REGISTRATION NO. ___________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
NON-INVASIVE MONITORING SYSTEMS, INC.
----------------------------------------------
(Name of Small Business Issuer in its Charter)
FLORIDA 3845 59-2007840
- ------------------------------- ------------------------- -------------
(State or Other Jurisdiction of (Primary SIC Code Number) (IRS Employer
Incorporation or Organization) Identification No.)
1666 Kennedy Causeway Avenue, Suite 400
North Bay Village Florida 33141
(305) 861-0075
_____________________________________________________________
(Address and Telephone Number of Principal Executive Offices)
Allan F. Brack, Chief Executive Officer
1666 Kennedy Causeway Avenue, Suite 400
North Bay Village Florida 33141
(305) 861-0075
----------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
_________________
Copies to:
JOSEPH I. EMAS, ESQUIRE
1224 WASHINGTON AVENUE
MIAMI BEACH, FL 33139
(305) 866-3360
_________________
Approximate date of proposed commencement of sale to the public: From time to
time after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [_]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
================================================================================
CALCULATION OF REGISTRATION FEE
- ----------------------------- --------------- --------------------------- ---------------------------- ----------------------
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE(1) OFFERING PRICE (1) REGISTRATION FEE
- ----------------------------- --------------- --------------------------- ---------------------------- ---------------------
Common Stock,
$0.01 par value per share 5,000,000(2) $0.20 $1,000,000 $ 92.00
Common Stock,
$0.01 par value per share 7,475,000(3) $0.20 $1,495,000 $138.00
Common Stock,
$0.01 par value per share 326,664(4) $0.20 $ 65,332 $ 6.00
Common Stock,
$0.01 par value per share 416,665(5) $0.20 $ 83,333 $ 8.00
Common Stock,
$0.01 par value per share
underlying options 875,000(6) $0.20 $ 175,000 $ 16.00
Total $260.00
- ----------------------------- --------------- -------------------------- ---------------------------- -------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended, based upon
the average of the bid and asked price in the over the counter market on
December 6, 2002.
(2) This registration statement registers the offer and sale of 5,000,000
shares of common stock, $0.01 par value per share, of the Registrant.
Pursuant to Rule 416 under the Securities Act of 1933, as amended, the
number of shares registered hereby includes such additional number of
shares of common stock as are required to prevent dilution resulting from
stock splits, stock dividends or similar transactions.
(3) Consists of 7,475,000 shares of common stock, $0.01 par value per share,
of the Registrant sold to investors pursuant to a private placement.
(4) Consists of 326,664 shares of common stock, $0.01 par value per share, of
the Registrant sold to foreign investors.
(5) Consists of 416,665 shares of common stock, $0.01 par value per share, of
the Registrant sold to investors pursuant to 4(2) of the Securities Act of
1933, as amended.
(6) Consists of 875,000 shares of common stock, $0.01 par value per share, of
the Registrant underlying options issued to certain executives pursuant to
their employment agreements.
NON-INVASIVE MONITORING SYSTEMS, INC. HEREBY AMENDS THE REGISTRATION
STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER
BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACTS OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUBJECT TO COMPLETION
DATED DECEMBER 10, 2002
NON-INVASIVE MONITORING SYSTEMS, INC.
14,093,329 SHARES
OF COMMON STOCK
This Prospectus covers the proposed offer and sale of up to 5,000,000 shares of
Common Stock ($ 0.01 par value) (the "Shares") of Non-Invasive Monitoring
Systems, Inc. ("we", "us", "our" or the "Company") by the Company. There is no
minimum subscription. The offering will be open for a period of six months from
the date of the prospectus until June 30, 2002, although we may extend the
offering for 60 additional days. No minimum offering amount has been
established. The common stock will be sold through the officers and directors of
the Company on a best efforts basis. The purchase price will be based upon the
future market price of our common stock.
In addition, 9,093,329 Shares are being registered for resale by the selling
shareholders. We will not receive any of the proceeds from the sale of the
shares by the selling shareholders. We will pay all expenses of registration
incurred in connection with this offering, but the selling shareholders will pay
all of their selling commissions, brokerage fees and related expenses. We will
indemnify the selling shareholders against some liabilities, including
liabilities under the Securities Act of 1933, as amended. We believe that the
selling shareholders will sell the shares from time to time in the open market,
on the over-the-counter market, in privately negotiated transactions or a
combination of these methods, at market prices prevailing at the time of sale,
at prices related to the prevailing market prices, at negotiated prices, or
otherwise as described under "Plan of Distribution."
Our common stock is traded on the "Over the Counter" under the symbol "NIMU." On
December 6, 2002 the last reported average bid and sale price of our common
stock was $0.20 per share. The shares of common stock offered pursuant to this
prospectus have been approved for trading on the over-the-counter bulletin
board.
THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. SEE THE
SECTION ENTITLED "RISK FACTORS" ON PAGE 5 OF THIS PROSPECTUS FOR A DISCUSSION OF
THESE RISKS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS _______, 2002
TABLE OF CONTENTS
SUMMARY OF OUR OFFERING ................................................................ 3
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS .............................. 4
RISK FACTORS ........................................................................... 5
USE OF PROCEEDS ........................................................................ 11
DIVIDENDS .............................................................................. 11
DETERMINATION OF OFFERING PRICE ........................................................ 11
DESCRIPTION OF BUSINESS ................................................................ 12
DESCRIPTION OF PROPERTY ................................................................ 21
LEGAL PROCEEDINGS ...................................................................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ............................................................................. 22
MANAGEMENT ............................................................................. 28
EXECUTIVE COMPENSATION ................................................................. 31
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ......................... 32
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......................................... 35
DESCRIPTION OF SECURITIES .............................................................. 36
COMMISSION'S POLICY ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES .................. 38
SHARES AVAILABLE FOR FUTURE SALE ....................................................... 38
PLAN OF DISTRIBUTION ................................................................... 39
SELLING SHAREHOLDERS ................................................................... 41
LEGAL MATTERS .......................................................................... 46
EXPERTS ................................................................................ 46
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE ............................................................................. 46
ADDITIONAL INFORMATION ................................................................. 46
FINANCIAL STATEMENTS ................................................................... 47
2
SUMMARY OF OUR OFFERING
The following summary is qualified in its entirety by more detailed
information and the financial statements appearing elsewhere in this Prospectus
and our Annual Report on Form 10-KSB for the fiscal year ended July 31, 2002. It
does not contain all relevant information that is important to you in making a
decision whether to invest in our offering.
To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors on page 5 and the financial
statements beginning on page 47.
WHO WE ARE: We are a Florida corporation
formed in July 1980. Our address
and telephone number of our
principal offices are:
Non-Invasive Monitoring Systems,
Inc. 1666 Kennedy Causeway
Avenue, Suite 400 North Bay
Village, Florida 33141 (305)
861-0075 Attn: Allan F.
Brack-CEO
OUR BUSINESS: We are primarily engaged in the
research, development,
manufacturing and marketing of a
non-invasive, therapeutic,
periodic acceleration,
cardiorespiratory device, which
has been designated as the
motion platform.
SECURITIES OFFERED 5,000,000 shares of common
stock, $0.01 par value offered
by the Company
9,093,329 shares of common
stock, $0.01 per value offered
for resale by our shareholders,
which amount includes 875,000
shares of common stock
underlying options.
SECURITIES OUTSTANDING
AT DATE OF PROSPECTUS 30,233,055
SHARES TO BE OUTSTANDING
AFTER OFFERING 35,233,055*
USE OF PROCEEDS Offering proceeds will be used
to market the AT101 motion
platform and for working
capital.
*Assuming all of the shares of our common stock being registered are issued.
3
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains, in addition to historical information, forward-looking
statements regarding Non-Invasive Monitoring Systems, Inc. (the "Company" or
"NIMS"), which represent our expectations or beliefs including, but not limited
to, statements concerning our operations, performance, financial condition,
business strategies, and other information and that involve substantial risks
and uncertainties. Our actual results of operations, some of which are beyond
the our, could differ materially. For this purpose, any statements contained in
this prospectus 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.
Factors that could cause or contribute to such difference include, but are not
limited to, history of operating losses and accumulated deficit; need for
additional financing; dependence on future sales of the AT101 motion platform;
competition; dependence on management; risks related to proprietary rights;
government regulation; and other factors discussed herein and in our other
filings with the Securities and Exchange Commission.
We caution you to review the cautionary statements set forth in this prospectus
and in our reports filed with the Securities and Exchange Commission and we
caution you that other factors may prove to be important in affecting NIMS'
business and results of operations. We caution you not to place undue reliance
on these forward-looking statements, which speak only as of the date of this
prospectus. We undertake no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date of this
prospectus.
4
RISK FACTORS
Before you invest in our common stock, you should be aware of various risks,
including those described below. You should consider carefully these risks
together with all other information included in this prospectus before you
decide to purchase our common stock. Any or all of these risks could have a
material adverse impact on our present and future business, results of
operations and financial condition. These risks below may not be exhaustive of
all risks. Keep these risk factors in mind when your read forward-looking
statements elsewhere in this prospectus. These are statements which relate to
our expectations for future events and time periods. Generally, the words
"anticipate," "expect," "intend" and similar expressions identify forward
looking statements. Forward looking statements involve risks and uncertainties,
and future events and circumstances could differ significantly from those
anticipated in the forward looking statements. Our actual operating results and
financial performance may prove to be very different from what we might have
predicted as of the date of this prospectus.
We have revised our business strategy and, under this new strategy, we have a
short operating history by which you can evaluate our business and prospects.
We began operations in 1978, and we currently derive revenues from monitoring in
the medical respiratory/cardiac area and in both cardio-pulmonary resuscitation
as well as motion ventilation. Prior to 2002, we were primarily a research and
development company. In 2002, we revised our business strategy to become a
marketing company, with emphasis on the marketing of a motion platform developed
by us. We have developed the AT101 motion platform and have just commenced
marketing this product through our Acceleration Therapeutics division. This
division does not have an operating history. There can be no assurance that we
will continue to generate revenue from our existing products or from the
Acceleration Therapeutics division.
Our products may not be commercially successful.
To date, we have only sold a limited number of Acceleration Therapeutics
division products in the commercial marketplace. To be successful, we will have
to sell more of our products. However, for several reasons, we may not be able
to generate increasing sales. Potential customers may not be able to see the
advantage of using our products. Our competitors could introduce products that
are more economical to use, or that have better features, making them more
attractive to buyers.
Our competitors may be better able to market their products.
Competition from therapeutic medical devices that treat cardiac and pulmonary
disease is intense and likely to increase. Our competitors include major
multinational companies that have substantially greater capital resources, name
recognition, research and development experience, regulatory, manufacturing and
marketing capabilities. Many of these competitors offer well-established, broad
product lines and ancillary services not offered by us at this time. In order to
effectively compete, we need to make our business
5
grow. By generating greater revenues, we will have the resources to develop new
products in response to new technology, we will be able to meet customer
demands, and we will be able to sell products in a broad distribution channel.
There can be no assurance that we will be able to grow sufficiently to compete
effectively in this marketplace.
We may develop additional products in the future
We may develop additional product divisions whose services will be complimentary
to our existing products and services. The development of new products and
services can be very difficult and requires high levels of innovation. The
development process is also lengthy and costly. If we fail to anticipate our end
users' needs and technological trends accurately or are otherwise unable to
complete the development of products and services quickly and receive federal
approval where appropriate, we will be unable to introduce products into the
market on a timely basis, if at all. We anticipate that we will market these
additional products to our existing customers and expand our customer base
through strategic alliances and foreign marketing using sales representatives.
There can be no assurances that this approach to market our new products, if
any, will be successful.
We are subject to technologic changes
We operate in a market characterized by rapid technological developments and
frequent product introductions. The emerging character of these products and
services and their rapid evolution will require that we continually develop new
products. There can be no assurances that we will be able to successfully keep
up with the changes in technology.
We are subject to extensive government regulation
Our business is subject to extensive regulation by the FDA and comparable
regulatory authorities of foreign countries. Compliance with regulatory
requirements and obtaining approvals to test or market new medical devices is
expensive and time consuming. There is no assurance we will be able to continue
to meet all regulatory requirements of the FDA and other governmental
authorities necessary to market our present products or obtain and maintain
approvals to test and market new products. Failing to meet necessary government
requirements will have a negative impact on our ability to continue as a going
concern.
We may not be able to protect our proprietary information
We believe that trade secrets (including methodologies and practices) and other
intellectual property rights will be critical to our success. To protect our
rights in these various intellectual properties, we will rely on a combination
of trademark and copyright law, trade secret protection and confidentiality
agreements and other contractual arrangements with our employees, affiliates,
clients, strategic partners, acquisition targets and others. We cannot guarantee
that our actions to protect our proprietary rights will be
6
adequate, that third parties will not infringe or misappropriate intellectual
property, or that we will be able to detect unauthorized use and take
appropriate steps to enforce our rights. If we are unable to protect our
proprietary rights adequately it would have a material adverse effect on the
acceptance of our products and on our business, financial condition and
operating results.
Various health care providers and third party payors may refuse to cover our
products and/or their particular medical applications.
If the patients who use our treatments do not obtain coverage, patient demand
for our applications may decrease and as a result physicians may not purchase
our products. Our ability to commercialize our products successfully depends, in
part, on the extent to which third parties make reimbursement available for
these products and related treatments. These third parties include collaborative
partners, government health administration authorities, private health insurers,
managed care entities and other organizations. Increasingly, these payors are
challenging the price of medical products and services and establishing
protocols and formularies, which effectively limit physicians' ability to select
products and procedures. Uncertainty exists as to the reimbursement status of
health care products, especially innovative technologies. Additionally,
reimbursement coverage, if available, may not be adequate for us to achieve
market acceptance of our products or to maintain price levels sufficient for us
to realize an appropriate return on our products.
