NON INVASIVE MONITORING SYSTEMS INC /FL/ - Annual Report: 2010 (Form 10-K)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
| þ | Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For the fiscal year ended July 31, 2010
OR
| o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission
File Number 0-13176
NON-INVASIVE MONITORING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| Florida | 59-2007840 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 4400 Biscayne Blvd., Suite 180, Miami, Florida, | 33137 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (305) 575-4200
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common stock, $0.01 par value per share
(Title of Class)
(Title of Class)
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o
Indicate by check mark whether the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. o
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to
the filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
month (or for such shorter period that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act) Yes o No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the average bid and asked price of such common equity, as of January
31, 2010 was: $17.9 million
As of
October 15, 2010 there were 68,903,165 shares of common stock, $0.01 par value
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
| Document | Where Incorporated | |
| Proxy Statement for the 2011 Annual Meeting of Shareholders | Part III of this Form 10-K |
NON-INVASIVE MONITORING SYSTEMS, INC.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of
1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended, (the “Exchange Act”), 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 described 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 and our other filings with the Securities and Exchange Commission (“SEC”). We
do not undertake any obligation to update forward-looking statements, except as required by
applicable law. We intend that all forward-looking statements be subject to the safe harbor
provisions of the PSLRA. These forward-looking statements are only predictions and reflect our
views as of the date they are made with respect to future events and financial performance.
Risks and uncertainties, the occurrence of which could adversely affect our business, include
the following:
| • | We have a history of operating losses, we do not expect to become profitable in the near
future and absent a significant increase in revenue or additional equity or debt financing,
we may be unable to continue as a going concern. |
| • | We will likely require additional funding, which may not be available to us on
acceptable terms, or at all. In addition, we may need to amend our Articles of
Incorporation to increase our number of authorized shares of common stock. |
| • | We terminated the Product and Supply Agreement with Sing Lin and may potentially be
obligated to pay amounts under the agreement. |
| • | We rely on third parties to manufacture and supply our products, and we presently have
no agreement with any third party to manufacture and supply our products. |
| • | The current worldwide economic crisis and concurrent market instability may materially
and adversely affect the demand for our products, as well as our ability to obtain credit
or secure funds through sales of our stock, which may materially and adversely affect our
business, financial condition and ability to fund our operations. |
| • | Healthcare policy changes, including recent reforms to the U.S. healthcare system, may
have a material adverse effect on us. |
| • | The terms of clearances or approvals and ongoing regulation of our products may limit
how we manufacture and market our products, which could materially impair our ability to
generate anticipated revenues. |
| • | Our competitors may develop and market products that are more effective, safer or less
expensive than our products, negatively impacting our commercial opportunities. |
| • | If we are unable to obtain and enforce patent protection for our products, our business
could be materially harmed. |
| • | If we are unable to protect the confidentiality of our proprietary information and
know-how, the value of our technology and products could be adversely affected. |
| • | Our commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third parties. |
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| • | 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 or be required to stop our product development and commercialization
efforts. |
| • | Failure to obtain regulatory approval outside the United States will prevent us from
marketing our products abroad. |
| • | Non-U.S. governments often impose strict price controls, which may adversely affect our
future profitability. |
| • | Our business is subject to economic, political, regulatory and other risks associated
with international operations. |
| • | We do not anticipate paying dividends on our common stock in the foreseeable future. |
| • | 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 stock price has been volatile and there may not be an active, liquid trading market
for our common stock. |
| • | Our quarterly results of operations will fluctuate, and these fluctuations could cause
our stock price to decline. |
| • | Shareholders may experience dilution of ownership interests because of the future
issuance of additional shares of our common stock and our preferred stock. |
* * * * *
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PART I
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) 575-4200. The Company’s primary business is the research,
development, manufacturing and marketing of a line of motorized, non-invasive, whole body, periodic
acceleration platforms, which are intended as aids to improve circulation and joint mobility,
relieve minor aches and pains, relieve morning stiffness, relieve troubled sleep and as mechanical
feedback devices for slow rhythmic breathing exercise for stress management. Our current products
are derivatives of our original acceleration platform, the AT-101, (described below), and are
intended for use in homes, wellness centers and clinics. In addition, we receive royalty revenue
from the sales of non-invasive diagnostic monitoring devices and related software utilizing our
intellectual property.
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. We assigned our
patents for these ambulatory monitoring devices in 1999 to the SensorMedics Division of ViaSys
(which is now a unit of CareFusion Corporation (“SensorMedics”)), and to privately-held
VivoMetrics, Inc. (“VivoMetrics”), both of which are required to pay us royalties on sales of these
products. We continue to receive royalties from SensorMedics; however, VivoMetrics ceased
operations in July 2009, filed for Chapter 11 bankruptcy protection in October 2009 and has not
paid royalties since July 2009. Under VivoMetrics’ proposed bankruptcy plan of reorganization, our
license with VivoMetrics will be assigned to another company; however, there can be no assurance as
to the future amount of royalty revenue, if any, that we may derive from this license or from our
existing license with SensorMedics.
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 for use in homes, wellness centers and clinics as an aid to
improve circulation and joint mobility, relieve minor aches and pains, relieve morning stiffness,
relieve troubled sleep and as a mechanical feedback device for slow rhythmic breathing exercise for
stress management. Our first such platform, the AT-101, was initially registered with the United
States Food and Drug Administration (the “FDA”) as a Class 1 (exempt) powered exercise device and
was sold to physicians and their patients. In January 2005, the FDA disagreed with our device
classification, and requested that we cease commercial sales and marketing of the AT-101 until we
received clearance from the FDA to market the device following submission of a 510(k) application
incorporating appropriate clinical trial data. Accordingly, we ceased our commercial sales and
marketing of therapeutic platforms in 2005, but continued to receive royalty revenue from sales of
diagnostic monitoring hardware and software by SensorMedics and VivoMetrics.
In January 2005, we began development of a less costly and more efficient second generation
version of the AT-101, the Exer-Rest® (now designated the Exer-Rest AT). In January
2008, we received ISO 13485 certification for Canada, the United Kingdom and Europe from SGS United
Kingdom Ltd., the world’s leading verification and certification body. ISO 13485 certification is
recognized and accepted worldwide as a sign of design and manufacturing quality for medical
devices. In addition to our ISO certification, the Exer-Rest AT acceleration therapeutic platform
(Class IIa) was awarded CE0120 certification, which requires several safety-related conformity
tests, including clinical assessment for safety and effectiveness. The CE0120 certification is
often referred to as a “passport” that allows manufacturers from anywhere in the world to sell
their goods throughout the European market, as well as in many other countries. Prior to obtaining
FDA registration for the sale of our therapeutic acceleration platforms in the United States, we
marketed and sold the Exer-Rest AT platforms in the United Kingdom, Canada, Europe, India and Latin
America.
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We entered into a product development and supply agreement with Sing Lin Technology Co., Ltd.
(“Sing Lin”) of Taichung, Taiwan on September 4, 2007. Under this agreement, Sing Lin began
manufacturing the third generation versions of our patented Exer-Rest motorized platforms
(designated the Exer-Rest AT3800 and the Exer-Rest AT4700). We filed a 510(k) premarket notification submission with the FDA in October
2008 for approval to market the Exer-Rest line of platforms in the United States. The submission
included 23 investigational and clinical studies on the vasodilatation properties of WBPA, as well
as a controlled, four week clinical trial in a group of patients with chronic aches and pains
carried out at the Center of Clinical Epidemiology and Biostatistics at the University of
Pennsylvania Medical School. The submission supported Exer-Rest safety and efficacy for the
intended uses as an aid to temporarily increase local circulation, to provide temporary relief of
minor aches and pains and to provide local muscle relaxation. The FDA informed us in January 2009
that the full Exer-Rest line of products would be registered as Class I (Exempt) Medical Devices as
described in the Company’s 510(k) premarket notification submission, at which time we commenced
marketing the Exer-Rest in the U.S. In June 2009, the FDA notified us that the additional intended
use of the Exer-Rest as an aid to reduce morning stiffness would be added to the Exer-Rest’s FDA
registration. We currently market and sell our Exer-Rest devices in the US, Canada, UK, Europe,
India and Latin America. Prior to the termination of our
development and supply agreement with them, Sing Lin marketed and sold the
Exer-Rest exclusively in certain Asian markets.
The development and commercialization of the Exer-Rest has necessitated substantial
expenditures and commitments of capital, and we anticipate experiencing losses through the end of
our 2011 fiscal year as we expect to expand sales in the US, Canada, the UK, Europe, India, Latin
America and the Far East. We may be required to raise additional capital to fulfill our business
plan, but no commitment to raise such additional capital exists or can be assured. If we are
unsuccessful in our efforts to expand sales and/or raise capital, we will not be able to continue
operations.
Market Opportunities
More than thirty peer reviewed scientific publications attest to the benefits of WBPA in
animal and human research investigations. According to those studies, the application of this
technology causes release of beneficial substances, such as nitric oxide, from the inner lining of
blood vessels throughout the vasculature, which improves circulation and reduces inflammation.
These findings are not being claimed as an intended use of the device for marketing purposes, but
demonstrate a potential mechanism for its benefits. We believe the market for our products is
driven by, among other factors:
| • | the aging population; |
| • | the increasing number of elderly persons reporting chronic ailments; |
| • | an increased awareness of the benefits of exercise, particularly as a form of
prevention; |
| • | an increasing portion of the population that is incapable of performing traditional
exercise; |
| • | the expanding body of research connecting the body’s production of nitric oxide with
vasodilatation, reduction of inflammation and improved transmission of neural impulses; and |
| • | the expanding body of research linking WBPA to production of nitric oxide and related
benefits. |
Our products are designed for use by people who are unable or unwilling to exercise or for
whom exercise is contraindicated. We market the Exer-Rest line of platforms for the intended uses
of temporarily increasing local circulation, relieving minor aches and pains, providing local
muscle relaxation and as an aid to reduce morning stiffness. These symptoms are frequently
reported by individuals with chronic cardiovascular, neurological or musculoskeletal conditions,
although we do not claim that the Exer-Rest is intended to treat these conditions.
Products
Whole Body Periodic Acceleration (“WBPA”) Therapeutic Devices
The original AT-101 is a comfortable gurney-styled device that moves a platform repetitively
in a head-to-foot motion at a rapid pace. Sales of the AT-101 commenced in October 2002 in Japan
and in February 2003 in the United States. QTM Incorporated (“QTM”), an FDA registered
manufacturer located in Oldsmar, Florida, manufactured the device, which was built in accordance
with ISO and current Good Manufacturing Practices. As discussed above, we ceased manufacturing and
selling the AT-101 in the United States in January 2005 as we began development of the Exer-Rest
AT. We continued selling our existing inventory of AT-101 devices overseas until the Exer-Rest AT
became available in October 2007, at which time we discontinued marketing of the AT-101.
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The Exer-Rest AT is based upon the design and concept of the AT-101, but has the dimensions
and appearance of a commercial extra long twin bed. The Exer-Rest AT, which was also manufactured
by QTM until we stopped
production in July 2009, weighs about half as much as the AT-101, has a much more efficient
and less costly drive mechanism, has a much lower selling price than the AT-101 and is designed
such that the user can utilize and operate it without assistance. The wired hand held controller
provides digital values for speed, travel and time rather than analog values for speed and
arbitrary force values as in the AT-101. Sales of the Exer-Rest AT began outside the US in October
2007 and in the US in February 2009. We discontinued manufacturing of the Exer-Rest AT in July
2009, and we expect to utilize our remaining inventory of these units primarily for research
purposes.
The Exer-Rest AT3800 and Exer-Rest AT4700, which were manufactured for us by Sing Lin prior to
the termination of our agreement with them, are next generation versions of the Exer-Rest AT and
further advance the acceleration therapeutic platform technology. The AT3800 (38” wide) and AT4700
(47” wide) models combine improved drive technology for quieter operation, a more comfortable
“memory-foam” mattress, more convenient operation with a multi-function wireless remote and a more
streamlined look to improve the WBPA experience. Sales of the Exer-Rest AT3800 and Exer-Rest
AT4700 platforms began outside the US in October 2008, and US sales commenced in February 2009.
LifeShirt®
The LifeShirt is a patented Wearable Physiological Computer that incorporates transducers,
electrodes and sensors into a sleeveless garment. These sensors transmit vital and physiological
signs to a miniaturized, battery-powered, electronic module which saves the raw waveforms and
digital data to the compact flash memory of a Personal Digital Assistant (“PDA”) attached to the
LifeShirt. Users of the LifeShirt can enter symptoms (with intensity), mood, and medication
information directly into the PDA for integration with the physiologic information collected by the
LifeShirt garment. The flash memory can then be removed from the LifeShirt and the data uploaded
and converted into minute-by-minute median trends of more than 30 physical and emotional signs of
health and disease. Vital and physiological signs can therefore be obtained non-invasively,
continuously, cheaply, and reliably with the comfortably worn LifeShirt garment system while
resting, exercising, working or sleeping. The LifeShirt was sold exclusively by VivoMetrics, but
has not been marketed since VivoMetrics ceased operations in July 2009. Under VivoMetrics’ proposed
bankruptcy plan of reorganization, our license with VivoMetrics will be assigned to another
company; however, there can be no assurance as to the future amount of LifeShirt sales, if any,
that may result from this license.
