Edgar Filing: INNOVATIVE MEDICAL SERVICES

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:

INNOVATIVE MEDICAL SERVICES

(Name of Registrant as specified in its charter)

Commission File Number: 0-21019
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(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

|X| No fee required.
| | Fee computed on the table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act rule 0-11.
(Set forth the amount on which the filing is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
| | Fee paid previously with preliminary materials.

| | Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.

Amount Previously Paid:
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Form, Schedule or Registration Statement No.
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Date Filed:
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INNOVATIVE MEDICAL SERVICES
1725 Gillespie Way
El Cajon, California 92020
(619) 596-8600

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PROXY STATEMENT

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Notice of Annual Meeting of Shareholders
To Be Held March 11, 2002

TO THE SHAREHOLDERS OF INNOVATIVE MEDICAL SERVICES

NOTICE HEREBY IS GIVEN that the Annual Meeting of Shareholders of INNOVATIVE
MEDICAL SERVICES, a California corporation (the "Company"), will be held at The
Hilton Mission Valley, 901 Camino del Rio South, San Diego, California 92108 on
March 11, 2002, 10:00 a.m., Pacific Time, and at any and all adjournments
thereof, for the purpose of considering and acting upon the following Proposals:

Proposal No. 1. ELECTION OF DIRECTORS

Proposal No. 2. APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF
INCORPORATION TO INCREASE THE COMPANY'S AUTHORIZED COMMON
STOCK FROM 20,000,000 TO 50,000,000 SHARES.

Proposal No. 3. APPROVAL OF THE INNOVATIVE MEDICAL SERVICES 2002 EMPLOYEE
INCENTIVE STOCK OPTION PLAN

Proposal No. 4. APPROVAL OF THE INNOVATIVE MEDICAL SERVICES 2002 NON-QUALIFIED
STOCK OPTION PLAN

This Annual Meeting is called as provided for by California law and the
Company's By-laws.

Only holders of the outstanding Common Stock of the Company of record at the
close of business on February 13, 2002 will be entitled to notice of and to vote
at the Meeting or at any adjournment or adjournments thereof.

All shareholders, whether or not they expect to attend the Annual Meeting of
Shareholders in person, are urged to sign and date the enclosed Proxy and return
it promptly in the enclosed postage-paid envelope which requires no additional
postage if mailed in the United States. The giving of a proxy will not affect
your right to vote in person if you attend the Meeting.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Dennis Atchley
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DENNIS ATCHLEY
SECRETARY
El Cajon, California
February 14, 2002

INNOVATIVE MEDICAL SERVICES
1725 Gillespie Way
El Cajon, California 92020
(619) 596-8600
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PROXY STATEMENT

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Notice of Annual Meeting of Shareholders
To Be Held March 11, 2002

GENERAL INFORMATION

The enclosed Proxy is solicited by and on behalf of the Board of Directors of
INNOVATIVE MEDICAL SERVICES, a California corporation (the "Company"), for use
at the Company's Annual Meeting of Shareholders to be held at The Hilton Mission
Valley, 901 Camino del Rio South, San Diego, California 92108 on March 11, 2002,
at 10:00 a.m. Pacific Time, and at any adjournment thereof. It is anticipated
that this Proxy Statement and the accompanying Proxy will be mailed to the
Company's shareholders on or before February 15, 2002.

Any person signing and returning the enclosed Proxy may revoke it at any time
before it is voted by giving written notice of such revocation to the Company,
or by voting in person at the Meeting. The expense of soliciting proxies,
including the cost of preparing, assembling and mailing this proxy material to
shareholders, will be borne by the Company. It is anticipated that solicitations
of proxies for the Meeting will be made only by use of the mails; however, the
Company may use the services of its Directors, Officers and employees to solicit
proxies personally or by telephone without additional salary or compensation to
them. Brokerage houses, custodians, nominees and fiduciaries will be requested
to forward the proxy soliciting materials to the beneficial owners of the
Company's shares held of record by such persons, and the Company will reimburse
such persons for their reasonable out-of-pocket expenses incurred by them in
that connection.

All shares represented by valid proxies will be voted in accordance therewith at
the Meeting. Shares not voting as a result of a proxy marked to abstain will be
counted as part of total shares voting in order to determine whether or not a
quorum has been achieved at the Meeting. Shares registered in the name of a
broker-dealer or similar institution for beneficial owners to whom the
broker-dealer distributed notice of the Annual Meeting and proxy information and
which such beneficial owners have not returned proxies or otherwise instructed
the broker-dealer as to voting of their shares, will be counted as part of the
total shares voting in order to determine whether or not a quorum has been
achieved at the Meeting. Abstaining proxies and broker-dealer non-votes will not
be counted as part of the vote on any business at the Meeting on which the
shareholder has abstained.

The Company's Annual Report to Shareholders for the fiscal year ended July 31,
2001, has been previously mailed or is being mailed simultaneously to the
Company's shareholders, but does not constitute part of these proxy soliciting
materials.

SHARES OUTSTANDING AND VOTING RIGHTS
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All voting rights are vested exclusively in the holders of the Company's Common
Stock with each common share entitled to one vote. Only shareholders of record
at the close of business on February 13, 2002 are entitled to notice of and to
vote at the Meeting or any adjournment thereof. On February 13, 2002, the
Company had 7,890,599 shares of its Common Stock outstanding, each of which is
entitled to one vote on all matters to be voted upon at the Meeting, including
the election of Directors. No fractional shares are presently outstanding. A
majority of the Company's outstanding voting stock represented in person or by
proxy shall constitute a quorum at the Meeting. The affirmative vote of a
majority of the votes cast, providing a quorum is present, is necessary to elect
the Directors. Cumulative voting in the election of Directors is permitted.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND OF MANAGEMENT

The following table sets forth the number of shares of the Company's Common
Stock beneficially owned as of January 1, 2002 by individual directors and
executive officers and by all directors and executive officers of the Company as
a group. Based upon a review of the Company's shareholders list as of January 1,
2002 there are no other registered holders of five percent or more of the
Company's Common Stock.

Name and Address of Common Stock Percentage of Shares
Beneficial Owner Title Ownership (1) Outstanding (1)
---------------------------- --------------------- --------------------- ------------------------

Dennis Atchley Secretary 143,560 1.5%
1725 Gillespie Way
El Cajon, CA 92020

Dennis Brovarone Director 359,483 3.7%
18 Mountain Laurel
Littleton, CO 80127

Gary Brownell Treasurer, CFO/Director 300,321 3.1%
1725 Gillespie Way
El Cajon, CA 92020

Patrick Galuska Director 260,690 2.7%
8137 S. Downing St.
Littleton, CO 80122

Michael L. Krall President, CEO/Chairman 1,203,560 12.3%
1725 Gillespie Way
El Cajon, CA 92020

Eugene Peiser Director 326,136 3.3%
1725 Gillespie Way
El Cajon, CA 92020

Donna Singer Executive VP, Director 203,356 2.1%
1725 Gillespie Way
El Cajon, CA 92020

Gregory Barnhill Director 25,000 0.3%
10801 Stevenson Road
Stevenson, MD 21153

Directors and Officers as a Group
(8 individuals) 2,947,106 29.0%

(1) Assumes exercise of all currently exercisable, or exercisable within 60
days of January 1, 2002, Directors and Officers options to acquire up to
1,866,250 shares.

MANAGEMENT

The executive officers and directors of the Company and their ages are as
follows:

Name Age Position
------------------------- -------------- ----------------------------------
Michael L. Krall 49 President, CEO, Chairman, Director
Gary Brownell, CPA 53 Treasurer CFO, Director
Donna Singer 31 Executive Vice President, Director
Dennis Atchley, Esq. 49 Secretary
Eugene Peiser, PD 70 Director
Patrick Galuska 42 Director
Dennis Brovarone 46 Director
Gregory Barnhill 48 Director

The Directors serve until their successors are elected by the shareholders.
Vacancies on the Board of Directors may be filled by appointment of the majority
of the continuing directors. The executive officers serve at the discretion of
the Board of Directors except as subject to the employment agreement with Mr.
Krall.