We believe that, if the treating physician is knowledgeable about the
reimbursement system and obtains preapproval, then typically health insurance
payors will reimburse patients for their treatment on the AT101. However, we
have formed this view based on a limited amount of experience. Payors may also
decide not to continue covering our products or the applications of our
products. Payors may also impose more onerous reimbursement procedures that have
the effect of reducing the rates of reimbursement, the amount reimbursed or
both.
Business interruptions could keep us from developing our products' clinical
applications and increasing our revenues.
Natural or man-made disasters, such as fires, earthquakes, power losses,
telecommunications failures, terrorist attacks, military operations and other
events beyond our control may interrupt our operations. We do not have a
detailed disaster recovery plan. In addition, we may not carry sufficient
business interruption insurance to compensate us for losses that may occur and
any losses or damages we incur could have a material adverse effect on our cash
flows and success as an overall business.
7
We must be able to effectively develop, market and sell our products in order to
make a profit.
Commercialization depends upon:
. successfully completing development efforts including finding new
clinical applications for our existing products;
. obtaining the required regulatory approvals;
. manufacturing our products at an acceptable cost and with appropriate
quality;
. favorable acceptance of any products marketed; and
. successful marketing and sales efforts by ourselves.
We may not successfully achieve some or all of these goals, and if so, our
business and our financial condition would be adversely affected.
If we lose our key personnel, our business and prospects may be adversely
affected.
Our performance is dependent on the services of certain key employees,
particularly Dr. Marvin Sackner M.D., our chairman of the board of directors and
Allan F. Brack, our chief executive officer. The loss of services of any of our
key employees could have a material adverse effect on our business and financial
condition. We do not have "keyman" life insurance policies on any of these
executives.
We are controlled by a limited number of shareholders
We expect that certain shareholders, including Dr. Marvin Sackner M.D., will
continue to exercise significant control over our direction and management. As a
result of their majority share ownership, these shareholders will have a
significant influence on all matters requiring stockholder approval, including
the election of directors. This concentration of ownership could delay or
prevent another person from acquiring control or causing a change in control of
us which may affect your ability to resell your shares at a favorable price.
We may need additional capital
Our capital requirements in connection with our operations will be substantial.
Our management anticipates that we will require additional working capital in
the future. There are no assurances that such additional capital will be
available. Further, even if available, additional equity or convertible debt
financing, if used, could result in substantial dilution of shareholder
interests.
8
We do not intend to declare dividends
We have not paid any dividends in the past and do not anticipate paying any
dividends in the foreseeable future. This may depress the price of our
securities, as a non-dividend paying stock may not appeal to certain investors.
Our revenues are affected by economic conditions
Our revenues and results of operations are likely to be influenced by general
economic conditions. In the event of a general economic downturn or a recession
in the United States and abroad, our clients and potential clients may
substantially reduce their medial technology and related budgets. Such an
economic downturn may materially and adversely affect the our business,
financial condition and results of operations.
We have a history of significant operating losses. We may not ever achieve or
maintain profitability.
We have incurred significant operating losses since our inception, and as of
July 31, 2002, we have accumulated operating losses of approximately $12,300.00.
We may continue to incur significant operating losses, depending largely upon
the commercial success of the AT101 motion platform. We will need to earn
revenues in excess of our losses to become profitable and we may be unable to do
so. If we do not become profitable, the value of our common stock may decline.
We are subject to liability claims
There are substantial concerns regarding safety and health in the United States
medical products industry. We may not have adequate protection against product
liability or recall, and we may have to pay a significant amount of money on
liability claims or recalls.
Testing, manufacturing, and selling medical products and applications entails
significant inherent, industry-wide risks of allegations of product liability.
The use of our products in clinical trials and the sale of our products may
expose us to liability claims of patients or others who use our products in
connection with clinical trials or sales of treatments offered by our customers.
We currently carry insurance against these risks in an amount we believe to be
adequate.
A successful product liability claim could materially adversely affect our cash
flows and our ability to meet the costs of developing our products and their
clinical applications. Defense of these claims could also entail significant
expense and divert the attention of our management and personnel from other
activities.
9
We rely on third parties
We rely on our relationship with third parties, such as Vivometrics, Inc. or
SensorMedics Corporation. Any material losses effecting these third parties or
any material adverse circumstance impacting on our relationship with these third
parties would have an material adverse consequence on our business, financial
condition and operating results.
Our stock price is volatile
Our common stock is currently traded in the over-the-counter market.
Over-the-counter stocks may be subject to significant volatility. The market
prices for securities of medical device companies, including our shares, have
been volatile. It is likely that the price of our shares will fluctuate in the
future. Many factors can impact the market price of our shares, such as
announcements of technological innovations or new commercial products, FDA
clearances or approvals, distribution agreements, the results of pre-clinical
testing and clinical trials, the issuance or acquisition of patents or
proprietary rights, changes in sales or earnings, recommendations by securities
analysts, and market conditions in general. The market price of our shares could
also be adversely affected by future conversions of outstanding stock options.
A sale of a substantial number of shares of our common stock may cause the price
of our common stock to decline.
If our shareholders sell substantial amounts of our common stock in the public
market, including shares registered in this prospectus, the market price of our
common stock could fall. These sales also might make it more difficult for us to
sell equity or equity-related securities in the future at a time and price that
we deem reasonable or appropriate.
10
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $993,000 million
from the sale of the 5,000,000 shares offered by us in this offering, assuming a
public offering price of $0.20 per share. "Net proceeds" are what we expect to
receive after paying our estimated offering expenses. We intend to use the net
proceeds of this offering to fund the marketing and manufacturing of the AT101
motion platform and for general corporate purposes.
The amounts we actually expend for these capital purposes will be based on many
factors, including cash flows from operations, the growth of our business and
other factors described under "Risk Factors." Our management will have broad
discretion in determining how to apply the net proceeds.
The shares being registered in the name of the selling shareholders are for
resale and we will not receive the proceeds of any such sales.
DIVIDENDS
We have never declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends on our capital stock in the foreseeable
future. Instead, we intend to retain our earnings, if any, to finance the
expansion of our business.
DETERMINATION OF OFFERING PRICE
The Company's common stock is currently traded in the over-the-counter ("OTC")
market and is listed on the OTC Bulletin Board, under the symbol NIMU.OB. The
following is the range of high and low bid prices for the Company's common stock
for the periods indicated:
Quarter Ended High Low
October 30, 2001 $0.531 $0.406
January 30, 2001 $0.25 $0.188
April 30, 2001 $0.25 $0.170
July 31, 2001 $0.75 $0.51
October 30, 2002 $0.30 $0.21
January 30, 2002 $0.18 $0.18
April 30, 2002 $0.45 $0.43
July 31, 2002 $0.30 $0.27
The quotations set forth above reflect inter-dealer prices, without
retail markup, markdown, or commission, and may not necessarily represent actual
transactions. As of December 6, 2002, there were approximately 1,554 holders of
record of the Common Stock.
11
DESCRIPTION OF BUSINESS
SUMMARY INFORMATION
Non-Invasive Monitoring Systems, Inc. (the "Company" or "NIMS") is
engaged in the research, development, manufacturing and marketing of a
non-invasive, therapeutic, periodic acceleration, cardiorespiratory device,
which has been designated as the motion platform. In addition, the Company has
developed computer assisted, non-invasive monitoring devices and related
software designed to detect abnormal respiratory, cardiac, and other medical
conditions from sensors placed externally on the body's surface. These devices
provide diagnostic information regarding cardiorespiratory and sleep disorders
in infants, children and adults; in addition, alarms are sounded for adverse
cardiac and respiratory events in critically ill patients.
BUSINESS STRATEGY
During 2001 and 2002, the Company restructured its operations and
revised its business strategy to transform the Company from a research and
development company into a company that will manufacture and market its own
innovative health care devices on a worldwide basis.
The annual revenue is primarily derived from sales of NIMS's Respitrace
products for pulmonary evaluations. In the opinion of management, these products
are considered worldwide to be the "gold standard" for monitoring and evaluating
breathing and detecting obstructive or central apneas, and they form the basis
of the Company's excellent reputation in the medical field. Although the Company
will continue to market these devices, no major time or revenues of any kind
will be expended on them.
NIMS assigned its patents for its best-known innovation - an ambulatory
monitoring shirt (the computerized LifeShirt(TM) system) developed by NIMS'
Chairman, Marvin A Sackner, M.D. - to VivoMetrics, Inc., a health care
information company based in Ventura, California. In return for these patent
rights, NIMS was given equity ownership in VivoMetrics, Inc. and will be paid
royalties on sales and leasing of LifeShirt(TM) systems. In April, 2002,
VivoMetrics, Inc. received FDA clearance allowing VivoMetrics, Inc. to market
the LifeShirt(TM) System. There can be no assurances as to when the
LifeShirt(TM) system will be marketed or the amount of revenues that will be
derived from the marketing of the LifeShirt(TM) system.
NIMS is undergoing a transition to a manufacturing and marketing
company and the consequences of this transition on the Company's business,
financial condition and operating results are reflected in NIMS' most recent
financial reports. The Company anticipates experiencing losses at least through
the next two to three fiscal quarters as it completes this transition and
develops a worldwide market for its newest product, the AT101 motion platform.
The revised business plan anticipates that, beginning with the AT101 motion
platform, NIMS will control production and marketing of its products through its
new division, "Acceleration Therapeutics."
12
PRIVATE PLACEMENT
A private placement was completed in the third quarter of this fiscal
year to finance the Company's initial manufacture and international marketing of
the AT101 motion platform through NIMS' Acceleration Therapeutics division.
This successful private placement, which began in late December, 2001
and closed March 8, 2002, raised approximately $1.3 million on the sale of six
million and eight hundred and fifty thousand new common shares in the Company
plus options to purchase additional common shares of the Company. NIMS
directors, officers and employees participated in the private placement with
significant investments. As part of that offering, the Company issued 375,000
shares of Common Stock to extinguish a $75,000 loan payable to a shareholder and
issued 250,000 shares of Common Stock to the Chief Executive Officer in lieu of
compensation.
In addition, the Company sold 743,329 new common shares in the Company
plus options to purchase additional common shares of the Company from September
2002 to November 2002.
The shares of common stock sold by the Company under this private
placement are being registered as part of this prospectus.
NIMS' PRINCIPAL PRODUCTS
RESPITRACE 200 and 204 are small stand alone devices that produce
breath waveforms with respiratory inductive plethysmography; these are used for
diagnostic polysomnography.
RESPIEVENTS is a PC based software package used in conjunction with the
Respitrace PT, Respitrace Plus and Respitrace 200/204 Data Acquisition System to
detect apnea (cessation of breathing), slowing of heartbeat, diminution of blood
oxygen, and other adverse breathing and cardiac events.
RESPIPANEL is a personal computer-based software program used in
conjunction with Respitrace 200/204 for PC interaction. RespiPanel allows the
operator to display breath waveforms, calibrate the waveforms to absolute volume
units and switch between AC and DC modes of operation.
RESPITRACE PLUS is a small portable cardiorespiratory monitor used to
detect and alert the patient of adverse cardiac and respiratory conditions or
diagnostic polysomnography. The Respitrace Plus is manufactured and marketed
non-exclusively by SMC under the arrangement described below.
RESPITRACE PT is a breathing recorder originally developed to monitor
infants prone to Sudden Infant Death Syndrome. The Respitrace PT is manufactured
and marketed as SomnoStar PT by SMC under the arrangement described below.
13
RESPITRENDS is a personal computer-based software program used in
conjunction with Respitrace Plus for patient minute-by-minute trends of patient
data, display, analysis, storage and hard copy report.
RESPIBANDS PLUS are patented, disposable non-invasive Respitrace
transducers worn around the torso manufactured by SMC under the arrangement
described below.
The Company requires additional capital to remain in business and
commercialize the motion platform. Management of the Company will continue to
seek sources of funding. Failure to secure necessary financing will result in
reduction and curtailment of operations.
The term the "Company" and "NIMS" refers to both the Company and its
subsidiaries, unless the context requires otherwise. The Company's offices are
located at 1666 Kennedy Causeway Avenue, Suite 400, North Bay Village Florida
32341 and its telephone number is (305) 861-0075.
NARRATIVE OPERATION OF BUSINESS
The Company is engaged in the research, development, manufacturing and
marketing of a non-invasive, therapeutic, periodic acceleration,
cardiorespiratory device, which has been designated as the motion platform. In
addition, the Company has developed computer assisted, non-invasive monitoring
devices and related software designed to detect abnormal respiratory, cardiac,
and other medical conditions from sensors placed externally on the body's
surface. These devices provide diagnostic information regarding
cardiorespiratory and sleep disorders in infants, children and adults; in
addition, alarms are sounded for adverse cardiac and respiratory events in
critically ill patients.
CURRENT PRODUCTS
Non-Invasive Therapeutic Motion Platform: AT101 motion platform (a
passive exercise device)
The AT101 motion platform has been under development for four years
and the market-ready version of the device is currently being manufactured by
QTM Incorporated, an FDA-approved manufacturer in Tampa. The devices are being
built in accordance with ISO and FDA Good Manufacturing Practices.
The Company is currently in negotiations with a number of foreign
stocking distributors for exclusive sales rights to the AT101 motion platform in
their respective geographical areas, including Japan, Korea and India. Further
discussions are being held with leading universities in Europe, Asia and North
America for the purpose of performing studies for specific disease states.
