UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-K
(Mark One)
| x | Annual report pursuant
to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the fiscal year ended July 31, 2015 |
OR
| ¨ | Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____________________ to ____________________ |
Commission File Number 000-13176
|
| NON-INVASIVE MONITORING SYSTEMS, INC. |
| |
(Exact name of registrant as specified
in its charter) |
| Florida |
|
59-2007840 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
| 4400 Biscayne Blvd., Suite 180, Miami, Florida, 33137 |
(Address of principal executive offices) (Zip Code)
|
Registrant’s telephone number, including area code: (305) 575-4200
|
Securities registered pursuant to Section 12(b) of the Exchange Act: None
|
Securities registered pursuant to Section 12(g) of the Exchange Act:
|
| Common stock, $0.01 par value per share |
| (Title of Class) |
Indicate by check mark
whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
Indicate by check mark whether the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes ¨ No x
Indicate by check mark whether the registrant
(1) has filed all reports required 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 the filing requirements for
the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 month (or for such shorter
period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer ¨ Accelerated
filer ¨ Non-accelerated filer ¨ Smaller
reporting company x
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
The aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity,
as of September 25, 2015 was: $9.2 million.
As of October 17, 2015 there were 79,007,423
shares of common stock, $0.01 par value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
Non-Invasive
Monitoring Systems, INC.
TABLE OF
CONTENTS FOR FORM 10-K
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This Annual Report
on Form 10-K contains, in addition to historical information, certain forward-looking statements about our expectations, beliefs
or intentions regarding, among other things, our product development and commercialization efforts, business, financial condition,
results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements
do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected
events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that
have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results
to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause
our actual activities or results to differ materially from the activities and results described in forward-looking statements.
These factors include those set forth below as well as those contained in “Item 1A - Risk Factors” of this Annual
Report on Form 10-K and our other filings with the Securities and Exchange Commission (“SEC”). We do not undertake
any obligation to update forward-looking statements, except as required by applicable law. These forward-looking statements reflect
our views only as of the date they are made with respect to future events and financial performance.
Risks and uncertainties,
the occurrence of which could adversely affect our business, include the following:
| · | We
have a history of operating losses, we do not expect to become profitable in the near
future and absent a significant increase in revenue or additional equity or debt financing,
we may be unable to continue as a going concern. |
| · | We
will require additional funding, which may not be available to us on acceptable terms,
or at all. |
| · | We
terminated the Product and Supply Agreement with Sing Lin and may potentially be obligated
to pay amounts under the agreement. |
| · | We
rely on third parties to manufacture and supply our products, and we presently have no
agreement with any third party to manufacture and supply our products. |
| · | The
continued worldwide economic crisis and concurrent market instability may materially
and adversely affect the demand for our products, as well as our ability to obtain credit
or secure funds through sales of our stock, which may materially and adversely affect
our business, financial condition and ability to fund our operations. |
| · | Healthcare
policy changes, including reforms to the U.S. healthcare system, may have a material
adverse effect on us. |
| · | Our
Exer-Rest device does not have a unique Medicare Reimbursement CPT Code. |
| · | The
terms of clearances or approvals and ongoing regulation of our products may limit how
we manufacture and market our products, which could materially impair our ability to
generate anticipated revenues. |
| · | Our
competitors may develop and market products that are more effective, safer or less expensive
than our products, negatively impacting our commercial opportunities. |
| · | If
we are unable to obtain and enforce patent protection for our products, our business
could be materially harmed. |
| · | If
we are unable to protect the confidentiality of our proprietary information and know-how,
the value of our technology and products could be adversely affected. |
| · | Our
commercial success depends significantly on our ability to operate without infringing
the patents and other proprietary rights of third parties. |
| · | If
we become involved in patent litigation or other proceedings related to a determination
of rights, we could incur substantial costs and expenses, substantial liability for damages
or be required to stop our product development and commercialization efforts. |
| · | Failure
to obtain regulatory approval outside the United States will prevent us from marketing
our products abroad. |
| · | Non-U.S.
governments often impose strict price controls, which may adversely affect our future
profitability. |
| · | Our
business is subject to economic, political, regulatory and other risks associated with
international operations. |
| · | We
do not anticipate paying dividends on our common stock in the foreseeable future. |
| · | Because
our common stock is a “penny stock,” it may be more difficult for investors
to sell shares of our Common Stock, and the market price of our common stock may be adversely
affected. |
| · | Our
stock price has been volatile and there may not be an active, liquid trading market for
our common stock. |
| · | Our
quarterly results of operations will fluctuate, and these fluctuations could cause our
stock price to decline. |
| · | Shareholders
may experience dilution of ownership interests because of the future issuance of additional
shares of our common stock and our preferred stock. |
* * * * *
PART
I
General
Non-Invasive Monitoring
Systems, Inc. (together with its consolidated subsidiaries, the “Company,” “NIMS,” “we,” “us”
or “our”) was incorporated under the laws of the State of Florida on July 16, 1980. The Company’s offices are
located at 4400 Biscayne Boulevard, Miami, Florida, 33137 and its telephone number is (305) 575-4200. The Company’s
primary business is the research, development, manufacture and marketing of a line of motorized, non-invasive, whole body, periodic
acceleration platforms, which are intended as aids to increase local circulation and temporary relief of minor aches and pains,
produce local muscle relaxation and reduce morning stiffness. Our current products are derivatives of our original acceleration
platform, the AT-101 (described below), and are intended for use in homes, wellness and fitness centers, healthcare providers
offices and clinics, nursing homes, assisted living facilities, sports facilities and hospitals.
Company Overview
Prior to 2002, our
primary business was the development of computer-assisted, non-invasive diagnostic monitoring devices and related software designed
to detect abnormal respiratory, cardiac and other medical conditions from sensors placed externally on the body’s surface.
We assigned our patents for these ambulatory monitoring devices in 1999 to the SensorMedics Division of ViaSys (which is now a
unit of CareFusion Corporation (“SensorMedics”), and to privately-held VivoMetrics, Inc. (“VivoMetrics”),
both of which are required to pay us royalties on sales of these products. SensorMedics indicated they will discontinue licensed
product sales after current inventory is depleted. We believe SensorMedics inventory is depleted and, therefore, do not expect
any further royalty revenue from SensorMedics. VivoMetrics ceased operations in July 2009 and filed for Chapter 11 bankruptcy
protection in October 2009. Pursuant to VivoMetrics’ approved bankruptcy plan of reorganization, our license with VivoMetrics
was assigned to another company; however, there can be no assurance as to the future amount of royalty revenue, if any, that we
may derive from this license or from our existing license with SensorMedics. We periodically contact the current owner of the
license for progress updates.
In 2002, we began
focusing on the research, development, manufacturing, marketing and sales of non-invasive, motorized, whole body periodic acceleration
(“WBPA”) platforms. These therapeutic acceleration platforms are intended as aids to temporarily increase local circulation
for temporary relief of minor aches and pains, produce local muscle relaxation and reduce morning stiffness. Our first such platform,
the AT-101, was initially registered with the United States Food and Drug Administration (the “FDA”) as a Class 1
(exempt) powered exercise device and was sold to physicians and their patients. In January 2005, the FDA disagreed with our device
classification, and requested that we cease commercial sales and marketing of the AT-101 until we received clearance from the
FDA to market the device following submission of a 510(k) application incorporating appropriate clinical trial data. Accordingly,
we ceased our commercial sales and marketing of therapeutic platforms in 2005, but continued to receive royalty revenue from sales
of diagnostic monitoring hardware and software by SensorMedics and VivoMetrics during that time.
In January 2005,
we began development of a less costly and more efficient second generation version of the AT-101, the Exer-Rest®
(now designated the Exer-Rest AT). In January 2008, we received ISO 13485 certification for Canada, the United Kingdom and Europe
from SGS United Kingdom Ltd., the world’s leading verification and certification body. ISO 13485 certification is recognized
and accepted worldwide as a sign of design and manufacturing quality for medical devices. In addition to our ISO certification,
the Exer-Rest AT acceleration therapeutic platform (Class IIa) was awarded CE0120 certification, which requires several safety-related
conformity tests, including clinical assessment for safety and effectiveness. The CE0120 certification is often referred to as
a “passport” that allows manufacturers from anywhere in the world to sell their goods throughout the European market,
as well as in many other countries. Prior to obtaining FDA registration for the sale of our therapeutic acceleration platforms
in the United States, we marketed and sold the Exer-Rest AT platforms in the United Kingdom, Canada, Europe, India and Latin America.
We entered into a
product development and supply agreement with Sing Lin Technology Co., Ltd. (“Sing Lin”) of Taichung, Taiwan on September
4, 2007. Under this agreement, Sing Lin began manufacturing the third generation versions of our patented Exer-Rest motorized
platforms (designated the Exer-Rest AT3800 and the Exer-Rest AT4700). We filed a 510(k) premarket notification submission with
the FDA in October 2008 for approval to market the Exer-Rest line of platforms in the United States. The submission included 23
investigational and clinical studies on the vasodilatation properties of WBPA, as well as a controlled, four week clinical trial
in a group of patients with chronic aches and pains carried out at the Center of Clinical Epidemiology and Biostatistics at the
University of Pennsylvania Medical School. The submission supported Exer-Rest safety and efficacy for the intended uses
as an aid to temporarily increase local circulation, to provide temporary relief of minor aches and pains and to provide local
muscle relaxation. The FDA informed us in January 2009 that the full Exer-Rest line of products would be registered as Class I
(Exempt) Medical Devices as described in the Company’s 510(k) premarket notification submission, at which time we commenced
marketing the Exer-Rest in the United States. In June 2009, the FDA notified us that the additional intended use of the Exer-Rest
as an aid to reduce morning stiffness would be added to the Exer-Rest’s FDA registration. We market and sell our Exer-Rest
devices in the United States, Canada, the UK, Europe, India, Mexico, the Middle East, the Far East and Latin America. Prior to
the termination of our development and supply agreement with them, Sing Lin marketed and sold the Exer-Rest exclusively in certain
Asian markets.
Market Opportunities
More than thirty
peer reviewed scientific publications attest to the benefits of WBPA in animal and human research investigations. According to
those studies, the application of this WBPA technology provides objective benefits in patients with angina pectoris and increases
the blood supply to the heart muscle in both healthy individuals and patients with heart disease. These findings are not claimed
as an intended use of the device for marketing purposes, but demonstrate a potential mechanism for its benefits. We believe the
market for our products is driven by, among other factors:
| · | the
increasing number of elderly persons reporting chronic ailments; |
| · | an
increased awareness of the benefits of exercise, particularly as a form of prevention; |
| · | an
increasing portion of the population that is incapable of performing traditional exercise;
and |
| · | the
expanding body of research connecting the body’s reduction of inflammation and
improved transmission of neural impulses. |
Our products are
designed for use by people who are unable or unwilling to exercise or for whom exercise is contraindicated. We market the Exer-Rest
line of platforms for the intended uses of temporarily increasing local circulation, temporarily relieving minor aches and pains,
providing local muscle relaxation and as an aid to reduce morning stiffness. These symptoms are frequently reported by individuals
with chronic cardiovascular, neurological or musculoskeletal conditions, although we do not claim that the Exer-Rest is intended
to treat these conditions.
Products
Whole Body Periodic Acceleration (“WBPA”) Therapeutic
Devices
The original AT-101
was a comfortable gurney-styled device that provided movement of a platform repetitively in a head-to-foot motion at a rapid pace.
Sales of the AT-101 commenced in October 2002 in Japan and in February 2003 in the United States. QTM Incorporated (“QTM”),
an FDA registered manufacturer located in Oldsmar, Florida, manufactured the device, which was built in accordance with ISO and
current Good Manufacturing Practices. As discussed above, we ceased manufacturing and selling the AT-101 in the United States
in January 2005 as we began development of the Exer-Rest AT. We continued selling our existing inventory of AT-101 devices overseas
until the Exer-Rest AT became available in October 2007, at which time we discontinued marketing of the AT-101.
The Exer-Rest AT
is based upon the design and concept of the AT-101, but has the dimensions and appearance of a commercial extra long twin bed.
The Exer-Rest AT, which was also manufactured by QTM until we stopped production in July 2009, weighs about half as much as the
AT-101, has a much more efficient and less costly drive mechanism, has a much lower selling price than did the AT-101 and is designed
such that the user can utilize and operate it without assistance. The wired hand held controller provides digital values for speed,
travel and time, rather than analog values for speed and arbitrary force values as in the AT-101. Sales of the Exer-Rest AT began
outside the United States in October 2007 and in the United States in February 2009. We discontinued manufacturing of the Exer-Rest
AT in July 2009, and we expect to utilize our remaining inventory of these units primarily for research purposes.
The Exer-Rest AT3800
and Exer-Rest AT4700, which were manufactured for us by Sing Lin prior to the termination of our agreement with them, are next
generation versions of the Exer-Rest AT and further advance the acceleration therapeutic platform technology. The AT3800 (38”
wide) and AT4700 (47” wide) models combine improved drive technology for quieter operation, a more comfortable “memory-foam”
mattress, more convenient operation with a multi-function wireless remote and a more streamlined look to improve the WBPA experience.
Sales of the Exer-Rest AT3800 and Exer-Rest AT4700 platforms began outside the United States in October 2008, and U.S. sales commenced
in February 2009.
LifeShirt®
The
LifeShirt is a patented Wearable Physiological Computer that incorporates transducers, electrodes and sensors into a sleeveless
garment. These sensors transmit vital and physiological signs to a miniaturized, battery-powered, electronic module which saves
the raw waveforms and digital data to the compact flash memory of a Personal Digital Assistant (“PDA”) attached to
the LifeShirt. Users of the LifeShirt can enter symptoms (with intensity), mood and medication information directly into the PDA
for integration with the physiologic information collected by the LifeShirt garment. The flash memory can then be removed from
the LifeShirt and the data uploaded and converted into minute-by-minute median trends of more than 30 physical and emotional signs
of health and disease. Vital and physiological signs can therefore be obtained non-invasively, continuously, cheaply and reliably
with the comfortably worn LifeShirt garment system while resting, exercising, working or sleeping. The LifeShirt was sold exclusively
by VivoMetrics, but has not been marketed since VivoMetrics ceased operations in July 2009. Pursuant to VivoMetrics’ approved
bankruptcy plan of reorganization, our license with VivoMetrics was assigned to another company; however, there can be no assurance
as to the future amount of LifeShirt sales, if any, that may result from this license. We periodically contact the current owner
of the license for progress updates.
Intellectual Property
We currently hold
five United States patents with respect to both overall design and specific features of our present and proposed products, with
corresponding foreign patents issued or pending in multiple jurisdictions. No assurance can be given as to the scope of protection
afforded by any patent issued, whether patents will be issued with respect to any pending or future patent application, that patents
issued will not be designed around, infringed or successfully challenged by others, that we will have sufficient resources to
enforce any proprietary protection afforded by our patents or that our technology will not infringe on patents held by others.
We believe that in the event our patent protection is materially impaired, a material adverse effect on our present and proposed
business could result. The following table lists our patents, along with their expiration dates (each of which is 20 years from
the filing date):
| US Patent |
|
Inventors |
|
Title |
|
Expiration Date |
| 7,404,221 |
|
Sackner, Marvin A. |
|
Reciprocating movement platform for the external addition of pulses to the fluid channels of a subject |
|
August 4, 2028 |
| |
|
|
|
|
|
|
| 7,228,576 |
|
Inman, D. Michael;
Sackner, Marvin A. |
|
Reciprocating movement platform for the addition of pulses of the fluid channels of a subject |
|
June 12, 2027 |
| |
|
|
|
|
|
|
| 7,111,346 |
|
Inman, D. Michael;
Sackner, Marvin A. |
|
Reciprocating movement platform for the addition of pulses of the fluid channels of a subject |
|
May 15, 2023 |
| |
|
|
|
|
|
|
| 7,090,648 |
|
Sackner, Marvin A.;
Inman, D. Michael |
|
External addition of pulses to fluid channels of body to release or suppress endothelial mediators and to determine effectiveness
of such intervention |
|
September 28, 2021 |
| |
|
|
|
|
|
|
| 6,155,976 |
|
Sackner, Marvin A.;
Inman, D. Michael;
Meichner, William J. |
|
Reciprocating movement platform for shifting subject to and fro in headwards-footwards direction |
|
May 24, 2019 |
With respect to our
present and potential product line, we have six trademarks and trade names which are registered in the United States and in several
foreign countries, including our principal trademark, “Exer-Rest”.
Research and Development
Our strategy is to
develop a portfolio of non-invasive products through a combination of internal development and collaborations with external partners.
We have also sponsored or monitored research investigating the effectiveness of WBPA in chronic heart failure, mild traumatic
brain injury, acute myocardial infarction, Parkinson’s disease, peripheral vascular disease and lymphedema.
Competition
We compete with several
entities that market, sell or distribute therapeutic devices that are registered with the FDA as powered exercise devices, or
therapeutic vibrators. These include Power Plate of North America, Vibraflex and CERAGEM International, Inc., all of which
are larger than we are, have longer operating histories and have financial and personnel resources far greater than ours. We believe
that we essentially compete with such competitors based upon the uniqueness of our products and our product differentiation on
the basis of intended uses and operation.
Government Regulation of our Medical
Device Development and Distribution Activities
Healthcare is heavily
regulated by the federal government and by state and local governments. The federal laws and regulations affecting healthcare
change constantly thereby increasing the uncertainty and risk associated with any healthcare-related venture.
The federal government
regulates healthcare through various agencies, including but not limited to the following: (i) the FDA which administers the federal
Food, Drug, and Cosmetic Act (“FD&C Act”), as well as other relevant laws; (ii) the Centers for Medicare &
Medicaid Services (“CMS”) which administers the Medicare and Medicaid programs; (iii) the Office of Inspector General
(“OIG”), which enforces various laws aimed at curtailing fraudulent or abusive practices including, by way of example,
the Anti-Kickback statute, the Physician Self Referral Law, commonly referred to as the Stark Law, the Anti-Inducement Law, the
Civil Money Penalty Law, and the laws that authorize the OIG to exclude health care providers and others from participating in
federal healthcare programs; and (iv) the Office of Civil Rights which administers the privacy aspects of the Health Insurance
Portability and Accountability Act of 1996 (“HIPAA”). All of the aforementioned are agencies within the Department
of Health and Human Services (“HHS”). Healthcare is also provided or regulated, as the case may be, by the Department
of Defense through its TriCare program, the Department of Veterans Affairs, especially through the Veterans Health Care Act of
1992, Public Health Service within HHS under the Public Health Service Act, the Department of Justice through the Federal False
Claims Act and various criminal statutes, and state governments under the Medicaid program and their internal laws regulating
all healthcare activities.
FDA Regulation of the Design,
Manufacture and Distribution of Medical Devices
The testing, manufacture,
distribution, advertising and marketing of medical devices are subject to extensive regulation by federal, state and local governmental
authorities in the United States, including the FDA, and by similar agencies in other countries. Any product that we develop must
receive all relevant regulatory clearances or approvals, as the case may be, before it may be marketed in a particular country.
Under United States law, a “medical device” (“device”) is an article, which, among other things, is intended
for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment or prevention of disease, in man
or other animals. See FD&C Act § 201(h). Substantially all of our products are classified as medical devices and subject
to regulation by numerous agencies and legislative bodies, including the FDA and its foreign counterparts.
As a company that
manufactures medical devices, we are required to register with the FDA. As a result, we and any entity that manufactures products
on our behalf will be subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation
requirements and other regulations. In the European Community, we will be required to maintain certain International Organization
for Standardization (“ISO”) certifications in order to sell products and we or our manufacturers undergo periodic
inspections by notified bodies to obtain and maintain these certifications. These regulations require us or our manufacturers
to manufacture products and maintain documents in a prescribed manner with respect to design, manufacturing, testing and control
activities. Further, we are required to comply with various FDA and other agency requirements for labeling and promotion. The
Medical Device Reporting regulations require that we provide information to the FDA whenever there is evidence to reasonably suggest
that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute
to a death or serious injury. In addition, the FDA prohibits us from promoting a medical device for unapproved indications.
The FDA in the course
of enforcing the FD&C Act may subject a company to various sanctions for violating FDA regulations or provisions of the Act,
including requiring recalls, issuing Warning Letters, seeking to impose civil money penalties, seizing devices that the agency
believes are non-compliant, seeking to enjoin distribution of a specific type of device or other product, seeking to revoke a
clearance or approval, seeking disgorgement of profits and seeking to criminally prosecute a company and its officers and other
responsible parties.
In March 2011, we
received a warning letter from the FDA regarding our promotion of the Exer-Rest. We addressed the FDA’s concerns by revising
our marketing material and website content. On October 28, 2011, we received a FDA Form 483 with three observations related to
our marketing material and certain protocols. As a result of those observations, the FDA recommended we voluntarily recall our
marketing materials from the US market. We have complied with the FDA recommendation and in August 2012, the FDA notified NIMS
that they have reviewed our actions and concluded that the voluntary recall has been completed.
Third-Party Payments, Especially
payments by Medicare and Medicaid
| A. | Medicare and
Medicaid Coverage |
Because of the projected
patient population that could potentially benefit from our devices is elderly, Medicare could be a potential source of reimbursement.
Medicare is a federal program that provides certain hospital and medical insurance benefits to persons age 65 and over, certain
disabled persons, persons with end-stage renal disease and those suffering from Lou Gehrig’s Disease. In contrast, Medicaid
is a medical assistance program jointly funded by federal and state governments and administered by each state pursuant to which
benefits are available to certain indigent patients. The Medicare and Medicaid statutory framework is subject to administrative
rulings, interpretations and discretion that affect the amount and timing of reimbursement made under Medicare and Medicaid.
