Item 1. Business.
General
Non-Invasive Monitoring Systems, Inc. (together with its consolidated subsidiaries, the “Company,” “NIMS,” “we,” “us” or “our”) was incorporated under the laws of the State of Florida on July 16, 1980. The Company’s offices are located at 4400 Biscayne Boulevard, Miami, Florida, 33137 and its telephone number is (305) 575-4207.
Company Overview
Prior to 2002, our primary business was the development of computer-assisted, non-invasive diagnostic monitoring devices and related software designed to detect abnormal respiratory, cardiac and other medical conditions from sensors placed externally on the body’s surface.
In 2002, we began focusing on the research, development, manufacturing, marketing and sales of non-invasive, motorized, whole body periodic acceleration (“WBPA”) platforms. These therapeutic acceleration platforms are intended as aids to temporarily increase local circulation for temporary relief of minor aches and pains, produce local muscle relaxation and reduce morning stiffness.
Our operations of WBPA platforms began to slow down in recent years. We have not had any material sales for the years 2019 and 2018. We previously written off the value of our inventory and on May 3, 2019 we exchanged our inventory for forgiveness of $15,000 of accrued unpaid rent. In May 2019, we effectively discontinued operations. The Company is a shell company as defined in Rule 12b-2 of the Exchange Act.
Products
We currently have no inventory and do not have any of our products available for sale.
Equity Exchange Agreement
As previously reported, on December 3, 2018, Non-Invasive Monitoring Systems, Inc., a Florida corporation (the “Company”), entered into an Equity Exchange Agreement (the “Exchange Agreement”) with IRA Financial Trust Company, a South Dakota trust corporation (“IRA Trust”), IRA Financial Group LLC, a Florida limited liability company (“IRAFG” and, together with IRA Trust, “IRA Financial”), and their respective equity holders (together, the “Equityholders”). Upon the terms and subject to the conditions contained in the Exchange Agreement, the Company had agreed to issue to the Equityholders shares of a newly-designated series of its convertible preferred stock in exchange for 100% of the issued and outstanding equity in IRA Financial (the “Exchange”). The Company, IRA Financial and the Equityholders subsequently amended the Exchange Agreement on three occasions to extend the outside date for consummation of the Exchange, with the last such extension expiring on July 3, 2019 (the “Outside Date”). A description of the material terms of the Exchange Agreement is contained in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 4, 2019, which description is incorporated by reference in this Item 1.02 of this Current Report on Form 8-K.
On August 4, 2019, IRAFG delivered to the Company notice of termination of the Exchange Agreement pursuant to Section 8.01(b)(i) thereof due to the failure of the Exchange to have closed on or prior to the Outside Date. No termination fees, penalties or other amounts are payable by the Company in respect of such termination.
Intellectual Property
We currently hold four United States patents with respect to both overall design and specific features of our present and proposed products, with corresponding foreign patents issued or pending in multiple jurisdictions. No assurance can be given as to the scope of protection afforded by any patent issued, whether patents will be issued with respect to any pending or future patent application, that patents issued will not be designed around, infringed or successfully challenged by others, that we will have sufficient resources to enforce any proprietary protection afforded by our patents or that our technology will not infringe on patents held by others. We believe that in the event our patent protection is materially impaired, an adverse effect could result as we believe these patents maintain value for a possible future business transaction. The following table lists our patents, along with their expiration dates (each of which is 20 years from the filing date):
With respect to our present and potential product line, we have six trademarks and trade names which are registered in the United States and in several foreign countries, including our principal trademark, “Exer-Rest”.
Manufacturing
We have no commercial manufacturing facilities, and we do not intend to build commercial manufacturing facilities of our own in the foreseeable future.
Sales & Marketing
We have no product sales and marketing personnel.
Employees
The Company currently does not have full time employees. Our administrative, accounting and legal functions are contracted on a part-time basis.
Item 1A.
Item 1A. Risk Factors.
Our future operating results may vary substantially from anticipated results due to a number of factors, many of which are beyond our control. The following discussion highlights some of these factors and the possible impact of these factors on our future results of operations. If any of the following events actually occurs, our business, financial condition or results of operations could be materially harmed. In that case, the value of our common stock could decline substantially.
Risks Relating to Our Business.
We have a history of operating losses, we do not expect to become profitable in the near future and absent additional equity or debt financing, we may be unable to continue as a going concern.
Our consolidated financial statements for the years ended July 31, 2019 and 2018 were prepared on a “going concern” basis; however substantial doubt exists about our ability to continue as a going concern as a result of recurring losses and an accumulated deficit. We are not profitable and have been incurring material losses. Our net losses for our fiscal years ended July 31, 2019 and 2018 were $1.6 and $0.4 million respectively. As of July 31, 2019, we had an accumulated deficit of $28.0 million. Absent additional equity or debt financing, we will be unable to continue as a going concern, and you may lose all of your investment in us.
We will require additional funding, which may not be available to us on acceptable terms, or at all.
We will need to raise additional capital in order for us to continue as a going concern. We will need to finance future cash needs primarily through public or private equity offerings, debt financings or strategic collaborations. We do not know whether additional funding will be available on acceptable terms, or at all. We cannot assure you that we could obtain such approval. To the extent that we raise additional funds by issuing equity securities, our shareholders may experience significant dilution, and debt financing, if available, may require that we agree to covenants that restrict our operations. To the extent that we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our products or grant licenses on terms that may not be favorable to us.
If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology could be adversely affected.
In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, know-how and confidential and proprietary information. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations. To the extent that our consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions.
If we become involved in patent litigation or other proceedings related to a determination of rights, we could incur substantial costs and expenses, substantial liability for damages which could materially adversely affect our liquidity, business prospects and results of operations.
Third parties may sue us for infringing their patent rights. Likewise, we may need to resort to litigation to enforce a patent issued or licensed to us or to determine the scope and validity of proprietary rights of others. In addition, a third party may claim that we have improperly obtained or used its confidential or proprietary information. The cost to us of any litigation or other proceeding relating to intellectual property rights, even if resolved in our favor, could be substantial, and the litigation would divert our management’s efforts. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue our operations.
Our business is subject to economic, political, regulatory and other risks associated with international operations.
Our business is subject to risks associated with conducting business internationally, in part due to some of our suppliers historically being located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:
● difficulties in compliance with non-U.S. laws and regulations;
● changes in non-U.S. regulations and customs;
● changes in non-U.S. currency exchange rates and currency controls;
● changes in a specific country’s or region’s political or economic environment;
● trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments;
● negative consequences from changes in tax laws; and
● difficulties associated with staffing and managing foreign operations, including differing labor relations.
Risks Relating to Our Stock.
We do not anticipate paying dividends on our common stock in the foreseeable future.
We have not declared and paid cash dividends on our common stock in the past, and we do not anticipate paying any cash dividends in the foreseeable future. We intend to retain all of our earnings, if any, for the foreseeable future to finance the operation and expansion of our business. Additionally, our current credit facility prohibits us from paying dividends on our capital stock at any time during which we have outstanding borrowings thereunder. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases and you sell your shares.
Because our common stock is a “penny stock,” it may be more difficult for investors to sell shares of our common stock, and the market price of our common stock may be adversely affected.
Our common stock, which trades on the OTCBB, is a “penny stock” since, among other things, the stock price is below $5.00 per share, it is not listed on a national securities exchange, and it has not met certain net tangible asset or average revenue requirements. Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the SEC. This document provides information about penny stocks and the nature and level of risks involved in investing in the penny-stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser and obtain the purchaser’s written agreement to the purchase. Broker-dealers must also provide customers that hold penny stock in their accounts with such broker-dealer a monthly statement containing price and market information relating to the penny stock. If a penny stock is sold to an investor in violation of the penny stock rules, the investor may be able to cancel its purchase and get its money back.
If applicable, the penny stock rules may make it difficult for investors to sell their shares of our common stock. Because of the rules and restrictions applicable to a penny stock, there is less trading in penny stocks and the market price of our common stock may be adversely affected. Also, many brokers choose not to participate in penny stock transactions. Accordingly, investors may not always be able to resell their shares of our common stock publicly at times and prices acceptable to them.
Our stock price has been volatile and there may not be an active, liquid trading market for our common stock.
Our stock price has experienced significant price and volume fluctuations and may continue to experience volatility in the future. The price of our common stock has ranged between $0.04 and $0.14 for the 52-week period ended July 31, 2019. Many factors, including those described in this report and others, have a significant impact on the price of our common stock. Also, you may not be able to sell your shares at the best market price if trading in our stock in not active or if the volume is low. There is no guarantee that an active trading market for our common stock will be maintained on the OTCBB or elsewhere.
Our quarterly results of operations will fluctuate, and these fluctuations could cause our stock price to decline.
Our quarterly operating results are likely to fluctuate in the future. These fluctuations could cause our stock price to decline. The nature of our business involves variable factors, such as the timing of the research, development and regulatory submissions of our devices that could cause our operating results to fluctuate. As a result, in some future quarters our clinical, financial or operating results may not meet the expectations of securities analysts and investors which could result in a decline in the price of our stock.
Shareholders may experience dilution of ownership interests because of the future issuance of additional shares of our common stock and our preferred stock.
In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present shareholders. We are currently authorized to issue an aggregate of 401,000,000 shares of capital stock, consisting of 400,000,000 shares of common stock and 1,000,000 designated shares of preferred stock with preferences and rights to be determined by our Board of Directors. As of November 11, 2019, there were outstanding 154,810,655 shares of our common stock, 100 shares of our Series B preferred stock and there were no outstanding options to purchase shares of our common stock. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock may create downward pressure on the trading price of the common stock. We may issue additional shares, warrants or other convertible securities in the future in conjunction with capital raising efforts, including at a price (or exercise price) below the price at which shares of our common stock are then currently traded on the OTCBB.
Item 2.
Item 2. Properties.
Our principal corporate office is located at 4400 Biscayne Blvd., Miami, Florida. We occupy this space from Frost Real Estate Holdings, LLC, which is a company controlled by Dr. Phillip Frost, one of our largest beneficial shareholders. We previously leased the approximately 1,800 square feet under a lease agreement, which commenced with a five-year term on January 1, 2008 and expired on December 31, 2012, and then we went on a month-to-month basis and then in February 2016 the office space rent was reduced to $0 per month.