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Management expects these studies to further validate the benefits of
the AT101 motion platform passive exercise device. The Company expects these
studies to begin in the fall of 2002 and be expanded as new conditions arise in
which the AT101 motion platform could offer patient improvement, generally in
those areas where exercise would be beneficial.
The AT101 motion platform is another exciting invention by Marvin A.
Sackner, M.D., Professor of Medicine at the University of Miami at Mt. Sinai and
Emeritus Director of Medical Services at Mt. Sinai Medical Center. Dr. Sackner
is a past President of the American Thoracic Society, past Chairman of the
Pulmonary Disease Subspecialty Board and a past Member of the American Board of
Internal Medicine.
The AT101 motion platform is a comfortable gurney styled device that
moves in a back-and-forth motion similar to the movement used to comfort a child
in a baby carriage but at a much more rapid pace. Two recent clinical studies on
animals found the AT101 motion platform dramatically increases blood flow to the
heart and brain. In one study, the device simulated blood-flow benefits similar
to open-heart massage and preserved brain and cardiac blood flow during an
18-minute period of induced cardiac arrest. A second study reported that the
AT101 motion platform increased blood flow to the heart an average of 82 percent
and blood flow to the brain an average of 180 percent.
AT101 passive exercise motion platform has been listed with the FDA as
a "Class 1" exempt device and can be marketed worldwide as an aid to improving
the circulation and joint mobility.
Respitrace 200/204 Data Acquisition System Series - commercially
introduced in April 1998, are small stand-alone devices that produce breath
waveforms from respiratory inductive plethysmographic transducers placed around
the patients' rib cage and abdomen. These devices also provide waveforms that
depict respiratory efforts. The Respitrace 200 series devices are indicated in
diagnostic polysomnography and, to the knowledge of the Company's management,
are the lowest priced Respitrace based devices ever marketed. They offer digital
sampling rates that are four times faster than all other marketed Respitrace
products for better display of breath waveforms. Multiplexing is used for the
first time in a Respitrace product to minimize electrical cross talk between the
rib cage and abdominal signals and hence provide a signal with a higher level of
signal/noise ratio. The Waveforms output may be viewed with a polygraph
interface, or a personal computer with RespiPanel or RespiEvents software.
Respitrace Plus - commercially introduced in April 1991, is a small,
portable, non-invasive, stand-alone patient monitoring unit designed to
continuously monitor heart and breathing abnormalities in a variety of
environments inside and outside a hospital at an economically viable selling
price. It can also be used as a portable battery-powered device during
transportation of patients in ambulances and within a hospital from patient
rooms to diagnostic areas. The system furnishes digital and analog displays of
the electrocardiograph and breath waveforms and interfaces with computer and
video display equipment.
15
RespiEvents - which was commercially introduced in April 1996, is a
software program for a personal computer ("PC") designed to be used in
conjunction with Respitrace Plus and Respitrace PT. It enables the PC to receive
digital information from the Respitrace Plus Digital Interface (RS232 output)
and display real-time Respitrace waveforms on the computer screen. RespiEvents
allows storage of Respitrace information on the hard drive of the PC for
subsequent display of full fidelity waveforms and derived numerical values and
indices. It includes tools to manipulate the vertical and horizontal gain
displays of waveform information stored on the PC. It can convert the numerical
values of the data files into ASCII format enabling them to be imported into
other programs such as spread sheets (e.g., Excel, Lotus 123, Quattro Pro,
Paradox), databases (e.g., FoxPro, Paradox), and statistical packages (e.g.,
SigmaPlot, Statistica) so that sophisticated analysis and plots can be carried
out. RespiEvents transforms the PC into a polygraph recorder for Respitrace Plus
generated waveforms and can be used in any situation where such a device might
be employed. One application is polysomnography in which apneic/hypopneic events
may be diagnosed and classified and sleep stages characterized according to
breath waveform patterns. Another is to monitor breath by breath changes in
ventilation and breathing pattern during exercise. RespiEvents permits analyses
of unusual patterns of breathing and electrocardiographic waveforms that are
particularly useful in documentation of such occurrences in critically ill
pulmonary, cardiac, and neurologic patients.
The Company, based on current market information, believes that the
features presented by RespiEvents are of particular importance to clinicians
treating not only adult patients with cardiorespiratory and sleep disorders but
also in the monitoring of infants both in hospital and at home. The Company has
retained exclusive rights to RespiEvents. Such software is sold to customers
directly by the Company and also to SensorMedics Corporation ("SMC") according
to the pricing set forth in the SMC agreement with the Company (the "SMC
Agreement").
RespiEvents 5.2 - RespiEvents 4.x version was a MS DOS software program
introduced to commerce in 1996 that analyzed Respitrace breath waveforms and
Electrocardiographic signals. This was converted to a MS Windows 95/98 platform
and is called RespiEvents 5.2. It provides on-line video display of 1) breath,
electrocardiographic, pulse oximeter, and other physiological waveforms, 2)
minute by minute trends of selected variables, 3) tidal flow-volume and
Konno-Mead loops and 4) numerical values of processed information. In the prior
DOS version of the program, trends and loop displays were available only in
off-line mode. The Windows 95/98 RespiEvents software speeds up clinical
decision making abilities through presentation of relevant on-line information
about breathing and cardiac activities while still retaining the report
capabilities of off-line analysis. RespiEvents 5.4, an upgrade of RespiEvents
5.2, has much more features than RespiEvents 5.2 and also will be utilized as
the basis for the data collection and analysis software in the LifeShirt system
(called VivoLogics in the LifeShirt system). The Company intends to submit a
510(k) application to FDA during fiscal 2002.
16
Respitrace PT - commercially introduced in April 1996, is manufactured
and marketed by SMC under the name SomnoStar PT. The Respitrace PT is a
diagnostic sleep recorder for detecting sleep disorders in adults, children and
babies.
RespiTrends - commercially introduced in July 1992 was a PC based MS
DOS software program for use with Respitrace Plus. In September 1998, a new MS
Windows 95 version of the software was released. RespiTrends is a medical data
storage software program that permits real-time reception and storage of cardiac
and respiratory information for display on the screen of the device. It also
generates a variety of reports and trend-plots of patient status. The software
program also allows the user to down load RespiTrends from Respitrace Plus to a
personal computer for further analysis and report generation. The new
RespiTrends software offers enhanced graphics and on line help. Respitrends
v1.6c software does not impact on the safety and effectiveness of the Respitrace
Plus. Incorrect dates and birth date computations will appear on screens and
reports. RespiTrends is sold to SMC by NIMS.
Respi-Ecg Simulator - commercially introduced in January 1994, is an
electronic simulator capable of simulating breathing for the rib cage and
abdomen channels as inputs to all Respitrace monitors. Additionally, it also has
a channel for simulating ECG and heart rate for monitors. The breathing part of
the simulator is theoretically correct to produce an exact calibration of
breathing waveforms and can produce an apnea at the touch of a button. The ECG
section of the simulator is capable of producing two heart rates, allowing a
functional check of Bradycardia alarms on monitor heart channels.
Disposable and Accessories - The Company has also developed disposable
and accessory items utilized with its products including the Respiband Plus.
PRODUCTS UNDER DEVELOPMENT
The Company has continued to develop upgrades to its RespiEvents
software for the following products listed below and plans to apply to the FDA
for approval to market them through the 510(k) mechanism.
Respi-Neckband - The hardware component of this device, which involves
wearing a Respitrace transducer band around the neck has already been 510(k)
approved for marketing of respiratory efforts detection. This technology
provides carotid arterial pulses and jugular venous pulses with appropriate
digital filtering and or electrocardiographic triggered ensemble averaging. One
scientific peer-reviewed paper has been published on using this technology to
obtain systolic time intervals at rest and exercise, a non-invasive measure for
assessing mechanical function of the heart. Another scientific peer reviewed
paper has been published on non-invasive determination of central venous
pressure, a measure that reflects fluid loading of the cardiovascular system.
Its accuracy has been validated against invasive central venous catheter
measurements. The Company plans an upgrade to RespiEvents 5.4 to market this
software and also incorporate it into the LifeShirt system that is described
below.
17
RespiCardiograph (Thoracocardiograph) - is a system that is designed to
monitor and record cardiac signals by placing a Respiband around the lower
chest. This technology displays left ventricular cardiac volume curves and
serves as a continuous, non-invasive monitor of the mechanical function of the
heart. By providing recording of changes in blood pumped from the heart, it
measures changes in cardiac output. In addition, analysis of various points of
the ventricular volume curve, provide assessment of systolic (contraction) and
diastolic (relaxation) properties of the heart. The RespiCardiograph also
provides data on regional cardiac motion, which is a key factor in early
detection of acute heart attacks. Six scientific peer-reviewed papers have been
published on this technology. Its accuracy has been validated against invasive
thermodilution cardiac output measurements, automated border edge detection
echocardiography, and Doppler measurements of transmitral blood flows. The
RespiCardiograph is a low cost, much less labor-intensive substitute for certain
aspects of Doppler-Echo technology and a low cost, safe alternative to invasive
Swan-Ganz catheter technology for monitoring the status of the pulmonary
circulation and heart in critically ill patients. Software to accomplish the
analysis has been completed and delivered to VivoMetrics, Inc. for incorporation
into the LifeShirt system. The Company plans to upgrade to RespiEvents 5.4 to
market this software once VivoMetrics, Inc. has received FDA approval to market
this technology into the LifeShirt system.
Respi-HemithoracicBands - consists of two Respitrace bands, one placed
over the right and the other over the left sides of the chest. Differences in
volume expansion and lag of one side to the other help in deciding whether
pleural effusions, pneumothorax or atelectasis might be present. One paper on
this technology has been presented to a National Medical Meeting. The Company
plans an upgrade to RespiEvents 5.4 to market this software and also to
incorporate it into the LifeShirt system that is described below.
LifeShirt - is a Wearable Physiological Computer (patent,
PhysiologicSigns Feedback System, issued April 4, 2000) that incorporates four
inductive plethysmographic transducers, electrocardiographic electrodes, and a
two posture sensor into a low turtle neck sleeveless garment. Pulse oximetry is
an optional add-on. These transducers are connected to a miniaturized, battery
powered, electronic module that has been fabricated. This in turn interfaces
with a Personal Digital Assistant ("PDA") with compact flash memory for
collection of raw waveforms and digital data from the electronic module. Such
data are transmitted from flash memory to a Data Collection Center that checks
for quality control from full disclosure, transforms data into minute-by-minute
median trends of over 30 physical and emotional signs of health and disease. In
addition, the monitored patient can enter symptoms with intensity, mood, and
medication diary into the PDA for integration with the physiologic information
collected with the LifeShirt garment. Data from flash memory can be mailed to
the VivoMetrics, Inc.'s Data Collection Center for quality control, generation
of reports, and database storage. Vital and physiological signs can be obtained
non-invasively, continuously, cheaply, and reliably with the comfortably worn
LifeShirt garment system while at rest, during exercise, at work, and during
sleep.
During the fiscal year ended July 31, 2002, the Company's principal
product development activities were focused on the AT101 motion platform.
18
MARKETING AND SALES
Since April, 2002, Richard Buckley, the Executive Vice President of the
Company, has been responsible for the worldwide marketing of the Company's
products, overseeing all marketing staff and international marketing
representatives. Mr. Buckley was previously engaged, for a period of 14 years,
by Medlog GmbH as a regional manager for in Asia, distributing a variety of
medical products throughout the world and representing numerous medical
companies form the United States and Europe. Mr. Buckley holds a Business
Administration degree from Rollins College in Winter Park, Florida.
John Teeder, an experienced international medical-equipment marketing
expert, has been named Director of European and Mid-East Operations.
The AT101 has been purchased for a Malaysian hospital and that it has
named a Southeast Asian regional manager and Malaysian distributor. The AT101
will be installed and used to treat patients in the Adventist Hospital in
Penang, Malaysia. Tay Chong Boon, owner of High Region Ltd., Penang, Malaysia,
has been appointed regional manager for Southeast Asia and sole distributor for
Malaysia. NIMS has contracted with an established distributor in India (Moolaa
Technologies Private Limited, of The Erkadi Group of Companies) and that the
Indian firm has already ordered its first three AT101s. Toyo Medic Co., Ltd., of
Tokyo, will be NIMS's exclusive agent in Japan and that Toyo Medic Co., Ltd. has
already ordered three new AT101 passive-exercise devices.
REGULATORY COMPLIANCE
Medical device manufacturers are subject to extensive federal and state
regulations relating to nearly every aspect of the development, manufacture and
commercialization of such products. The FDA is the principal regulatory
authority over medical devices in the United States. Additionally, in order to
manufacture and market medical devices overseas, which the Company believes is a
significant potential market for its products, the Company must comply with
regulatory requirements and procedures in various foreign countries. The CE mark
is required for marketing in the European Community. The Company obtained ISO
9001 and equivalent FDA Quality Assurance certification from TUV Rheinland in
May 1999. The Company has received re-certifications in 2000 and 2001 by TUV
Rheinland
In August, 2001, the Company received 510(k) approval from the FDA to
market the Company's RespiEvents software for Windows 95/98.
