shampoo, hoof spray, wound salve, and stall and kennel
spray.

In July  2000,  the  Company  formed  a  Scientific  Advisory  Board  to  assist
Management  with its 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 will  specifically  examine the
potential uses and avoidance of toxicity as well as support Management's efforts
to obtain governmental approvals for Axen. Management expects the leadership and
experience of the members of the Scientific Advisory Board to play a key role in
moving Axen-containing products to market. The Company is investing aggressively
in Axen because it believes Axen, of all the Company's new products, carries the
greatest potential for explosive growth into very profitable, worldwide markets.

Manufacturing
-------------
The Fillmaster and Nutripure  water systems are assembled  primarily from custom
manufactured components. It is the Company's goal to perform minor manufacturing
in the Company's 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 Company
specifications from injection-molded plastic and fabricated acrylic.

<PAGE>

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.

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 $114,000 and $157,000
in the fiscal years ended July 31, 2000 and 1999,  respectively.  The  Company's
investment  in Research  and  Development  during the past year  resulted in the
release of five major  additions to the Company's  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 25, 2000, the Company employed thirty people, twenty-seven of whom
are full-time individuals whose principal responsibilities are: product assembly
and shipping  (nine  employees),  sales,  marketing and customer  service (eight
employees),  research and development (six employees) and administration  (seven
employees).  The  Company  chooses  to  outsource  more  expensive,  specialized
functions  including public relations,  graphic design and selected  engineering
projects.


ITEM 2.  PROPERTIES
The Company's  business  operates in an 11,255 square foot facility located in a
light industrial/office park in El Cajon,  California.  This location houses all
administrative, executive, sales, assembly, shipping and manufacturing functions
for the Company.  The space is leased from an  unaffiliated  third party under a
sixty-five  month  agreement  commencing on July 1, 1996.  The monthly rental is
$0.69 per  square  foot plus  $0.14 per square  foot for  maintenance  of common
areas.  There is also a fixed yearly increase of 4%. The Company has also signed
an  amendment  to the lease to allow for an option to lease the  building for an
additional five years.


ITEM 3.  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  also  believes  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 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.

<PAGE>

However  these  Orders  did not  state the  basis  for the  Orders,  nor was the
Company's  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 the
Company 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 the  Company.  The Company  believes  that its Appeal and Motions have
merit and will be granted. In any event the Company intends to pursue a trial as
soon as  possible.  As of October 25, 2000,  no ruling has been  received on the
Company's Appeal.

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.

The Company has filed an action  against John Woodard,  former Vice President of
Sales,  in Superior  Court in the State of California in April 2000. The Company
has alleged Mr. Woodard  violated his  non-competition/non-disclosure  agreement
and  provided  proprietary  information,  including  information  regarding  the
Company's  Fillmaster  line of products and  Fillmaster  customer base, to Fresh
Water  Systems,  Inc.  The Company is seeking  monetary  damages and  injunctive
relief.

The Company has 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. The
Company   alleges   Fresh  Water   Systems  and  it's   officers  and  directors
misappropriated  trade secrets of the Company  obtained from former employees of
the Company, 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. The Company is seeking monetary damages and injunctive relief.

The Company filed an action against Eckerd  Corporation in Superior Court in the
State of California in August 2000. The Company  alleges Eckerd  Corporation has
not paid for Fillmaster  products  ordered by and shipped to Eckerd  pharmacies.
The Company  seeks  monetary  damages not less than  $170,000  plus interest and
attorney's fees.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were  submitted to  shareholders  in the fourth quarter of the fiscal
year.


PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
MATTERS

(1)  Market  Information:  The  Company's  common  stock is traded on the NASDAQ
     SmallCap Market under the symbol "PURE" and its Class A Warrants are traded
     under the symbol "PUREW". The Company's Class Z Warrants are not listed for
     trading on any recognized market.
(2)  High and Low Bid Prices:  The  following  table sets forth high and low bid
     prices for each fiscal  quarter,  as  reported by NASDAQ,  for the last two
     fiscal years. Such quotations represent  inter-dealer prices without retail
     mark-ups,  mark-downs,  or commissions and, accordingly,  may not represent
     actual transactions.
<PAGE>
<TABLE>
<CAPTION>

                  Fiscal 2000                                       Fiscal 1999
       Quarter Ended         High       Low              Quarter Ended        High       Low
       ---------------------------------------           --------------------------------------
<S>                          <C>        <C>                                   <C>        <C>
       July 31, 2000         $1.969     $1.250           July 31, 1999        $2.406     $1.625
       April 30, 2000        $4.188     $1.594           April 30, 1999       $2.313     $0.656
       January 31, 2000      $6.875     $1.375           January 31, 1999     $4.750     $0.938
       October 31, 1999      $4.188     $1.500           October 31, 1998     $1.219     $0.250

</TABLE>


(3)  Security Holders: As of October 25, 2000, the Company had approximately 115
     holders of record of its common  stock,  45 holders of its Class A Warrants
     and 17 holders of the  Company's  Class Z  Warrants.  This does not include
     beneficial  owners holding common stock or Class A Warrants in street name.
     The closing price per share on October 25, 2000 was $3.00.
(4)  Dividend Plans: The Company has paid no common stock cash dividends and has
     no current plans to do so. In January 2000, the Company declared a dividend
     in kind of  Nutripure.com  common stock.  The record date and  distribution
     date  were  to  be  set  following   completion  of  the   registration  of
     Nutripure.com  as a  reporting  issuer  with the  Securities  and  Exchange
     Commission.  In October 2000, the Board of Directors of Innovative  Medical
     Services  determined that in light of adverse market  conditions for solely
     internet-based  enterprises, a public market for Nutripure.com common stock
     may not be  viable.  Therefore,  the Board  amended  its  declaration  of a
     Nutripure.com dividend to a dividend of Innovative Medical Services' common
     stock.  The  Company  will  distribute  one  share  of  Innovative  Medical
     Services' common stock for every fifty shares held of record on November 6,
     2000 with  fractional  shares  rounded up to the nearest  whole share.  The
     stock will trade ex-dividend on November 2, 2000. Distribution,  determined
     by NASDAQ, is anticipated for November 20, 2000.
(5)  Preferred  Stock:   There  are  no  shares  of  preferred  stock  presently
     outstanding.




<PAGE>

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

This  section  contains  forward-looking   statements  that  involve  risks  and
uncertainties. These forward-looking statements are not guarantees of our future
performance.  They are  subject to risks and  uncertainties  related to business
operations,  some of which are beyond our control. Our actual results may differ
materially from those anticipated in these forward-looking statements.