We previously housed our inventory in approximately 4,000 square feet of warehouse space in Pembroke Park, Florida. The lease commenced September 15, 2014 and expired on September 31, 2015 and we have exercised our option to renew the lease and extended the expiration to September 15, 2017. Following the expiration, we have remained on a month-to-month term. On May 3, 2019 the Company exchanged inventory for forgiveness of $15,000 of accrued unpaid rent. The Company had previously written off the value of this inventory resulting in a gain on the forgiveness of approximately $15,000. The Company no longer leases this Pembroke Park warehouse following the exchange of inventory.
Item 3.
Item 3. Legal Proceedings.
None.
Item 4.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market for common stock
Our common stock is quoted on the OTCBB under the symbol NIMU.OB. The table below sets forth, for the respective periods indicated, the high and low bid prices for the Company’s common stock as reported by the OTCBB. The following bid quotations represent inter-dealer prices, without adjustments for retail mark-ups, mark-downs or commissions and may not necessarily represent actual transactions.
Since our inception, we have not paid any dividends on our common stock, and we do not anticipate that we will pay dividends in the foreseeable future. Additionally, our current credit facility prohibits us from paying dividends on our capital stock at any time during which we have outstanding borrowings thereunder. At July 31, 2019, we had 1,392 shareholders of record based on information provided by our transfer agent, Equity Stock Transfer. We believe that the actual number of beneficial shareholders is considerably higher.
Item 6.
Item 6. Selected Financial Data.
As a smaller reporting company as defined in Rule 12b-2 of the Exchange Act, we are not required to include information otherwise required by this item.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Annual Report on Form 10-K contains, in addition to historical information, certain forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development and commercialization efforts, business, financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those set forth below as well as those contained in “Item 1A - Risk Factors” of this Annual Report on Form 10-K. We do not undertake any obligation to update forward-looking statements, except as required by applicable law. These forward-looking statements reflect our views only as of the date they are made with respect to future events and financial performance.
Overview
We previously were engaged in the development, manufacture and marketing of non-invasive, whole body periodic acceleration (“WBPA”) therapeutic platforms, which are motorized platforms that move a subject repetitively head to foot. The Company discontinued operations in May 2019, accordingly, certain assets, liabilities and expenses are classified as discontinued operations.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventory, income taxes, contingencies and litigation. Regarding inventories, the provision is an estimate based on multiple factors as further described in Notes 2 and 3. The ultimate realization of the inventory amount may be materially different. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. A more detailed discussion on the application of these and other accounting policies can be found in Note 2 in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K. While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.
Results of Operations
In January 2009 our Exer-Rest line of therapeutic platforms was registered by the FDA in the United States as Class I (Exempt) Medical Devices. We began our sales activity with marketing and promotional pricing beginning in February 2009. We have discontinued those operations in May 2019. The Company is assessing potential mergers, acquisitions and strategic collaborations.
Year Ended July 31, 2019 Compared to Year Ended July 31, 2018
General and administrative costs and expenses. General and administrative (“G&A”) costs and expenses from continuing operations was $446,000 for the year ended July 31, 2019, as compared to $178,000 for the year ended July 31, 2018. This $268,000 net increase was primarily from professional fees and insurance expense. There was no stock-based compensation expense for the years ended July 31, 2019 and 2018.
Selling, general and administrative (“SG&A”). SG&A costs and expenses from discontinued operations was $37,000 for the year ended July 31, 2019, as compared to $47,000 for the year ended July 31, 2018. This $10,000 net decrease was primarily from rent expense for inventory warehouse.
Total operating costs and expenses. Total operating costs and expenses from continuing operations was $446,000 for the year ended July 31, 2019, as compared to $178,000 for the year ended July 31, 2018. This $268,000 increase is primarily attributable to G&A noted above.
Interest and other expense. Interest was $93,000 for the year ended July 31, 2019, as compared to $220,000 for the year ended July 31, 2018. This $127,000 decrease was primarily attributable to extinguishment of debt and related accrued interest as described in Note 6. In addition, the Company incurred a loss on the extinguishment of debt of $1,066,000 during the year ended July 31, 2019.
Loss from discontinued operations. Loss from discontinued operations was $10,000 for the year ended July 31, 2019, as compared to $47,000 for the year ended July 31, 2018. This $37,000 decrease is primarily attributable to other income as a result of an accrual reversal and a gain on the exchange of inventory (see note 3).
Liquidity and Capital Resources
Our operations have been primarily financed through private sales of our equity securities and advances under credit facilities available to us.
At July 31, 2019, we had cash of $353,000 and working capital of approximately $81,000. We expect that our existing funds will not be sufficient to support our current operations over the next twelve months. No assurance can be given that such additional financing will be available on acceptable terms or at all. Our ability to sell additional shares of our stock and/or borrow cash could be materially adversely affected by the economic uncertainty in the global equity and credit markets. Current economic conditions have been, and continue to be, volatile, and continued instability in these market conditions may limit our ability to access the capital necessary to fund and grow our business and to replace, in a timely manner, maturing liabilities.
Net cash used in operating activities increased to $437,000 for the year ended July 31, 2019 as compared to $221,000 for the year ended July 31, 2018. This $216,000 increase was principally due to the increase in the operating loss of approximately offset by an increase in cash provided by accounts payable and accrued expenses.
Net cash provided by financing activities increased to $700,000 for the year ended July 31, 2019 as compared to $300,000 for the year ended July 31, 2018. This $400,000 increase was principally due to an increase in proceeds from promissory notes in 2019 and the issuance of common stock (see Note 7 to the accompanying audited consolidated financial statements).
As of November 11, 2019, we had cash and cash equivalents of approximately $290,000. The Company plans include assessing potential mergers, acquisitions and strategic collaborations. We will need to raise additional capital. There can be no assurance that we will be able to raise additional capital on terms acceptable to us or at all.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a smaller reporting company as defined in Rule 12b-2 of the Exchange Act, we are not required to include the information otherwise required by this item.
Item 8.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Non-Invasive Monitoring Systems, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Non-Invasive Monitoring Systems, Inc. and subsidiaries (the “Company”) as of July 31, 2019 and 2018, and the related consolidated statements of operations, changes in shareholders’ equity (deficit), and cash flows for each of the years ended July 31, 2019 and 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of July 31, 2019 and 2018, and the consolidated results of their operations and their cash flows for each of the years ended July 31, 2019 and 2018, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has experienced recurring net losses, cash outflows from operating activities, has an accumulated deficit and substantial purchase commitment that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.
/s/ EisnerAmper LLP
We have served as the Company’s auditor since 2018.
EISNERAMPER LLP
Fort Lauderdale, FL
November 13, 2019
NON-INVASIVE MONITORING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
The accompanying notes are an integral part of these consolidated financial statements.
NON-INVASIVE MONITORING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended July 31, 2019 and 2018
(In thousands, except per share data)
The accompanying notes are an integral part of these consolidated financial statements.
NON-INVASIVE MONITORING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
Years ended July 31, 2019 and 2018 (Dollars in thousands, except share amounts)
The accompanying notes are an integral part of these consolidated financial statements.
NON-INVASIVE MONITORING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31, 2019 and 2018
(Dollars in thousands)
The accompanying notes are an integral part of these consolidated financial statements.
NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Organization. Non-Invasive Monitoring Systems, Inc., a Florida corporation (together with its consolidated subsidiaries, the “Company” or “NIMS”), began business as a medical diagnostic monitoring company to develop computer-aided continuous monitoring devices to detect abnormal respiratory and cardiac events using sensors on the human body’s surface. It has ceased to operate in this market. The Company has developed and marketed its Exer-Rest® line of acceleration therapeutic platforms based upon unique, patented whole body periodic acceleration (“WBPA”) technology of which the Company maintains patents. The Company currently does not have any operational inventory.
Business. The Company developed a third generation of Exer-Rest acceleration therapeutic platforms (designated the Exer-Rest AT3800 and the Exer-Rest AT4700). The Company is currently a shell company (as defined in Rule 12b-2 of the Exchange Act).
Going Concern. The Company’s consolidated financial statements have been prepared and presented on a basis assuming it will continue as a going concern. As reflected in the accompanying consolidated financial statements, the Company had net losses from continuing operations of approximately $1.6 million and $0.4 million for the year ended July 31, 2019 and 2018, respectively, and has experienced cash outflows from operating activities. The Company also has an accumulated deficit of approximately $28.0 million as of July 31, 2019. The Company had $353,000 of cash at July 31, 2019 and working capital of approximately $81,000. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is seeking potential mergers, acquisitions and strategic collaborations. There is no assurance that the Company will be successful in this regard, and, if not successful, that it will be able to continue its business activities. The accompanying consolidated financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.
Discontinued Operations. On May 3, 2019 the Company exchanged inventory for forgiveness of accrued unpaid rent. The Company has no inventory, no immediate plans to replenish inventory and has no current plans to develop or market new products.
Accordingly, the Company determined that the assets and liabilities met the discontinued operations criteria in Accounting Standards Codification 205-20-45 and were classified as discontinued operations at July 31, 2019. See Discontinued Operations Note 4.
Equity Exchange Agreement. On December 3, 2018, the Company entered into an Equity Exchange Agreement with IRA Financial Trust Company, a South Dakota trust corporation, IRA Financial Group LLC, a Florida limited liability company (collectively “IRA Financial”), and their respective equity holders. The Company, IRA Financial and the equity holders subsequently amended the Exchange Agreement on three occasions to extend the outside date for consummation of the Exchange, with the last such extension expiring on July 3, 2019.
On August 4, 2019, IRAFG delivered to the Company notice of termination of the Exchange Agreement pursuant to Section 8.01(b)(i) of that agreement due to the failure of the Exchange to have closed on or prior to the Outside Date. No termination fees, penalties or other amounts are payable by the Company in respect of such termination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Non-Invasive Monitoring Systems of Florida, Inc., which has no current operations, and NIMS of Canada, Inc., a Canadian corporation, which has no current operations. All inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions, such as warranty accrual and deferred taxes as estimates, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Actual results could differ materially from these estimates.
