U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-QSB


(Mark One)

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934 For the period ended October 31, 2001
                                  ----------------


[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 [No Fee Required] For the transition period from      to
                                                                 -----   ----


         Commission File number 0-21019
                                -------


                           INNOVATIVE MEDICAL SERVICES
                           ---------------------------
                 (Name of small business issuer in its charter)


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



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


                                  619 596 8600
                            Issuer's telephone number

         Check whether the issuer (1) filed all reports to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X  No
                                                             ----
         State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date: 7,678,099 as of December 14,
2001.


<PAGE>


                           INNOVATIVE MEDICAL SERVICES
                                      INDEX

PART 1. FINANCIAL INFORMATION

         Item 1.   Financial Statements
                   Balance Sheets as of July 31, 2001 and October 31, 2001
                   Consolidated Statements of Operations for the three
                      months ended October 31, 2000 and 2001
                   Statements of Cash Flows for the three months ended
                      October 31, 2000 and 2001

         Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations

PART 2. OTHER INFORMATION

         Item 1.   Legal Proceedings
         Item 2.   Changes in Securities
         Item 3.   Defaults Upon Senior Securities: None
         Item 4.   Submission of Matters to a Vote of Security Holders: None
         Item 5.   Other information
         Item 6.   Exhibits and Reports on Form 8-K
         Signatures



 The interim financial statements include all adjustments, which in the opinion
   of management, are necessary in order to make the financial statements not
                                  misleading.
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------------

                                                           (Unaudited)
                                                            October 31      July 31
ASSETS                                                         2001          2001
                                                          ------------    ------------
Current Assets
<S>                                                       <C>             <C>
     Cash and cash equivalents                            $    101,917    $    207,092
     Accounts receivable, net of allowance for doubtful
        accounts of $ 100,000 at October 2001
        and $115,000 at July 31, 2001                          534,177         570,733
     Due from officers and employees                           256,936         240,001
     Inventories                                               621,439         711,018
     Prepaid expenses                                          176,799         182,556
                                                          ------------    ------------

        Total current assets                                 1,691,268       1,911,400
                                                          ------------    ------------

Property, Plant and Equipment
     Property, plant and equipment                             842,192         903,072
                                                          ------------    ------------

        Total property, plant and equipment                    842,192         903,072
                                                          ------------    ------------

Noncurrent Assets
     Deposits                                                    8,127           8,127
     Patents and licenses                                    1,071,704       1,014,282
     Deferred acquisition costs                                230,000         230,000
                                                          ------------    ------------

        Total noncurrent assets                              1,309,831       1,252,409
                                                          ------------    ------------

     Total assets                                         $  3,843,291    $  4,066,881
                                                          ============    ============

LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
     Accounts payable                                     $    351,043    $    543,992
     Accrued liabilities                                        62,549          62,900
     Notes payable                                             300,000              --
                                                          ------------    ------------

        Total current liabilities                              713,592         606,891
                                                          ------------    ------------

Stockholders' Equity
     Common stock, no par value: authorized
        20,000,000 shares, issued and outstanding
         6,974,699 at October 31, 2001 and
         6,954,699 at July 31, 2001                         11,670,446      11,619,666
     Accumulated deficit                                    (8,540,747)     (8,159,676)
                                                          ------------    ------------

        Total stockholders' equity                           3,129,699       3,459,990
                                                          ------------    ------------

     Total liabilities and stockholders' equity           $  3,843,291    $  4,066,881
                                                          ============    ============
</TABLE>

                 See notes to consolidated financial statements.



<PAGE>


CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
-------------------------------------------------------------------------
                                               For The Three Months Ended
                                                       October 31
                                               --------------------------
                                                   2001            2000
                                                 --------        --------
Net sales                                      $ 864,028       $ 366,126
Cost of sales                                    487,864         164,077
                                                 --------        --------

Gross profit                                     376,164         202,049
                                                 --------        --------

Selling expenses                                 234,409         174,518
General and administrative expenses              449,925         445,473
Research and development                          70,823          50,985
                                                  -------         -------

Total operating costs                            755,157         670,976
                                                 --------        --------

Operating income (loss)                         (378,993)       (468,927)
                                                 ---------       ---------

Other income and (expense):
Interest income                                      212          14,599
Interest expense                                  (1,690)             -
                                                  -------             --

Total other income (expense)                      (1,478)        14,599
                                                  -------        -------

