UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-Q
(Mark One)
| [X] | Quarterly Report Pursuant to Section 13 or |
or
| [ ] | Transition Report Pursuant to Section 13 or |
Commission File Number000-13176
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) 575-4200575-4207
Securities registered pursuant to section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| Common Stock, $.01 par value per share | NIMU | OTC -Pink |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
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 months (or for such shorter period that the registrant was required to submit and post such files). 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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] | |
| Non-accelerated filer | [ | Smaller reporting company | [X] | |
| Emerging growth company | [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] No [X]
79,007,423154,810,655 shares of the Company’s common stock, par value $0.01 per share, were outstanding as of March 7, 2018.16, 2020.
NON-INVASIVE MONITORING SYSTEMS, INC.
TABLE OF CONTENTS FOR FORM 10-Q
NON-INVASIVE MONITORING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| January 31, 2018 | July 31, 2017 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 12 | $ | 11 | ||||
| Prepaid expenses, deposits, and other current assets | 9 | 10 | ||||||
| Total current assets | 21 | 21 | ||||||
| Total assets | $ | 21 | $ | 21 | ||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 1,552 | $ | 1,425 | ||||
| Customer deposits | 4 | 4 | ||||||
| Notes payable – Related Party | 1,875 | 1,775 | ||||||
| Notes payable – Other | 50 | 50 | ||||||
| Total current liabilities | 3,481 | 3,254 | ||||||
| Total liabilities | $ | 3,481 | $ | 3,254 | ||||
| Shareholders’ deficit | ||||||||
| Series B Preferred Stock, par value $1.00 per share; 100 shares authorized, issued and outstanding; liquidation preference $10 | – | – | ||||||
| Series C Convertible Preferred Stock, par value $1.00 per share; 62,048 shares authorized, issued and outstanding; liquidation preference $62 | 62 | 62 | ||||||
| Series D Convertible Preferred Stock, par value $1.00 per share; 5,500 shares authorized; 2,782 shares issued and outstanding; 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. | 790 | 790 | ||||||
| Additional paid in capital | 21,930 | 21,930 | ||||||
| Accumulated deficit | (26,245 | ) | (26,018 | ) | ||||
| Total shareholders’ deficit | (3,460 | ) | (3,233 | ) | ||||
| Total liabilities and shareholders’ deficit | $ | 21 | $ | 21 | ||||
| January 31, 2020 | July 31, 2019 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 250 | $ | 353 | ||||
| Prepaid expenses, deposits, and other current assets | 7 | 5 | ||||||
| Current assets – discontinued operations | - | 3 | ||||||
| Total current assets | 257 | 361 | ||||||
| Total assets | $ | 257 | $ | 361 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 191 | $ | 198 | ||||
| Accrued expenses | 32 | 27 | ||||||
| Current liabilities – discontinued operations | 51 | 55 | ||||||
| Total current liabilities | 274 | 280 | ||||||
| Total liabilities | 274 | 280 | ||||||
| Commitments and contingencies (Note 9) | ||||||||
| Shareholders’ equity (deficit) | ||||||||
| Series B Preferred Stock, par value $1.00 per share; 100 shares authorized, issued and outstanding; liquidation preference $10 | - | - | ||||||
| Common Stock, par value $0.01 per share; 400,000,000 shares authorized; 154,810,655 shares issued and outstanding | 1,548 | 1,548 | ||||||
| Additional paid in capital | 26,574 | 26,574 | ||||||
| Accumulated deficit | (28,139 | ) | (28,041 | ) | ||||
| Total shareholders’ equity (deficit) | (17) | 81 | ||||||
| Total liabilities and shareholders’ equity (deficit) | $ | 257 | $ | 361 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NON-INVASIVE MONITORING SYSTEMS, INC.
CONDENSED CONSOLIDATED COMPREHENSIVE STATEMENTS OF OPERATIONS - Unaudited
(In thousands, except per share amounts)data)
| Three months ended January 31, | Six months ended January 31, | Three months ended January 31, | Six months ended January 31, | |||||||||||||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||
| Product sales, net | $ | - | $ | 5 | $ | - | $ | 6 | ||||||||||||||||||||||||
| Total revenues | - | 5 | - | 6 | ||||||||||||||||||||||||||||
| Operating costs and expenses | ||||||||||||||||||||||||||||||||
| Cost of sales | - | 99 | - | 99 | ||||||||||||||||||||||||||||
| Selling, general and administrative | 46 | 41 | 122 | 121 | $ | 47 | $ | 66 | 99 | 201 | ||||||||||||||||||||||
| Total operating costs and expenses | 46 | 140 | 122 | 220 | 47 | 66 | 99 | 201 | ||||||||||||||||||||||||
| Operating loss | (46 | ) | (135 | ) | (122 | ) | (214 | ) | (47 | ) | (66 | ) | (99 | ) | (201 | ) | ||||||||||||||||
| Other expense | ||||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | - | (1,066 | ) | - | (1,066 | ) | ||||||||||||||||||||||||||
| Interest expense, net | (53 | ) | (48 | ) | (105 | ) | (96 | ) | - | (34 | ) | - | (93 | ) | ||||||||||||||||||
| Total other expense | - | (1,100 | ) | - | (1,159 | ) | ||||||||||||||||||||||||||
| Loss from continuing operations | (47 | ) | (1,166 | ) | (99 | ) | (1,360 | ) | ||||||||||||||||||||||||
| Gain (loss) from discontinued operations | 4 | (12 | ) | 1 | (25 | ) | ||||||||||||||||||||||||||
| Net loss | $ | (99 | ) | $ | (183 | ) | $ | (227 | ) | $ | (310 | ) | $ | (43 | ) | $ | (1,178 | ) | (98 | ) | (1,385 | ) | ||||||||||
| Weighted average number of common shares outstanding - Basic and diluted | 79,007 | 79,007 | 79,007 | 79,007 | 154,811 | 107,263 | 154,811 | 93,290 | ||||||||||||||||||||||||
| Basic and diluted net loss per common share from continuing operations | $ | (0.00 | ) | $ | (0.01 | ) | (0.00 | ) | (0.01 | ) | ||||||||||||||||||||||
| Basic and diluted net loss per common share from discontinued operations | $ | (0.00 | ) | $ | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||||||||||||||||