The Company's objective is to maximize  shareholder value by focusing on growth,
product innovation and profitability.  The following  discussion  highlights the
Company's  performance and should be read in conjunction  with the  Consolidated
Financial Statements and related notes included therein.

Results of Operations Fiscal 2000 vs. Fiscal 1999
-------------------------------------------------
Revenues  of  $1,661,500  in the fiscal  year ended July 31, 2000 were 51% lower
than the  $3,380,000  in  revenues  reported  for the fiscal year ended July 31,
1999. Fillmaster  Purification System sales in the year ended July 31, 2000 were
$1,242,900  and  replacement  filter  sales were  $383,000.  In the prior  year,
Fillmaster  Purification  System sales were  $2,320,000 and  replacement  filter
sales were $889,000.  Sales of the Fillmaster  Purification System decreased 46%
over the prior period. Sales of filters decreased 57% in fiscal 2000. Management
believes  the  decline  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 the Company has sold systems to most major chains.
The focus for further  Fillmaster sales will be on incremental and upgrade sales
to individual pharmacies within current chain accounts,  although the Company is
still actively pursuing Fillmaster sales to remaining chains. Management expects
to close such volume  sales to new chains in the coming  year,  and, as in prior
years,  those sales will result in spikes in  Fillmaster  revenues.  The Company
works to retain  customers  with its  Customer  Service  Plan 2000, a multi-year
service and warranty contract (please see "Principal Products and Markets).

The Company also  experienced a substantial  turnover in sales personnel  during
fiscal 2000.  Sales projected by the departed  personnel were not realized,  and
the Company  subsequently  established  its current  sales  department of highly
qualified and  experienced  sales  people.  In addition,  Management  believes a
former Vice President of Sales  misappropriated  trade secrets and revealed them
to a competitor,  and that Fillmaster sales were significantly impacted by these
unfair business practices (please see "Lega  Proceedings").  In the last quarter
of fiscal 2000, the Company began to implement a superior  competitive  strategy
of  multi-year  customer  service  contracts and  cross-marketing  programs with
retail products.

Gross profits for the year ended July 31, 2000 were $564,000  versus  $1,936,700
in 1999.  Gross profit  percentage  of 34% in 2000 was lower versus 57% in 1999.
The decrease in gross profit  percentage was largely due to fixed production and
labor costs being applied to the lower sales volume for the year.

Net loss for the year ended July 31,  2000 was  $1,745,400  versus net income of
$260,700 for the same period in 1999. The decreased  income was due to decreased
sales as  outlined  above  and to an  increase  in  General  and  Administrative
expenses as the  Company  positions  for  expansion  into new  markets  with new
products (Please refer to "Principal  Products and Markets" and "Future Outlook"
sections.)   General  and   Administrative   expenses  increased  $535,200  from
$1,178,100  in fiscal  1999 to  $1,713,300  in fiscal  2000.  $200,500  of these
expenses  were  related to  Nutripure.com.  $225,000 is  allowance  for doubtful
accounts,  of which  $175,000  is due from  Eckerd  Corporation.  The Company is
actively  seeking  recovery,  including  taking  legal  action.  The  Company is
recognizing approximately $80,000 in gain from change in accounting principal as
required  by  a  recent  accounting  pronouncement  arising  from  retroactively
capitalizing part of the cost of website development.  Selling expense increased
approximately  $250,000 as a result of increased sales  personnel,  trade shows,
marketing materials and product launches.

<PAGE>

Liquidity and Capital Resources Fiscal 2000 vs. 1999
----------------------------------------------------
During the fiscal year ended July 31,  2000,  the  Company's  current  assets to
liabilities ratio rose from 1.95 to 5.02. Current assets increased $680,000 from
$2,114,400 to $2,794,400. Current assets at July 31, 2000 include an increase of
$1,099,300 in cash and cash equivalents due to a private  placement in the third
quarter.   Accounts  receivable   decreased  $345,300  on  lower  sales  volume.
Inventories increased $76,200 from $720,000 in fiscal 1999 to $796,100 in fiscal
2000 on  anticipated  sales of new  products.  Noncurrent  assets  increased  by
$213,300 during the year due to an increase in patents and deferred  acquisition
costs related to silver ion technology purchases.  Current liabilities decreased
$527,800 from  $1,084,100 to $556,300.  The decrease in current  liabilities was
the result of the  Company's  ability to pay down  accounts  and note payable by
$521,600 during the period.

Cash flows used from operations were $1,557,900 in fiscal year 2000 and $556,900
in 1999.  For those  periods,  cash flows  used in  investing  activities  were,
respectively,  $462,900 and $158,000 for the purchase of machinery and equipment
and  for  website  development.   Cash  flows  from  financing  activities  were
$3,120,080 in fiscal 2000 and $688,700 in fiscal 1999.  Investing activities for
the current year  included a decrease of $235,500 in notes  payable.  Also,  the
Company received $3,355,600 from proceeds sales of common stock.

In September 1999, the Company issued 160,000 shares of common stock to a single
accredited investor for $200,000 ($1.25 per share) in a private placement of the
shares offered to the one accredited investor.

In December  1999, the Company's  subsidiary,  Nutripure.com,  issued  1,000,000
shares of common stock to accredited investors for $500,000 ($0.50 per share) in
a private placement of the shares.

In March 2000,  the Company  issued  607,411  units,  consisting of one share of
common stock and one warrant to purchase an additional  share of common stock at
$5.25 per share on or before March 31, 2001 for $1,896,500  ($3.375 per unit) in
a private placement of the units to 15 accredited investors.

In addition,  approximately  $759,000 was received from exercise of  outstanding
stock options.

Cash flows from financing activities in fiscal 1999 resulted from an increase in
notes payable of $151,100 and sale of common stock of $537,600.

The total increase in cash and cash  equivalents for the fiscal years ended July
31, 2000 and July 31, 1999 was $1,131,000 and $26,200.


Future Outlook
--------------

In the first  quarter of fiscal year 2001,  Innovative  Medical  Services  began
realizing  revenues from the new Nutripure water treatment  dealer program.  The
dealer base grows  steadily,  and  Management  believes  that the  program  will
produce  notably  increased  revenues  and earnings in the coming  quarters.  In
addition to the ongoing  expansion of the water dealer program,  retail products
currently in distribution are  experiencing  increased  growth,  and the Company
expects to see revenue  from new  products and new  distribution  channels  this
year.  Regarding  silver ion  technologies,  regulatory  approval is a threshold
event for the Company's commercial launch of Axenohl and related products.  Once
approvals are received,  Management expects revenues from Axenohl to rapidly and
substantially develop.