Intellectual Property
We currently hold five 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, a material adverse effect on our present
and proposed business could result. The following table lists our patents, along with their
expiration dates (each of which is 20 years from the filing date):
| US Patent | Inventors | Title | Expiration Date | |||
7,404,221
|
Sackner, Marvin A. | Reciprocating movement platform for the external addition of pulses to the fluid channels of a subject | August 4, 2028 | |||
7.228,576
|
Inman, D. Michael; Sackner, Marvin A. |
Reciprocating movement platform for the addition of pulses of the fluid channels of a subject | June 12, 2027 | |||
7,111,346
|
Inman, D. Michael; Sackner, Marvin A. |
Reciprocating movement platform for the addition of pulses of the fluid channels of a subject | May 15, 2023 | |||
7,090,648
|
Sackner, Marvin A.; Inman, D. Michael |
External addition of pulses to fluid channels of body to release or suppress endothelial mediators and to determine effectiveness of such intervention | September 28, 2021 | |||
6,155,976
|
Sackner, Marvin A.; Inman, D. Michael; Meichner, William J. |
Reciprocating movement platform for shifting subject to and fro in headwards-footwards direction | May 24, 2019 |
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With respect to our present and proposed product line, we have seven trademarks and trade
names which are registered in the United States and in several foreign countries, including our
principal trademark, “Exer-Rest”.
Research and Development
Our strategy is to develop a portfolio of non-invasive products through a combination of
internal development and collaborations with external partners. We are also sponsoring or
monitoring research investigating the effectiveness of WBPA in treating stroke, fibromyalgia,
cystic fibrosis, delayed onset muscle soreness (DOMS), traumatic brain injury, angina, sickle cell
disease, asthma, smoking cessation, myocardial infarction and sleep apnea. We are also
investigating the expansion of our product line with other non-invasive periodic acceleration
therapies.
Competition
We compete with several entities that market, sell or distribute therapeutic devices that are
registered with FDA as powered exercise devices, or therapeutic vibrators. These include Power
Plate of North America, Vibraflex and CERAGEM International, Inc., all of which are larger than us,
have longer operating histories and have financial and personnel resources far greater than ours.
We believe that we effectively compete with such competitors based upon the uniqueness of our
products and their differentiation on the basis of intended uses and operation.
Government Regulation of our Medical Device Development and Distribution Activities
Healthcare is heavily regulated by the federal government and by state and local governments.
The federal laws and regulations affecting healthcare change constantly thereby increasing the
uncertainty and risk associated with any healthcare-related venture.
The federal government regulates healthcare through various agencies, including but not
limited to the following: (i) the FDA which administers the Food, Drug, and Cosmetic Act (“FD&C
Act”), as well as other relevant laws; (ii) the Centers for Medicare & Medicaid Services (“CMS”)
which administers the Medicare and Medicaid programs; (iii) the Office of Inspector General
(“OIG”), which enforces various laws aimed at curtailing fraudulent or abusive practices including,
by way of example, the Anti-Kickback Law, the Anti-Physician Referral Law, commonly referred to as
Stark, the Anti-Inducement Law, the Civil Money Penalty Law, and the laws that authorize the OIG to
exclude health care providers and others from participating in federal healthcare programs; and
(iv) the Office of Civil Rights which administers the privacy aspects of the Health Insurance
Portability and Accountability Act of 1996 (“HIPAA”). All of the aforementioned are agencies
within the Department of Health and Human Services (“HHS”). Healthcare is also provided or
regulated, as the case may be, by the Department of Defense through its TriCare program, the
Department of Veterans Affairs under, among other laws, the Veterans Health Care Act of 1992, the
Public Health Service within HHS under the Public Health Service Act, the Department of Justice
through the Federal False Claims Act and various criminal statutes, and state governments under the
Medicaid program and their internal laws regulating all healthcare activities.
FDA Regulation of the Design, Manufacture and Distribution of Medical Devices
The testing, manufacture, distribution, advertising and marketing of medical devices are
subject to extensive regulation by federal, state and local governmental authorities in the United
States, including the FDA, and by similar agencies in other countries. Any product that we develop
must receive all relevant regulatory clearances or approvals, as the case may be, before it may be
marketed in a particular country. Under United States law, a “medical device” (“device”) is an
article, which, among other things, is intended for use in the diagnosis of disease or other
conditions, or in the cure, mitigation, treatment or prevention of disease, in man or other
animals. See FD&C Act § 201(h). Substantially all of our products are classified as medical
devices and subject to regulation by numerous agencies and legislative bodies, including the FDA
and its foreign counterparts.
Devices are subject to varying levels of regulatory control, the most comprehensive of which
requires that a clinical evaluation be conducted before a device receives approval for commercial
distribution. The FDA classifies medical devices into one of three classes. Class I devices are
relatively simple and can be manufactured and distributed with general controls. Class II devices
are somewhat more complex and require greater scrutiny. Class III devices are new and frequently
help sustain life.
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In the United States, a company generally can obtain permission to distribute a new device in
two ways — through a Section 510(k) premarket notification application (“510(k) submission”), or
through a Section 515 premarket approval (“PMA”) application. The 510(k) submission applies to any
device that is substantially
equivalent to a device first marketed prior to May 1976 or to another device marketed after
that date, but which was substantially equivalent to a pre-May 1976 device. These devices are
either Class I or Class II devices. Under the 510(k) submission process, the FDA will issue an
order finding substantial equivalence to a predicate device (pre-May 1976 or post-May 1976 device
that was substantially equivalent to a pre-May 1976 device) and permitting commercial distribution
of that device for its intended use. A 510(k) submission must provide information supporting its
claim of substantial equivalence to the predicate device. FDA permits certain low risk medical
devices to be marketed without requiring the manufacturer to submit a premarket notification. In
other instances, FDA may require that a premarket notification not only be submitted, but also be
accompanied by clinical data. If clinical data from human experience are required to support the
510(k) submission, these data must be gathered in compliance with investigational device exemption
(“IDE”) regulations for investigations performed in the United States. The FDA review process for
premarket notifications submitted pursuant to section 510(k) takes on average about 90 days, but it
can take substantially longer if the agency has concerns, and there is no guarantee that the agency
will “clear” the device for marketing, in which case the device cannot be distributed in the United
States. Nor is there any guarantee that the agency will deem the article subject to the 510(k)
process, as opposed to the more time-consuming, resource intensive and problematic PMA process
described below.
After clearance or approval to market is given, the FDA and foreign regulatory agencies, upon
the occurrence of certain events, are authorized under various circumstances to withdraw the
clearance or approval or require changes to a device, its manufacturing process or its labeling or
additional proof that regulatory requirements have been met.
A manufacturer of a device cleared through a 510(k) submission must submit another premarket
notification if it intends to make a change or modification in the device that could significantly
affect the safety or effectiveness of the device, such as a significant change or modification in
design, material, chemical composition, energy source or manufacturing process. Any change in the
intended uses of a 510(k) device requires an approval supplement or cleared premarket notification.
Exported devices are subject to the regulatory requirements of each country to which the device is
exported, as well as certain FDA export requirements.
As a company that manufactures medical devices, we are required to register with the FDA. As
a result, we and any entity that manufactures products on our behalf will be subject to periodic
inspection by the FDA for compliance with the FDA’s Quality System Regulation requirements and
other regulations. In the European Community, we will be required to maintain certain
International Organization for Standardization (“ISO”) certifications in order to sell products and
we or our manufacturers undergo periodic inspections by notified bodies to obtain and maintain
these certifications. These regulations require us or our manufacturers to manufacture products
and maintain documents in a prescribed manner with respect to design, manufacturing, testing and
control activities. Further, we are required to comply with various FDA and other agency
requirements for labeling and promotion. The Medical Device Reporting regulations require that we
provide information to the FDA whenever there is evidence to reasonably suggest that a device may
have caused or contributed to a death or serious injury or, if a malfunction were to occur, could
cause or contribute to a death or serious injury. In addition, the FDA prohibits us from promoting
a medical device for unapproved indications.
The FDA in the course of enforcing the FD&C Act may subject a company to various sanctions for
violating FDA regulations or provisions of the Act, including requiring recalls, issuing Warning
Letters, seeking to impose civil money penalties, seizing devices that the agency believes are
non-compliant, seeking to enjoin distribution of a specific type of device or other product,
seeking to revoke a clearance or approval, seeking disgorgement of profits and seeking to
criminally prosecute a company and its officers and other responsible parties.
Recently Enacted Health Care Reform Legislation
Congress recently passed health care reform legislation that President Obama signed into law
in March 2010. The package signed into law by the President is considered by some to be the most
dramatic change to the country’s health care system in decades.
The principal aim of the law as currently enacted is to expand health insurance coverage to
approximately 32 million Americans who are currently uninsured. The law’s most far-reaching
changes do not take effect until 2014, including a requirement that most Americans carry health
insurance. The effect of these significant coverage expansions on the sales of the Company’s
products is unknown and speculative at this point.
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The enacted legislation contains many provisions designed to generate the revenues necessary
to fund the coverage expansions. The most relevant of these provisions are those that impose fees
or taxes on certain health-related industries, including medical device manufacturers. Beginning in 2013, each medical
device manufacturer will have to pay an excise tax (or sales tax) in an amount equal to 2.3 percent
of the price for which such manufacturer sells its medical devices. This tax applies to all
medical devices, including the Company’s products and product candidates.
The legislation as enacted also provides for increased enforcement of the fraud and abuse
regulations discussed below.
Third-Party Payments, Especially payments by Medicare and Medicaid
A. Medicare Coverage
Inasmuch as a percentage of the projected patient population that could potentially benefit
from our devices is elderly, Medicare would likely be a potential source of reimbursement.
Medicare is a federal program that provides certain hospital and medical insurance benefits to
persons age 65 and over, certain disabled persons, persons with end-stage renal disease and those
suffering from Lou Gehrig’s Disease. In contrast, Medicaid is a medical assistance program jointly
funded by federal and state governments and administered by each state pursuant to which benefits
are available to certain indigent patients. The Medicare and Medicaid statutory framework is
subject to administrative rulings, interpretations and discretion that affect the amount and timing
of reimbursement made under Medicare and Medicaid.
Medicare reimburses for medical devices in a variety of ways depending on where and how the
device is used. However, Medicare only provides reimbursement if CMS determines that the device
should be covered and that the use of the device is consistent with the coverage criteria. A
coverage determination can be made at the local level (“Local Coverage Determination”) by the
Medicare administrative contractor (formerly called carriers and fiscal intermediaries), a private
contractor that processes and pays claims on behalf of CMS for the geographic area where the
services were rendered, or at the national level by CMS through a National Coverage Determination.
There are statutory provisions intended to facilitate coverage determinations for new technologies
under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) §§ 731 and
942. Coverage presupposes that the device has been cleared or approved by the FDA and, further,
that the coverage will be no broader than the FDA approved intended uses of the device (i.e., the
device’s label) as cleared or approved by the FDA, but coverage can be narrower. In that regard, a
narrow Medicare coverage determination may undermine the commercial viability of a device. It is
unclear whether the therapies and treatments that would use our primary products would be covered
under Local or National Coverage Determinations.
Seeking to modify a coverage determination, whether local or national, is a time-consuming,
expensive and highly uncertain proposition, especially for a new technology, and inconsistent local
determinations are possible. On average, according to an industry report, Medicare coverage
determinations for medical devices lag 15 months to five years or more behind FDA approval for
respective devices. Moreover, Medicaid programs and private insurers are frequently influenced by
Medicare coverage determinations. Our inability to obtain a favorable coverage determination may
adversely affect our ability to market our products and thus, the commercial viability of our
products.
B. Reimbursement Levels
Even if Medicare and other third-party payor programs cover the procedures that use our
devices, the level of reimbursement may not be sufficient for commercial success. The Medicare
reimbursement levels for covered procedures are determined annually through two sets of
rulemakings, one for outpatient departments of hospitals under the Outpatient Prospective Payment
System (“OPPS”) and the other, for procedures in physicians’ offices under the Resource-Based
Relative Value Scales (“RBRVS”) (the Medicare fee schedule). If the use of a device is covered by
Medicare, a physician’s ability to bill a Medicare patient more than the Medicare allowable amount
is significantly constrained by the rules limiting balance billing. For covered services in a
physician’s office, Medicare normally pays 80% of the Medicare allowable amount and the beneficiary
pays the remaining 20%, assuming that the beneficiary has met his or her annual Medicare deductible
and is not also a Medicaid beneficiary. For services performed in an outpatient department of a
hospital, the patient’s co-payment under Medicare may exceed 20%, depending on the service and
depending on whether CMS has set the co-payment at greater than 20%. If a device is used as part
of an in-patient procedure, the hospital where the procedure is performed is reimbursed under the
Inpatient Prospective Payment System (“IPPS”). In general, IPPS provides a single payment to the
hospital based on the diagnosis at discharge and devices are not separately reimbursed under IPPS.