Cash and Cash Equivalents. The Company considers all highly liquid short-term investments purchased with an original maturity date of three months or less to be cash equivalents. The Company had approximately $353,000 and $90,000, on deposit in bank operating accounts at July 31, 2019 and July 31, 2018, respectively.
Inventories. Inventories are stated at lower of cost or net realizable value using the first-in, first-out method, and are evaluated at least annually for impairment. Inventories at July 31, 2018 primarily consisted of finished Exer-Rest units, spare parts and accessories. Provisions for potentially obsolete or slow-moving inventory are made based on management’s analysis of inventory levels, historical obsolescence and future sales forecasts. The Company had fully written down its inventory during the year ended July 31, 2018 and had no inventory value at July 31, 2019 and July 31, 2018.
Income Taxes. The Company provides for income taxes using an asset and liability based approach. Deferred income tax assets and liabilities are recorded to reflect the tax consequences in future years of temporary differences between the carrying amounts of assets and liabilities for financial statement and income tax purposes. The deferred tax asset for loss carryforwards and other potential future tax benefits has been fully offset by a valuation allowance since it is uncertain whether any future benefit will be realized. The utilization of the loss carryforward is limited to future taxable earnings of the Company and may be subject to severe limitations if the Company undergoes an ownership change pursuant to the Internal Revenue Code Section 382.
The Company files its tax returns as prescribed by the laws of the jurisdictions in which it operates. Tax years ranging from 2015 to 2018 remain open to examination by various taxing jurisdictions as the statute of limitations has not expired. It is the Company’s policy to include income tax interest and penalty expense in its tax provision.
Warranties. The Company’s warranties are two years on all Exer-Rest® products sold domestically and one year for products sold outside of the U.S. and are accrued based on management’s estimates and the history of warranty costs incurred. There were no material warranty costs incurred during the twelve months ended July 31, 2019 and 2018.Warranty accrual of approximately $12,000 is included in accounts payable and accrued liabilities as of July 31, 2018. The warranty accrual approximately $12,000 was reversed in 2019 based on management’s determination of likelihood of warranty claim and accordingly there is no warranty accrual as of July 31, 2019.
Stock-based compensation. The Company recognizes all share-based payments, including grants of stock options, as operating expenses, based on their grant date fair values. Stock-based compensation expense is recognized over the vesting life of the underlying stock options and is included in general and administrative costs and expenses in the consolidated comprehensive statements of operations for all periods presented. Forfeitures are accounted for when they occur.
Fair Value of Financial Instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of July 31, 2019 and July 31, 2018. The respective carrying value of certain on-balance-sheet financial instruments such as cash, prepaid expenses, deposits, other current assets, accounts payable and accrued expenses approximate fair values because they are short term in nature or they bear current market interest rates. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 - quoted prices in active markets for identical assets or liabilities.
Level 2 - other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.
Level 3 - significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.
Financial instruments recognized in the consolidated balance sheet consist of cash, prepaid expenses, deposits, and other current assets. The Company believes that the carrying value of its current financial instruments approximates their fair values due to the short-term nature of these instruments. The Company does not hold any derivative financial instruments.
The respective carrying value of the notes payable - related party and notes payable - other approximate our current borrowing rate for similar debt instruments of comparable maturity and are considered Level 3 measurements within the fair value hierarchy.
The following table presents changes in Level 3 financial liabilities measured at fair value on a recurring basis:
Loss Contingencies. We recognize contingent losses that are both probable and estimable. In this context, we define probability as circumstances under which events are likely to occur. In regard to legal costs, we record such costs as incurred.
Recent Accounting Pronouncements. The Company considers the applicability and impact of all Accounting Standard Updates (“ASU’s”). ASU’s not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated balance sheets or consolidated comprehensive statement of operations.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). This standard addresses the classification of eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company implemented this ASU on August 1, 2018. The adoption of this update did not have an impact on the Company’s consolidated financial statements.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). ASU 2016-02 impacts any entity that enters into a lease with some specified scope exceptions. This new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The guidance updates and supersedes Topic 840, Leases. For public entities, ASU 2016-02 is effective for fiscal years, and interim periods with those years, beginning after December 15, 2018, and early adoption is permitted. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company currently has no long-term leases. However, in the event that the Company should enter any long-term leases it would then evaluate the effect that the new guidance would have on its consolidated financial statements and related disclosures.
3. INVENTORIES
On May 3, 2019 the Company exchanged inventory for forgiveness of $15,000 of accrued unpaid rent. The Company had previously written off the value of this inventory resulting in a gain on the forgiveness of approximately $15,000.
4. DISCONTINUED OPERATIONS
On May 3, 2019 the Company exchanged its inventory for forgiveness of accrued unpaid rent. Concurrent with the exchange management with the appropriate level of authority determined to discontinue the operations of the product segment.
The detail of the consolidated balance sheets, the consolidated statement of operations and consolidated cash flows for the discontinued operations is as stated below:
The Company plans to realize or collect prepaid expense and resolve any remaining accounts payable and accrued expenses from discontinued operations during the next six months.
5. STOCK-BASED COMPENSATION
The Company measures the cost of employee, officer and director services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value of the Company’s stock option awards is expensed over the vesting life of the underlying stock options using the graded vesting method, with each tranche of vesting options valued separately. The Company did not record any stock-based compensation during the twelve months ended July 31, 2019 and 2018.
In November 2010, the Company’s Board and Compensation Committee approved the Non-Invasive Monitoring Systems, Inc. 2011 Stock Incentive Plan (the “2011 Plan”). Awards granted under the 2011 Plan may consist of incentive stock options, stock appreciation rights (SAR), restricted stock grants, restricted stock units (RSU) performance shares, performance units or cash awards. Subject to adjustment in certain circumstances, the 2011 Plan authorizes up to 4,000,000 shares of the Company’s common stock for issuance pursuant to the terms of the 2011 Plan. The 2011 Plan was approved by our shareholders in March 2012 and no awards have been granted under the 2011 Plan as of July 31, 2019.
The Company did not grant any stock options during the twelve months ended July 31, 2019 or 2018. As of July 31, 2019, there were no outstanding stock options and there were no unrecognized costs related to outstanding stock options.
6. NOTES PAYABLE
The Company entered into various notes payable with related parties from 2010 to 2018 with an aggregate principal total of $2,175,000 and with an unrelated third party for $50,000 for total principal amount of $2,225,000. The interest rate was 11% and the maturity date was July 31, 2020. The Company could prepay these notes in advance of the maturity date without premium or penalty.
On December 21, 2018, the Company issued 50,584,413 shares of Common Stock in exchange for the extinguishment of debt and related accrued interest totaling approximately $3,541,000 resulting in a loss on the extinguishment of $1,066,000. The Company incurred interest expense related to the Credit Facility and notes payable of $93,000 and $220,000 for the year ended July 31, 2019 and 2018, respectively.
The Company maintains a Note and Security Agreement with Frost Gamma Investments Trust, a trust controlled by Dr. Phillip Frost, which beneficially owns in excess of 10% of the Company’s common stock (“Frost Gamma”), and Hsu Gamma Investments, LP, an entity controlled by the Company’s Chairman and Interim CEO (“Hsu Gamma” and together with Frost Gamma, the “Lenders”), pursuant to which the Lenders have provided a revolving credit line (the “Credit Facility”) in the aggregate principal amount of up to $1.0 million, secured by all of the Company’s personal property. The interest rate payable on amounts outstanding under the Credit Facility is 11% per annum and increases to 16% per annum after the Credit Facility Maturity Date or after an event of default. The Company is permitted to borrow and reborrow from time to time under the Credit Facility until July 31, 2020 (the “Credit Facility Maturity Date”). The balance of the principal due under the Credit Facility was $0 and $1,000,000 at July 31, 2019 and 2018, respectively.
7. SHAREHOLDERS’ EQUITY
The Company has three classes of Preferred Stock. Holders of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are entitled to vote with the holders of common stock as a single class on all matters.
Series B Preferred Stock is not redeemable by the Company and has a liquidation value of $100 per share, plus declared and unpaid dividends, if any. Dividends are non-cumulative, and are at the rate of $10 per share, if declared.
Series C Preferred Stock is redeemable by the Company at a price of $0.10 per share upon 30 days prior written notice. This series has a liquidation value of $1.00 per share plus declared and unpaid dividends, if any. Dividends are non-cumulative, and are at the rate of $0.10 per share, if declared. Each share of Series C Preferred Stock is convertible into 25 shares of the Company’s common stock upon payment of a conversion premium of $4.20 per share of common stock. The conversion rate and the conversion premium are subject to adjustments in the event of stock splits, stock dividends, reverse stock splits and certain other events. In February 2019, all outstanding shares of Series C Preferred Stock were redeemed by the Company following 30 days written notice. The redemption amount for the 62,048 Series C Preferred Stock was approximately $25,000 at a rate of $0.40 per share of which approximately $15,000 was paid and approximately $10,000 is included in accrued expenses at July 31, 2019. The redeemed Series C Preferred Stock were then cancelled following the redemption.
Series D Preferred Stock is not redeemable by the Company. This series has a liquidation value of $1,500 per share, plus declared and unpaid dividends, if any. Each share of Series D Preferred Stock is convertible into 5,000 shares of the Company’s common stock. The conversion rate is subject to adjustments in the event of stock splits, stock dividends, reverse stock splits and certain other events. In February 2019, all holders of the 2,782 outstanding shares of Series D Preferred Stock converted their shares to common stock. As a result, the Company issued 13,910,000 common shares.
No preferred stock dividends were declared for the years ended July 31, 2019 and 2018.
On December 21, 2018, the Company entered into stock purchase agreements with Frost Gamma Investments Trust, a trust controlled by Dr. Philip Frost, and Jane Hsiao, Ph.D., the Company’s Chairman and Interim CEO. As a result of the Purchase Agreements, the Company issued and sold to FGIT and Dr. Hsiao an aggregate of 8,571,428 shares of the Company’s common stock, par value $0.01 per share (at a purchase price of $0.07 per share for total aggregate amount of $600,000).