Income (loss) before income taxes, minority
     interest in subsidiary operations          (380,471)       (454,328)

Federal and state income taxes                       600             200
                                                     ----            ----

Income (loss) before minority interest in
     subsidiary operations                      (381,071)       (454,528)

Minority interest in subsidiary operations             -          14,972
                                                      --         -------

Net income (loss)                             $ (381,071)     $ (439,556)
                                               ===========     ===========


Net income (loss) per common share (basic)       $ (0.05)        $ (0.07)
                                                 ========        ========

Net income (loss) per common share (diluted)     $ (0.05)        $ (0.07)
                                                 ========        ========


CONSOLIDATED STATEMENTS OF ACCUMULATED DEFICITS
--------------------------------------------------------------------------

Balance, beginning of period                 $ (8,159,676)  $ (5,586,041)

Net income (loss)                                (381,071)       (439,556)
                                                 ---------       ---------

Balance, end of period                       $ (8,540,747)  $ (6,025,597)
                                              =============  =============

                 See notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
----------------------------------------------------------------------------------------------------------
                                                                            For The Three Months Ended
                                                                                     October 31
                                                                                2001            2000
                                                                            -------------  ---------------

Cash flows from operating activities
<S>                                                                           <C>          <C>
     Net income (loss)                                                        $(381,071)   $  (439,556)

     Adjustments to reconcile net income to net cash provided by operating
     activities:
         Amortization                                                            14,165         21,192
         Depreciation                                                            67,315         47,500
         Minority interest in subsidiary operations                                  --        (14,972)
     Changes in assets and liabilities:
         (Increase) decrease in restricted cash                                      --         (3,036)
         (Increase) decrease in accounts receivable                              36,556        105,665
         (Increase) decrease in due from officers and employees                 (16,935)        (6,592)
         (Increase) decrease in prepaid expense                                   5,757        (67,814)
         (Increase) decrease in inventory                                        89,579        (92,644)
         (Increase) decrease in deposits                                             --          5,956
         Increase (decrease) in accounts payable                               (192,949)       105,017
         Increase (decrease) in accrued liabilities                                (351)        19,114
                                                                             ----------    -----------

             Net cash provided (used) by operating
                 activities                                                    (377,932)      (320,170)
                                                                             ----------     ----------
Cash flows from investing activities
     Purchase of property, plant and equipment                                  (6,434)       (21,903)
     Purchase of patents and licenses                                          (71,589)       (34,000)
     Deferred acquisition costs                                                      --      (201,152)
                                                                              ---------      ---------

             Net cash (used) in investing activities                           (78,023)      (257,055)
                                                                              ---------      ---------

Cash flows from financing activities
     Proceeds from debt obligations                                            300,000             --
     Payments on debt obligations                                                   --        (14,583)
     Proceeds from sale of common stock                                         50,780         84,932
                                                                              ---------      --------
             Net cash provided by financing activities                         350,780         70,349
                                                                              ---------      --------

             Net increase (decrease) in cash and cash
                 equivalents                                                  (105,175)      (506,876)

Cash at beginning of period                                                    207,092      1,121,316
                                                                              ---------     ---------

Cash at end of period                                                        $ 101,917    $   614,440
                                                                             ==========   ===========

Supplemental disclosures of cash flow information
     Cash paid for interest paid                                              $  1,690    $     5,462
     Cash paid for taxes paid                                                 $  2,400    $       800
     Noncash investing and financing activities:
     Value of shares issued in exchange for Nutripure.com minority interest   $     --    $   550,011
</TABLE>

                 See notes to consolidated financial statements.



<PAGE>



NOTES TO FINANCIAL STATEMENTS

Note 1.   Financial Statements
          The financial statements included herein have been prepared by
          Innovative Medical Services (the Company) without audit, pursuant to
          the rules and regulations of the Securities and Exchange Commission.
          Certain information and footnote disclosures normally included in the
          financial statements prepared in accordance with generally accepted
          accounting principles have been condensed or omitted as allowed by
          such rules and regulations, and Innovative Medical Services believes
          that the disclosures are adequate to make the information presented
          not misleading. It is suggested that these financial statements be
          read in conjunction with the July 31, 2001 audited financial
          statements and the accompanying notes thereto. While management
          believes the procedures followed in preparing these financial
          statements are reasonable, the accuracy of the amounts are in some
          respects dependent upon the facts that will exist and procedures that
          will be accomplished by Innovative Medical Services later in the year.
          The results of operations for the interim periods are not necessarily
          indicative of the results of operations for the full year.