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Usually, Medicaid pays less than Medicare, assuming that the state covers the service. In
addition, private payors, including managed care payors, increasingly are demanding discounted fee
structures and the assumption by healthcare providers of all or a portion of the financial risk.
Efforts to impose greater discounts and more stringent cost controls upon healthcare providers by
private and public payors are expected to continue.
Significant limits on the scope of services covered or on reimbursement rates and fees on
those services that are covered could have a material adverse effect on our ability to
commercialize our devices and therefore, on our liquidity and financial condition.
Anti-Fraud and Abuse Rule
There are extensive federal and state laws and regulations prohibiting fraud and abuse in the
healthcare industry that can result in significant criminal and civil penalties that can materially
affect us. These federal laws include, by way of example, the following:
| • | The anti-kickback statute (Section 1128B(b) of the Social Security Act) prohibits
certain business practices and relationships that might affect the provision and cost of
healthcare services reimbursable under Medicare, Medicaid and other federal healthcare
programs, including the payment or receipt of remuneration for the referral of patients
whose care will be paid by Medicare or other governmental programs; |
| • | The physician self-referral prohibition (Ethics in Patient Referral Act of 1989, as
amended, commonly referred to as the Stark Law, Section 1877 of the Social Security Act),
which prohibits referrals by physicians of Medicare or Medicaid patients to providers of a
broad range of designated healthcare services in which the physicians (or their immediate
family members) have ownership interests or with which they have certain other financial
arrangements. |
| • | The anti-inducement law (Section 1128A(a)(5) of the Social Security Act), which
prohibits providers from offering anything to a Medicare or Medicaid beneficiary to induce
that beneficiary to use items or services covered by either program; |
| • | The False Claims Act (31 U.S.C. § 3729 et seq.), which prohibits any person from
knowingly presenting or causing to be presented false or fraudulent claims for payment to
the federal government (including the Medicare and Medicaid programs); and |
| • | The Civil Monetary Penalties Law (Section 1128A of the Social Security Act), which
authorizes the United States Department of Health and Human Services to impose civil
penalties administratively for fraudulent or abusive acts. |
Sanctions for violating these federal laws include criminal and civil penalties that range
from punitive sanctions, damage assessments, monetary penalties, imprisonment, denial of Medicare
and Medicaid payments or exclusion from the Medicare and Medicaid programs, or both. These laws
also impose an affirmative duty on those receiving Medicare or Medicaid funding to ensure that they
do not employ or contract with persons excluded from the Medicare and other government programs.
Many states have adopted or are considering legislative proposals similar to the federal fraud
and abuse laws, some of which extend beyond the Medicare and Medicaid programs, to prohibit the
payment or receipt of remuneration for the referral of patients and physician self-referrals
regardless of whether the service was reimbursed by Medicare or Medicaid. Many states have also
adopted or are considering legislative proposals to increase patient protections, such as limiting
the use and disclosure of patient specific health information. These state laws also impose
criminal and civil penalties similar to the federal laws.
In the ordinary course of their business, medical device manufacturers and suppliers have been
and are subject regularly to inquiries, investigations and audits by federal and state agencies
that oversee these laws and regulations. Recent federal and state legislation has greatly
increased funding for investigations and enforcement actions, which have increased dramatically
over the past several years. This trend is expected to continue. Private enforcement of
healthcare fraud also has increased due in large part to amendments to the civil False Claims Act
in 1986 that were designed to encourage private persons to sue on behalf of the government. These
whistleblower suits by private persons, known as qui tam relators, may be filed by almost anyone,
including present and former patients or nurses and other employees, as well as competitors.
HIPAA, in addition to its privacy provisions, created a series of new healthcare-related crimes.
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As federal and state budget pressures continue, federal and state administrative agencies may
also continue to escalate investigation and enforcement efforts to root out waste and to control
fraud and abuse in governmental healthcare programs. A violation of any of these federal and state
fraud and abuse laws and regulations could have a material adverse effect on a supplier’s liquidity
and financial condition. An investigation into the use of a device by physicians may dissuade
physicians from either purchasing or using the device. This could have a material adverse effect
on our ability to commercialize our devices.
The Privacy Provisions of HIPAA
HIPAA, among other things, protects the privacy and security of individually identifiable
health information by limiting its use and disclosure. HIPAA directly regulates “covered
entities,” such as healthcare providers, insurers and clearinghouses, and indirectly regulates
“business associates,” with respect to the privacy of patients’ medical information. All entities
that receive and process protected health information are required to adopt certain procedures to
safeguard the security of that information. It is uncertain whether we would be deemed to be a
covered entity under HIPAA and it is unlikely that we, based on our current business model, would
be a business associate. Nevertheless, we will likely be contractually required to physically
safeguard the integrity and security of any patient information that we receive, store, create or
transmit. If we fail to adhere to our contractual commitments, then our physician or hospital
customers may be subject to civil monetary penalties, which could adversely affect our ability to
market our devices. Recent changes in the law wrought by the American Recovery and Reinvestment
Act of 2009, Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009), may increase the likelihood that we
would be treated as a business associate thereby subjecting us to direct government regulation,
increasing our compliance costs and our exposure to civil monetary penalties and other government
sanctions.
Manufacturing
We have no commercial manufacturing facilities and we do not intend to build commercial
manufacturing facilities of our own in the foreseeable future. All of our manufacturing has been
performed by Sing Lin, QTM and other FDA registered contract manufacturers. All of our contract
manufacturers and their manufacturing facilities must comply with FDA regulations, current quality
system regulations (referred to as QSRs), which include current good manufacturing practices, or
cGMPs, and to the extent laboratory analysis is involved, current good laboratory practices, or
cGLPs. We notified Sing Lin in June 2010 that we were terminating our manufacturing agreement with
them, which termination was effective September 2010. As a result, we currently have no supplier contracted to manufacture our products, and Sing Lin and its suppliers are currently in
possession of the tooling required to manufacture our products. If we are unable to enter into a
new agreement for the manufacture and supply of our devices, whether with Sing Lin or another
supplier, or if we are not able to timely regain possession of our tooling, we may not be able to
procure additional inventory on a timely basis, in the quantities we require or at all. We
estimate that our existing inventory of Exer-Rest products will be sufficient to meet demand
through the end of the 2011 fiscal year.
Sales & Marketing
We have a limited number of dedicated sales and marketing personnel, and our Chief Operating
Officer is presently leading our marketing efforts. Our marketing and sales efforts are currently
focused on hospitals, cardiac rehabilitation clinics, physical therapy centers, senior living
communities and other healthcare providers, as well as their patients, professional athletes and
other individuals. In addition to direct sales efforts by our sales management personnel, our
sales and distribution network consists of independent sales representatives and distributors. We
intend to expand our distributor and independent sale representative networks in the US, Canada and
abroad. There can be no assurance that we will be able to enter into additional distribution and
representation agreements on terms acceptable to us or at all, or that our sales and distribution
network will generate significant sales.
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Employees
The Company currently employs six employees on a full-time basis. Four are engaged in general
and administrative, marketing and distribution duties and two in research and development. In
addition, certain of our administrative, accounting and legal functions are provided by employees
of a related company on a part-time basis under a cost-sharing arrangement under which we reimburse
such related company for those services. None of our employees are represented by a collective
bargaining agreement, and we believe relations with our employees are good.
Our Executive Officers
Marvin A. Sackner, M.D. Dr. Sackner, 78, 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 CEO from 1989 until 2002
and from December 2007 to the present. Dr. Sackner co-founded Respitrace Corporation, a
predecessor to the Company, in 1977 and was the Chairman of its Board from 1981 until October 1989.
From 1974 until October 1991, Dr. Sackner was the Director of Medical Services at Mount Sinai in
Miami Beach, Florida. From 1973-1996, 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 33 United States Patents
and has written 223 scientific papers and four books. Dr. Sackner also serves as a director of
Continucare Corporation, a publicly-traded provider of outpatient healthcare services.
Steven B. Mrha. Mr. Mrha, 45, was appointed Chief Operating Officer effective January 14,
2008. From 2005 to 2008, Mr. Mrha held the position of Vice President, Sales & Marketing for IVX
Animal Health (“IVX”), a subsidiary of Teva Pharmaceuticals, Inc. From 1999 to 2005, Mr. Mrha held
the same position with DVM Pharmaceuticals (“DVM”) until the 2005 merger of DVM and Phoenix
Scientific which created IVX. From 1991 to 1999, Mr. Mrha held numerous positions at DVM,
including Territory Manager, Regional Manager, Director of Corporate Training and Director of
Marketing.
Adam S. Jackson. Mr. Jackson, 48, was appointed Chief Financial Officer on May 12, 2008.
From 2006 to 2008, Mr. Jackson served as Senior Vice President, Finance for Levitt Corporation
(“Levitt”), a New York Stock Exchange-traded real estate development company (now Woodbridge
Holdings Corp.). From 2003 to 2006, Mr. Jackson served as Levitt’s Senior Vice President,
Controller. From 2001 to 2003, Mr. Jackson served as Chief Financial Officer of Romika-USA, Inc.,
a privately-held consumer goods manufacturing and distribution company. Mr. Jackson has also
served since March 2008 as the Chief Financial Officer of SafeStitch Medical, Inc., a publicly-held
developmental-stage medical device company, and as Vice President, Finance of Aero Pharmaceuticals,
Inc., a privately-held pharmaceutical distribution company.
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 a significant increase in revenue or 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, 2010 and 2009 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, 2010,
2009 and 2008 were $1.6 million, $1.8 million and $1.8 million, respectively. As of July 31, 2010,
we had an accumulated deficit of $21.4 million. Our revenues from 2005 through 2008 were primarily
derived from royalties on sales of diagnostic monitoring hardware and software licensed to two
third parties (one of which is no longer operating) and from sales of parts and services related to
acceleration therapeutics platforms used for research purposes. Although we have obtained
regulatory clearance to market our principal products in the US and abroad, there can be no
assurance that our products will achieve market acceptance. Market acceptance of our products may
depend upon, among other things: the timing of market introduction of competitive products; the
safety and efficacy of our products; and the potential advantage or disadvantages of alternative
treatments. If our products fail to achieve market acceptance, we may not be able to generate
significant revenues or be profitable. Even if we achieve profitability in the future, we may not
be able to sustain profitability
in subsequent periods. Absent a significant increase in revenue or additional equity or debt
financing, we may be unable to continue as a going concern, and you may lose all of your investment
in us.
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We will likely require additional funding, which may not be available to us on acceptable terms, or
at all. In addition, we may need to amend our Articles of Incorporation to increase our number of
authorized shares of common stock.
We will likely need to raise additional capital in order for us to continue as a going
concern. Until we can generate a sufficient amount of product revenue to finance our cash
requirements, which we may never do, 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. In order to raise
additional capital we may need to amend our Articles of Incorporation to increase our number of
authorized shares of common stock, which would require shareholder approval. We cannot assure you
that we could obtain such approval. If we are not able to secure additional funding when needed,
we may have to delay, reduce the scope of or eliminate our research and development programs and
operations. 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 product candidates or grant licenses on terms that may not be favorable to us.
We terminated the Product and Supply Agreement with Sing Lin and may potentially be obligated to
pay amounts under the agreement.
The now-terminated product and supply agreement with Sing Lin contained obligations to
purchase approximately $2.6 million of Exer-Rest units within one year of acceptance of the final
product, and an additional $4.1 million and $8.8 million of products in the second and third years
following acceptance of the final product, respectively. Under the product and supply agreement,
we were required to pay a portion of the product purchase price at the time production orders were
placed, with the balance due upon delivery. Through July 31, 2010, we paid Sing Lin $1.7 million
in connection with orders placed through that date, and we will be required to make additional
payments totaling approximately $60,000 upon taking delivery of the units currently in production.
As of July 31, 2010, we had not placed orders sufficient to satisfy the first-year or second-year
minimum purchase obligations under the agreement. We notified Sing Lin in June 2010 that we were
terminating the agreement effective September 2010, and Sing Lin in July 2010 demanded that we
place orders sufficient to fulfill the three year purchase obligations under the agreement. There
can be no assurance that Sing Lin will not attempt to enforce its rights under the product and
supply agreement, or pursue other available remedies. If Sing Lin seeks to enforce remedies
against us, any such remedies could have a material adverse effect on our business, liquidity and
results of operations.