Medicare reimburses
for medical devices in a variety of ways depending on where and how the device is used. However, Medicare only provides reimbursement
if CMS, either directly or through one of its contracts, determines that the device should be covered and that the use of the
device is consistent with the coverage criteria. A coverage determination can be made at the local level (“Local Coverage
Determination”) by the Medicare administrative contractor (formerly called carriers and fiscal intermediaries), a private
contractor that processes and pays claims on behalf of CMS for the geographic area where the services were rendered, or at the
national level by CMS through a National Coverage Determination. There are statutory provisions intended to facilitate coverage
determinations for new technologies under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”)
§§ 731 and 942. Coverage presupposes that the device has been cleared or approved by the FDA and, further, that the
coverage will be no broader than the FDA approved intended uses of the device (i.e., the device’s label) as cleared or approved
by the FDA, but coverage can be narrower. In that regard, a narrow Medicare coverage determination may undermine the commercial
viability of a device. It is unclear whether the therapies and treatments that would use our primary products would be covered
under Local or National Coverage Determinations.
Seeking to modify
a coverage determination, whether local or national, is a time-consuming, expensive and highly uncertain proposition, especially
for a new technology, and inconsistent local determinations are possible. On average, according to an industry report, Medicare
coverage determinations for medical devices lag 15 months to five years or more behind FDA approval for respective devices. Moreover,
Medicaid programs and private insurers are frequently influenced by Medicare coverage determinations. Our inability to obtain
a favorable coverage determination may adversely affect our ability to market our products and thus, the commercial viability
of our products.
We do not have Medicare
or any other third-party reimbursement programs specific for our product. Even if Medicare and other third-party payor programs
cover the procedures that use our devices, the level of reimbursement may not be sufficient for commercial success. The Medicare
reimbursement levels for covered procedures are determined annually through three sets of rulemakings, one for outpatient departments
of hospitals under the Outpatient Prospective Payment System (“OPPS”), another for the inpatient departments of hospitals
under the Inpatient Perspective Payment System (“IPPS”), and a third for procedures in physicians’ offices under
the Resource-Based Relative Value Scales (“RBRVS”) (the Medicare fee schedule). If the use of a device is covered
by Medicare, a physician’s ability to bill a Medicare patient more than the Medicare allowable amount is significantly constrained
by the rules limiting balance billing. For covered services in a physician’s office, Medicare normally pays 80% of the Medicare
allowable amount and the beneficiary pays the remaining 20%, assuming that the beneficiary has met his or her annual Medicare
deductible and is not also a Medicaid beneficiary. For services performed in an outpatient department of a hospital, the patient’s
co-payment under Medicare may exceed 20%, depending on the service and depending on whether CMS has set the co-payment at greater
than 20%. If a device is used as part of an in-patient procedure, the hospital where the procedure is performed is reimbursed
under the IPPS. In general, IPPS provides a single payment to the hospital based on the diagnosis at discharge and devices are
not separately reimbursed under IPPS.
Usually, Medicaid
pays less than Medicare, assuming that the state covers the service. In addition, private payors, including managed care payors,
increasingly are demanding discounted fee structures and the assumption by healthcare providers of all or a portion of the financial
risk. Efforts to impose greater discounts and more stringent cost controls upon healthcare providers by private and public payors
are expected to continue.
Significant limits
on the scope of services covered or on reimbursement rates and fees on those services that are covered could have a material adverse
effect on our ability to commercialize our devices and therefore, on our liquidity and financial condition.
State and Federal Security
and Privacy Regulations
The privacy and security
regulations under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology
for Economic and Clinical Health Act of 2009 (the “HITECH Act” and collectively, the “HIPAA”), establish
comprehensive federal standards with respect to the uses and disclosures of protected health information, or PHI, by health plans
and health care providers, in addition to setting standards to protect the confidentiality, integrity and availability of electronic
PHI. The regulations establish a complex regulatory framework on a variety of subjects, including:
| · | the
circumstances under which uses and disclosures of PHI are permitted or required without
a specific authorization by the patient, including but not limited to treatment purposes,
to obtain payments for services and health care operations activities; |
| · | a
patient’s rights to access, amend and receive an accounting of certain disclosures
of PHI; |
| · | the
content of notices of privacy practices for PHI; and |
| · | administrative,
technical and physical safeguards required of entities that use or receive PHI electronically. |
The final “omnibus”
rule implementing the HITECH Act took effect on March 26, 2013. The rule is broad in scope, but certain provisions are particularly
significant in light of our business operations. For example, the final “omnibus” rule implementing the HITECH Act:
| · | Makes
clear that situations involving impermissible access, acquisition, use or disclosure
of protected health information are now presumed to be a breach unless the covered entity
or business associate is able to demonstrate that there is a low probability that the
information has been compromised; |
| · | Defines
the term “business associate” to include subcontractors and agents that receive,
create, maintain or transmit protected health information on behalf of the business associate; |
| · | Establishes
new parameters for covered entities and business associates on uses and disclosures of
PHI for fundraising and marketing; and |
| · | Establishes
clear restrictions on the sale of PHI without patient authorization. |
The privacy and security
regulations provide for significant fines and other penalties for wrongful use or disclosure of PHI, including potential civil
and criminal fines and penalties.
Anti-Kickback Laws, Physician
Self-Referral Laws, False Claims Act, Civil Monetary Penalties
We are also subject
to various federal, state, and international laws pertaining to health care “fraud and abuse,” including anti-kickback
laws and false claims laws. The federal Anti-Kickback Statute prohibits anyone from knowingly and willfully soliciting,
receiving, offering, or paying any remuneration with the intent to refer, or to arrange for the referral or order of, services
or items payable under a federal health care program, including the purchase or prescription of a particular drug or the use of
a service or device. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or
beneficial arrangements, Congress authorized the U.S. Department of Health and Human Services Office of Inspector General, or
OIG, to issue a series of regulations, known as “safe harbors.” These safe harbors set forth requirements that, if
met in their entirety, will assure health care providers and other parties that they will not be prosecuted under the Anti-Kickback
Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean
that it is illegal, or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy
each applicable safe harbor may result in increased scrutiny by government enforcement authorities, such as the OIG.
Violations of the
Anti-Kickback Statute are punishable by the imposition of criminal fines, civil money penalties, treble damages, and/or exclusion
from participation in federal health care programs. Many states have also enacted similar anti-kickback laws. The
Anti-Kickback Statute and similar state laws and regulations are expansive. If the government were to allege against or
convict us of violating these laws, there could be a material adverse effect on our business, results of operations, financial
condition, and our stock price. Even an unsuccessful challenge could cause adverse publicity and be costly to respond to,
which could have a materially adverse effect on our business, results of operations and financial condition. We will consult
counsel concerning the potential application of these and other laws to our business and our sales, marketing and other activities
and will make good faith efforts to comply with them. However, given the broad reach of federal and state anti-kickback
laws and the increasing attention given by law enforcement authorities, we are unable to predict whether any of our activities
will be challenged or deemed to violate these laws.
We are also subject
to the physician self-referral laws, commonly referred to as the Stark law, which is a strict liability statute that generally
prohibits physicians from referring Medicare patients to providers of “designated health services,” with whom the
physician or the physician’s immediate family member has an ownership interest or compensation arrangement, unless an applicable
exception applies. Moreover, many states have adopted or are considering adopting similar laws, some of which extend beyond the
scope of the Stark law to prohibit the payment or receipt of remuneration for the prohibited referral of patients for designated
healthcare services and physician self-referrals, regardless of the source of the payment for the patient’s care. If it
is determined that certain of our practices or operations violate the Stark law or similar statutes, we could become subject to
civil and criminal penalties, including exclusion from the Medicare programs and loss of government reimbursement. The imposition
of any such penalties could harm our business.
Another development
affecting the health care industry is the increased use of the federal civil False Claims Act and, in particular, actions brought
pursuant to the False Claims Act’s “whistleblower” or “qui tam” provisions. The False Claims Act,
as amended by the Fraud Enforcement and Recovery Act of 2009 and the Patient Protection and Affordable Care Act of 2010, imposes
liability on any person or entity who, among other things, knowingly presents, or causes to be presented, a false or fraudulent
claim for payment by a federal health care program. The qui tam provisions of the False Claims Act allow a private individual
to bring actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government,
and to share in any monetary recovery. In recent years, the number of suits brought by private individuals has increased dramatically.
In addition, various states have enacted false claim laws analogous to the False Claims Act. Many of these state laws apply where
a claim is submitted to any third-party payor and not merely a federal health care program. When an entity is determined to have
violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus
civil penalties for each separate false claim. There are many potential bases for liability under the False Claims Act. Liability
arises, primarily, when an entity knowingly submits, or causes another to submit, a false claim for reimbursement to the federal
government. The False Claims Act has been used to assert liability on the basis of inadequate care, kickbacks and other improper
referrals, improper use of Medicare numbers when detailing the provider of services, and allegations as to misrepresentations
with respect to the services rendered. Our activities relating to the sale and marketing of our products may be subject to scrutiny
under these laws. We are unable to predict whether we would be subject to actions under the False Claims Act or a similar state
law, or the impact of such actions. However, the costs of defending such claims, as well as any sanctions imposed, could significantly
adversely affect our financial performance.
Federal law prohibits
any entity from offering or transferring to a Medicare or Medicaid beneficiary any remuneration that the entity knows or should
know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or
Medicaid payable items or services, including waivers of copayments and deductible amounts (or any part thereof) and transfers
of items or services for free or for other than fair market value. Entities found in violation may be liable for civil monetary
penalties of up to $10,000 for each wrongful act. Although we believe that our sales and marketing practices are in material compliance
with all applicable federal and state laws and regulations, relevant regulatory authorities may disagree and violation of these
laws, or, our exclusion from such programs as Medicaid and other governmental programs as a result of a violation of such laws,
could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Manufacturing
We have no commercial
manufacturing facilities, and we do not intend to build commercial manufacturing facilities of our own in the foreseeable future.
All of our manufacturing had been performed by Sing Lin, Genemax Medical Products Industry Corp (“Genemax”), QTM and
other FDA registered contract manufacturers. Genemax manufactured our product under the management of Sing Lin. All of our contract
manufacturers and their manufacturing facilities must comply with FDA regulations, current quality system regulations (referred
to as QSRs), which include current good manufacturing practices, or cGMPs, and to the extent laboratory analysis is involved,
current good laboratory practices, or cGLPs. We notified Sing Lin in June 2010 that we were terminating our manufacturing agreement
with them, which termination was effective September 2010. As a result, we currently have no supplier contracted to manufacture
our products, and Sing Lin and its suppliers are currently in possession of the tooling required to manufacture our products.
If we are unable to enter into a new agreement for the manufacture and supply of our devices, whether with Sing Lin or another
supplier, or if we are not able to timely regain possession or remanufacture the tooling, we may not be able to procure additional
inventory on a timely basis, in the quantities we require or at all. We estimate that our existing inventory of Exer-Rest products
will, at a minimum, be sufficient to meet demand through the end of the 2016 fiscal year.
Sales & Marketing
Our limited sales
efforts are currently focused on hospitals, cardiac rehabilitation clinics, physical therapy centers, senior living communities
and other healthcare providers, as well as their patients, professional athletes and other individuals through our management.
In addition to our limited sales efforts, we continue to explore potential distributor and independent sale representative networks
in the US, Canada and abroad. There can be no assurance that we will be able to enter into additional distribution and representation
agreements on terms acceptable to us or at all, or that our sales and distribution network will generate significant sales.
Employees
The Company currently
does not have full time employees. Our administrative, accounting and legal functions are contracted on a part-time basis.
Our future operating
results may vary substantially from anticipated results due to a number of factors, many of which are beyond our control. The
following discussion highlights some of these factors and the possible impact of these factors on our future results of operations.
If any of the following events actually occurs, our business, financial condition or results of operations could be materially
harmed. In that case, the value of our common stock could decline substantially.
Risks Relating to Our Business.
We have a history of operating losses,
we do not expect to become profitable in the near future and absent a significant increase in revenue or additional equity or
debt financing, we may be unable to continue as a going concern.
Our consolidated
financial statements for the years ended July 31, 2015 and 2014 were prepared on a “going concern” basis; however
substantial doubt exists about our ability to continue as a going concern as a result of recurring losses and an accumulated deficit.
We are not profitable and have been incurring material losses. Our net losses for our fiscal years ended July 31, 2015 and 2014
were $0.4 and $0.4 million respectively. As of July 31, 2015, we had an accumulated deficit of $24.7 million. Although we have
obtained regulatory clearance to market our principal products in the US and abroad, there can be no assurance that our products
will achieve market acceptance. Market acceptance of our products may depend upon, among other things: the timing of market introduction
of competitive products; the safety and efficacy of our products; and the potential advantage or disadvantages of alternative
treatments. If our products fail to achieve market acceptance, we may not be able to generate significant revenues or be profitable.
Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Absent a significant
increase in revenue or additional equity or debt financing, we will be unable to continue as a going concern, and you may lose
all of your investment in us.
We will require additional funding,
which may not be available to us on acceptable terms, or at all.
We will need to raise
additional capital in order for us to continue as a going concern. We have reached our borrowing limit under our existing $1.0
million secured credit facility. In addition, we borrowed $425,000 in promissory notes of $175,000 from Frost Gamma Investments
Trust between September 2011 and August 2015 and $50,000 from an unrelated third party in September 2011, $50,000 from Hsu Gamma
Investments, L.P. in May 2012 and $150,000 from Jane Hsiao, the Company’s Chairman of the Board and Interim Chief Executive
Officer, between February 2013 and February 2015. Until we can generate a sufficient amount of product revenue to finance our
cash requirements, which we may never do, we will need to finance future cash needs primarily through public or private equity
offerings, debt financings or strategic collaborations. We do not know whether additional funding will be available on acceptable
terms, or at all. We cannot assure you that we could obtain such approval. If we are not able to secure additional funding when
needed, we may have to delay, reduce the scope of or eliminate our research and development programs and operations. To the extent
that we raise additional funds by issuing equity securities, our shareholders may experience significant dilution, and debt financing,
if available, may require that we agree to covenants that restrict our operations. To the extent that we raise additional funds
through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our products or grant licenses
on terms that may not be favorable to us.
We terminated the Product and Supply
Agreement with Sing Lin and may potentially be obligated to pay amounts under the agreement.
The now-terminated
product and supply agreement with Sing Lin contained obligations to purchase approximately $2.6 million of Exer-Rest units within
one year of acceptance of the final product, and an additional $4.1 million and $8.8 million of products in the second and third
years following acceptance of the final product, respectively. Under the product and supply agreement, we were required to pay
a portion of the product purchase price at the time production orders were placed, with the balance due upon delivery. Through
July 31, 2015, we paid Sing Lin $1.7 million in connection with orders placed through that date, with the last payment being made
in July 2009. As of the filing date we had not placed orders sufficient to satisfy the first-year or second-year minimum purchase
obligations under the agreement. We notified Sing Lin in June 2010 that we were terminating the agreement effective September
2010, and Sing Lin in July 2010 demanded that we place orders sufficient to fulfill the three year purchase obligations under
the agreement. As of October 23, 2015 Sing Lin has not followed up on its July 2010 demand. There can be no assurance that Sing
Lin will not attempt to enforce its rights under the product and supply agreement, or pursue other available remedies. If Sing
Lin seeks to enforce remedies against us, any such remedies could have a material adverse effect on our business, liquidity and
results of operations.
We rely on third parties to manufacture
and supply our products, and we presently have no agreement with any third party to manufacture and supply our products.
We do not own or
operate manufacturing facilities for clinical or commercial production of our products. We have only have limited experience in
medical device manufacturing, and we lack the resources and the capability to manufacture any of our products on a commercial
scale. We expect to depend on third-party contract manufacturers for the foreseeable future. Our ability to replace an existing
manufacturer may be difficult because the number of potential manufacturers is limited, and the FDA must approve any replacement
manufacturer before it can begin manufacturing our product. It may be difficult or impossible for us to identify and engage a
replacement manufacturer on acceptable terms in a timely manner, or at all.
We entered into an
agreement with Sing Lin to, among other things, manufacture all of our acceleration therapeutic platforms. We notified Sing Lin
in June 2010 that we were terminating the agreement, which termination was effective September 2010. As a result, we do not currently
have a supplier contracted to manufacture our products, and Sing Lin and its suppliers are currently in possession of the tooling
required to manufacture our products. If we are unable to enter into a new agreement for the manufacture and supply of our devices,
whether with Sing Lin or another supplier, or if we are not able to timely regain possession or remanufacture the tooling, we
may not be able to procure additional inventory on a timely basis, in the quantities we require or at all, which would have a
material adverse effect on our business, liquidity and results of operations.
The current worldwide economic condition
and concurrent market instability may materially and adversely affect the demand for our products, as well as our ability to obtain
credit or secure funds through sales of our stock, which may materially and adversely affect our business, financial condition
and ability to fund our operations.
The current worldwide
economic condition may reduce the demand for new and innovative medical devices, resulting in delayed market acceptance of our
products. Such a delay could have a material adverse impact on our business, expected cash flows, results of operations and financial
condition.
Additionally, we
have funded our operations to date primarily through private sales of our common stock and preferred stock and through borrowings
under credit facilities available to us from shareholders and other individuals. The current economic conditions and instability
in the world’s equity and credit markets may materially adversely affect our ability to sell additional shares of our stock
and/or borrow cash. There can be no assurance that we will be able to raise additional working capital on acceptable terms or
at all, which may materially adversely affect our ability to continue our operations.
Medicare legislation
and future legislative or regulatory reform of the health care system may affect our ability to sell our products profitably.
In the United States,
there have been a number of legislative and regulatory initiatives, at both the federal and state government levels, to change
the healthcare system in ways that, if approved, could affect our ability to sell our products and provide our laboratory services
profitably. While many of the proposed policy changes require congressional approval to implement, we cannot assure you
that reimbursement payments under governmental and private third party payor programs will remain at levels comparable to present
levels or will be sufficient to cover the costs allocable to patients eligible for reimbursement under these programs. Any
changes that lower reimbursement rates under Medicare, Medicaid or private payor programs could negatively affect our business.
On March 23, 2010,
President Obama signed into law both the Patient Protection and Affordable Care Act (the “Affordable Care Act”) and
the reconciliation law known as Health Care and Education Affordability Reconciliation Act (the “Reconciliation Act”)
and, combined we refer to both Acts as the “2010 Health Care Reform Legislation.” The Supreme Court of the United
States upheld fundamental aspects of the 2010 Health Care Reform Legislation in June 2012 and again in June 2015. Specifically,
the Supreme Court upheld the individual mandate that included changes regarding the extension of medical benefits to those who
currently lack insurance coverage, and affirmed that subsidies are available to participants enrolled in both state and federally
created health care exchanges. Extending coverage to a large population could substantially change the structure of the
health insurance system and the methodology for reimbursing medical services, drugs and devices. These structural changes could
entail modifications to the existing system of third-party payors and government programs, such as Medicare and Medicaid, the
creation of a government-sponsored healthcare insurance source, or some combination of both, as well as other changes. Additionally,
restructuring the coverage of medical care in the United States could impact the reimbursement for diagnostic tests. If
reimbursement for our diagnostic tests is substantially less than we or our clinical laboratory customers expect, or rebate obligations
associated with them are substantially increased, our business could be materially and adversely impacted.
Beyond coverage and
reimbursement changes, the 2010 Health Care Reform Legislation subjects manufacturers of medical devices to an excise tax
of 2.3% on certain U.S. sales of medical devices in January 2013. This excise tax will likely increase our expenses in the future.
Further, the 2010
Health Care Reform Legislation includes the Physician Payments Sunshine Act, which, in conjunction with its implementing regulations,
requires manufacturers of certain drugs, biologics, and devices that are covered by Medicare and Medicaid to record all transfers
of value to physicians and teaching hospitals starting on August 1, 2013 and to begin reporting the same for public disclosure
to the Centers for Medicare and Medicaid Services by March 31, 2014. Several other states and a number of countries worldwide
have adopted or are considering the adoption of similar transparency laws. The failure to report appropriate data may result
in civil or criminal fines and/or penalties.
Regulations under
the 2010 Health Care Reform Legislation are expected to continue being drafted, released and finalized throughout the next several
years. Pending the promulgation of these regulations, we are unable to fully evaluate the impact of the 2010 Health Care
Reform Legislation.
Our Exer-Rest device
does not have a unique Medicare Reimbursement CPT Code.
The procedures using
our Exer-Rest device technology are new, and the existing Current Procedural Terminology (CPT) codes do not accurately describe
the Whole Body Periodic Acceleration (WBPA) therapy. Medicare and other third-party payors recognize that there may be procedures
performed by physicians or other qualified health care professionals where a number of specific code numbers could be, and have
been, designated for reporting unlisted procedures. We provide a Standard Operating Procedure for the healthcare professional
to submit WBPA therapy as an unlisted procedure using a paper claim submission. However, depending on the Medicare intermediary,
Medicare submissions using unlisted codes may not be reimbursed fully or at all. If Medicare and/or third-party payors elect not
to “cover” WBPA as a qualified unlisted procedure or if a new reimbursement code is not established, it may weaken
demand for our product among healthcare providers, which could have a material adverse effect on the results of our operations
and financial position.
The terms of clearances or approvals
and ongoing regulation of our products may limit how we manufacture and market our products, which could materially impair our
ability to generate anticipated revenues.