On December 21, 2018, the Company entered into a Debt Exchange Agreement with Frost Gamma Investments Trust, Dr. Jane Hsiao, Hsu Gamma Investments LP and Marie Wolf (collectively, the “Creditors”), pursuant to which the Company issued to the Creditors aggregate of 50,584,413 shares of Common Stock (the “Exchange Shares”) in exchange the extinguishment of the credit facility and notes payable totaling $2,225,000 and related accrued interest of approximately $1,316,000. In addition, the Company issued an additional 2,737,391 shares of common stock to Hsu Gamma Investments LP and Frost Gamma Investments Trust, for in exchange for the extinguishment of rent payable totaling approximately $192,000. The Company issued the Exchange Shares at a price of $0.07 per share. The fair value of the stock issued was based on the closing price of the Company’s stock on the day of the debt exchange which was $0.09 per share resulting in a $1,066,000 loss on the extinguishment of debt.
8. BASIC AND DILUTED LOSS PER SHARE
Basic net loss per common share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Diluted potential common shares consist of incremental shares issuable upon exercise of stock options and warrants and conversion of preferred stock. In computing diluted net loss per share for the years ended July 31, 2019 and 2018, no dilution adjustment has been made to the weighted average outstanding common shares because the assumed exercise of outstanding options and warrants and the conversion of preferred stock would be anti-dilutive.
Potential common shares not included in calculating diluted net loss per share are as follows:
9. RELATED PARTY TRANSACTIONS
Dr. Hsiao, Dr. Frost and directors Steven Rubin and Rao Uppaluri are each stockholders, current or former officers and/or directors or former directors of TransEnterix, Inc. (formerly SafeStitch Medical, Inc.) (“TransEnterix”), a publicly-traded medical device company. The Company’s Chief Financial Officer also served as the Chief Financial Officer of TransEnterix until October 2, 2013. The Company’s Chief Financial Officer continued as an employee of TransEnterix until March 3, 2014, during which he supervised the Miami based accounting staff of TransEnterix under a cost sharing arrangement whereby the total salaries of the Miami based accounting staff was shared by the Company and TransEnterix. The Chief Financial Officer continues to serve as the Chief Financial Officer of Cocrytal Pharma, Inc., a clinical stage biotechnology company, and in which Steve Rubin and Jane Hsiao, serve on the Board. Since December 2009, the Company’s Chief Legal Officer has served under a similar cost sharing arrangement as the Chief Legal Officer of TransEnterix. The Company recorded additions to general and administrative costs and expenses to account for the sharing of costs under these arrangements of $5,000 and $5,000 for the years ended July 31, 2019 and 2018, respectively. Aggregate accounts payable to TransEnterix totaled approximately $1,600 and $800 at July 31, 2019 and 2018, respectively.
The Company signed a five year lease for office space in Miami, Florida with a company controlled by Dr. Phillip Frost, who is the beneficial owner of more than 10% of the Company’s common stock. The rental payments under the Miami office lease, which commenced January 1, 2008 and expired on December 31, 2012, were approximately $1,250 per month and then continued on a month-to-month basis. In February 2016 the rent was reduced to $0 per month. For the years ended July 31, 2019 and 2018, the Company did not record any rent expense related to the Miami lease. At July 31, 2019 and 2018, approximately $0 and $76,000 in rent was payable.
The Company signed a three year lease for warehouse space in Hialeah, Florida with a company jointly controlled by Dr. Frost and Dr. Jane Hsiao, the Company’s Chairman and Interim CEO. The rental payments under the Hialeah warehouse lease, which commenced February 1, 2009 and expired on January 31, 2012, were approximately $5,000 per month for the first year and were subsequently on a month-to-month basis following the expiration of the lease. The Company vacated the Hialeah warehouse in September 2014 and entered into a new lease with an unrelated third party. The Company did not record any rent expense related to the Hialeah lease for the years ended July 31, 2019 and 2018, respectively. At July 31, 2019 and 2018, approximately $0 and $115,000 in rent was payable under the previous Hialeah lease.
The Company is under common control with multiple entities and the existence of that control could result in operating results or financial position of each individual entity significantly different from those that would have been obtained if the entities were autonomous. One of those related parties, OPKO Health, Inc. (“OPKO”) and the Company are under common control and OPKO has a one percent ownership interest in the Company that OPKO has accounted for as an equity method investment due to the ability to significantly influence the Company.
10. COMMITMENTS AND CONTINGENCIES
Leases.
The Company was under an operating lease agreement for our corporate office space that expired in 2012. The lease currently continues on a month to month basis at no cost.
We housed our inventory in approximately 4,000 square feet of warehouse space in Pembroke Park, Florida. The lease commenced September 15, 2014 and originally expired on September 30, 2015 and we exercised our option to renew the lease and extended the expiration to September 15, 2017. Following the expiration, we have remained on a month-to-month term. On May 3, 2019 the Company exchanged inventory for forgiveness of $15,000 of accrued unpaid rent. The Company had previously written off the value of this inventory resulting in a gain on the forgiveness of approximately $15,000.
The Company no longer leases this Pembroke Park warehouse following the sale of inventory.
Product Development and Supply Agreement.
In September 2007, the Company entered into a Product Development and Supply Agreement (the “Agreement”) with Sing Lin Technologies Co. Ltd., a company based in Taichung, Taiwan (“Sing Lin”). Pursuant to the Agreement, the Company consigned to Sing Lin the development and design of the next generation Exer-Rest and related devices. The Agreement commenced as of September 3, 2007 and had a term that extended three years from the acceptance by NIMS of the first run of production units. Thereafter, the Agreement automatically renewed for successive one year terms unless either party sent the other a notice of non-renewal. Either party was permitted to terminate the Agreement with ninety days prior written notice. Upon termination, each party’s obligations under the Agreement were to be limited to obligations related to confirmed orders placed prior to the termination date.
Pursuant to the Agreement, Sing Lin designed, developed and manufactured the tooling required to manufacture the acceleration therapeutic platforms for a total cost to the Company of $471,000. Sing Lin utilized the tooling in the performance of its production obligations under the Agreement. The Company paid Sing Lin $150,000 of the tooling cost upon execution of the Agreement and $150,000 upon the Company’s approval of the product prototype concepts and designs. The balance of the final tooling cost became due and payable in September 2008 upon acceptance of the first units produced using the tooling, and was paid in full during the year ended July 31, 2009.
Under the now-terminated Agreement, the Company also granted Sing Lin the exclusive distribution rights for the products in certain countries in the Far East, including Taiwan, China, Japan, South Korea, Malaysia, Indonesia and certain other countries. Sing Lin agreed not to sell the Products outside its geographic areas in the Far East.
The Agreement provided for the Company to purchase approximately $2.6 million of Exer-Rest units within one year of the September 2008 acceptance of the final product. The Agreement further provided for the Company to purchase $4.1 million and $8.8 million of Exer-Rest products in the second and third years following such acceptance, respectively. These minimum purchase amounts were based upon 2007 product costs multiplied by volume commitments. Through July 31, 2019, the Company had paid Sing Lin $1.7 million in connection with orders placed through that date. As of July 31, 2019, the Company has approximately $41,000 of payables due to Sing Lin. As of July 31, 2019, aggregate minimum future purchases under the Agreement totaled approximately $13.9 million.
As of July 31, 2019, the Company had not placed orders sufficient to meet the first-year or second-year minimum purchase obligations under the Agreement. The Company notified Sing Lin in June 2010 that it was terminating the Agreement effective September 2010, and Sing Lin in July 2010 demanded that the Company place orders sufficient to fulfill the three year minimum purchase obligations in the Agreement. As of November 11, 2019, Sing Lin has not followed up on its July 2010 demand. There can be no assurance that Sing Lin will not attempt to enforce its remedies under the Agreement, or pursue other potential remedies. The Company believes that Sing Lin in no longer in business.
11. RISKS AND UNCERTAINTIES AND CONCENTRATIONS OF RISK
Financial instruments that potentially subject the Company to risk consist principally of purchases and advances to contract manufacturer.
12. ACCOUNTS PAYABLE AND ACCCRUED EXPENSES
Accounts payable and accrued expenses from continuing operations are summarized in the following table (in thousands):
13. INCOME TAXES
The Company accounts for income taxes using the asset and liability method, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The accounting for uncertain tax positions guidance under ASC 740 requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The application of this guidance does not affect the Company’s financial position, results of operations or cash flows for the years ended July 31, 2019 and 2018.
The Company files its tax returns in the U.S. federal jurisdiction, Canada federal jurisdiction and with various U.S. states and the Ontario province of Canada. The Company is subject to tax audits in all jurisdictions for which it files tax returns. Tax audits by their very nature are often complex and can require several years to complete. There are currently no tax audits that have commenced with respect to income tax or any other returns in any jurisdiction. Tax years ranging from 2015 to 2018 remain open to examination by various taxing jurisdictions as the statute of limitations has not expired. Because the Company is carrying forward income tax attributes, such as net operating losses and tax credits from 2014 and earlier tax years, these attributes can still be audited when utilized on returns filed in the future. It is the Company’s policy to include income tax interest and penalties expense in its tax provision.
On December 22, 2017, the “Tax Cuts and Jobs Act” (Tax Reform), was signed into law. In addition to changes or limitations to certain tax deductions, the Tax Cuts and Jobs Act permanently lowered the corporate tax rate to 21% from the existing maximum rate of 35%, effective for tax years commencing January 1, 2018. As a result of the reduction of the corporate tax rate to 21%, the Company reduced the amount of its net deferred tax assets by $2 million, with a corresponding decrease in the valuation allowance, which resulted in no net tax adjustment.
The difference between income taxes at the statutory federal income tax rate of 21% in 2019 and 2018 and income taxes reported in the consolidated comprehensive statements of operations are attributable to the following (in thousands):
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets consist of the following (in thousands):
At July 31, 2019, the Company had available Federal and State net operating loss carry forwards of approximately $16.4 million and foreign net operating loss carry forwards of approximately $0.1 million which expire in various years beginning in 2020. Net operating loss carry forwards generated in 2019 and later years never expire. However, these net operating losses can only be used to reduce taxable income by 80 percent. The net operating loss carry forwards may be subject to limitation due to change of ownership provisions under section 382 of the Internal Revenue Code and similar state provisions.