Committees: Meetings of the Board
The Company has a Compensation/Administration Committee and an Audit Committee.
The Compensation/Administration Committee and the Audit Committee were formed in
1995. Messrs. Brovarone, Galuska and Peiser comprise the
Compensation/Administration Committee and Messrs. Brownell, Galuska and Peiser,
are the Audit Committee. The Compensation/Administration Committee recommends to
the Board the compensation of executive officers and will serve as the
Administrative Committee for the Company's Stock Option Plans. The Audit
Committee serves as a liaison between the Board and the Company's auditor. The
Compensation/Administration Committee met once during the fiscal year ended July
31, 2001, and the Audit Committee met once during the fiscal year ended July 31,
2001.

The Company's Board of Directors held six meetings during the fiscal year ended
July 31, 2001, at which time all the then Directors were present or consented in
writing to the action taken at such meetings. No incumbent Director attended
fewer than 100% of said meetings.

Audit Committee Report
The Audit Committee of the Board of Directors consists of three directors, the
majority of which are the Company's independent directors. The Audit Committee
operates under a written charter adopted by the Board of Directors, which is
attached as Exhibit A to this Proxy Statement. The Audit Committee is
responsible for overseeing the Company's financial reporting process on behalf
of the Board of Directors. Each year, the Audit Committee recommends to the
Board of Directors the selection or retention of the Company's independent
auditors.

Management is responsible for the Company's financial statements and the
financial reporting process, including internal controls. The independent
auditors are responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with auditing standards
generally accepted in the United States and for issuing a report thereon. The
Audit Committee's responsibility is to monitor and oversee these processes.

In this context, the Audit Committee has met and held discussions with
management and Miller and McCollom, the Company's independent auditors.
Management represented to the Audit Committee that the Company's consolidated
financial statements were prepared in accordance with accounting principles
generally accepted in the United States, and the Audit Committee has reviewed
and discussed the consolidated financial statements with management and the
independent auditors. The Audit Committee discussed with Miller and McCollom the
matters required to be discussed by Statement on Auditing Standards No. 61
(Communications with Audit Committee s). These matters included a discussion of
Miller and McCollom's judgments about the qualiity (not just the acceptability
of the Company's accounting principles as applied to financial reporting.

Miller and McCollom also provided the Audit Committee with the written
disclosures and letter required by Independence Standards Board Standard No. 1.
(Independence Discussions with Audit Committees), and the Audit Committee
discussed with Miller and McCollom that firm's independence.

Based upon the Audit Committee's discussion with management and the independent
auditors and the Audit Committee's review of the representation of management
and the disclosures by the independent auditors to the Audit Committee, the
Audit Committee recommended to the Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-KSB
for the fiscal year ended July 31, 2001, for filing with the U.S. Securities and
Exchange Commission. The Audit Committee has also recommended the retention of
Miller and McCollom as the Company's independent auditors for the fiscal year
ending July 31, 2002.

Audit Committee

Gary Brownell
Patrick Galuska
Gene Peiser

Compliance with Section 16(a) of Securities Exchange Act of 1934
To our knowledge, during the fiscal year ended July 31, 2001, our Directors and
Officers complied with all applicable Section 16(a) filing requirements except
that Eugene Peiser, a director, failed to timely report two transactions. This
statement is based solely on a review of the copies of such reports furnished to
us by our Directors and Officers and their written representations that such
reports accurately reflect all reportable transactions.

Family Relationships
There is no family relationship between any Director, executive or person
nominated or chosen by the Company to become a Director or executive officer.

EXECUTIVE COMPENSATION
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Summary Compensation Table
The following table shows for the fiscal year ending July 31, 2001, the
compensation awarded or paid by the Company to its Chief Executive Officer and
any of the executive officers of the Company whose total salary and bonus
exceeded $100,000 during such year (The "Named Executive Officers"):

SUMMARY COMPENSATION TABLE
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| LONG TERM COMPENSATION
Annual Compensation | Awards Payouts
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Name and | Securities All Other
Principle Other Annual | Underlying Options Compensation
Position Year Salary ($) Compensation ($)| (#) ($)
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Michael L. Krall 2001 | 144,000 | 0 | 50,000 Common | 0
President/CEO | | | |
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Michael L. Krall | | | |
President/CEO 2000 | 144,000 | 0 | 50,000 Common | 0
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Michael L. Krall | | | |
President/CEO 1999 | 144,000 | 0 | 190,000 Common | 0
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No other executive officer earned more than $100,000 during the current fiscal
year.

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Option Grants in Last Fiscal Year
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Individual Grants
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Name Number of Common Shares % of Total Options Exercise Price Expiration
Underlying Options Granted to Employees ($/Sh) Date
Granted (#) in Fiscal Year
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Michael L. Krall 50,000 5 2.93 11/16/05
President/CEO
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Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End
Option/Values The following table sets forth the number and value of the
unexercised options held by each of the Named Executive Officers at July 31,
2001.

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Aggregate Option Exercises in Last Fiscal Year and FY-End Option Values
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Shares Value Number of Securities Underlying Value of Unexercised In-the Money
Acquired on Realized at Unexercised Options at FY-End (#) Options at FY-End ($)
Name Exercise (#) FY-End ($) Exercisable/Unexercisable Exercisable/Unexercisable
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Michael L. 0 0 531,250 Common Shares/Exercisable 901,500/Exercisable (1)
Krall
President/CEO
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(1) Option value based on the difference between the exercise price of
unexercised options and the average closing price of $3.01 for the 30 trading
days ending July 31, 2001.

Employment Agreements and Executive Compensation
In April 1996, the Board of Directors approved a five-year employment agreement
for Michael Krall, its President. Mr. Krall receives a salary of $144,000 per
year, and an amount equal to 3% of the Company's net income before taxes, if
any, plus other benefits

Compensation of Directors
Directors are entitled to receive $300 plus reimbursement for all out-of-pocket
expenses incurred for attendance at Board of Directors meetings.

OTHER ARRANGEMENTS
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Individuals newly appointed as Executive Officers or as Directors, are granted
an option to purchase 100,000 shares of common stock at fair market value from
stock option plans previously approved by the shareholders. Upon each subsequent
anniversary thereof, each such Officer and Director will receive an option to
purchase 50,000 shares of common stock at fair market value.

Termination of Employment and Change of Control Arrangement
There is no compensatory plan or arrangement with respect to any individual
named above which results or will result from the resignation, retirement or any
other termination of employment with the Company, or from a change in the
control of the Company.

Transactions with Management
The Company did not enter into any transactions with Management during the
fiscal year ended July 31, 2001.

PROPOSAL NO. 1. ELECTION OF DIRECTORS

The Articles presently provide for a Board of Directors of not more than nine
(9) members. The number of Directors of the Company has been fixed at seven (7)
by the Company's Board of Directors. The Company's Board of Directors recommends
the election of Directors of the seven (7) nominees listed below to hold office
until the next Annual Meeting of Shareholders and until their successors are
elected and qualified or until their earlier death, resignation or removal. The
persons named as "proxies" in the enclosed form of Proxy, who have been
designated by Management, intend to vote for the seven (7) nominees for election
as Directors unless otherwise instructed in such proxy. If at the time of the
Meeting, any of the nominees named below should be unable to serve, which event
is not expected to occur, the discretionary authority provided in the Proxy will
be exercised to cumulatively vote for the remaining nominees, or for a
substitute nominee or nominees, if any, as shall be designated by the Board of
Directors.

Nominees
The following table sets forth the name and age of each nominee for Director,
indicating all positions and offices with the Company presently held by him, the
period during which he has served as such, and the class and term for which he
has been nominated:

Year First
Name Age Position Director
--------------------- -------- ----------------------------------- ----------------

Gregory Barnhill 48 Director 2001
Dennis Brovarone 46 Director 1996
Gary Brownell, CPA 53 Chief Financial Officer, Director 1996
Patrick Galuska 42 Director 1996
Michael L. Krall 49 President, CEO, Chairman, Director 1992
Eugene Peiser, PD 70 Director 1996
Donna Singer 31 Executive Vice President, Director 1999

Business Experience of Nominees
GREGORY H. BARNHILL Mr. Barnhill is Managing Director of North American Equity
Sales at Deutsche Banc Alex.Brown Inc., Baltimore, MD. He joined the firm in
1975, following his graduation from Brown University with an AB degree in
economics.