Once regulatory clearance
or approval has been granted, the cleared or approved product and its manufacturer are subject to continual review. Any cleared
or approved product may only be promoted for its indicated uses. Accordingly, it is possible that our products may be cleared
or approved for fewer or more limited uses than we request or that clearance or approval may be granted contingent on the performance
of costly post-marketing clinical trials. In addition, if the FDA or other non-U.S. regulatory authorities clear or approve our
products, the labeling, packaging, adverse event reporting, storage, advertising and promotion for the products will be subject
to extensive regulatory requirements. It is possible that the FDA or other non-U.S. regulatory authorities may not approve the
labeling claims necessary or desirable for the successful commercialization of our products. Further, regulatory agencies must
approve our manufacturing facilities before they can be used to manufacture our products, and these facilities are subject to
ongoing regulatory inspection. If we fail to comply with the regulatory requirements of the FDA and other non-U.S. regulatory
authorities, or if previously unknown problems with our products, manufacturers or manufacturing processes are discovered, FDA
may seek to revoke our clearance or clearances, or may hold that a previously exempt device is subject to premarket notification
and clearance and may not be marketed until such clearance issues. We could also be subject to administrative or judicially imposed
sanctions. FDA may also conclude that a previously exempt or cleared device is subject to full FDA approval and that marketing
must cease until the device is approved. FDA approval is time-consuming, extraordinarily expensive and highly uncertain.
In addition, the
FDA and other non-U.S. regulatory authorities may change their policies and additional regulations may be enacted that could prevent
or delay regulatory clearance or approval of our products. We cannot predict the likelihood, nature or extent of government regulation
that may arise from future legislation or administrative action, either in the United States or abroad. If we are not able to
maintain regulatory compliance, we would likely not be permitted to market our products and we may not achieve or sustain profitability.
Our competitors may develop and market
products that are more effective, safer or less expensive than our products, negatively impacting our commercial opportunities.
The life sciences
industry is highly competitive, and we face significant competition from many medical device companies that are researching and
marketing products designed to address the same ailments we are endeavoring to address. The medical devices that we have developed
or are developing will compete with other medical devices that currently exist or are being developed. Products we may develop
in the future are also likely to face competition from other medical devices and therapies. Many of our competitors have significantly
greater financial, manufacturing, marketing and product development resources than we do. If our competitors market products that
are more effective, safer, easier to use or less expensive than our products, or that reach the market sooner than our products,
we may not achieve commercial success. In addition, the medical device industry is characterized by rapid technological change.
It may be difficult for us to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological
change, then we may be unable to compete effectively. Technological advances or products developed by our competitors may render
our technologies or products obsolete or less competitive. Any of the foregoing may have a material adverse effect on our business,
liquidity and results of operations.
If we are unable to obtain and enforce
patent protection for our products, our business could be materially harmed.
We currently hold
five United States patents with respect to overall design and specific features of our present and proposed products and have
submitted applications with respect to four foreign patents. The issuance of a patent does not guarantee that it is valid or enforceable.
Any patents we have obtained, or obtain in the future, may be challenged, invalidated, unenforceable or circumvented. Moreover,
the United States Patent and Trademark Office (the “USPTO”) may commence interference proceedings involving our patents
or patent applications. Any challenge to, finding of unenforceability or invalidation or circumvention of, our patents or patent
applications would be costly, would require significant time and attention of our management and could have a material adverse
effect on our business.
Our pending patent
applications may not result in issued patents. The patent position of medical device companies, including us, is generally uncertain
and involves complex legal and factual considerations. The standards that the USPTO and its foreign counterparts use to grant
patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the
subject matter and scope of claims granted or allowable in medical device patents. Accordingly, we do not know the degree of future
protection for our proprietary rights or the breadth of claims that will be allowed in any patents issued to us or to others.
If we are unable to protect the confidentiality
of our proprietary information and know-how, the value of our technology and products could be adversely affected.
In addition to patent
protection, we also rely on other proprietary rights, including protection of trade secrets, know-how and confidential and proprietary
information. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The
disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition
and results of operations. To the extent that our employees, consultants or contractors use technology or know-how owned by third
parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions.
Our commercial success depends significantly
on our ability to operate without infringing the patents and other proprietary rights of third parties.
Other entities may
have or obtain patents or proprietary rights that could limit our ability to manufacture, use, sell, offer for sale or import
products or impair our competitive position. In addition, to the extent that a third party develops new technology that covers
our products, we may be required to obtain licenses to that technology, which licenses may not be available or may not be available
on commercially reasonable terms, if at all. If licenses are not available to us on acceptable terms, we will not be able to market
the affected products or conduct the desired activities, unless we challenge the validity, enforceability or infringement of the
third party patent or circumvent the third party patent, which would be costly and would require significant time and attention
of our management. Third parties may have or obtain valid and enforceable patents or proprietary rights that could block us from
developing products using our technology. Our failure to obtain a license to any technology that we require may materially harm
our business, financial condition and results of operations.
If we become involved in patent litigation
or other proceedings related to a determination of rights, we could incur substantial costs and expenses, substantial liability
for damages or be required to stop our product development and commercialization efforts any of which could materially adversely
affect our liquidity, business prospects and results of operations.
Third parties may
sue us for infringing their patent rights. Likewise, we may need to resort to litigation to enforce a patent issued or licensed
to us or to determine the scope and validity of proprietary rights of others. In addition, a third party may claim that we have
improperly obtained or used its confidential or proprietary information. The cost to us of any litigation or other proceeding
relating to intellectual property rights, even if resolved in our favor, could be substantial, and the litigation would divert
our management’s efforts. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively
than we can because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of
any litigation could limit our ability to continue our operations.
If any parties successfully
claim that our creation or use of proprietary technologies infringes upon their intellectual property rights, we might be forced
to pay damages, potentially including treble damages, if we are found to have willfully infringed on such parties’ patent
rights. In addition to any damages we might have to pay, a court could require us to stop the infringing activity or obtain a
license. Any license required under any patent may not be made available on commercially acceptable terms, if at all. In addition,
such licenses are likely to be non-exclusive and, therefore, our competitors may have access to the same technology licensed to
us. If we fail to obtain a required license and are unable to design around a patent, we may be unable to effectively market some
of our technology and products, which could limit our ability to generate revenues or achieve profitability and possibly prevent
us from generating revenue sufficient to sustain our operations.
Failure to obtain regulatory approval
outside the United States will prevent us from marketing our products abroad.
We intend to market
certain of our products in non-U.S. markets. In order to market our existing and future products in the European Union and many
other non-U.S. jurisdictions, we must obtain separate regulatory approvals. We have had limited interactions with non-U.S. regulatory
authorities, the approval procedures vary among countries and can involve additional testing, and the time required to obtain
approval may differ from that required to obtain FDA approval. Approval or clearance by the FDA does not ensure approval by regulatory
authorities in other countries, and approval by one or more non-U.S. regulatory authorities does not ensure approval by regulatory
authorities in other countries or by the FDA. The non-U.S. regulatory approval process may include all of the risks associated
with obtaining FDA approval or clearance. We may not obtain non-U.S. regulatory approvals on a timely basis, if at all. We may
not be able to file for non-U.S. regulatory approvals and may not receive necessary approvals to commercialize our future product
candidates in any market.
Non-U.S. governments often impose strict
price controls, which may adversely affect our future profitability.
We have obtained
approval to market certain of our products in one or more non-U.S. jurisdictions, which subjects us to rules and regulations in
those jurisdictions relating to our products. In some countries, particularly countries of the European Union, each of which has
developed its own rules and regulations, some pricing is subject to governmental control. In these countries, pricing negotiations
with governmental authorities can take considerable time after the receipt of marketing approval for a medical device candidate.
To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the
cost-effectiveness of our existing and future product candidates to other available products. If reimbursement of our future product
candidates is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve
or sustain profitability.
Our business is subject to economic,
political, regulatory and other risks associated with international operations.
Our business is subject to risks associated
with conducting business internationally, in part due to some of our suppliers historically being located outside the United States.
Accordingly, our future results could be harmed by a variety of factors, including:
| · | difficulties
in compliance with non-U.S. laws and regulations; |
| · | changes
in non-U.S. regulations and customs; |
| · | changes
in non-U.S. currency exchange rates and currency controls; |
| · | changes
in a specific country’s or region’s political or economic environment; |
| · | trade
protection measures, import or export licensing requirements or other restrictive actions
by U.S. or non-U.S. governments; |
| · | negative
consequences from changes in tax laws; and |
| · | difficulties
associated with staffing and managing foreign operations, including differing labor relations. |
Risks Relating to Our Stock.
We do not anticipate paying dividends
on our common stock in the foreseeable future.
We have not declared
and paid cash dividends on our common stock in the past, and we do not anticipate paying any cash dividends in the foreseeable
future. We intend to retain all of our earnings, if any, for the foreseeable future to finance the operation and expansion of
our business. Additionally, our current credit facility prohibits us from paying dividends on our capital stock at any time during
which we have outstanding borrowings thereunder. As a result, you may only receive a return on your investment in our common stock
if the market price of our common stock increases and you sell your shares.
Because our common stock is a “penny
stock,” it may be more difficult for investors to sell shares of our common stock, and the market price of our common stock
may be adversely affected.
Our common stock,
which trades on the OTCBB, is a “penny stock” since, among other things, the stock price is below $5.00 per share,
it is not listed on a national securities exchange, and it has not met certain net tangible asset or average revenue requirements.
Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared
by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the
penny-stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding
broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser
and obtain the purchaser’s written agreement to the purchase. Broker-dealers must also provide customers that hold penny
stock in their accounts with such broker-dealer a monthly statement containing price and market information relating to the penny
stock. If a penny stock is sold to an investor in violation of the penny stock rules, the investor may be able to cancel its purchase
and get its money back.
If applicable, the
penny stock rules may make it difficult for investors to sell their shares of our common stock. Because of the rules and restrictions
applicable to a penny stock, there is less trading in penny stocks and the market price of our common stock may be adversely affected.
Also, many brokers choose not to participate in penny stock transactions. Accordingly, investors may not always be able to resell
their shares of our common stock publicly at times and prices acceptable to them.
Our stock price has been volatile and
there may not be an active, liquid trading market for our common stock.
Our stock price has
experienced significant price and volume fluctuations and may continue to experience volatility in the future. The price of our
common stock has ranged between $0.13 and $0.38 for the 52-week period ended July 31, 2015. Many factors, including those described
in this report and others, have a significant impact on the price of our common stock. Also, you may not be able to sell your
shares at the best market price if trading in our stock in not active or if the volume is low. There is no guarantee that an active
trading market for our common stock will be maintained on the OTCBB or elsewhere.
Our quarterly results of operations
will fluctuate, and these fluctuations could cause our stock price to decline.
Our quarterly operating
results are likely to fluctuate in the future. These fluctuations could cause our stock price to decline. The nature of our business
involves variable factors, such as the timing of the research, development and regulatory submissions of our devices that could
cause our operating results to fluctuate. As a result, in some future quarters our clinical, financial or operating results may
not meet the expectations of securities analysts and investors which could result in a decline in the price of our stock.
Shareholders may experience dilution
of ownership interests because of the future issuance of additional shares of our common stock and our preferred stock.
In the future, we
may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our
present shareholders. We are currently authorized to issue an aggregate of 401,000,000 shares of capital stock, consisting of
400,000,000 shares of common stock and 1,000,000 shares of preferred stock with preferences and rights to be determined by our
Board of Directors. As of October 25, 2015, there were outstanding: a) 79,007,423 shares of our common stock, b) 100 shares of
our Series B preferred stock, c) 62,048 shares of our Series C preferred stock, each currently convertible into 25 shares
of our common stock and d) 2,782 shares of our Series D preferred stock, each currently convertible into 5,000 shares of our common
stock. Also as of October 17, 2015, there were outstanding options to purchase 378,750 shares of our common stock, and we have
reserved 1,551,200 shares of our common stock for issuance upon conversion of our Series C preferred stock and 13,910,000 shares
of our common stock for issuance upon conversion of our Series D preferred stock. We may also issue additional shares of our common
stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees,
future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance
of any such additional shares of our common stock may create downward pressure on the trading price of the common stock. We may
issue additional shares, warrants or other convertible securities in the future in conjunction with capital raising efforts, including
at a price (or exercise price) below the price at which shares of our common stock are then currently traded on the OTCBB.
Our principal corporate
office is located at 4400 Biscayne Blvd., Miami, Florida. We rent this space from Frost Real Estate Holdings, LLC, which is a
company controlled by Dr. Phillip Frost, one of our largest beneficial shareholders. We currently lease approximately 1,800 square
feet under the lease agreement, which commenced with a five-year term on January 1, 2008 and expired on December 31, 2012, we
are currently on a month-to-month basis.
We house our inventory
in approximately 4,000 square feet of warehouse space in Pembroke Park, Florida The lease commenced September 15, 2014 and expired
on September 31, 2015 and we are currently exercising our one year option to renew that extends the expiration to September 31,
2016. We then have available an additional one year option to renew.
| Item 3. | Legal
Proceedings. |
None.
| Item 4. | Mine
Safety Disclosures. |
Not applicable.
PART
II
| Item 5. | Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities. |
Market for common stock
Our common stock
is quoted on the OTCBB under the symbol NIMU.OB. The table below sets forth, for the respective periods indicated, the high and
low bid prices for the Company’s common stock as reported by the OTCBB. The following bid quotations represent inter-dealer
prices, without adjustments for retail mark-ups, mark-downs or commissions and may not necessarily represent actual transactions.
Quarter Ended | |
High | | |
Low | |
| October 31, 2013 | |
$ | 0.40 | | |
$ | 0.16 | |
| January 31, 2014 | |
$ | 0.40 | | |
$ | 0.15 | |
| April 30, 2014 | |
$ | 0.29 | | |
$ | 0.19 | |
| July 31, 2014 | |
$ | 0.20 | | |
$ | 0.12 | |
| October 31, 2014 | |
$ | 0.20 | | |
$ | 0.13 | |
| January 31, 2015 | |
$ | 0.17 | | |
$ | 0.14 | |
| April 30, 2015 | |
$ | 0.30 | | |
$ | 0.14 | |
| July 31, 2015 | |
$ | 0.40 | | |
$ | 0.20 | |
Since our inception,
we have not paid any dividends on our common stock, and we do not anticipate that we will pay dividends in the foreseeable future.
Additionally, our current credit facility prohibits us from paying dividends on our capital stock at any time during which we
have outstanding borrowings thereunder. At July 31, 2015, we had 1,421 shareholders of record based on information provided by
our transfer agent, American Stock Transfer & Trust Company. We believe that the actual number of beneficial shareholders
is considerably higher.
| Item 6. | Selected
Financial Data. |
As a smaller reporting
company as defined in Rule 12b-2 of the Exchange Act, we are not required to include information otherwise required by this item.
| Item 7. | Management’s
Discussion and Analysis of Financial Condition and Results of Operations. |
This Annual Report
on Form 10-K contains, in addition to historical information, certain forward-looking statements about our expectations, beliefs
or intentions regarding, among other things, our product development and commercialization efforts, business, financial condition,
results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements
do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected
events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that
have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results
to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause
our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements.
These factors include those set forth below as well as those contained in “Item 1A - Risk Factors” of this Annual
Report on Form 10-K. We do not undertake any obligation to update forward-looking statements, except as required by applicable
law. These forward-looking statements reflect our views only as of the date they are made with respect to future events and financial
performance.
Overview
We are primarily
engaged in the development, manufacture and marketing of non-invasive, whole body periodic acceleration (“WBPA”) therapeutic
platforms, which are motorized platforms that move a subject repetitively head to foot. Our acceleration therapeutic platforms
are the inventions of Marvin A. Sackner, M.D., our founder, former CEO and a current director. Over thirty peer reviewed scientific
publications attest to the benefits of whole body periodic acceleration in animal and human research investigations. According
to those studies, the application of this WBPA technology provides objective benefits in patients with angina pectoris and increases
the blood supply to the heart muscle in both healthy individuals and patients with heart disease. These findings are not being
claimed as an intended use of the device for marketing purposes, but demonstrate a potential mechanism for its benefits.
The development and
commercialization of the Exer-Rest has historically necessitated substantial expenditures and commitments of capital. Although
we have recently reduced these expenditures, we continue to anticipate expenses and associated losses to continue for the foreseeable
future, as we expect to continue sales efforts in the United States, Canada, the UK, Europe, India, Mexico, Latin America, the
Middle East and the Far East. We will be required to raise additional capital to fulfill our business plan, but no commitment
to raise such additional capital exists or can be assured. If we are unsuccessful in our efforts to expand sales and/or raise
capital, we will not be able to continue operations.
Critical
Accounting Policies and Estimates
Our discussion and
analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated
financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including
those related to accounts receivable, inventory, property and equipment, intangible assets, contingencies and litigation. We base
our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. A more detailed discussion on the application of these and other accounting policies can be found
in Note 2 in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K. Actual
results may differ from these estimates under different assumptions or conditions.
Results of Operations
In January 2005,
we began developing the Exer-Rest line of acceleration therapeutic platforms, which were designed to be more efficient and less
expensive than the AT-101. The Exer-Rest AT platform was first available for delivery to certain locations outside
of the United States in October 2007. Prior to the first export sales of the Exer-Rest AT, we continued to sell the AT-101 in
certain locations outside of the United States. In anticipation of the launch of the Exer-Rest line, in July 2006 we wrote down
as obsolete our existing inventory of AT-101 platforms and parts to zero value. Our newest platforms, the Exer-Rest AT3800 and
AT4700, which we developed under our former agreement with Sing Lin, became available for sale in October 2008. In January 2009,
the Exer-Rest line of therapeutic platforms was registered by the FDA in the United States as Class I (Exempt) Medical Devices.
We began our U.S. and international sales activity with marketing and promotional pricing beginning in February 2009. We currently
market the Exer-Rest to individuals for treatment in their homes, healthcare providers, hospitals, chiropractic and physical therapy
centers, assisted living facilities, as well as to professional athletes.
Year Ended July
31, 2015 Compared to Year Ended July 31, 2014
Revenue. Total
revenue was $0 for the year ended July 31, 2015, as compared to $13,000 for the year ended July 31, 2014. This $13,000 decrease
primarily resulted from a $12,000 decrease in net product revenue and a $1,000 decrease in royalty revenue. Exer-Rest platform
unit sales for the 2015 fiscal year decreased 100% over the 2014 fiscal year, attributable to no sales during the year ended July
31, 2015. Royalty revenue for the fiscal year 2015 decreased 100% from fiscal year 2014 due to decrease in product sales by SensorMedics.
SensorMedics indicated they will discontinue licensed product sales after current inventory is depleted. We believe SensorMedics
inventory is depleted and, therefore, do not expect any further royalty revenue from SensorMedics.
Cost of sales.
Cost of sales was $20,000 for the year ended July 31, 2015, as compared to $6,000 for the year ended July 31, 2014. This $14,000
net increase was primarily attributed to the write off of 10 Exer-Rest units that were deemed obsolete and unsaleable during the
year.
Selling, general
and administrative costs and expenses. Selling, general and administrative (“SG&A”) costs and expenses was
$255,000 for the year ended July 31, 2015, as compared to $319,000 for the year ended July 31, 2014. This $64,000 decrease for
the year ended July 31, 2015 was primarily attributable to a decrease in salaries and wages related to reductions in sales and
marketing personnel, professional accounting fees, reduction in marketing and advertising services and lower stock-based compensation
costs. SG&A costs and expenses include stock-based compensation expense, which totaled $0 for fiscal 2015, as compared to
$4,000 for fiscal 2014. The decrease in stock-based compensation was primarily due to options were fully vested for the year ended
July 31, 2015.
Research and development
costs and expenses. Research and development (“R&D”) costs and expenses were $0 for the year ended July 31,
2015, as compared to $1,000 for the year ended July 31, 2014.
Total operating
costs and expenses. Total operating costs and expenses was $275,000 for the year ended July 31, 2015, as compared to $326,000
for the year ended July 31, 2014. This $51,000 decrease is primarily attributable to the decrease in SG&A and R&D costs
and expenses described above.
Other income and
expense. Other expense was $143,000 for the year ended July 31, 2015, as compared to $130,000 for the year ended July 31,
2014. This $13,000 increase was primarily attributable to the increase in net interest expense, primarily attributed to the borrowings
under our $1.0 million revolving credit facility.
Liquidity and Capital
Resources
Our operations have
been primarily financed through private sales of our equity securities and advances under credit facilities available to us. We
currently do not have any additional borrowing capacity under our $1.0 million revolving credit facility, described below. In
September 2011, we issued two promissory notes in the aggregate principal amount of $100,000, in May 2012 we issued an additional
promissory note in the principal amount of $50,000, in February 2013 we issued an additional promissory note in the principal
amount of $50,000, in September 2014 we issued an additional promissory note in the principal amount of $50,000, in February 2015
we issued an additional promissory note in the principal amount of $50,000, in April 2015 we issued an additional promissory note
in the principal amount of $100,000 and subsequently in August 2015, we issued an additional promissory note in the principal
amount of $25,000 for a total aggregate principal amount of $425,000 from promissory notes.
At July 31, 2015,
we had cash of $40,000 and negative working capital of approximately $1,040,000. We expect that our existing funds will be sufficient
to support our current operations through November 2015. We will be required to obtain additional external financing to continue
operations beyond November 2015. No assurance can be given that such additional financing will be available on acceptable terms
or at all. Our ability to sell additional shares of our stock and/or borrow cash could be materially adversely affected by the
economic uncertainty in the global equity and credit markets. Current economic conditions have been, and continue to be, volatile,
and continued instability in these market conditions may limit our ability to access the capital necessary to fund and grow our
business and to replace, in a timely manner, maturing liabilities.
Net cash used in
operating activities decreased to $181,000 for the year ended July 31, 2015 from $279,000 for the year ended July 31, 2014. This
$97,000 decrease was principally due to reductions in R&D and SG&A for the year ended July 31, 2015.