Note 2.   Segment Information
          In accordance with the provisions of SFAS No. 131, certain information
          is disclosed based on the way management organizes financial
          information for making operating decisions and assessing performance.
          In determining operating segments, the Company reviewed the current
          management structure reporting to the chief operating decision-maker
          ('CODM') and analyzed the reporting the CODM receives to allocate
          resources and measure performance.

          The Company's business activities are divided, managed and conducted
          in two basic business segments, the Water Treatment segment and the
          Bio Sciences segment. These two segments were determined by management
          based upon the inherent differences in the end use of the products,
          the inherent differences in the value added processes made by the
          Company, the differences in the regulatory requirements and the
          inherent differences in the strategies required to successfully market
          finished products.

          The Company plans to utilize multiple forms of analysis and control to
          evaluate the performance of the segments and to evaluate investment
          decisions. In general, gross margin and Earnings Before Interest
          Depreciation and Amortization (EBITDA) are deemed to be the most
          significant measurements of performance, although collection volumes
          and certain controllable costs also provide useful "early warning
          signs" of future performance. Because the Company has just recently
          changed to multiple segments, historical data on gross profit and
          income from operations is not available. However, the following is a
          summary of segment revenues at October 31, 2001:
<TABLE>
<CAPTION>

                                           Three months        %         Three months Ended       %
                                               Ended         Total        October 31, 2001      Total
                                         October 31, 2000    Sales                              Sales
                                        ------------------ ----------- ------------------------ --------
                     Revenues:
<S>                                            <C>               <C>            <C>                 <C>
                        Water Treatment        $326,200          100%           $528,300            61%
                        Bioscience                    0            0%            335,700            39%
                                               --------          ----            -------            ---

                     Total Revenues            $326,200          100%           $864,000           100%
                                               ========          ====           ========           ====
</TABLE>

Note 3.   Subsequent Events
          On November 30, 2001, we settled the dispute with NVID. Under the
          terms of the agreement, NVID dismissed its case against us and
          assigned the Axenohl patent to us. In return, NVID receives 651,000
          shares of our common stock and 5% of our gross Axenohl sales until
          March 2018, the end of the life of the patent. Innovative Medical
          Services issued an additional 49,000 shares to settle claims on behalf
          of NVID. There are minimum royalties of $1,000,000 for the period of
          November 2001 to July 31, 2004 and for each fiscal year thereafter. If
          the minimum royalty for any period is not met, we have the right, in
          our sole and absolute discretion to pay NVID the deficiency in cash,
          in our common stock at prevailing market prices or transfer the patent
          back to NVID without further royalty obligation. As the sole owner of
          the patent, we control the granting of rights to market and distribute
          Axenohl and related products. ETI-H2O, our wholly owned subsidiary,
          retains sole manufacturing rights. As part of the settlement
          agreement, we have entered into non-exclusive marketing agreements for
          Axenohl with Watertronics, Ltd., for the United Kingdom and Aqua
          Biotech S.A. de C.V. for the Republic of Mexico. In addition,
          Innovative Medical Services reaffirmed the exclusive right of
          Sistecam, S.A. to manufacture and market Axenohl for sale in Costa
          Rica for the duration of the patent.

<PAGE>

Note 4.   Warrants
          On August 8, 2001 the total 3,687,500 Class A warrants and the total
          785,000 Class Z warrants expired without exercise.

Note 5.   Reclassifications
          Certain reclassifications have been made to previously reported
          statements to conform to the Company's current financial statement
          format.

Note 6.   Line of Credit
          During the quarter, the Company obtained line of credit financing with
          a private lender. The term of the agreement is one year beginning
          September 15, 2001 with an interest rate of 12% per annum The Company
          may borrow up to $500,000, which is fully secured against the
          Company's accounts receivables. At October 31, 2001, the Company had
          drawn $300,000 against the line of credit.

<PAGE>


ITEM 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
audited and unaudited financial statements of Innovative Medical Services.

OVERVIEW
Innovative Medical Services began as a provider of pharmaceutical water
purification products. Although the majority of our current revenues are still
from the pharmacy industry, we have expanded from our commercial pharmacy market
into other, broader markets with new products, including residential water
filtration systems , heath and wellness related e-commerce products and
bioscience technologies.