| Basic and diluted loss per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | (0.00 | ) | (0.01 | ) | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NON-INVASIVE MONITORING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF INTERIM CHANGES IN SHAREHOLDERS’ DEFICITEQUITY - Unaudited
For the three and six months ended January 31, 20182020
(Dollars in Thousands)thousands, except share amounts)
| Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Series B | Series C | Series D | Common Stock | Additional Paid in | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at July 31, 2017 | 100 | $ | – | 62,048 | $ | 62 | 2,782 | $ | 3 | 79,007,423 | $ | 790 | $ | 21,930 | $ | (26,018 | ) | $ | (3,233 | ) | ||||||||||||||||||||||||
| Net Loss | – | – | – | – | – | – | – | – | – | (227 | ) | (227 | ) | |||||||||||||||||||||||||||||||
| Balance at January 31, 2018 | 100 | $ | – | 62,048 | $ | 62 | 2,782 | $ | 3 | 79,007,423 | $ | 790 | $ | 21,930 | $ | (26,245 | ) | $ | (3,460 | ) | ||||||||||||||||||||||||
| Preferred Stock Series B | Common Stock | Additional Paid in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance at July 31, 2019 | 100 | $ | - | 154,810,655 | $ | 1,548 | $ | 26,574 | $ | (28,041 | ) | $ | 81 | |||||||||||||||
| Net loss | - | - | - | - | - | (55 | ) | (55 | ) | |||||||||||||||||||
| Balance at October 31, 2019 | 100 | - | 154,810,655 | 1,548 | 26,574 | (28,096 | ) | 26 | ||||||||||||||||||||
| Net loss | - | - | - | - | - | (43 | ) | (43 | ) | |||||||||||||||||||
| Balance at January 31, 2020 | 100 | $ | - | 154,810,655 | $ | 1,548 | $ | 26,574 | $ | (28,139 | ) | $ | (17 | ) | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NON-INVASIVE MONITORING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
(Dollars in thousands)
SixFor the three and six months ended January 31, 2018 and 20172019
| 2018 | 2017 | |||||||
| Operating activities | ||||||||
| Net loss | $ | (227 | ) | $ | (310 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Write down of inventory | - | 99 | ||||||
| Loss on disposal of asset | - | (3 | ) | |||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable - trade | - | (6 | ) | |||||
| Prepaid expenses, deposits and other current assets | 1 | 32 | ||||||
| Accounts payable and accrued expenses | 127 | 133 | ||||||
| Net cash used in operating activities | (99 | ) | (55 | ) | ||||
| Investing activities | ||||||||
| Sale of fixed asset | - | 3 | ||||||
| Net cash provided by investing activities | - | 3 | ||||||
| Financing activities | ||||||||
| Proceeds from note payable – related party | 100 | - | ||||||
| Net cash provided by financing activities | 100 | - | ||||||
| Net increase (decrease) in cash | 1 | (52 | ) | |||||
| Cash, beginning of period | 11 | 87 | ||||||
| Cash, end of period | $ | 12 | $ | 35 | ||||
| Preferred Stock | Additional | |||||||||||||||||||||||||||||||||||||||||||
| Series B | Series C | Series D | Common Stock | Paid-in- | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at July 31, 2018 | 100 | $ | – | 62,048 | $ | 62 | 2,782 | $ | 3 | 79,007,423 | $ | 790 | $ | 21,930 | $ | (26,463 | ) | $ | (3,678 | ) | ||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | – | (207 | ) | (207 | ) | |||||||||||||||||||||||||||||||
| Balance at October 31, 2018 | 100 | $ | - | 62,048 | $ | 62 | 2,782 | $ | 3 | 79,007,423 | $ | 790 | $ | 21,930 | $ | (26,670 | ) | $ | (3,885 | ) | ||||||||||||||||||||||||
| Issuance of common stock for cash | - | - | - | - | - | - | 8,571,428 | 86 | 514 | - | 600 | |||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for extinguishment of debt, accrued interest and accounts payable | - | - | - | - | - | - | 53,321,804 | 533 | 4,266 | - | 4,799 | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (1,178 | ) | (1,178 | ) | |||||||||||||||||||||||||||||||
| Balance at January 31, 2019 | 100 | - | 62,048 | $ | 62 | 2,782 | $ | 3 | 140,900,655 | $ | 1,409 | $ | 26,710 | $ | (27,848 | ) | $ | 336 | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NON-INVASIVE MONITORING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
(Dollars in thousands)
Six months ended January 31, 2020 and 2019
| 2020 | 2019 | |||||||
| Operating activities | ||||||||
| Net Loss | $ | (98 | ) | $ | (1,385 | ) | ||
| Loss on extinguishment of debt | - | 1,066 | ||||||
| Add back: (gain) loss attributable to discontinued operations | (1 | ) | 25 | |||||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Prepaid expenses, deposits and other current assets | (2 | ) | (6 | ) | ||||
| Accounts payable | (7 | ) | 113 | |||||
| Accrued expenses | 5 | 33 | ||||||
| Net cash used in continuing operations | (103 | ) | (154 | ) | ||||
| Net cash used in discontinued operations | - | (25 | ) | |||||
| Net cash used in operating activities | (103 | ) | (179 | ) | ||||
| Financing activities | ||||||||
| Proceeds from issuance of common stock | - | 600 | ||||||
| Proceeds from note payable – related party | - | 100 | ||||||
| Net cash provided by financing activities | - | 700 | ||||||
| Net decrease in cash from continuing operations | (103 | ) | 521 | |||||
| Cash, beginning of period | 353 | 90 | ||||||
| Cash, end of period | $ | 250 | $ | 611 | ||||
| Supplemental disclosure of non-cash financing activity | ||||||||
| Accounts payable and accrued expenses extinguished for issuance of common stock | $ | - | $ | 1,508 | ||||
| Notes payable extinguished for issuance of common stock | $ | - | $ | 2,225 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 20182020
The following (a) condensed consolidated balance sheet as of Januaryat July 31, 2018, which has been2019 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, 20182020, and results of operations and cash flows for the interim periods ended January 31, 20182020 and 2017.2019. The results of operations for the three and six months ended January 31, 20182020, 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, 2017.2019. 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, 2017.2019.