PATENTS AND TRADEMARKS
The Company currently holds 4 United States and 1 foreign patents with
respect to both overall design and specific features of its present and proposed
products and has submitted applications with respect to an additional 2 United
States and 4 (international) foreign patents. The Company transferred 14 U.S.
patents to VivoMetrics, Inc. No assurance can be given as to the scope of
protection afforded by any patent issued,
19
whether patents will be issued with respect to any pending or future patent
application, that patents issued will not be designed around, infringed or
successfully challenged by others, that the Company will have sufficient
resources to enforce any proprietary protection afforded by its patents or that
the Company's technology will not infringe on patents held by others. The
Company believes that in the event its patent protection is materially impaired,
a material adverse effect on its present and proposed business could result. The
expiration dates of the patents are as follows:
Number of Patents Expiration Date
Domestic Foreign
-------- -------
1 2004
1 2006
1 2011
1 2013
1 2018
1 2019
Total 5 1
With respect to its present and proposed product line, the Company has
16 trademarks and trade names which are registered in the United States and in
several foreign countries, including the Company's principal trademark.
COMPETITION
The Company competes with several concerns that market non-invasive
respiratory monitoring devices, including Respironics Corporation, Hewlett
Packard, and Spacelabs, all of which are larger, have longer operating histories
and have financial and personnel resources far greater than those of the
Company. Management believes, however, that it effectively competes with such
concerns on the basis of uniqueness and quality.
EMPLOYEES
The Company currently employs seven full-time employees on a full-time
basis. Three are engaged in general, marketing and administrative duties, four
in research and development, and one in product assembly.
20
DESCRIPTION OF PROPERTY
The Company occupies approximately 9455 square feet at 1666 Kennedy
Causeway Avenue, Suite 400, North Bay Village, Florida, which house its
executive offices and product development facilities. Such space is leased on a
five years contract from a non-affiliated party at an annual rental for 2003 of
approximately $142,000. The Company believes that its facilities are adequate
for the Company's needs in the near future.
LEGAL PROCEEDINGS
There are no material legal proceedings that are currently pending or,
to the Company's knowledge, contemplated against the Company to which it is a
party.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This Management's Discussion and Analysis should be read in conjunction
with the Company's Consolidated Financial Statements, including the notes
thereto. This report contains certain forward looking information which involves
risks and uncertainties. The actual could differ from the results anticipated
herein.
Results of Operations.
YEAR ENDED JULY 31, 2002 COMPARED TO YEAR ENDED JULY 31, 2001.
Gross Revenues, Costs of Operations and Net Income (loss)
Gross Revenues. Gross revenues decreased from $1,159,626 for the year
ended July 31, 2001 to $333,498 for the year ended July 31, 2002, a decrease of
$826,128, primarily due to decrease in revenue arising from the research and
consulting services from the agreement between Vivometrics, Inc. and the
Company.
Research and Consulting. Revenue from research and consulting decreased
from $896,500 for the year ended July 31, 2001 to $82,112 for the year ended
July 31, 2002, a decrease of $814,388, primarily due to decrease in revenue
arising from the research and consulting services from the agreement between
Vivometrics, Inc. and the Company.
Product Sales. Product Sales decreased from $210,277 for the year ended
July 31, 2001 to $194,539 for the year ended July 31, 2002, a decrease of
approximately $15,738 primarily due to the static nature of the market for the
Respitrace products.
Royalties. Royalties increased from $52,849 for the year ended July 31,
2001 to $56,847 for the year ended July 31, 2002, an increase of $3,998
primarily due to an increase of royalties from SensorMetics Corporation and new
royalties from Vivometrics, Inc.
Cost of Operations. Operating expenses increased from $1,182,068 for the
year ended July 31, 2001 to $1,601,140 for the year ended July 31, 2002, an
increase of $419,072. This increase was due to a $68,927 increase in research
and development costs in fiscal 2002 that included purchase of new computers,
costs associated with development of the AT101 motion platform and an increase
in selling, general and administrative expenses of $360,595 as a result of legal
and related expenses associated with an offering of securities in a private
placement, market efforts, and the contract with a public relations firm.
22
Research and Development. Research and development costs increased from
$536,496 for the year ended July 31, 2001 to $605,423 for the year ended July
31, 2002, an increase of approximately $68,927, primarily due to research and
development and consulting for the development of the AT101 motion platform.
Cost of Goods Sold. Cost of goods sold decreased from $52,015 for the
year ended July 31, 2001 to $41,565 for the year ended July 31, 2002, a decrease
of $10,450, primarily due to decrease of sales revenue and reduction of
production coasts.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses increased from $593,557 for the year ended July 31, 2001
to $853,880 for the year ended July 31, 2002, an increase of $260,323, primarily
due to increased expenses associated with the cost of outside accountants,
commissions to new sales persons, legal and related expenses associated with an
offering of securities in a private placement, marketing efforts associated with
AT101 motion platform and expenses arising from a contract with a public
relations firm.
Profit (losses) Net loss increased from a loss of $22,442 for the year
ended July 31, 2001 to a loss of $1,267,642 for the year ended July 31, 2002, an
increase of $1,245,200, primarily due to a decrease in gross revenues and an
increase in costs of operation.
Liquidity and Capital Resources. The Company has financed its operations and
other working capital requirements principally from operating cash flow.
Management of the Company estimates that the Company requires a minimum cash
flow of $80,000 per month to maintain operations. The Company predominantly
finances its operations from the sale of Respitrace products. In 2002, the
Company raised additional capital from individual investors through a private
placement offering of the Company's securities in order to finance its
operations. The funds raised through the private placement offering of the
Company's securities and sales of Respitrace products and the AT101 motion
platform to date will be sufficient to satisfy the Company's current cash
requirements until the end of the second quarter of fiscal 2003. Additional
capital will be required after the second quarter of fiscal 2003 for the Company
to continue to satisfy its cash requirements and maintain a business plan
focusing on increasing revenues from the marketing of acceleration therapeutic
products. The Company expects to raise additional capital subsequent to the
second quarter of fiscal 2003. If the Company is unable to raise additional
funds, the Company may be required to reduce its workforce, reduce compensation
levels, reduce dependency on outside consultants, or modify its growth and
business plan.
Current Assets
Cash. As of July 31, 2002, the Company had $293,715 in cash as compared
to $158,962 as of July 31, 2001, an increase of $134,753. The increase in
working capital
23
was primarily due to the funds raised through an offering of securities in a
private placement.
Accounts Receivable and Royalties Receivable. As of July 31, 2002, the
Company had $33,734 in accounts receivable and royalties receivable as compared
to $32,432 as of July 31, 2001, an increase of $1,302, primarily due to an
increase of royalties from SensorMetics Corporation and new royalties from
Vivometrics, Inc.
Inventories. As of July 31, 2002, the Company had $163,473 in inventories
as compared to $30,050 as of July 31, 2001, an increase of $133,423, primarily
due to the increased production of the AT101 motion platform.
Prepaid expenses and other current assets. As of July 31, 2002, the
Company had $43,607 in prepaid expenses and other current assets as compared to
$59,772 as of July 31, 2001, a decrease of $16,165, primarily due to
amortization of prepaid consulting fees.
Furniture and equipment. As of July 31, 2002, the Company had $59,511 in
furniture and equipment, net of accumulated depreciation of $78,280 as compared
to $36,983 in furniture and equipment, net of accumulated depreciation of
$115,849 as of July 31, 2001, an decrease of $22,528, primarily due to the
disposal of certain assets.
Patents. As of July 31, 2002, the Company had $161,745 in patents, net of
accumulated amortization of $28,152 as compared to $236,339 net of accumulated
amortization of $148,371 as of July 31, 2001, a decrease of $74,594, primarily
due to write off abandoned patents.
Liabilities
Current liabilities. Current liabilities decreased from $156,891 for the
year ended July 31, 2001 to $127,030 for the year ended July 31, 2002, a
decrease of approximately $29,861, primarily due to decrease of accounts
payable.
Accounts payable and accrued expenses. Accounts payable and accrued
expenses decreased from $131,891 for the year ended July 31, 2001 to $102,397
for the year ended July 31, 2002, a decrease of approximately $29,494, primarily
due to decrease of accounts payable.
Deferred research and consulting revenue. Deferred research and
consulting revenue decreased from $25,000 for the year ended July 31, 2001 to
$24,633 for the year ended July 31, 2002, a decrease of $367.
Cash provided by operating activities. Cash provided by operating
activities decreased from $145,335 for the year ended July 31, 2001 to cash used
in operating expenses of ($1,194,191) for the year ended July 31, 2002, a
decrease of $1,339,526. The decrease in cash provided by operating activities is
primarily attributable to an increase in
24
the inventory of $133,423, an increase in the cost of operation of $419,072, and
a decrease of gross revenue of $826,128.
Cash used in investing activities. Cash used in investing activities
increased from $37,114 for the year ended July 31, 2001 to $76,056 for the year
ended July 31, 2002, an increase of $38,942. Investing activities consist
primarily of the costs for patents and purchase of furniture and equipment.
Cash provided by financing activities. Cash provided by financing
activities increased from $23,020 for the year ended July 31, 2001 to $1,405,000
for the year ended July 31, 2002, an increase of $1,381,980 primarily due to the
funds raised in a private placement offering of the Company's securities.
The reports of independent auditors on financial statements at and for
the year ended July 31, 2002, contain an explanatory paragraph raising
substantial doubt of the Company's ability to continue as a going concern. Note
2 to the consolidated financial statements describes the conditions which raise
this doubt and management's plans. As previously noted, revenues generated from
Respitrace products were insufficient to fund operations during fiscal 2002. If
revenues generated from Respitrace products, from AT101 motion platform or other
sales do not reach levels sufficient to fund working capital requirements during
fiscal 2003, the Company will require further financing to continue operations
during fiscal 2003 and in any event may require additional capital to fund
marketing efforts beyond presently contemplated levels. Failure to secure
necessary financing might result in the further reduction and curtailment of
operations.
YEAR ENDED JULY 31, 2001 COMPARED TO YEAR ENDED JULY 31, 2000.
Results of Operations.
Gross Revenues, Costs of Operations and Net Income (loss)
Gross Revenues. Gross revenues increased from approximately $691,733 for
the year ended July 31, 2000 to approximately $1,160,000 for the year ended July
31, 2001, an increase of approximately $468,267.
Research and Consulting. Revenue from research and consulting increased
from approximately $397,000 for the year ended July 31, 2000 to approximately
$896,500 for the year ended July 31, 2001, an increase of approximately
$499,500.
Product Sales. Product Sales decreased from approximately $211,000 for
the year ended July 31, 2000 to approximately $210,000 for the year ended July
31, 2001, an decrease of approximately $1,000.
Royalties. Royalties decreased from approximately $83,500 for the year
ended July 31, 2000 to approximately $53,000 for the year ended July 31, 2001,
an decrease of approximately $30,500.
25
Cost of Operations. Operating expenses increased from approximately
$727,000 for the year ended July 31, 2000 to approximately $1,182,000 for the
year ended July 31, 2001, an increase of approximately $455,000. This increase
was due to an approximately $186,000 increase in Research and Development costs
in fiscal 2001 that included purchase of new computers, and work associated with
development of the motion platform and an increase in selling, general and
administrative expenses of approximately $256,000 as a result of legal expenses
associated with the business plan for the motion platform, and contracts with a
public relations firm and an investment banker.
Research and Development. Research and Development costs increased from
approximately $351,000 for the year ended July 31, 2000 to approximately
$537,000 for the year ended July 31, 2001, an increase of approximately
$186,000.
Cost of Goods Sold. Cost of Goods Sold increased from approximately
$38,000 for the year ended July 31, 2000 to approximately $52,000 for the year
ended July 31, 2001, an increase of approximately $14,000.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses increased from approximately $338,000 for the year ended
July 31, 2000 to approximately $594,000 for the year ended July 31, 2001, an
increase of approximately $256,000.
Profit (losses) Net loss decreased from a loss of approximately $35,000
for the year ended July 31, 2000 to a loss of approximately $22,000 for the year
ended July 31, 2001.
Liquidity and Capital Resources. The Company has financed its operations and
other working capital requirements principally from operating cash flow.
Current Assets
Cash. As of July 31, 2001, the Company had approximately $159,000 in cash
as compared to $3,000 as of July 31, 2000, an increase of $156,000. The
significant increase in working capital for the year ended July 31, 2001 as
compared to July 31, 2000 was primarily due to cash received from the
VivoMetrics Research and Development agreement.
Accounts Receivable and Royalties Receivable. As of July 31, 2001, the
Company had approximately $159,000 in Accounts Receivable and Royalties
Receivable as compared to $35,000 as of July 31, 2000, an increase of $124,000.
Inventories. As of July 31, 2001, the Company had approximately $32,000
in Inventories as compared to $38,000 as of July 31, 2000, an decrease of
$6,000.
26
Prepaid expenses and other current assets. As of July 31, 2001, the
Company had approximately $30,000 in Prepaid expenses and other current assets
as compared to none as of July 31, 2000.
Furniture and equipment. As of July 31, 2001, the Company had
approximately $37,000 in Furniture and equipment, net of accumulated
depreciation of $115,849 as compared to $26,000 as of July 31, 2000, an increase
of $11,000.
Patents. As of July 31, 2001, the Company had approximately $236,000 in
Patents, net of accumulated amortization of $148,371 as compared to $283,000 as
of July 31, 2000, an decrease of $47,000.
Liabilities
Current liabilities. Current liabilities increased from approximately
$94,000 for the year ended July 31, 2000 to approximately $157,000 for the year
ended July 31, 2001, an increase of approximately $63,000.
Accounts payable and accrued expenses. Accounts payable and accrued
expenses increased from approximately $65,000 for the year ended July 31, 2000
to approximately $132,000 for the year ended July 31, 2001, an increase of
approximately $67,000.
Deferred research and consulting revenue. Deferred research and
consulting revenue increased from none for the year ended July 31, 2000 to
approximately $25,000 for the year ended July 31, 2001.