Water Treatment Division
The Fillmaster(R) pharmaceutical water purification, dispensing and measuring
products include the Pharmapure(R) water purification system, the FMD 550
dispenser, the patented Fillmaster 1000e computerized dispenser and the patented
Scanmaster(TM) bar code reader. We also market proprietary National Sanitation
Foundation certified replacement filters for the Fillmaster Systems.

Our Nutripure(R) line of water treatment and filtration systems includes the
Nutripure 3000S-Series whole-house water softening systems, the Nutripure Elite
reverse osmosis point-of-use systems, the Nutripure 2000 countertop water
filtration system and the Nutripure Sport filtered sport bottle. We distribute
our various Nutripure products in several ways, including retail sales,
catalogue placement, business-to-business sales, internet promotion and in-home
sales presentations.

E-Commerce
Through our subsidiary Nutripure.com, we operate Nutripure.com(TM), an
e-commerce health website that distributes Bergen Brunswig products. We provide
consumers a wide variety of vitamins, minerals, nutritional supplements,
homeopathic remedies and natural products. In addition to merchandise, the site
offers comprehensive health and wellness information in an easy-to-access,
intuitive reference format. Although sales from Nutripure.com are non-material,
we have minimized costs related to the operation and promotion of the website.

Bioscience Division
Our bioscience division includes a silver ion technology called Axenohl(TM).
Axenohl is a patented, non-toxic aqueous disinfectant. The use dilution
formulation of Axenohl is called Axen(TM). The EPA registration for use of
Axenohl and Axen as hard surface disinfectants has been issued. The first
Axen-containing product we developed is our CleanKill(TM) hard surface
disinfectant for sale to the pest control industry. We intend not only to sell
our own Axen-based hard surface disinfectant products, but also to sell Axen as
an additive to other manufacture's products

We plan to pursue additional EPA, USDA and FDA regulatory approvals for other
applications. Additional possible uses for this product include wound care,
topical infection care and personal disinfecting retail products, which may
require FDA approvals, as well as municipal water treatment and
point-of-use/point-of-entry water treatment products, which may require
additional EPA approvals. The investment necessary to pursue regulatory approval
for Axenohl will be significant, but as additional US and international
approvals for Axenohl uses are received, we expect revenues to develop quickly.

We currently operate under a five-year contract signed in March 2001 to provide
Axenohl to Dodo & Company, a Korean cosmetics manufacturer and marketer. Dodo &
Company has developed an Axen-containing line of skin care products for the
treatment of acne. The product line, called A-Clinic, launched in South Korea in
September 2001. Under the contract, Dodo & Company will purchase approximately
$1.2 million dollars of product from us over five years. In addition to the
purchase price, we will receive a royalty on sales of the Axen-containing
products. We anticipate that, over the five years, the revenues from Dodo &
Company cosmetics royalties will exceed $5 Million. Regulatory clearances have
not been issued in South Korea.

Originally, we obtained worldwide manufacturing and marketing rights to
Axen/Axenohl from NVID International, Inc., in a License Agreement dated
November 24, 1999 and a Manufacturing, Licensing and Distribution Agreement
dated March 26, 2000 which supersedes the November 1999 Agreement. The latter
agreement became the subject of litigation that has subsequently settled in
November 2001.

<PAGE>

Under the terms of the settlement, we acquired the Axenohl patent from NVID in
exchange for 700,000 shares of our common stock and 5% of our gross Axenohl
sales until March 2018, the end of the life of the patent. There are minimum
royalties of $1,000,000 for the period of November 2001 to July 31, 2004 and for
each fiscal year thereafter. If the minimum royalty for any period is not met,
we have the right, in our sole and absolute discretion to pay NVID the
deficiency in cash, in our common stock at prevailing market prices or transfer
the patent back to NVID without further royalty obligation. As the sole owner of
the patent, we control the granting of rights to market and distribute Axenohl
and related products. ETI-H2O, our wholly owned subsidiary, retains sole
manufacturing rights. As part of the settlement agreement, we have entered into
non-exclusive marketing agreements for Axenohl with Watertronics, Ltd., for the
United Kingdom and Aqua Biotech S.A. de C.V. for the Republic of Mexico. In
addition, Innovative Medical Services reaffirmed the exclusive right of
Sistecam, S.A. to manufacture and market Axenohl for sale in Costa Rica for the
duration of the patent.