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.market. The Company continues to work on developinghas developed and marketingmarketed its Exer-Rest®line of acceleration therapeutic platforms based upon unique, patented whole body periodic acceleration (“WBPA”) technology.technology of which the Company maintains patents. The Exer-Rest line of acceleration therapeutic platformsCompany currently includes the Exer-Rest AT, AT3800 and AT4700 models.does not have any operational inventory.
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.
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. 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 been manufactured by Sing Lin Technologies Co. Ltd. (“Sing Lin”) based in Taichung, Taiwan (see Note 9).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, 2020 and July 31, 2019 and for the three and six months ended January 31, 2020 and 2019.
| 7 |
Going Concern. The Company’s condensedconsolidated financial statements have been prepared and presented on a basis assuming it will continue as a going concern. As reflected in the accompanying unaudited condensed consolidated financial statements, the Company had net losses from continuing operations of approximately $227,000$99,000 and $310,000$1,360,000 for the six month periods endingmonths ended January 31, 20182020 and 2017,2019, respectively, and has experienced continuous cash outflows from operating activities. The Company also has an accumulated deficit of $26.2 millionapproximately $28,139,000 as of January 31, 2018, and has potential purchase obligations at January 31, 2018 (see note 9).2020. The Company had $12,000approximately $250,000 of cash at January 31, 20182020 and negative working capital deficit of approximately $3,460,000.($17,000). These matters raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is continuing its business activities without any significant revenues from product sales. Absent any significant revenues from product sales, the Company is seeking debt or equity financing or apotential mergers, acquisitions and strategic collaboration.collaborations. 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 condensed consolidated financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31,Equity Exchange Agreement. On December 3, 2018, the Company entered into an Equity Exchange Agreement with IRA Financial Trust Company, a South Dakota trust corporation, IRA Financial Group LLC, a Florida limited liability company (collectively “IRA Financial”), and their respective equity holders. The Company, IRA Financial and the equity holders subsequently amended the Exchange Agreement on three occasions to extend the outside date for consummation of the Exchange, with the last such extension expiring on July 3, 2019.
On August 4, 2019, IRAFG delivered to the Company notice of termination of the Exchange Agreement pursuant to Section 8.01(b)(i) of that agreement due to the failure of the Exchange to have closed on or prior to the Outside Date. No termination fees, penalties or other amounts are payable by the Company in respect of such termination.
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 material inter-company accounts and transactions have been eliminated in consolidation.
Discontinued Operations. For the three and six months ended January 31, 2020 and 2019, 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.
Discontinued operations expense allocations, consisting of warehouse rent and other inventory related expenses incurred by us, are directly attributed to discontinued operations (see Note 3).
Reclassifications. Certain amounts in the condensed consolidated balance sheet as of July 31, 2019 and condensed consolidated cash flows statement for the six months ended January 31, 2019 have been reclassified to conform to the current presentation.
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, warranty accrual, deferred taxes, and the input variables for stock based compensation as estimates, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.assumptions. 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 $12,000$250,000 and $11,000,$353,000, on deposit in bank operating accounts at January 31, 20182020 and July 31, 2017,2019, 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 net realizable value using the first-in, first-out method, and are evaluated at least annually for impairment. Inventories at January 31, 2018 and July 31, 2017 primarily consist 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. The inventory had been fully impaired and has no reported book value (see Note 3).
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 at the enacted tax rate.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.
The Company files its tax returns as prescribed by the laws of the jurisdictions in which it operates. Tax years ranging from 20142016 to 20172019 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. As a result of the valuation allowance, the enactment of the Tax Cuts and Jobs Act of 2017 had no effect on the statement of operations.
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 2018
Due to the timing of the enactment and complexity involved in applying the provisions of the Tax Act, the Company based our provisions on reasonable estimates of the Act’s effects in our financial statements as of December 31, 2017. The Company will complete its accounting for the Act after it has considered additional guidance issued by the U.S. Treasury Department, the IRS, state tax authorities and other standard-setting bodies, and have gathered and analyzed additional data relative to the Company’s calculations. This may result in adjustments to the provisional amounts, which would impact the provision for income taxes and effective tax rate in the period the adjustments are made.
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 were no advertising and promotional costs incurred for the three and six months ended January 31, 2018 and 2017.
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 and other costs to obtain FDA approval. There were no research and development costs incurred for the three months and six months then ended January 31, 2018 and 2017.
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 during the three and six months ended January 31, 2018 and 2017, and management estimates that the Company’s accrued warranty expense at January 31, 2018 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 costs and 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 condensed 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 January 31, 20182020 and July 31, 2017.2019. The respective carrying value of certain on-balance-sheet financial instruments such as cash, and cash equivalents, royalties andprepaid expenses, deposits, other receivables,current assets, accounts payable and accrued expenses approximate fair values because they are short term in nature or they bear current market interest rates. As of January 31, 2018, 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.
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 regardsregard to legal costs, we record such costs as incurred.
Recent Accounting Pronouncements. The Company considers the applicability and impact of all Accounting Standard Updates (“ASU’s”). ASU’s not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated balance sheets or consolidated comprehensive statement of operations.
In August 2016, the FASB issued ASU No. 2016-15,Statement of Cash Flows (Topic 230). This standard addresses the classification of eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company implemented this ASU on August 1, 2018. The adoption of this update did not have an impact on the Company’s consolidated financial statements.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02,Leases(Topic 842). ASU 2016-02 impacts any entity that enters into a lease with some specified scope exceptions. This new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The guidance updates and supersedes Topic 840,Leases. For public entities, ASU 2016-02 is effective for fiscal years, and interim periods with those years, beginning after December 15, 2018, and early adoption iswas permitted. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company currently has not yet implemented this guidance. We are currently evaluatingno long-term leases. However, in the impact of thisevent that the Company should enter any long-term leases it would then evaluate the effect that the new guidance would have on our Condensed Consolidated Financial Statements.