Net cash provided
by investing activities was $0 for the year ended July 31, 2015 from $4,000 for the year ended July 31, 2014. This $4,000 decrease
was due to reduction of fixed asset sales.
Net cash provided
by financing activities increased to $200,000 for the year ended July 31, 2015 from $0 for the year ended July 31, 2014. This
$200,000 increase was principally due to an increase in proceeds from promissory notes (see Note 6) to the accompanying audited
consolidated financial statements.
Aggregate collections
of royalty payments from SensorMedics were $0 and $1,000 for the years ended July 31, 2015 and 2014, respectively. SensorMedics
indicated they will discontinue licensed product sales after current inventory is depleted and, therefore, the royalty revenue
from SensorMedics is expected to be minimal to none.
Under our now-terminated
agreement with Sing Lin, we were committed to purchase approximately $2.6 million of Exer-Rest units within one year of acceptance
of the final product, which acceptance occurred in September 2008, and an additional $4.1 million and $8.8 million of products
in the second and third years following acceptance of the final product, respectively. Under the agreement, we were required to
pay a portion of the product purchase price at the time production orders were placed, with the balance due upon delivery. Through
July 31, 2015, we paid Sing Lin $1.7 million in connection with orders placed through that date, with the last payment being made
in July 2009. As of July 31, 2015, we had not placed orders sufficient to satisfy the first-year or second-year purchase obligations
under the agreement. We notified Sing Lin in June 2010 that we were terminating the agreement effective September 2010, and Sing
Lin in July 2010 demanded that we place orders sufficient to fulfill the three year minimum purchase obligations in the agreement.
There can be no assurance that Sing Lin will not attempt to enforce its remedies against us, or pursue other potential remedies.
If Sing Lin seeks to enforce remedies against us, any such remedies could have a material adverse effect on our business, liquidity
and results of operations. As of July 31, 2015, the Company had payables due to Sing Lin of approximately $41,000.
At July 31, 2015,
we had available federal and state net operating loss carryforwards of approximately $15.1 million and foreign net operating loss
carry forwards of approximately $0.1 million which expire in various years beginning in 2019.
2010 Credit Facility.
On March 31, 2010, we entered into a new Note and Security Agreement with Frost Gamma Investments Trust, a trust controlled
by Dr. Phillip Frost, which beneficially owns in excess of 10% of our common stock, and Hsu Gamma Investments, LP, an entity controlled
by our Chairman (together, the “Lenders”), pursuant to which the Lenders have provided a revolving credit line (the
“Credit Facility”) in the aggregate principal amount of up to $1.0 million, secured by all of our personal property.
We are permitted to borrow and reborrow from time to time under the Credit Facility until July 31, 2013 and subsequently the date
was extended to July 31, 2017 (the “Credit Facility Maturity Date”). The interest rate payable on amounts outstanding
under the Credit Facility is 11% per annum, and increases to 16% per annum after the Credit Facility Maturity Date or after an
event of default. All amounts owing under the Credit Facility are required to be repaid by the Credit Facility Maturity Date,
and amounts outstanding are prepayable at any time. As of July 31, 2015, we had drawn an aggregate of $1,000,000 under the Credit
Facility and there is no available balance remaining.
2011 Promissory
Notes. On September 12, 2011, we entered into two promissory notes in the principal amount of $50,000 each with Frost Gamma,
a trust controlled by Dr. Phillip Frost, which beneficially owns in excess of 10% of the Company’s common stock, and with
an unrelated third party for a total of $100,000. The interest rate payable by the Company on both the Frost Gamma Note and the
unrelated third party note is 11% per annum, payable on the maturity date of September 12, 2014 and subsequently the date was
extended to July 31, 2017 (the “Promissory Notes Maturity Date”). We may prepay either or both notes in advance of
the Promissory Notes Maturity Date without premium or penalty.
2012 Promissory
Note. On May 30, 2012, we entered into a promissory note in the principal amount of $50,000 with Hsu Gamma, an entity controlled
by our Chairman of the Board and Interim Chief Executive Officer, Jane H. Hsiao, (the “Hsu Gamma Note”). The interest
rate payable by the Company on the Hsu Gamma Note is 11% per annum, payable on the maturity date of September 12, 2014 and subsequently
the date was extended to July 31, 2017. The Hsu Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without
premium or penalty.
2013
Promissory Note. On February 22, 2013, we entered
into a promissory note in the amount of $50,000 with Jane Hsiao, our Chairman of the Board and Interim Chief Executive Officer
(the “2013 Hsiao Note”). The interest rate payable by the Company on the 2013 Hsiao Note is 11% per annum, originally
payable on the maturity date of September 12, 2014 and subsequently the date was extended to July 31, 2017. The 2013 Hsiao Note
may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
2014 Promissory
Note. On September 24, 2014, we entered into a promissory note (the “2014 Hsiao Note”) in the principal amount
of $50,000 with Jane Hsiao, our Chairman of the Board and Interim Chief Executive Officer. The interest rate payable by the Company
on the 2014 Hsiao Note is 11% per annum, payable on the maturity date of July 31, 2017. The 2014 Hsiao Note may be prepaid in
advance of the Promissory Notes Maturity Date without penalty.
2015 Promissory
Notes. On February 2, 2015, we entered into a promissory note (the “2015 Hsiao Note”) in the principal amount
of $50,000 with Jane Hsiao, our Chairman of the Board and Interim Chief Executive Officer. The interest rate payable by the Company
on the 2015 Hsiao Note is 11% per annum, payable on the maturity date of July 31, 2017. The 2015 Hsiao Note may be prepaid in
advance of the Promissory Notes Maturity Date without penalty.
On April 16, 2015,
we entered into a promissory note (“April 2015 Frost Note”) in the amount of $100,000 with Frost Gamma"), a trust
controlled by Dr. Phillip Frost, which beneficially owns in excess of 10% of the Company’s common stock. The interest rate
payable by the Company on the April 2015 Frost Note is 11% per annum, payable on the maturity date of July 31, 2017. The April
2015 Frost Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On August 12, 2015,
we entered into a promissory note in the principal amount of $25,000 with Frost Gamma (the "August 2015 Frost Note"),
a trust controlled by Dr. Phillip Frost, which beneficially owns in excess of 10% of the Company’s common stock. The interest
rate payable by the Company on the August 2015 Frost Note is 11% per annum, payable on the maturity date of July 31, 2017. The
August 2015 Frost Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
As of October 20,
2015, we had cash and cash equivalents of approximately $5,400 and did not have any further funding available under the Credit
Facility. If we are unable to generate significant revenues from sales of Exer-Rest platforms, we will have insufficient funds
to repay debt and continue operations beyond November 2015 without raising additional capital. There can be no assurance that
we will be able to raise such additional capital on terms acceptable to us or at all.
| Item 7A. | Quantitative
and Qualitative Disclosures About Market Risk. |
As a smaller reporting
company as defined in Rule 12b-2 of the Exchange Act, we are not required to include the information otherwise required by this
item.
| Item 8. | Financial
Statements and Supplementary Data. |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Non-Invasive Monitoring Systems, Inc.
We have audited
the accompanying consolidated balance sheets of Non-Invasive Monitoring Systems, Inc. and subsidiaries as of July 31, 2015 and
2014, and the related consolidated comprehensive statements of operations, changes in shareholders’ deficit and cash flows
for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit
includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion,
the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Non-Invasive
Monitoring Systems, Inc. and subsidiaries as of July 31, 2015 and 2014, and the results of their operations and their cash flows
for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying
consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 1 to the consolidated financial statements, the Company has experienced recurring net losses, cash outflows from operating
activities, has an accumulated deficit and substantial purchase commitments that raise substantial doubt about its ability to
continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ Morrison,
Brown Argiz & Farra, LLC |
| Morrison, Brown Argiz & Farra, LLC |
Miami, Florida
October 23, 2015
NON-INVASIVE
MONITORING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per
share data)
| | |
July 31, 2015 | | |
July 31, 2014 | |
| ASSETS | |
| | | |
| | |
| Current assets | |
| | | |
| | |
| Cash | |
$ | 40 | | |
$ | 21 | |
| Inventories, net | |
| - | | |
| 455 | |
| Prepaid expenses, deposits, and other current assets | |
| 52 | | |
| 49 | |
| | |
| | | |
| | |
| Total current assets` | |
| 92 | | |
| 525 | |
| | |
| | | |
| | |
| Inventories, net | |
| 435 | | |
| - | |
| Tooling and equipment, net | |
| 1 | | |
| 1 | |
| | |
| | | |
| | |
| Total assets | |
$ | 528 | | |
$ | 526 | |
| | |
| | | |
| | |
| LIABILITIES AND SHAREHOLDERS' DEFICIT | |
| | | |
| | |
| | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Notes payable – Related party | |
$ | – | | |
$ | 1,150 | |
| Notes Payable – other | |
| – | | |
| 50 | |
| Accounts payable and accrued expenses | |
| 1,128 | | |
| 909 | |
| Customer deposits | |
| 4 | | |
| 4 | |
| | |
| | | |
| | |
| Total current liabilities | |
| 1,132 | | |
| 2,113 | |
| | |
| | | |
| | |
| Long term liabilities | |
| | | |
| | |
| Notes payable – Related party | |
| 1,350 | | |
| – | |
| Notes payable – other | |
| 50 | | |
| – | |
| | |
| | | |
| | |
| Total long term liabilities | |
| 1,400 | | |
| – | |
| | |
| | | |
| | |
| Total liabilities | |
$ | 2,532 | | |
$ | 2,113 | |
| | |
| | | |
| | |
| Shareholders' deficit | |
| | | |
| | |
| Series B Preferred Stock, par value $1.00 per share; | |
| | | |
| | |
| 100 shares authorized, issued and outstanding as of July 31, 2015 and 2014,
respectively; liquidation preference $10 | |
| – | | |
| – | |
| Series C Convertible Preferred Stock, par value $1.00 per share; | |
| | | |
| | |
| 62,048 shares authorized, issued and outstanding as of July 31, 2015 and
2014, respectively; liquidation preference $62 | |
| 62 | | |
| 62 | |
| Series D Convertible Preferred Stock, par value $1.00 per share; 5,500 shares authorized; | |
| | | |
| | |
| 2,782 and 2,795 shares issued and outstanding as of July 31, 2015 and
2014, respectively; liquidation preference $4,173 | |
| 3 | | |
| 3 | |
| Common Stock, par value $0.01 per share; 400,000,000 shares authorized; | |
| | | |
| | |
| 79,007,423 shares issued and outstanding as of July 31, 2015 and 78,942,423 as of July 31,
2014 | |
| 790 | | |
| 789 | |
| Additional paid in capital | |
| 21,930 | | |
| 21,931 | |
| Accumulated deficit | |
| (24,741 | ) | |
| (24,323 | ) |
| Accumulated other comprehensive loss | |
| (48 | ) | |
| (49 | ) |
| Total shareholders' deficit | |
| (2,004 | ) | |
| (1,587 | ) |
| Total liabilities and shareholders'
deficit | |
$ | 528 | | |
$ | 526 | |
The accompanying notes are an integral part of these consolidated
financial statements.
NON-INVASIVE MONITORING
SYSTEMS, INC.
CONSOLIDATED COMPREHENSIVE STATEMENTS
OF OPERATIONS
Years ended July 31, 2015 and 2014
(In thousands, except per share data)
| | |
2015 | | |
2014 | |
| Revenues | |
| | | |
| | |
| Product sales, net | |
$ | – | | |
$ | 12 | |
| Royalties | |
| – | | |
| 1 | |
| | |
| | | |
| | |
| Total revenues | |
| – | | |
| 13 | |
| | |
| | | |
| | |
| Operating costs and expenses | |
| | | |
| | |
| | |
| | | |
| | |
| Cost of sales (including inventory provision of $20 and $0 for 2015 and 2014,
respectively) | |
| 20 | | |
| 6 | |
| Selling, general and administrative | |
| 255 | | |
| 319 | |
| Research and development | |
| – | | |
| 1 | |
| | |
| | | |
| | |
| Total operating costs and expenses | |
| 275 | | |
| 326 | |
| | |
| | | |
| | |
| Operating loss | |
| (275 | ) | |
| (313 | ) |
| | |
| | | |
| | |
| Interest expense, net | |
| (143 | ) | |
| (130 | ) |
| | |
| | | |
| | |
| Net loss | |
$ | (418 | ) | |
$ | (443 | ) |
| | |
| | | |
| | |
| Other Comprehensive income foreign currency translation adjustment | |
| 1 | | |
| – | |
| Comprehensive net loss | |
$ | (417 | ) | |
$ | (443 | ) |
| | |
| | | |
| | |
| Weighted average number of common shares outstanding - basic and diluted | |
| 79,007 | | |
| 78,942 | |
| | |
| | | |
| | |
| Basic and diluted loss per common share | |
$ | (0.01 | ) | |
$ | (0.01 | ) |
The accompanying notes are an integral part
of these consolidated financial statements.
NON-INVASIVE MONITORING
SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ DEFICIT
Years ended July 31, 2015 and 2014
(Dollars in Thousands)
| | |
Preferred Stock | | |
| | |
Additional | | |
Accum- | | |
Accumu-
lated Other Compre- | | |
| |
| | |
Series B | | |
Series C | | |
Series D | | |
Common Stock | | |
Paid in | | |
ulated | | |
hensive | | |
| |
| | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
Total | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance at July 31, 2013 | |
| 100 | | |
$ | – | | |
| 62,048 | | |
$ | 62 | | |
| 2,795 | | |
$ | 3 | | |
| 78,942,423 | | |
$ | 789 | | |
$ | 21,927 | | |
$ | (23,880 | ) | |
$ | (49 | ) | |
$ | (1,148 | ) |
| Stock based compensation | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 4 | | |
| – | | |
| – | | |
| 4 | |
| Net loss | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (443 | ) | |
| – | | |
$ | (443 | ) |
| Balance at July 31, 2014 | |
| 100 | | |
$ | – | | |
| 62,048 | | |
$ | 62 | | |
| 2,795 | | |
$ | 3 | | |
| 78,942,423 | | |
$ | 789 | | |
$ | 21,931 | | |
$ | (24,323 | ) | |
$ | (49 | ) | |
$ | (1,587 | ) |
| Conversion of Preferred Stock to Common | |
| – | | |
| – | | |
| – | | |
| – | | |
| (13 | ) | |
| – | | |
| 65,000 | | |
| 1 | | |
| (1 | ) | |
| – | | |
| – | | |
| – | |
| Foreign currency translation adjustment | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 1 | | |
$ | 1 | |
| Net loss | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| (418 | ) | |
| – | | |
$ | (418 | ) |
| Balance at July 31, 2015 | |
| 100 | | |
$ | – | | |
| 62,048 | | |
$ | 62 | | |
| 2,782 | | |
$ | 3 | | |
| 79,007,423 | | |
$ | 790 | | |
$ | 21,930 | | |
$ | (24,741 | ) | |
$ | (48 | ) | |
$ | (2,004 | ) |
The accompanying notes are an integral part of these consolidated
financial statements.
NON-INVASIVE
MONITORING SYSTEMS, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
Years ended July
31, 2015 and 2014
(Dollars in Thousands)
| | |
2015 | | |
2014 | |
| Operating Activities | |
| | | |
| | |
| Net loss | |
$ | (418 | ) | |
$ | (443 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Stock-based compensation expense | |
| – | | |
| 4 | |
| Write down of obsolete inventory | |
| 20 | | |
| – | |
| Changes in operating assets and liabilities | |
| | | |
| | |
| Royalties and other receivables, net | |
| – | | |
| 1 | |
| Inventories, net | |
| – | | |
| 7 | |
| Prepaid expenses, deposits and other current assets | |
| (3 | ) | |
| (3 | ) |
| Accounts payable and accrued expenses | |
| 220 | | |
| 155 | |
| Net cash used in operating activities | |
| (181 | ) | |
| (279 | ) |
| | |
| | | |
| | |
| Investing Activities | |
| | | |
| | |
| Sale of fixed asset | |
| – | | |
| 4 | |
| Net cash provided by investing activities | |
| – | | |
| 4 | |
| | |
| | | |
| | |
| Financing Activities | |
| | | |
| | |
| Proceeds from note payable – related party | |
| 200 | | |
| – | |
| Net cash provided by financing activities | |
| 200 | | |
| – | |
| | |
| | | |
| | |
| Net increase (decrease) in cash | |
| 19 | | |
| (275 | ) |
| Cash, beginning of year | |
| 21 | | |
| 296 | |
| Cash, end of year | |
$ | 40 | | |
$ | 21 | |
The accompanying notes are an integral part of these consolidated
financial statements.
NON-INVASIVE
MONITORING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | ORGANIZATION
AND BUSINESS |
Organization.
Non-Invasive Monitoring Systems, Inc., a Florida corporation (together with its consolidated subsidiaries, the “Company”
or “NIMS”), began business as a medical diagnostic monitoring company to develop computer-aided continuous monitoring
devices to detect abnormal respiratory and cardiac events using sensors on the human body’s surface. It has ceased to operate
in this market and has licensed the rights to its technology. The Company is now focused on developing and marketing its Exer-Rest®
line of acceleration therapeutic platforms based upon unique, patented whole body periodic acceleration (“WBPA”)
technology. The Exer-Rest line of acceleration therapeutic platforms currently includes the Exer-Rest AT, AT3800 and AT4700 models.
Business.
The Company is developing and marketing its Exer-Rest® line of acceleration therapeutic platforms based
upon unique, patented whole body periodic acceleration (“WBPA”) technology. The Exer-Rest line of acceleration therapeutic
platforms currently includes the Exer-Rest AT, AT3800 and AT4700 models.
The Company received
revenue from royalties on sales of diagnostic monitoring hardware and software by SensorMedics and from VivoMetrics in prior years.
SensorMedics indicated they will discontinue licensed product sales after current inventory is depleted and, therefore, the royalty
revenue from SensorMedics is expected to be minimal to none. VivoMetrics ceased operations in July 2009 and filed for Chapter
11 bankruptcy protection in October 2009. Pursuant to VivoMetrics’ approved bankruptcy plan of reorganization, our license
with VivoMetrics was assigned to another company; however, there can be no assurance as to the future amount of royalty revenue,
if any, that we may derive from this license or from our existing license with SensorMedics. In fiscal year 2009, NIMS began commercial
sales of its third generation Exer-Rest therapeutic platforms.
During the calendar
years 2005 to 2007, the Company designed, developed and manufactured the first Exer-Rest platform (now the Exer-Rest AT), a second
generation acceleration therapeutics platform, and updated its operations to promote the Exer-Rest AT overseas as an
aid to improve circulation and joint mobility and to relieve minor aches and pains.
The Company has
developed a third generation of Exer-Rest acceleration therapeutic platforms (designated the Exer-Rest AT3800
and the Exer-Rest AT4700) that had been manufactured by Sing Lin Technologies Co. Ltd. (“Sing Lin”) based
in Taichung, Taiwan (see Note 10).
The Company’s
consolidated financial statements have been prepared and presented on a basis assuming it will continue as a going concern. As
reflected in the accompanying consolidated financial statements, the Company had net losses in the amount of $0.4 for the years
ended July 31, 2015 and 2014, respectively, and has experienced negative cash outflows from operating activities. The Company
also has an accumulated deficit of $24.7 million as of July 31, 2015, and has purchase commitments at July 31, 2015 (see Note
10). These matters raise substantial doubt about the Company’s ability to continue as a going concern.
Absent any significant
revenues from product sales, the Company will likely need to incur additional debt, equity financing or a strategic collaboration
for the Company to continue its business activities, which are currently focused on the production, marketing and commercial sale
of the Exer-Rest. Management intends to obtain any additional capital needed to continue its business activities through new debt
or equity financing, but there can be no assurance that it will be successful in this regard. The accompanying consolidated financial
statements do not include any adjustments that might be necessary from the outcome of this uncertainty.
As further discussed
in Note 10, the Company in 2010 terminated its agreement with Sing Lin. As of July 31, 2015, the Company has payables due to Sing
Lin of approximately $41,000.
| 2. | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES |
Consolidation.
The consolidated financial statements for the years ended July 31, 2015 and 2014 include the accounts of the Company and
its wholly-owned subsidiaries, Non-Invasive Monitoring Systems of Florida, Inc., which has no current operations, and NIMS of
Canada, Inc., a Canadian corporation, which has no current operations. All inter-company accounts and transactions have been eliminated
in consolidation.
Use of
Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America (“GAAP”) requires management to make estimates and assumptions, such as accounts receivable,
stock based compensation, warranty accrual and deferred taxes as estimates, that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts
of revenues and expenses during the reporting period. Such items include input variables for stock based compensation, accounts
receivable, lower of cost or market determination for inventory, warranty accrual and deferred taxes. Actual results could differ
materially from these estimates.
Cash and
Cash Equivalents. The Company considers all highly liquid short-term investments purchased with an original maturity date
of three months or less to be cash equivalents. The Company had approximately $40,000 and $21,000 on deposit in such sweep accounts
at July 31, 2015 and 2014, respectively.
Allowances
for Doubtful Accounts. Royalties and other receivables are recorded at the stated amount of the transactions. The Company
provides an allowance for royalties and other receivables it believes it may not collect in full. Receivables are written off
when they are deemed to be uncollectible and all collection attempts have ceased. The amount of bad debt recorded each period
and the resulting adequacy of the allowance at the end of each period are determined using a combination of the Company’s
historical loss experience, customer-by-customer analysis of the Company’s accounts receivable each period and subjective
assessments of the Company’s future bad debt exposure.
Inventories.