Our bioscience division also includes a line of pesticide technologies. The
EPA-approved RoachX(TM) was the first product to launch from the line. The
national kickoff took place at the National Pest Management Association meeting
in New Orleans, Louisiana, in October 2001. We have earned the support of and
are selling RoachX through Vopak (formerly Van, Waters & Rogers) and members of
the Speckoz group of nine regional independent wholesalers.

United States Department of Agriculture testing confirms that RoachX is over 96%
effective in three to four days with one application for indoor and outdoor
eradication of cockroaches, and can be used near children and food preparation
areas. Boric acid is a well-known and effective deterrent of cockroaches and
will kill them on contact, but cockroaches do not naturally eat the repellent.
Although many pesticide products contain boric acid as the listed active
ingredient, we believe RoachX to be new because of the combination of boric acid
and glycerin in a colloidal suspension to create three unique results: 1) The
formula protects the boric acid from water and humidity, 2) The cockroaches
perceive formulation as food and will actually eat the glycerin-encapsulated
boric acid, and 3) The formula acts as a time-released pesticide, allowing the
cockroach to return to the nest before it dies and then becomes a "bait station"
for other roaches in the colony. We believe the product line, containing
particular formulas for specific pests, is effective against cockroaches, ants,
palmetto bugs, silverfish, waterbugs, ticks, fleas, lice and garden pests.

At the October trade show, we also launched ProChoice(TM) caulk for pest control
operators. We repackage an NSF, USDA and FDA approved food-grade silicone caulk
as our ProChoice product. ProChoice does not contain any pesticide and is a
convenience tool for pest control operators for "exclusion", or the filling of
cracks and crevices to create a physical barrier insects cannot penetrate.

In January 2002, we will formally launch CleanKill(TM), the Axen-based hard
surface disinfectant for the pest control industry. CleanKill is approved by the
EPA as an additional brand name of Axen. We believe adding sales of these
products to the already climbing RoachX revenues will have a very material
positive effect on revenues in the coming fiscal year.

By February 2002, we plan to launch AntX(TM), our latest development in
pesticide technology. We have submitted for and anticipate receiving EPA
approval for AntX(TM), the next product in the line. We are ready to begin
selling AntX as soon as approval is received.

Although we think that the pesticide technologies will have the most immediate
material impact on revenues in the coming quarters, we believe that the silver
ion technologies will ultimately become the largest revenue generator for
Innovative Medical Services. We intend not only to sell our own Axen-based
products, like CleanKill, but also to sell Axen as an additive to other
manufacturer's products, like Dodo Cosmetics' acne-fighting product line. We
believe that the innumerable applications for a non-toxic, tasteless, odorless,
highly effective antimicrobial agent present an outstanding market opportunity
for our Axenohl products.


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 2001 VERSUS THREE
MONTHS ENDED OCTOBER 31, 2001
During the quarter, we continued to realize revenues from multiple product lines
in our different divisions. In order to be more informative regarding
distribution of revenues, discussion of revenues will be in terms of our water
treatment and bioscience divisions.

<PAGE>

Revenues of $864,000 in the quarter ended October 31, 2001 were 136% higher than
the $366,100 in revenues reported for the quarter ended October 31, 2000. In the
prior period, revenues were exclusively from sales of commercial and residential
water treatment products. In the current period, revenues were also generated
from our new bioscience division. The increase in revenues was due to an
increase in revenues in our water treatment division and the addition of
revenues from our bioscience division. During the quarter, water treatment
division revenues of $528,400 were 42% higher than the prior quarter and include
$411,400 in Fillmaster commercial water purification product sales and $117,000
in Nutripure residential water treatment product sales. Bioscience division
revenues were $335,600 and include silver ionization product sales of $210,000
and pesticide product sales of $125,600.

Except for products sold through the Nutripure water dealer program, revenues of
all products are recognized on shipment where the sale is made F.O.B. shipping
point. Nutripure water dealer program sales consist mostly of sales of other
manufacturers' products to independent dealers. Revenue is recognized on sales
to dealers as shipped since we currently do not sell to third party customers of
the dealers.

Gross profit for the quarter ended October 31, 2001 was $487,900 versus $164,100
in 2000. Gross profit percentage of 44% in 2001 was lower versus 55% in 2000.
The decrease in gross profit percentage was largely due to lower margins
associated with the Nutripure water dealer program products. Also in the prior
quarter, Fillmaster replacement filter sales, which are associated with higher
margins, comprised 33% of total sales compared to only 14% of total sales in the
recent quarter.