We rely on third parties to manufacture and supply our products, and we presently have no agreement
with any third party to manufacture and supply our products.
We do not own or operate manufacturing facilities for clinical or commercial production of our
products. We have no experience in medical device manufacturing, and we lack the resources and the
capability to manufacture any of our products on a commercial scale. We expect to depend on
third-party contract manufacturers for the foreseeable future. Our ability to replace an existing
manufacturer may be difficult because the number of potential manufacturers is limited, and the FDA
must approve any replacement manufacturer before it can begin manufacturing our product. It may be
difficult or impossible for us to identify and engage a replacement manufacturer on acceptable
terms in a timely manner, or at all.
We entered into an agreement with Sing Lin to, among other things, manufacture all of our
acceleration therapeutic platforms. We notified Sing Lin in June 2010 that we were terminating the
agreement, which termination was effective September 2010. As a result, we currently have no
supplier contracted to manufacture our products, and Sing Lin and its
suppliers are currently
in possession of the tooling required to manufacture our products. If we are unable to enter
into a new agreement for the manufacture and supply of our devices, whether with Sing Lin or
another supplier, or if we are not able to timely regain possession of our tooling, we may not be
able to procure additional inventory on a timely basis, in the quantities we require or at all,
which would have a material adverse effect on our business, liquidity and results of operations.
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The current worldwide economic crisis and concurrent market instability may materially and
adversely affect the demand for our products, as well as our ability to obtain credit or secure
funds through sales of our
stock, which may materially and adversely affect our business, financial condition and ability to
fund our operations.
The current worldwide economic crisis may reduce the demand for new and innovative medical
devices, resulting in delayed market acceptance of our products. Such a delay could have a
material adverse impact on our business, expected cash flows, results of operations and financial
condition.
Additionally, we have funded our operations to date primarily through private sales of our
common stock and preferred stock and through borrowings under credit facilities available to us
from stockholders and other individuals. The current economic turmoil and instability in the
world’s equity and credit markets may materially adversely affect our ability to sell additional
shares of our stock and/or borrow cash. There can be no assurance that we will be able to raise
additional working capital on acceptable terms or at all, which may materially adversely affect our
ability to continue our operations.
Healthcare policy changes, including recently enacted legislation reforming the U.S. healthcare
system, may have a material adverse effect on us.
Healthcare costs have risen significantly over the past decade, and there have been and
continue to be proposals by legislators, regulators and third-party payors to keep these costs
down. Congress recently passed health care reform legislation that President Obama signed into law
in March 2010. The package signed into law by the President is considered by some to be the most
dramatic change to the country’s health care system in decades.
The principal aim of the law as currently enacted is to expand health insurance coverage to
approximately 32 million Americans who are currently uninsured. The law’s most far-reaching
changes do not take effect until 2014, including a requirement that most Americans carry health
insurance. The effect of these significant coverage expansions on the sales of the Company’s
products is unknown and speculative at this point.
The enacted legislation contains many provisions designed to generate the revenues necessary
to fund the coverage expansions. The most relevant of these provisions are those that impose fees
or taxes on certain health-related industries, including medical device manufacturers. Beginning
in 2013, each medical device manufacturer will have to pay an excise tax (or sales tax) in an
amount equal to 2.3 percent of the price for which such manufacturer sells its medical devices.
This tax applies to all medical devices, including the Company’s products and product candidates.
In addition to the new legislation discussed above, various healthcare reform proposals have
also emerged at the state level. We cannot predict what additional healthcare initiatives, if any,
will be implemented at the federal or state level, or the effect any such future legislation or
regulation will have on us. In addition to the taxes imposed by the new federal legislation, an
expansion in government’s role in the U.S. healthcare industry may lower reimbursements for our
products, reduce medical procedure volumes and materially adversely affect our business, financial
condition and results of operations.
The terms of clearances or approvals and ongoing regulation of our products may limit how we
manufacture and market our products, which could materially impair our ability to generate
anticipated revenues.
Once regulatory clearance or approval has been granted, the cleared or approved product and
its manufacturer are subject to continual review. Any cleared or approved product may only be
promoted for its indicated uses. Accordingly, it is possible that our products may be cleared or
approved for fewer or more limited uses than we request or that clearance or approval may be
granted contingent on the performance of costly post-marketing clinical trials. In addition, if
the FDA or other non-U.S. regulatory authorities clear or approve our products, the labeling,
packaging, adverse event reporting, storage, advertising and promotion for the products will be
subject to extensive regulatory requirements. It is possible that the FDA or other non-U.S.
regulatory authorities may not approve the labeling claims necessary or desirable for the
successful commercialization of our products. Further, regulatory agencies must approve our
manufacturing facilities before they can be used to manufacture our products, and these facilities
are subject to ongoing regulatory inspection. If we fail to comply with the regulatory
requirements of the FDA and other non-U.S. regulatory authorities, or if previously unknown
problems with our products, manufacturers or manufacturing processes are discovered, we could be
subject to administrative or judicially imposed sanctions.
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In addition, the FDA and other non-U.S. regulatory authorities may change their policies and
additional regulations may be enacted that could prevent or delay regulatory clearance or approval
of our products. We cannot predict the likelihood, nature or extent of government regulation that
may arise from future legislation or
administrative action, either in the United States or abroad. If we are not able to maintain
regulatory compliance, we would likely not be permitted to market our products and we may not
achieve or sustain profitability.
Our competitors may develop and market products that are more effective, safer or less expensive
than our products, negatively impacting our commercial opportunities.
The life sciences industry is highly competitive, and we face significant competition from
many medical device companies that are researching and marketing products designed to address the
same ailments we are endeavoring to address. The medical devices that we have developed or are
developing will compete with other medical devices that currently exist or are being developed.
Products we may develop in the future are also likely to face competition from other medical
devices and therapies. Many of our competitors have significantly greater financial,
manufacturing, marketing and product development resources than we do. If our competitors market
products that are more effective, safer, easier to use or less expensive than our products, or that
reach the market sooner than our products, we may not achieve commercial success. In addition, the
medical device industry is characterized by rapid technological change. It may be difficult for us
to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of
technological change, then we may be unable to compete effectively. Technological advances or
products developed by our competitors may render our technologies or products obsolete or less
competitive. Any of the foregoing may have a material adverse effect on our business, liquidity and
results of operations.
If we are unable to obtain and enforce patent protection for our products, our business could be
materially harmed.
We currently hold five United States patents with respect to overall design and specific
features of our present and proposed products and have submitted applications with respect to four
foreign patents. The issuance of a patent does not guarantee that it is valid or enforceable. Any
patents we have obtained, or obtain in the future, may be challenged, invalidated, unenforceable or
circumvented. Moreover, the United States Patent and Trademark Office (the “USPTO”) may commence
interference proceedings involving our patents or patent applications. Any challenge to, finding
of unenforceability or invalidation or circumvention of, our patents or patent applications would
be costly, would require significant time and attention of our management and could have a material
adverse effect on our business.
Our pending patent applications may not result in issued patents. The patent position of
medical device companies, including us, is generally uncertain and involves complex legal and
factual considerations. The standards that the USPTO and its foreign counterparts use to grant
patents are not always applied predictably or uniformly and can change. There is also no uniform,
worldwide policy regarding the subject matter and scope of claims granted or allowable in medical
device patents. Accordingly, we do not know the degree of future protection for our proprietary
rights or the breadth of claims that will be allowed in any patents issued to us or to others.
If we are unable to protect the confidentiality of our proprietary information and know-how, the
value of our technology and products 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 employees, 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.
Our commercial success depends significantly on our ability to operate without infringing the
patents and other proprietary rights of third parties.
Other entities may have or obtain patents or proprietary rights that could limit our ability
to manufacture, use, sell, offer for sale or import products or impair our competitive position.
In addition, to the extent that a third party develops new technology that covers our products, we
may be required to obtain licenses to that technology, which licenses may not be available or may
not be available on commercially reasonable terms, if at all. If licenses are not available to us
on acceptable terms, we will not be able to market the affected products or conduct the desired
activities, unless we challenge the validity, enforceability or infringement of the third party
patent or circumvent the third party patent, which would be costly and would require significant
time and attention of our management. Third parties may have or obtain valid and enforceable
patents or proprietary rights that could block us from developing
products using our technology. Our failure to obtain a license to any technology that we
require may materially harm our business, financial condition and results of operations.
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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 or be
required to stop our product development and commercialization efforts any of 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.
If any parties successfully claim that our creation or use of proprietary technologies
infringes upon their intellectual property rights, we might be forced to pay damages, potentially
including treble damages, if we are found to have willfully infringed on such parties’ patent
rights. In addition to any damages we might have to pay, a court could require us to stop the
infringing activity or obtain a license. Any license required under any patent may not be made
available on commercially acceptable terms, if at all. In addition, such licenses are likely to be
non-exclusive and, therefore, our competitors may have access to the same technology licensed to
us. If we fail to obtain a required license and are unable to design around a patent, we may be
unable to effectively market some of our technology and products, which could limit our ability to
generate revenues or achieve profitability and possibly prevent us from generating revenue
sufficient to sustain our operations.
Failure to obtain regulatory approval outside the United States will prevent us from marketing our
products abroad.
We intend to market certain of our products and product candidates in non-U.S. markets. In
order to market our existing and future products in the European Union and many other non-U.S.
jurisdictions, we must obtain separate regulatory approvals. We have had limited interactions with
non-U.S. regulatory authorities, the approval procedures vary among countries and can involve
additional testing, and the time required to obtain approval may differ from that required to
obtain FDA approval. Approval or clearance by the FDA does not ensure approval by regulatory
authorities in other countries, and approval by one or more non-U.S. regulatory authorities does
not ensure approval by regulatory authorities in other countries or by the FDA. The non-U.S.
regulatory approval process may include all of the risks associated with obtaining FDA approval or
clearance. We may not obtain non-U.S. regulatory approvals on a timely basis, if at all. We may not
be able to file for non-U.S. regulatory approvals and may not receive necessary approvals to
commercialize our existing and future product candidates in any market.
Non-U.S. governments often impose strict price controls, which may adversely affect our future
profitability.
We have obtained approval to market certain of our products in one or more non-U.S.
jurisdictions, which subjects us to rules and regulations in those jurisdictions relating to our
products. In some countries, particularly countries of the European Union, each of which has
developed its own rules and regulations, pricing is subject to governmental control. In these
countries, pricing negotiations with governmental authorities can take considerable time after the
receipt of marketing approval for a medical device candidate. To obtain reimbursement or pricing
approval in some countries, we may be required to conduct a clinical trial that compares the
cost-effectiveness of our existing and future product candidates to other available products. If
reimbursement of our future product candidates is unavailable or limited in scope or amount, or if
pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
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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 U.S. 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. 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 only 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 $0.22 and
$0.49 for the 52-week period ended September 30, 2010. Factors that have a significant impact on
the price of our common stock, in addition to the other issues described in this report, include
results of or delays in our pre-clinical and clinical studies, announcements of technological
innovations or new commercial products by us or others, developments in patents and other
proprietary rights by us or others, future sales of our common stock by existing shareholders,
regulatory developments or changes in regulatory guidance, the departure of our officers, directors
or key employees, and period-to-period fluctuations in our financial results. 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.
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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 stockholders. We are currently
authorized to issue an aggregate of 101,000,000 shares of capital stock consisting of 100,000,000
shares of common stock and 1,000,000 shares of preferred stock with preferences and rights to be
determined by our Board of Directors. As of October 15, 2010, there were outstanding: a)
68,903,165 shares of our common stock, b) 100 shares of our Series B preferred stock, c) 62,048
shares of our Series C preferred stock, each currently convertible into 25 shares of our common
stock and d) 2,795 shares of our Series D preferred stock, each currently convertible into 5,000
shares of our common stock. Also as of October 15, 2010, there were outstanding options to
purchase 2,505,832 shares of our common stock, and we have reserved 1,551,200 shares of our common
stock for issuance upon conversion of our Series C preferred
stock and 13,975,000 shares of our
common stock for issuance upon conversion of our Series D preferred 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. There can be no assurance that we will not be required to issue
additional shares, warrants or other convertible securities in the future in conjunction with any
capital raising efforts, including at a price (or exercise prices) below the price at which shares
of our common stock are currently traded on the OTCBB.
Item 2. Properties.
Our principal corporate office is located at 4400 Biscayne Blvd., Miami, Florida. We rent
this space from Frost Real Estate Holdings, LLC, which is a company controlled by Dr. Phillip
Frost, one of our largest beneficial shareholders. We currently lease approximately 1,800 square
feet under the lease agreement, which is for a five-year term that began on January 1, 2008.