Throughout the past year,  Innovative  Medical Services focused its resources on
expanding the current and future scope of business and related growth potential.
The Company's increased selling expenses and general and administrative expenses
reflect the Company's transition from a niche market company that provides water
purification  equipment to pharmacies  to an  international  company  containing
several divisions to manage new products and programs in consumer and commercial

<PAGE>
water  treatment,  direct-to-  consumer  e-commerce and retail  distribution  of
multiple product lines.  This investment has proved  successful,  as the Company
has made  great  strides  in  product  development  and  distribution.  Although
Fillmaster is the cornerstone of the Company's  business,  the new products have
much greater growth potential.



<PAGE>
ITEM 7 - FINANCIAL STATEMENTS



                              MILLER AND MCCOLLOM
                          CERTIFIED PUBLIC ACCOUNTANTS



                          INDEPENDENT AUDITORS' REPORT


We have  audited  the  accompanying  consolidated  balance  sheet of  Innovative
Medical  Services,  Inc.  as of July  31,  2000,  and the  related  consolidated
statements of income,  stockholders'  equity,  and cash flows for the year ended
July  31,  2000.  These  financial  statements  are  the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Innovative  Medical  Services,  Inc.  at July 31,  2000,  and the results of its
operations  and its cash  flows  for the year then  ended,  in  conformity  with
generally accepted accounting principles.


                                                        /s/  Miller and McCollom



Denver, Colorado
September 28, 2000



    2170 South Parker Road Suite 270 - Denver Colorado 80231 - 303 745-2217 -
                                FAX 303 745-2265


<PAGE>



                               Steven Holand, CPA
                       3914 Murphy Canyon Rd., Ste. A126
                               San Diego CA 92123
                               Phone 619-279-1640
                                Fax 619-279-9221



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT


To the Board of Directors and Stockholders
Innovative Medical Services
El Cajon, California

I have audited the consolidated  balance sheet of Innovative Medical Services as
of July 31, 1999, and the related consolidated statements of income, accumulated
deficit, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management.  My responsibility is to express
an opinion on these financial statements based on my audits.

I conducted the audit in accordance with generally accepted auditing  standards.
Those standards  require that I plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all
material  respects,  the consolidated  financial  position of Innovative Medical
Services at July 31, 1999,  and the  consolidated  results of its operations and
its  consolidated  cash  flows  for the year  then  ended,  in  conformity  with
generally accepted accounting principles.


/s/ STEVE HOLLAND
-----------------
Steve Holland
Certified Public Accountant

San Diego, California
October 25, 1999


<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------------------
                                                                           July 31
ASSETS                                                             2000             1999
                                                               ----------------------------
Current Assets
<S>                                                              <C>            <C>
     Cash and cash equivalents                                   $ 1,121,316    $   22,056
     Restricted cash                                                 204,887       205,574
     Accounts receivable, net of allowance for doubtful
          accounts of $ 225,000                                      444,842       790,166
     Notes receivable                                                193,210       339,524
     Inventories                                                     796,136       719,972
     Prepaid expenses                                                 33,975        37,078
                                                                     -------        ------

          Total current assets                                     2,794,366     2,114,370
                                                                  ----------     ---------

Property, Plant and Equipment
     Property, plant and equipment                                 1,056,252       805,523
                                                                  ----------       -------

          Total property, plant and equipment                      1,056,252       805,523
                                                                  ----------       -------

Noncurrent Assets
     Deposits                                                         13,083         6,575
     Patents and license                                             498,181       425,550
     Goodwill                                                        250,889       256,422
     Other intangible assets                                         344,250       353,250
     Deferred acquisition costs                                      202,542        53,851
                                                                    --------        ------

          Total noncurrent assets                                  1,308,945     1,095,648
                                                                  ----------     ---------

     Total assets                                               $  5,159,563   $ 4,015,541
                                                                ============   ===========

LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
     Accounts payable                                           $    308,812   $   594,948
     Accrued liabilities                                              36,880        43,068
     Notes payable                                                   210,592       446,067
                                                                    --------       -------

          Total current liabilities                                  556,284     1,084,083
                                                                    --------     ---------

Minority interest payable                                             61,696             -
                                                                     -------       -------

Stockholders' Equity
     Class A common stock, no par value: authorized
          20,000,000 shares, issued and outstanding
           5,942,903 at July 31, 2000 and
           4,392,242 at July 31, 1999                             10,018,873     6,663,318
     Class A warrants: issued and outstanding 3,687,500
          warrants                                                   108,750       108,750
     Accumulated deficit                                          (5,586,040)   (3,840,610)
                                                                  -----------  -----------

          Total stockholders' equity                               4,541,583     2,931,458
                                                                  ----------     ---------

     Total liabilities and stockholders' equity                 $  5,159,563   $ 4,015,541
                                                                ============   ===========
</TABLE>



<PAGE>

<TABLE>
<CAPTION>



CONSOLIDATED STATEMENTS OF INCOME
-----------------------------------------------------------------------------------

                                                             For the Years Ended
                                                                    July 31
                                                           2000           1999
                                                         -----------    -----------
<S>                                                      <C>            <C>
Net sales                                                $ 1,661,462    $ 3,379,984
Cost of sales                                              1,097,419      1,443,307
                                                          ----------      ---------

Gross profit                                                 564,043      1,936,677
                                                            --------      ---------

Selling expenses                                             595,142        356,611
General and administrative expenses                        1,713,337      1,178,128
Research and development                                     114,756        157,049
                                                            --------        -------

Total operating costs                                      2,423,235      1,691,788
                                                          ----------      ---------
Operating income (loss)                                   (1,859,192)       244,889
                                                          -----------       -------

Other income and (expense):
Interest income                                               34,763         16,631
Loss on sale of assets                                       (40,200)             -
                                                             --------        ------

Total other income (expense)                                  (5,437)        16,631
                                                              -------        ------

Income (loss) before income taxes, minority
     Interest in subsidiary operations and
     change in accounting principle                       (1,864,629)       261,520

Federal and state income taxes                                   800            800
                                                                ----            ---

Income (loss) before minority interest in subsidiary
     operations and change in accounting principle        (1,865,429)       260,720

Minority interest in subsidiary operations                    40,103              -
                                                             -------        -------

Net income (loss) before cumulative
     change in accounting principle                       (1,825,326)       260,720

Cumulative effect of change
     in accounting principle                                  79,896              -
                                                             -------        -------

Net income (loss)                                       $ (1,745,430)    $  260,720
                                                        =============    ==========


Net income (loss) per common share before change
     in accounting principle (basic)                           (0.36)          0.06
Cumulative effect of change
     in accounting principle                                    0.02              -
                                                               -----          -----
Net income (loss) per common share (basic)                   $ (0.34)       $  0.06
                                                             ========       =======