Inventories are stated at lower of cost or market using the first-in, first-out method, and are evaluated at least annually
for impairment. Inventories at July 31, 2015 and 2014 primarily consisted of finished Exer-Rest units and accessories. Provisions
for potentially obsolete or slow-moving inventory are made based on management’s analysis of inventory levels, historical
obsolescence and future sales forecasts. As of July 31, 2015, the Company has classified its inventories as non-current to reflect the extended time frame the Company
expects to sell the inventory.
Tooling
and Equipment. These assets are stated at cost and depreciated or amortized using the straight-line method over their
estimated useful lives.
Long-lived Assets. The
Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. In performing the review for recoverability, the Company estimates the future undiscounted cash flows
expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows is less
than the carrying amount of the assets, an impairment loss is recognized as the difference between the fair value and the carrying
amount of the asset.
Taxes Assessed on Revenue-Producing
Transactions. The Company presents sales taxes assessed on revenue-producing transactions between a seller and customer
using the net presentation; thus, sales and cost of revenues are not affected by such taxes.
Income Taxes. The Company
provides for income taxes using an asset and liability based approach. Deferred income tax assets and liabilities are recorded
to reflect the tax consequences in future years of temporary differences between the carrying amounts of assets and liabilities
for financial statement and income tax purposes. The deferred tax asset for loss carryforwards and other potential future tax
benefits has been fully offset by a valuation allowance since it is uncertain whether any future benefit will be realized. The
Company files its tax returns as prescribed by the laws of the jurisdictions in which it operates. Tax years ranging from 2012
to 2015 remain open to examination by various taxing jurisdictions as the statute of limitations has not expired. It is the Company’s
policy to include income tax interest and penalty expense in its tax provision.
Revenue
Recognition. Revenue from product sales is recognized when persuasive evidence of an arrangement exists, the goods are
shipped and title has transferred, the price is fixed or determinable, and the collection of the sales proceeds is reasonably
assured. The Company recognizes royalties as they are earned, based on reports from licensees. Research and consulting revenue
and revenue from sales of extended warranties on therapeutic platforms are recognized over the term of the respective agreements.
Advertising Costs. The
Company expenses all costs of advertising and promotions as incurred. There was no advertising and promotional costs for the years
ended July 31, 2015 and 2014.
Research and Development Costs.
Research and development costs are expensed as incurred, and primarily consist of payments to third parties for research
and development of the Exer-Rest device and regulatory testing costs to obtain FDA approval.
Warranties. The Company’s
warranties are two years on all Exer-Rest products sold domestically and one year for products sold outside of the U.S. and are
accrued based on management’s estimates and the history of warranty costs incurred. There were no material warranty costs
incurred for the years ended July 31, 2015 and 2014, and management estimates that the Company’s accrued warranty expense
at July 31, 2015 will be sufficient to offset claims made for units under warranty.
Stock-based compensation. The
Company recognizes all share-based payments, including grants of stock options, as operating expenses, based on their grant date
fair values. Stock-based compensation expense is recognized over the vesting life of the underlying stock options and is included
in selling, general and administrative costs and expenses in the consolidated comprehensive statements of operations for all periods
presented.
Fair Value of Financial Instruments.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to
management as of July 31, 2015 and 2014. The respective carrying value of certain on-balance-sheet financial instruments such
as cash and cash equivalents, royalties and other receivables, accounts payable and accrued expenses approximate fair values because
they are short term in nature or they bear current market interest rates.
As of July 31, 2015 and 2014, the respective
carrying value of the notes payable – related party and notes payable – other approximate our current borrowing
rate for similar debt instruments of comparable maturity and are considered Level 3 measurements within the fair value
hierarchy.
Foreign Currency Translation.
The functional currency for the Company’s foreign subsidiary is the local currency. Assets and liabilities are translated
at exchange rates in effect at the balance sheet date while income and expense amounts are translated at average exchange rates
during the period. The resulting foreign currency translation adjustments are disclosed as a separate component of shareholders’
deficit and other comprehensive income. Foreign currency translation gain was $1 and $0 for the years ended July 31, 2015 and
2014, respectively.
Comprehensive Income (Loss).
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources, including foreign currency translations.
Loss Contingencies. We recognize
contingent losses that are both probable and estimable. In this context, we define probability as circumstances under which events
are likely to occur. In regards to legal costs, we record such costs as incurred.
Recent Accounting Pronouncements.
In May 2014, the FASB issued an accounting standard update which affects the revenue recognition of entities that enter
either (1) certain contracts to transfer goods or services to customers or (2) certain contracts for the transfer of nonfinancial
assets. The update indicates an entity should recognize revenue in an amount that reflects the consideration the entity expects
to be entitled to in exchange for the goods or services transferred by the entity. The update is to me applied to the beginning
of the year of implementation or retrospectively and is effective for annual periods beginning after December 31, 2017 and in
interim periods in that reporting period. Earlier application is permitted only as of annual reporting periods beginning after
December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the effect
the update will have on its financial statements.
In July 2015, the FASB issued
an accounting standard update which affects the measurement of inventory. The update requires inventory to be measured using
the lower of cost and net realizable value. Net realizable value is defined in the update as the estimated selling prices in
the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. The update
applies to all types of inventory except inventory measured using LIFO or the retail inventory method. The update is
effective prospectively for fiscal years beginning after December 15, 2016, including interim periods within those fiscal
years with early adoption permitted as of the
beginning of an interim or annual reporting period. The Company is currently evaluating the effect the update will have on
its financial statements.
The Company’s inventory consists of the following (in
thousands):
| | |
July 31, 2015 | | |
July 31, 2014 | |
| Work-in-progress, including accessories and spare
parts | |
$ | 11 | | |
$ | 9 | |
| Finished goods | |
| 424 | | |
| 446 | |
| Total inventories | |
$ | 435 | | |
$ | 455 | |
The Company recorded inventory valuation
adjustments of $20,000 and $0 for the years ended July 31, 2015 and 2014. This $20,000 decrease was due to the write off of obsolete
inventory for the year ended July 31, 2015 related to damage sustained to certain units in the warehouse.
| 4. | STOCK-BASED
COMPENSATION |
The Company measures the cost of employee,
officer and director services received in exchange for an award of equity instruments based on the grant-date fair value of the
award. The fair value of the Company’s stock option awards is expensed over the vesting life of the underlying stock options
using the graded vesting method, with each tranche of vesting options valued separately. The Company recorded stock based compensation
expense of $0 and $4,000, respectively, for the years ended July 31, 2015 and 2014. All stock based compensation is included in
the Company’s selling, general and administrative costs and expenses.
The Company’s 2000 Stock Option
Plan, as amended (the “2000 Plan”), provides for the issuance of up to 2,000,000 shares of the Company’s common
stock. The 2000 Plan allows the issuance of incentive stock options, stock appreciation rights and restricted stock awards. The
exercise price of the options is determined by the compensation committee of the Company’s Board of Directors, but incentive
stock options, if any, must be granted at an exercise price not less than the fair market value of the Company’s common
stock as of the grant date or an exercise price of not less than 110% of the fair value for a 10% shareholder. Options expire
up to ten years from the date of the grant and are exercisable according to the terms of the individual option agreements. The
2000 Plan has expired and no future grants can be made from the 2000 Plan; however, previously granted options will remain in
force pursuant to the terms of the individual grants.
In November 2010,
the Board and Compensation Committee approved the Non-Invasive Monitoring Systems, Inc. 2011 Stock Incentive Plan (the “2011
Plan”). Awards granted under the 2011 Plan may consist of incentive stock options, stock appreciation rights (SAR), restricted
stock grants, restricted stock units (RSU) performance shares, performance units or cash awards. The 2011 Plan authorizes up to
4,000,000 shares of our common stock for issuance pursuant to the terms of the 2011 Plan. The 2011 Plan was approved by our
shareholders in March 2012 and no awards have been granted under the 2011 Plan as of July 31, 2015.
The Company did
not grant any stock options for the years ended July 31, 2015 and 2014.
A summary of the Company’s stock
option activity for the years ended July 31, 2015 and 2014 is as follows:
| |
|
Shares |
|
|
Weighted
Average
Exercise
Price |
|
|
Weighted
average
remaining
contractual term
(years) |
|
|
Aggregate
Intrinsic
Value |
|
| Options outstanding, July 31, 2013 |
|
|
613,750 |
|
|
$ |
0.335 |
|
|
|
|
|
|
|
|
|
| Options granted |
|
|
0 |
|
|
$ |
0.000 |
|
|
|
|
|
|
|
|
|
| Options exercised |
|
|
0 |
|
|
$ |
0.000 |
|
|
|
|
|
|
|
|
|
| Options forfeited |
|
|
(235,000 |
) |
|
$ |
0.264 |
|
|
|
|
|
|
|
|
|
| Options outstanding, July 31, 2014 |
|
|
378,750 |
|
|
$ |
0.38 |
|
|
|
|
|
|
|
|
|
| Options granted |
|
|
0 |
|
|
$ |
0.000 |
|
|
|
|
|
|
|
|
|
| Options exercised |
|
|
0 |
|
|
$ |
0.000 |
|
|
|
|
|
|
|
|
|
| Options forfeited |
|
|
0 |
|
|
$ |
0.000 |
|
|
|
|
|
|
|
|
|
| Options outstanding, July 31,
2015 |
|
|
378,750 |
|
|
$ |
0.380 |
|
|
|
1.13 |
|
|
$ |
0 |
|
| Options expected to vest, July
31, 2015 |
|
|
378,750 |
|
|
$ |
0.380 |
|
|
|
1.13 |
|
|
$ |
0 |
|
| Options exercisable, July 31,
2015 |
|
|
378,750 |
|
|
$ |
0.380 |
|
|
|
1.13 |
|
|
$ |
0 |
|
All of the 378,750 options outstanding
at July 31, 2015 were issued under the 2000 Plan. The options forfeited in the year ended July 31, 2014 include both those granted
under the 2000 Plan as well as those granted outside of the shareholder approved plans.
There were no options exercised for the
year ended July 31, 2015 and 2014.
As of July 31, 2015, there were no unrecognized
costs related to outstanding stock options.
The Company is
a party to two licensing agreements with SensorMedics and VivoMetrics. The Company receives royalty income from the sale of its
diagnostic monitoring hardware and software from SensorMedics and previously received royalties from VivoMetrics prior to its
bankruptcy.
Royalty income
from the SensorMedics license amounted to $0 and $1,000 for the years ended July 31, 2015 and 2014, respectively. SensorMedics
indicated they will discontinue licensed product sales after current inventory is depleted and, therefore, the royalty revenue
from SensorMedics is expected to be minimal to none. There were no royalties recognized from VivoMeterics for the years ended
July 2015 and 2014. VivoMetrics ceased operations in July 2009 and filed for Chapter 11 bankruptcy protection in October 2009.
Under VivoMetrics’ approved bankruptcy plan of reorganization, our license with VivoMetrics was assigned to another company;
however, there can be no assurance as to the future amount of royalty income, if any, that may result from this license or from
our existing license with SensorMedics.
2010
Credit Facility. On March 31, 2010, the Company entered into
a new Note and Security Agreement with Frost Gamma Investments Trust (“Frost Gamma”), a trust controlled by Dr. Phillip
Frost, which beneficially owns in excess of 10% of the Company’s common stock, and Hsu Gamma Investments, LP (“Hsu
Gamma”), an entity controlled by the Company’s Chairman and Interim CEO(together, the “Lenders”), pursuant
to which the Lenders have provided a revolving credit line (the “Credit Facility”) in the aggregate principal amount
of up to $1.0 million, secured by all of the Company’s personal property. The Company is permitted to borrow and reborrow
from time to time under the Credit Facility until July 31, 2013 and subsequently the date was extended to July 31, 2017 (the “Credit
Facility Maturity Date”). The interest rate payable on amounts outstanding under the Credit Facility is 11% per annum, and
increases to 16% per annum after the Credit Facility Maturity Date or after an event of default. All amounts owing under the Credit
Facility are required to be repaid by the Credit Facility Maturity Date, and amounts outstanding are prepayable at any time. As
of July 31, 2015, the Company had drawn an aggregate of $1,000,000 under the Credit Facility and there is no available balance
remaining.
2011 Promissory
Notes. On September 12, 2011, the Company entered into two promissory notes in the principal amount of $50,000 each with Frost
Gamma, a trust controlled by Dr. Phillip Frost, which beneficially owns in excess of 10% of the Company’s common stock,
and with an unrelated third party for a total of $100,000. The interest rate payable by the Company on both the 2011 Frost Gamma
Note and the unrelated third party note is 11% per annum, payable on the maturity date of September 12, 2014 and subsequently
the date was extended to July 31, 2017 (the “Promissory Notes Maturity Date”). The Company may prepay either or both
notes in advance of the Promissory Notes Maturity Date without premium or penalty.
2012 Promissory
Note. On May 30, 2012, the Company entered into a promissory note in the principal amount of $50,000 with Hsu Gamma, an entity
controlled by the Company’s Chairman of the Board and Interim Chief Executive Officer, Jane H. Hsiao, (the “2012 Hsu
Gamma Note”). The interest rate payable by the Company on the 2012 Hsu Gamma Note is 11% per annum, payable on the maturity
date of September 12, 2014 and subsequently the date was extended to July 31, 2017. The Hsu Gamma Note may be prepaid in advance
of the Promissory Notes Maturity Date without premium or penalty.
2013
Promissory Note. On February 22, 2013, the
Company entered into a promissory note in the amount of $50,000 with Jane Hsiao, the Company’s Chairman of the Board and
Interim Chief Executive Officer (the “2013 Hsiao Note”). The interest rate payable by the Company on the 2013 Hsiao
Note is 11% per annum, originally payable on the maturity date of September 12, 2014 and subsequently the date was extended to
July 31, 2017. The 2013 Hsiao Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
2014 Promissory
Note. On September 24, 2014, the Company entered into a promissory note (the “2014 Hsiao Note”) in the principal
amount of $50,000 with Jane Hsiao, the Company’s Chairman of the Board and Interim Chief Executive Officer. The interest
rate payable by the Company on the 2014 Hsiao Note is 11% per annum, payable on the maturity date of July 31, 2017. The 2014 Hsiao
Note may be prepaid in advance of the Promissory Notes Maturity Date without penalty.
2015 Promissory
Notes. On February 2, 2015, the Company entered into a promissory note (the “2015 Hsiao Note”) in the principal
amount of $50,000 with Jane Hsiao, the Company’s Chairman of the Board and Interim Chief Executive Officer. The interest
rate payable by the Company on the 2015 Hsiao Note is 11% per annum, payable on the maturity date of July 31, 2017. The 2015 Hsiao
Note may be prepaid in advance of the Promissory Notes Maturity Date without penalty.
On April 16, 2015,
the Company entered into a promissory note (“April 2015 Frost Gamma Note”) in the amount of $100,000 with Frost Gamma"),
a trust controlled by Dr. Phillip Frost, which beneficially owns in excess of 10% of the Company’s common stock. The interest
rate payable by the Company on the April 2015 Frost Note is 11% per annum, payable on the maturity date of July 31, 2017. The
April 2015 Frost Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
Subsequently, on
August 12, 2015, the Company entered into a promissory note in the principal amount of $25,000 with Frost Gamma (the "August
2015 Frost Gamma Note"), a trust controlled by Dr. Phillip Frost, which beneficially owns in excess of 10% of the Company’s
common stock. The interest rate payable by the Company on the August 2015 Frost Note is 11% per annum, payable on the maturity
date of July 31, 2017. The August 2015 Frost Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without
premium or penalty.
At July 31, 2015, the Company was obligated
under the above described Credit Facility and Promissory Notes to make future principal payments (excluding interest) as follows:
| Year Ending July 31, | |
| |
| | |
| |
| 2017 | |
| 1,400,000 | |
| | |
$ | 1,400,000 | |
The Company has
three classes of Preferred Stock. Holders of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are
entitled to vote with the holders of common stock as a single class on all matters.
Series B Preferred
Stock is not redeemable by the Company and has a liquidation value of $100 per share, plus declared and unpaid dividends, if any.
Dividends are non-cumulative, and are at the rate of $10 per share, if declared.
Series C Preferred
Stock is redeemable by the Company at a price of $0.10 per share upon 30 days prior written notice. This series has a liquidation
value of $1.00 per share plus declared and unpaid dividends, if any. Dividends are non-cumulative, and are at the rate of $0.10
per share, if declared. Each share of Series C Preferred Stock is convertible into 25 shares of the Company’s common stock
upon payment of a conversion premium of $4.20 per share of common stock. The conversion rate and the conversion premium are subject
to adjustments in the event of stock splits, stock dividends, reverse stock splits and certain other events.
Series D Preferred
Stock is not redeemable by the Company. This series has a liquidation value of $1,500 per share, plus declared and unpaid dividends,
if any. Each share of Series D Preferred Stock is convertible into 5,000 shares of the Company’s common stock. The conversion
rate is subject to adjustments in the event of stock splits, stock dividends, reverse stock splits and certain other events.
The Company issued
65,000 shares of the Company’s common stock for the conversion of 13 shares of Series D Preferred Stock during the twelve
months ended July 31, 2015 and did not issue any shares of the Company’s common stock for the twelve months ended July 31,
2014. No preferred stock dividends have been declared as of July 31, 2015 or 2014.
| 8. | BASIC
AND DILUTED LOSS PER SHARE |
Basic net loss per common share is computed
by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the
period. Diluted net loss per common share is computed giving effect to all dilutive potential common shares that were outstanding
during the period. Diluted potential common shares consist of incremental shares issuable upon exercise of stock options and warrants
and conversion of preferred stock. In computing diluted net loss per share for the years ended July 31, 2015 and 2014, no dilution
adjustment has been made to the weighted average outstanding common shares because the assumed exercise of outstanding options
and warrants and the conversion of preferred stock would be anti-dilutive.
Potential common shares not included in calculating diluted
net loss per share are as follows:
| | |
July 31, 2015 | | |
July 31, 2014 | |
| Stock options | |
| 378,750 | | |
| 378,750 | |
| Series C Preferred Stock | |
| 1,551,200 | | |
| 1,551,200 | |
| Series D Preferred Stock | |
| 13,910,000 | | |
| 13,975,000 | |
| Total | |
| 15,839,950 | | |
| 15,904,950 | |
| 9. | RELATED
PARTY TRANSACTIONS |
The Company signed a five year lease for
office space in Miami, Florida with a company controlled by Dr. Phillip Frost, who is the beneficial owner of more than 10% of
the Company’s common stock. The current rental payments under the Miami office lease, which commenced January 1, 2008 and
expired on December 31, 2012, are approximately $1,250 per month and are currently on a month-to-month basis. For the years ended
July 31, 2015 and 2014, the Company recorded rent expense related to the Miami lease of $15,000 and $15,000, respectively. At
July 31, 2015 and 2014, approximately $67,000 and $47,000 in rent was payable.
The Company signed a three year lease
for warehouse space in Hialeah, Florida with a company jointly controlled by Dr. Frost and Dr. Jane Hsiao, the Company’s
Chairman and Interim CEO. The rental payments under the Hialeah warehouse lease, which commenced February 1, 2009 and expired
on January 31, 2012, were approximately $5,000 per month for the first year and were subsequently on a month-to-month basis following
the expiration of the lease. As further described in Note 10, the Company vacated the Hialeah warehouse in September 2014 and
entered into a new lease with an unrelated third party. The Company recorded $6,000 and $62,000 of rent expense related to the
Hialeah lease for the years ended July 31, 2015 and 2014, respectively. At July 31, 2015 and 2014, approximately $115,000 and
$109,000 in rent was payable.
As more fully described in Note 6, the
Company entered into a $1.0 million Credit Facility in March 2010 with both an entity controlled by Dr. Frost and an entity controlled
by Dr. Hsiao. There were no advances under the Credit Facility for the years ended July 31, 2015 and 2014, respectively, and $1,000,000
was outstanding as of July 31, 2015 and 2014. The Company accrued interest expense related to the Credit Facility of approximately
$110,000 for each of the years ended July 31, 2015 and 2014, respectively. A total of $641,000 and $498,000 in accumulated interest
payable on the Credit Facility and promissory notes remained outstanding as of July 31, 2015 and July 31, 2014, respectively.
Dr. Hsiao, Dr. Frost and directors Steven
Rubin and Rao Uppaluri are each stockholders, current or former officers and/or directors or former directors of TransEnterix,
Inc. (formerly SafeStitch Medical, Inc.) (“TransEnterix”), a publicly-traded, medical device manufacturer, Tiger X
Medical, Inc. (“Tiger X”) (formerly known as Cardo Medical, Inc.), a publicly traded former medical device company,
and IDI, Inc. (“IDI”) (formerly known as Tiger Media), a publicly-traded data fusion company. The Company’s
Chief Financial Officer also served as the Chief Financial Officer of TransEnterix until October 2, 2013. The Company’s
Chief Financial Officer continued as an employee of TransEnterix until March 3, 2014, during which he supervised the Miami based
accounting staff of TransEnterix under a cost sharing arrangement whereby the total salaries of the Miami based accounting staff
was shared by the Company and TransEnterix. Since December 2009, the Company’s Chief Legal Officer has served
under a similar cost sharing arrangement as Corporate Counsel of IDI and as the Chief Legal Officer of each of TransEnterix and
Tiger X. The Company recorded additions to selling, general and administrative costs and expenses to account for the sharing of
costs under these arrangements of $32,000 and $36,000 for the years ended July 31, 2015 and 2014, respectively. Aggregate accounts
payable to TransEnterix totaled approximately $1,200 and $4,000 at July 31, 2015 and 2014, respectively.
On September 12,
2011, the Company entered into a promissory note in the principal amount of $50,000 with Frost Gamma, a trust controlled by Dr.