DENNIS BROVARONE Mr. Brovarone has been practicing corporate and securities law
since 1986 and as a sole practitioner since 1990. He was elected to the
Company's Board of Directors in April 1996. From December 1997 to April 2001,
Mr. Brovarone served as the President and Chairman of the Board of Directors of
Ethika Corporation, a publicly held, Mississippi corporation investment holding
company with its office in Littleton, Colorado. From January 1995 to March 1998
Mr. Brovarone served as President (Chairman) of the Board of Directors of The
Community Involved Charter School, a four year old K-12 public school located in
Lakewood, Colorado, operating under an independent charter and serving
approximately 350 students in an individualized, experiential learning
environment. Prior to 1990, Mr. Brovarone served as in-house counsel to R.B.
Marich, Inc., a Denver, Colorado based brokerage firm. Mr. Brovarone lives and
works in Littleton, Colorado.

GARY W. BROWNELL Mr. Brownell is a Certified Public Accountant in a private
partnership practice. He is the partner in charge of taxes and municipal audits
for his firm. Mr. Brownell graduated from San Diego State University in 1973
with a Bachelor of Science degree in accounting. He received his Certified
Public Accountant designation in 1983. Mr. Brownell has been a partner in
Brownell and Duffy since 1985.

PATRICK GALUSKA Mr. Galuska is a consulting petroleum engineer in Denver,
Colorado. His practice focuses mainly on the acquisition and exploitation of
underdeveloped oil and gas assets in the Rocky Mountain area. He is a Registered
Professional Engineer and is a member of the Society of Petroleum Engineers. Mr.
Galuska earned his BS degree in petroleum engineering from the University of
Wyoming and received his MBA degree in Finance from the University of Denver.
Mr. Galuska resides in Littleton, Colorado with his wife and two children.

MICHAEL L. KRALL Mr. Krall is the President, CEO and Chairman of the Board of
Directors of Innovative Medical Services, a position he has held since 1993. He
is responsible for the strategic planning, product development, and day-to-day
operations of IMS. Previously, Mr. Krall was the President and CEO of
Bettis-Krall Construction, Inc. a successful building-development company of
custom homes and commercial property in San Diego County, California. He has
also held numerous positions in general management in the hospitality industry.
Mr. Krall attended Pepperdine University (economics, statistics, mechanical
engineering). He previously served 4 years in the United States Marine Corps and
was elected, by general election, to a 4 year term on the Valle de Oro Planning
Board. Mr. Krall lives in El Cajon, California with his wife, Connie, and two
children.

EUGENE S. PEISER, DOCTOR OF PHARMACY Dr. Peiser has been an independent
consultant to FDA regulated industries since 1974 and a Member of the Board of
Innovative Medical Services since 1994. He graduated from the University of
Tennessee College of Pharmacy with a Bachelor of Science in Pharmacy in 1951 and
has received his Doctorate of Pharmacy. Dr. Peiser's consultancy advises on a
wide variety of subjects, including compliance with the Prescription Drug
Marketing Act and other government compliance matters, employee training and
drug repackaging. Dr. Peiser furnishes expert witness services and has provides
approved Pharmaceutical Continuing Education to several thousand attendees at
his seminars. Dr. Peiser is a Founding Director of the Association of Drug
Repackagers; is appointed as a Registered Arbitrator by the American Registry of
Arbitrators; and is President of the Southwest Chapter of the Association of
Military Surgeons. Dr. Peiser lives and works in Palm Harbor, FL.

DONNA SINGER Ms. Singer is the Executive Vice President of Innovative Medical
Services. From 1996-1998, Ms. Singer served as Vice President of Operations for
the Company. Ms. Singer is responsible for company operations, corporate
communications, investor relations and marketing. Previously, Ms. Singer served
as the investor relations executive at Western Garnet International, a Toronto
Stock Exchange mining company. Ms. Singer graduated from Gonzaga University with
a Bachelor of Arts degree and lives in El Cajon, California.

PROPOSAL NO. 2. APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF
INCORPORATION TO INCREASE THE COMPANY'S AUTHORIZED COMMON STOCK
FROM 20,000,000 TO 50,000,000 SHARES

The Board of Directors has approved and is recommending to the stockholders for
approval, an amendment to Article Four of the Company's Articles of
Incorporation to increase the number of shares of common stock which the Company
is authorized to issue from 20,000,000 to 50,000,000. The full text of the
proposed amendment to the Articles of Incorporation is shown below.

Purpose and Effect of the Amendment

Under the present Articles of Incorporation, the Company has the authority to
issue 20,000,000 shares of common stock. As of February 1, 2002, 7,890,599 were
issued and outstanding. We have reserved 6,500,000 common shares for issuance
under various stock option plans and as of February 1, 2002 approximately
5,152,000 shares were reserved for issuance upon exercise of the Company's
outstanding stock options and warrants. Accordingly, as of February
1, 2002, after taking into account the shares reserved for issuance, fewer than
7,000,000 shares of common stock were available for issuance for all future
corporate purposes. The proposed amendment would provide for an additional
30,000,000 shares available for issuance.

The additional common stock to be authorized by adoption of the proposed
amendment would have rights identical to the currently outstanding common stock.
Adoption of the proposed amendment and issuance of additional shares of common
stock would not affect the rights of the holders of currently outstanding common
stock, except for effects incidental to increasing the number of shares of
common stock outstanding, such as dilution of the earnings per share and voting
rights of current holders of common stock. If the amendment is adopted, it will
become effective upon filing Articles of Amendment with the California Secretary
of State.

The purpose of the increase in authorize shares is to provide additional shares
of common stock that could be issued for corporate purposes without further
stockholder approval, unless required by applicable law or regulation. The Board
of Directors believes that it is in the best interests of the Company to have
additional shares of common stock authorized at this time to alleviate the delay
of holding a special meeting of stockholders to authorize additional shares of
common stock when the need arises. Possible purposes for additional shares of
common stock include effecting acquisitions of other businesses, or properties,
establishing strategic relationships with other companies and securing
additional financing for the operation of the Company through the issuance of
additional shares or other equity-based securities. Purposes for additional
shares of common stock also include paying stock dividends or forward splitting
of the outstanding shares. The Company has no specific plans for any of these
actions at this time.

Text of the Amendment to the Articles of Incorporation

If this proposal is approved, Article FOUR of the Company's Articles of
Incorporation will be amended to state as follows:

FOUR: The corporation is authorized to issue two (2) classes of shares, to be
designated respectively as "Common Shares" and "Preferred Shares". The total
number of Common Shares the corporation is authorized to issue is Twenty Million
(20,000,000) with no par value. The total number of preferred Shares the
corporation is authorized to issue is Five Million (5,000,000) with no par
value. Said preferred stock may subsequently receive such designation as may be
deemed appropriate by the Board of Directors of the corporation, and the Board
of Directors shall have the right to determine or alter the rights, preferences,
privileges, and restrictions granted to, or imposed upon said preferred. shares.
Additionally, the Board of Directors shall be empowered to increase or decrease
(but not below the number of shares of Common or preferred Shares then
outstanding) the number of shares of any class of shares subsequent to the issue
of shares of that class.

PROPOSAL NO. 3. APPROVAL OF THE INNOVATIVE MEDICAL SERVICES 2002 EMPLOYEE
INCENTIVE STOCK OPTION PLAN

On January 31, 2002 the Company's Board of Directors approved submitting the
Innovative Medical Services 2002- Employee Incentive Stock Option Plan to the
shareholders for approval. The Board of Directors recommends approval of the
Plan. The purpose of the Plan is to advance the business and development of the
Company and its shareholders by affording to the key employees and non-employee
directors of the Company the opportunity to acquire a propriety interest in the
Company by the grant of Options to acquire shares of the Company's common stock.

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.
The Plan is administered by an Administrative Committee whom shall serve a one
year term. Subject to anti-dilution provisions, the Plan may issue Options to
acquire up to 4,000,000 shares to Key Employees. The exercise price for Options
shall be set by the Administrative Committee but shall not be for less than the
fair market value of the shares on the date the Option is granted. The period in
which Options can be exercised shall be set by the Administrative Committee not
to exceed five years from the date of Grant. The Plan may be terminated,
modified or amended by the Board of directors upon the recommendation of the
Administrative Committee.