Net income (loss) per common share before change
     in accounting principal (diluted)                         (0.36)          0.04
Cumulative effect of change
     in accounting principle                                    0.01              -
                                                               -----          -----
Net income (loss) per common share (diluted)                 $ (0.35)       $  0.04
                                                             ========       =======


CONSOLIDATED STATEMENTS OF ACCUMULATED DEFICITS


Balance, beginning of period                            $ (3,840,610)  $ (4,101,330)

Net income (loss)                                         (1,745,430)       260,720
                                                          -----------      --------

Balance, end of period                                  $ (5,586,040)  $ (3,840,610)
                                                        =============  =============
</TABLE>




<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------------
                                                                        For the Years Ended
                                                                             July 31
                                                                      2000              1999
                                                                   -------------    -----------
Cash flows from operating activities
<S>                                                                <C>               <C>
       Net income (loss)                                           $ (1,745,430)     $ 260,720

       Adjustments to reconcile net income to net cash
       provided by operating activities:
           Amortization                                                  52,546              -
           Depreciation                                                 159,624        144,075
           Minority interest in subsidiary operations                    61,696              -
       Changes in assets and liabilities:
           (Increase) decrease in restricted cash                           687            655
           (Increase) decrease in accounts receivable                   345,324       (513,547)
           (Increase) decrease in notes receivable                      146,314       (232,606)
           (Increase) decrease in prepaid expense                         3,103        (25,522)
           (Increase) decrease in inventory                             (76,163)      (359,406)
           (Increase) decrease in deposits                               (6,508)         7,500
           (Increase) decrease in patent and licenses                   (72,631)      (367,744)
           (Increase) decrease in deferred acquisition costs          (148,691)      1,043,001
           (Increase) decrease in goodwill                                5,533       (256,422)
           (Increase) decrease in intangible assets                       9,000       (353,250)
           Increase (decrease) in accounts payable                    (286,136)         99,661
           Increase (decrease) in accrued liabilities                    (6,187)        (3,992)
                                                                     ----------      ---------

                Net cash provided (used) by operating
                      activities                                     (1,557,919)      (556,877)
                                                                     ----------     ----------

Cash flows from investing activities
       Purchase of property, plant and equipment                       (462,901)      (157,999)
                                                                      ---------     ----------

                Net cash (used) in investing activities                (462,901)      (157,999)
                                                                      ---------     ----------

Cash flows from financing activities
       Increase (decrease) in notes payable                            (235,475)       151,081
       Proceeds from sale of common stock                             3,355,555        537,601
                                                                     ----------     ----------

                Net cash provided by financing activities             3,120,080        688,682
                                                                     ----------     ----------

                Net increase (decrease) in cash and cash
                      equivalents                                     1,099,260        (26,194)

Cash at beginning of period                                              22,056         48,250
                                                                     ----------     ----------

Cash at end of period                                             $   1,121,316      $  22,056
                                                                  =============      =========

Interest paid                                                     $      73,990      $  69,591
Taxes paid                                                        $         800      $     800
</TABLE>





<PAGE>
Innovative Medical Services
                   Notes to Consolidated Financial Statements
                       See Independent Accountants' Report

Note 1. Organization and Summary of Significant Accounting Policies

     Organization and Business Activity
     ----------------------------------
     Innovative  Medical Services was  incorporated in San Diego,  California on
     August  24,  1992.   The  Company  was   organized   with  the  purpose  of
     manufacturing,   marketing,  and  selling  the  Fillmaster,  a  unique  and
     proprietary  pharmaceutical  water purification and dispensing product. The
     Company is fully operational,  with more than 15,000 customers in all fifty
     states, Puerto Rico, the United Kingdom, Australia, Canada, and Europe. The
     Company has expanded  research and development  efforts in order to further
     develop  its  product  line  to  include  an   additional   8   proprietary
     pharmacy-related efficiency tools.

     In October of 1998,  the Company  purchased the assets of Export Company of
     America,  Inc.  (EXCOA),  a privately held Fort  Lauderdale,  Florida-based
     distributor  of disposable  medical,  dental and veterinary  supplies.  The
     major  asset of this  company was its 45%  interest  in  Ampromed  Comercio
     Importacao E Exportacao  Ltda  (AMPROMED),  a Rio de  Janeiro-based  import
     company  that sells  medical,  dental  and  veterinary  supplies  and water
     filtration  products  to  practitioners,   retail  outlets  and  government
     agencies.  The Company acquired the remaining 55% interest in AMPROMED from
     a private individual. To facilitate this transaction the Company has formed
     EXCOA Nevada, a 100% owned subsidiary of Innovative Medical Services.  This
     company was incorporated in Nevada. A 99% interest in AMPROMED will be held
     by  EXCOA  Nevada,  with  the  remaining  1% of  AMPROMED  being  owned  by
     Innovative Medical Services. These business combinations were accounted for
     using the purchase method.  The Company incurred  $1,091,393 of acquisition
     cost for these two entities.  Of this amount the Company recorded  $261,322
     of goodwill and $360,000 of other intangible assets. These assets are being
     amortized over a period of forty (40) years.

     In  December  1999,  the Company  formed  NUTRIPURE.COM  as a wholly  owned
     subsidiary,  incorporated  in the  state  of  Nevada.  NUTRIPURE.COM  is an
     e-commerce  web supersite  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 an easy-to-access,  intuitive reference format.
     The  website  will also  present  the  Nutripure  line of water  filtration
     systems.

     Basis of Presentation and Principals of Consolidation
     -----------------------------------------------------
     The accompanying  financial statements include the consolidated accounts of
     Innovative  Medical  Services  and  its  subsidiaries.   All  inter-company
     balances and transactions have been eliminated.

     Revenue Recognition
     -------------------
     The company recognizes revenues when products are shipped.

     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 amount charged to Research and  Development  expense was $114,756
     and   $157,049  in  the  fiscal   years  ended  July  31,  2000  and  1999,
     respectively.

     Depreciation Method
     -------------------
     The cost of property, plant and equipment is depreciated on a straight-line
     basis over the  estimated  useful lives of the related  assets.  The useful
     lives  of  property,   plant,  and  equipment  for  purposes  of  computing
     depreciation  are:
<PAGE>
         Computers and equipment                     7.0 years
         Furniture and fixtures                     10.0 years
         Website                                     3.0 years
         Property held under capital lease          10.0 years
         Vehicle                                     5.0 years to 7.0 years

     Leasehold  improvements  are being  depreciated over the life of the lease,
     which is equal to 120 months.

     Depreciation is computed on the Modified  Accelerated  Cost Recovery System
     for tax purposes.