We house our inventory in approximately 5,200 square feet of warehouse space in Hialeah,
Florida leased from an entity controlled by Dr. Frost and Dr. Jane Hsiao, our Chairman.
Item 3. Legal Proceedings.
None.
Item 4. (Removed and Reserved).
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PART II
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.
| Quarter Ended | High | Low | ||||||
October 31, 2008 |
$ | 0.61 | $ | 0.29 | ||||
January 31, 2009 |
$ | 0.46 | $ | 0.27 | ||||
April 30, 2009 |
$ | 0.40 | $ | 0.26 | ||||
July 31, 2009 |
$ | 0.40 | $ | 0.30 | ||||
October 31, 2009 |
$ | 0.46 | $ | 0.26 | ||||
January 31, 2010 |
$ | 0.43 | $ | 0.27 | ||||
April 30, 2010 |
$ | 0.43 | $ | 0.30 | ||||
July 31, 2010 |
$ | 0.36 | $ | 0.30 | ||||
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. At October 15, 2010, we had 1,506
shareholders of record based on information provided by our transfer agent, American Stock Transfer
& Trust Company. We believe that the actual number of beneficial shareholders is considerably
higher.
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.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Annual Report on Form 10-K contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of
1934, as amended, (the “Exchange Act”), about our expectations, beliefs or intentions regarding our
product development 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. We intend that all forward-looking statements be subject to the safe harbor provisions of the
PSLRA. These forward-looking statements are only predictions and reflect our views as of the date
they are made with respect to future events and financial performance.
Overview
We are primarily 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 from head to foot. Our acceleration therapeutic platforms are the
inventions of Marvin A. Sackner, M.D., our founder, Chief Executive Officer and a director. Over
thirty peer reviewed scientific publications attest to the benefits of whole body periodic
acceleration in animal and human research investigations. According to those studies, the
application of this technology causes release of beneficial substances such as nitric oxide from
the inner lining of blood vessels throughout the vasculature for improved circulation and the
reduction of inflammation. These findings are not being claimed as an intended use of the device
for marketing purposes, but demonstrate a potential mechanism for its benefits.
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 accounts
receivable, inventory, property and equipment, intangible assets, contingencies and litigation. 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. Actual results may differ from these estimates under different
assumptions or conditions.
Results of Operations
In January 2005, we began developing the Exer-Rest line of acceleration therapeutic platforms,
which were designed to be more efficient and less expensive than the AT-101. The Exer-Rest
AT platform was first available for delivery to certain locations outside of the United
States in October 2007. Prior to the first export sales of the Exer-Rest AT, we continued to sell
the AT-101 in certain locations outside of the United States. In anticipation of the launch of the
Exer-Rest line, in July 2006 we wrote down as obsolete our existing inventory of AT-101 platforms
and parts to zero value. Our newest platforms, the Exer-Rest AT3800 and AT4700, which we developed
under our former agreement with Sing Lin, became available for sale in October 2008. In January
2009, the Exer-Rest line of therapeutic platforms was registered by the FDA in the United States as
Class I (Exempt) Medical Devices. We began our US and international sales activity with aggressive
marketing and promotional pricing beginning in February 2009. We opened our first demonstration
and therapy center in Toronto, Canada in April 2009; however we closed that facility in January
2010 to focus our marketing and sales efforts on healthcare
providers as well as individuals. We currently market the Exer-Rest to hospitals, cardiac
rehabilitation clinics, chiropractic and physical therapy centers, senior living communities and
other healthcare providers, as well as to their patients, professional athletes and other
individuals.
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Year Ended July 31, 2010 Compared to Year Ended July 31, 2009
Revenue. Total revenue increased from $546,000 for the year ended July 31, 2009 to $617,000
for the year ended July 31, 2010. This $71,000 increase primarily resulted from a $124,000
increase in net product sales, offset in part by a $51,000 decrease in royalty revenue. Exer-Rest
platform unit sales for the 2010 fiscal year increased 61% over the 2009 fiscal year, primarily due
to the availability of the new Exer-Rest AT3800 and AT4700 models for a full year. Royalty revenue
for fiscal 2010 decreased approximately 23% from fiscal 2009 due to lower product sales by
SensorMedics and the absence of royalties from VivoMetrics, which ceased operations in July 2009
and filed for Chapter 11 bankruptcy protection in October 2009.
Cost of sales. Cost of sales decreased to $243,000 for the year ended July 31, 2010 from
$250,000 for the year ended July 31, 2009. This $7,000 net decrease was primarily due to a $78,000
decrease in inventory valuation adjustments, offset in part by the increased number of units sold
during the year. Inventory adjustments for damaged, obsolete and slow moving inventory for the
years ended July 31, 2010 and 2009 totaled approximately $35,000 and $113,000, respectively.
Selling, general and administrative costs and expenses. Selling, general and administrative
(“SG&A”) costs and expenses were approximately $1.9 million for each of the years ended July 31,
2010 and 2009. The $50,000 decrease for the year ended July 31, 2010 was primarily attributable to
lower stock-based compensation costs and reduced travel and other costs associated with
international trade shows, offset in part by increased salaries and wages related to sales and
marketing personnel added during fiscal 2010. SG&A costs and expenses include stock-based
compensation expense, which totaled $94,000 for fiscal 2010, as compared to $189,000 for fiscal
2009. The decrease in stock-based compensation was primarily due to a decrease in the number of
options granted for the year ended July 31, 2010.
Research and development costs and expenses. Research and development (“R&D”) costs and
expenses decreased $58,000 from $176,000 for the year ended July 31, 2009 to $118,000 for the year
ended July 31, 2010. R&D costs and expenses for fiscal 2010 consisted primarily of research
related to additional applications of WBPA technology, while fiscal 2009 R&D expenditures consisted
primarily of costs related to obtaining FDA registration for the Exer-Rest in the US, which was
obtained in January 2009.
Total operating costs and expenses. Total operating costs and expenses decreased $115,000
from $2.4 million for the year ended July 31, 2009 to $2.3 million for the year ended July 31,
2010. This decrease is primarily attributable to the decreases in SG&A and R&D costs and expenses
described above.
Other income and expense. Other income decreased $42,000 from $61,000 for the year ended July
31, 2009 to $19,000 for the year ended July 31, 2010. The decrease was primarily attributable to a
$47,000 decrease in foreign currency exchange gains at our Canadian subsidiary and a $9,000
increase in net interest expense, offset in part by a $14,000 decrease in losses from the disposal
of certain fixed assets.
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, 2010, we had cash of $165,000 and
working capital of approximately $364,000. We expect these funds, together with remaining
availability under the 2010 Credit Facility described below, will be sufficient to support our
marketing efforts in the US and Canada only through the end of the 2010 calendar year. If we are
not able to generate significant revenue with our current marketing efforts, we will be required to
obtain additional external financing to continue operations beyond the end of the 2010 calendar
year. 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 recent economic turmoil 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 decreased to $1.3 million for the year ended July 31,
2010 from $1.9 million for the year ended July 31, 2009. This $559,000 decrease was principally
due to a decrease in inventory expenditures as advances to Sing Lin were applied against inventory
purchases.
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No cash was used or provided by investing activities for the year ended July 31, 2010. Net
cash used by investing activities for the year ended July 31, 2009 was $232,000. Investing
activity in the 2009 fiscal year consisted primarily of $171,000 paid to Sing Lin for Exer-Rest
production tooling, $26,000 for website development and $32,000 for leasehold improvements and
warehouse equipment.
Net cash provided by financing activities decreased from $2.9 million for the year ended July
31, 2009 to $600,000 for the year ended July 31, 2010. This $2.3 million decrease was principally
due to the difference between the $2.8 million raised by the December 2008 and January 2009 Series
D Preferred Stock Offerings described below and the $600,000 advanced under the 2010 Credit
Facility described below.
Aggregate collections of royalty payments from VivoMetrics and SensorMedics were $167,000 and
$248,000 for the years ended July 31, 2010 and 2009, respectively. There can be no assurances that
we will continue to receive similar royalty payments, and we expect a decline in royalty revenues
in fiscal 2011 to remain well below 2009 levels because VivoMetrics ceased operations in July 2009
and has not made any royalty payments since that time. In 2009, VivoMetrics accounted for
approximately $39,000 of our royalty revenue and $56,000 of our royalty collections. VivoMetrics
filed for Chapter 11 bankruptcy protection in October 2009. As of July 31, 2010, our outstanding
receivable from VivoMetrics totaled $10,000, which was fully reserved.
Under our now-terminated agreement with Sing Lin, we were committed to purchase approximately
$2.6 million of Exer-Rest units within one year of acceptance of the final product, which
acceptance occurred in September 2008, and an additional $4.1 million and $8.8 million of products
in the second and third years following acceptance of the final product, respectively. Under the
agreement, we were required to pay a portion of the product purchase price at the time production
orders were placed, with the balance due upon delivery. Through July 31, 2010, we paid Sing Lin
$1.7 million in connection with orders placed through that date, and we will be required to make
additional payments totaling approximately $60,000 upon taking delivery of the units currently in
production. As of July 31, 2010, we had not placed orders sufficient to satisfy the first-year or
second-year purchase obligations under the agreement. We notified Sing Lin in June 2010 that we
were terminating the agreement effective September 2010, and Sing Lin in July 2010 demanded that we
place orders sufficient to fulfill the three year minimum purchase obligations in the agreement.
There can be no assurance that Sing Lin will not attempt to enforce its remedies against us, or
pursue other potential remedies. If Sing Lin seeks to enforce remedies against us, any such
remedies could have a material adverse effect on our business, liquidity and results of operations.
As of July 31, 2010, the Company has net receivables of approximately $200,000 from Sing Lin, and
tooling and equipment with a net book value of approximately $283,000 remains in possession of Sing
Lin and its suppliers in Asia. The ultimate realization of these assets is dependent on the Company’s
ability to resolve the issue with Sing Lin, however there can be no
assurance that the value of
these assets will be realized.
At July 31, 2010, we had available federal and state net operating loss carryforwards of
approximately $12.1 million which expire in various years through 2030.
Series D Preferred Stock Offerings. In April 2008, we authorized a new series of our
preferred stock, par value $1.00 per share (the “Preferred Stock”), designated as Series D
Convertible Preferred Stock (the “Series D Preferred Stock”). Each holder of a share of the Series
D Preferred Stock has the right, at any time, to convert such share of Series D Preferred Stock
into shares of our common stock at an initial rate of 5,000 shares of common stock per share of
Series D Preferred Stock. The Series D Preferred Stock has a $1,500 per share liquidation
preference, and was issued at $1,500 per share, which is equivalent to $0.30 per share of Common
Stock on an “as-converted” basis.
December 2008 Series D Preferred Stock Offering. On December 2, 2008, we completed the sale
of an aggregate of 491 shares of our Series D Preferred Stock to certain investors pursuant to
stock purchase agreements entered between December 1, 2008 and December 2, 2008 (the sale of 286
shares closed on December 1, 2008 and the sale of 205 shares closed on December 2, 2008). These
investors included Dr. Sackner, Frost Gamma Investments Trust, a trust controlled by Dr. Phillip
Frost, which beneficially owns in excess of 10% of our common stock (“Frost Gamma”), Hsu Gamma
Investments, LP (“Hsu Gamma”), an entity controlled by our Chairman, and a director (collectively,
the “Related Party Investors”). The aggregate purchase price for the Series D Preferred Stock was
$736,500, of which $382,500 was paid by the Related Party Investors. Of the $382,500 paid by the
Related Party Investors, $282,200 was paid from the proceeds of their respective interests in the
Revolver described below. (See Note 6 to the accompanying consolidated financial statements.) The
closing prices of our common stock on the OTCBB on December 1 and 2, 2008 were $0.36 and $0.38 per
share, respectively, resulting in a $168,000 aggregate intrinsic value on the issue dates. The
$168,000 aggregate intrinsic value of the Series D Preferred Stock on the
issue dates was deemed a dividend paid to the investors on the closing dates and as an
increase in loss attributable to common shareholders in the financial statements for the period
then ended.
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January 2009 Series D Preferred Stock Offering. On January 28, 2009, we completed the sale of
700 additional shares of our Series D Preferred Stock to each of Frost Gamma and Hsu Gamma (1,400
total shares) for aggregate proceeds of $2.1 million. The January 28, 2009 closing price of our
common stock on the OTCBB was $0.43 per share, resulting in a $650 intrinsic value per share of
Series D Preferred Stock on the issue date. The $910,000 aggregate intrinsic value of the Series D
Preferred Stock on the issue date was deemed a dividend paid to the investors on the closing date
and as an increase in loss attributable to common shareholders in the financial statements for the
period then ended.
