NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January
31, 2022
The
following (a) condensed consolidated balance sheet at July 31, 2021 was derived from audited annual financial statements, but does not
contain all of the footnote disclosures from the annual financial statements, and (b) the unaudited condensed consolidated interim financial
statements included herein have been prepared by Non-Invasive Monitoring Systems, Inc. (together with its consolidated subsidiaries,
the “Company” or “NIMS”) in accordance with accounting principles generally accepted in the United States (“GAAP”)
for interim financial information and the instructions to the quarterly report on Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by GAAP for complete financial statements. These statements reflect
adjustments, all of which are of a normal, recurring nature, and which are, in the opinion of management, necessary to present fairly
the Company’s financial position as of January 31, 2022, and results of operations and cash flows for the interim periods ended
January 31, 2022 and 2021. The results of operations for the three and six months ended January 31, 2022, are not necessarily indicative
of the results for a full year. Certain information and footnote disclosure normally included in financial statements prepared in accordance
with GAAP have been condensed or omitted. The Company’s accounting policies continue unchanged from July 31, 2021. These financial
statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s
annual report on Form 10-K for the year ended July 31, 2021.
1.
ORGANIZATION AND BUSINESS
Organization.
Non-Invasive Monitoring Systems, Inc., a Florida corporation (together with its consolidated subsidiaries, the “Company”
or “NIMS”). The Company previously developed and marketed its Exer-Rest® line of acceleration therapeutic
platforms based upon unique, patented whole body periodic acceleration (“WBPA”) technology of which the Company maintains
patents. The Company maintains limited administration, but does not have any operations or inventory.
Business.
The Company is currently a shell company (as defined in Rule 12b-2 of the Exchange Act).
Discontinued
Operations. On May 3, 2019 the Company exchanged inventory for forgiveness of accrued unpaid rent. The Company has no inventory,
no immediate plans to replenish inventory and has no current plans to develop or market new products.
Accordingly,
the Company determined that the assets and liabilities met the discontinued operations criteria in Accounting Standards Codification
205-20-45 and were classified as discontinued operations at January 31, 2022 and July 31, 2021.
Going
Concern. The Company’s condensed consolidated financial statements have been prepared and presented on a basis assuming
it will continue as a going concern. As reflected in the accompanying condensed consolidated financial statements, the Company had net
losses of approximately $99,000 and $98,000 for the six months ended January 31, 2022 and
2021, respectively, and has experienced continuous cash outflows from operating activities. The Company also has an accumulated deficit
of approximately $28,461,000 as of January 31, 2022. The Company had approximately $67,000 of cash at January 31, 2022 and negative working
capital deficit of approximately $183,000. These matters raise substantial doubt about the Company’s ability to continue as a going
concern.
The
Company is seeking potential mergers, acquisitions and strategic collaborations. The Company is also exploring obtaining further promissory
notes from related parties. There is no assurance that the Company will be successful in this regard, and, if not successful, that it
will be able to continue its business activities. The accompanying consolidated financial statements do not include any adjustments that
might be necessary from the outcome of this uncertainty.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation.
The condensed consolidated financial statements 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.
Discontinued
Operations. For the three and six months ended January 31, 2022 and 2021, results from operations for our Exer-Rest Business
are classified as discontinued operations. The carve out of the discontinued operations (i) were prepared in accordance with the SEC’s
carve out rules under Staff Accounting Bulletin (“SAB”) Topic 1B1 and (ii) are derived from identifying and carving out the
specific assets, liabilities, operating expenses and interest expense associated with the Exer-Rest Business’s operations (see
Note 3).
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 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 condensed
consolidated financial statements and reported amounts of expenses during the reporting period. 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 $67,000 and $55,000, on deposit in bank operating accounts
at January 31, 2022 and July 31, 2021, respectively. At January 31, 2022 and July 31, 2021, the Company had no cash equivalents.
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 utilization of
the loss carryforward is limited to future taxable earnings of the Company and may be subject to severe limitations if the Company undergoes
an ownership change pursuant to the Internal Revenue Code Section 382. Tax years ranging from 2016 to 2021 remain open to examination
by various taxing jurisdictions as the statute of limitations has not expired.
Fair
Value of Financial Instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent
information available to management as of January 31, 2022 and July 31, 2021. The respective carrying value of certain on-balance-sheet
financial instruments such as cash, prepaid expenses, accounts payable, accrued expenses and accrued interest approximate fair values
because they are short term in nature or they bear current market interest rates. As of January
31, 2022, the respective carrying value of the notes payable – related parties approximate our current borrowing rate for similar
debt instruments of comparable maturity.
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 regard to legal costs, we record such costs as incurred.
Related
Parties. The Company follows ASC 850 “Related Party Disclosures,” for the identification of related parties and disclosure
of related party transactions.
Reclassification
of Prior Year Presentation. Certain prior year amounts have been reclassified for consistency
with the current year presentation. These reclassifications had no effect on the reported results of operations.
An
adjustment has been made to the Condensed Consolidated Balance Sheets for the fiscal year ended July 31, 2021, to reclassify
approximately $1,000 from continued operations accounts payable to discontinued operations accounts payable.
Recent
Accounting Pronouncements. The Company considers the applicability and impact of all relevant Accounting Standard Updates (“ASU’s”).
Our conclusion was that they did not have any material effect on the condensed consolidated financial statements.