     Amortization
     ------------
     Goodwill and customer list are being amortized on the  straight-line  basis
     over forty (40) years.  The cost of patents acquired are being amortized on
     a  straight-line  basis  over  the  remaining  lives of 17  years.  Website
     development costs are being amortized on the straight-line basis over three
     (3) years.

     Amortization  expense  for the years  ended July 31, 2000 and July 31, 1999
     was $47,801 and $11,650, respectively.

     Long-Lived Assets
     -----------------
     In accordance with Financial  Accounting Standards Board ("FASB") Statement
     of  Financial   Accounting  Standards  ("SFAS")  No.  121,  Accounting  for
     Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
     of, the carrying  value of intangible  assets and other  long-lived  assets
     will  be  reviewed  on a  regular  basis  for the  existence  of  facts  or
     circumstances, both internally and externally, that may suggest impairment.
     To  date,  no such  impairment  has  been  indicated.  Should  there  be an
     impairment  in the  future,  the  Company  will  measure  the amount of the
     impairment  based on  undiscounted  expected  future  cash  flows  from the
     impaired  assets.  The cash flow  estimates  that will be used will contain
     management's best estimates,  using  appropriate and customary  assumptions
     and projections at the time.

     Inventory Cost Method
     ---------------------
     Inventories  are  stated at the lower of cost or market  determined  by the
     Average  Cost  method  and net  realizable  value.  Inventories  at July 31
     consisted of:
                                              2000             1999
                                           ----------       ---------
                   Finished Goods          $  108,528       $ 212,335
                   Work in Progress           180,198         108,770
                   Raw Materials              494,743         398,867
                                           ----------       ---------
                                           $  783,469       $ 719,972
                                           ==========       =========


<PAGE>


     Use of Estimates
     ----------------
     The  preparation of the financial  statements in conformity  with generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements  and the  reported  amounts of revenues  and expenses
     during  the  reporting  period.  Actual  results  could  differ  from those
     estimates.

     Fair Value of Financial Instruments
     -----------------------------------
     The fair value of financial  instruments,  consisting primarily of the line
     of  credit,  is  based on  interest  rates  available  to the  Company  and
     comparison to quoted prices. The fair value of these financial  instruments
     approximates carrying value.

     Advertising and Promotional Costs
     ---------------------------------
     Cost of  advertising  and  promotion  are  expensed  as  incurred or at the
     first-time  advertising and promotion takes place. Such costs were $197,908
     and  $101,063  for the  years  ended  July 31,  2000  and  July  31,  1999,
     respectively.

     Deferred Public Offering Cost
     -----------------------------
     The company had  incurred  $376,695 of costs as of July 31, 1996 related to
     an initial public offering.  Those costs were deferred,  pending completion
     of the offering.  After the  completion  of the offering,  the total of the
     public offering costs $1,436,807 was reclassified to shareholders' equity.

     Deferred Acquisition Costs
     --------------------------
     During the process of evaluating  certain  companies for  acquisition,  the
     Company  expended  $133,573 and $49,391 in fiscal years ended July 31, 2000
     and July 31, 1999,  respectively.  These costs were capitalized and will be
     reclassified if the acquisitions are successful as a cost of the investment
     or expensed in the future if the  acquisitions  are not successful.  During
     fiscal year ended July 31, 1999, the company  completed the  acquisition of
     Export Company of America, Inc. (EXCOA) and reclassified  $1,051,493 of the
     July 31, 1998 balance of deferred acquisition costs and $39,900 of the July
     31, 1999 fiscal year end expenditures to investment in that purchase.

     Net Income (Loss) Per Common Share
     ----------------------------------
     The Company  adopted  FASB  Statement  No. 128,  Earnings  Per Share ("SFAS
     128"),  which is  effective  for periods  ending  after  December 15, 1997.
     Entities  that have only common stock  outstanding  are required to present
     basic  earnings  per share  amounts.  All other  entities  are  required to
     present  basic and diluted  per share  amounts.  Diluted per share  amounts
     assume the conversion,  exercise or issuance of all potential  common stock
     instruments  unless the effect is to reduce a loss or  increase  the income
     per common share from continuing operations.

     As required  by SFAS 128,  earnings  per share is  computed  based upon the
     weighted average common shares outstanding for the year.

     Following  is a  reconciliation  of the weighted  average  number of shares
     actually  outstanding with the number of shares used in the computations of
     loss per common share:
<TABLE>
<CAPTION>
                                                                   For the Years Ended
                                                           July 31, 2000         July 31, 1999
                                                           -------------         --------------
<S>                                                            <C>                   <C>
         Shares outstanding                                    5,942,903             4,392,242
         Weighted average number of shares actually
          outstanding                                          5,056,141             4,148,879
         Stock Options                                         1,214,309             1,417,969
         Warrants                                              1,798,125             1,798,125
                                                               ---------             ---------
<PAGE>
           Total weighted average shares                       8,068,575             7,364,973
                                                               ---------             ---------
         Net income (loss) before cumulative
          Change in accounting principle                    $ (1,825,326)            $ 260,720

         Cumulative change in accounting principle                79,896                     -

         Net income (loss)                                  $ (1,745,430)            $ 260,720
                                                            ============             =========

         Basic net earnings (loss) per share
           Net income (loss) per common share
            before change in accounting principle           $      (0.36)             $   0.06
           Cumulative effect of change in
            accounting principle                                    0.02                     -
                                                               ---------             ---------
           Net income (loss) per common share               $      (0.34)             $   0.06
                                                               =========             =========

         Diluted net earnings (loss) per share

           Net income (loss) per common share
            before change in accounting principle           $      (0.36)             $   0.04
           Cumulative effect of change in
            accounting principle                                    0.01                     -
           Net income (loss) per common share               $      (0.35)             $   0.04
                                                               =========              ========
</TABLE>


     Potential  common  stock  instruments  at  July  31,  2000,  which  include
     1,214,309  stock options and 1,798,125  warrants,  are included in the loss
     per share calculation for fiscal year ended July 31, 2000. Potential common
     stock  instruments at July 31, 1999, which include  1,417,969 stock options
     and 1,798,125 warrants,  are included in the loss per share calculation for
     fiscal year ended July 31, 1999.

     Recent Accounting Pronouncements
     --------------------------------
     In June of 1998, the FASB issued Statement of Accounting  Standards No. 133
     ("SFAS  133")   "Accounting   for   Derivative   Instruments   and  Hedging
     Activities".  SFAS 133 establishes  accounting and reporting  standards for
     derivative  instruments,  including certain derivative instruments embedded
     in other contracts, and for hedging activities.  It requires that an entity
     recognize all  derivatives  as either assets or  liabilities on the balance
     sheet at their value. This statement,  as amended by SFAS 137, is effective
     for  financial  statements  for all fiscal  quarters  to all  fiscal  years
     beginning  after June 15, 2000. The Company does not expect the adoption of
     this  standard  to have a  material  impact on its  results  of  operation,
     financial position,  or cash flows as the Company currently does not engage
     in any derivative or hedging activities.