2008 Revolver. On August 28, 2008 we entered into a Note and Security Agreement (the
“Agreement”) with four persons (the “Lenders”), pursuant to which the Lenders granted us a
revolving credit line (the “Revolver”) in the aggregate amount of $300,000, secured by all of our
personal property. The Lenders included Dr. Sackner, Frost Gamma and Hsu Gamma. We were permitted
to borrow and reborrow from time to time under the Revolver until October 31, 2008 (the “Maturity
Date”). The interest rate payable by us on amounts outstanding under the Revolver was 11% per
annum, and increased to 16% after the Maturity Date or after an event of default. We were required
to repay all amounts owing under the Revolver by the Maturity Date, and amounts outstanding were
prepayable at any time. On August 29, 2008 we drew down $300,000 under the Revolver. The Revolver
was amended, effective October 31, 2008, to extend the Maturity Date until November 30, 2008. All
principal and interest outstanding under the Revolver as of November 30, 2008 was repaid with
proceeds from the sale of Series D Preferred Stock on December 1, 2008 as described above. (See
Notes 6 and 7 to the accompanying consolidated financial statements.)
2010 Credit Facility. On March 31, 2010, we entered into a new Note and Security Agreement
(the “Credit Facility Agreement”) with Frost Gamma and Hsu Gamma (the “2010 Lenders”), pursuant to
which the 2010 Lenders granted us a revolving credit line (the “Credit Facility”) in the aggregate
amount of up to $1.0 million, secured by all of our personal property. We are permitted to borrow
and reborrow from time to time under the Credit Facility until March 31, 2011 (the “Credit Facility
Maturity Date”). The interest rate payable on amounts outstanding under the Credit Facility is 11%
per annum, and increases to 16% after the Credit Facility Maturity Date or after an event of
default. All amounts owing under the Credit Facility are required to be repaid by the Credit
Facility Maturity Date, and amounts outstanding are prepayable at any time. As of July 31, 2010,
we had drawn an aggregate of $600,000 under the Credit Facility
As of September 30, 2010, we had cash and cash equivalents of approximately $192,000, and had
$200,000 of availability remaining under the Credit Facility. If we are unable to generate
significant revenues from sales of Exer-Rest platforms, we will have insufficient funds to repay
debt and continue operations beyond the end of the 2010 calendar year without raising additional
capital. There can be no assurance that we will be able to raise such additional capital on terms
acceptable to us or at all.
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.
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Item 8. Financial Statements and Supplementary Data.
| 26 | ||||
| 27 | ||||
| 28 | ||||
| 29 | ||||
| 30 | ||||
| 31 | ||||
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Non-Invasive Monitoring Systems, Inc.
Non-Invasive Monitoring Systems, Inc.
We have audited the accompanying consolidated balance sheets of Non-Invasive Monitoring Systems, Inc. and subsidiaries as of July 31, 2010 and 2009, and the related consolidated comprehensive statements of operations, changes in shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Non-Invasive Monitoring Systems, Inc. and subsidiaries as of July 31, 2010 and 2009, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the Note 1 to the consolidated financial statements, the Company has experienced recurring net losses, cash outflows from operating activities and has an accumulated deficit and substantial purchase commitments 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As further discussed in Notes 10 and 14, during 2010, the Company terminated its agreement with its supplier of products. The supplier has demanded the Company to purchase inventory at levels sufficient to fulfill the minimum three-year purchase obligation under the agreement. The Company is currently unable to fund such a purchase and is attempting to resolve the issue. The Company also has net receivables of approximately $200,000 from the supplier, and tooling and equipment with a net book value of approximately $283,000 is in the possession of the supplier in Asia. The ultimate realization of the assets is dependent on the Company’s ability to resolve the issue with the supplier. The loss of the business relationship with the supplier could also adversely impact the company’s business operations. As the ultimate resolution of these matters will be determined in the future, no amounts have been provided for losses, if any.
/s/ Morrison, Brown Argiz & Farra, LLP
|
||
Miami, Florida October 29, 2010 |
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NON-INVASIVE MONITORING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| July 31, 2010 | July 31, 2009 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash |
$ | 165 | $ | 886 | ||||
Royalties and other receivables, net |
211 | 60 | ||||||
Inventories, net |
766 | 911 | ||||||
Advances to contract manufacturer |
90 | 144 | ||||||
Prepaid expenses, deposits, and other current assets |
57 | 75 | ||||||
Total current assets |
1,289 | 2,076 | ||||||
Tooling and equipment, net |
342 | 460 | ||||||
Total assets |
$ | 1,631 | $ | 2,536 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Current liabilities |
||||||||
Notes payable — Related party |
$ | 600 | $ | — | ||||
Notes payable — other |
33 | 34 | ||||||
Accounts payable and accrued expenses |
276 | 242 | ||||||
Customer deposits |
16 | 9 | ||||||
Total current liabilities |
925 | 285 | ||||||
Total liabilities |
$ | 925 | $ | 285 | ||||
Commitments and Contingencies (Note 10) |
— | — | ||||||
Shareholders’ equity |
||||||||
Series B Preferred Stock, par value $1.00 per share;
100 shares authorized, issued and outstanding; liquidation preference $10 |
— | — | ||||||
Series C Convertible Preferred Stock, par value $1.00 per share;
62,048 shares authorized, issued and outstanding; liquidation preference $62 |
62 | 62 | ||||||
Series D Convertible Preferred Stock, par value $1.00 per share; 5,500 shares authorized;
2,828 and 2,891 shares issued and outstanding, respectively; liquidation
preference $4,242 |
3 | 3 | ||||||
Common Stock, par value $0.01 per share; 100,000,000 shares authorized;
68,738,165 and 68,385,637 shares issued and outstanding, respectively |
687 | 684 | ||||||
Additional paid in capital |
21,419 | 21,327 | ||||||
Accumulated deficit |
(21,427 | ) | (19,803 | ) | ||||
Accumulated other comprehensive loss |
(38 | ) | (22 | ) | ||||
Total shareholders’ equity |
706 | 2,251 | ||||||
Total liabilities and shareholders’ equity |
$ | 1,631 | $ | 2,536 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
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NON-INVASIVE MONITORING SYSTEMS, INC.
CONSOLIDATED COMPREHENSIVE STATEMENTS OF OPERATIONS
Years ended July 31, 2010 and 2009
(In thousands, except per share data)
| 2010 | 2009 | |||||||
Revenues |
||||||||
Product sales, net |
$ | 449 | $ | 325 | ||||
Royalties |
168 | 219 | ||||||
Research, consulting and warranty |
— | 2 | ||||||
Total revenues |
617 | 546 | ||||||
Operating costs and expenses |
||||||||
Cost of sales |
243 | 250 | ||||||
Selling, general and administrative |
1,899 | 1,949 | ||||||
Research and development |
118 | 176 | ||||||
Total operating costs and expenses |
2,260 | 2,375 | ||||||
Operating loss |
(1,643 | ) | (1,829 | ) | ||||
Other income |
||||||||
Interest income (expense), net |
(16 | ) | (7 | ) | ||||
Other income (expense) |
35 | 68 | ||||||
Total other income |
19 | 61 | ||||||
Net loss |
$ | (1,624 | ) | $ | (1,768 | ) | ||
Other comprehensive loss |
||||||||
Foreign currency translation adjustment |
(16 | ) | (22 | ) | ||||
Comprehensive net loss |
$ | (1,640 | ) | $ | (1,790 | ) | ||
Net loss attributable to common shareholders
and loss per common share: |
||||||||
Net loss |
(1,624 | ) | (1,768 | ) | ||||
Deemed dividend on Series D Preferred
Stock |
— | 1,078 | ||||||
Net loss attributable to common shareholders |
$ | (1,624 | ) | $ | (2,846 | ) | ||
Weighted average number of common
shares outstanding — basic and diluted |
68,497 | 68,051 | ||||||
Basic and diluted loss per common share |
$ | (0.02 | ) | $ | (0.04 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
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NON-INVASIVE MONITORING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years ended July 31, 2010 and 2009
(Dollars in Thousands)
| Accumu- | ||||||||||||||||||||||||||||||||||||||||||||||||
| lated Other | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Additional | Accum- | Compre- | |||||||||||||||||||||||||||||||||||||||||||||
| Series B | Series C | Series D | Common Stock | Paid in | ulated | hensive | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Total | |||||||||||||||||||||||||||||||||||||
Balance at July 31, 2008 |
100 | $ | — | 62,048 | $ | 62 | 1,000 | $ | 1 | 68,039,065 | $ | 680 | $ | 18,256 | $ | (18,035 | ) | $ | — | $ | 964 | |||||||||||||||||||||||||||
Issuance of
series D preferred stock |
— | — | — | — | 1,891 | 2 | — | — | 2,835 | — | — | $ | 2,837 | |||||||||||||||||||||||||||||||||||
Fair value of beneficial conversion feature of Series D Preferred Stock |
— | — | — | — | — | — | — | — | 1,078 | — | — | $ | 1,078 | |||||||||||||||||||||||||||||||||||
Deemed dividend to Series D Preferred Shareholders, charged to additional paid-in-capital in the absence of retained earnings |
— | — | — | — | — | — | — | — | (1,078 | ) | — | — | $ | (1,078 | ) | |||||||||||||||||||||||||||||||||
Common stock issued for cash on exercise of options and warrants |
— | — | — | — | — | — | 338,333 | 4 | 47 | — | — | $ | 51 | |||||||||||||||||||||||||||||||||||
Cashless exercise of 13,333 options |
— | — | — | — | — | — | 8,239 | — | — | — | — | $ | — | |||||||||||||||||||||||||||||||||||
Stock based compensation |
— | — | — | — | — | — | — | — | 189 | — | — | $ | 189 | |||||||||||||||||||||||||||||||||||
Foreign
currency translation adjustment |
— | — | — | — | — | — | — | — | — | — | (22 | ) | $ | (22 | ) | |||||||||||||||||||||||||||||||||
Net loss |
— | — | — | — | — | — | — | — | — | (1,768 | ) | — | $ | (1,768 | ) | |||||||||||||||||||||||||||||||||
Balance at July 31, 2009 |
100 | $ | — | 62,048 | $ | 62 | 2,891 | $ | 3 | 68,385,637 | $ | 684 | $ | 21,327 | $ | (19,803 | ) | $ | (22 | ) | $ | 2,251 | ||||||||||||||||||||||||||
Common stock issued for cash on exercise of options and warrants |
— | — | — | — | — | — | 13,333 | — | 1 | — | — | $ | 1 | |||||||||||||||||||||||||||||||||||
Cashless Exercise of 39,999 options |
— | — | — | — | — | — | 24,195 | — | — | — | — | $ | — | |||||||||||||||||||||||||||||||||||
Conversion of Series D Preferred Stock into Common Stock |
— | — | — | — | (63 | ) | — | 315,000 | 3 | (3 | ) | — | — | $ | — | |||||||||||||||||||||||||||||||||
Stock based compensation |
— | — | — | — | — | — | — | — | 94 | — | — | $ | 94 | |||||||||||||||||||||||||||||||||||
Foreign
currency translation adjustment |
— | — | — | — | — | — | — | — | — | — | (16 | ) | $ | (16 | ) | |||||||||||||||||||||||||||||||||
Net loss |
— | — | — | — | — | — | — | — | — | (1,624 | ) | — | $ | (1,624 | ) | |||||||||||||||||||||||||||||||||
Balance at July 31, 2010 |
100 | $ | — | 62,048 | $ | 62 | 2,828 | $ | 3 | 68,738,165 | $ | 687 | $ | 21,419 | $ | (21,427 | ) | $ | (38 | ) | $ | 706 | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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NON-INVASIVE MONITORING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31, 2010 and 2009
(Dollars in Thousands)
| 2010 | 2009 | |||||||
Operating Activities |
||||||||
Net loss |
$ | (1,624 | ) | $ | (1,768 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Deferred warranty income |
— | (2 | ) | |||||
Depreciation and amortization |
123 | 114 | ||||||
Stock-based compensation expense |
94 | 189 | ||||||
Loss on disposal of assets |
3 | 17 | ||||||
Allowance for doubtful accounts |
— | 10 | ||||||
Inventory valuation adjustment |
35 | 113 | ||||||
Foreign currency transaction gain |
(38 | ) | (85 | ) | ||||
Changes in operating assets and liabilities |
||||||||
Accounts and royalties receivable |
(150 | ) | (24 | ) | ||||
Inventories, net |
145 | (824 | ) | |||||
Advances to contract manufacturer |
54 | 515 | ||||||
Prepaid expenses, deposits and other current assets |
19 | (47 | ) | |||||
Accounts payable and accrued expenses |
23 | (85 | ) | |||||
Customer deposits |
7 | 9 | ||||||
Net cash used in operating activities |
(1,309 | ) | (1,868 | ) | ||||
Investing Activities |
||||||||
Fixed asset purchases |
— | (232 | ) | |||||
Net cash used in investing activities |
— | (232 | ) | |||||
Financing Activities |
||||||||
Net proceeds from issuance of common stock and exercise of options and warrants |
1 | 51 | ||||||
Net proceeds from issuance of preferred stock |
— | 2,837 | ||||||
Net proceeds from issuance of notes payable |
670 | 363 | ||||||
Repayments of notes payable |
(71 | ) | (348 | ) | ||||
Net cash provided by financing activities |
600 | 2,903 | ||||||
Effect of exchange rate changes on cash |
(12 | ) | (3 | ) | ||||
Net increase (decrease) in cash |
(721 | ) | 800 | |||||
Cash, beginning of year |
886 | 86 | ||||||
Cash, end of year |
$ | 165 | $ | 886 | ||||
Supplemental disclosure |
||||||||
Cash paid for interest |
$ | — | $ | 8 | ||||
Supplemental schedule of non-cash financing activities |
||||||||
(Satisfaction) incurrence of liability for tooling development in progress |
$ | — | $ | (142 | ) | |||
Transfer of demonstration units from inventory to fixed assets |
$ | (8 | ) | $ | (31 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
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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 and has licensed the rights to its technology to the SensorMedics division of ViaSys
Healthcare Inc. (which is now a unit of CareFusion Corporation (“SensorMedics”)), and to
VivoMetrics, Inc. (“VivoMetrics”). The Company is now focused on developing and marketing its
Exer-Rest® line of acceleration therapeutic platforms based upon unique, patented whole
body periodic acceleration (“WBPA”) technology. The Exer-Rest line of acceleration therapeutic
platforms currently includes the Exer-Rest AT, AT3800 and AT4700 models.