3.
DISCONTINUED OPERATIONS
On
May 3, 2019 the Company exchanged its inventory for forgiveness of accrued unpaid rent. Concurrent with the exchange management with
the appropriate level of authority determined to discontinue the operations of the product segment.
The
detail of the condensed consolidated balance sheets for the discontinued operations is as stated below (in thousands):
SCHEDULE OF BALANCE SHEETS OF DISCONTINUED OPERATIONS
| | |
As
of January
31, 2022 | | |
As
of July
31, 2021 | |
| | |
| | |
| |
| Current
liabilities – discontinued operations | |
| | | |
| | |
| Accounts
payable and accrued expenses | |
$ | 51 | | |
$ | 51 | |
| Total
current liabilities – discontinued operations | |
| 51 | | |
| 51 | |
| Total
liabilities – discontinued operations | |
$ | 51 | | |
$ | 51 | |
4.
SHAREHOLDERS’ EQUITY
The
Company has a single class of Preferred Stock. Holders of Series B Preferred Stock are entitled to vote with the holders of common stock
as a single class on all matters. 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 designated shares of preferred stock with preferences and rights to be determined
by our Board of Directors
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.
No
preferred stock dividends were declared for the three and six months ended January 31, 2022 and 2021.
The
Company did not issue any shares of the Company’s common stock during the three and six months ended January 31, 2022 and 2021.
5.
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 periods ended January 31, 2022
and 2021, no dilution adjustment has been made to the weighted average outstanding common shares because the assumed conversion of preferred
stock would be anti-dilutive.
6.
RELATED PARTY TRANSACTIONS
Dr.
Hsiao, Dr. Frost and directors Steven Rubin and Rao Uppaluri are stockholders and/or directors or former directors of Asensus Surgical,
Inc. (formerly TransEnterix, Inc.) (“Asensus”), a publicly-traded medical device company. The Company’s Chief Legal
Officer has served under a cost sharing arrangement as the Chief Legal Officer of Asensus, from December 2009 until August 31, 2021.
Since September 1, 2021 the Company’s Chief Legal Officer has been compensated directly from the Company. The Company’s Chief
Financial Officer also serves as the Chief Financial Officer and Co-Interim Chief Executive Officer of Cocrystal Pharma, Inc., a clinical
stage Nasdaq listed biotechnology company, and in which Steve Rubin and Dr. Frost serve on the Board. The Company expensed $400 per month
under the cost sharing arrangement during the three and six months ended January 31, 2022 and 2021. At January 31, 2022 and July 31,
2021, the Company had an accounts payable liability of $0 and $400 under the cost sharing arrangement with Asensus, respectively.
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 rental payments under the Miami office lease, which commenced January
1, 2008 and expired on December 31, 2012, were approximately $1,250 per month and then continued on a month-to-month basis. In February
2016 the rent was reduced to $0 per month. For the three and six months ended January 31, 2022 and 2021, the Company did not record any
rent expense related to the Miami lease. At January 31, 2022 and 2021 there was no rent payable.
The
Company is under common control with multiple entities and the existence of that control could result in operating results or financial
position of each individual entity significantly different from those that would have been obtained if the entities were autonomous.
One of those related parties, OPKO Health, Inc. (“OPKO”) and the Company are under common control and OPKO has a one percent
ownership interest in the Company that OPKO has accounted for as an equity method investment due to the ability to significantly influence
the Company.
7.
NOTES PAYABLE – RELATED PARTIES
On
October 4, 2021, the Company entered into a Promissory Note in the principal amount of $75,000 with Frost Gamma Investments Trust (the
“Frost Gamma Note”), a trust controlled by Dr. Phillip Frost, which beneficially owns in excess of 10% of NIMS’ common
stock. The interest rate payable by the Company on the Frost Gamma Note is 11% per annum, payable on the maturity date of October 4,
2023 (the “Maturity Date”). The Frost Gamma Note may be prepaid in advance of the Maturity Date without penalty.
On
October 4, 2021, the Company entered into a Promissory Note in the principal amount of $75,000 with Jane Hsiao, Ph.D., the Company’s
Chairman and Interim CEO (the “Hsiao Note”) and a beneficial holder in excess of 10% of NIMS’ common stock. The interest
rate payable by the Company on the Hsiao Note is 11% per annum, payable on the Maturity Date. The Hsiao Note may be prepaid in advance
of the Maturity Date without penalty.
8.
COMMITMENTS AND CONTINGENCIES
Leases.
The
Company was under an operating lease agreement for our corporate office space that expired in 2012. The lease currently continues on
a month to month basis at no cost.
COVID-19.
Current
economic conditions with COVID-19 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 or
to successfully examine strategic alternatives. Quarantines would make our ability to look for strategic alternatives more difficult
and prospects of borrowing or equity raises would be more challenging. Additionally, the sales of equity or convertible debt securities
may result in dilution to our stockholders.
Product
Development and Supply Agreement.
In
September 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 January 31, 2022, the Company had paid Sing Lin $1.7 million in connection with orders placed
through that date. As of January 31, 2022, the Company has approximately $41,000 of payables due to Sing Lin. As of January 31, 2022,
aggregate minimum future purchases under the Agreement totaled approximately $13.9 million.
As
of January 31, 2022, the Company had not placed orders sufficient to meet the 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 the date of this filing, 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 believes that Sing Lin is no longer in business.