A valuation allowance is required to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a full $4.3 million valuation allowance at July 31, 2019 ($4.3 million at July 31, 2018) was necessary. The decrease in the valuation allowance for the years ended July 31, 2019 and 2018 were approximately $0.0 million and $1.9 million (which includes a reduction of $2.0 million resulting from the change in federal tax rate from Tax Reform), respectively. The Company paid no taxes for the years 2019 or 2018.
14. SUBSEQUENT EVENTS
Equity Exchange Agreement. On December 3, 2018, the Company entered into an Equity Exchange Agreement (the “Exchange Agreement”) with IRA Financial Trust Company, a South Dakota trust corporation, IRA Financial Group LLC, a Florida limited liability company, and their respective equity holders. The Company, IRA Financial and the equity holders subsequently amended the Exchange Agreement on three occasions to extend the outside date for consummation of the Exchange, with the last such extension expiring on July 3, 2019.
On August 4, 2019, IRA Financial Group delivered to the Company notice of termination of the Exchange Agreement pursuant to Section 8.01(b)(i) of that agreement due to the failure of the Exchange to have closed on or prior to the Outside Date. No termination fees, penalties or other amounts are payable by the Company in respect of such termination.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A(T).
Item 9A(T). Controls and Procedures.
The Company’s management, with the participation of its Interim Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e)) as of July 31, 2019. Based upon that evaluation, the Interim Chief Executive Officer and Chief Financial Officer concluded that, as of that date, the Company’s disclosure controls and procedures were effective as of the end of the period covered by this annual report.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
For the period ended July 31, 2019, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, management (with the participation of our principal executive officer and principal financial officer) conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that, as of July 31, 2019, our internal control over financial reporting was effective.
This annual report does not include an attestation report of our registered public accounting firm EisnerAmper LLP, regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the last quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
We believe that the combination of the respective qualifications, skills and experience of our directors contribute to an effective and well-functioning board and that, individually and as a whole, our directors possess the necessary qualifications to provide effective oversight of our business and quality advice to our management. Our directors are elected annually and serve until the next annual meeting of shareholders and until their successors are elected and appointed, or until his or her earlier resignation, removal from office or death. Information regarding the age, experience and qualifications of each director is set forth below.
Jane H. Hsiao, Ph.D., MBA. Dr. Hsiao has served as a Director and Chairman of the Board of Directors (the “Board”) of the Company since October 2008 and as Interim Chief Executive Officer since February 2012. Dr. Hsiao has served as Vice Chairman and Chief Technical Officer of OPKO Health, Inc. (“OPKO”), a specialty healthcare company, since May 2007 and as a director since February 2007. Dr. Hsiao served as the Vice Chairman - Technical Affairs of IVAX from 1995 to January 2006. Dr. Hsiao served as Chairman, Chief Executive Officer and President of IVAX Animal Health, IVAX’s veterinary products subsidiary, from 1998 to 2006. Dr. Hsiao is also a director of each of TransEnterix, Inc., a medical device company, Neovasc, Inc., a company developing and marketing medical specialty vascular devices, and Cocrystal Pharma, Inc., a biotechnology company developing antiviral therapeutics for human diseases. Dr. Hsiao previously served as a director for Sorrento Therapeutics, Inc., a development stage pharmaceutical company, PROLOR Biotech, Inc., prior to its acquisition by OPKO in August 2013, and as Chairman of the Board of SafeStitch Medical, Inc., a medical device company, prior to its merger with TransEnterix, Inc.
Dr. Hsiao’s background in medical device and pharmaceutical industry, as well as her senior management experience, allow her to play an integral role in overseeing our product development and regulatory affairs and in navigating the regulatory pathways for our products and product candidates. In addition, as a result of her role as director and/or chairman of other companies in the biotechnology and life sciences space, she also has a keen understanding and appreciation of the many regulatory and development issues confronting pharmaceutical and biotechnology companies.
Marvin A. Sackner, M.D. Dr. Sackner has served as a Director since he was first elected as our Chairman of the Board, Chief Executive Officer and Director in November 1989 and served as Chairman of the Board from November 1989 until October 2008. He served as our CEO from 1989 until 2002 and from December 2007 to February 2012. In 1977, Dr. Sackner co-founded Respitrace Corporation, a predecessor to the Company, and was the Chairman of its board of directors from 1981 until October 1989. Dr. Sackner served as a director of Continucare Corporation (“Continucare”), a provider of outpatient healthcare services, until October 2011. From 1974 until October 1991, Dr. Sackner was the Director of Medical Services at Mount Sinai in Miami Beach, Florida. From 1973 through 1996, he served as Professor of Medicine, University of Miami at Mount Sinai. Since 2004, he has been Voluntary Professor of Medicine, Leonard Miller Medical School of University of Miami. From 1979 to 1980, Dr. Sackner was the President of the American Thoracic Society. Dr. Sackner was the Chairman of the Pulmonary Disease Subspecialty Examining Board of the American Board of Internal Medicine from 1977 to 1980. In 2007, he was awarded an Honorary Doctorate Degree for “outstanding work in the entire field of pulmonology and sleep disorders,” by the University of Zurich (Switzerland). Dr. Sackner holds more than 30 U.S. patents and has published four books and more than 200 scientific papers.
Dr. Sackner’s experience as the Company’s former CEO, as a medical doctor and as the primary inventor of the Company’s products enables him to provide valuable board leadership and insight into the development of our products.
Steven D. Rubin. Mr. Rubin has served as a Director of the Company since October 2008. Mr. Rubin has served as Executive Vice President - Administration since May 2007 and as a director of the OPKO (NASDAQ: OPKO) since February 2007. Mr. Rubin currently serves on the board of directors of Red Violet, Inc. (NASDAQ CM:RDVT), a software and services company, Kidville, Inc. (OTCBB:KVIL), which operates large, upscale facilities, catering to newborns through five-year-old children and their families and offers a wide range of developmental classes for newborns to five-year-olds, Cocrystal Pharma, Inc. (NASDAQ GM:COCP), a publicly traded biotechnology company developing new treatments for viral diseases, Eloxx Pharmaceuticals, Inc. (OTC US:ELOX), a clinical stage biopharmaceutical company dedicated to treating patients suffering from rare and ultra-rare disease caused by premature termination codon nonsense mutations, Neovasc, Inc. (NASDAQ CM:NVCN), a company that develops and markets medical specialty vascular devices, and ChromaDex Corp. (NASDAQ CM:CDXC), a science-based, integrated nutraceutical company devoted to improving the way people age.
Mr. Rubin previously served as a director of VBI Vaccines, Inc. (NASDAQ CM:VBIV), a commercial-stage biopharmaceutical company which develops, produces and markets next generation of vaccines to address unmet needs in infectious disease and immuno-oncology, Castle Brands, Inc. (NYSE American:ROX), a developer and marketer of premium brand spirits, Cogint, Inc. (NASDAQ GM:COGT), an information solutions provider focused on the data-fusion market, prior to the spin-off of its data and analytics operations and assets into Red Violet, Inc., Sevion Therapeutics, Inc., prior to its merger with Eloxx Pharmaceuticals, Inc., Dreams, Inc. (NYSE American:DRJ), a vertically integrated sports licensing and products company, Safestitch Medical, Inc. prior to its merger with TransEnterix, Inc., SciVac Therapeutics, Inc. prior to its merger with VBI Vaccines, Inc., Tiger X Medical, Inc. prior to its merger with BioCardia, Inc., and PROLOR Biotech, Inc., prior to its acquisition by the OPKO in August 2013. Mr. Rubin also served as the Senior Vice President, General Counsel and Secretary of IVAX from August 2001 until September 2006.
Mr. Rubin brings extensive leadership, business, and legal experience, as well as tremendous knowledge of our business and the pharmaceutical industry generally, to the Board. He has advised pharmaceutical companies in several aspects of business, regulatory, transactional, and legal affairs for more than 25 years. His experience as a practicing lawyer, general counsel, management executive and board member to multiple public companies, including several pharmaceutical and life sciences companies, has given him broad understanding and expertise, particularly relating to strategic planning and acquisitions.
Subbarao V. Uppaluri, Ph.D. Dr. Uppaluri has served as a Director of the Company since October 2008. Dr. Uppaluri served as Senior Vice President and Chief Financial Officer of OPKO from May 2007 until July 2012 and as a consultant of OPKO until February 2014. Dr. Uppaluri is a member of The Frost Group. Dr. Uppaluri served as the Vice President, Strategic Planning and Treasurer of IVAX from 1997 until December 2006. Before joining IVAX, from 1987 to August 1996, Dr. Uppaluri was Senior Vice President, Senior Financial Officer and Chief Investment Officer with Intercontinental Bank, a publicly traded commercial bank in Florida. In addition, he served in various positions, including Senior Vice President, Chief Investment Officer and Controller, at Peninsula Federal Savings & Loan Association, a publicly traded Florida S&L, from October 1983 to 1987. His prior employment, during 1974 to 1983, included engineering, marketing and research positions with multinational companies and research institutes in India and the United States. Dr. Uppaluri previously served on the boards of OPKO, Winston Pharmaceuticals Inc., Ideation Acquisition Corp., Tiger X Medical, Inc. and Kidville.
Dr. Uppaluri brings extensive leadership, business, and accounting experience, as well as knowledge of our business and the pharmaceutical industry generally, to the Board. His experience as the former chief financial officer of OPKO and board member to multiple public companies, including several pharmaceutical and life sciences companies, has given him broad understanding and expertise, particularly relating to business, accounting and finance matters.
Dr. Morton Robinson, a director of the Company, passed away on May 21, 2019.
Identification of Executive Officers
The following individuals are our executive officers:
Name
Age
Position
Jane H. Hsiao, Ph.D., MBA
Interim Chief Executive Officer and Director
James J. Martin, CPA, MBA
Chief Financial Officer and Treasurer
Each of our officers serves until the earlier of her or his resignation, removal by the Board or death.
Biographical information for Jane H. Hsiao is set forth above.