The US Food and Drug Administration (“FDA”) in January 2009 registered the full Exer-Rest line of
products as Class I (Exempt) Medical Devices as described in the Company’s 510(k) premarket
notification submission. The submission included 23 investigational and clinical studies on the
vasodilatation properties of WBPA, as well as a controlled, four week clinical trial in a group of
patients with chronic aches and pains carried out at the Center of Clinical Epidemiology and
Biostatistics at the University of Pennsylvania Medical School. The submission supported Exer-Rest
safety and efficacy for the cleared intended uses as an aid to temporarily increase local
circulation, to provide temporary relief of minor aches and pains, and local muscle relaxation.
The registration was based upon the FDA’s determination that the Exer-Rest line of devices was
exempt from the premarket notification requirements of the Federal, Food Drug and Cosmetic Act. In
June 2009, the FDA authorized the expansion of intended use claims for the Exer-Rest to include a
claim of reducing morning stiffness. These Exer-Rest registrations in the United States
complement NIMS’ existing international clearance to market the Exer-Rest as a class IIa medical
device (CE120) in Canada, the United Kingdom, the European Economic Area, India, the Middle East
and certain other markets that recognize FDA and/or CE certifications with the intended use
described above plus the claim of improving joint mobility.
Business. The Company receives revenue from royalties on sales of diagnostic monitoring hardware
and software by SensorMedics and VivoMetrics. Additionally, the Company receives revenues from
sales of parts and service and from sales of acceleration therapeutics platforms used for research
purposes. In fiscal year 2009, NIMS began commercial sales of its third generation Exer-Rest
therapeutic platforms.
During the calendar years 2005 to 2007, the Company designed, developed and manufactured the first
Exer-Rest platform (now the Exer-Rest AT), a second generation acceleration therapeutics platform,
and updated its operations to promote the Exer-Rest AT overseas as an aid to improve
circulation and joint mobility and to relieve minor aches and pains.
The Company has developed a third generation of Exer-Rest acceleration therapeutic
platforms (designated the
Exer-Rest
AT3800 and the
Exer-Rest
AT4700) that has been manufactured by Sing Lin Technologies Co. Ltd. (“Sing Lin”) based in Taichung, Taiwan (see
Note 10).
NIMS, an ISO 13485 certified company, began marketing operations in the United States in 2009 upon
receiving the FDA clearance described above. The Company is also permitted to sell Exer-Rest in
Canada, the United Kingdom, the European Economic Area, India, the Middle East and certain other
markets that recognize FDA and/or CE certifications, and began international marketing operations
during fiscal 2008.
The Company’s 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 in the amount of $1.6 million and $1.8 million, respectively, for the
years ended July 31, 2010 and 2009, and has experienced cash outflows from operating activities.
The Company also has an accumulated deficit of $21.4 million as of July 31, 2010, and has
substantial purchase commitments at July 31, 2010 (see note 10). These matters raise substantial
doubt about the Company’s ability to continue as a going concern.
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Although the Company has commenced sales of the Exer-Rest in the United States and has access to
funds under the 2010 Credit Facility (see Note 6), the Company will likely need to generate
additional funds during the next 12 months. Absent any significant revenues from product sales,
additional debt or equity financing will be required for
the Company to continue its business activities, which are currently focused on the production,
marketing and commercial sale of the Exer-Rest. It is management’s intention to obtain any
additional capital needed to continue its business activities through new debt or equity financing,
but there can be no assurance that it will be successful in this regard. The accompanying
consolidated financial statements do not include any adjustments that might be necessary from the
outcome of this uncertainty.
As further discussed in Note 10, the Company in 2010 terminated its agreement with Sing Lin. As of
July 31, 2010, the Company has net receivables of approximately $200,000 from Sing Lin, and tooling
and equipment with a net book value of approximately $283,000 remains in possession of Sing Lin and
its suppliers in Asia. The ultimate realization of these assets is dependent on the Company’s
ability to resolve the issue with Sing Lin, however the accompanying consolidated financial
statements do not include any adjustments that might be necessary from the outcome of this
uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The consolidated financial statements for the years ended July 31, 2010 and 2009
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. 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 that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Such items include input variables for stock
based compensation. 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 includes overnight repurchase agreements securing its depository bank accounts (sweep
accounts) in its cash balances. The Company had approximately $125,000 and $821,000 on deposit in
such sweep accounts at July 31, 2010 and 2009, respectively.
Allowances for Doubtful Accounts. The Company provides an allowance for royalties and other
receivables it believes it may not collect in full. Receivables are written off when they are
deemed to be uncollectible and all collection attempts have ceased. The amount of bad debt
recorded each period and the resulting adequacy of the allowance at the end of each period are
determined using a combination of the Company’s historical loss experience, customer-by-customer
analysis of the Company’s accounts receivable each period and subjective assessments of the
Company’s future bad debt exposure. The Company’s royalties and other receivables as of July 31,
2010 and 2009 in the accompanying consolidated balance sheets are each presented net of an
approximately $10,000 allowance for doubtful accounts.
Inventories. Inventories are stated at lower of cost or market using the first-in, first-out
method, and are evaluated at least annually for impairment. Inventories at July 31, 2010 and 2009
primarily consisted of finished Exer-Rest units and accessories. Provisions for potentially
obsolete or slow-moving inventory are made based on management’s analysis of inventory levels,
historical obsolescence and future sales forecasts.
Tooling and Equipment. These assets are stated at cost and depreciated or amortized using the
straight-line method over their estimated useful lives.
Long-lived Assets. The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. In performing
the review for recoverability, the Company estimates the future undiscounted cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the expected future
cash flows is less than the carrying amount of the assets, an impairment loss is recognized as the
difference between the fair value and the carrying amount of the asset.
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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 Company files its tax
returns as prescribed by the laws of the jurisdictions in which it operates. Tax years ranging
from 2006 to 2009 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.
Revenue Recognition. Revenue from product sales is recognized when persuasive evidence of an
arrangement exists, the goods are shipped and title has transferred, the price is fixed or
determinable, and the collection of the sales proceeds is reasonably assured. The Company
recognizes royalties as they are earned, based on reports from licensees. Research and consulting
revenue and revenue from sales of extended warranties on therapeutic platforms are recognized over
the term of the respective agreements.
Advertising Costs. The Company expenses all costs of advertising and promotions as incurred.
Advertising and promotional costs for the years ended July 31, 2010 and 2009 totaled $64,000 and
$43,000, respectively, and are included in selling, general and administrative costs and expenses
for all periods presented.
Research and Development Costs. Research and development costs are expensed as incurred, and
primarily consist of payments to third parties for research and development of the Exer-Rest device
and regulatory testing costs to obtain FDA approval.
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 for the
years ended July 31, 2010 and 2009, and management estimates that the Company’s accrued warranty
expense at July 31, 2010 will be sufficient to offset claims made for units under warranty.
Stock-based compensation. The Company recognizes all share-based payments, including grants of
stock options, as operating expenses, based on their grant date fair values. Stock-based
compensation expense is recognized over the vesting life of the underlying stock options and is
included in selling, general and administrative costs and expenses in the comprehensive statements
of operations for all periods presented.
Fair Value of Financial Instruments. Fair value estimates discussed herein are based upon certain
market assumptions and pertinent information available to management as of July 31, 2010 and 2009.
The respective carrying value of certain on-balance-sheet financial instruments such as cash and
cash equivalents, royalties and other receivables, accounts payable, accrued expenses and notes
payable approximate fair values because they are short term in nature or they bear current market
interest rates.
Foreign Currency Translation. The functional currency for the Company’s foreign subsidiary is the
local currency. Assets and liabilities are translated at exchange rates in effect at the balance
sheet date while income and expense amounts are translated at average exchange rates during the
period. The resulting foreign currency translation adjustments are disclosed as a separate
component of shareholders’ equity and other comprehensive loss. There were $16,000 and $22,000 of
foreign currency translation losses for the years ended July 31, 2010 and 2009, respectively.
Comprehensive Income (Loss). Comprehensive income (loss) is defined as the change in equity of a
business enterprise during a period from transactions and other events and circumstances from
non-owner sources, including foreign currency translations.
3. INVENTORIES
The Company’s inventory consists of the following (in thousands):
| July 31, 2010 | July 31, 2009 | |||||||
Work-in-progress, including sub-assemblies and spare parts |
$ | 5 | $ | 11 | ||||
Finished goods |
761 | 900 | ||||||
Total inventories |
$ | 766 | $ | 911 | ||||
The Company recorded inventory valuation adjustments of $35,000 and $113,000, respectively, for the
years ended July 31, 2010 and 2009. These adjustments are included in cost of sales in the
accompanying consolidated comprehensive statements of operations.
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4. STOCK-BASED COMPENSATION
The Company measures the cost of employee, officer and director services received in exchange for
an award of equity instruments based on the grant-date fair value of the award. The fair value of
the Company’s stock option awards is expensed over the vesting life of the underlying stock options
using the graded vesting method, with each tranche of vesting options valued separately. The
Company recorded stock based compensation of $94,000 and $189,000, respectively, for the years
ended July 31, 2010 and 2009. All stock based compensation is included in the Company’s selling,
general and administrative costs and expenses.
The Company’s 2000 Stock Option Plan, as amended (the “Plan”), provides for the issuance of up to
2,000,000 shares of the Company’s common stock. The Plan allows the issuance of incentive stock
options, stock appreciation rights and restricted stock awards. The exercise price of the options
is determined by the compensation committee of the Company’s Board of Directors, but incentive
stock options, if any, must be granted at an exercise price not less than the fair market value of
the Company’s common stock as of the grant date or an exercise price of not less than 110% of the
fair value for a 10% shareholder. Options expire up to ten years from the date of the grant and
are exercisable according to the terms of the individual option agreements.