Cash provided by operating activities. Cash provided by operating
activities increased from approximately $78,000 for the year ended July 31, 2000
to approximately $145,000 for the year ended July 31, 2001, an increase of
approximately $67,000. The increase in cash provided by operating activities is
primarily attributable to an increase in the Company's Depreciation and
Amortization of approximately $120,000 during the year ended July 31, 2001
compared to approximately $30,000 during the year ended July 31, 2000.
Cash used in investing activities. Cash used in investing activities
decreased from approximately $76,000 for the year ended July 31, 2000 to
approximately $37,000 for the year ended July 31, 2001, an decrease of
approximately $39,000. Investing activities consist primarily of costs for
patents, software production and purchase/sale of short-term investments and
purchase of furniture and equipment.
Cash provided by financing activities. Cash provided by financing
activities increased from approximately $22,500 for the year ended July 31, 2000
to approximately $23,000 for the year ended July 31, 2001, an increase of
approximately $500. due to proceeds from exercise of options by a shareholder in
2001.
27
MANAGEMENT
The current directors and executive officers of the Company are as
follows:
Name Age Position
Marvin A. Sackner, M.D. 70 Chairman of the Board,
Allan F. Brack 58 Chief Executive Officer and Director
Taffy Gould 60 Director and Vice Chairman of the Board
Morton J. Robinson, M.D. 70 Secretary and Director
Gerard Kaiser, M.D. 70 Director
Andrew M. Smulian 56 Director
Leila Kight 55 Director
John G. Clawson 74 Director
MARVIN A. SACKNER, M.D., was elected as Chairman of the Board, Chief
Executive Officer and Director with the Company in November 1989. Dr. Sackner
resigned as Chief Executive Officer in May 2001 when Allan F. Brack was
appointed as the Chief Executive Officer. Dr. Sackner co-founded predecessor to
the Company in 1977 and was the Chairman of the Board from 1981 until October
1989. From 1974 until October 1991, Dr. Sackner was the Director of Medical
Services at Mount Sinai in Miami Beach, Florida. From 1973 to 1986, Dr. Sackner
was the President of the American Thoracic Society. Dr. Sackner was the Chairman
of the Pulmonary Disease Subspecialty Examining Board of the American Board of
Internal Medicine from 1977 to 1980. He also currently serves as Medical
Director and member of the Board of Directors of VivoMetrics, Inc.
ALLAN F. BRACK was elected a Director of the Company in May 2001 and
serves as the Company's Chief Executive Officer. Currently and for over five
years, Mr. Brack has been a member of the Board of Directors of Medical Insight
Ltd., a medical distribution management company based in Singapore, Global
Software Solutions Inc, a Florida software outsourcing company, General Sensors
Inc, a software and hardware contract outsourcing company, and Bangalore
Software (PTY) Ltd., software development company. From 1995 to 1996, Mr. Brack
was a member of the Board of Directors of Swemac AB, a Linkopping, Sweden,
manufacturer of orthopedic implants.
TAFFY GOULD was elected a Director of the Company in December, 2000 and
Vice Chairman of the Board of Directors in April, 2002. From 1977 to December,
28
2000, she was the President of Housing Engineers of Florida, Inc., a Florida
real estate management company. In December, 2000, she founded and is a managing
member of GlobalTechnologyAgents.com, LLC, a Florida limited liability company
which advises technology companies and end-users in the business, academic, and
medical spheres, worldwide.
MORTON J. ROBINSON, M.D. was elected a Director of the Company in
November 1989. Dr. Robinson was appointed Secretary of the Board in August 2001.
Dr. Robinson is Director of the Department of Pathology and Laboratory Medicine
at Mount Sinai Medical Center, Miami Beach.
GERARD KAISER, M.D. was elected a Director of the Company in November
1989. Since 1971, he has been at the University of Miami School of Medicine and
currently serves as Deputy Dean for Clinical Affairs. He also serves as Senior
Vice President for Medical Affairs at Jackson Memorial Hospital.
ANDREW M. SMULIAN was elected as a Director of the Company in December,
2000. He is a Shareholder in Akerman, Senterfitt & Eidson, P.A. and practices
real estate and banking and finance law.
LEILA KIGHT was elected as a director in May, 2002. From January 1, 1975,
Ms. Kight was the owner and chief executive officer of Washington Researchers,
Ltd, a District of Columbia corporation. Since January, 1999, Ms. Kight has been
semi-retired.
JOHN G. CLAWSON was elected as a director in May, 2002. From 1975 to
1993, Mr. Clawson served as Chief Executive Officer of Hill Rom, Inc. From 1994
to the date hereof, Mr. Clawson serves as the Chairman of the Board of Endocyte,
Inc., a Delaware corporation.
Directors of the Company hold their offices until the next annual
meeting of the Company's shareholders until their successors have been duly
elected and qualified or until their earlier resignation, removal of office or
death. The Company has an Executive Committee consisting of Marvin A. Sackner,
Allan F. Brack, Morton J. Robinson, M.D and Taffy Gould, with such Committee
acting as Audit and Legal Committee as well as Compensation and a Stock Option
Review Committee. There are no other committees of the Board of Directors. The
Board of Directors met four times in fiscal 2002.
One of the principal functions of the Executive Committee acting as the
Company's Audit Committee is to recommend the annual appointment of the
Company's independent auditors, to consult and review with the Company's
auditors concerning the scope of the audit and the results of their examination,
to review and approve any material accounting policy changes affecting the
Company's operating results and to review the Company's internal control
procedures. The Executive Committee, acting as the Compensation and Stock Option
Review Committee, reviews and recommends compensation and benefits for the
executives and key employees of the Company as well as administer and interpret
the Company's Stock Option Plan and are authorized to grant options pursuant to
the terms of such plans.
29
Officers of the Company serve at the pleasure of the Board of Directors
and until the first meeting of the Board of Directors following the next annual
meeting of the Company's shareholders and until their successors have been
chosen and qualified.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's Directors, executives officers and holders of more than
ten percent of the Company's Common Stock, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and NASDAQ.
Such persons are required to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it, or oral or written representations from certain reporting
persons that no Forms 5 were required for those persons or that such Form 5's
would be filed, the Company believes that, during fiscal 2002, all filing
requirements applicable to its directors, executive officers and greater than
10% beneficial owners were complied with.
30
EXECUTIVE COMPENSATION
The following compensation table sets forth, for the fiscal years ending
July 31, 2000, 2001, and 2002, the cash and certain other compensation paid by
the Company to the Company's Chief Executive Officer ("CEO"). No other current
executive officer had an annual salary and bonus in excess of $100,000 during
either of such fiscal years:
Long-Term
Annual Compensation
Compensation Securities Underlying
Name and Principal Position Year Salary ($) Options
Allan F. Brack 2000 $ 0.00 ------
Chief Executive Officer 2001 $135,000 400,000 shares*
(commencing May, 2001) 2002 $135,000 125,000 shares
*Options awarded pursuant an employment agreement, dated May 11, 2001.
The pricing of the Option shall be an exercise price per share equal to $.50
with 100,000 Options vesting as of May 11, 2002, 100,000 Options vesting as of
May 11, 2003, 100,000 Options vesting as of May 11, 2004 and the final 100,000
Options vesting as May 11, 2005.
EMPLOYMENT AGREEMENTS
On April 19, 2002, the Executive Committee approved a six year employment
agreement for Marvin A. Sackner which provides for an annual salary of $99,000
with a severance package consisting of the remainder of his base salary and
Common Stock, such severance to be paid upon specific change of circumstances
including a change of control of the Company, removal of Marvin A. Sackner from
the Board of Directors or removal of Marvin A. Sackner as Medical director.
On May 11, 2001, the Company entered into an employment agreement with
Allan F. Brack. This employment agreement is for a term of two years with
automatic one year extensions, provides an annual salary of $135,000, 400,000
options to purchase shares of the Company at $0.50 per share, 100,000 options
vesting on each anniversary of the employment agreement and a bonus to be
determined by the Board of Directors.
31
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding NIMS' Common
Stock, Series C Convertible Preferred Stock and NIMS' voting securities
beneficially owned on December _____, 2002, by: (i) each person who is known by
NIMS to own beneficially or exercise voting or dispositive control over 5% or
more of NIMS' Common Stock; (ii) each of NIMS' Directors, and (iii) all
executive officers and Directors as a group:
Name and Address No.of Shares Percentage No. of Shares Percentage No. of Shares Percentage of
Identify of Group of Common of Beneficial of Series C of Class (3) of Voting Beneficial
Stock Ownership Convertible Securities Ownership (4)
Beneficially (2) Preferred Beneficially
Owned (1) Stock Owned (1)
Beneficially
Owned (1)
Marvin A.
Sackner, M.D. 12,508,204(5) 35.3% 36,855.92 59.4% 12,545,059.92(5) 35.4%
1666 Kennedy
Causeway Avenue,
Suite 400, North
Bay Village
Florida 32341
Allan F. Brack
1666 Kennedy 615,000(6) 1.7% -0- -0- 615,000(6) 1.7%
Causeway Avenue,
Suite 400, North
Bay Village
Florida 32341
Taffy Gould
1666 Kennedy 850,000(7) 2.4% -0- -0- 850,000(7) 2.4%
Causeway Avenue,
Suite 400, North
Bay Village
Florida 32341
Morton J.
Robinson, M.D.
1666 Kennedy 681,991(8) 1.9% 1,073.19 1.7% 683,064.19(8) 1.9%
Causeway Avenue,
Suite 400, North
Bay Village
Florida 32341
Gerard Kaiser,
M.D.
1666 Kennedy 211,541(9) * 75.00 * 211,616(9) *
Causeway Avenue,
Suite 400, North
Bay Village
Florida 32341
32
Name and Address No. of Shares Percentage No. of Shares Percentage No. of Shares Percentage of
Identify of Group of Common of Beneficial of Series C of Class (3) of Voting Beneficial
Stock Ownership Convertible Securities Ownership (4)
Beneficially (2) Preferred Beneficially
Owned (1) Stock Owned (1)
Beneficially
Owned (1)
Andrew M. Smulian 415,500(10) 1.2% -0- 415,500(10) 1.2%
1666 Kennedy
Causeway Avenue,
Suite 400, North
Bay Village
Florida 32341
Leila Kight
1666 Kennedy 1,515,000(11) 4.3% -0- -0- 1,515,000(11) 4.3%
Causeway Avenue,
Suite 400, North
Bay Village
Florida 32341
John G. Clawson
1666 Kennedy 390,000(12) 1.1% -0- -0- 390,000(12) 1.1%
Causeway Avenue,
Suite 400, North
Bay Village
Florida 32341
All executive
officers and 17,187,236 48.6% 38,004.11 61.2% 17,225,240.11 48.6%
directors as a
group (8 persons)
___________________________ * Less than 1%
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon exercise
of option and warrants. Each beneficial owner's percentage ownership is
determined by assuming that option and warrants that are held by such
person (but not those held by any other person) and that are exercisable
within 60 days from the date hereof have been exercised.
(2) Based on 35,394,721 shares of common stock, consisting of 30,233,055 shares
of common stock issued and outstanding as of July 31, 2002 and 5,161,666
shares of Common Stock that can be acquired within 60 days from the date
hereof upon exercise of options to the holder.
(3) Based on 62,048 Series C convertible preferred stock issued and
outstanding, as of July 31, 2002.
(4) Based on 35,456,769 shares consisting of shares of common stock, consisting
of 30,233,055 shares of common stock issued and outstanding as of July 31,
2002, 62,048 Series C convertible preferred stock and 100 shares of Series
B preferred stock issued and outstanding as of July 31, 2002 and 5,161,666
shares of common stock that can be acquired within 60 days from the date
hereof upon exercise of options to the holder. Holders of Series C
preferred stock are entitled to vote together with the holders of shares of
common stock and Series B preferred stock on a share-for-share basis as a
single class, on all matters except as otherwise required by law
(5) Includes securities held by Dr. Marvin A. Sackner and Ruth Sackner, his
spouse and includes options to purchase 887,000 shares of common stock.
33
(6) Includes options to purchase 350,000 shares of common stock. Does not
include options to purchase 300,000 shares of common stock that have not
vested.
(7) Includes options to purchase 350,000 shares of common stock. Does not
include shares of common stock and options to purchase common stock held by
family members.
(8) Includes securities held jointly by Dr. Robinson and his spouse and by a
pension plan established in connection with Dr. Robinson's medical practice
and includes options to purchase 197,500 shares of common stock. Does not
include securities held by trust established for the benefit of Dr.
Robinson's children, in which securities he disclaims beneficial ownership.
(9) Includes shares of common stock held by Dr. Kaiser's spouse and includes
options to purchase 115,000 shares of common stock.
(10) Includes securities held by Andrew Smulian or Rona Marks Smulian, his
spouse and includes options to purchase 155,000 shares of common stock.
(11) Includes securities held by Leila Kight and John Ballou and includes
options to purchase 515,000 shares of common stock.
(12) Includes options to purchase 140,000 shares of common stock.
(13) Includes options to purchase 2,709,500 shares of common stock.
34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has approximately a 4% interest in LifeShirt.com, Inc. (now
known as VivoMetrics, Inc.), a related entity. Dr. Sackner's son-in-law is the
Chief Operating Officer and a founder of VivoMetrics, Inc. Dr. Sackner currently
serves as Medical Director and member of the Board of Directors of VivoMetrics,
Inc. The Company is a party to a month by month agreement with VivoMetrics, Inc.
for continuing research and development on the LifeShirt system.