James J. Martin. Mr. Martin, has served as our Chief Financial Officer since January 2011, and, from July 2010 through January 2011, he served as our Controller. Since February 2017, Mr. Martin has served as the Chief Financial Officer of Cocrystal Pharma, Inc (NASDAQ: COCP), a clinical stage biotechnology company. From January 2011 to October 2, 2013, Mr. Martin served as Chief Financial Officer of SafeStitch prior to its merger with TransEnterix, Inc. Since September 2014 Mr. Martin has served as Chief Financial Officer of VBI Vaccines Inc. (formerly SciVac Therapeutics, Inc.) (NASDAQ: VBIV), pharmaceutical development and manufacturing company. From April 2014 to September 2015, Mr. Martin served as Chief Financial Officer of Vapor Corp, Inc. (NASDAQ: VPCO), a vaporizer retail and wholesale company. From July 2010 through January 2011, Mr. Martin served as Controller of each of SafeStitch and Aero Pharmaceuticals, Inc. (“Aero”). Prior to joining NIMS, from 2008 through 2010, Mr. Martin served as Controller of AAR Aircraft Services-Miami, a subsidiary of AAR Corp, an aerospace and defense company at which he was responsible for all financial reporting and logistics for AAR Aircraft Services-Miami. From 2005-2008, Mr. Martin served as Controller of Avborne Heavy Maintenance, a commercial aircraft maintenance repair and overhaul company. Mr. Martin previously has served as Vice President of Finance of Aero, a privately held pharmaceutical distributor.
Section 16(a) Beneficial Ownership Reporting Compliance
Under section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s directors, executive officers and persons who own more than ten percent (10%) of our common stock are required to file with the Securities and Exchange Commission (the “SEC”) initial reports of ownership and reports of changes in ownership of the common stock and other equity securities of the Company. To the Company’s knowledge, based solely on a review of copies of such reports furnished to the Company during and/or with respect to Fiscal 2018, the Company is not aware of any late or delinquent filings required under Section 16(a) of the Exchange Act in respect of the Company’s common stock or other equity securities.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer and other persons performing similar functions. A copy of our Code of Business Conduct and Ethics is available on our website at www.nims-inc.com. We intend to post amendments to, or waivers from a provision of, our Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer or persons performing similar functions on our website. Neither our website nor any information contained or linked therein constitutes a part of this report.
Audit Committee
We have a separately-designated standing audit committee, established in accordance with section 3(a)(58)(A) of the Exchange Act. The Audit Committee is composed of the following non-employee directors: Dr. Subbarao V. Uppaluri, Chairman and Steven D. Rubin. Our Board has determined that Dr. Uppaluri is an independent audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.
Item 11.
Item 11. Executive Compensation.
Summary Compensation Table
The following table summarizes the compensation information for the years ended July 31, 2019 and 2018 for our principal executive officer and each of the two most highly compensated executive officers receiving compensation in excess of $100,000 in any such fiscal year. We refer to these persons as our named executive officers.
SUMMARY COMPENSATION TABLE
1. Dr. Hsiao receives no salary from the Company and does not have any outstanding stock option awards.
Outstanding Equity Awards as of July 31, 2019
The following table sets forth information with respect to outstanding option awards as of July 31, 2019 for our named executive officers(“NEO”). Our NEO’s do not have any outstanding stock options. We did not grant any stock awards in Fiscal 2019 or 2018.
Risk Considerations in our Compensation Programs
We have reviewed our compensation structures and policies as they pertain to risk and have determined that our compensation programs do not create or encourage the taking of risks that are reasonably likely to have a material adverse effect on the Company.
We did not grant any stock awards in the year ended July 31, 2019 and we did not have any outstanding. As of July 31, 2019, the aggregate number of outstanding stock options (both exercisable and unexercisable) for each non-employee director was as follows:
Director Compensation
For the year ended July 31, 2019, our Directors did not receive any compensation for their respective service on our Board or any committee thereof. Our Directors do not have any outstanding stock options.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of October 18, 2019 concerning the beneficial ownership of our voting stock by (i) each person known by us to be the beneficial owner of more than 5% of the outstanding shares of each class of voting stock, (ii) each of our directors, (iii) each current named executive officer, and (iv) all of our current named executive officers and directors as a group. Unless otherwise noted, all holders listed below have sole voting power and investment power over the shares beneficially owned by them, except to the extent such power may be shared with such person’s spouse.
* Less than 1%
(1) The mailing address of each 5% beneficial holder listed is 4400 Biscayne Blvd., Miami, Florida 33137.
(2) A person is deemed to be the beneficial owner of common stock and preferred stock that can be acquired by such person within 60 days from July 31, 2019 upon exercise of option and warrants, or through the conversion of convertible preferred stock.
(3) Based on 154,810,655 shares of common stock issued and outstanding as of July 31, 2019. Each beneficial owner’s percentage ownership is determined by assuming that options and warrants that are held by such person (but not those held by any other person) and that are exercisable within 60 days from the date hereof have been exercised and that any convertible secured stock held by such person (but no other person) has been converted into common stock.
(4) Common stock holdings include 24,553,660 shares of common stock held by Hsu Gamma Investments, L.P. and 2,150,000 common stock held by Chin Hsiung Hsiao Family Trust A. Dr. Jane Hsiao is trustee of the Chin Hsiung Hsiao Family Trust A. and Dr. Jane Hsiao is the general partner of Hsu Gamma Investments, L.P.
(5) Includes beneficial ownership of shares held by Frost Gamma Investments Trust.
(6) Dr. Phillip Frost is the trustee and Frost Gamma, Limited Partnership is the sole and exclusive beneficiary of Frost Gamma Investments Trust. Dr. Frost is one of two limited partners of Frost Gamma, Limited Partnership. The general partner of Frost Gamma Limited Partnership is Frost Gamma Inc. and the sole shareholder of Frost Gamma, Inc. is Frost-Nevada Corporation. Dr. Frost is also the sole shareholder of Frost-Nevada Corporation.
(7) Dr. Jane Hsiao is the general partner of Hsu Gamma Investments, L.P.
(8) Common stock holdings include 1,387,916 shares held directly, 166,200 shares held in a retirement account for the benefit of Richard J. Rosenstock, 10,000 shares held by Mr. Rosenstock’s spouse, 3,200,000 shares owned by Mr. Rosenstock’s spouse as trustee for Mr. Rosenstock’s spouse, 65,900 shares owned in an IRA for the benefit of Mr. Rosenstock’s spouse, 65,000 shares owned in an IRA for the benefit of Mr. Rosenstock and 640,540 shares owned by the Rosenstock Family partnership. Based on Schedule 13G/A filing on May 26, 2015.
Equity Compensation Plan Information
A majority of our shareholders approved the Non-Invasive Monitoring Systems, Inc. 2011 Equity Incentive Plan (the “2011 Plan”) on March 16, 2012. We have reserved a total of 4,000,000 shares of our common stock for issuance under this plan, subject to adjustment for stock splits or any future stock dividends or other similar changes in our common stock or our capital structure. As of July 31, 2019, no options have been granted under the 2011 Plan. A more detailed summary of the 2000 Plan is contained in Note 5 to our consolidated financial statements set forth herein under Item 8 of this Annual Report on Form 10-K. The following table provides information about our equity compensation plans as of July 31, 2019:
(1) Non-Invasive Monitoring Systems, Inc. 2011 Stock Option Plans. The 2011 Plan authorizes up to 4,000,000 shares of our common stock. No options have been granted under the 2011 Stock Option Plan.
(2) There are no outstanding options that were not granted under shareholder approved plans.
In November 2010, our Board and Compensation Committee approved the Non-Invasive Monitoring Systems, Inc. 2011 Stock Incentive Plan (the “2011 Plan”). Awards granted under the 2011 Plan may consist of incentive stock options, stock appreciation rights (SAR), restricted stock grants, restricted stock units (RSU) performance shares, performance units or cash awards. The 2011 Plan authorizes up to 4,000,000 shares of our common stock for issuance pursuant to the terms of the 2011 Plan. The 2011 Plan was approved by our shareholders in March 2012 and no awards have been granted under the 2011 Plan as of July 31, 2018.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our principal corporate office is located at 4400 Biscayne Blvd., Suite 180, Miami, Florida. We rent this space from Frost Real Estate Holdings, LLC, a company controlled by Dr. Phillip Frost, who is the beneficial owner of more than 10% of our common stock. We currently lease approximately 1,800 square feet under the lease agreement, which had a five-year term that began on January 1, 2008. The lease required annual rent of approximately $56,000, and increased by approximately 4.5% per year. The lease expired on December 31, 2012 and we had been renting on a month-to-month basis at approximately $1,250 per month. In February 2016 the office space rent was reduced to $0 per month.
Dr. Hsiao, Dr. Frost and directors Steven Rubin and Rao Uppaluri are each stockholders, current or former officers and/or directors or former directors of TransEnterix, Inc. (formerly SafeStitch Medical, Inc.) (“TransEnterix”), a publicly-traded medical device company. The Company’s Chief Financial Officer also served as the Chief Financial Officer of TransEnterix until October 2, 2013. The Company’s Chief Financial Officer continued as an employee of TransEnterix until March 3, 2014, during which he supervised the Miami based accounting staff of TransEnterix under a cost sharing arrangement whereby the total salaries of the Miami based accounting staff was shared by the Company and TransEnterix. The Chief Financial Officer continues to serve as the Chief Financial Officer of Cocrytal Pharma, Inc., a clinical stage biotechnology company, and in which Steve Rubin and Jane Hsiao, serve on the Board. Since December 2009, the Company’s Chief Legal Officer has served under a similar cost sharing arrangement as the Chief Legal Officer of TransEnterix. The Company recorded additions to general and administrative costs and expenses to account for the sharing of costs under these arrangements of $5,000 and $5,000 for the years ended July 31, 2019 and 2018, respectively. Aggregate accounts payable to TransEnterix totaled approximately $1,600 and $800 at July 31, 2019 and 2018, respectively.
The Company entered into various notes payable with related parties from 2010 to 2018 with an aggregate principal total of $2,175,000 and with an unrelated third party for $50,000 for total principal amount of $2,225,000. The interest rate was 11% and the maturity date was July 31, 2020. The Company could prepay these notes in advance of the maturity date without premium or penalty.
On December 21, 2018, the Company issued 50,584,413 shares of Common Stock in exchange for the extinguishment of debt and related accrued interest totaling approximately $3,541,000. The Company incurred interest expense related to the Credit Facility and notes payable of $93,000 and $220,000 for the year ended July 31, 2019 and 2018, respectively.