Phillip Frost, which beneficially owns in excess of 10% of the Company’s common stock. The interest rate payable by the
Company on the 2011 Frost Gamma Note is 11% per annum, payable on the maturity date of September 12, 2014 and subsequently the
date was extended to July 31, 2017 (the “Promissory Notes Maturity Date”). The Company may prepay either or both notes
in advance of the Promissory Notes Maturity Date without premium or penalty.
On May 30, 2012,
the Company entered into a promissory note in the principal amount of $50,000 with Hsu Gamma, an entity controlled by the Company’s
Chairman of the Board and Interim Chief Executive Officer, Jane H. Hsiao. The interest rate payable by the Company on the Hsu
Gamma Note is 11% per annum, payable on the maturity date of September 12, 2014 and subsequently the date was extended to July
31, 2017. The Hsu Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On February 22, 2013,
the Company entered into a promissory note in the amount of $50,000 with Jane Hsiao, the Company’s Chairman of the Board
and Interim Chief Executive Officer. The interest rate payable by the Company on the 2013 Hsiao Note is 11% per annum, originally
payable on the maturity date of September 12, 2014 and subsequently the date was extended to July 31, 2017. The 2013 Hsiao Note
may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On September 24,
2014, the Company entered into a promissory note in the principal amount of $50,000 with Jane Hsiao, the Company’s Chairman
of the Board and Interim Chief Executive Officer. The interest rate payable by the Company on the 2014 Hsiao Note is 11% per annum,
payable on the maturity date of July 31, 2017. The 2014 Hsiao Note may be prepaid in advance of the Promissory Notes Maturity
Date without penalty.
On February 2, 2015,
the Company entered into a promissory note in the principal amount of $50,000 with Jane Hsiao, the Company’s Chairman of
the Board and Interim Chief Executive Officer. The interest rate payable by the Company on the 2015 Hsiao Note is 11% per annum,
payable on the maturity date of July 31, 2017. The 2015 Hsiao Note may be prepaid in advance of the Promissory Notes Maturity
Date without penalty.
On April 16, 2015,
the Company entered into a promissory note in the amount of $100,000 with Frost Gamma"), a trust controlled by Dr. Phillip
Frost, which beneficially owns in excess of 10% of the Company’s common stock. The interest rate payable by the Company
on the April 2015 Frost Note is 11% per annum, payable on the maturity date of July 31, 2017. The April 2015 Frost Note may be
prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On August 12, 2015,
the Company entered into a promissory note in the principal amount of $25,000 with Frost Gamma, a trust controlled by Dr. Phillip
Frost, which beneficially owns in excess of 10% of the Company’s common stock. The interest rate payable by the Company
on the August 2015 Frost Note is 11% per annum, payable on the maturity date of July 31, 2017. The August 2015 Frost Note may
be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
Leases.
The Company is under
an operating lease agreement for our corporate office space that expired in 2012 and continues on a month to month basis.
We house our inventory
in approximately 4,000 square feet of warehouse space in Pembroke Park, Florida The lease commenced September 15, 2014 and expired
on September 30, 2015 and we are currently exercising our one year option to renew that extends the expiration to September 30,
2016. We then have available an additional one year option to renew.
Generally,
the lease agreements require the payment of base rent plus escalations for increases in building operating costs and real estate
taxes. Rental expense under these operating leases amounted to $60,000 and $77,000 for the years ended July 31, 2015 and 2014,
respectively.
Future minimum rental commitments under non-cancelable leases
are as approximately follows for the years ended July 31:
| 2016 | |
$ | 40,000 | |
| 2017 | |
| 7,000 | |
| Total | |
$ | 47,000 | |
Product Development and Supply Agreement.
On September 4, 2007, the Company entered
into a Product Development and Supply Agreement (the “Agreement”) with Sing Lin Technologies Co. Ltd., a company based
in Taichung, Taiwan ("Sing Lin"). Pursuant to the Agreement, the Company consigned to Sing Lin the development and design
of the next generation Exer-Rest and related devices. The Agreement commenced as of September 3, 2007 and had a term that extended
three years from the acceptance by NIMS of the first run of production units. Thereafter, the Agreement automatically renewed
for successive one year terms unless either party sent the other a notice of non-renewal. Either party was permitted to terminate
the Agreement with ninety days prior written notice. Upon termination, each party’s obligations under the Agreement were
to be limited to obligations related to confirmed orders placed prior to the termination date.
Pursuant to the Agreement, Sing Lin designed,
developed and manufactured the tooling required to manufacture the acceleration therapeutic platforms for a total cost to the
Company of $471,000. Sing Lin utilized the tooling in the performance of its production obligations under the Agreement. The Company
paid Sing Lin $150,000 of the tooling cost upon execution of the Agreement and $150,000 upon the Company’s approval of the
product prototype concepts and designs. The balance of the final tooling cost became due and payable in September 2008 upon acceptance
of the first units produced using the tooling, and was paid in full during the year ended July 31, 2009.
Under the now-terminated Agreement, the
Company also granted Sing Lin the exclusive distribution rights for the products in certain countries in the Far East, including
Taiwan, China, Japan, South Korea, Malaysia, Indonesia and certain other countries. Sing Lin agreed not to sell the Products outside
its geographic areas in the Far East.
The Agreement provided for the Company
to purchase approximately $2.6 million of Exer-Rest units within one year of the September 2008 acceptance of the final product.
The Agreement further provided for the Company to purchase $4.1 million and $8.8 million of Exer-Rest products in the second and
third years following such acceptance, respectively. These minimum purchase amounts were based upon 2007 product costs multiplied
by volume commitments. Through July 31, 2015, the Company had paid Sing Lin $1.7 million in connection with orders placed through
that date. As of July 31, 2015, the Company has approximately $41,000 of payables due to Sing Lin. As of July 31, 2015, aggregate
minimum future purchases under the Agreement totaled approximately $13.9 million.
As of July 31, 2015, the Company had not
placed orders sufficient to meet the first-year or second-year minimum purchase obligations under the Agreement. The Company notified
Sing Lin in June 2010 that it was terminating the Agreement effective September 2010, and Sing Lin in July 2010 demanded that
the Company place orders sufficient to fulfill the three year minimum purchase obligations in the Agreement. As of October 23,
2015 Sing Lin has not followed up on its July 2010 demand. There can be no assurance that Sing Lin will not attempt to enforce
its remedies under the Agreement, or pursue other potential remedies.
The Company’s long-lived assets
include furniture and equipment, computers, tooling, websites and software, leasehold improvements, patents and trademarks. Tooling
and equipment, net of accumulated depreciation, consisted of the following at July 31, 2015 and 2014 (in thousands):
| | |
Estimated
Useful Life | |
July
31, 2015 | | |
July
31, 2014 | |
| Furniture and fixtures, leasehold improvements,
office equipment and computers | |
3 – 5 years | |
$ | 85 | | |
$ | 85 | |
| Website and software | |
3 years | |
| 26 | | |
| 26 | |
| | |
| |
| 111 | | |
| 111 | |
| Less accumulated depreciation | |
| |
| (110 | ) | |
| (110 | ) |
| Tooling and equipment, net | |
| |
$ | 1 | | |
$ | 1 | |
Depreciation
expense was $0 and $0 for the years ended July 31, 2015 and 2014, respectively. Nine Exer-Rest AT3800 and AT4700 demonstration
units are included in demo equipment at an aggregate cost of $25,000. These units were placed in service in fiscal 2009 and 2010,
and are being depreciated based upon five-year estimated useful lives. In June 2014, the Company transferred an Exer-Rest unit
with a net book value of $0 from long-lived assets to inventory.
The Company accounts for income taxes
using the asset and liability method, the objective of which is to establish deferred tax assets and liabilities for the temporary
differences between the financial reporting and the tax bases of the Company’s assets and liabilities at enacted tax rates
expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded
when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The
accounting for uncertain tax positions guidance under ASC 740 requires that we recognize the financial statement benefit
of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following
an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the
largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant
tax authority. The application of this guidance does not impact
the Company’s financial position, results of operations or cash flows for the years ended July 31, 2015 and 2014.
The Company files its tax returns in the
U.S. federal jurisdiction, Canada federal jurisdiction and with various U.S. states and the Ontario province of Canada. The Company
is subject to tax audits in all jurisdictions for which it files tax returns. Tax audits by their very nature are often complex
and can require several years to complete. There are currently no tax audits that have commenced with respect to income tax or
any other returns in any jurisdiction. Tax years ranging from 2012 to 2015 remain open to examination by various taxing jurisdictions
as the statute of limitations has not expired. Because the Company is carrying forward income tax attributes, such as net operating
losses and tax credits from 2011 and earlier tax years, these attributes can still be audited when utilized on returns filed in
the future. It is the Company’s policy to include income tax interest and penalties expense in its tax provision.
The difference between income taxes at
the statutory federal income tax rate and income taxes reported in the consolidated comprehensive statements of operations are
attributable to the following:
| | |
July 31, 2015 | | |
July 31, 2014 | |
| Income tax benefit at the federal statutory rate | |
| 34.00 | % | |
| 34.00 | % |
| State and local income taxes, net of effect of federal taxes | |
| 3.63 | | |
| 3.63 | |
| Expiration of net operating losses | |
| 0 | | |
| 0 | |
| Other, net | |
| 0 | | |
| 0 | |
| Increase in valuation allowance | |
| (37.63 | ) | |
| (37.63 | ) |
| Provision for income tax | |
| 0.00 | % | |
| 0.00 | % |
The tax effects of temporary differences
that give rise to significant portions of the deferred tax assets consist of the following (in thousands):
| | |
July 31, 2015 | | |
July 31, 2014 | |
| Federal and State net operating loss | |
$ | 5,684 | | |
$ | 5,533 | |
| Foreign net operating loss | |
| 18 | | |
| 18 | |
| Stock-based compensation and other | |
| 315 | | |
| 308 | |
| | |
| 6,017 | | |
| 5,859 | |
| Less: Valuation allowance | |
| (6,017 | ) | |
| (5,859 | ) |
| Net deferred tax asset | |
$ | – | | |
$ | – | |
At July 31, 2015, the Company had available
Federal and State net operating loss carry forwards of approximately $15.1 million and foreign net operating loss carry forwards
of approximately $0.1 million which expire in various years beginning in 2019. Total Federal and State net operating
loss carry forwards include approximately $2.0 million generated from the exercise of non-statutory stock options. The net operating
loss carry forwards may be subject to limitation due to change of ownership provisions under section 382 of the Internal Revenue
Code and similar state provisions.
A valuation allowance is required to reduce
the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management
has determined that a full $6.0 million valuation allowance at July 31, 2015 ($5.9 million at July 31, 2014) was necessary. The
increases in the valuation allowance for the years ended July 31, 2015 and 2014 were $158,000 and $166,000, respectively. Of the
total increase in the valuation allowance for the years ended July 31, 2015 and 2014, approximately $0 and $0, respectively, was
attributed to the exercise of non-statutory stock options.
The Company paid no income taxes in 2015
or 2014. As of the date of these financial statements, the Company has not yet filed its July 31, 2014 federal or state returns. The
Company does not anticipate any material effect to the Company' s financial positions as a result.
| 13. | EMPLOYEE
BENEFIT PLANS |
Effective July 2008, the Non-Invasive
Monitoring Systems 401(k) Plan (the “401k Plan”) permits employees to contribute up to 100% of qualified annual compensation
up to annual statutory limitations. Employee contributions may be made on a pre-tax basis to a regular 401(k) account, or on an
after-tax basis to a “Roth” 401(k) account. The Company contributes to the 401k Plan a “safe harbor” match
of 100% of each participant’s contributions to the 401k Plan up to a maximum of 4% of the participant’s qualified
annual earnings. For the years ended July 31, 2015 and 2014, the Company did note record any compensation expense related to matching
contributions to the 401k Plan.
| 14. | CONCENTRATIONS
OF RISK |
Financial instruments that potentially
subject the Company to risk consist principally of cash, royalties and other receivables, and purchases and advances to contract
manufacturer.
Cash. The Company does not have
have cash deposits in excess of the Federal Deposit Insurance Corporation (“FDIC”) limit.
Royalties and Other Receivables.
The Company currently grants credit to a limited number of customers, substantially all of whom are corporations and medical providers
located throughout the United States and Canada. The Company typically does not require collateral from these customers.
Purchases from and Advances to Contract
Manufacturer. Substantially all of the Company’s current inventory has been acquired from Sing Lin pursuant to the now-terminated
Agreement. The Company notified Sing Lin in June 2010 that it was terminating the agreement effective September 2010. If the Company
is unable to establish a contract and obtain a sufficient alternative supply from Sing Lin or another supplier, it may not be
able to procure additional inventory on a timely basis or in the quantities required. Sing Lin and its subcontractors currently
maintain custody of the Company’s specialized tooling, which could adversely impact the Company’s ability to reallocate
production to other vendors.
Major Customers. Approximately
0% and 64% of the Company’s revenues for the year ended July 31, 2015 and 2014, respectively, resulted from sales to authorized
distributors outside of the United States. Sales to foreign distributors generally require prepayment by such distributors or
letter of credit guarantees in respect of payments by such distributors.
15. SUBSEQUENT EVENTS
On August 12, 2015,
the Company entered into a promissory note in the principal amount of $25,000 with Frost Gamma (the "August 2015 Frost Note"),
a trust controlled by Dr. Phillip Frost, which beneficially owns in excess of 10% of the Company’s common stock. The interest
rate payable by the Company on the August 2015 Frost Note is 11% per annum, payable on the maturity date of July 31, 2017. The
August 2015 Frost Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
| Item 9. | Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
| Item 9A(T). | Controls
and Procedures. |
The Company’s
management, with the participation of its Interim Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
or 15d-15(e)) as of July 31, 2015. Based upon that evaluation, the Interim Chief Executive Officer and Chief Financial Officer
concluded that, as of that date, the Company’s disclosure controls and procedures were effective as of the end of the period
covered by this annual report.
Management’s
Report on Internal Control over Financial Reporting
Management is responsible
for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations
of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial
statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
For the period ended
July 31, 2015, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, management (with the participation of our principal
executive officer and principal financial officer) conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that, as of July 31, 2015, our
internal control over financial reporting was effective.
This annual report
does not include an attestation report of our registered public accounting firm, Morrison, Brown, Argiz & Farra, LLC, regarding
internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting
firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual
report.
Changes in Internal
Control Over Financial Reporting
There were no changes
in the Company’s internal control over financial reporting during the last quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
| Item 9B. | Other
Information. |
None.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
We believe that the
combination of the respective qualifications, skills and experience of our directors contribute to an effective and well-functioning
board and that, individually and as a whole, our directors possess the necessary qualifications to provide effective oversight
of our business and quality advice to our management. Our directors are elected annually and serve until the next annual meeting
of shareholders and until their successors are elected and appointed, or until his or her earlier resignation, removal from office
or death. Information regarding the age, experience and qualifications of each director is set forth below.
Name |
|
Age |
| Jane H. Hsiao, Ph.D., MBA |
|
68 |
| Marvin A. Sackner, M.D. |
|
83 |
| Taffy Gould |
|
73 |
| Morton J. Robinson, M.D. |
|
83 |
| Steven D. Rubin |
|
55 |
| Subbarao V. Uppaluri, Ph.D. |
|
66 |
Jane H. Hsiao,
Ph.D., MBA. Dr. Hsiao has served as a Director and Chairman of the Board of Directors (the “Board”)
of the Company since October 2008 and as Interim Chief Executive Officer since February 2012. Dr. Hsiao has served as Vice
Chairman and Chief Technical Officer of OPKO Health, Inc. (“OPKO”), a specialty healthcare company, since May 2007
and as a director since February 2007. Dr. Hsiao served as the Vice Chairman – Technical Affairs of IVAX from 1995
to January 2006. Dr. Hsiao served as Chairman, Chief Executive Officer and President of IVAX Animal Health, IVAX’s
veterinary products subsidiary, from 1998 to 2006. Dr. Hsiao is also a director of each of TransEnterix, Inc., a medical
device company, Neovasc, Inc., a company developing and marketing medical specialty vascular devices, and Cocrystal Pharma, Inc.,
a biotechnology company developing antiviral therapeutics for human diseases. Dr. Hsiao previously served as a director for
Sorrento Therapeutics, Inc., a development stage pharmaceutical company, PROLOR Biotech, Inc., prior to its acquisition by OPKO
in August 2013, and as Chairman of the Board of SafeStitch Medical, Inc., a medical device company, prior to its merger with TransEnterix,
Inc.
Dr. Hsiao’s
background in medical device and pharmaceutical industry, as well as her senior management experience, allow her to play an integral
role in overseeing our product development and regulatory affairs and in navigating the regulatory pathways for our products and
product candidates. In addition, as a result of her role as director and/or chairman of other companies in the biotechnology and
life sciences space, she also has a keen understanding and appreciation of the many regulatory and development issues confronting
pharmaceutical and biotechnology companies.
Marvin A. Sackner,
M.D. Dr. Sackner has served as a Director since he was first elected as our Chairman of the Board, Chief Executive Officer
and Director in November 1989 and served as Chairman of the Board from November 1989 until October 2008. He served as our CEO
from 1989 until 2002 and from December 2007 to February 2012. In 1977, Dr. Sackner co-founded Respitrace Corporation, a predecessor
to the Company, and was the Chairman of its board of directors from 1981 until October 1989. Dr. Sackner served as a director
of Continucare Corporation (“Continucare”), a provider of outpatient healthcare services, until October 2011. From
1974 until October 1991, Dr. Sackner was the Director of Medical Services at Mount Sinai in Miami Beach, Florida. From 1973 through
1996, he served as Professor of Medicine, University of Miami at Mount Sinai. Since 2004, he has been Voluntary Professor of Medicine,
Leonard Miller Medical School of University of Miami. From 1979 to 1980, Dr. Sackner was the President of the American Thoracic
Society. Dr. Sackner was the Chairman of the Pulmonary Disease Subspecialty Examining Board of the American Board of Internal
Medicine from 1977 to 1980. In 2007, he was awarded an Honorary Doctorate Degree for "outstanding work in the entire field
of pulmonology and sleep disorders," by the University of Zurich (Switzerland). Dr. Sackner holds more than 30 U.S. patents
and has published four books and more than 200 scientific papers.
Dr. Sackner’s
experience as the Company’s former CEO, as a medical doctor and as the primary inventor of the Company’s products
enables him to provide valuable board leadership and insight into the development of our products.
Taffy Gould.
Ms. Gould has served as a Director of the Company since December, 2000 and served as Vice Chairman of the Board from April
2002 to October 2008. Since 1977, she has been the President of Housing Engineers of Florida, Inc., a Florida real estate management
company. Since 2002 she has served as Chairman of the Oceania University of Medicine, an internationally accredited medical school
located in Apia, Samoa. Additionally, she has served since March 2002 as the managing member of e-Medical Education, LLC, a company
founded in 2002 that creates and delivers online medical education and administers the Oceania University of Medicine.
Ms. Gould’s
varied marketing, business, healthcare and medical education experience bring valuable insight, leadership and a unique perspective
to the Board.
Morton J. Robinson,
M.D. has served as a Director of the Company since November 1989, and served as Secretary of the Company from August 2001
to November 2009. Dr. Robinson has been a practicing pathologist since 1961, and from 1987 until December 2004, Dr. Robinson served
as Director and Chairman of the Department of Pathology and Laboratory Medicine at Mount Sinai Medical Center, Miami Beach. Dr.
Robinson has served as Chairman Emeritus of that department since January 2005.
Dr. Robinson’s
medical background and expertise brings a unique perspective to our Board on a variety of medical and healthcare related issues.
We believe Dr. Robinson’s insight and experience will be valuable in the further development of our products.
Steven D. Rubin.
Mr. Rubin has served as a Director of the Company since October 2008. Mr. Rubin has served as Executive Vice President
– Administration of OPKO since May 2007 and as a director since February 2007. Mr. Rubin served as the Senior Vice
President, General Counsel and Secretary of IVAX from August 2001 until September 2006. Mr. Rubin currently serves on the
board of directors of IDI, Inc. (formerly Tiger Media, Inc.), a data analytics information provider to the risk management industry,
Kidville, Inc., which operates large, upscale facilities, catering to newborns through five-year-old children and their families
and offers a wide range of developmental classes for newborns to five-year-olds, Tiger X Medical, Inc., previously an early-stage
orthopedic medical device company specializing in designing, developing and marketing reconstructive joint devices and spinal
surgical devices, Cocrystal Pharma Inc., a biotechnology company developing antiviral therapeutics for human diseases, Castle
Brands, Inc., a developer and marketer of premium brand spirits, Neovasc, Inc., a company developing and marketing medical specialty
vascular devices, and Sevion Therapeutics Inc. (formerly Senesco Technologies, Inc.), a clinical stage company which discovers
and develops next-generation biologics for the treatment of cancer and immunological diseases. Mr. Rubin previously served
as a director of Dreams, Inc., a vertically integrated sports licensing and products company, Safestitch Medical, Inc. prior to
its merger with TransEnterix, Inc., and PROLOR Biotech, Inc., prior to its acquisition by OPKO in August 2013.
Mr. Rubin brings to
the Board his extensive leadership, business and legal experience, as well as his extensive knowledge of the pharmaceutical and
life science industry generally. Mr. Rubin has more than 20 years’ experience advising a broad range of companies in many
aspects of business, regulatory, transactional and legal affairs. His experience as a practicing lawyer, general counsel and board
member for multiple public companies, including several life sciences, medical device and pharmaceutical companies, has given
him broad understanding and expertise, particularly relating to strategic planning and acquisitions.
Subbarao V.