The Company retains title and interest in and to any and all derivative
patents related to the products incorporated within the LifeShirt System in
exchange for a royalty 5% of the Company's sales of certain products and
services. The underlying agreement, executed October 28, 1999, is for a period
of 10 years. Under the agreement with Vivometrics, Inc., Vivometrics, Inc.
grants to the Company the non-exclusive, worldwide right and license to use of
patents and software for a period of ten years. If VivoMetrics, Inc. fails to
earn gross revenues of $200,000 from the commercial sale of certain products
and/or services to hospitals following the 2002 calendar year, the Company has
the right to sell certain products to hospitals for the following three years in
exchange for a royalty of 5% of the gross revenues the Company earns on these
sales. In addition, the Company assigned all of its rights, title and interest
in certain patents and intellectual property as well as a non-exclusive,
worldwide license under these items to Vivometrics, Inc. in consideration for a
royalty of 3% of Vivometrics, Inc.'s gross revenues from sales of certain
products. The minimum royalty in the second year is $250,000.
In March 2002, the Company issued 375,000 shares of Common Stock to
extinguish a $75,000 loan payable to Dr. Marvin Sackner shareholder and issued
250,000 shares of Common Stock to the Chief Executive Officer in lieu of
compensation. The shares were valued using the market value on the date of
issuance and the Company recorded expense of $93,750 during the quarter ended
April 30, 2002. Options to purchase 312,500 shares of the Company's common stock
were also issued as part of these transactions. These options are exercisable at
$0.40 per share and expire in March 2007. The fair value of the options on the
grant date was $78,125 calculated using the Black-Scholes Option Pricing Model.
35
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 100,000,000 shares of common stock, par
value $0.01, and 1,000,000 shares of preferred stock, par value $1.00.
COMMON STOCK
The shares of our common stock presently outstanding, and any shares of our
common stock issued upon exercise of stock options, will be fully paid and
non-assessable. Each holder of common stock is entitled to one vote for each
share owned on all matters voted upon by shareholders, and a majority vote is
required for all actions to be taken by shareholders. In the event we liquidate,
dissolve or wind-up our operations, the holders of the common stock are entitled
to share equally and ratably in our assets, if any, remaining after the payment
of all our debts and liabilities and the liquidation preference of any shares of
preferred stock that may then be outstanding. The common stock has no preemptive
rights, no cumulative voting rights, and no redemption, sinking fund, or
conversion provisions. Since the holders of common stock do not have cumulative
voting rights, holders of more than 50% of the outstanding shares can elect all
of our Directors, and the holders of the remaining shares by themselves cannot
elect any Directors.
Holders of common stock are entitled to receive dividends, if and when declared
by the Board of Directors, out of funds legally available for such purpose,
subject to the dividend and liquidation rights of any preferred stock that may
then be outstanding.
Our Articles of Incorporation provide for a staggered Board of Directors,
pursuant to which the Board is divided into three classes (as nearly equal in
number as possible) with the term of one class expiring each six years.
PREFERRED STOCK
The Series B Preferred Stock has a liquidation preference of $100 per
share, provides for a noncumulative dividend of $10 per share, if declared, and
has 100 shares issued and outstanding.
The Series C Preferred Stock has a liquidation preference of $1 per share,
provides for a noncumulative dividend of $.40 per share, if declared, and has
62,048 shares issued and outstanding.
No preferred stock dividends have been declared. There are no Series A
preferred stock outstanding.
Holders of our preferred stock are entitled to one vote for each share
held.
36
2000 STOCK OPTION PLAN
Under our 2000 Stock Option Plan (the "Stock Option Plan"), options to purchase
an aggregate of not more than 2,000,000 shares of common stock may be granted
from time to time to key employees (including officers), consultants and members
of the Board of Directors of the Company. Options shall be designated as
Incentive Stock Options ("ISOs") or Nonqualified Stock Options ("NQSOs"). The
Stock Option Plan is administered by a committee to administer the Stock Option
Plan consisting of Marvin A. Sackner, Allan F. Brack, Morton J. Robinson, M.D
and Taffy Gould, the latter two outside directors of the Company (the
"Committee"). The Committee is generally empowered to interpret the Stock Option
Plan; to prescribe rules and regulations relating thereto; to determine the
terms of the option agreements; to amend the option agreements with the consent
of the optionee; to determine the key employees and directors to whom options
are to be granted; and to determine the number of shares subject to each option
and the exercise price thereof. The per share exercise price of options granted
under the Stock Option Plan will be not less than 100% (110% for ISOs if the
optionee owns more than 10% of the common stock) of the fair market value per
share of common stock on the date the options are granted.
The following table summarizes the transactions of our stock options issued
for the two-year period ended July 31, 2002:
Weighted Average
Number of Shares Exercise Price
-----------------------------------------------------------------------------------------------
Options outstanding, July 31, 2000 - $ -
Options granted 2,055,000 0.406
Options exercised (500,000) 0.145
Options forfeited - -
-----------------------------------------------------------------------------------------------
Options outstanding, July 31, 2001 1,555,000 0.490
Options granted 3,737,500 0.400
Options exercised - -
Options forfeited (60,000) 0.250
-----------------------------------------------------------------------------------------------
Options outstanding, July 31, 2002 5,232,500 $ 0.429
===============================================================================================
Options to purchase 755,000 and 4,397,500 shares were exercisable at July
31, 2001 and 2002, respectively.
37
COMMISSION'S POLICY ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
The Florida Business Corporation Act (the "Florida Act") permits a Florida
corporation to indemnify a present or former director or officer of the
corporation (and certain other persons serving at the request of the corporation
in related capacities) for liabilities, including legal expenses, arising by
reason of service in such capacity if such person shall have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and in any criminal proceeding if such person had
no reasonable cause to believe his conduct was unlawful. However, in the case of
actions brought by or in the right of the corporation, no indemnification may be
made with respect to any matter as to which such director or officer shall have
been adjudged liable, except in certain limited circumstances. The Company's
Articles of Incorporation provide that the Company shall indemnify directors and
executive officers to the fullest extent now or hereafter permitted by the
Florida Act. The indemnification provided by the Florida Act and the Company's
Articles of Incorporation is not exclusive of any other rights to which a
director or officer may be entitled. The general effect of the foregoing
provisions may be to reduce the circumstances which an officer or director may
be required to bear the economic burden of the foregoing liabilities and
expense.
The Company may also purchase and maintain insurance for the benefit of any
director or officer that may cover claims for which we could not indemnify such
person.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
SHARES AVAILABLE FOR FUTURE SALE
Of the 30,233,055 shares of common stock issued and outstanding on December 9,
2002, we have agreed to register on behalf of our shareholders 8,218,330 shares
of common stock, and we have agreed to register 875,000 shares of common stock
underlying options granted to executives, all of which are included in this
prospectus. We are also registering 5,000,000 shares of common stock to be
issued by us. These 5,000,000 shares of common stock have been included in this
prospectus, and if and when issued, will be freely tradable without restriction
imposed by, or further registration under, the Securities Act of 1933, as
amended. The above notwithstanding, shares of common stock held by Allan F.
Brack and our other executive officers and directors may be sold only pursuant
to Rule 144 of the Securities and Exchange Commission, which imposes limitations
on the number of our shares of common stock which may be sold during certain
periods.
38
PLAN OF DISTRIBUTION
GENERAL
Share sold by the Company
We are offering to sell up to 5,000,000 shares of common stock. The
shares will be offered to the public on a "best-efforts, all-or-none" basis. The
offering price will be based on the then current market price for the common
stock as reported on the over-the-counter bulletin board. There is no commitment
on the part of any person to purchase and pay for any shares of our common
stock. Our officers and directors will be offering of common stock for sale, but
they will receive no compensation for the their efforts in making any such
offers or sales. We may also engage registered broker-dealers to offer and sell
shares of our common stock. We may pay any such registered persons who make such
sales a commission of up to 10% of the sale price of each shares of our common
stock sold, and provide the registered persons a non-accountable expense
allowance of up to 3% of the sale price of each share of our common stock sold.
We have not entered into any underwriting agreement, arrangement or
understanding for the sale of the shares of our common stock being offered. In
the event we retain a broker who may be deemed an underwriter, we will file an
amendment to this registration statement with the Securities and Exchange
Commission. This offering is intended to be made solely by the delivery of this
prospectus and an accompanying subscription application to prospective
investors.
After the registration statement of which this prospectus forms a part
has been declared effective, we will provide to each prospective investor a copy
of the final prospectus relating to this offering which includes an agreement to
purchase shares of our common stock. In order to purchase the shares of common
stock, the subscription application in the form to be attached to the prospectus
and a check made payable to "Non-Invasive Monitoring Systems, Inc." should be
completed and forwarded to us. Receipt by us of a subscription agreement shall
not constitute acceptance of a subscription. We reserve the right to withdraw,
cancel or modify the offering hereby and to reject subscriptions in whole or in
part, for any reason. The proceeds received under this offering will be
deposited with the Company for its immediate use.
Shares sold by the Selling Shareholders
Sales of the shares of our common stock by the selling shareholders may
be effected by them from time to time on the over-the-counter bulletin board or
in such other public forum where our shares are publicly traded or listed for
quotation. Sales may also be made in negotiated transactions which may be
charged at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. The selling shareholders
may effect such transactions by selling the shares of common stock through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling shareholders and/or the
purchasers of the shares of common stock offered for resale for which such
broker-dealer may act as agent or to whom they sell as principal, or both. The
compensation as to a particular broker-dealer may be in excess of customary
compensation.
39
The selling shareholders and any broker-dealers who act in connection with the
sale of the shares of common stock hereunder may be deemed to be Underwriters
within the meaning of Section 2(11) of the Securities Act, and any commissions
received by them and any profit on any sale of the shares of common stock as
principal might be deemed to be underwriting discounts and commissions under the
Securities Act of 1933.
40
SELLING SHAREHOLDERS
WE ARE REGISTERING CERTAIN SHARES OF COMMON STOCK WHICH ARE PRESENTLY
OUTSTANDING ISSUED TO THE SHAREHOLDER BELOW (COLLECTIVELY "SELLING SECURITY
HOLDERS").
Other than the costs of preparing this prospectus and a registration fee to the
Securities and Exchange Commission, we are not paying any costs relating to the
sales of shares of our common stock by the Selling Security Holders. Each of the
Selling Security Holders, or their transferees, and intermediaries to whom such
securities may be sold may be deemed to be an "underwriter" of the common stock
offered in this prospectus, as that term is defined under the Securities Act.
Each of the Selling Security Holders, or their transferees, may sell shares of
our common stock from time to time for their own account in the open market at
the prevailing prices, or in individually negotiated transactions at such prices
as may be agreed upon. The net proceeds from the sale of shares of our common
stock by the Selling Security Holders will inure entirely to their benefit and
not to ours.
The shares of common stock may be offered for sale from time to time in regular
brokerage transactions in the over-the-counter market, or through brokers or
dealers, or in private sales or negotiated transactions, or otherwise, at prices
related to the then prevailing market prices. Thus, they may be required to
deliver a current prospectus in connection with the offer or sale of their
shares of our common stock. In the absence of a current prospectus, if required,
these shares of our common stock may not be sold publicly without restriction
unless held by a non-affiliate for two years, or after one year subject to
volume limitations and satisfaction of other conditions. The Selling Security
Holders are hereby advised that Regulation M of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934 will be
applicable to their sales of these shares of our common stock. These rules
contain various prohibitions against trading by persons interested in a
distribution and against so-called "stabilization" activities.
The Selling Security Holders, or their transferees, might be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act of 1933
and any profit on the resale of these shares of our common stock as principal
might be deemed to be underwriting discounts and commissions under the
Securities Act of 1933. Any sale of these shares of our common stock by Selling
Security Holders, or their transferees, through broker-dealers may cause the
broker-dealers to be considered as participating in a distribution and subject
to Regulation M promulgated under the Securities Exchange Act of 1934, as
amended. If any such transaction were a "distribution" for purposes of
Regulation M, then such broker-dealers might be required to cease making a
market in our equity securities for either two or nine trading days prior to,
and until the completion of, such activity.
The following table sets forth the beneficial ownership of the shares of our
common stock owned as of December 9, 2002 by each of the Selling Shareholders.
Except as disclosed below, none of the Selling Shareholders has had a material
relationship with us within the
41
past three years other than as a result of the ownership of the shares or other
securities. The following table assumes that the Selling Shareholders sell all
of the shares of common stock being offered by them. We do not presently know
the exact number of shares that will actually be sold.
