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 did not record stock-based compensation for the three and sixnine months ended January 31,April 30, 2020 and 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,April 30, 2020.

As of January 31,April 30, 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 sixnine months ended January 31,April 30, 2020 or 2019.

5. NOTES PAYABLE

The 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 sixnine months ended January 31,April 30, 2020, and $33,715$0 and $93,000 for the three and sixnine months ended January 31,April 30, 2019.

The Company maintains a 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 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. The Company is permitted to borrow and reborrow from time to time under the Credit Facility until July 31, 2020 (the “Credit Facility Maturity Date”). The balance of the principal due under the Credit Facility was $0 at January 31,April 30, 2020 and July 31, 2019.

6. SHAREHOLDERS’ EQUITY

As of April 30, 2020, the Company has authorized 400,000,000 shares of common stock, $0.01 par value per share. The Company had 154,810,655 shares issued and outstanding as of April 30, 2020 and July 31, 2019, respectively.

The holders of common stock are entitled to one vote for each share of common stock held.

The Company has three classes of Preferred Stock. Holdersone class 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.

Stock. 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,April 30, 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. 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 issued 13,910,000 common shares.

No preferred stock dividends were declared for the three and sixnine months ended January 31,April 30, 2020 and 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 sixnine months ended January 31,April 30, 2020 and 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,April 30, 2020 and 2019.

Potential weighted average outstanding common shares not included in calculating diluted net loss per share are as follows:

8. RELATED PARTY TRANSACTIONS

Dr. Jane Hsiao, Dr. Phillip Frost and directors Mr. Steven Rubin and Mr. 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 company. TheSince December 2009, the Company’s Chief FinancialLegal Officer alsohas 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 wherebyas the total salariesChief Legal Officer 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 SteveDr. Phillip Frost and Mr. Steven 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 the Chief Legal Officer of TransEnterix.

The Company signed a five year lease for office space in Miami, Florida with a company controlled by Dr. Phillip Frost, who is the beneficial owner of more than 10% of the Company’s common stock. The rental payments under the Miami office lease, which commenced January 1, 2008 and expired on December 31, 2012, were approximately $1,250 per month and then continued on a month-to-month basis. In February 2016 the rent was reduced to $0 per month. For the three and sixnine months ended January 31,April 30, 2020 and 2019, the Company did not record any rent expense related to the Miami lease. At January 31,April 30, 2020 and July 31, 2019, approximately $0 and $0 inthere was no rent was payable, respectively.payable.

The Company is under common control with multiple entities and the existence of that control could result in operating results or financial position of each individual entity significantly different from those that would have been obtained if the entities were autonomous. One of those related parties, OPKO Health, Inc. (“OPKO”) and the Company are under common control and OPKO has a percentage of ownership less than one percent ownership interest in the Company that OPKO has accounted for as an equity method investment due to the ability to significantly influence the Company.

9. COMMITMENTS AND CONTINGENCIES

Leases.

The Company was under an operating lease agreement for our corporate office space that expired in 2012. The lease currently continues on a month to month basis at no cost.

We housed 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 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.

COVID-19.

Current economic conditions with COVID-19 have been, and continue to be, volatile and continued instability in these market conditions may limit our ability to access the capital necessary to fund and grow our business and to replace, in a timely manner, maturing liabilities or to successfully examine strategic alternatives. Quarantines would make our ability to look for strategic alternatives more difficult and prospects of borrowing or equity raises would be more challenging. Additionally, the sales of equity or convertible debt securities may result in dilution to our stockholders.

Product Development and Supply Agreement.

In September 2007, the Company entered into a Product Development and Supply Agreement 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 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. Sing Lin has not followed up on its July 2010 demand 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 is time-barred under the Limitation Act under Singapore law where the agreement was bound.

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; need for additional financing; dependence on management;; risks related to proprietary rights; 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, 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 previously were engaged in the development, manufacture and marketing of non-invasive, whole body periodic acceleration (“WBPA”) therapeutic platforms, which are motorized platforms that move a subject repetitively head to foot. The Company discontinued operations in May 2019, accordingly, certain assets, liabilities and expenses are classified as discontinued operations.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our 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 this Annual Report on Form 10-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 results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.

Results of Operations

In January 2009 our Exer-Rest line of therapeutic platforms was registered by the FDA in the United States as Class I (Exempt) Medical Devices. We began our sales activity with marketing and promotional pricing beginning in February 2009. WeIn May 2019, we have discontinued those operations in May 2019.operations. The Company is now assessing potential mergers, acquisitions and strategic collaborations.

Three and sixNine months ended January 31,April 30, 2020 comparedCompared to threeThree and sixNine months ended January 31,Ended April 30, 2019

General and administrative costs and expenses from continuing operations. General and administrative (“G&A”) costs and expenses from continuing operations were $47,000$40,000 and $99,000$139,000 for the three and sixnine months ended January 31,April 30, 2020, respectively, as compared to $66,000$177,000 and $201,000$378,000 for the three and sixnine months ended January 31,April 30, 2019, respectively. The $19,000$137,000 and $102,000$239,000 decrease for the three and sixnine months was primarily due to legal and professional services related to the Company’s exploration of a strategic target in 2019.

Selling, 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 sixnine months ended January 31April 30, 2020, as compared to $12,000 and $25,000$37,000 for the three and sixnine months ended January 31,April 30, 2019. The $12,000 and $22,000$34,000 decrease were primarily due to the winding down of operations.

Total operating costs and expenses from continuing operations.Total operating costs and expenses were $47,000$40,000 and $99,000$139,000 for the three and sixnine months ended January 31,April 30, 2020, respectively, as compared to $66,000$177,000 and $201,000$378,000 for the three and sixnine months ended January 31April 30, 2019, respectively. The $19,000$137,000 and $102,000$239,000 decrease isare explained above in G&A.

Interest expense. Net interest expense was $0 for the three and sixnine months ended January 31,April 30, 2020, respectively, and net interest expense was $34,000$0 and $93,000 for the three and sixnine months ended January 31,April 30, 2019. The $34,000 and $93,000 decrease for the nine months ended was related to the Debt Exchange further described in Note 5 to the accompanying unaudited condensed consolidated financial statements that satisfied outstanding principal.

Gain (loss) from discontinuing operations.Gain from discontinuing operations was $4,000$0 and $1,000 for the three and sixnine months ended January 31,April 30, 2020 as compared to a loss of ($12,000) and ($25,000)37,000) for the three and sixnine months ended January 31,April 30, 2019. The $16,000$12,000 and $26,000$38,000 decrease were primarily due to the write offwinding down of approximately $4,000 in accounts payable and other liabilities.operations.

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,April 30, 2020, we had approximately $250,000$213,000 of cash and working capital deficit of approximately ($17,000)57,000).

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.

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.

Net cash used in operating activities was $103,000$140,000 and $179,000$215,000 for sixnine months ended January 31,April 30, 2020 and 2019, respectively. This $76,000$75,000 decrease was primarily due to reduced legal expense related to the Company’s exploration of strategic alternatives during the sixnine months ended January 31, 2019April 30, 2020 as compared to the sixnine months ended January 31, 2020.April 30, 2019.

Not required for smaller reporting companies as defined in Rule 12b-2 of the Exchange Act.

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,April 30, 2020 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,April 30, 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.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

None.

Item 1A.Risk Factors

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.

Item 5.Other Information

None.

Item 6.Exhibits

NON-INVASIVE MONITORING SYSTEMS, INC

January 31,April 30, 2020

SIGNATURES

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.

EXHIBIT INDEX TO EXHIBITS