Uppaluri, Ph.D. Dr. Uppaluri has served as a Director of the Company since October 2008. Dr. Uppaluri served as a consultant
until February 2014 to OPKO and has previously served as Senior Vice President and Chief Financial Officer of OPKO from May 2007
until July 2012. Dr. Uppaluri is a member of The Frost Group. Dr. Uppaluri served as the Vice President, Strategic Planning and
Treasurer of IVAX from 1997 until December 2006. Before joining IVAX, from 1987 to August 1996, Dr. Uppaluri was Senior Vice President,
Senior Financial Officer and Chief Investment Officer with Intercontinental Bank, a publicly traded commercial bank in Florida.
In addition, he served in various positions, including Senior Vice President, Chief Investment Officer and Controller, at Peninsula
Federal Savings & Loan Association, a publicly traded Florida S&L, from October 1983 to 1987. His prior employment, during
1974 to 1983, included engineering, marketing and research positions with multinational companies and research institutes in India
and the United States. Dr. Uppaluri currently serves on the board of directors of Kidville and Tiger X. Dr. Uppaluri previously
served on the boards of OPKO, Winston Pharmaceuticals Inc. and Ideation Acquisition Corp.
Dr. Uppaluri brings
extensive leadership, business, and accounting experience, as well as knowledge of our business and the pharmaceutical industry
generally, to the Board. His experience as the former chief financial officer of OPKO and board member to multiple public companies,
including several pharmaceutical and life sciences companies, has given him broad understanding and expertise, particularly relating
to business, accounting and finance matters.
Identification of Executive Officers
The following
individuals are our executive officers:
| Name |
|
Age |
|
Position |
| Jane H. Hsiao, Ph.D., MBA |
|
68 |
|
Interim Chief Executive Officer and Director |
| James J. Martin, CPA, MBA |
|
48 |
|
Chief Financial Officer and Treasurer |
Each of our officers
serves until the earlier of her or his resignation, removal by the Board or death.
Biographical information for Jane H. Hsiao
is set forth above.
James
J. Martin. Mr. Martin, has served as our Chief Financial Officer since January 2011,
and, from July 2010 through January 2011, he served as our Controller. From January 2011 to October 2, 2013, Mr. Martin
served as Chief Financial Officer of SafeStitch prior to its merger with TransEnterix, Inc. Since September 2014 Mr. Martin
has served as Chief Financial Officer of Scivac Therapeutics, Inc. (TSX: VAC), pharmaceutical development and manufacturing company.
From April 2014 to September 2015, Mr. Martin served as Chief Financial Officer of Vapor Corp, Inc. (NASDAQ: VPCO), a vaporizer
retail and wholesale company. From July 2010 through January 2011, Mr. Martin served as Controller of each of SafeStitch and Aero
Pharmaceuticals, Inc. (“Aero”). Prior to joining NIMS, from 2008 through 2010, Mr. Martin served as Controller of
AAR Aircraft Services-Miami, a subsidiary of AAR Corp, an aerospace and defense company at which he was responsible for all financial
reporting and logistics for AAR Aircraft Services-Miami. From 2005-2008, Mr. Martin served as Controller of Avborne Heavy
Maintenance, a commercial aircraft maintenance repair and overhaul company. Mr. Martin previously has served as Vice President
of Finance of Aero, a privately held pharmaceutical distributor.
Section 16(a) Beneficial
Ownership Reporting Compliance
Under section 16(a)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s directors, executive
officers and persons who own more than ten percent (10%) of our common stock are required to file with the Securities and Exchange
Commission (the “SEC”) initial reports of ownership and reports of changes in ownership of the common stock and other
equity securities of the Company. To the Company’s knowledge, based solely on a review of copies of such reports furnished
to the Company during and/or with respect to Fiscal 2014, the Company is not aware of any late or delinquent filings required
under Section 16(a) of the Exchange Act in respect of the Company’s common stock or other equity securities.
Code of Ethics
We have adopted a
Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer and other persons
performing similar functions. A copy of our Code of Business Conduct and Ethics is available on our website at www.nims-inc.com.
We intend to post amendments to, or waivers from a provision of, our Code of Business Conduct and Ethics that apply to our principal
executive officer, principal financial officer or persons performing similar functions on our website. Neither our website nor
any information contained or linked therein constitutes a part of this report.
Audit Committee
We have a separately-designated
standing audit committee, established in accordance with section 3(a)(58)(A) of the Exchange Act. The Audit Committee is composed
of the following non-employee directors: Dr. Subbarao V. Uppaluri, Chairman, Taffy Gould and Steven D. Rubin. Our Board has determined
that Dr. Uppaluri is an independent audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.
Item
11. Executive Compensation.
Summary Compensation Table
The following table
summarizes the compensation information for the years ended July 31, 2015 and 2014 for our principal executive officer and each
of the two most highly compensated executive officers receiving compensation in excess of $100,000 in any such fiscal year. We
refer to these persons as our named executive officers.
SUMMARY COMPENSATION TABLE
| Name and Principal Position | |
Year | | |
Salary ($) | | |
Bonus ($) | | |
Option
Awards
($) | | |
All
Other Compensation ($)
| | |
Total ($) | |
| Jane Hsiao – Interim CEO (1) | |
2015 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| | |
2014 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| 1. | Dr. Hsiao receives no salary from
the Company. |
Outstanding Equity
Awards as of July 31, 2015
The following table
sets forth information with respect to outstanding option awards as of July 31, 2015 for our named executive officers. We did
not grant any stock awards in Fiscal 2015.
| | |
Option Awards |
| Name | |
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable | | |
Number
of Securities Underlying
Unexercised
Options (#)
Unexercisable | | |
Option
Exercise
Price ($) | | |
Option Expiration Date |
| Jane Hsiao, Interim CEO | |
| 25,000 | | |
| – | | |
$ | 0.32 | | |
February 23, 2016 |
| | |
| 20,000 | | |
| – | | |
$ | 0.43 | | |
March 8, 2017 |
Risk Considerations
in our Compensation Programs
We have reviewed our
compensation structures and policies as they pertain to risk and have determined
that our compensation programs do not create or encourage the taking of risks that are reasonably likely to have a
material adverse effect on the Company.
We did not grant any
stock awards in the year ended July 31, 2015. As of July 31, 2015, the aggregate number of outstanding stock options (both exercisable
and unexercisable) for each non-employee director was as follows:
| Name | |
Stock Options | |
| Jane H. Hsiao, Chairman/CEO | |
| 45,000 | |
| Marvin Sackner, M.D. | |
| 125,000 | |
| Taffy Gould | |
| 20,000 | |
| Morton J. Robinson, M.D. | |
| 20,000 | |
| Steven D. Rubin | |
| 35,000 | |
| Subbarao V. Uppaluri, Ph.D. | |
| 35,000 | |
Director Compensation
For the year ended
July 31, 2015, our Directors did not receive any compensation for their respective service on our Board or any committee thereof.
| Item 12. | Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table
sets forth certain information as of October 6, 2014 concerning the beneficial ownership of our voting stock by (i) each
person known by us to be the beneficial owner of more than 5% of the outstanding shares of each class of voting stock, (ii) each
of our directors, (iii) each current named executive officer, and (iv) all of our current named executive officers and
directors as a group. Unless otherwise noted, all holders listed below have sole voting power and investment power over the shares
beneficially owned by them, except to the extent such power may be shared with such person’s spouse.
| | |
Common Stock | | |
Series C Convertible
Preferred Stock | | |
Series D Convertible
Preferred Stock | |
Names and Addresses of Directors,
Officers and 5% Beneficial Holders (1) | |
No. of Shares
Beneficially
Owned (2) | | |
Percent
of Class
(3) | | |
No. of Shares
Beneficially
Owned(2) | | |
Percent
of Class
(4) | | |
No. of Shares
Beneficially
Owned(2) | | |
Percent
of Class
(5) | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Jane H. Hsiao, Ph.D., Chairman of the Board and Interim CEO (6) | |
| 16,265,000 | | |
| 19.2 | % | |
| – | | |
| * | | |
| 1,164 | | |
| 41.6 | % |
| Marvin A. Sackner, M.D., Director (7) | |
| 140,000 | | |
| * | | |
| – | | |
| * | | |
| – | | |
| * | |
| Taffy Gould, Director (8) | |
| 1,561,998 | | |
| 2.0 | % | |
| – | | |
| * | | |
| 50 | | |
| 1.8 | % |
| Morton Robinson, M.D., Director (9) | |
| 1,040,320 | | |
| 1.3 | % | |
| 1,073 | | |
| 1.7 | % | |
| – | | |
| * | |
| Steven D. Rubin, Director | |
| 135,000 | | |
| * | | |
| – | | |
| * | | |
| – | | |
| * | |
| Subbarao V. Uppaluri, Ph.D., Director | |
| 35,000 | | |
| * | | |
| – | | |
| * | | |
| – | | |
| * | |
| James J. Martin, Chief Financial Officer | |
| 25,000 | | |
| * | | |
| – | | |
| * | | |
| – | | |
| * | |
| All Directors and Executive Officers as a group (7 Persons) (10) | |
| 19,227,318 | | |
| 22.5 | % | |
| 1,073 | | |
| 1.7 | % | |
| 1,214 | | |
| 43.4 | % |
| Phillip Frost, M.D. (11) | |
| 21,348,125 | | |
| 25.0 | % | |
| 525 | | |
| * | | |
| 1,267 | | |
| 45.3 | % |
| Frost Gamma Investments Trust (12) | |
| 21,347,500 | | |
| 25.0 | % | |
| 500 | | |
| * | | |
| 1,267 | | |
| 45.3 | % |
| Hsu Gamma Investments, L.P. (13) | |
| 3,670,000 | | |
| 4.4 | % | |
| – | | |
| * | | |
| 734 | | |
| 26.3 | % |
| Richard Rosenstock (14) | |
| 4,800,540 | | |
| 6.1 | % | |
| – | | |
| * | | |
| – | | |
| * | |
| * |
Less
than 1% |
| (1) |
The mailing address
of each 5% beneficial holder listed is 4400 Biscayne Blvd., Miami, Florida 33137. |
| (2) |
A person
is deemed to be the beneficial owner of common stock and preferred stock that can be acquired by such person within 60 days
from July 31, 2015 upon exercise of option and warrants, or through the conversion of convertible preferred stock. |
| (3) |
Based on 79,007,423
shares of common stock issued and outstanding as of July 31, 2015. Each beneficial owner’s percentage ownership
is determined by assuming that options and warrants that are held by such person (but not those held by any other person)
and that are exercisable within 60 days from the date hereof have been exercised and that any convertible secured stock held
by such person (but no other person) has been converted into common stock.. |
| (4) |
Based on 62,048
shares of Series C Convertible Preferred Stock issued and outstanding as of July 31, 2015. Each share of Series
C Convertible Preferred Stock converts into 25 shares of common stock upon payment of a $4.20 per share of common stock conversion
premium. Holders of Series C Convertible Stock are entitled to one vote for each share of Series C Convertible
Stock. |
| (5) |
Based on 2,782
shares of Series D Convertible Preferred Stock issued and outstanding as of July 31, 2015. Each share of Series
D Convertible Preferred Stock converts into 5,000 shares of common stock. Holders of Series D Convertible Stock
are entitled to one vote for each share of Series D Convertible Stock. |
| (6) |
Common stock holdings
include 2,150,000 shares of common stock that may be acquired upon conversion of 430 shares of Series D Convertible Preferred
Stock held by the Chin Hsiung Hsiao Family Trust A, and 3,670,000 shares of common stock that may be acquired upon conversion
of 734 shares of Series D Convertible Preferred Stock held by Hsu Gamma Investments, L.P. Dr. Hsiao is trustee
of the Chin Hsiung Hsiao Family Trust A. and Dr. Jane Hsiao is the general partner of Hsu Gamma Investments, L.P. |
| (7) |
Common stock holdings
include options to purchase 125,000 shares of common stock. |
| (8) |
Common stock holdings
include options to purchase 20,000 shares of common stock and 250,000 shares of common stock which may be acquired upon conversion
of 50 shares of Series D Convertible Preferred Stock. Includes securities held by the Taffy Gould Revocable Trust
of which Ms. Gould is trustee and sole beneficiary and over which she has power to revoke. Does not include shares
of common stock and options to purchase common stock held by family members. |
| (9) |
Includes options
to purchase 20,000 shares of common stock, 186,159 shares held jointly with Dr. Robinson’s spouse and 26,250 shares
owned by Dr. Robinson’s spouse. Includes 26,829 shares of common stock which may be acquired upon conversion
of 1,073 shares of Series C Convertible Preferred Stock. |
| (10) |
Common stock holdings
include options to purchase 280,000 shares of common stock, 26,829 shares of common stock which may be acquired upon conversion
of 1,073 Series C Convertible Preferred Stock and 5,820,000 shares of common stock which may be acquired upon conversion of
1,164 shares of Series D Convertible Preferred Stock. |
| (11) |
Common stock holdings
include 625 shares of common stock that may be acquired upon conversion of 25 shares of Series C Convertible Preferred Stock. Common
stock and Preferred Stock holdings include beneficial ownership of shares held by Frost Gamma Investments Trust (See Note
12). |
| (12) |
Common stock holdings
include 12,500 shares of common stock that may be acquired upon conversion of 500 shares of Series C Convertible Preferred
Stock and 6,335,000 shares of common stock that may be acquired upon conversion of 1,267 shares of Series D Convertible Preferred
Stock. Dr. Phillip Frost is the trustee and Frost Gamma, Limited Partnership is the sole and exclusive beneficiary
of Frost Gamma Investments Trust. Dr. Frost is one of two limited partners of Frost Gamma, Limited Partnership. The
general partner of Frost Gamma Limited Partnership is Frost Gamma Inc. and the sole shareholder of Frost Gamma, Inc. is Frost-Nevada
Corporation. Dr. Frost is also the sole shareholder of Frost-Nevada Corporation. |
| (13) |
Common stock holdings
include 3,670,000 shares of common stock that may be acquired upon conversion of 734 shares of Series D Convertible Preferred
Stock. Dr. Jane Hsiao is the general partner of Hsu Gamma Investments, L.P. |
| (14) |
Common stock holdings
include 1,387,916 shares held directly, 166,200 shares held in a retirement account for the benefit of Richard J. Rosenstock,
10,000 shares held by Mr. Rosenstock’s spouse, 3,200,000 shares owned by Mr. Rosenstock’s spouse as trustee for
Mr. Rosenstock’s spouse, 65,900 shares owned in an IRA for the benefit of Mr. Rosenstock’s spouse, 65,000 shares
owned in an IRA for the benefit of Mr. Rosenstock and 640,540 shares owned by the Rosenstock Family partnership. |
Equity Compensation Plan Information
A majority of our
shareholders approved the Non-Invasive Monitoring Systems, Inc. 2011 Equity Incentive Plan (the “2011 Plan”) on March
16, 2012. We have reserved a total of 4,000,000 shares of our common stock for issuance under this plan, subject to adjustment
for stock splits or any future stock dividends or other similar changes in our common stock or our capital structure. Our previous
2000 Stock Option Plan (the “2000 Plan”) reserved a total of 2,000,000 shares of our common stock for issuance, also
subject to adjustment for stock splits or any stock dividends or other similar changes in our common stock or our capital structure.
As of July 31, 2015, no options have been granted under the 2011 Plan and options to purchase 378,750 shares of common stock have
been granted under the 2000 Plan. A more detailed summary of the 2000 Plan is contained in Note 4 to our consolidated financial
statements set forth herein under Item 8 of this Annual Report on Form 10-K. The following table provides information about our
equity compensation plans as of July 31, 2015:
| | |
Number
of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a) | | |
Weighted-average
exercise price of
outstanding
options, warrants
and
rights
(b) | | |
Number
of securities
remaining available for
future issuance under
equity compensation plans
(c) | |
| Equity compensation plans approved by security
holders(1) | |
| 378,750 | | |
$ | 0.38 | | |
| 4,000,000 | |
| Equity compensation plans not approved by security
holders(2) | |
| – | | |
| – | | |
| – | |
| | |
| | | |
| | | |
| | |
| Total | |
| 378,750 | | |
$ | 0.38 | | |
| 4,000,000 | |
| (1) | Non-Invasive Monitoring
Systems, Inc. 2000 and 2011 Stock Option Plans. The balance of outstanding options granted
under the 2000 Plan was 378,750. The 2000 Plan has expired and no future grants can be
made from the 2000 Plan. The 2011 Plan authorizes
up to 4,000,000 shares of our common stock. No options have been granted under the
2011 Stock Option Plan. |
| (2) | There are no outstanding
options that were not granted under shareholder approved plans. |
In
November 2010, our Board and Compensation Committee approved the Non-Invasive Monitoring Systems, Inc. 2011 Stock Incentive Plan
(the “2011 Plan”). Awards granted under the 2011 Plan may consist of incentive stock options, stock appreciation rights
(SAR), restricted stock grants, restricted stock units (RSU) performance shares, performance units or cash awards. The 2011 Plan
authorizes up to 4,000,000 shares of our common stock for issuance pursuant to the terms of the 2011 Plan. The 2011 Plan
was approved by our shareholders in March 2012 and no awards have been granted under the 2011 Plan as of July 31, 2015.
| Item 13. | Certain
Relationships and Related Transactions, and Director Independence. |
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
Our principal corporate
office is located at 4400 Biscayne Blvd., Suite 180, Miami, Florida. We rent this space from Frost Real Estate Holdings, LLC,
a company controlled by Dr. Phillip Frost, who is the beneficial owner of more than 10% of our common stock. We currently lease
approximately 1,800 square feet under the lease agreement, which had a five-year term that began on January 1, 2008. The lease
required annual rent of approximately $56,000, and increased by approximately 4.5% per year. The lease expired on December 31,
2012 and we have been renting on a month-to-month basis at approximately $1,250 per month.
We also leased approximately
5,200 square feet of warehouse space in Hialeah, Florida from a company jointly controlled by Dr. Frost and Dr. Hsiao, our Chairman
of the Board. The warehouse lease, which had a three-year term that began on February 1, 2009, required annual rent of approximately
$58,000, which increased by approximately 3.5% per year. The lease expired on January 31, 2012 and we had been renting on a month-to-month
basis until September 2014. We vacated the Hialeah warehouse in September 2014 and entered into a new lease with an unrelated
third party.
Dr. Hsiao, Dr. Frost
and directors Steven Rubin and Rao Uppaluri are each stockholders, current or former officers and/or directors or former directors
of TransEnterix, Inc. (formerly SafeStitch Medical, Inc.) (“TransEnterix”), a publicly-traded, medical device manufacturer,
Tiger X Medical, Inc. (“Tiger X”) (formerly known as Cardo Medical, Inc.), a publicly traded former medical device
company, and IDI, Inc. (“IDI”) (formerly known as Tiger Media), a publicly-traded data fusion company. The Company’s
Chief Financial Officer also served as the Chief Financial Officer of TransEnterix until October 2, 2013. The Company’s
Chief Financial Officer continued as an employee of TransEnterix until March 3, 2014, during which he supervised the Miami based
accounting staff of TransEnterix under a cost sharing arrangement whereby the total salaries of the Miami based accounting staff
was shared by NIMS and TransEnterix. Since December 2009, the Company’s Chief Legal Officer has served under
a similar cost sharing arrangement as Corporate Counsel of IDI and as the Chief Legal Officer of each of TransEnterix and Tiger
X. Under the cost sharing arrangement, certain accounting, finance and legal professionals make themselves available to the other
parties to the arrangement. We recorded aggregate fees of $32,000 for the year ended July 31, 2015 for the sharing of costs under
this arrangement with TransEnterix.
On March 31, 2010,
we entered into a Note and Security Agreement with both an entity controlled by Dr. Frost and an entity controlled by Dr. Hsiao
(the “Lenders”), pursuant to which the Lenders granted us a revolving credit line (the “Credit Facility”)
in the aggregate principal amount of $1.0 million, secured by all of our personal property. We are permitted to borrow and reborrow
from time to time under the Credit Facility until July 31, 2017. The interest rate payable by us on amounts outstanding under
the Credit Facility is 11% per annum and increases to 16% per annum after the Maturity Date or after an event of default. We are
required to repay all amounts owing under the Credit Facility by the maturity date, and amounts outstanding are prepayable at
any time. As of July 31, 2015, we had drawn an aggregate of $1.0 million under the Credit Facility and there is no available balance
remaining. The Credit Facility expires in July 31, 2017.
Pursuant to the Stock
Purchase Agreement dated August 1, 2005 (the "2005 SPA"), between us and various investors (the "2005 Investors",
which include Dr. Hsiao and Frost Gamma Investments Trust, a trust controlled by Dr. Frost), we granted certain registration rights
to the 2005 Investors with respect to the 28,500,000 shares of common stock (including shares of common stock underlying warrants)
acquired pursuant to the 2005 SPA. In addition, under the 2005 SPA, for as long as Frost Gamma Investments Trust owns at least
5,000,000 shares of our common stock, it has the right to: (i) recommend and approve both the Chief Executive Officer and the
Director of Marketing, and (ii) cap all executive salaries. Frost Gamma Investments Trust has not exercised its rights to cap
executive salaries other than Dr. Sackner’s salary, while Dr. Sackner served as CEO and President.
On September 12, 2011,
we entered into two promissory notes in the principal amount of $50,000 each with Frost Gamma Investments Trust, a trust controlled
by Dr. Phillip Frost, which beneficially owns in excess of 10% of our common stock, and with an unrelated third party for a total
of $100,000. The interest rate payable by the Company on both the Frost Gamma note and the unrelated third party note is 11% per
annum, payable on the Promissory Notes Maturity Date. We may prepay either or both notes in advance of the Promissory Notes Maturity
Date without premium or penalty.