NO. OF SHARES NO. OF SHARES NO. OF SHARES
SHAREHOLDER NAME PRIOR TO OFFERING BEING OFFERED AFTER OFFERING
- ---------------- ----------------- ------------- --------------
Rosetta Bierman 125,000 125,000 125,000
Allan Brack 250,000 650,000(1) 615,000(1)
Glenn N. Buckley 750,000 750,000 750,000
Richard Buckley ------- 100,000(2) -------(2)
James Wong Chong 125,000 125,000 125,000
Curtis Clawson 125,000 125,000 125,000
John G. Clawsen TTE
of the John G. Clawson
Irrevocable Indiana
Qualified Pers Resident
TR DTD 12/19/96 250,000 250,000 250,000
Harvey Friedman and
Gloria Friedman 250,000 250,000 250,000
Frank Futernick 125,000 250,000 250,000
Norman B. Gaylis IRA 250,000 250,000 250,000
Karen Beber Futernick 125,000 250,000 250,000
Christopher Britton Gould
and Emil Bradley Gould 125,000 125,000 125,000
42
NO. OF SHARES NO. OF SHARES NO. OF SHARES
SHAREHOLDER NAME PRIOR TO OFFERING BEING OFFERED AFTER OFFERING
- ---------------- ----------------- ------------- --------------
Estelle Gould Revocable Trust 250,000 250,000 250,000
Lauren Gould 291,666 291,666 291,666
Taffy Gould
Revocable Trust 1,016,666 1,016,666 1,016,666
Eiji Hashimoto 13,333 13,333 13,333
Motoyuki Hori 13,333 13,333 13,333
Robert J. Jaffe and
Bernice Jaffe 125,000 125,000 125,000
Suzan E. Jaffe 125,000 125,000 125,000
Gerard Kaiser 115,000 100,000 115,000
Andrew M. Kessel 125,000 125,000 125,000
Joseph M. Looney and
Constance M. Looney 250,000 250,000 250,000
Keisei Miyoshi 20,000 20,000 20,000
Hisakazu Moriki 13,333 13,333 13,333
Manuel Mosteiro Trust 175,000 175,000 175,000
Mercedes Mosteiro Trust 75,000 75,000 75,000
Shuzo Munekiyo 80,000 80,000 80,000
Yoshinori Nagai 13,333 13,333 13,333
43
Hirofumi Nakano 26,666 26,666 26,666
Seymour C. Nash Living
Trust and Sally A. Nash
Living Trust 500,000 500,000 500,000
Mark Nichols 125,000 125,000 125,000
H. B. Norris 250,000 250,000 250,000
Palmun Associates, GP 250,000 250,000 250,000
Morton J. Robinson
and Jane A. Robinson 484,491 125,000 484,491
Martin C. Roch Jr. and
Marcia Roch
(Centercut Investment
Partnership) 125,000 125,000 125,000
Leila Kight Roth IRA 500,000 500,000 500,000
John Ballou Roth IRA
Rollover Trust 500,000 500,000 500,000
Dr. Marvin Sackner 11,621,204 375,000 11,621,204
Ruth Sackner 125,000 125,000 125,000
Rona Marks Smulian 250,000 250,000 250,000
Toyo Medic Co., Ltd 93,333 93,333 93,333
44
NO. OF SHARES NO. OF SHARES NO. OF SHARES
SHAREHOLDER NAME PRIOR TO OFFERING BEING OFFERED AFTER OFFERING
- ---------------- ----------------- ------------- --------------
Freda C. Tschumy and
William E. Tschumy Jr.
JTTN 83,333 83,333 83,333
Kohei Yasuda 13,333 13,333 13,333
Maseo Yoshitani 40,000 40,000 40,000
(1) Includes 400,000 shares of common stock underlying options granted
pursuant to his employment agreement. 300,000 shares have not vested.
(2) Includes 100,000 shares of common stock underlying options granted
pursuant to his employment agreement. The shares have not vested as of
the date of this prospectus.
(3) Includes 375,000 shares of common stock underlying options granted
pursuant to his employment agreement.
45
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Non-Invasive Monitoring Systems, Inc. by Joseph I. Emas, Miami Beach, Florida.
EXPERTS
Non-Invasive Monitoring Systems, Inc.'s financial statements as of and for the
two years ended July 31, 2002, included in this prospectus have been audited by
Gerson, Preston, Robinson & Company, P.A., independent public accountants, as
stated in their report appearing herein and are so included herein in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ADDITIONAL INFORMATION
Non-Invasive Monitoring Systems, Inc." is subject to the informational
requirements of the Securities Exchange Act of 1934, and in accordance therewith
files reports, proxy or information statements and other information with the
Securities and Exchange Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C.20549, at prescribed rates. In addition, the Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the Commission's web site is http://www.sec.gov.
Non-Invasive Monitoring Systems, Inc. has filed with the Commission, a
registration statement on Form SB-2 under the Securities Act of 1933 with
respect to the common stock being offered hereby. As permitted by the rules and
regulations of the Commission, this prospectus does not contain all the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
common stock offered hereby, reference is made to the registration statement,
and such exhibits and schedules. A copy of the registration statement, and the
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Commission at the addresses set forth
above, and copies of all or any part of the registration statement may be
obtained from such offices upon payment of the fees prescribed by the
Commission. In addition, the registration statement may be accessed at the
Commission's web site. Statements contained in this prospectus as to the
contents of any contract or other document are not necessarily complete and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference.
46
FINANCIAL STATEMENTS
The financial statements required by this Item, the accompanying notes
thereto and the reports of independent accountants are included as part of this
Form SB-2 immediately following the signature page, beginning at page [ ].
47
Index to Financial Statements
Contents
The following financial statements of Non-Invasive Monitoring Systems, Inc. are
included in item 7:
Balance Sheet - July 31, 2002
Statements of Operations - Years Ended July 31, 2002 and 2001
Statements of Shareholders' Equity - Years Ended July 31, 2002 and 2001
Statements of Cash Flows - Years Ended July 31, 2002 and 2001
Notes to Financial Statements
F-1
[LETTERHEAD OF GERSON, PRESTON, ROBINSON & COMPANY, P.A.
CERTIFIED PUBLIC ACCOUNTANTS]
Board of Directors
Non-Invasive Monitoring Systems, Inc.
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Non-Invasive Monitoring
Systems, Inc. as of July 31, 2002 and the related statements of operations,
shareholders' equity and cash flows for the years ended July 31, 2002 and 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Non-Invasive Monitoring
Systems, Inc. at July 31, 2002 and the results of their operations and their
cash flows for each of the two years in the period ended July 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements referred to above have been prepared
assuming that Non-Invasive Monitoring Systems, Inc. will continue as a going
concern. As more fully described in Note 2, the Company's need to seek new
sources or methods of financing or revenue to pursue its business strategy,
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans as to these matters are also described in Note 2.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Gerson, Preston, Robinson & Co., P.A.
CERTIFIED PUBLIC ACCOUNTANTS
October 23, 2002 CERTIFIED PUBLIC ACCOUNTANTS
Miami Beach, Florida
F-2
NON-INVASIVE MONITORING SYSTEMS, INC.
BALANCE SHEET
At July 31, 2002
ASSETS
Current assets
Cash $ 293,715
Accounts and royalties receivable 33,734
Inventories 163,473
Prepaid expenses and other current assets 43,607
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets 534,529
Furniture and equipment, net of accumulated depreciation of $78,280 59,511
Patents, net of accumulated amortization of $28,152 161,745
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $ 755,785
===============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 102,397
Deferred research and consulting revenue 24,633
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 127,030
- -------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock, $1 par value; 1,000,000 shares authorized 62,148
Common stock, $.01 par value; 100,000,000 shares authorized;
29,489,726 shares issued and outstanding; and additional
paid-in capital 12,867,175
Accumulated deficit (12,300,568)
- -------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 628,755
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 755,785
===============================================================================================================================
See accompanying notes. F-3
NON-INVASIVE MONITORING SYSTEMS, INC.
STATEMENTS OF OPERATIONS
Years Ended July 31, 2002 and 2001
2 0 0 2 2 0 0 1
- -------------------------------------------------------------------------------------------------------------------------------
Revenue
Product sales $ 194,539 $ 210,277
Research and consulting 82,112 896,500
Royalties 56,847 52,849
- -------------------------------------------------------------------------------------------------------------------------------
Total revenue 333,498 1,159,626
- -------------------------------------------------------------------------------------------------------------------------------
Operating expenses
Cost of goods sold 41,565 52,015
Selling, general and administrative 853,880 593,557
Research and development 605,423 536,496
Loss on abandonment of non-current assets 100,272 -
- -------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,601,140 1,182,068
- -------------------------------------------------------------------------------------------------------------------------------
Net loss $(1,267,642) $ (22,442)
===============================================================================================================================
Weighted average number of common shares outstanding 25,354,931 21,658,562
===============================================================================================================================
Basic and diluted loss per common share $ (0.050) $ (0.001)
===============================================================================================================================
See accompanying notes. F-4
NON-INVASIVE MONITORING SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended July 31, 2002 and 2001
===================================================================================================================================
Common Stock and
Preferred Stock Additional Paid-in Capital Accumulated
------------------------
Series B Series C Shares Amount Deficit Total
- ------------------------------------------------------------------------------------------------------ -------------- -----------
Balance at July 31, 2000 $ 100 $ 62,048 21,514,726 $ 11,212,025 $ (11,010,484) $ 263,689
Exercise of stock options to a shareholder/
employee at $0.145 per share - - 500,000 72,500 - 72,500
Options issued for services - - - 83,900 - 83,900
Net loss - - - - (22,442) (22,442)
- ----------------------------------------------------------------------------------------------------- ------------- ------------
Balance at July 31, 2001 100 62,048 22,014,726 11,368,425 (11,032,926) 397,647
Common stock issed for cash - - 6,850,000 1,330,000 - 1,330,000
Common stock issued to extinguish a loan
payable to a shareholder - - 375,000 75,000 - 75,000
Common stock issued for services - - 250,000 93,750 - 93,750
Net loss - - - - (1,267,642) (1,267,642)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 2002 $ 100 $ 62,048 29,489,726 $ 12,867,175 $ (12,300,568) $ 628,755
===================================================================================================================================
See accompanying notes.
F-5
NON-INVASIVE MONITORING SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
Years Ended July 31, 2002 and 2001
2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Operating activities
Net loss $(1,267,642) $ (22,442)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization 72,689 120,106
Common stock issued for services 93,750 -
Loss on abandonment of non-current assets 100,272 -
Options issued for services - 83,900
Changes in operating assets and liabilities:
Accounts and royalties receivable (1,302) 4,205
Inventories (133,423) (11,599)
Prepaid expenses and other assets (28,674) (57,472)
Accounts payable and accrued expenses (29,494) 3,637
Deferred research and consulting revenues (367) 25,000
- --------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (1,194,191) 145,335
- --------------------------------------------------------------------------------------------------------------------
Investing activities
Purchase of furniture and equipment (38,823) (37,114)
Patent costs incurred (37,233) -
- --------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (76,056) (37,114)
- --------------------------------------------------------------------------------------------------------------------
Financing activities
Net proceeds from issuance of common stock 1,330,000 -
Proceeds from (repayment of) loan from shareholder 75,000 (49,480)
Proceeds from exercise of stock options - 72,500
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,405,000 23,020
- --------------------------------------------------------------------------------------------------------------------
Net increase in cash 134,753 131,241
Cash, beginning of year 158,962 27,721
- --------------------------------------------------------------------------------------------------------------------
Cash, end of year $ 293,715 $ 158,962
====================================================================================================================
Supplemental disclosure of non-cash investing and financing activities:
In March 2002, the Company issued 375,000 shares of common stock to extinguish a
loan payable to a shareholder in the amount of $75,000.
See accompanying notes.
F-6
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization. The Company manufactures computer-aided continuous monitoring
devices to detect abnormal respiratory and cardiac events using sensors placed
on the body's surface and also has begun to produce a therapeutic motion
platform device. The Company also performs research and development of
therapeutic medical and monitoring devices. The resultant technology is licensed
to others.
Use of Estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions 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. Actual results could differ
from these estimates.
Inventories. Inventories are stated at lower of cost or market using the
first-in, first-out method and consist primarily of components.
Furniture and Equipment. Furniture and equipment are stated at cost and
depreciated using the straight-line method, over the 5-year estimated useful
lives of the assets.
Patents. Costs incurred in applying for patents are capitalized and
amortized using the straight-line method over the lives of the patents. As of
July 31, 2002, there have been no costs incurred in defending patents and the
Company does not anticipate incurring such costs in fiscal 2003.
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 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 sum of the estimated future cash flows and the carrying
amount of the asset.
Management reviewed its non-current assets and determined that a reduction
of $100,272 should be recorded due to the write-off of these non-current assets.
Fair Value of Financial Instruments. The carrying amount of cash, accounts
receivable, accounts payable and accrued expenses approximate fair value because
of their short duration.
Revenue Recognition. The Company recognizes product sales revenue when
products are shipped and royalties as they are earned. Research and consulting
revenue is recognized over the term of the agreement.
F-7
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Research and Development Costs. Research and development costs are expensed
as incurred.
Warranties. Although the Company warrants its products for one year, in the
opinion of management, warranty costs are not material.
Earnings (Loss) Per Share. Basic net income (loss) per common share is
computed using the weighted average number of common shares outstanding during
the periods. Diluted net income (loss) per share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period.
Reclassifications. Certain amounts in the 2001 financial statements have
been reclassified to conform with the 2002 presentation.
2. GOING CONCERN - UNCERTAINTY
VivoMetrics, Inc. ("VivoMetrics") has not begun to mass-produce the
LifeShirt System (see Note 3), has not yet commenced significant marketing
efforts for the product and has not generated significant revenues.
The therapeutic motion platform device has been under development for four
years and the market-ready version of the device is currently being manufactured
by an FDA-listed manufacturer.
The Company needs to seek new sources or methods of financing or revenue to
pursue its business strategy. The Company plans to continue as a going concern
by raising additional funds through the sale of the Company's securities and
revenues from the sales of their products. The Company has been adjusting its
business plan to focus less on Respitrace products and more on revenues arising
from acceleration therapeutic products, including concentrating on internal
research and development and on directly marketing the Company's acceleration
therapeutic products. The Company anticipates that funds raised through the sale
of its securities, along with revenues derived from the sales of their products
will be sufficient to meet the Company's working capital requirements. However,
at this time there can be no assurance that the Company will be able to
successfully implement its plans, or if such plans are successfully implemented,
that the Company will achieve its goals. If the Company is unable to raise
additional funds or is not successful in adjusting its business plan, it may be
required to reduce its workforce, reduce compensation levels, reduce dependency
on outside consultations, modify its growth and operating plans, and even be
forced to terminate operations completely.
F-8
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
2. GOING CONCERN - UNCERTAINTY (Con't)
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern and do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets, or the amounts and classifications of liabilities that might result from
the outcome of this uncertainty.