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 2018its consolidated financial statements and related disclosures
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09, as amended, clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP that removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Companies can choose to apply the ASU using either the full retrospective approach or a modified retrospective approach. We are currently evaluating the impact of this new guidance on our Condensed Consolidated Financial Statements.3. DISCONTINUED OPERATIONS
In August 2016,On May 3, 2019 the FASB issued ASU No. 2016-15,StatementCompany exchanged its inventory for forgiveness of Cash Flows (Topic 230). This standard addresses the classification of eight specific cash flow issuesaccrued unpaid rent. Concurrent with the objectiveexchange management with the appropriate level of reducingauthority determined to discontinue the existing diversity in practice. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted.operations of the product segment. The Company does not expect that the adoptionwrote off accounts payable and liabilities of this new standard will haveapproximately $4,000 primarily as a material impact on its Condensed Consolidated Financial Statements.
3. INVENTORIESresult of discontinued operations and other factors.
The Company recorded inventory valuation adjustmentsdetail of $99,000the consolidated balance sheets, the consolidated statement of operations and $327,000consolidated cash flows for the years ended July 31, 2017 and 2016. The $99,000 and $327,000 inventory valuation adjustment for the year ended July 31, 2017 and 2016, respectively, resulted from management’s business review and related assessment of the net realizable value of the Exer-Rest units. Factors in this determination included the age of inventory, recent historical sales, and the uncertainty of when the Company would have a sales team, either internal or through an alliance or collaboration, for the Exer-Rest. In light of the change in circumstances in connection with management’s business review which included a decision to not pursue re-hiring a sales force or such other alternatives in the foreseeable future, management reassessed its inventory valuation and recorded a provision on inventory.discontinued operations is as stated below:
As of January 31, 2020 | As of July 31, 2019 | |||||||
| Current assets – discontinued operations | ||||||||
| Prepaid expenses | $ | - | $ | 3 | ||||
| Total current assets – discontinued operations | - | 3 | ||||||
| Total assets – discontinued operations | $ | - | $ | 3 | ||||
| Current liabilities – discontinued operations | ||||||||
| Accounts payable and accrued expenses | $ | 51 | $ | 55 | ||||
| Total current liabilities – discontinued operations | 51 | 55 | ||||||
| Total liabilities – discontinued operations | $ | 51 | $ | 55 | ||||
| For the three months ended January 31, 2020 | For the three months ended January 31, 2019 | For the six months ended January 31, 2020 | For the six months ended January 31, 2019 | |||||||||||||
| Selling, general and administrative expenses | $ | - | $ | (12 | ) | $ | (3 | ) | $ | (25 | ) | |||||
| Gain on write off of accounts payable | 4 | - | 4 | - | ||||||||||||
| Gain (loss) from discontinued operations | $ | 4 | $ | (12 | ) | $ | 1 | $ | (25 | ) | ||||||
| Basic and diluted income (loss) per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
For the three | For the three | For the six | For the six | |||||||||||||
| Cash used in operations for discontinued operations: | ||||||||||||||||
| Gain (loss) from discontinued operations | $ | 4 | $ | (12 | ) | 1 | $ | (25 | ) | |||||||
| Gain on write off of accounts payable | (4 | ) | - | (4 | ) | - | ||||||||||
| Prepaid expenses | - | - | 3 | - | ||||||||||||
| Cash used in discontinued operations | $ | - | $ | (12 | ) | - | $ | (25 | ) | |||||||
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 recordeddid not record stock-based compensation of $0 for the three and six months ended January 31, 20182020 and 2017.2019.
In November 2010, the Company’s 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. Subject to adjustment in certain circumstances, the 2011 Plan authorizes up to 4,000,000 shares of the Company’s 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 January 31, 2018.2020.
As of January 31, 2018,2020, there were no outstanding stock options and there were no unrecognized costs related to outstanding stock options. The Company did not grant any stock options during the three and six months ended January 31, 20182020 or 2017.
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 2018
2019.
5. NOTES PAYABLE
2010 Credit Facility. On March 31, 2010, theThe Company entered into various notes payable with related parties from 2010 to 2018 with an aggregate principal total of $2,175,000 and with an unrelated third party for $50,000 for total principal amount of $2,225,000. The interest rate was 11% and the maturity date was July 31, 2020. The Company could prepay these notes in advance of the maturity date without premium or penalty.
On December 21, 2018, the Company issued 50,584,413 shares of Common Stock in exchange for the extinguishment of debt and related accrued interest totaling approximately $3,541,000. The Company incurred interest expense related to the Credit Facility and notes payable of $0 for the three and six months ended January 31, 2020, and $33,715 and $93,000 for the three and six months ended January 31, 2019.
The Company maintains 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 the Company’s common stock (“Frost Gamma”), and Hsu Gamma Investments, LP, an entity controlled by the Company’s Chairman and Interim CEO (“Hsu Gamma” and together with Frost Gamma, 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, 2018 (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 owingThe Company is permitted to borrow and reborrow from time to time under the Credit Facility are required to be repaid by the Credituntil July 31, 2020 (the “Credit Facility Maturity Date, and amounts outstanding are prepayable at any time without premium or penalty. AsDate”). The balance of January 31, 2018, the Company had drawn an aggregate of $1,000,000principal due under the Credit Facility was $0 at January 31, 2020 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 NIMS on both the Frost Gamma Note and the unrelated third party note is 11% per annum, payable on the maturity date of July 31, 2018 (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.2019.
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 NIMS’ Chairman of the Board and Interim Chief Executive Officer, Jane H. Hsiao, (the “Hsu Gamma Note”). The interest rate payable by NIMS 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.