     Income Taxes
     ------------
     At July 31, 2000,  the Company has financial,  federal,  and California tax
     net operating loss carryforwards of approximately  $5,589,000,  $5,071,000,
     and $2,374,000,  respectively. At July 31, 1999, the Company has financial,
     federal,   and  California  tax  net  operating   loss   carryforwards   of
     approximately $3,844,000,  $3,771,000,  and $1,899,000,  respectively.  The
     difference  between  the  financial  reporting  and the  federal  tax  loss
     carryforward  is  primarily  due  to the  capitalization  of  research  and
     development  expenses  and  start-up  expenses  for  tax  purposes  with an
     amortization  over  five  (5)  years;   however,  for  financial  reporting
     purposes,  these  expenses  are  charged to  operations  as  incurred.  The
     difference  between  federal  and  California  tax  loss  carryforwards  is
     primarily  due  to  the  fifty  percent   limitation  on  California   loss
     carryforwards.  The tax loss  carryforwards  will begin  expiring in fiscal
     year ended July 31, 2008, unless previously utilized.

     The Company adopted Financial Accounting Standards Board Statement No. 109,
     Accounting for Income Taxes,  beginning in fiscal year ended July 31, 1993.
     The adoption had no impact on 1993  results.  In  accordance  with this new
<PAGE>
     standard,  the Company has recorded total deferred tax assets of $1,180,000
     and $899,000 and a related valuation reserve of $1,180,000 and $899,000 for
     the fiscal years ended July 31, 2000 and 1999, respectively. Realization of
     these deferred tax assets, which relate to operating loss carryforwards and
     timing  differences  from the  amortization  of  research  and  development
     expenses and start-up expenses, is dependent on future earnings. The timing
     and amount of future  earnings are uncertain and  therefore,  the valuation
     reserve has been established.

     Comprehensive Income
     --------------------
     The Company adopted Statement of Financial Accounting Standards ("FAS") No.
     130,  "Reporting   Comprehensive  Income"  FAS  No.130  requires  that  the
     components  and total amounts of  comprehensive  income be displayed in the
     financial statements  beginning in 1998.  Comprehensive income includes net
     income and all changes in equity  during a period that arise from  nonowner
     sources,  such as foreign currency items and unrealized gains and losses on
     certain  investments  in equity  securities.  The Company does not have any
     components of comprehensive income other than net income.


Note 2. Cash and Cash Equivalents

     The carrying amounts for cash and cash  equivalents  approximate fair value
     because of the short maturity of these  instruments.  The Company maintains
     cash  balances  at  several  financial   institutions.   Accounts  at  each
     institution are insured by the Federal Deposit Insurance  Corporation up to
     $100,000.

     At July 31, 2000 and July 31 1999, the Company's cash and cash  equivalents
     is represented by $1,121,316 and $22,056, respectively, in cash or checking
     accounts.

Note 3. Restricted Cash

     At July 31, 2000, the Company's  restricted cash consisted of a certificate
     of deposit of $204,887 and at July 31, 1999 the Company's  restricted  cash
     consisted of a certificate of deposit of $205,574.  These  certificates  of
     deposit were held by a bank, as security for a line of credit with the same
     bank (Note 6).

Note 4. Notes Receivable

     At July 31, 2000, notes receivable of $162,793  represents amounts due from
     officers and $30,417  represents  amounts due from  employees.  At July 31,
     1999, notes receivable of $153,578 represents amounts due from officers and
     $185,946 represent amounts due from employees. All notes receivable are due
     and payable within one year. The carrying value of the notes,  based on the
     terms at which those same loans would be made currently,  approximate their
     fair value. All notes in excess of $10,000 have interest accrued at 6%

Note 5. Property, Plant and Equipment

     The  following is a summary of property,  plant,  and  equipment - at cost,
     less accumulated depreciation:

                                          July 31, 2000        July 31, 1999
                                          --------------      ---------------
        Computers and equipment           $      927,257       $      719,410
        Furniture and fixtures                   100,630              107,431
        Website                                  182,166                    -
        Vehicle                                   50,985               52,670
        Leasehold improvements                   304,623              322,805
                                          --------------      ---------------
                                               1,565,661            1,202,316
        Less: accumulated depreciation
              and amortication                   535,159              396,793
                                          --------------      ---------------
                 Total                    $    1,030,502       $      805,523
                                          ==============      ===============


     Depreciation expense charged to general and administrative  expense for the
     years ended July 31, 2000 and 1999 was $159,624 and $144,075, respectively.


<PAGE>


Note 6. Debt

     The details relating to debt are as follows:
<TABLE>
<CAPTION>

                                                        July 31, 2000       July 31, 1999
<S>                                                      <C>                <C>
     Line of Credit Community 1st Bank
     $200,000 line of credit, interest at 8.35%
     Due and payable February 25, 2001
     Secured by certificate of deposit of $205,574       $    196,009       $     196,009

     Line of Credit Flagship Capital, Inc. for
     financing of accounts payable, interest at 9%
     payable at $15,823 monthly beginning March
     17, 2000                                                  14,583                   -
                                                         ------------       -------------
     Total notes payable                                      210,592             446,067

     Current maturities of notes payable included in
      current liabilities                                     210,592             446,067
                                                         ------------       -------------
     Total long term debt                                 $         -       $           -
                                                         ============       =============
</TABLE>


Note 7. Commitments

     The company leased office and warehouse facilities under an operating lease
     that  expired on December 31, 1996.  On May 14, 1996,  the Company  entered
     into a new operating  lease agreement for sixty-five  months  commencing on
     July 1, 1996.  The rent  payment  portion  of the lease is for  sixty-three
     months,  which  allows for an initial  building  improvement  period of two
     months. The monthly rental for the 11,255 square foot facility is $0.69 per
     square foot plus $0.14 per square  foot for  maintenance  of common  areas.
     There is also a fixed yearly increase of 4%. The company has also signed an
     amendment  to the lease to allow for an option to lease the building for an
     additional five years. The company made improvements to the new building in
     the amount of approximately $305,000.