3. INVESTMENT IN AND TRANSACTIONS WITH AFFILIATES
In August 2000, the Company entered into license and research and
consulting agreements with VivoMetrics. Under the agreements, the Company
assigned certain patents and software, as well as a non-exclusive, worldwide
license under these items, to VivoMetrics in consideration of a royalty of 3%.
The minimum royalty in the second year of sales is $250,000. No significant
sales have occurred as of July 31, 2002. In addition, VivoMetrics granted the
Company the non-exclusive, worldwide right and license to use of those patents
and software for ten years. If VivoMetrics fails to earn gross revenues of
$200,000 from the commercial sale of certain products and/or services to
hospitals following the 2002 calendar year, the Company has the right to sell
certain products to hospitals for the following three years in exchange for a
royalty to VivoMetrics of 5%. The Company also received founders shares of
VivoMetrics' common stock which has been diluted to less than a 10% ownership;
therefore, no financial information for this affiliate is disclosed.
VivoMetrics paid the Company $900,000, in payments of $75,000 per month for
twelve months beginning August 11, 2000, in consideration for services performed
by the Company under the term of the one year research and consulting agreement.
The Company earned $25,000 and $875,000 under this agreement during the years
ended July 31, 2002 and 2001, respectively.
The Company entered into a separate month-by-month agreement, dated
November 1, 2001, with VivoMetrics, whereby the Company will continue to provide
research and development support on the LifeShirt System.
F-9
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
4. LEASES
As of July 31, 2002, the Company is obligated under a noncancellable lease
agreement for its office building. Net future minimum rental payments required
under the operating lease for this office building as of July 31, 2002 are as
follows:
Year Ending July 31, Amount
---------------------------------------------------------
2003 $ 142,000
2004 147,000
2005 153,000
2006 160,000
2007 166,000
---------------------------------------------------------
$ 768,000
=========================================================
Rent expense was approximately $60,000 and $38,000 for the years ending
July 31, 2002 and 2001, respectively.
5. INCOME TAXES
At July 31, 2002, the Company has available net operating loss carry
forwards of approximately $11,108,000, which expire in various years through
2022.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant component
of the Company's deferred income tax asset would result from the net operating
losses and amounted to approximately $4,300,000.
A valuation allowance is required to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a full $4,300,000 valuation allowance at July 31, 2002 was
necessary. The increase in the valuation allowance for the year ended July 31,
2002 is $500,000.
6. PREFERRED STOCK
The Series B Preferred Stock has a liquidation preference of $100 per
share, provides for a noncumulative dividend of $10 per share, if declared, and
has 100 shares issued and outstanding.
F-10
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
The Series C Preferred Stock has a liquidation preference of $1 per
share, provides for a noncumulative dividend of $.40 per share, if declared, and
has 62,048 shares issued and outstanding.
No preferred stock dividends have been declared.
Holders of the Company's Preferred Stock are entitled to one vote for each
share held.
7. COMMON STOCK
Year Ending July 31, 2001.
In March 2001, the Company issued options to acquire 15,000 shares of
common stock at $.50 per share, for professional services rendered, expiring in
March 2011. The fair value of the options on the grant date was 3,300 calculated
using the Black-Scholes Option Pricing Model and is included in selling, general
and administrative expense for the year ended July 31, 2001.
In March 2001, the Company issued options to acquire 360,000 shares of
common stock at $.50 per share, for professional services to be rendered under
agreements with a 1-year term expiring in March 2011. The fair value of the
options on the grant date was $79,200 calculated using the Black-Scholes Option
Pricing Model, of which $36,300 is included in selling, general and
administrative expense for the year ended July 31, 2001 and $46,200 is included
in prepaid expenses and other assets at July 31, 2001.
In April 2001, the Company issued options to acquire 60,000 shares of
common stock at prices ranging from $0.25 to $2 per share, for professional
services rendered, expiring on September 1, 2001. The fair value of the options
on the grant date was $1,400 calculated using the Black-Scholes Option Pricing
Model and is included in selling, general and administrative expense for the
year ended July 31, 2001.
In addition, the Company issued options to acquire 500,000 shares of common
stock at $0.145 per share to a shareholder/employee, in consideration of a loan
which has since been repaid.
F-11
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
7. COMMON STOCK (Con't)
Year Ending July 31, 2002.
The Company completed a private placement offering consisting of 40 units
at a price of $50,000 per unit. Each unit consists of 250,000 shares of the
Company's common stock, par value of $0.01 per share and 5-year options to
purchase 125,000 shares of the Company's common stock at $0.40 per share. The
Company raised $1,330,000, net of issuance costs, on the sale of 6,850,000
shares of common stock and options to purchase 3,425,000 shares of common stock.
The Company issued 375,000 shares of common stock to extinguish a $75,000
loan payable to a shareholder and 250,000 shares of common stock to the Chief
Executive Officer in lieu of compensation. The shares were valued using the
market value on the date of issuance and the Company recorded expense of $93,750
during the year ended July 31, 2002.
8. STOCK BASED COMPENSATION
In March 2001, the Company issued options to acquire 720,000 shares of the
Company's common stock to employees and non-employee directors. These options
are exercisable at $0.50 per share with 545,000 shares vested immediately and
175,000 shares vesting over a three-year period commencing March 2002. The
options expire in March 2011. The fair value of the options on the grant date
was $158,400 calculated using the Black-Scholes Option Pricing Model.
In May 2001, the Company entered into an executive employment agreement
with its new President and Chief Executive Officer. The agreement is for two
years and grants the executive options to acquire 400,000 shares of the
Company's common stock. These options are exercisable at $0.50 per share and
vest over a four-year period commencing May 2002. The options expire in May
2011. The fair value of the options on the grant date was $108,000 calculated
using the Black-Scholes Option Pricing Model.
In March 2002, options to purchase 312,500 shares of the Company's common
stock were issued. These options are exercisable at $0.40 per share, vest
immediately and expire in March 2007. The fair value of the options on the grant
date was $78,125 calculated using the Black-Scholes Option Pricing Model.
F-12
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
8. STOCK BASED COMPENSATION (Cont'd)
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for stock-based employee
compensation arrangements whereby no compensation cost related to stock options
is deducted in determining net income or loss. Had compensation cost for stock
option grants to the Company's employees been determined pursuant to SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's net income would
have decreased for the year ended July 31, 2001 as presented in the table below.
Using the Black-Scholes option pricing model, the Company's pro forma net loss
and pro forma net loss per share, with related assumptions, are as follows:
Pro forma net loss $ (1,357,864)
Pro forma loss per share $ (0.054)
Risk free interest rate 6.16%
Expected lives 5-10 years
Expected volatility 159% to 163%
For purposes of these pro forma disclosures, the estimated fair value of
the options granted is amortized over the options' vesting period (0 to 4
years).
The following table summarizes the transactions of the Company's stock
options for the two-year period ended July 31, 2002:
Weighted Average
Number of Shares Exercise Price
-----------------------------------------------------------------------------------------------------
Options outstanding, July 31, 2000 - $ -
Options granted 2,055,000 0.406
Options exercised (500,000) 0.145
Options forfeited - -
-----------------------------------------------------------------------------------------------------
Options outstanding, July 31, 2001 1,555,000 0.490
Options granted 3,737,500 0.400
Options exercised - -
Options forfeited (60,000) 0.250
-----------------------------------------------------------------------------------------------------
Options outstanding, July 31, 2002 5,232,500 $ 0.429
=====================================================================================================
Options to purchase 755,000 and 4,397,500 shares were exercisable at July
31, 2001 and 2002, respectively.
F-13
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
9. RELATED PARTY TRANSACTIONS
As of July 31, 2002, a shareholder had loaned $2,500 to the Company
included in accounts payable and accrued expenses. The loan is due on demand,
and is unsecured with interest at 12%. During the year ended July 31, 2002, the
shareholder loaned the Company an additional $75,000, which was repaid through
the issuance of 375,000 shares of common stock.
10. CONCENTRATION OF CREDIT RISK
Cash balances were in excess of FDIC insurance limits by approximately
$241,000 at July 31, 2002.
11. SUBSEQUENT EVENT
In September 2002, several executives of the Company's exclusive Japanese
agent purchased 333,333 shares of the Company's common stock at $0.30 per share.
The investors also received five year options to purchase 250,000 shares of
common stock at $0.50 per share.
F-14
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Florida Business Corporation Act (the "Florida Act") permits a Florida
corporation to indemnify a present or former director or officer of the
corporation (and certain other persons serving at the request of the
corporation in related capacities) for liabilities, including legal expenses,
arising by reason of service in such capacity if such person shall have acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and in any criminal proceeding if
such person had no reasonable cause to believe his conduct was unlawful.
However, in the case of actions brought by or in the right of the corporation,
no indemnification may be made with respect to any matter as to which such
director or officer shall have been adjudged liable, except in certain limited
circumstances. The Company's Articles of Incorporation provide that the
Company shall indemnify directors and executive officers to the fullest extent
now or hereafter permitted by the Florida Act. The indemnification provided by
the Florida Act and the Company's Articles of Incorporation is not exclusive
of any other rights to which a director or officer may be entitled. The
general effect of the foregoing provisions may be to reduce the circumstances
which an officer or director may be required to bear the economic burden of
the foregoing liabilities and expense.
The Company may also purchase and maintain insurance for the benefit of any
director or officer that may cover claims for which we could not indemnify
such person.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution
The following statement sets forth the estimated expenses in connection with
the offering described in the Registration Statement.
Securities and Exchange Commission Fee............. $ 260
Accountants' Fees and Expenses..................... 1,000
Legal Fees and Expenses............................ 2,500
Blue Sky Fees and Expenses......................... 1,000
Printing and Mailing Costs......................... 2,000
Miscellaneous...................................... 1,240
--------
TOTAL $ 7,000
========
II-1
Item 26. Recent Sales of Unregistered Securities
(a) In a private placement, which began in late December, 2001 and closed March
8, 2002, the Company raised $1,370.000 million on the sale of six million and
eight hundred and fifty thousand new common shares in the Company plus options
to purchase additional common shares of the Company. As part of that offering,
the Company issued 375,000 shares of Common Stock to extinguish a $75,000 loan
payable to a shareholder and issued 250,000 shares of Common Stock to the Chief
Executive Officer in lieu of compensation. The proceeds were used for research
and development costs of the AT101 motion platform and for working capital.
(b) The Company raised $225,000 on the sale of 743,329 new common shares in the
Company plus options to purchase additional common shares of the Company from
September 2002 to November 2002. The proceeds were used to develop and market
the AT101 motion platform and for working capital.
Item 27. Exhibits
The following exhibits are filed with this Registration Statement:
5 Opinion of Counsel
23 Consent of Independent Auditors
Item 28. Undertakings
The undersigned Registrant hereby undertakes;
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any material
information with respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report
II-2
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Securities Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities being offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
ITEM 1. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a). Exhibits
Exhibit No. Description of Exhibits
- ----------- -----------------------
3(a) Articles of Incorporation, as amended (1)
(b) By-Laws, as amended (2)
4(a) Form of Certificate evidencing shares of Common Stock (3)
5 Opinion of Counsel (5)
10(c) Revised SMC Agreement (4)
21 Subsidiaries of the Company (2)
23 Consent of Independent Auditors(5)
(1) Included as an Exhibit to the Company's Registration Statement on Form S-1
(File No. 33-14451), including all pre and post effective Amendments
thereto, and incorporated herein by reference, except for Articles of
Amendment and a
II-3
Certificate of Designation, Rights, Preferences and Limitations of Series C
Convertible Preferred Stock, which are included as Exhibits to the
Company's Annual Report on Form 10-KSB for the year ended July 31, 1989 and
are incorporated herein by reference.
(2) Included as an Exhibit to the Company's Registration Statement on Form S-1
(File No. 33-14451) including all pre and post effective Amendments
thereto, and incorporated herein by reference.
(3) Included as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended July 31, 1990 and incorporated herein by reference.
(4) Included as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended July 31, 1996 and incorporated herein by reference.
(5) Filed herewith.
II-4
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby
authorizes the agent for service named in this Registration Statement, with full
power to act alone, to file one or more amendments (including post-effective
amendments) to this Registration Statement, which amendments may make such
changes in this Registration Statement as such agent for service deems
appropriate, and the Registrant and each such person hereby appoints such agent
for service as attorney-in-fact, with full power to act alone, to execute in the
name and in behalf of the Registrant and any such person, individually and in
each capacity stated below, any such amendments to this Registration Statement.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of North
Bay Village State of Florida on December 9, 2002.
NON-INVASIVE MONITORING SYSTEMS, INC.
By: /s/ Allan F. Brack
-----------------------
Allan F. Brack,
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates stated.
Signatures Title Date
/S/ Marvin A. Sackner Chairman of the Board and Director
MARVIN A. SACKNER December 9, 2002
/S/ Allan F. Brack Chief Executive Officer and Director
ALLAN F. BRACK December 9, 2002
/S/ Taffy Gould Vice Chairman of the Board and Director
TAFFY GOULD December 9, 2002
II-5
/s/ Mortin J. Robinson
MORTON J. ROBINSON Secretary and Director December 9, 2002
/s/ Gerard Kaiser
GERARD KAISER Director December 9, 2002
/s/ Andrew M. Smulian
ANDREW M. SMULIAN Director December 9, 2002
/s/ John G. Clawson Director December 9, 2002
JOHN G. CLAWSON
/s/ Leila Kight
LEILA KIGHT Director December 9, 2002
II-6
Exhibit Index
Exhibit Number Description
5 Opinion of Counsel
23 Consent of Independent Accountants