DURLAND - SEC Archive

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Legal Proceedings

Reitz Litigation: A legal proceeding in the Circuit Court of Pinellas County,
Florida was filed by Zedburn Corporation, against us for breach of contract in
October 1997. The breach of contract alleged was for payment of fees for Mr.
David Reitz's and Mr. Steven Durland's services of arranging a public offering
of our common stock. We has filed counterclaims based upon the Racketeer
Influenced and Corrupt Organization (RICO) Act against David Reitz, Zedburn
Corporation, Capital Development Group, Steven Durland and other defendants. It
is our position that Mr. Reitz and others perpetrated a scheme to defraud us of
cash fees and securities in connection with purported services of arranging a
public offering of our common stock. In October 1997, Mr. Reitz and Zedburn
filed for protection under the Federal bankruptcy laws. In August 1998, Mr.
Reitz voluntarily dismissed his bankruptcy and as a result thereof we named Mr.
Reitz as a defendant to our counterclaims.

We believe that the defendants had perpetrated similar schemes against other
parties. We also believe it has substantially completed discovery and complied
compelling evidence to prove its claims.

Several of the Defendants filed Motions to Dismiss our counterclaims. A hearing
on the Motions was held on October 1, 1998. Certain of the Motions were granted
pending our amendment of its Counterclaim. We amended our Counterclaims in
accordance with the judge's rulings. Certain Defendants filed second Motions to
Dismiss the amended Counterclaims. A hearing on these latest motions was held in
March 1999, before a different judge than the judge who ruled on the first
motions. On April 20,1999, Orders were entered granting the Defendants' Motions
to Dismiss. However these Orders did not state the basis for the Orders, nor was
our legal counsel provided notice of the Orders or a copy of the new judge's
correspondence offering a "formal ruling" upon request. In May 1999 we filed an
Appeal of the Orders and Motions for Reconsideration based upon inconsistency of
the Orders with the previous judge's rulings and the lack of notice to us. We
believe that our Appeal and Motions have merit and will be granted. In any event
we intend to pursue a trial as soon as possible. As of September 6, 2001 no
ruling has been received on our Appeal.

We has neither accrued a liability in its financial statements regarding this
litigation nor disclosed the matter in the footnotes thereof. We have not done
so because we do not believe there is any merit to Mr. Reitz's claims and that
the likelihood that we will realize a loss from these matters is believed
remote. In addition, we believe that in the unlikely event that we settle, the
amount of any such settlement would not be material to our financial statements.


Fresh Water Systems Litigation: We filed an action against John Woodard, our
former Vice President of Sales, in Superior Court in the State of California in
April 2000. We alleged Mr. Woodard violated his non-competition/non-disclosure
agreement and provided proprietary information, including information regarding
our Fillmaster line of products and Fillmaster customer base, to Fresh Water
Systems, Inc. We alleged the misappropriation of customer lists, equipment
service and maintenance schedules, equipment data, business plans and research
and development secrets. We are seeking monetary damages and injunctive relief.

We have also filed an action against Fresh Water Systems, Inc., Steven Norvell,
Brian Folk and Eric Norvell in Superior Court in the State of California. The
action was filed in August 2000 and amended in October 2000. We allege Fresh
Water Systems and it's officers and directors misappropriated our trade secrets
obtained from our 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 with regard to the Fillmaster line of products and
Fillmaster customer base. We are seeking monetary damages and injunctive relief.

NVID Litigation: 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 seeks a
judicial declaration that the Manufacturing, Licensing and Distribution
Agreement, dated March 26, 2000 between us, NVID, International, Inc. and
ETI-H2O does not constitute a binding contract and seeks unspecified damages.
The lawsuit does 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.

On May 17, 2001, we and ETI-H2O removed NVID'S declaratory judgment action from
Pinellas County Circuit Court to the United States District Court for the Middle
District of Florida. We and ETI-H2O has filed a Motion To Dismiss, which is
currently pending.

On May 7, 2001, we and EIT-H2O filed a separate action, a Petition to Compel
Arbitration, in the United States District Court for the Southern District of
California based on arbitration clauses contained in the March 26, 2000 and
November 24, 1999 agreements. Contemporaneously with filing the Petition, we and
ETI-H2O filed a demand for arbitration against NVID, International, Inc. with
the American Arbitration Association ("AAA") in San Diego, California. NVID,
International, Inc. has notified AAA that it objects to the arbitration demand.
The Company's Petition to compel Arbitration was granted in July 2001.