All Key Employees of the Company and its subsidiaries are eligible to
participate in the Incentive Stock Options. 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, non-employee
directors, consultants and advisors performing bona fide services to the Company
shall be considered eligible for participation in the Plan.

Federal Income Tax Consequences
The following is a general summary of the United States federal income tax
treatment of incentive stock options and non-qualified stock options, which are
authorized for grant under the 2002 Plan, based upon the current provisions of
the Internal Revenue Code and regulations promulgated thereunder.

Incentive Stock Options
Incentive stock options under the 2002 Plan are intended to meet the
requirements of Internal Revenue Code section 422. No tax consequences result
from the grant of the option. If an option holder acquires stock upon the
exercise, no income will be recognized by the option holder for ordinary income
tax purposes (although the difference between the option exercise price and the
fair market value of the stock subject to option may result in alternative
minimum tax liability to the option holder) and the Company will be allowed no
deduction as a result of such exercise, if the following conditions are met: (a)
at all times during the period beginning with the date of granting of the option
and ending on the day three months before the date of such exercise, the option
holder is an employee of the Company or of a subsidiary and (b) the option
holder makes no disposition of the stock within two years from the date the
option is granted nor within one year after the stock is transferred to the
option holder. If the option holder sells the stock after complying with these
conditions, any gain realized over the price paid for the stock will ordinarily
be treated as long-term capital gain, and any loss will be treated as long-term
capital loss, in the year of the sale.

If the option holder fails to comply with the employment requirements, the tax
consequences will be substantially the same as for a non-qualified option,
discussed below. If the option holder fails to comply with the holding period
requirements, the option holder will recognize ordinary income in an amount
equal to the lesser of (1) the excess of the fair market value of the stock on
the date the option was exercised over the exercise price or (2) the excess of
the amount realized upon such disposition over the adjusted tax basis of the
stock. Any additional gain ordinarily will be recognized by the option holder as
capital gain, either long-term or short-term, depending on the holding period of
the shares. If the option holder is treated as having received ordinary income
because of his or her failure to comply with either condition above, the Company
will be allowed an equivalent deduction in the same year.

Non Qualified Stock Options
No tax consequences result from the grant of the option. An option holder who
exercised a non-qualified stock option will generally realize compensation
taxable as ordinary income in an amount equal to the difference between the
exercise price and the fair market value of the shares on the dates of exercise,
and the Company will be entitled to a deduction from income in the same amount.
Any subsequent gain or loss will be a capital transaction.

Disallowance of Deductions
The Internal Revenue Code disallows for publicly held corporations with respect
to compensation in excess of $1,000,000 paid to the corporation's chief
executive officer and its four other most highly compensated officers. However,
compensation payable solely on account of attainment of one or more performance
goals is not subject to this deduction limitation is certain statutory
requirements are satisfied. Under this exception, the deduction limitation dies
not apply with respect to compensation otherwise deductible on account to stock
options and stock appreciation rights granted at fair market value under a plan,
such as the 2002 Plan, that limits the number of shares that may be issued to
any individual and that is approved by the Company's stockholders.

PROPOSAL NO. 4. APPROVAL OF THE INNOVATIVE MEDICAL SERVICES 2002 NON-QUALIFED
STOCK OPTION PLAN

On January 31, 2002 the Company's Board of Directors approved submitting the
Innovative Medical Services 2002- Non-Qualified Stock Option Plan to the
shareholders for approval. The Board of Directors recommends approval of the
Plan. The purpose of the Plan is to advance the business and development of the
Company and its shareholders by affording Eligible Plan Participants to be able
to the opportunity to acquire a propriety interest in the Company by the grant
of Options to acquire shares of the Company's common stock. Eligible Plan
Participants include the Directors and Officers of the Company, consultants,
advisors and other individuals deemed by the Compensation Committee to provide
valuable services to the Company but who are not otherwise eligible to
participate in the Employee Incentive Stock Option Plan.

The Options granted are not "Incentive Stock Options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended. The issuance of
such non-qualified options pursuant to this Plan is not expected to be a taxable
event for recipient until such time that the recipient elects to exercise the
option whereupon the recipient is expected to recognize income to the extent the
market price of the shares exceeds the exercise price of the option on the date
of exercise.

The Plan is administered by an Administrative Committee whom shall serve a
one-year term. The Administrative Committee is composed of the Board's
Compensation/Administration Committee. Subject to anti-dilution provisions, the
Plan may issue Options to acquire up to 2,000,000 shares to Eligible Plan
Participants. The Company will not receive any consideration for the grant of
options under the Plan and approximate market value of the shares to be reserved
for the plan is $4,000,000 based upon the average thirty trading day closing
price for the Company's common stock for the period ending January 31, 2002. The
exercise price for Options shall be set by the Administrative Committee but
shall not be for less than the fair market value of the shares on the date the
Option is granted. Fair market value shall mean the average of the closing price
for ten consecutive trading days at which the Stock is listed in the Nasdaq
quotation system ending on the day prior to the date an Option is granted. The
period in which Options can be exercised shall be set by the Administrative
Committee not to exceed five years from the date of Grant.

The Executive Officers and Directors of the Company are eligible to participate
in the Plan. The Administrative Committee shall grant to individuals newly
appointed as Executive Officers or as Directors, an option to purchase 100,000
shares of common stock at fair market value. Upon each subsequent anniversary
thereof, each such Officer and Director will receive an option to purchase
50,000 shares of common stock at fair market value. The plan also gives the
Administrative Committee discretion to award additional options. The aggregate
number and kind of shares within the Plan and the rights under outstanding
Options granted hereunder, both as to the number of shares and Option price,
will be adjusted accordingly in the event of a reverse split in the outstanding
shares of the Common Stock of the Company.

The Board may at any time terminate the plan. The approval of the majority of
shareholders is required to increase the total number of shares subject to the
plan, change the manner of determining the option price or to withdraw the
administration of the plan from the Administrative Committee.

2002 NON-QUALIFIED STOCK OPTION PLAN BENEFITS

Name Position Dollar Value (1) Options Granted (2)
-------------------- ------------------------- ---------------- -----------------------

Dennis Atchley Secretary $0.00 0
Dennis Brovarone Director $0.00 0
Gary Brownell CFO, Director $0.00 0
Patrick Galuska Director $0.00 0
Michael L. Krall President, CEO, Director $0.00 0
Eugene Peiser Director $0.00 0
Donna Singer Director $0.00 0
Gregory Barnhill Director $0.00 0
Executive Group (5 individuals) $0.00 0
Non-Exec. Dir. Group (3 individuals) $0.00 0

(1) No options have been granted under this plan as yet and no options are
scheduled for the existing executive officers and directors until November
2002.

REQUEST FOR COPY OF FORM 10KSB

Shareholders may request a copy of the Form 10KSB by writing to the Company's
offices, 1725 Gillespie Way, El Cajon, California 92020.

DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS

Any proposal by a shareholder to be presented at the Company's next Annual
Meeting of Shareholders, including nominations for election as directors must be
received at the offices of the Company, 1725 Gillespie Way, El Cajon, California
92020, no later than July 31, 2002.

Audit Committee Charter
INNOVATIVE MEDICAL SERVICES

The Audit Committee ("the Committee"), of the Board of Directors ("the Board")
of Innovative Medical Services ("the Company"), will have the oversight
responsibility, authority and specific duties as described below.

COMPOSITION
The Committee will be comprised of three or more directors as determined by the
Board. The members of the Committee will meet the independence and experience
requirements of NASDAQ. The members of the Committee will be elected annually
after the annual meeting of the shareholders and will be listed in the annual
report to shareholders. One of the members of the Committee will be elected
Committee Chair by the Board.

RESPONSIBILITY
The Committee is a part of the Board. Its primary function is to assist the
Board in fulfilling its oversight responsibilities with respect to (i) the
annual financial information to be provided to shareholders and the Securities
and Exchange Commission (SEC); (ii) the system of internal controls that
management has established: and (iii) the internal and external audit process.
In addition, the Committee provides an avenue for communication between internal
audit, the independent accountants, financial management and the Board. The
Committee should have a clear understanding with the independent accountants
that they must maintain an open and transparent relationship with the Committee,
and that the ultimate accountability of the independent accountants is to the
Board and the Committee. The Committee will make regular reports to the Board
concerning its activities.