Net loss for the quarter ended October 31, 2001 was $381,100 versus net loss of
$439,600 for the same period in 2000. During the quarter, General and
Administrative expenses remained constant increasing only 1% or $4,400 from
$445,500 in fiscal 2000 to $449,900 in fiscal 2001. Selling expense increased
approximately $59,900, or 34%, from $174,500 in 2000 to $234,400 in 2001 because
of increased costs associated with development of marketing materials, hiring of
additional sales personnel, trade shows and product launches for the bioscience
division. Research and Development costs were higher; increasing $19,800 or 39%
from $51,000 in the quarter ended October 31, 2000 to $70,800 in the current
quarter. The increase was due mainly to costs associated with development of
bioscience division products, including RoachX, AntX and Clean Kill.

LIQUIDITY AND CAPITAL RESOURCES
From inception through October 31, 2001, we have financed our operations
primarily through our initial public offering in August of 1996, by a subsequent
private placement in March of 2000, and by other smaller private placement stock
sales. We have operated without long-term debt and have no plans to obtain
long-term financing in the next twelve months. We believe that sales from our
new product lines will not provide sufficient capital resources to sustain
operations and fund product development through fiscal year 2002. In the short
term, we expect to raise capital through equity sales as necessary to fund
future growth until we operate above the break-even point. We continually
evaluate opportunities to sell additional equity or debt securities, or obtain
credit facilities from lenders to strengthen our financial position. The sale of
additional equity or convertible debt securities could result in additional
dilution to our stockholders.

Our liquidity is unaffected by the financing program offered to participating
dealers in the Nutripure water dealer program. We receive funds from our primary
lender and disperse the funds to the dealer, less a commission charged by us,
upon completion of the contract. The primary lender disperses funds to us. We
record a liability when the funds are received and relief of liability when
funds are dispersed, and we do not retain liability on the credit extended.

During the fiscal quarter ended October 31, 2001, our current assets to
liabilities ratio decreased from 3.15 to 2.37. Current assets decreased $220,100
from $1,911,400 to $1,691,300. Current assets at October 31, 2001 include a
decrease of $105,200 in cash and cash equivalents and a decrease of $89,600 in
inventories, which reflects a changing product mix and more efficient
purchasing. Accounts receivable and other current assets remained relatively
constant.

Current liabilities increased $106,700 from $606,900 to $713,600. The increase
in current liabilities was the net result of a pay down of accounts payable of
$193,000 and an increase in notes payable of $300,000. The note payable was
drawn against a $500,000 credit line we established during the quarter, which is
secured against our accounts receivable.

Noncurrent assets increased by $57,400 during the quarter due to the increase in
Patents and Licenses.

<PAGE>

Cash flows used from operations were $381,100 in the quarter ended October 31,
2001 and $439,600 in 2000. For fiscal 2001, cash flows used in investing
activities included $6,400 for the purchase of machinery and equipment and
$71,600 for the purchase of patents and licenses. In fiscal 2000 cash flows used
in investing activities included $21,900 for the purchase of machinery and
equipment and $34,000 for the purchase of patents and licenses. We also incurred
$201,200 in deferred acquisition costs during fiscal 2000. Cash flows from
financing activities were $350,800 in fiscal 2001 and $70,300 in fiscal 2000.

Financing activities for the current quarter included the addition of $300,000
in notes payable from a line of credit established in September 2001. Cash flows
from financing activities also included an increase of common stock of $51,000
from the exercise of options during the quarter. In the prior quarter, cash
flows from financing activities included a pay down of $14,600 in notes payable
and an increase of common stock of $84,900 from the exercise of options during
the quarter. The total decrease in cash and cash equivalents for 2001 was
$105,200 as compared to an increase of $506,900 during the same period in 2000.

PART 2   OTHER INFORMATION

ITEM 1
LEGAL PROCEEDINGS
There have been no developments in the case involving Innovative Medical
Services and Zedburn Corporation et. al. in Circuit Court of Pinellas County,
Florida as previously disclosed and incorporated by reference herein from Annual
Report on Form 10KSB for fiscal year ended July 31, 2001 as filed on October 29,
2001.

In August 2001, Innovative Medical Services and Eckerd Corporation settled the
previously reported litigation. We had filed an action against Eckerd
Corporation in Superior Court in the State of California in August 2000, in
which we alleged Eckerd Corporation had not paid for Fillmaster products ordered
by and shipped to Eckerd pharmacies. Executives of both companies determined it
was in their mutual best interest to avoid the costs and risks associated with
litigation and settle the dispute. The terms of the settlement include a payment
to Innovative Medical Services by Eckerd of a compromised amount of the claim
and a commitment by Innovative Medical Services to supply product to Eckerd.