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, payable on the Promissory Notes Maturity Date. 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, NIMS’ Chairman of the Board and Interim Chief Executive Officer. The interest rate payable by NIMS on the 2014 Hsiao Note is 11% per annum, payable on the Promissory Notes Maturity Date. The 2014 Hsiao Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or 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 Promissory Notes Maturity Date. The 2015 Hsiao Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or 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 Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. 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, 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 Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The August 2015 Frost Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 2018
On October 27, 2015, the Company entered into a promissory note in the principal amount of $50,000 with Frost Gamma (the “October 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 October 2015 Frost Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The October 2015 Frost Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On October 27, 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 “October 2015 Hsiao Note”). The interest rate payable by the Company on the October 2015 Hsiao Note is 11% per annum, payable on the Promissory Notes Maturity Date. The October 2015 Hsiao Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
2016 Promissory Notes.On June 1, 2016, the Company entered into a promissory note in the principal amount of $100,000 with Frost Gamma (the “June 2016 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 June 2016 Frost Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The June 2016 Frost Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On June 1, 2016, the Company entered into a promissory note in the principal amount of $100,000 with Hsu Gamma, an entity controlled by NIMS’ Chairman of the Board and Interim Chief Executive Officer, Jane H. Hsiao, (the “June 2016 Hsu Gamma Note”). The interest rate payable by NIMS on the June 2016 Hsu Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The June 2016 Hsu Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
2017 Promissory Notes. On April 6, 2017, the Company entered into a promissory note in the principal amount of $50,000 with Frost Gamma (the “April 2017 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 2017 Frost Gamma Note is 11% per annum, originally payable on the maturity date of July 31, 2017 and subsequently the date was extended to the Promissory Notes Maturity Date. The 2017 Frost Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On April 6, 2017, the Company entered into a promissory note in the principal amount of $50,000 with Hsu Gamma, an entity controlled by NIMS’ Chairman of the Board and Interim Chief Executive Officer, Jane H. Hsiao, (the “April 2017 Hsu Gamma Note”). The interest rate payable by NIMS on the 2017 Hsu Gamma Note is 11% per annum, originally payable on the maturity date of July 31, 2017 and subsequently the date was extended to the Promissory Notes Maturity Date. The 2017 Hsu Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On September 22, 2017, the Company entered into a promissory note in the principal amount of $50,000 with Frost Gamma (the “September 2017 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 2017 Frost Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The 2017 Frost Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On September 22, 2017, the Company entered into a promissory note in the principal amount of $50,000 with Hsu Gamma, an entity controlled by NIMS’ Chairman of the Board and Interim Chief Executive Officer, Jane H. Hsiao, (the “September 2017 Hsu Gamma Note”). The interest rate payable by NIMS on the 2017 Hsu Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The 2017 Hsu Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 2018
At January 31, 2018, the Company was obligated under the above described Credit Facility and promissory notes to make future principal payments (excluding interest) as follows:
| Year Ending January 31, | ||||
| 2018 | 1,925,000 | |||
| $ | 1,925,000 | |||
6. SHAREHOLDERS’ EQUITY
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. In February 2019, all outstanding shares of Series C Preferred Stock were redeemed by the Company following 30 days written notice. The redemption amount for the 62,048 Series C Preferred Stock was approximately $25,000 at a rate of $0.40 per share of which approximately $15,000 was paid and approximately $10,000 is included in accrued expenses at January 31, 2020. The redeemed Series C Preferred Stock were then cancelled following the redemption.
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 did not issue any In February 2019, all holders of the 2,782 outstanding shares of Series D Preferred Stock converted their shares to common stock. As a result, the Company’sCompany issued 13,910,000 common stock during the six months ended January 31, 2018 and 2017.shares.
No preferred stock dividends were declared for the three and six months ended January 31, 20182020 and 2017.2019.
The Company did not issue any shares of the Company’s common stock during the three and six months ended January 31, 2020 and 2019.
7. 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 three and six months ended January 31, 20182020 and 2017,2019, 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. There are no options or warrants outstanding as of January 31, 2020 and 2019.
Potential common shares not included in calculating diluted net loss per share are as follows:
| January 31, 2018 | January 31, 2017 | |||||||
| Stock options | - | 200,000 | ||||||
| Series C Preferred Stock | 1,551,200 | 1,551,200 | ||||||
| Series D Preferred Stock | 13,910,000 | 13,910,000 | ||||||
| Total | 15,461,200 | 15,661,200 | ||||||
| January 31, 2020 | January 31, 2019 | |||||||
| Series C Preferred Stock | - | 1,551,200 | ||||||
| Series D Preferred Stock | - | 13,910,000 | ||||||
| Total | - | 15,461,200 | ||||||
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 2018
8. RELATED PARTY TRANSACTIONS
The Company signed a five year lease for office space in Miami, Florida with a company owned 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 continued on a month-to-month basis. In February 2016, the office space rent was reduced to $0 per month. The Company did not record any rent expense related to the Miami lease for the three and six months ended January 31, 2018.
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 did not record any rent expense related to the Hialeah warehouse for the three and six months ended January 31, 2018 and 2017.
Accounts payable related to the two leases above totaled approximately $191,000 as of January 31, 2018 and July 31, 2017.
The Company has the Credit Facility and multiple notes payable outstanding to related parties, as more fully described in Note 5 to these consolidated financial statements.
The Company incurred interest expense related to the Credit Facility of approximately $28,000 and $56,000 for the three and six months ended January 31, 2018 and 2017. The Company also incurred interest expense related to the promissory notes of approximately $26,000 and $50,000 for the three and six months ended January 31, 2018 and $20,000 and $40,000 for the three and six months ended January 31, 2017. Approximately $1,108,000 and $1,003,000 of accrued interest remained outstanding at January 31, 2018 and July 31, 2017, 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, Cogint, Inc. (“Cogint”) (formerly known as IDI, Inc.), a publicly-traded data fusion company and VBI Vaccines Inc, a vaccine development 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. The Chief Financial Officer continues to serve as the Chief Financial Officer of Cocrystal Pharma, Inc., a clinical stage biotechnology company, and in which Steve Rubin and Jane Hsiao, serve on the Board. Since December 2009, the Company’s Chief Legal Officer has served under a similar cost sharing arrangement as Corporate Counsel of Cogint and as the Chief Legal Officer of TransEnterix.
The Company recordedsigned 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 selling, general and administrative costs and expenses to account for the sharing of costs under these arrangements of $9,000 and $18,000, respectively, for$0 per month. For the three and six months ended January 31, 2018,2020 and $9,000 and $18,000, respectively, for2019, the three and six months endedCompany did not record any rent expense related to the Miami lease. At January 31, 2017. Accounts payable to TransEnterix related to these arrangements totaled approximately $1,200 and $800 at January 31, 20182020 and July 31, 2017.2019, approximately $0 and $0 in rent was payable, respectively.