While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditor. Nor is it the duty of
the Audit Committee to conduct investigations, to resolve disagreements, if any,
between management and the independent auditor or to assure compliance with laws
and regulations and the Company's business conduct guidelines.

AUTHORITY
Subject to the prior approval of the Board, the Committee is granted the
authority to investigate any matter or activity involving financial accounting
and financial reporting, as well as the internal controls of the Company. In
that regard, the Committee well have the authority to approve the retention of
external professionals to render advice and counsel in such matter. All
employees will be directed to cooperate with respect thereto as requested by
members of the Committee.

MEETINGS
The Committee is to meet at least one time annually and as many additional times
as the Committee deems necessary. Content of the agenda for each meeting should
be cleared by the Committee Chair.

ATTENDANCE
Committee members will strive to be present at all meetings. As necessary or
desirable, the Committee Chair may request that members of management and
representatives of the independent accountants and internal audit be present at
Committee meetings.

SPECIFIC DUTIES
In carrying out its oversight responsibilities, the Committee will:

1. Review and reassess the adequacy of this charter annually and recommend any
proposed changes to the Board for approval. This should be done in
compliance with applicable SEC and or NASDAQ Audit Committee Requirements
existing at the time.

2. Review with the Company's management, internal audit and independent
accountants the Company's accounting and financial reporting controls.
Obtain annually in writing from the independent accountants their letter as
to the adequacy of such controls.

3. Review with the Company's management, internal audit and independent
accountants significant accounting and reporting principles, practices and
procedures applied by the Company in preparing its financial statements.
Discuss with the independent accountants their judgments about the quality,
not just the acceptability, of the Company's accounting principles used in
financial reporting.

4. Review the scope of internal audit's work plan for the year and receive a
summary report of major findings by internal auditors and how management is
addressing the conditions reported.

5. Review the scope and general extent of the independent accountants' annual
audit. The Committee's review should include an explanation from the
independent accountants of the factors considered by the accountants in
determining the audit scope, including the major risk factors. The
independent accountants should confirm to the Committee that no limitations
have been placed on the scope or nature of their audit procedures. The
Committee will review annually with management the fee arrangement with the
independent accountants.

6. Inquire as to the independence of the independent accountants and obtain
from the independent accountants, at least annually, a formal written
statement delineating all relationships between the independent accountants
and the Company as contemplated by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees.

7. Have a predetermined arrangement with the independent accountants that they
will advise the Committee through its Chair and management of the Company
of any matters identified through procedures followed for interim quarterly
financial statements, and that such notification as required under
standards for communication with Audit Committees is to the related press
release or, if not practicable, prior to filing Forms 10-Q. Also receive a
written confirmation provided by the independent accountants at the end of
each of the first three quarters of the year that they have nothing to
report to the Committee, if that is the case, or the written enumeration of
required reporting issues.

8. At the completion of the annual audit, review with management, internal
audit and the independent accountants the following:

a. The annual financial statements and related footnotes and financial
information to be included in the Company's annual report to
shareholders and on Form 10-K.

b. Results of the audit of the financial statements and the related
report thereon and, if applicable, a report on changes during the year
in accounting principles and their application.

c. Significant changes to the audit plan, if any, and any serious
disputes or difficulties with management encountered during the audit.
Inquire about the cooperation received by the independent accountants
during their audit, including access to all requested records, data
and information. Inquire of the independent accountants whether there
have been any disagreements with management which, if not
satisfactorily resolved, would have caused them to issue a nonstandard
report on the Company's financial statements.

d. Other communications as required to be communicated by the independent
accountants by Statement of Auditing Standards (SAS) 61 as amended by
SAS 90 relating to the conduct of the audit. Further, receive a
written communication provided by the independent accountants
concerning their judgment about the quality of the Company's
accounting principles, as outlined in SAS 61 amended by SAS 90, and
that they concur with management's representation concerning audit
adjustments.

e. If deemed appropriate after such review and discussion, recommend to
the Board that the financial statements be included in the Company's
annual report on Form 10-K.

9. After preparation by management and review by internal audit and
independent accountants, approve the report required under SEC rules to be
included in the Company's annual proxy statement. The charter is to be
published as an appendix to the proxy statement every three years.

10. Discuss with the independent accountants the quality of the Company's
financial and accounting personnel. Also, elicit the comments of management
regarding the responsiveness of the independent accountants to the
Company's needs.

11. Meet with management, internal audit and the independent accountants to
discuss any relevant significant recommendations that the independent
accountants may have, particularly those characterized as `material' or
`serious'. Typically, such recommendations will be presented by the
independent accountants in the form of a Letter of Comments and
Recommendations to the Committee. The Committee should review responses of
management to the Letter of Comments and Recommendations from the
independent accountants and receive follow-up reports on action taken
concerning the aforementioned recommendations.

12. Recommend to the Board the selection, retention or termination of the
Company's independent accountants.

13. Review the appointment and replacement of the senior internal audit
executive.

14. Review with management, internal audit and the independent accountants the
methods used to establish and monitor the Company's policies with respect
to unethical or illegal activities by Company employees that may have a
material impact on the financial statements.

15. Generally as part of the review of the annual financial statements, receive
an oral report(s), at least annually, from the Company's general counsel
concerning legal and regulatory matters that may have a material impact on
the financial statements.

16. As the Committee may deem appropriate, obtain, weigh and consider expert
advice as to Audit Committee related rules of the SEC and or NASDAQ and
other accounting, legal and regulatory provisions.

INNOVATIVE MEDICAL SERVICES
2002 EMPLOYEE INCENTIVE STOCK OPTION PLAN

ARTICLE I
DEFINITIONS

As used herein, terms have the meaning hereinafter set forth unless the
context should clearly indicate the contrary:

(a) "Board" shall mean the Board of Directors of the Company, or the
Executive Committee of such Board;

(b) "Business Days" shall mean for calculation purposes the days of the
week in which the NASDAQ System conducts and is open for regular trading
activity;

(c) "Committee" shall mean the Compensation Committee of the Board which is
authorized to oversee the administration of this Plan;

(d) "Company" shall mean Innovative Medical Services, a California
corporation;

(e) "Director" shall mean a member of the Board;

(f) "Fair market value" shall mean the prior 30 day average closing price
at which the Stock is listed in the NASDAQ quotation system on the day an Option
is granted hereunder, or in the absence of any reported quote on such day, the
first preceding day on which there was such a quote available;

(g) "Grant" means the issuance of an Option hereunder to an Optionee
entitling such Optionee to acquire Stock on the terms and conditions set forth
in a Stock Option Agreement to be entered into with the Optionee, "Grant" may
also include a direct grant of stock;

(h) "Incentive Stock Option" shall mean a compensatory Option provided to
an employee of the Company giving him or her the right to purchase Stock at a
predetermined price under a plan that meets certain Internal Revenue Code
requirements and involves registered stock;

(i) "Key Employee" shall mean a Company employee who in the judgment of the
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 bonafide services to the Company shall also
be deemed employees solely for the purpose of participation under the Plan;

(j) "Option" shall mean the right granted to an Optionee to acquire Stock
of the Company pursuant to the Plan;

(k) "Optionee" shall mean an employee of the Company or a non-employee
Director of the Company to whom a Grant hereunder has been made;

(l) "Plan" shall mean the Innovative Medical Services 2002 Employee
Incentive Stock Option Plan, the terms of which are herein set forth;

(m) "Stock" shall mean the common stock of the Company or, in the event the
outstanding shares of stock are hereafter changed into or exchanged for shares
of different stock or securities of the Company or some other corporation, such
other stock or securities;

(n) "Stock Option Agreement" shall mean the agreement between the Company
and an Optionee under which an Optionee may acquire Stock pursuant to the Plan.