As previously reported, we had filed an action against John Woodard, former Vice
President of Sales, in Superior Court in the State of California in April 2000,
alleging Mr. Woodard violated his non-competition/non-disclosure agreement. We
had also filed an action against Fresh Water Systems, Inc., Steven Norvell,
Brian Folk and Eric Norvell in Superior Court in the State of California in
August 2000, alleging Fresh Water Systems and its officers and directors
misappropriated trade secrets of ours obtained from former employees, engaged in
unfair competition in violation of the California Unfair Practices Act, tortious
interference with contractual relations, tortious interference with prospective
business advantage, fraud, trade libel and conspiracy.

In December 2001, a settlement was reached in the matter of Innovative Medical
Services v. Fresh Water Systems, Inc., et. al. Executives of both companies
determined it was in their mutual best interest to avoid the costs and risks
associated with litigation and settle the dispute. All claims and cross-claims
were resolved. The terms of the settlement include a payment to Innovative
Medical Services by Fresh Water Systems of a compromised amount of the claim and
a commitment by Innovative Medical Services to license its patented electronic
dispensing technology to Fresh Water Systems.

As previously reported, on April 12, 2001, NVID, International, Inc. filed a
declaratory judgment action in the Circuit Court of Pinellas County, Florida
against Innovative Medical Services and ETI-H2O, Inc. The lawsuit sought a
judicial declaration that the Manufacturing, Licensing and Distribution
Agreement, dated March 26, 2000 between us, NVID, International, Inc. and
ETI-H2O did not constitute a binding contract and sought unspecified damages.
The lawsuit did not challenge the binding effect of the Standard Manufacturing
Agreements dated November 30, 1998 and September 17, 1999 between NVID,
International, Inc. and ETI-H2O and the November 24, 1999 License Agreement
between us and NVID, International, Inc. After removing the case from Pinellas
County Circuit Court to the United States District Court for the Middle District
of Florida and filing a Motion to Dismiss in May 2001, we filed and were granted
a Petition to Compel Arbitration in the United States District Court for the
Southern District of California in July 2001.

<PAGE>

On November 30, 2001, we settled the dispute with NVID. Under the terms of the
agreement, NVID dismissed its case against us and assigned the Axenohl patent to
us. In return, NVID receives 651,000 shares of our common stock and 5% of our
gross Axenohl sales until March 2018, the end of the life of the patent. An
additional 49,000 shares of stock were issued to settle claims on behalf of
NVID. There are minimum royalties to be paid by Innovative Medical Services to
NVID of $1,000,000 for the period of November 2001 to July 31, 2004 and for each
fiscal year thereafter. If the minimum royalty for any period is not met, we
have the right, in our sole and absolute discretion to pay NVID the deficiency
in cash, in our common stock at prevailing market prices or transfer the patent
back to NVID without further royalty obligation. Pursuant to the terms of the
agreement, NVID assigned 17,500 shares to Andrew Arata, 17,500 shares to George
Duren and 14,000 shares to Dr. Charles Lewis in settlement of claims by these
individuals against NVID. Mr. Arata and Mr. Duren are executive officers of
ETI-H2O, our wholly owned subsidiary. ETI-H2O remains the sole manufacturer of
Axenohl. As the sole owner of the patent, we control the granting of rights to
market and distribute Axenohl and related products. As part of the settlement
agreement, we have entered into non-exclusive marketing agreements for Axenohl
with Watertronics, Ltd., for the United Kingdom and Aqua Biotech S.A. de C.V.
for the Republic of Mexico. In addition, Innovative Medical Services reaffirmed
the exclusive right of Sistecam, S.A. to manufacture and market Axenohl for sale
in Costa Rica for the duration of the patent.

All documents required by the agreement have been executed and delivered except
for the personal guaranty of one of the NVID directors to indemnify us and our
successors and assigns in respect of any and all claims, losses, damages and
expenses which may be incurred by us as a result of or arising out of any claims
of ownership or interest in the Patent, including but not limited to claims of
license, assignment or security interest by any party. As a result of the
failure to deliver this personal guaranty, the 651,000 shares issued to NVID are
to be held by the Arbitrator until such time the time period in which adverse
claims may be filed against the assignment of the patent with the U.S. Patent
Office has expired. This time period is five months from the date of the filing
of the assignment of the patent with the U.S. Patent Office. We anticipate the
filing of the assignment of patent with the U.S. Patent Office on or before
December 14, 2001.