     The rental expense recorded in general and administrative  expenses for the
     years  ended  July 31,  2000 and July 31,  1999 was  $98,835  and  $78,393,
     respectively.  Future  minimum rental  payments  required for each of the 5
     succeeding years assuming exercise of the option are as follows:


Note 8.  Capital Stock

     The following schedule summarizes the change in capital stock:
<TABLE>
<CAPTION>

                                      Common             Common
                                      Stock              Stock              A                 A            Z Warrants
                                      Shares               $             Warrants          Warrants          Issued
                                                                          Issued              $
                                      ---------         ----------     ----------          --------        ----------
<S>                                  <C>               <C>             <C>                <C>              <C>
         Balance, July 31, 1997       3,532,851         $5,566,124      3,687,500          $108,750         785,000

         Stock issued for services      383,500            559,594              -                 -               -
                                      ---------         ----------      ---------          --------        ----------

         Balance, July 31, 1998       3,916,351          6,125,718      3,687,500           108,750         785,000

         Sale of stock                  233,125            189,375              -                 -               -

         Private placement              242,766            348,225              -                 -               -
                                      ---------          ---------      ---------          --------         -------
         Balance, July 31, 1999       4,392,242          6,663,318      3,687,500          $108,750         785,000

         Sale of stock                  783,250            759,055              -                 -               -

         Private placement              767,411          2,596,500
                                      ---------        -----------      ---------          --------         -------
         Balance, July 31, 2000       5,942,903        $10,018,873      3,687,500          $108,750         785,000
                                      =========        ===========      =========          ========         =======

</TABLE>

     Each Class A warrant  entitles the holder to acquire an  additional  common
     share for $5.25 per  common  share  beginning  August 8, 1997 and  expiring
     August 8, 2001.  The Class A Warrants  are  redeemable  by the  Company for
     $0.05 per warrant,  at the Company's option,  commencing one year after the
     effective  date of the  offering  provided  the  closing  bid price for the
     Company's  common  shares shall have  averaged in excess of $9.00 per share
     for thirty consecutive business days ending within five days of the date of
     notice of redemption.

     Each Class Z warrant  entitles the holder to acquire an  additional  common
     share for $10.00 per common  share  beginning  August 8, 1998 and  expiring
     August 8, 2001.  The Class Z Warrants  are  redeemable  by the  Company for
     $0.10 per warrant,  at the Company's option,  commencing one year after the
     effective  date of the  offering  provided  the  closing  bid price for the
     Company's  common  shares shall have averaged in excess of $15.00 per share
     for thirty consecutive business days ending within five days of the date of
     notice of redemption.



Note 9. Related Party Transactions

     On April 1, 1996, the Company entered into an employment agreement with the
     President  and Chief  Executive  Officer.  The term of the agreement is for
     five years with an automatic  renewal of another five years.  The following
     are the major provisions of the agreement:

     1. Compensation

          a.   Salary of $108,000 per year, and
          b.   Additional  compensation  equal  to 3% of the net  income  before
               taxes earned by the corporation during each full fiscal year, and
          c.   A  monthly  amount  of not more  than  $500 per month for an auto
               lease, and
          d.   A  five  year   option  to   purchase   as  many  shares  of  the
               corporation's common stock as equals one hundred thousand dollars
               at 80% of the  initial  public  offering  price of the  Company's
               common  stock,  approximately  31,250  shares at $3.20 per share,
               which are exercisable in April, 1997.

     2. Compensation for past services
          a.   In  consideration of services which have been rendered during the
               fiscal  years ended July 31, 1994 and July 31, 1995 and the eight
               months period ended March 31, 1996, the  corporation  granted the
               following compensation for past services rendered:
               i.   $30,000 for fiscal year ended July 31, 1994, and
               ii.  $45,000 for fiscal year ended July 31, 1995, and
<PAGE>
               iii. $60,000 for the eight months ended March 31, 1996.



     The  President   (Mr.   Krall)  waived  the  payment  of  $119,000  of  the
     compensation for past services and contributed this amount as an additional
     payment  for the common  stock he  presently  owns.  In order to reward the
     efforts of Mr.  Krall for his  performance  in the weeks  leading to NASDAQ
     approval  of  the  initial  public  offering,  the  Compensation  Committee
     recommended  and the Board of Directors  authorized a bonus to Mr. Krall in
     the amount of $257,500. The bonus of $257,500 was accrued at July 31, 1996.

     On April 26,  1997,  the board of  directors  approved  the  renewal of the
     employment  contract for Michael  Krall for the  position of President  and
     Chief Executive Officer and increased his salary to $12,000 per month.

Note 10. Stock Option Plans

     The  Company  has three stock  option  plans (the Plans)  pursuant to which
     options  to acquire  common  stock  have been  granted.  These are the 1996
     Incentive  Stock  Option  Plan (the 1996  Incentive  Plan)  approved by the
     Company's  Shareholders  in April,  1996,  the 1996  Directors and Officers
     Stock Option Plan (the 1996 D&O Plan)  adopted by the Board in April,  1996
     and the Amended  Innovative  Medical  Services 1998  Directors and Officers
     Stock  Option  Plan  (the  1998  D&O  Plan)   approved  by  the   Company's
     Shareholders in December,  1998. The Plans are  administered by a Committee
     of the Board of  Directors  or the  entire  Board.  The  exercise  price of
     options  granted  under any of the Plans must be the fair market  value for
     the common stock at the date of grant.

     1996  Incentive  Plan:  The maximum  number of shares  which may be offered
     pursuant  to stock  options  under  the 1996  Incentive  Plan is  1,000,000
     Shares.  The maximum number of shares subject to Options granted to any one
     Key  Employee  shall not exceed  100,000  shares.  The Options  granted are
     "Incentive Stock Options" within the meaning of Section 422 of the Internal
     Revenue  Code of 1986,  as  amended,  for certain  key  employees.  All Key
     Employees of the Company and its  subsidiaries  are eligible to participate
     in the 1996  Incentive  Plan.  A Key  Employee  is defined in the Plan as a
     Company  employee who in the judgment of the  Administrative  Committee has
     the ability to positively affect the profitability and economic  well-being
     of the Company. Part time employees,  independent contractors,  consultants
     and  advisors  performing  bona  fide  services  to the  Company  shall  be
     considered  employees  for  purposes  of  participation  in  the  Plan.  No
     Executive  Officer or Director of the Company has received options pursuant
     to this Plan.  Options to acquire  143,125  shares under the 1996 Incentive
     Plan were  outstanding  as of July 31, 1999 with 673,750  shares  remaining
     under the 1996 Incentive Plan for which options may be granted.

     1996 D&O Plan: The maximum  number of shares which may be offered  pursuant
     to stock options under the 1996 D&O Plan was 1,000,000 Shares.  The maximum
     number of shares subject to options  granted under the 1996 D&O Plan to any
     one  Director or Officer  shall not exceed  200,000  shares in any 12-month
     period.  Options to  acquire  400,000  shares  under the 1996 D&O Plan were
     outstanding as of July 31, 1999 and there are no shares remaining under the
     1996 D&O Plan for which options may be granted.