ARTICLE II
THE PLAN

2.1 NAME. The plan shall be known as the "Innovative Medical Services 2002
Employee Incentive Stock Option Plan."

2.2 PURPOSE. The purpose of the Plan is to advance the business and
development of the Company and its shareholders by affording to the Key
Employees of the Company and non-employee Directors of the Company the
opportunity to acquire a propriety interest in the Company by the grant of
Options to such persons under the terms herein set forth. By doing so, the
Company seeks to motivate, retain and attract highly competent, highly motivated
personnel whose judgment, initiative, leadership and continued efforts will
contribute to the success of the Company. The Options to be granted hereunder
are either "Incentive Stock Options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, for certain Key Employees or
non-statutory Options made available to non-employee Directors. However, at no
time will the Plan be considered or operate as a "tandem" option plan or will
any Key employee or non-employee Director be subjected to a tandem option
provision.

2.3 EFFECTIVE DATE. The Plan shall become effective upon its adoption by
the Board of the Company. Thereafter, the Plan shall be submitted to the
shareholders of the company for approval within 12 months after the date said
Plan is adopted by the Board.

2.4 TERMINATION DATE. The Plan shall terminate ten (10) years from the date
the Plan is adopted by the Board of the Company and at such time any Options
granted hereunder shall be void and of no further force or effect.

ARTICLE III
PARTICIPANTS

Any Key Employee or non-employee Director of the Company, or of any of its
wholly owned subsidiaries, shall be eligible to be granted an Option under the
Plan. The Committee shall adopt criteria pursuant to which Options shall be
granted. The Committee may grant Options to any eligible Key Employee or
non-employee Director in accordance with such determinations as the Committee
may, from time to time, in its sole discretion make. A Director of the Company
or of a subsidiary who is not also an employee of the Company will not be
eligible to receive an "Incentive Stock Option" pursuant to the Plan.
Non-employee Directors are only eligible for non-statutory Options which do not
qualify under Section 422 of the Internal Revenue Code, as amended.

ARTICLE IV
ADMINISTRATION

4.1 DUTIES AND POWERS OF THE COMMITTEE. The Plan shall be administered by
the Committee. Subject to the express provisions of the Plan, the Committee
shall have the sole discretion and authority to determine from among eligible
persons those to whom and the time or times at which Options may be granted and
the number of shares of Stock to be subject to each Option. Subject to the
express provisions of the Plan, the Committee shall also have complete authority
to interpret the Plan, to prescribe, amend and rescind rules and regulations
related to it and to determine the details and provisions of each Stock Option
Agreement and to make all other determinations necessary or advisable in the
administration of the Plan.

4.2 RECORDS OF PROCEEDINGS. The Committee shall maintain written minutes of
its actions which shall be maintained among the records of the Company.

4.3 COMPANY ASSISTANCE. The Company shall supply full and timely
information to the Committee in all matters relating to eligible Optionees,
their status, death, retirement, disability and such other pertinent facts as
the Committee may require. The Company shall furnish the Committee with such
clerical and other assistance as is necessary in the performance of its duties.
All expenses of the Committee shall be paid by the Company.

4.4 COMPOSITION OF THE COMMITTEE. The Committee shall consist of three (3)
individuals appointed by the Board from among its members. Appointment to the
Committee shall be for a term of one (1) year. Any individual designated and
serving as a member of the Committee shall be entitled to indemnification in
relation to such service by the Company to the fullest extent called for or
permitted by the Bylaws of the Company.

4.6 COMMITTEE AUTHORITY. If the Committee deems it necessary or in the best
interest of the Company or its shareholders, the Committee may impose
restrictions of the subsequent transferability of Stock issued pursuant to
Options to be granted hereunder. In the event of the imposition of any such
conditions, the Stock of the Company to be issued pursuant to the exercise of an
Option shall have any such restrictions prominently displayed as a legend on
such certificate.

ARTICLE V
SHARES OF STOCK SUBJECT TO THE PLAN

5.1 LIMITATION. Subject to adjustment pursuant to the provisions of Section
5.3 hereof, the number of shares of Stock which may be issued and sold hereunder
shall not exceed 4,000,000 shares with 3,000,000 shares reserved for issuance to
Key Employees pursuant to their Incentive Stock Options and 1,000,000 shares
reserved for issuance to non-employee Directors pursuant to their non-statutory
Options. The Company shall take such action as necessary to reserve the
aforesaid number of shares for issuance pursuant to the Plan.

5.2 OPTIONS GRANTED UNDER THE PLAN. Shares of stock with respect to which
an Option is granted hereunder, but which lapses prior to exercise, shall be
considered available for grant hereunder. Therefore, if Options granted
hereunder shall terminate for any reason without being wholly exercised, new
Options may be granted hereunder covering the number of shares to which such
terminated Options related.

5.3 ANTI-DILUTION. In the event the Stock subject to Options hereunder is
changed into or exchanged for a different number or kind of stock or other
securities of the Company or of another organization by reason of merger,
consolidation or reorganization, recapitalization, reclassification, combination
of shares, stock split or stock dividend;

(a) The aggregate number and kind of shares of Stock subject to
Options which may be granted hereunder shall be adjusted appropriately;

(b) Rights under outstanding Options granted hereunder, both as to the
number of subject shares and the Option price, shall be adjusted
appropriately;

(c) Where dissolution or liquidation of the Company or any merger of
consolidation in which the Company is not a surviving corporation is
involved, each outstanding Option shall terminate and the Optionee holding
such Option shall have the right immediately prior to such dissolution,
liquidation, merger or combination to exercise his Option, in whole or in
part, to the extent that it shall not have been exercised without regard to
any installment exercise provision. The manner of application of the
foregoing provision shall be determined solely by the committee and any
such adjustment may provide for the elimination of fractional share
interests.

ARTICLE VI
OPTION PROVISIONS

6.1 OPTIONS. Each Option granted hereunder shall be evidenced by minutes of
a meeting of or the written consent of the Committee and by a written Stock
Option Agreement dated as of the date of grant and executed by the Company and
the Optionee, which agreement shall set forth such terms and conditions as may
be determined by the Committee consistent with the Plan.

6.2 PARTICIPATION, LIMITATIONS.

(a) Options qualifying as "incentive stock options" under Section 422 of
the Internal Revenue Code, as amended, may be granted from time to time to Key
Employees of the Company to purchase shares of the Company's Stock.

(b) The maximum number of shares for which an Option or Options may be
granted under the Plan to any one Key Employee shall be two hundred thousand
(200,000) shares in any twelve month period.

(c) Options defined as non-statutory Options which do not satisfy the
requisites of Section 422 of the Internal Revenue Code, as amended, may be
granted from time to time only to non-employee Directors of the Company to
purchase shares of the Company's Stock.

(d) The maximum number of shares for which an Option or Options may be
granted under the Plan to any one participating non-employee Director shall be
one hundred fifty thousand (150,000) shares in any twelve month period..

6.3 OPTION PRICE. The per share Option price for the stock subject to each
Option shall be determined by the Committee, but the per share exercise price
shall not be less than the fair market value of the Stock on the date the Option
is granted.

6.4 OPTION PERIOD. Each Option granted hereunder must be granted within
five (5) years from the effective date of the Plan. The period for the exercise
of each Option shall be determined by the Committee, but in no instance shall
such period exceed five (5) years from the date of grant of the Option. The
Committee may prescribe such period after the grant of an Option which must
expire before such Option may be exercised and the Committee deems appropriate.

6.5 OPTION EXERCISE.

(a) Options granted hereunder may not be exercised until and unless the
Optionee shall meet the conditions precedent established by the Committee for
the Key Employees and the non-employee Directors.

(b) Options may be exercised by Key Employees for whole shares only. Key
Employee Optionees may exercise their Option in whole at any time, or in part
from time to time in each year on a cumulative basis with any portion not
exercised to be carried over for exercise in subsequent years. Options shall be
exercised by written notice of intent to exercise the Option with respect to a
specified number of shares delivered to the Company at its principal office and
payment in full in cash or shares to the Company at said office of the amount of
the Option price for the number of shares with respect to which the Option(s)
are then being exercised.

(c) Options may be exercised by participating non-employee Directors in
whole at any time, or in part from time to time with respect to whole shares,
and can be exercised to the full extent of his Option at any time after grant,
and shall be exercised by written notice of intent to exercise the Option with
respect to a specified number of shares delivered to its Company at its
principal office and payment in full in cash or shares to the Company at said
office of the amount of the Option price for the number of shares with respect
to which the Option(s) are then being exercised.