ITEM 2.
CHANGES IN SECURITIES
In December 2001, we issued 700,000 shares of common stock pursuant to the
settlement of our litigation with NVID International, Inc. in exchange for the
Axenohl patent. We issued 651,000 shares to NVID International and 49,000 shares
to three other individuals in settlement of their claims against NVID with
respect to the patent.

With respect to the sales made, we relied on Section 4(2) of the Securities Act
of 1933, as amended. No advertising or general solicitation was employed in
offering the securities. The securities were offered solely to accredited or
sophisticated investors who were provided all of the current public information
available on Innovative Medical Services.

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
Not applicable.

ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.

ITEM 5.
OTHER INFORMATION
Not applicable.

ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
A.  Exhibits

3.1 (1) -- Articles of Incorporation, Articles of Amendment and Bylaws
4.1 (1) -- Form of Class A Warrant
4.2 (1) -- Form of Class Z Warrant
4.3 (1) -- Form of Common Stock Certificate
4.4 (1) -- Warrant Agreement
4.5 (2) -- March 2000 Warrant
4.6 (3) -- January 2001 Warrant
4.7 (4) -- Convertible Debenture
4.8 (5) -- Convertible Debenture Purchase Agreement
4.9 (6) -- Convertible Debenture Warrant
10.1 (1)-- Employment Contract/Michael L. Krall
10.2 (7)-- Manufacturing, Licensing and Distribution Agreement dated March 26,
            2001
10.3 (8) -- Axenhol License Agreement
10.4 (9) -- Weaver - Roach X Assignment
10.5 (9) -- Dodo Agreement [CONFIDENTIAL TREATMENT REQUESTED FOR CERTAIN OMITTED
                            INFORMATION FILED SEPARATELY]
10.6 (8) -- Promissory Note of Michael Krall
10.7 (8) -- Promissory Note of Gary Brownell
10.8 (9) -- Nutripure Dealer Agreement
10.9 (9) -- Sales Finance Agreement
10.10(10)-- ETIH2O, Inc., Acquisition Agreement
10.11(11)-- NVID Litigation Settlement Agreement
10.12(12)-- Addendum #1 to NVID Settlement Agreement
11       --  Statement re: computation of per share earnings

(1)      Incorporated by reference from Form SB-2 registration statement
         SEC File # 333-00434 effective August 8, 1996
(2)      Incorporated by reference from S-3 registration statement,
         SEC File #333-36248 effective on May 17, 2000
(3)      Incorporated by reference from S-3 registration statement,
         SEC File #333-55758 effective on February 26, 2001
(4)      Incorporated by reference from S-3 registration statement,
         SEC File #333-61664 filed on May 25, 2001
(5)      Incorporated by reference from pre-effective amendment no. 1 to S-3
         registration statement, SEC File #333-61664 filed on July 10, 2001
(6)      Incorporated by reference from pre-effective amendment no. 2 to
         S-3 registration statement, SEC File  #333-61664 filed on
         August 13, 2001
(7)      Incorporated by reference from Current Report on Form 8-K filed on
         May 24, 2001 as amended on October 19, 2001
(8)      Incorporated by reference from the Amended Annual Report on Form
         10KSB for the fiscal year ended July 31, 2000 filed on October 19, 2001
(9)      Incorporated by reference from Amended Form 10QSB for the nine month
         period ended April 30, 2001 filed on October 19, 2001
(10)     Incorporated by reference from the Amended Annual Report on Form
         10KSB for the fiscal year ended July 31, 2001 filed on November 13,
         2001
(11)     Incorporated by reference from Current Report on Form 8-K filed on
         December 6, 2001
(12)     Incorporated by reference from Amended Current Report on Form 8-K
         filed on December 7, 2001

B.  Reports on Form 8-K:

A Current Report on Form 8-K was filed on December 6, 2001 and amended on
December 7, 2001


SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                          INNOVATIVE MEDICAL SERVICES
                                          (Registrant)


                                By:       /s/ Michael L. Krall
                                          -------------------------------
                                          Michael L. Krall, President/CEO
                                          December 14, 2001



                                By:       /s/ Gary Brownell
                                          --------------------------------------
                                          Gary Brownell, Chief Financial Officer
                                          December 14, 2001

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