     1998 D&O Plan: The maximum  number of shares which may be offered  pursuant
     to stock options under the 1998 D&O Plan is 2,000,000  shares.  The maximum
     number of shares subject to options  granted under the 1998 D&O Plan to any
     one  Director or Officer  shall not exceed  200,000  shares in any 12-month
     period.  Upon  the  election  of  a  continuing  director  or  the  further
     appointment of a continuing  executive officer,  the continuing director or
     officer  will  receive an  additional  option for  50,000  shares.  A newly
     elected  director  or newly  appointed  executive  officer is  entitled  to
     receive an option for 100,000  shares.  Options to acquire  991,250  shares
     under the 1998 D&O Plan were  outstanding as of July 31, 1999 and there are
     958,750 shares  remaining  under the 1998 D&O Plan for which options may be
     granted.
<PAGE>
     During  the  fiscal  year  ended  July 31,  2000,  employees  and  officers
     exercised options on 691,750 shares of stock.

Note 11. Pension Plan

     The Company  participates  in a Small SEP program  under which the employer
     makes contributions to a SEP, which includes a salary reduction arrangement
     (SARSEP).  Employees  who  participate  in the SARSEP may elect to have the
     employer:  (a) make  contributions  to the SEP on their behalf,  or (b) pay
     them  cash.  A salary  reduction  arrangement  may be used only in years in
     which  the  SEP  meets  requirements  that  the IRS may  impose  to  ensure
     distribution of excess  contributions.  Annual contributions of an employer
     under a SEP are excluded from the participant's gross income.

Note 12. Credit Risk and Fair Value of Financial Instruments

     The  Company  markets  its  products  to  numerous   customers  in  various
     geographic   regions,   thereby   spreading  its  credit  risk  related  to
     receivables.  See Note 2 Cash and Cash  Equivalents as to the discussion of
     credit risks concerning cash equivalents.

     The  carrying  amounts  for  cash and cash  equivalents,  receivables,  and
     payables  approximate  fair value because of the short maturity,  generally
     less than three months,  of these  instruments.  The carrying  value of the
     Company's   long-term  debt  approximates  fair  value  since  the  current
     borrowing rates available for financing are similar in terms.


Note 13. Cumulative Change in Accounting Policy

     The Company incurred approximately $208,000 in development costs related to
     construction  of the  Nutripure.com  website.  These costs were  originally
     expensed as incurred. In the accompanying financial statements, these costs
     have been  retroactively  capitalized  and included in fixed assets at July
     31, 2000 in compliance  with SOP 98-1  (Statement of Position issued by the
     Accounting  Standards Executive  Committee).  Of these costs,  $79,900 were
     incurred in prior years and are shown as a change in  accounting  principle
     consistent with the newly issued EITF Issue No. 00-2 - Emerging Issues Task
     Force Issue titled:  Accounting for Web Site Development  Costs dated March
     16, 2000.



<PAGE>



ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

Effective  June 6, 2000,  Steven  Holland,  CPA,  the  Registrant's  independent
accountant,  for the fiscal years ended July 31, 1998, 1997 and 1996 declined to
stand  for  re-election  as  auditor.  Also,  effective  on  June  6,  2000  the
Registrant's  Board of Directors approved the engagement of Miller and McCollom,
Certified  Public  Accountants as its new auditors.  No  consultation  regarding
accounting  policy  or  procedures  with new  auditors  occurred  prior to their
engagement.

Steven Holland,  CPA's report for the fiscal years ended July 31, 1998, 1997 and
1996 did not contain an adverse opinion or a disclaimer of opinion,  and was not
qualified or modified as to uncertainty,  audit scope, or accounting principles.
Nor has there been any  disagreement  with Steven Holland,  CPA on any matter of
accounting  principles or practices,  financial statement disclosure or auditing
scope or procedure or  reportable  events  during the  Registrant's  most recent
fiscal year through June 6, 2000 which if not  resolved to the  satisfaction  of
Steven  Holland,  CPA would have caused them to make reference  thereto in their
report on the financial statements for such period.

The Registrant has provided  Steven  Holland,  CPA with a copy of the disclosure
contained  herein  and has  requested  that  Steven  Holland,  CPA  provide  the
Registrant  with  a  letter  addressed  to  the  U.S.  Securities  and  Exchange
Commission  stating whether or they agree with the  disclosure.  Steven Holland,
CPA has  provided  such a letter,  which was filed as an Exhibit to the  Current
Report on Form 8-K dated June 6, 2000.



PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  required by this Item is  incorporated  by reference  from the
Registrant's Proxy Statement to be filed on or before November 29, 2000.


ITEM 10.  EXECUTIVE COMPENSATION

The  information  required by this Item is  incorporated  by reference  from the
Registrant's Proxy Statement to be filed on or before November 29, 2000.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required by this Item is  incorporated  by reference  from the
Registrant's Proxy Statement to be filed on or before November 29, 2000.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required by this Item is  incorporated  by reference  from the
Registrant's Proxy Statement to be filed on or before November 29, 2000.


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

A.   Exhibits

     (3)  (i) Articles of  Incorporation  (Incorporated  by reference  from Form
          SB-2 Registration SEC File # 333-00434 effective August 8, 1996)

     (3)  (ii) By-Laws of Corporation  (Incorporated by reference from Form SB-2
          Registration SEC File # 333-00434 effective August 8, 1996)

     (11) Statement Re: Computation of Per Share Earnings

     (13) Subsidiaries of the Registrant

     (27) Financial Data Schedule

B.   Reports on Form 8-K

     Change in Auditor filed June 12, 2000 and amended July 20, 2000


<PAGE>






                                   SIGNATURES

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




INNOVATIVE MEDICAL SERVICES                                     DATE

/s/ MICHAEL L. KRALL                                           October 25, 2000
--------------------
Michael L. Krall, Chairman/President/CEO



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed below by the following  persons on behalf of the Registrant and in the
capacities and on the dates indicated.

NAME                               TITLE                        DATE

/s/ DENNIS BROVARONE               Director                     October 25, 2000
--------------------
Dennis Brovarone



/s/ GARY BROWNELL                  Chief Financial Officer
-----------------                  and Director                 October 25, 2000
Gary Brownell

/s/ PATRICK GALUSKA                Director                     October 25, 2000
-------------------
Patrick Galuska



/s/ EUGENE PEISER                  Director                     October 25, 2000
-----------------
Eugene Peiser



/s/ DONNA SINGER                   Executive Vice President
----------------                   and Director                 October 25, 2000
Donna Singer




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