(d) No Option may be exercised by any Optionee unless a registration
statement, such as form S-8, covering the Stock subject thereto has been filed
with and declared effective by the Securities and Exchange Commission and an
appropriate registration or exemption therefrom, is in effect or available in
the state of residence of the exercising Optionee.

6.6 NON-TRANSFERABILITY OF OPTION. No Option or any right relative thereto
shall be transferred by an Optionee otherwise than by will or by the laws of
descent and distribution. During the lifetime of an Optionee, the Option shall
be exercisable only by him or her.

6.7 EFFECT OF DEATH OR OTHER TERMINATION OF EMPLOYMENT OR DIRECTORSHIP.

(a) If the Key Employee's or non-employee Director's relationship with the
Company shall be terminated, with or without cause, or by the act of the Key
Employee or non-employee Director, the Optionee's right to exercise such Options
shall terminate and all rights thereunder shall cease three (3) months after the
date on which such person's association is terminated. Provided however, that if
the Optionee shall die or become permanently and totally disabled while employed
by or serving as a non-employee Director of the Company, as solely determined by
the Committee in accordance with its policies, then either his or her personal
representatives or a transferee under the Optionee's will or pursuant to the
laws of descent and distribution, or the disabled Optionee may exercise the
Option in full one (1) year from the date of such death or disability. In the
case of an Optionee's retirement in accordance with the Company's established
retirement policy, such Option shall remain exercisable by the Optionee for
three (3) months from the date of such retirement.

(b) No transfer of an Option by the Optionee by will or the laws of descent
and distribution shall be effective to bind the Company unless the Company shall
have been furnished with a written notice thereof and an authenticated copy of
the will and/or such other evidence as the Committee may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions of such Option.

6.8 RIGHTS AS A SHAREHOLDER. An Optionee or a transferee of an Option shall
have no rights as a shareholder of the Company with respect to any shares
subject to any unexercised Options.

6.9 REQUIRED FILINGS. An Optionee to whom an Option is granted under the
terms of the Plan is required to file appropriate reports with the Internal
Revenue Service. As a condition of the receipt of an Option hereunder, Optionees
shall agree to make necessary filings with the Internal Revenue Service. The
Committee shall assist and cooperate with Optionees by providing the necessary
information required for compliance of this condition.

ARTICLE VII
STOCK CERTIFICATES

The Company shall not be required to issue or deliver any certificate for shares
of Stock purchased upon the exercise of any Option granted hereunder, or any
portion thereof, prior to the obtaining of any approval or clearance from any
federal or state governmental agency which the Committee shall, in its sole
discretion, determine to be necessary or advisable.

ARTICLE VIII
TERMINATION, AMENDMENT, OR MODIFICATION OF THE PLAN

The Board may at any time, upon recommendation of the Committee, terminate, and
may at any time and from time to time and in any respect amend or modify the
Plan. Provided, however, if the Plan has been submitted to and approved by the
shareholders of the Company no such action by the Board may be taken without
approval of the majority of the shareholders of the Company which: (a) increases
the total number of shares of Stock subject to the Plan, except as contemplated
in Section 5.3 hereof; (b) changes the manner of determining the Option price;
or (c) withdraws the administration of the Plan from the Committee.

ARTICLE IX
EMPLOYMENT

9.1 EMPLOYMENT. Nothing in the Plan or any Option granted hereunder or in
any Stock Option Agreement shall confer upon a non-employee Director receiving
such Option or Stock Option Agreement the status as an employee of the Company.
Further, nothing in the Plan or any Option granted hereunder shall in any manner
create in any Optionee the right to continue their relationship with the Company
or create any vested interest in such relationship, including employment.

9.2 OTHER COMPENSATION PLANS. The adoption of the Plan shall not effect any
other stock option, incentive, or other compensation plan in effect for the
Company or any of its subsidiaries, nor shall the Plan preclude the Company or
any subsidiary thereof from establishing any other forms of incentive or other
compensation for employees or non-employee Directors of the Company, or any
subsidiary thereof.

9.3 PLAN EFFECT. The Plan shall be binding upon the successors and assigns
of the Company.

9.4 TENSE. When used herein nouns in the singular shall include the plural.

9.5 HEADINGS OF SECTIONS ARE NOT PART OF THE PLAN. Headings of articles and
sections hereof are inserted for convenience and reference and constitute no
part of the Plan.

INNOVATIVE MEDICAL SERVICES

By: /s/ MICHAEL L. KRALL
--------------------
Michael L. Krall, President
March 11, 2002

By: /s/ DENNIS ATCHLEY
-------------------
Dennis Atchley, Secretary
March 11, 2002

INNOVATIVE MEDICAL SERVICES
2002 NON-QUALIFIED STOCK OPTION PLAN.

ARTICLE I
DEFINITIONS

As used herein, terms have the meaning hereinafter set forth unless the context
should clearly indicate the contrary:

(a) "Board" shall mean the Board of Directors of the Company;

(b) "Days" shall mean for calculation purposes the days of the week in
which the NASDAQ System conducts and is open for regular trading activity;

(d) "Fair Market Value" shall mean the average closing low bid price for
the Company's common stock for the previous five (5) trading days ending on the
date of grant;

(e) "Grant" means the issuance of an Option hereunder to an Optionee
entitling such Optionee to acquire Stock on the terms and conditions set forth
in a Stock Option Agreement to be entered into with the Optionee;

(f) "Option" shall mean the right granted to an Optionee to acquire Stock
of the Company pursuant to the Plan;

(g) "Optionee" shall mean a Plan Participant to whom a Grant hereunder has
been made;

(h) "Plan" shall mean the Innovative Medical Services Consultant and
Advisors Stock Option Plan., the terms of which are herein set forth;

(i) "Plan Participant" shall mean any Employee, Consultant or Advisor which
has been confirmed by the Board as eligible to participate under this Plan.
Executive Officers and Directors are eligible Plan Participants.

(j) "Stock" shall mean the common stock of the Company or, in the event
the outstanding shares of stock are hereafter changed into or exchanged for
shares of different stock or securities of the Company or some other
corporation, such other stock or securities;

(k) "Stock Option Agreement" shall mean the agreement between the Company
and an Optionee under which an Optionee may acquire Stock pursuant to the Plan.

ARTICLE II
THE PLAN

2.1 NAME. The plan shall be known as the "Innovative Medical Services 2002
Non-Qualified Stock Option Plan."

2.2 PURPOSE. The purpose of the Plan is to advance the business and
development of the Company and its shareholders by affording to the Plan
Participants the opportunity to acquire a propriety interest in the Company by
the grant of Options to such persons under the terms herein set forth. By doing
so, the Company seeks to motivate, retain and attract highly competent, highly
motivated Plan Participants to assist the Company in its evolution and ensure
the success of the Company. The Options to be granted hereunder are
non-statutory Options made available to Plan Participants.

2.3 EFFECTIVE DATE. The Plan shall become effective upon its adoption by
the Board of the Company and its approval by the shareholders of the Company.

2.4 TERMINATION DATE. The Plan shall terminate ten (10) years from the
date the Plan is adopted by the Board of the Company and at such time any
Options granted hereunder shall be void and of no further force or effect.

ARTICLE III
PARTICIPANTS

Only Plan Participants shall be eligible to be granted an Option under the
Plan. The Board may grant Options to any Plan Participant in accordance with
such determinations as the Board may, from time to time, in its sole discretion
make.

ARTICLE IV
ADMINISTRATION

4.1 The Plan shall be administered by an Administrative Committee of the
Board of Directors of the Company consisting of a majority of independent
directors. Subject to the express provisions of the Plan, the Administrative
Committee shall have the sole discretion and authority to determine from among
eligible persons those to whom and the time or times at which Options may be
granted and the number of shares of Stock to be subject to each Option. Subject
to the express provisions of the Plan, the Administrative Committee shall also
have complete authority to interpret the Plan, to prescribe, amend and rescind
rules and regulations related to it and to determine the details and provisions
of each Stock Option Agreement and to make all other determinations necessary or
advisable in the administration of the Plan. The Administrative Committee shall
also have the authority to modify outstanding Options and the provisions therein
subject to the agreement of the Optionee.

4.2 RECORDS OF PROCEEDINGS. The Administrative Committee shall maintain
written minutes of its actions which shall be maintained among the records of
the Company.