Director Independence
The Board of Directors, in the exercise of its reasonable business judgment, has determined that each of the Company’s directors qualifies as an independent director pursuant to Nasdaq Stock Market Rule 5605(a)(2) and applicable SEC rules and regulations, with the exception of Dr. Marvin Sackner, who previously was employed as the Company’s CEO. Dr. Subbarao V. Uppaluri and Steven D. Rubin comprise our Audit Committee, and each such person is “independent” for audit committee purposes as defined by the more stringent standard contained in Nasdaq Stock Market Rule 5605(c)(2).
Item 14.
Item 14. Principal Accountant Fees and Services.
Principal Accountant
EisnerAmper LLP (“EisnerAmper”) had served as our independent registered public accounting firm since October 4, 2018.
Fees and Services
The following table sets forth the total fees billed to us by EisnerAmper for its audit of our consolidated annual financial statements and other services for the years ended July 31, 2019 and 2018.
Pre-Approval Policies and Procedures
Our Audit Committee has a policy in place that requires its review and pre-approval of all audit and permissible non-audit services provided by our independent auditors. The services requiring pre-approval by the audit committee may include audit services, audit related services, tax services and other services. The pre-approval requirement is waived with respect to the provision of non-audit services if (i) the aggregate amount of all such non-audit services provided to us constitutes not more than 5% of the total fees paid by us to our independent auditors during the fiscal year in which such non-audit services were provided, (ii) such services were not recognized at the time of the engagement to be non-audit services, and (iii) such services are promptly brought to the attention of the Audit Committee or by one or more of its members to whom authority to grant such approvals has been delegated by the Audit Committee. During fiscal 2019 and 2018, 100% of the audit related services, tax services and all other services provided by EisnerAmper for the periods as our principal independent registered public accountant were pre-approved by the Audit Committee.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
(a) List of documents filed as part of this report:
1. Financial Statements: The information required by this item is contained in Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules: The information required by this item is included in the consolidated financial statements contained in Item 8 of this Annual Report on Form 10-K.
3. Exhibits: See Index to Exhibits.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Jane H. Hsiao, Ph.D.
Interim Chief Executive Officer and Chairman of the
November 13, 2019
Jane H. Hsiao, Ph.D.
Board of Directors (Principal Executive Officer)
/s/ Marvin A. Sackner, M.D
Director
November 13, 2019
Marvin A. Sackner, M.D
/s/ Steven D. Rubin
Director
November 13, 2019
Steven D. Rubin
/s/ Subbarao V. Uppaluri
Director
November 13, 2019
Subbarao Uppaluri
/s/ James J. Martin
Chief Financial Officer (Principal Financial Officer)
November 13, 2019
James J. Martin
INDEX TO EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.
Exhibit No.
Description of Exhibits
3.1
Articles of Incorporation, as amended (Incorporated by Reference from Exhibit 3.1 to Form 8-K filed on April 8, 2008)
3.2
Articles of Amendment to Articles of Incorporation (Incorporated by Reference from Exhibit 3.1 to Form 8-K filed on December 3, 2008)
3.3
Articles of Amendment to Articles of Incorporation (Incorporated by Reference from Exhibit 3.3 to Form 10-Q filed on March 17, 2010)
3.4
By-Laws, as amended (Incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on December 15, 2009)
3.5
Articles of Amendment to Articles of Incorporation (incorporated by Reference from Annex A to Schedule 14C filed on April 3, 2012).
10.1
License Agreement dated as of May 22, 1996 between the Company and SensorMedics Corporation (Incorporated by reference from Exhibit 10.1 to Form 10-KSB/A filed on April 22, 2008)
10.2
Letter of Agreement dated April 21, 1999 between the Company and SensorMedics Corporation (Incorporated by reference from Exhibit 10.2 to Form 10-KSB/A filed on April 22, 2008)
10.3
Agreement Regarding Assignment of Patents and Intellectual Property dated August 14, 2000 between the Company and LifeShirt.com, Inc. (Incorporated by reference from Exhibit 10.3 to Form 10-KSB/A filed on April 22, 2008)
10.4
Amendment to Agreement Regarding Assignment of Patents and Intellectual Property dated December 23, 2000 between the Company and LifeShirt.com, Inc. (Incorporated by reference from Exhibit 10.4 to Form 10-KSB/A filed on April 22, 2008)
10.5
Form of Preferred Stock Purchase Agreements dated as of December 1 and 2, 2008 between the Company and the Investors named therein (Incorporated by reference from Exhibit 10.1 to Form 8-K filed on December 3, 2008)
10.6
Preferred Stock Purchase Agreement dated as of January 29, 2009 between the Company and the Investors named therein (Incorporated by reference from Exhibit 10.1 to Form 8-K filed on April 8, 2008)
10.7
Product Development and Supply Agreement executed September 4, 2007 between Sing Lin Technologies Ltd and the Company (Incorporated by reference from Exhibit 10.1 to Form 10-QSB/A filed on April 22, 2008) (Confidentiality Treatment has been granted for portions of this Exhibit)
10.8
Note and Security Agreement dated as of August 28, 2008 between the Company and various lenders (incorporated by reference from Exhibit 10.1 to Form 8-K filed on September 12, 2008)
10.12
Stock Option Plan (Incorporated by reference from the Company’s Information Statement on Schedule 14C filed on April 5, 2001)(SEC Accession No. 0000950170-01-000484)
10.13
Lease Agreement dated January 1, 2008 between the Registrant and Frost Real Estate Holdings, LLC (incorporated by reference from Exhibit 10.17 to Form 10-K filed on October 29, 2009).
10.14
Lease Agreement dated February 1, 2009 between the Registrant and Hialeah Warehouse Holdings, LLC (incorporated by reference from Exhibit 10.18 to Form 10-K filed on October 29, 2009).
10.15
First Amendment to Letter of Agreement, dated as of April 21, 2009 between the Registrant and Cardinal Health 211, Inc. (as successor in interest to SensorMedics Corporation)(incorporated by reference from Exhibit 10.1 to Form 8-K filed on June 9, 2009).
10.16
Note and Security Agreement dated as of March 31, 2010 between the Company and Frost Gamma Investments Trust and Hsu Gamma Investments, L.P. (incorporated by reference from Exhibit 10.1 to Form 8-K filed on April 6, 2010).
10.17
First Amendment Dated March 14, 2011 Note and Security Agreement dated as of March 31, 2010 between the Company and Frost Gamma Investments Trust and Hsu Gamma Investments, L.P. (incorporated by reference from Exhibit 10.1 to Form 8-K filed on March 18, 2011).
10.18
Second Amendment Dated July 29, 2011 Note and Security Agreement dated as of March 31, 2010 between the Company and Frost Gamma Investments Trust and Hsu Gamma Investments, L.P. (incorporated by reference from Exhibit 10.1 to Form 8-K filed on August 04, 2011).
10.19
Promissory Note Dated September 12, 2011 between the Company and Frost Gamma Investments Trust (incorporated by reference from Exhibit 10.1 to Form 8-K filed on September 16, 2011).
10.20
Promissory Note Dated September 12, 2011 between the Company and Marie Wolf (incorporated by reference from Exhibit 10.2 to Form 8-K filed on September 16, 2011).
10.21
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Hsu Gamma Investments, L.P. dated May 30, 2012 (incorporated by reference from Exhibit 10.1 to Form 8-K filed on June 5, 2012).
10.22
Third Amendment dated May 30, 2012 to Note and Security Agreement dated as of March 31, 2010 between Non-Invasive Monitoring Systems, Inc. and Frost Gamma Investment Trust and Hsu Gamma Investments, L.P. (incorporated by reference from Exhibit 10.2 to Form 8-K filed on June 5, 2012).
10.23
Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to Form 10-Q filed on June 14, 2012).
10.24
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Jane Hsiao dated February 22, 2013 (incorporated by reference from Exhibit 10.1 to Form 8-K filed on February 28, 2013).
10.25
Form of Stock Purchase Agreements dated as of April 8, 2013 between the Company and the Investors named therein (Incorporated by reference from Exhibit 10.1 to Form 8-K filed on April 10, 2013).
10.26
Fourth Amendment dated April 8, 2013 to Note and Security Agreement dated as of March 31, 2010 between Non-Invasive Monitoring Systems, Inc. and Frost Gamma Investment Trust and Hsu Gamma Investments, L.P. (incorporated by reference from Exhibit 10.2 to Form 8-K filed on April 10, 2013).
10.27
First Amendment dated July 31, 2013 to Promissory Note dated September 12, 2011 between the Company and Marie Wolf (incorporated by reference from Exhibit 10.1 to Form 8-K filed on August 6, 2013).
10.28
First Amendment dated July 31, 2013 to Promissory Note dated September 12, 2011 between the Company and Frost Gamma Investments Trust (incorporated by reference from Exhibit 10.2 to Form 8-K filed on August 6, 2013).
10.29
First Amendment dated July 31, 2013 to Promissory Note dated May 30, 2012 between the Company and Hsu Gamma Investments, L.P. (incorporated by reference from Exhibit 10.3 to Form 8-K filed on August 6, 2013).
10.30
First Amendment dated July 31, 2013 to Promissory Note dated February 22, 2013 between the Company and Jane Hsiao (incorporated by reference from Exhibit 10.4 to Form 8-K filed on August 6, 2013).
10.31
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Jane Hsiao, dated September 24, 2014 (incorporated by reference from Exhibit 10.1 to Form 8-K filed September 26, 2014).
10.32
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Jane Hsiao, dated February 2, 2015 (incorporated by reference from Exhibit 10.1 to Form 8-K filed February 4, 2015).
10.33
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated April 16, 2015 (incorporated by reference from Exhibit 10.1 to Form 8-K filed April 20, 2015).
10.34
Fifth Amendment dated July 27, 2015 to Note and Security Agreement of Non-Invasive Monitoring Systems, Inc. in favor of HSU Gamma Investments, L.P. and Frost Gamma Investments Trust, dated March 31, 2010 (incorporated by reference from Exhibit 10.1 to Form 8-K filed July 30, 2015).