NIMSThe 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 NIMSthe Company are under common control and OPKO Health, Inc. has a one percent ownership interest in NIMSthe Company that OPKO has accounted for as an equity method investment due to the ability to significantly influence NIMS. the Company.
9. COMMITMENTS AND CONTINGENCIES
Leases.Leases.
The Company iswas 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.
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 2018
We househoused our inventory in approximately 4,000 square feet of warehouse space in Pembroke Park, Florida. The lease commenced September 15, 2014 and originally expired on September 30, 2015 and we have exercised our option to renew the lease and extended the expiration to September 15, 2017. Following the expiration, we have remained on a month-to-month term. On May 3, 2019 the Company exchanged inventory for forgiveness of $15,000 of accrued unpaid rent. The Company had previously written off the value of this inventory resulting in a gain on the forgiveness of approximately $15,000. The Company no longer leases this Pembroke Park warehouse following the sale of inventory.
Generally, the lease agreements require the payment of base rent plus escalations for increases in building operating costs and real estate taxes. Rental expense for operating leases amounted to $22,000 and $22,000 for the six months ended January 31, 2018 and 2017, respectively.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.
OnIn September 4, 2007, the Company entered into a Product Development and Supply Agreement under Singapore law (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 confirm 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, 2018, the Company had paid Sing Lin $1.7 million in connection with orders placed through that date. As of January 31, 2018, the Company has approximately $41,000 of payables due to Sing Lin. As of January 31, 2018, aggregate minimum future purchases under the Agreement totaled approximately $13.9 million.
As of January 31, 2018, 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 the date of the issuance of these financial statements Sing Lin has not followed up on its July 2010 demand. There can be no assurancedemand as of this filing and the Company does not anticipate that they will in the future. The Company has opinion from counsel that an adversarial process by Sing Lin will not attempt to enforce its remediesis time-barred under the Agreement, or pursue other potential remedies.
10. RISKS AND UNCERTAINTIES AND CONCENTRATIONS OF RISK
Financial instruments that potentially subject the Company to risk consist principally of purchases and advances to contract manufacturer.
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
January 31, 2018
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 terminatingLimitation Act under Singapore law where the agreement effective September 2010 (see note 9). 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.
was bound.
11. SUBSEQUENT EVENTS
On February 15, 2018, Non-Invasive Monitoring Systems, Inc. (“NIMS”) entered into a Promissory Note in the principal amount of $100,000.00 with Frost Gamma Investments Trust (the “2018 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 NIMS on the 2018 Frost Gamma Note is 11% per annum, payable on the maturity date of July 31, 2018. The 2018 Frost Gamma Note may be prepaid in advance of the Maturity Date without penalty.
On February 15, 2018, NIMS entered into a Promissory Note in the principal amount of $100,000.00 with Hsu Gamma Investments, L.P., an entity controlled by the Company’s Chairman and Interim CEO, Jane Hsiao (the “2018 Hsu Gamma Note”). The interest rate payable by NIMS on the 2018 Hsu Gamma Note is 11% per annum, payable on the maturity date of July 31, 2018. The 2018 Hsu Gamma Note may be prepaid in advance of the Maturity Date without penalty.
NON-INVASIVE MONITORING SYSTEMS, INC.
January 31, 2018
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Cautionary Statement Regarding Forward-looking Statements.
This Interim Report on Form 10-Q contains, in addition to historical information, certain forward-looking statements regarding Non-Invasive Monitoring Systems, Inc. (the “Company” or “NIMS,” also referred to as “us”, “we” or “our”). These forward-looking statements represent our expectations or beliefs concerning the Company’s operations, performance, financial condition, business strategies, and other information and that involve substantial risks and uncertainties. For this purpose, any statements contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. The Company’s actual results of operations, some of which are beyond the Company’s control, could differ materially from the activities and results implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to the Company’s: history of operating losses and accumulated deficit; immediate need for additional financing; the Company’s inability to repay the Credit Facility currently due on July 31, 2018 or promissory notes due on July 31, 2018, dependence on future sales of the Exer-Rest® motion platforms; current and future purchase commitments; competition; dependence on management; changes in healthcare rules and regulations;; risks related to proprietary rights; government regulation, including regulatory approvals; other factors described herein as well as the factors contained in “Item 1A - Risk Factors” of our Annual Report on Form 10-K for the year ended July 31, 2017.2019. We do not undertake any obligation to update forward-looking statements, except as required by applicable law. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.
Overview
We are primarilypreviously were engaged in the salesdevelopment, 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 platformsThe Company discontinued operations in May 2019, accordingly, certain assets, liabilities and expenses are the inventions of Marvin A. Sackner, M.D., our founder, former Chief Executive Officer and a current member of our Board of Directors. 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 technology causes increased release of beneficial substances suchclassified as nitric oxide from the inner lining of blood vessels throughout the vasculature for improved circulation and the reduction of inflammation. 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 sales and inventory maintenance of the Exer-Rest and general corporate matters has necessitated expenditures and commitments of capital, and we anticipate expenses and associated losses to continue for the foreseeable future. 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. We are also examining strategic alternatives. If we are unsuccessful in our efforts to expand sales and/or raise capital, or some other strategic alternative, we will not be able to continuediscontinued operations.
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.
NON-INVASIVE MONITORING SYSTEMS, INC.
January 31, 2018
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. 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 LifeShirt sales, if any, that may result from this license.
Critical Accounting Policies and Estimates
TheOur discussion and analysis of our financial condition and results of operations set forth below under “Results of Operations” and “Liquidity and Capital Resources” should be read in conjunction withare based upon our consolidated financial statements, and notes thereto appearing elsewherewhich have been prepared in this Form 10-Q.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 royalties, inventory, tooling and equipment and contingencies. The Company’s accounting policy for loss contingencies complies with ASC 450-20-25-2.estimates. 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 ourthis Annual Report on Form 10-K10-K. While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the year ended July 31, 2017. Actual results maywill always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from thesesuch estimates.