4.3 COMPANY ASSISTANCE. The Company shall supply full and timely
information to the Board in all matters relating to eligible Optionees, their
status, death, retirement, disability and such other pertinent facts as the
Board may require. The Company shall furnish the Administrative Committee with
such clerical and other assistance as is necessary in the performance of its
duties.

ARTICLE V
SHARES OF STOCK SUBJECT TO THE PLAN

5.1 LIMITATION. The number of shares of Stock which may be issued and sold
hereunder shall not exceed 2,000,000 shares.

5.3 ANTI-DILUTION. In the event the Stock subject to this Plan is changed
into or exchanged for a different number or kind of stock or other securities of
the Company or of another organization by reason of merger, consolidation or
reorganization, recapitalization, reclassification, combination of shares, stock
split or stock dividend;

(a) The aggregate number and kind of shares of Stock subject to the
Plan shall be adjusted appropriately;

(b) The Option price of any outstanding Option issued pursuant to the
Plan shall be adjusted appropriately;

(c) Where dissolution or liquidation of the Company or any merger of
consolidation in which the Company is not a surviving corporation is
involved, the Optionee holding any Option issued pursuant to the Plan shall
have the right immediately prior to such dissolution, liquidation, merger
or combination to exercise the Option, in whole or in part, to the extent
that it shall not have been exercised without regard to any installment
exercise provision.

ARTICLE VI
OPTION PROVISIONS

6.1 OPTIONS. Each Option granted hereunder shall be evidenced by minutes of
a meeting of or the written consent of the Administrative Committee and by a
written Stock Option Agreement dated as of the date of grant and executed by the
Company and the Optionee, which agreement shall set forth such terms and
conditions as may be determined by the Board consistent with the Plan.

6.2 LIMITATIONS.

(a) The maximum number of shares for which an Option or Options may be
granted under the Plan to any one Plan Participant shall be 150,000 in any
twelve month period.

(b) The Options granted hereunder are non-statutory Options which do not
satisfy the requisites of Section 422 of the Internal Revenue Code, as amended.

6.3 OPTION PRICE. The per share Option price for the stock subject to each
Option shall not be less than the fair market value per share on the effective
date of grant or such other price as the Administrative Committee may determine.

6.5 OPTION EXERCISE.

(a) Options granted hereunder may not be exercised until and unless the
Optionee shall meet the conditions precedent established by the Administrative
Committee for the Plan Participant.

(b) Options may be exercised by the Plan Participant in whole or in part.
Optionees may exercise their Option at any time by giving written notice to the
Company with respect to the specified option, delivered to the Company at its
principal office together with payment in full to the Company of the amount of
the Option price for the number of shares with respect to which the Option(s)
are then being exercised. In the alternative, provided that at the time of
exercise the Company's common stock is publicly traded with an average daily
trading volume of 5,000 shares and closing prices quoted daily for at least the
past thirty trading days, (a "Net Exercise"), payment of the exercise price per
share may be made by delivery of this Option with a Net Exercise Notice in the
form of which is attached hereto as Exhibit B. In the event of a Net Exercise,
the Optionee shall exchange the Option for such number of shares underlying the
Option determined by multiplying such number of shares by a fraction, the
numerator of which shall be the difference between the average closing sale
price per share for the five trading days prior to the date of the Net Exercise
Notice and the exercise price per share, and the denominator of which shall be
the average closing sale price per share for the five trading days prior to the
date of the Net Exercise Notice.

6.6 NON-TRANSFERABILITY OF OPTION. No Option or any right relative thereto
shall be transferred by an Optionee otherwise than as permitted under the
instructions to by will or by the laws of descent and distribution. During the
lifetime of an Optionee, the Option shall be exercisable only by him or her.

6.7 EFFECT OF DEATH OR OTHER TERMINATION OF EMPLOYMENT OR DIRECTORSHIP.

(a) If the Plan Participant's relationship with the Company shall be
terminated, with or without cause, or by the act of the Plan Participant, the
Optionee's right to exercise such Options shall terminate and all rights
thereunder shall cease three (3) days after the date on which such person's
association is terminated, unless this provision is modified by the Option
Agreement for the Options. Provided however, that if the Optionee shall die or
become permanently and totally disabled while employed by or serving as a Plan
Participant, as solely determined by the Board in accordance with its policies,
then either his or her personal representatives or a transferee under the
Optionee's will or pursuant to the laws of descent and distribution, or the
disabled Optionee may exercise the Option in full six (6) months from the date
of such death or disability unless this provision is modified by the Option
Agreement for the Options. In the case of an Optionee's retirement in accordance
with the Company's established retirement policy, such Option shall remain
exercisable by the Optionee for three (3) days from the date of such retirement
unless this provision is modified by the Option Agreement for the Options.

(b) No transfer of an Option by the Optionee by will or the laws of
descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with a written notice thereof and an
authenticated copy of the will and/or such other evidence as the Committee may
deem necessary to establish the validity of the transfer and the acceptance by
the transferee or transferees of the terms and conditions of such Option.

6.8 RIGHTS AS A SHAREHOLDER.

(a) An Optionee or a transferee of an Option shall have no rights as a
shareholder of the Company with respect to any shares subject to any unexercised
Options.

(b) Unless this provision is modified by the Option Agreement for the
Options, ownership rights shall vest with the Plan Participant upon exercise.

6.9 REQUIRED FILINGS. An Optionee to whom an Option is granted under the
terms of the Plan is required to file appropriate reports with the Internal
Revenue Service. As a condition of the receipt of an Option hereunder, Optionees
shall agree to make necessary filings with the Internal Revenue Service. The
Company shall assist and cooperate with Optionees by providing the necessary
information required for compliance of this condition.

ARTICLE VII
STOCK CERTIFICATES

7.1 ISSUANCE. The Company shall issue and deliver any certificate for
shares of Stock purchased upon the exercise of any Option granted hereunder.

7.2 TRANSFER RESTRICTIONS. Unless a registration statement covering the
shares underlying the Options is in effect at the time of execution of an Option
Agreement, the Board shall instruct the Secretary of the Corporation to impose
restrictions of the subsequent transferability of Stock issued pursuant to
Options to be granted hereunder. The Stock of the Company to be issued pursuant
to the exercise of an Option shall have such restrictions prominently displayed
as a legend on such certificate.

ARTICLE VIII
TERMINATION, AMENDMENT, OR MODIFICATION OF THE PLAN

The Board may at any time terminate the plan, and may at any time and from
time to time and in any respect amend or modify the Plan. Provided, however, if
the Plan has been submitted to and approved by the shareholders of the Company
no such action by the Board may be taken without approval of the majority of the
shareholders of the Company which: (a) increases the total number of shares of
Stock subject to the Plan, except as contemplated in Section 5.1 hereof; (b)
changes the manner of determining the Option price; or (c) withdraws the
administration of the Plan from the Administrative Committee.

ARTICLE IX
EMPLOYMENT

9.1 EMPLOYMENT. Nothing in the Plan or any Option granted hereunder or in
any Stock Option Agreement shall confer upon a Plan Participant receiving such
Option or Stock Option Agreement the status as an employee of the Company.
Further, nothing in the Plan or any Option granted hereunder shall in any manner
create in any Optionee the right to continue their relationship with the Company
or create any vested interest in such relationship, including employment.

9.2 OTHER COMPENSATION PLANS. The adoption of the Plan shall not effect
any other stock option, incentive, or other compensation plan in effect for the
Company or any of its subsidiaries, nor shall the Plan preclude the Company or
any subsidiary thereof from establishing any other forms of incentive or other
compensation for employees or non-employee Directors of the Company, or any
subsidiary thereof.

9.3 PLAN EFFECT. The Plan shall be binding upon the successors and assigns
of the Company.

9.4 TENSE. When used herein nouns in the singular shall include the plural.

9.5 HEADINGS OF SECTIONS ARE NOT PART OF THE PLAN. Headings of articles and
sections hereof are inserted for convenience and reference and constitute no
part of the Plan.

INNOVATIVE MEDICAL SERVICES

By: /s/ MICHAEL L. KRALL
--------------------
Michael L. Krall, President
March 11, 2002

By: /s/ DENNIS ATCHLEY
-------------------
Dennis Atchley, Secretary
March 11, 2002