10.35
Second Amendment dated July 27, 2015 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Marie Wolf, dated September 12, 2011(incorporated by reference from Exhibit 10.2 to Form 8-K filed July 30, 2015).
10.36
Second Amendment dated July 27, 2015 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor or Frost Gamma Investments Trust, dated September 12, 2011 (incorporated by reference from Exhibit 10.3 to Form 8-K filed July 30, 2015
10.37
Second Amendment dated July 27, 2015 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Hsu Gamma Investments, L.P., dated May 30, 2012 (incorporated by reference from Exhibit 10.4 to Form 8-K filed July 30, 2015).
10.38
Second Amendment dated July 27, 2015 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Dr. Hsiao, dated February 22, 2013 (incorporated by reference from Exhibit 10.5 to Form 8-K filed July 30, 2015).
10.39
First Amendment dated July 27, 2015 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Dr. Hsiao, dated September 24, 2014 (incorporated by reference from Exhibit 10.6 to Form 8-K filed July 30, 2015).
10.40
First Amendment dated July 27, 2015 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Dr. Hsiao, dated February 2, 2015 (incorporated by reference from Exhibit 10.7 to Form 8-K filed July 30, 2015).
10.41
First Amendment dated July 27, 2015 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated April 16, 2015 (incorporated by reference from Exhibit 10.8 to Form 8-K filed July 30, 2015).
10.42
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated August 12, 2015 (incorporated by reference from Exhibit 10.1 to Form 8-K filed on August 14, 2015).
10.43
Non-Invasive Monitoring Systems, Inc. Promissory Note in Favor of Frost Gamma Investments Trust dated October 27, 2015 (incorporated by reference from Exhibit 10.1 to Form 8-K filed October 30, 2015).
10.44
Non-Invasive Monitoring Systems, Inc. Promissory Note in Favor of Jane Hsiao dated October 27, 2015 (incorporated by reference from Exhibit 10.2 to Form 8-K filed October 30, 2015).
10.45
Non-Invasive Monitoring Systems, Inc. Promissory Note in Favor of Frost Gamma Investments Trust dated June 1, 2016 (incorporated by reference from Exhibit 10.1 to Form 8-K filed June 3, 2016).
10.46
Non-Invasive Monitoring Systems, Inc. Promissory Note in Favor of Hsu Gamma Investments, L.P. dated June 1, 2016 (incorporated by reference from Exhibit 10.2 to Form 8-K filed June 3, 2016).
10.47
Non-Invasive Monitoring Systems, Inc. Promissory Note in Favor of Frost Gamma Investments Trust dated April 6, 2017, 2016 (incorporated by reference from Exhibit 10.1 to Form 8-K filed April 10, 2017).
10.48
Non-Invasive Monitoring Systems, Inc. Promissory Note in favor of Hsu Gamma Investments, L.P. dated April 6, 2017 (incorporated by reference from Exhibit 10.2 to Form 8-K filed April 10, 2017).
10.49
Sixth Amendment dated July 20, 2017 to Note and Security Agreement of Non-Invasive Monitoring Systems, Inc. in favor of HSU Gamma Investments, L.P. and Frost Gamma Investments Trust, dated March 31, 2010 (incorporated by reference from Exhibit 10.1 to Form 8-K filed July 26, 2017).
10.50
Third Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated September 12, 2011 (incorporated by reference from Exhibit 10.2 to Form 8-K filed July 26, 2017).
10.51
Third Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Marie Wolf, dated September 12, 2011 (incorporated by reference from Exhibit 10.3 to Form 8-K filed July 26, 2017).
10.52
Third Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Hsu Gamma Investments, L.P., dated May 30, 2012 (incorporated by reference from Exhibit 10.4 to Form 8-K filed July 26, 2017).
10.53
Third Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Dr. Jane Hsiao, dated February 22, 2013 (incorporated by reference from Exhibit 10.5 to Form 8-K filed July 26, 2017).
10.54
Second Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Dr. Jane Hsiao, dated September 24, 2014 (incorporated by reference from Exhibit 10.6 to Form 8-K filed July 26, 2017).
10.55
Second Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Dr. Jane Hsiao, dated February 2, 2015 (incorporated by reference from Exhibit 10.7 to Form 8-K filed July 26, 2017).
10.56
Second Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated April 16, 2015 (incorporated by reference from Exhibit 10.8 to Form 8-K filed July 26, 2017).
10.57
First Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated August 12, 2015 (incorporated by reference from Exhibit 10.9 to Form 8-K filed July 26, 2017).
10.58
First Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated October 27, 2015 (incorporated by reference from Exhibit 10.10 to Form 8-K filed July 26, 2017).
10.59
First Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Dr. Jane Hsiao, dated October 27, 2015 (incorporated by reference from Exhibit 10.11 to Form 8-K filed July 26, 2017).
10.60
First Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated June 1, 2016 (incorporated by reference from Exhibit 10.12 to Form 8-K filed July 26, 2017).
10.61
First Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Hsu Gamma Investments, L.P., dated June 1, 2016 (incorporated by reference from Exhibit 10.13 to Form 8-K filed July 26, 2017).
10.62
First Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated April 6, 2017 (incorporated by reference from Exhibit 10.14 to Form 8-K filed July 26, 2017).
10.63
First Amendment dated July 20, 2017 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Hsu Gamma Investments, L.P., dated April 6, 2017 (incorporated by reference from Exhibit 10.15 to Form 8-K filed July 26, 2017).
10.64
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust dated September 22, 2017 (incorporated by reference from Exhibit 10.1 to Form 8-K filed September 27, 2017).
10.65
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Jane Hsiao, dated September 22, 2017 (incorporated by reference from Exhibit 10.2 to Form 8-K filed September 27, 2017).
10.67
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust dated February 15, 2018 (incorporated by reference from Exhibit 10.1 to Form 8-K filed February 20, 2018).
10.68
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Hsu Gamma Investments, L.P. dated February 15, 2018 (incorporated by reference from Exhibit 10.2 to Form 8-K filed February 20, 2018).
10.69
Seventh Amendment dated July 27, 2018 to Note and Security Agreement of Non-Invasive Monitoring Systems, Inc. in favor of HSU Gamma Investments, L.P. and Frost Gamma Investments Trust, dated March 31, 2010 (incorporated by reference from Exhibit 10.1 to Form 8-K filed August 2, 2018).
10.70
Fourth Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated September 12, 2011 (incorporated by reference from Exhibit 10.2 to Form 8-K filed August 2, 2018).
10.71
Fourth Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Marie Wolf, dated September 12, 2011 (incorporated by reference from Exhibit 10.3 to Form 8-K filed August 2, 2018).
10.72
Fourth Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Hsu Gamma Investments, L.P., dated May 30, 2012 (incorporated by reference from Exhibit 10.4 to Form 8-K filed August 2, 2018).
10.73
Fourth Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Dr. Jane Hsiao, dated February 22, 2013 (incorporated by reference from Exhibit 10.5 to Form 8-K filed August 2, 2018).
10.74
Third Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Dr. Jane Hsiao, dated September 24, 2014 (incorporated by reference from Exhibit 10.6 to Form 8-K filed August 2, 2018).
10.75
Third Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Dr. Jane Hsiao, dated February 2, 2015 (incorporated by reference from Exhibit 10.7 to Form 8-K filed August 2, 2018).
10.76
Third Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated April 16, 2015 (incorporated by reference from Exhibit 10.8 to Form 8-K filed August 2, 2018).
10.77
Second Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated August 12, 2015 (incorporated by reference from Exhibit 10.9 to Form 8-K filed August 2, 2018).
10.78
Second Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated October 27, 2015 (incorporated by reference from Exhibit 10.10 to Form 8-K filed August 2, 2018).
10.79
Second Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Dr. Jane Hsiao, dated October 27, 2015 (incorporated by reference from Exhibit 10.11 to Form 8-K filed August 2, 2018).
10.80
Second Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated June 1, 2016 (incorporated by reference from Exhibit 10.12 to Form 8-K filed August 2, 2018).
10.81
Second Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Dr. Jane Hsiao, dated June 1, 2016 (incorporated by reference from Exhibit 10.13 to Form 8-K filed August 2, 2018).
10.82
Second Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated April 6, 2017 (incorporated by reference from Exhibit 10.14 to Form 8-K filed August 2, 2018).
10.83
Second Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Hsu Gamma Investments, L.P., dated April 6, 2017 (incorporated by reference from Exhibit 10.15 to Form 8-K filed August 2, 2018).
10.84
First Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated September 22, 2017 (incorporated by reference from Exhibit 10.16 to Form 8-K filed August 2, 2018).
10.85
First Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Dr. Jane Hsiao, dated September 22, 2017 (incorporated by reference from Exhibit 10.17 to Form 8-K filed August 2, 2018).
10.86
First Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust, dated February 15, 2018 (incorporated by reference from Exhibit 10.18 to Form 8-K filed August 2, 2018).
10.87
First Amendment dated July 27, 2018 to Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Hsu Gamma Investments, L.P., dated February 15, 2018 (incorporated by reference from Exhibit 10.19 to Form 8-K filed August 2, 2018).
10.88
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Frost Gamma Investments Trust dated November 16, 2018 (incorporated by reference from Exhibit 10.1 to Form 8-K filed November 20, 2018).
10.89
Promissory Note of Non-Invasive Monitoring Systems, Inc. in favor of Jane Hsiao, Ph.D., dated November 16, 2018 (incorporated by reference from Exhibit 10.2 to Form 8-K filed November 20, 2018).
10.90
Form of Lock-Up and Voting Agreement (incorporated by reference from Exhibit 10.1 to Form 8-K filed December 4, 2018).
10.91
Form of Stock Purchase Agreement, dated December 21, 2018 (incorporated by reference from Exhibit 10.1 to Form 8-K filed December 28, 2018).
10.92
Debt Exchange Agreement, dated December 21, 2018, by and among the Company and the Creditors (incorporated by reference from Exhibit 10.1 to Form 8-K filed December 28, 2018).
14.1
Code of Ethics (incorporated by reference from Exhibit 14.1 to Form 10-K filed on October 29, 2009).
21.1 * Subsidiaries of the Company
31.1 * Certification of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
31.2 * Certification of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
32.1 * Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 * Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Filed herewith