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 original AT-101 platform. The Exer-Rest AT platform was first available for delivery to certain locations outside of the United States in October 2007. Our newest platforms, the Exer-Rest AT3800 and AT4700, which we developed under2009 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 US and international sales activity with aggressive marketing and promotional pricing beginning in February 2009. We opened our first demonstrationhave discontinued those operations in May 2019. The Company is assessing potential mergers, acquisitions and therapy center in Toronto, Canada in April 2009; however, we closed that facility in January 2010 to focus our marketing and sales efforts on healthcare providers as well as individuals. We continue to offer the Exer-Rest to hospitals, cardiac rehabilitation clinics, chiropractic and physical therapy centers, senior living communities and other healthcare providers, as well as to their patients, professional athletes and other individuals.strategic collaborations.
NON-INVASIVE MONITORING SYSTEMS, INC.
January 31, 2018
Three and six months ended January 31, 20182020 compared to three and six months ended January 31, 20172019
Revenues.Total revenue was $0 for the three monthsGeneral and six months ended January 31, 2018, as compared to $5,000administrative costs and $6,000expenses from continuing operations. General and administrative (“G&A”) costs and expenses from continuing operations were $47,000 and $99,000 for the three and six months ended January 31, 2017. This decrease resulted from no sales of Exer-Rest units during2020, respectively, as compared to $66,000 and $201,000 for the three and six months ended January 31, 2018.2019, respectively. The $19,000 and $102,000 decrease for the three and six months was primarily due to legal and professional services related to the Company’s exploration of a strategic target in 2019.
CostSelling, general and administrative costs and expenses from discontinued operations. Selling, general and administrative (“SG&A”) costs and expenses from discontinued operations were $0 and $3,000 for the three and six months ended January 31 2020, as compared to $12,000 and $25,000 for the three and six months ended January 31, 2019. The $12,000 and $22,000 decrease were primarily due to the winding down of Sales.operations.
Total operating costs and expenses from continuing operations.Total operating costs and expenses were $47,000 and $99,000 for the three and six months ended January 31, 2020, respectively, as compared to $66,000 and $201,000 for the three and six months ended January 31 2019, respectively. The $19,000 and $102,000 decrease is explained above in G&A.
Interest expense. Cost of salesNet interest expense was $0 for the three and six months ended January 31, 2018, as compared to $99,0002020, respectively, and net interest expense was $34,000 and $93,000 for the three and six months ended January 31, 2017. This2019. The $34,000 and $93,000 decrease primarily duewas related to an approximate $99,000 inventory impairment adjustment during the three and six months ended January 31, 2017.Debt Exchange further described in Note 5 to the accompanying unaudited condensed consolidated financial statements that satisfied outstanding principal.
Selling, generalGain (loss) from discontinuing operations.Gain from discontinuing operations was $4,000 and administrative costs and expenses. Selling, general and administrative (“SG&A”) was $46,000 and $122,000$1,000 for the three and six months ended January 31, 2018, respectively,2020 as compared to a loss of ($12,000) and $41,000 and $121,000($25,000) for the three and six months ended January 31, 2017, respectively.2019. The $5,000$16,000 and $1,000 increases were generally attributable to changes in the timing of invoices receipt and accrual.
Research and development costs and expenses. There was no Research and development (“R&D”) costs and expenses for the three and six months ended January 31, 2018 and 2017.
Total operating costs and expenses. Total operating costs and expenses was $46,000 and $122,000 for the three and six months ended January 31, 2018, respectively, and $140,000 and $220,000 for the three and six months ended January 31, 2017 respectively. The $94,000 and $98,000 decreases$26,000 decrease were primarily attributabledue to a $99,000 inventory impairment adjustment during the threewrite off of approximately $4,000 in accounts payable and six months ended January 31, 2017.
Interest expense.Interest expense was $53,000 and $105,000 for the three and six months ended January 31, 2018, respectively, and $48,000 and $96,000 for the three and six months ended January 31, 2017 respectively. The $5,000 and $9,000 increases were primarily related to an increase in interest expense resulting from the addition of interest bearing promissory notes entered into by the Company (see Note 5).other liabilities.
Liquidity and Capital Resources
The Company’s operations have been primarily financed through private sales of its equity securities and advances under Credit Facility and Promissory Notes. At January 31, 2018,2020, we had approximately $12,000$250,000 of cash and negative working capital deficit of approximately $3,460,000. We believe that the cash on hand at January 31, 2018 will not be sufficient to meet our anticipated cash requirements for operations over the next 12 months.($17,000).
We expect to incur losses from operations for the foreseeable future. It is likely that we will not be able to generate significant additional revenue and we will be required to obtain additional external financing through public or private equity offerings, debt financings or collaborative agreements to continue operations. No assurance can be given that such additional financing will be available on acceptable terms or at all. We are also examining strategic alternatives. Our ability to sell additional shares of our stock and/or borrow cash could be materially adversely affected by the current climate in the global equity and credit markets.
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. Additionally, the sales of equity or convertible debt securities may result in dilution to our stockholders.
NON-INVASIVE MONITORING SYSTEMS, INC.
January 31, 2018
Net cash used in operating activities was $99,000$103,000 and $55,000$179,000 for six months ended January 31, 20182020 and 2017,2019, respectively. This $44,000 increase is$76,000 decrease was primarily due to changes in prepaid expenses, deposits and other current assets.
Net cash provided by investing activities was $0 and $3,000 forreduced legal expense related to the six months ended January 31, 2018 and 2017. This $3,000 decrease was the resultCompany’s exploration of the sale of a fixed assetstrategic alternatives during the six months ended January 31, 2017.
Net cash provided by financing activities $100,000 and $0 for2019 as compared to the six months ended January 31, 2018 and 2017, respectively. The $100,000 increase was a result of obtaining related party promissory notes during the six months ended January 31, 2018 (see Note 5).2020.