On May 30, 2012, we
entered into a promissory note in the principal amount of $50,000 with Hsu Gamma Investments, L.P., an entity controlled by our
Chairman of the Board and Interim Chief Executive Officer, Jane H. Hsiao. The interest rate payable by the Company on the Hsu
Gamma note is 11% per annum, payable on the Promissory Notes Maturity Date. The Hsu Gamma note may be prepaid in advance of the
Promissory Notes Maturity Date without premium or penalty.
On February 22, 2013,
we entered into a Promissory Note in the amount of $50,000 with Jane Hsiao, our Chairman of the Board and Interim Chief Executive
Officer. The interest rate payable by the Company on the Hsiao Note is 11% per annum, payable on the Promissory Notes Maturity
Date. The Hsiao Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On September 24, 2014,
we entered into a promissory note (the “2014 Hsiao Note”) in the principal amount of $50,000 with Jane Hsiao, our
Chairman of the Board and Interim Chief Executive Officer. The interest rate payable by the Company on the 2014 Hsiao Note is
11% per annum, payable on the maturity date of July 31, 2017. The 2014 Hsiao Note may be prepaid in advance of the Promissory
Notes Maturity Date without penalty.
On February 2, 2015,
we entered into a promissory note (the “2015 Hsiao Note”) in the principal amount of $50,000 with Jane Hsiao, our
Chairman of the Board and Interim Chief Executive Officer. The interest rate payable by the Company on the 2015 Hsiao Note is
11% per annum, payable on the maturity date of July 31, 2017. The 2015 Hsiao Note may be prepaid in advance of the Promissory
Notes Maturity Date without penalty.
On April 16, 2015,
we entered into a promissory note (“April 2015 Frost Gamma Note”) in the amount of $100,000 with Frost Gamma"),
a trust controlled by Dr. Phillip Frost, which beneficially owns in excess of 10% of our common stock. The interest rate payable
by the Company on the April 2015 Frost Note is 11% per annum, payable on the maturity date of July 31, 2017. The April 2015 Frost
Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On August 12, 2015,
we entered into a promissory note in the principal amount of $25,000 with Frost Gamma (the "August 2015 Frost Gamma Note"),
a trust controlled by Dr. Phillip Frost, which beneficially owns in excess of 10% of the Company’s common stock. The interest
rate payable by the Company on the August 2015 Frost Note is 11% per annum, payable on the maturity date of July 31, 2017. The
August 2015 Frost Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
The Audit Committee
of the Board reviews and approves all transactions that are required to be reported under Item 404(a) of Regulation S-K, including
each transaction described above. In order to approve a related party transaction, the Audit Committee requires that (i) such
transactions be fair and reasonable to us at the time it is authorized by the Audit Committee and (ii) such transaction must be
authorized, approved or ratified by the affirmative vote of a majority of the members of the Audit Committee who have no interest,
either directly or indirectly, in any such related party transaction.
Director Independence
The Board of Directors,
in the exercise of its reasonable business judgment, has determined that each of the Company’s directors qualifies as an
independent director pursuant to Nasdaq Stock Market Rule 5605(a)(2) and applicable SEC rules and regulations, with the exception
of Dr. Marvin Sackner, who previously was employed as the Company’s CEO. Dr. Subbarao V. Uppaluri, Steven D. Rubin and Taffy
Gould comprise our Audit Committee, and each such person is “independent” for audit committee purposes as defined
by the more stringent standard contained in Nasdaq Stock Market Rule 5605(c)(2).
| Item 14. | Principal
Accountant Fees and Services. |
Principal Accountant
Morrison, Brown, Argiz
and Farra, LLC (“MBAF”) has served as our independent registered public accounting firm since May 14, 2009.
Fees and Services
The following table
sets forth the total fees billed to us by MBAF for its audit of our consolidated annual financial statements and other services
for the years ended July 31, 2015 and 2014.
| | |
2015 | | |
2014 | |
| Audit Fees | |
$ | 47,750 | | |
$ | 50,250 | |
| Audit-Related Fees | |
| – | | |
| – | |
| Tax Fees | |
| – | | |
| – | |
| All Other Fees | |
| – | | |
| – | |
| Total Fees | |
$ | 47,750 | | |
$ | 50,250 | |
Pre-Approval Policies
and Procedures
Our Audit Committee
has a policy in place that requires its review and pre-approval of all audit and permissible non-audit services provided by our
independent auditors. The services requiring pre-approval by the audit committee may include audit services, audit related services,
tax services and other services. The pre-approval requirement is waived with respect to the provision of non-audit services if
(i) the aggregate amount of all such non-audit services provided to us constitutes not more than 5% of the total fees paid by
us to our independent auditors during the fiscal year in which such non-audit services were provided, (ii) such services were
not recognized at the time of the engagement to be non-audit services, and (iii) such services are promptly brought to the attention
of the Audit Committee or by one or more of its members to whom authority to grant such approvals has been delegated by the Audit
Committee. During fiscal 2015 and 2014, 100% of the audit related services, tax services and all other services provided by MBAF
for the periods as our principal independent registered public accountant were pre-approved by the Audit Committee.
PART
IV
| Item 15. | Exhibits,
Financial Statement Schedules |
(a) List of documents filed as part of
this report:
1. Financial Statements: The information
required by this item is contained in Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules: The
information required by this item is included in the consolidated financial statements contained in Item 8 of this Annual Report
on Form 10-K.
3. Exhibits: See Index to Exhibits.
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
| |
NON-INVASIVE MONITORING SYSTEMS, INC. |
| |
|
|
| Date: October 23, 2015 |
By: |
/s/ Jane H. Hsiao |
| |
|
Jane H. Hsiao |
| |
|
Interim Chief Executive Officer |
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
| |
|
|
|
|
/s/ Jane H. Hsiao, Ph.D. |
|
Interim Chief Executive Officer and Chairman of the |
|
October 23, 2015 |
| Jane H. Hsiao, Ph.D. |
|
Board of Directors (Principal Executive Officer) |
|
|
| |
|
|
|
|
/s/ Marvin A. Sackner, M.D |
|
Director |
|
October 23, 2015 |
| Marvin A. Sackner, M.D |
|
|
|
|
|
|
|
|
|
/s/ Taffy Gould |
|
Director |
|
October 23, 2015 |
| Taffy Gould |
|
|
|
|
| |
|
|
|
|
/s/ Morton J. Robinson,
M.D. |
|
Director |
|
October 23, 2015 |
| Morton J. Robinson, M.D. |
|
|
|
|
| |
|
|
|
|
/s/ Steven D. Rubin |
|
Director |
|
October 23, 2015 |
| Steven D. Rubin |
|
|
|
|
| |
|
|
|
|
/s/ Subbarao V. Uppaluri |
|
Director |
|
October 23, 2015 |
| Subbarao Uppaluri |
|
|
|
|
| |
|
|
|
|
/s/ James J. Martin |
|
Chief Financial Officer (Principal Financial Officer) |
|
October 23, 2015 |
| James J. Martin |
|
|
|
|
INDEX
TO EXHIBITS
The following exhibits are filed as part
of, or incorporated by reference into, this Annual Report on Form 10-K.
Exhibit
No. |
|
Description
of Exhibits |
| |
|
|
| 3.1 |
|
Articles of Incorporation, as amended (Incorporated by Reference from Exhibit 3.1 to Form
8-K filed on April 8, 2008) |
| |
|
|
| 3.2 |
|
Articles of Amendment to Articles of Incorporation (Incorporated by Reference from Exhibit
3.1 to Form 8-K filed on December 3, 2008) |
| |
|
|
| 3.3 |
|
Articles of Amendment to Articles of Incorporation (Incorporated by Reference from Exhibit
3.3 to Form 10-Q filed on March 17, 2010) |
| |
|
|
| 3.4 |
|
By-Laws, as amended (Incorporated by reference from Exhibit 3.1 to the Company’s Quarterly
Report on Form 10-Q filed on December 15, 2009) |
| |
|
|
| 3.5 |
|
Articles of Amendment to Articles of Incorporation (incorporated by Reference from Annex
A to Schedule 14C filed on April 3, 2012). |
| |
|
|
| 10.1 |
|
License Agreement dated as of May 22, 1996 between the Company and SensorMedics Corporation
(Incorporated by reference from Exhibit 10.1 to Form 10-KSB/A filed on April 22, 2008) |
| |
|
|
| 10.2 |
|
Letter of Agreement dated April 21, 1999 between the Company and SensorMedics Corporation
(Incorporated by reference from Exhibit 10.2 to Form 10-KSB/A filed on April 22, 2008) |
| |
|
|
| 10.3 |
|
Agreement Regarding Assignment of Patents and Intellectual Property dated August 14, 2000
between the Company and LifeShirt.com, Inc. (Incorporated by reference from Exhibit 10.3 to Form 10-KSB/A filed on April 22,
2008) |
| |
|
|
| 10.4 |
|
Amendment to Agreement Regarding Assignment of Patents and Intellectual Property dated December
23, 2000 between the Company and LifeShirt.com, Inc. (Incorporated by reference from Exhibit 10.4 to Form 10-KSB/A filed on
April 22, 2008) |
| |
|
|
| 10.5 |
|
Form of Preferred Stock Purchase Agreements dated as of December 1 and 2, 2008 between the
Company and the Investors named therein (Incorporated by reference from Exhibit 10.1 to Form 8-K filed on December 3, 2008) |
| |
|
|
| 10.6 |
|
Preferred Stock Purchase Agreement dated as of January 29, 2009 between the Company and
the Investors named therein (Incorporated by reference from Exhibit 10.1 to Form 8-K filed on April 8, 2008) |
| |
|
|
| 10.7 |
|
Product Development and Supply Agreement executed September 4, 2007 between Sing Lin Technologies
Ltd and the Company (Incorporated by reference from Exhibit 10.1 to Form 10-QSB/A filed on April 22, 2008) (Confidentiality
Treatment has been granted for portions of this Exhibit) |
| |
|
|
| 10.8 |
|
Note and Security Agreement dated as of August 28, 2008 between the Company and various
lenders (incorporated by reference from Exhibit 10.1 to Form 8-K filed on September 12, 2008) |
| |
|
|
| 10.12 |
|
2000 Stock Option Plan (Incorporated by reference from the Company’s Information Statement
on Schedule 14C filed on April 5, 2001)(SEC Accession No. 0000950170-01-000484) |
| |
|
|
| 10.13 |
|
Lease Agreement dated January 1, 2008 between the Registrant and Frost Real Estate Holdings,
LLC (incorporated by reference from Exhibit 10.17 to Form 10-K filed on October 29, 2009). |
| |
|
|
| 10.14 |
|
Lease Agreement dated February 1, 2009 between the Registrant and Hialeah Warehouse Holdings,
LLC (incorporated by reference from Exhibit 10.18 to Form 10-K filed on October 29, 2009). |
| |
|
|
| 10.15 |
|
First Amendment to Letter of Agreement, dated as of April 21, 2009 between the Registrant
and Cardinal Health 211, Inc. (as successor in interest to SensorMedics Corporation)(incorporated by reference from Exhibit
10.1 to Form 8-K filed on June 9, 2009). |
| |
|
|
| 10.16 |
|
Note and Security Agreement dated as of March 31, 2010 between the Company and Frost Gamma
Investments Trust and Hsu Gamma Investments, L.P. (incorporated by reference from Exhibit 10.1 to Form 8-K filed on April
6, 2010). |
| |
|
|
| 10.17 |
|
First Amendment Dated March 14, 2011 Note and Security Agreement dated as of March 31, 2010
between the Company and Frost Gamma Investments Trust and Hsu Gamma Investments, L.P. (incorporated by reference from Exhibit
10.1 to Form 8-K filed on March l 8, 2011). |
| |
|
|
| 10.18 |
|
Second Amendment Dated July 29, 2011 Note and Security Agreement dated as of March 31, 2010
between the Company and Frost Gamma Investments Trust and Hsu Gamma Investments, L.P. (incorporated by reference from Exhibit
10.1 to Form 8-K filed on August 04, 2011). |
| 10.19 |
|
Promissory Note Dated September 12, 2011 between the Company and Frost
Gamma Investments Trust (incorporated by reference from Exhibit 10.1 to Form 8-K filed on September 16, 2011). |
| |
|
|
| 10.20 |
|
Promissory Note Dated September 12, 2011 between the Company and Marie Wolf (incorporated
by reference from Exhibit 10.2 to Form 8-K filed on September 16, 2011). |
| |
|
|
| 10.21 |
|
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Hsu Gamma Investments,
L.P. dated May 30, 2012 (incorporated by reference from Exhibit 10.1 to Form 8-K filed on June 5, 2012). |
| |
|
|
| 10.22 |
|
Third Amendment dated May 30, 2012 to Note and Security Agreement dated as of March 31,
2010 between Non-Invasive Monitoring Systems, Inc. and Frost Gamma Investment Trust and Hsu Gamma Investments, L.P. (incorporated
by reference from Exhibit 10.2 to Form 8-K filed on June 5, 2012). |
| |
|
|
| 10.23 |
|
2011 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to Form 10-Q filed
on June 14, 2012). |
| |
|
|
| 10.24 |
|
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Jane Hsiao dated February
22, 2013 (incorporated by reference from Exhibit 10.1 to Form 8-K filed on February 28, 2013). |
| |
|
|
| 10.25 |
|
Form of Stock Purchase Agreements dated as of April 8, 2013 between the Company and the
Investors named therein (Incorporated by reference from Exhibit 10.1 to Form 8-K filed on April 10, 2013). |
| |
|
|
| 10.26 |
|
Fourth Amendment dated April 8, 2013 to Note and Security Agreement dated as of March 31,
2010 between Non-Invasive Monitoring Systems, Inc. and Frost Gamma Investment Trust and Hsu Gamma Investments, L.P. (incorporated
by reference from Exhibit 10.2 to Form 8-K filed on April 10, 2013). |
| |
|
|
| 10.27 |
|
First Amendment dated July 31, 2013 to Promissory Note dated September 12, 2011 between
the Company and Marie Wolf (incorporated by reference from Exhibit 10.1 to Form 8-K filed on August 6, 2013). |
| |
|
|
| 10.28 |
|
First Amendment dated July 31, 2013 to Promissory Note dated September 12, 2011 between
the Company and Frost Gamma Investments Trust (incorporated by reference from Exhibit 10.2 to Form 8-K filed on August 6,
2013). |
| |
|
|
| 10.29 |
|
First Amendment dated July 31, 2013 to Promissory Note dated May 30, 2012 between the Company
and Hsu Gamma Investments, L.P. (incorporated by reference from Exhibit 10.3 to Form 8-K filed on August 6, 2013). |
| |
|
|
| 10.30 |
|
First Amendment dated July 31, 2013 to Promissory Note dated February 22, 2013 between the
Company and Jane Hsiao (incorporated by reference from Exhibit 10.4 to Form 8-K filed on August 6, 2013). |
| |
|
|
| 10.31 |
|
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Jane Hsiao, dated September
24, 2014 (incorporated by reference from Exhibit 10.1 to Form 8-K filed September 26, 2014). |
| |
|
|
| 10.32 |
|
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Jane Hsiao, dated February
2, 2015 (incorporated by reference from Exhibit 10.1 to Form 8-K filed February 4, 2015). |
| |
|
|
| 10.33 |
|
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments
Trust, dated April 16, 2015 (incorporated by reference from Exhibit 10.1 to Form 8-K filed April 20, 2015). |
| |
|
|
| 10.34 |
|
Fifth Amendment dated July 27, 2015 to Note and Security Agreement of Non-Invasive Monitoring
Systems, Inc. in favor of HSU Gamma Investments, L.P. and Frost Gamma Investments Trust, dated March 31, 2010 (incorporated
by reference from Exhibit 10.1 to Form 8-K filed July 30, 2015). |
| |
|
|
| 10.35 |
|
Second Amendment dated July 27, 2015 to Promissory Note of Non-Invasive Monitoring Systems,
Inc. in favor of Marie Wolf, dated September 12, 2011(incorporated by reference from Exhibit 10.2 to Form 8-K filed July 30,
2015). |
| |
|
|
| 10.36 |
|
Second Amendment dated July 27, 2015 to Promissory Note of Non-Invasive Monitoring Systems,
Inc. in favor or Frost Gamma Investments Trust, dated September 12, 2011 (incorporated by reference from Exhibit 10.3 to Form
8-K filed July 30, 2015 |
| |
|
|
| 10.37 |
|
Second Amendment dated July 27, 2015 to Promissory Note of Non-Invasive Monitoring Systems,
Inc. in favor of Hsu Gamma Investments, L.P., dated May 30, 2012 (incorporated by reference from Exhibit 10.4 to Form 8-K
filed July 30, 2015). |
| |
|
|
| 10.38 |
|
Second Amendment dated July 27, 2015 to Promissory Note of Non-Invasive Monitoring Systems,
Inc. in favor of Dr. Hsiao, dated February 22, 2013 (incorporated by reference from Exhibit 10.5 to Form 8-K filed July 30,
2015). |
| 10.39 |
|
First Amendment dated July 27, 2015 to Promissory Note of Non-Invasive
Monitoring Systems, Inc. in favor of Dr. Hsiao, dated September 24, 2014 (incorporated by reference from Exhibit 10.6 to Form
8-K filed July 30, 2015). |
| |
|
|
| 10.40 |
|
First Amendment dated July 27, 2015 to Promissory Note of Non-Invasive Monitoring Systems,
Inc. in favor of Dr. Hsiao, dated February 2, 2015 (incorporated by reference from Exhibit 10.7 to Form 8-K filed July 30,
2015). |
| |
|
|
| 10.41 |
|
First Amendment dated July 27, 2015 to Promissory Note of Non-Invasive Monitoring Systems,
Inc. in favor of Frost Gamma Investments Trust, dated April 16, 2015 (incorporated by reference from Exhibit 10.8 to Form
8-K filed July 30, 2015). |
| |
|
|
| 10.42 |
|
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments
Trust, dated August 12, 2015 (incorporated by reference from Exhibit 10.1 to Form 8-K filed on August 14, 2015). |
| |
|
|
| 14.1 |
|
Code of Ethics (incorporated by reference from Exhibit 14.1 to Form 10-K filed on October
29, 2009). |
| 21.1 |
* |
Subsidiaries of the Company |
| |
|
|
| 31.1 |
* |
Certification of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14 and
15d-14 of the Securities Exchange Act of 1934. |
| |
|
|
| 31.2 |
* |
Certification of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14 and
15d-14 of the Securities Exchange Act of 1934. |
| |
|
|
| 32.1 |
* |
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| |
|
|
| 32.2 |
* |
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| |
|
|
| 101.INS |
* |
XBRL Instance Document |
| |
|
|
| 101.SCH |
* |
XBRL Taxonomy Extension Schema Document |
| |
|
|
| 101.CAL |
* |
XBRL Taxonomy Extension Calculation Linkbase Document |
| |
|
|
| 101.DEF |
* |
XBRL Taxonomy Extension Definition Linkbase Document |
| |
|
|
| 101.LAB |
* |
XBRL Taxonomy Extension Label Linkbase Document |
| |
|
|
| 101.PRE |
* |
XBRL Taxonomy Extension Presentation Linkbase Document |
Exhibit
21.1
SUBSIDIARIES
|
Name
of Subsidiary |
|
State
of Incorporation |
|
Name
Under Which Subsidiary Is Doing Business |
| Non-Invasive Monitoring Systems of Florida, Inc. |
|
Florida |
|
Non-Invasive Monitoring Systems of Florida, Inc. |
| NIMS of Canada, Inc. |
|
Ontario, Canada |
|
NIMS of Canada, Inc. |
Exhibit
31.1
CERTIFICATIONS
I, Jane H. Hsiao, certify that:
| |
(1) |
I have reviewed this Annual Report on Form 10-K of Non-Invasive Monitoring Systems, Inc.; |
| |
(2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| |
(3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| |
(4) |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| |
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| |
(5) |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
| |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
| |
By: |
/s/ Jane H. Hsiao |
| |
Jane H. Hsiao |
| |
Interim Chief Executive Officer |
| |
(Principal Executive Officer) |
| |
October 23, 2015 |
Exhibit
31.2
CERTIFICATIONS
I, James J. Martin,
certify that:
| |
(1) |
I have reviewed this Annual Report on Form 10-K of Non-Invasive Monitoring Systems, Inc.; |
| |
(2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| |
(3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| |
(4) |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| |
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| |
(5) |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
| |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
| |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
| |
By: |
/s/ James J. Martin |
| |
James J. Martin |
| |
Chief Financial Officer |
| |
(Principal Financial Officer) |
| |
October 23, 2015 |
Exhibit
32.1
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with
the accompanying Annual Report on Form 10-K of Non-Invasive Monitoring Systems, Inc. for the fiscal year ended July 31, 2015 (the
“Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of Non-Invasive Monitoring Systems, Inc. |
| |
By: |
/s/ Jane H. Hsiao |
| |
Jane H. Hsiao |
| |
Interim Chief Executive Officer |
| |
October 23, 2015 |
The certification set
forth above is being furnished as an Exhibit solely pursuant to Section 906 of the Sarbanes—Oxley Act of 2002 and is not
being filed as part of the Report or as a separate disclosure document of Non-Invasive Monitoring Systems, Inc. or the certifying
officers.
Exhibit
32.2
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with
the accompanying Annual Report on Form 10-K of Non-Invasive Monitoring Systems, Inc. for the fiscal year ended July 31, 2015 (the
“Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of Non-Invasive Monitoring Systems, Inc. |
| |
By: |
/s/ James J. Martin |
| |
James J. Martin |
| |
Chief Financial Officer |
| |
October 23, 2015 |
The certification set
forth above is being furnished as an Exhibit solely pursuant to Section 906 of the Sarbanes—Oxley Act of 2002 and is not
being filed as part of the Report or as a separate disclosure document of Non-Invasive Monitoring Systems, Inc. or the certifying
officers.
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