2010 Credit Facility.On March 31, 2010, the Company 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 the Company’s common stock (“Frost Gamma”), and Hsu Gamma Investments, LP, an entity controlled by the Company’s Chairman and Interim Chief Executive Officer, Jane H. Hsiao (“Hsu Gamma” and together with Frost Gamma, 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, 2018 (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 January 31, 2018, 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 and with an unrelated third party for a total of $100,000. The interest rate payable by NIMS on both the Frost Gamma note and the unrelated third party note is 11% per annum, payable on the maturity date of July 31, 2018 (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 NIMS’ Chairman of the Board and Interim Chief Executive Officer, Jane H. Hsiao, (the “Hsu Gamma Note”). The interest rate payable by NIMS 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.
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, payable on the Promissory Notes Maturity Date. 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, NIMS’ Chairman of the Board and Interim Chief Executive Officer. The interest rate payable by NIMS on the 2014 Hsiao Note is 11% per annum, payable on the Promissory Notes Maturity Date. The 2014 Hsiao Note may be prepaid in advance of the Maturity Date without premium or 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 Promissory Notes Maturity Date. The 2015 Hsiao Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
NON-INVASIVE MONITORING SYSTEMS, INC.
January 31, 2018
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 Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. 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, 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 Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The August 2015 Frost Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On October 27, 2015, the Company entered into a promissory note in the principal amount of $50,000 with Frost Gamma (the “October 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 October 2015 Frost Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The October 2015 Frost Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On October 27, 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 “October 2015 Hsiao Note”). The interest rate payable by the Company on the October 2015 Hsiao Note is 11% per annum, payable on the Promissory Notes Maturity Date. The October 2015 Hsiao Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
2016 Promissory Notes.On June 1, 2016, the Company entered into a promissory note in the principal amount of $100,000 with Frost Gamma (the “June 2016 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 June 2016 Frost Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The June 2016 Frost Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On June 1, 2016, the Company entered into a promissory note in the principal amount of $100,000 with Hsu Gamma, an entity controlled by NIMS’ Chairman of the Board and Interim Chief Executive Officer, Jane H. Hsiao, (the “June 2016 Hsu Gamma Note”). The interest rate payable by NIMS on the June 2016 Hsu Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The June 2016 Hsu Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
2017 Promissory Notes. On April 6, 2017, the Company entered into a promissory note in the principal amount of $50,000 with Frost Gamma (the “April 2017 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 2017 Frost Gamma Note is 11% per annum, originally payable on the maturity date of July 31, 2017 and subsequently the date was extended to the Promissory Notes Maturity Date. The 2017 Frost Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On April 6, 2017, the Company entered into a promissory note in the principal amount of $50,000 with Hsu Gamma, an entity controlled by NIMS’ Chairman of the Board and Interim Chief Executive Officer, Jane H. Hsiao, (the “April 2017 Hsu Gamma Note”). The interest rate payable by NIMS on the 2017 Hsu Gamma Note is 11% per annum, originally payable on the maturity date of July 31, 2017 and subsequently the date was extended to the Promissory Notes Maturity Date. The 2017 Hsu Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
On September 22, 2017, the Company entered into a promissory note in the principal amount of $50,000 with Frost Gamma (the “September 2017 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 2017 Frost Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The 2017 Frost Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
NON-INVASIVE MONITORING SYSTEMS, INC.
January 31, 2018
On September 22, 2017, the Company entered into a promissory note in the principal amount of $50,000 with Hsu Gamma, an entity controlled by NIMS’ Chairman of the Board and Interim Chief Executive Officer, Jane H. Hsiao, (the “September 2017 Hsu Gamma Note”). The interest rate payable by NIMS on the 2017 Hsu Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The 2017 Hsu Gamma Note may be prepaid in advance of the Promissory Notes Maturity Date without premium or penalty.
2018 Promissory Notes.On February 15, 2018, the Company entered into a Promissory Note in the principal amount of $100,000.00 with Frost Gamma Investments Trust (the “2018 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 NIMS on the 2018 Frost Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The 2018 Frost Gamma Note may be prepaid in advance of the Maturity Date without penalty.
On February 15, 2018, the Company entered into a Promissory Note in the principal amount of $100,000.00 with Hsu Gamma Investments, L.P., an entity controlled by the Company’s Chairman and Interim CEO, Jane Hsiao (the “2018 Hsu Gamma Note”). The interest rate payable by NIMS on the 2018 Hsu Gamma Note is 11% per annum, payable on the Promissory Notes Maturity Date. The 2018 Hsu Gamma Note may be prepaid in advance of the Maturity Date without penalty.
As of March 10, 2017, the Company had cash and cash equivalents of approximately $198,000 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 our existing debt and continue operations without raising additional capital. We are also examining strategic alternatives. There can be no assurance that we will be able to raise such additional capital on terms acceptable to us or at all or that we will be successful in our examination of strategic alternatives. This uncertainty, along with the Company’s limited remaining cash balances, raises substantial doubt about the Company’s ability to continue as a going concern.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not required for smaller reporting companies as defined in Rule 12b-2 of the Exchange Act.
ITEM 4. CONTROLS AND PROCEDURES.
| ITEM 4. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of January 31, 20182020 were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Changes in Internal Control over Financial Reporting
There were no material changes in our internal controls over financial reporting or in other factors that could materially affect, or are reasonably likely to affect, our internal controls over financial reporting during the quarter ended January 31, 2018.2020. 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.
NON-INVASIVE MONITORING SYSTEMS, INC.
January 31, 2018
None.
None.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.Defaults upon Senior Securities
None.
Item 4.Mine Safety Disclosures
None.
None.
| 31.1 | Certification of Chief Executive Officer pursuant to | ||
| 31.2 | Certification of Chief Financial Officer pursuant to | ||
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350 as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350 as enacted pursuant to Section | ||
| 101.INS | XBRL Instance | ||
| 101.SCH | XBRL Taxonomy Extension Schema | ||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | ||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase | ||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase | ||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
| * | Filed herewith |
NON-INVASIVE MONITORING SYSTEMS, INC.INC
January 31, 20182020
In accordance with the requirements of the Exchange Act the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: March 16, | By: | /s/ Jane H. Hsiao |
| Jane H. Hsiao, Interim Chief Executive Officer | ||
| Dated: March 16, | By: | /s/ James J. Martin |
| James J. Martin, Chief Financial Officer |
NON-INVASIVE MONITORING SYSTEMS, INC.
January 31, 2018
EXHIBIT INDEX