The Company granted 355,000 and 340,000 stock options, respectively, during the years ended July
31, 2010 and 2009. The weighted average grant date fair value of the options granted during 2010
was $0.339 per share and the weighted average grant date fair value of the options granted during
2009 was $0.249 per share. The fair values of options granted are estimated on the date of their
grant using the Black-Scholes option pricing model based on the assumptions included in the table
below. The expected term of stock option awards granted is generally based upon the “simplified”
method for “plain vanilla” options discussed in SEC Staff Accounting Bulletin (“SAB”) No. 107, as
amended by SAB No. 110. The expected volatility is derived from historical volatility of the
Company’s stock on the OTCBB for a period that matches the expected term of the option. The
risk-free interest rate is the yield from a Treasury bond or note corresponding to the expected
term of the option. The Company has not paid cash dividends and does not expect to pay cash
dividends in the future. Forfeiture rates are based on management’s estimates. The fair value of
each option granted during the years ended July 31, 2010 and 2009 was estimated using the following
assumptions:
| Year ended July 31, 2010 | Year ended July 31, 2009 | |||
Expected volatility |
112.21% – 116.86% | 91.63% – 110.18% | ||
Expected dividend yield |
0.00% | 0.00% | ||
Risk-free interest rate |
1.93% – 2.51% | 1.50% – 2.83% | ||
Expected life |
4.0 – 5.5 years | 4.0 – 5.5 years | ||
Forfeiture rate |
2.50% | 0.00% – 2.50% |
A summary of the Company’s stock option activity for the years ended July 31, 2010 and 2009 is as
follows:
| Weighted | Weighted average | |||||||||||||||
| Average | remaining | Aggregate | ||||||||||||||
| Exercise | contractual term | Intrinsic | ||||||||||||||
| Shares | Price | (years) | Value | |||||||||||||
Options outstanding, July 31, 2008 |
2,074,330 | $ | 0.593 | |||||||||||||
Options granted |
340,000 | $ | 0.338 | |||||||||||||
Options exercised |
(26,666 | ) | $ | 0.150 | ||||||||||||
Options forfeited |
(37,500 | ) | $ | 0.400 | ||||||||||||
Options outstanding, July 31, 2009 |
2,350,164 | $ | 0.564 | |||||||||||||
Options granted |
355,000 | $ | 0.430 | |||||||||||||
Options exercised |
(53,332 | ) | $ | 0.150 | ||||||||||||
Options forfeited |
(106,000 | ) | $ | 0.501 | ||||||||||||
Options outstanding, July 31, 2010 |
2,545,832 | $ | 0.557 | 2.93 | $ | 37,633 | ||||||||||
Options expected to vest, July
31, 2010 |
2,511,082 | $ | 0.559 | 2.89 | $ | 37,436 | ||||||||||
Options exercisable, July 31, 2010 |
2,043,332 | $ | 0.594 | 2.12 | $ | 35,083 | ||||||||||
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Of the 2,545,832 options outstanding at July 31, 2010, 1,500,000 were issued under the 2000 Plan
and 1,045,832 were issued outside of shareholder approved plans. All of the options exercised in
the year ended July 31, 2010 were granted outside of shareholder approved plans. All of the
options forfeited in the year ended July 31, 2010 were granted under the 2000 Plan. All of the
options exercised and forfeited during the year ended July 31, 2009 were granted outside of
shareholder approved plans.
For the year ended July 31, 2010, the Company received $1,000 from an existing option holder for
the exercise of options to purchase 13,333 shares of common stock, and 24,195 shares were issued to
other option holders upon the cashless exercise of 39,999 options. For the year ended July 31,
2009, the Company received $2,000 from an existing option holder for the exercise of options to
purchase 13,333 shares of common stock, and 8,239 shares were issued to another option holder upon
the cashless exercise of 13,333 options. The intrinsic value of the 53,332 options exercised for
the year ended July 31, 2010 was $13,000 on the dates exercised, and the intrinsic value of the
26,666 options exercised for the year ended July 31, 2009 was $8,000 on the dates exercised. There
was no tax effect on the exercise of options in the consolidated statements of cash flows because
the Company has a full valuation allowance against its deferred income tax assets.
As of July 31, 2010, there was approximately $111,000 of unrecognized costs related to outstanding
stock options. These costs are expected to be recognized over a weighted average period of 1.94
years.
5. ROYALTIES
The Company is a party to two licensing agreements and receives royalty income from the sale of its
diagnostic monitoring hardware and software from SensorMedics and VivoMetrics.
Royalty income from these licenses amounted to $168,000 and $219,000 for the years ended July 31,
2010 and 2009, respectively. Royalties from SensorMedics amounted to $168,000 and $180,000 for the
years ended July 31, 2010 and 2009, respectively. Royalties from VivoMetrics amounted to $39,000
for the year ended July 31, 2009. VivoMetrics ceased operations in July 2009, filed for Chapter 11
bankruptcy protection in October 2009 and has not made a royalty payment since July 2009.
Aggregate royalties receivable of $15,000 at July 31, 2010 are net of a $10,000 allowance for
doubtful accounts to reserve all outstanding receivables from VivoMetrics.
6. NOTES PAYABLE
2008 Revolver. On August 28, 2008, the Company entered into a Note and Security Agreement (the
“Agreement”) with four persons (the “Lenders”), pursuant to which the Lenders granted the Company a
revolving credit line (the “Revolver”) in the aggregate principal amount of $300,000, secured by
all of the Company’s personal property. The Lenders included a holder of more than 10% of the
Company’s outstanding common stock, a director and executive officer of the Company who also holds
more than 10% of the Company’s outstanding common stock and an entity controlled by the Company’s
Chairman. The Company was permitted to borrow and reborrow from time to time under the Revolver
until October 31, 2008 (the “Maturity Date”). The interest rate payable on amounts outstanding
under the Revolver was 11% per annum, and increased to 16% after the Maturity Date or after an
event of default. All amounts owing under the Revolver were required to be repaid by the Maturity
Date, and amounts outstanding were prepayable at any time. On August 29, 2008, the Company drew
down $300,000 under the Revolver. The Revolver was amended, effective October 31, 2008, to extend
the Maturity Date until November 30, 2008. All principal and interest outstanding under the
Revolver as of November 30, 2008 was repaid with proceeds from the sale of Series D Preferred Stock
on December 1, 2008 as described in Note 7 below.
2010 Credit Facility. On March 31, 2010, the Company entered into a new Note and Security
Agreement (the “Credit Facility Agreement”) with two of the Lenders (the “2010 Lenders”), pursuant
to which the 2010 Lenders granted the Company a revolving credit line (the “Credit Facility”) in
the aggregate principal amount of $1.0 million, secured by all of the Company’s personal property.
The 2010 Lenders include a holder of more than 10% of the Company’s outstanding common stock and an
entity controlled by the Company’s Chairman. The Company is permitted to borrow and reborrow from
time to time under the Credit Facility until March 31, 2011 (the “Credit Facility Maturity Date”).
The interest rate payable on amounts outstanding under the Credit Facility is 11% per annum, and
increases to 16% after the Credit Facility Maturity Date or after an event of default. All amounts
owing under the Credit Facility are required to be repaid by the Credit Facility Maturity Date, and
amounts outstanding are prepayable at any time. As of July 31, 2010, the Company had drawn down
$600,000 under the Credit Facility.
The $33,000 and $34,000 notes payable balances at July 31, 2010 and 2009, respectively, relate to
the third-party financing of certain of the Company’s insurance policies. The notes payable
outstanding as of July 31, 2010 relate to self-amortizing installment loans which mature at various
dates from December 2010 to January 2011. These loans incur interest at annual rates ranging from
5.94% to 8.49%.
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7. SHAREHOLDERS’ EQUITY
For the year ended July 31, 2010, the Company received $1,000 from an existing option holder for
the exercise of options to purchase 13,333 shares of common stock, and 24,195 shares were issued to
other option holders upon the cashless exercise of 39,999 options. The Company also issued 315,000
shares of common stock for the year ended July 31, 2010 upon the conversion of an aggregate of 63
shares of Series D Preferred Stock pursuant to the terms described below. For the year ended July
31, 2009, the Company received $2,000 from an existing option holder for the exercise of options to
purchase 13,333 shares of common stock, and 8,239 shares were issued to another option holder upon
the cashless exercise of 13,333 options. The Company also received $49,000 from an existing
warrant holder for the exercise of warrants to purchase 325,000 shares of common stock for the year
ended July 31, 2009.
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.
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.
December 2008 Offering. In December 2008, the Company sold an aggregate of 491 shares of its
Series D Preferred Stock to certain private investors at a price of $1,500 per share pursuant to
Stock Subscription Agreements entered between December 1, 2008 and December 2, 2008 (the sale of
286 shares closed on December 1, 2008 and the sale of 205 shares closed on December 2, 2008). The
investors in the December 2008 Offering included two directors of the Company, an entity controlled
by the Company’s Chairman and a holder of more than 10% of the Company’s common stock
(collectively, the “Related Party Investors”). The aggregate purchase price for the Series D
Preferred Stock was $736,500, of which $382,500 was paid by the Related Party Investors. Of the
$382,500 paid by the Related Party Investors, $282,200 was paid from the proceeds of their
respective interests in the Revolver described in Note 6 above.
January 2009 Offering. On January 28, 2009, pursuant to Stock Subscription Agreements accepted by
the Company on that date, the Company completed the sale of an aggregate of 1,400 additional shares
of Series D Preferred Stock at a price of $1,500 per share to certain of the Related Party
Investors that participated in the December 2008 offering described above. The aggregate price
paid for the shares issued in the January 2009 offering was $2.1 million.
The Series D Preferred Stock was issued in each of the above transactions at $1,500 per share,
which is equivalent to $0.30 per share of common stock on an “as-converted” basis. The closing
price of the common stock on the OTCBB was $0.36, $0.38 and $0.43, respectively, on each of
December 1, 2008, December 2, 2008 and January 28, 2009, resulting in beneficial conversion
features of $300, $400 and $650, respectively, per share of Series D Preferred Stock on the
respective issue dates. In accordance with GAAP, the $1.1 million aggregate beneficial conversion
feature of the Series D Preferred Stock on the issue dates was deemed a discount on the issuance of
the shares and was recorded as an increase to additional paid in capital in the balance sheet.
Because the Series D Preferred Stock was immediately convertible to common stock, the portion of
the $1.1 million aggregate intrinsic
value applicable to a closing date was deemed a dividend paid to the investors on such closing
date. Such deemed dividends have been recorded as increases in losses attributable to common
shareholders and, in the absence of retained earnings, as reductions of additional paid in capital.
No preferred stock dividends have been declared as of July 31, 2010.
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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, 2010 and 2009, 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:
| July 31, 2010 | July 31, 2009 | |||||||
Stock options |
2,545,832 | 2,350,164 | ||||||
Series C Preferred Stock |
1,551,200 | 1,551,200 | ||||||
Series D Preferred Stock |
14,140,000 | 14,455,000 | ||||||
Total |
18,237,032 | 18,356,364 | ||||||
9. RELATED PARTY TRANSACTIONS
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 current rental payments under the Miami office lease, which commenced January 1, 2008, are
approximately $4,000 per month and escalate 4.5% annually over the life of the lease. For the
years ended July 31, 2010 and 2009, the Company recorded rent expense related to the Miami lease of
$55,000 and $49,000, respectively.
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. The rental payments
under the Hialeah warehouse lease, which commenced February 1, 2009, are approximately $5,000 per
month for the first year and escalate 3.5% annually over the life of the lease. The Company
recorded $54,000 and $29,000 of rent expense related to the Hialeah lease for the years ended July
31, 2010 and 2009, respectively.
As more fully described in Note 6, the Company entered into a $1.0 million Credit Facility in March
2010 with both an entity controlled by Dr. Frost and an entity controlled by Dr. Hsiao. Advances
under the Credit Facility totaled $600,000 and $0 for the years ended July 31, 2010 and 2009,
respectively, and $600,000 was outstanding as of July 31, 2010. The Company accrued interest
expense related to the Credit Facility of approximately $17,000 for the year ended July 31, 2010,
and such $17,000 interest payable amount remained outstanding as of July 31, 2010.
Dr. Hsiao, Dr. Frost and directors Steven Rubin and Rao Uppaluri are each significant stockholders,
officers and/or directors of SafeStitch Medical, Inc. (“SafeStitch”), a publicly-traded,
developmental-stage medical device manufacturer, Aero Pharmaceuticals, Inc. (“Aero”), a privately
held pharmaceutical distributor, Cardo Medical, Inc. (“Cardo”), a publicly-traded medical device
company, and SearchMedia Holdings Limited (“SearchMedia”), a publicly-traded media company
operating primarily in China. The Company’s Chief Financial Officer also serves as the Chief
Financial Officer and supervises the accounting staffs of SafeStitch and Aero under a
board-approved cost sharing arrangement whereby the total salaries of the accounting staffs of
NIMS, SafeStitch and Aero are shared. Since December 2009, the Company’s Chief Legal Officer has
served under a similar board-approved cost sharing arrangement as Corporate Counsel of SearchMedia
and as the Chief Legal Officer of each of SafeStitch and Cardo. The Company recorded additions to
selling, general and administrative costs and expenses to account for the sharing of costs under
these arrangements of $53,000 and $42,000 for the years ended July 31, 2010 and 2009, respectively.
Aggregate accounts payable to SafeStitch totaled approximately $10,000 and $3,000 at July 31, 2010
and 2009, respectively.
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Dr. Frost and Dr. Marvin Sackner, the Company’s President, Chief Executive Officer and a director,
each serves as a director of Continucare Corporation (“Continucare”), a publicly-traded provider of
outpatient healthcare services. The Company markets its products to Continucare and other
healthcare service providers in the normal course of business. For the year ended July 31, 2010,
the Company recorded net product sales revenues to Continucare of approximately $22,000. No such
revenues were recorded for the year ended July 31, 2009. These related party sales were approved
by the Company’s Audit Committee. No accounts receivable from Continucare were outstanding as of
July 31, 2010.
During 2008 and until August 2009, Dr. Hsiao served as a director of Great Eastern Bank of Florida,
a bank where the Company maintains a bank account in the normal course of business. As of July 31,
2010 and 2009, the Company had approximately $150,000 and $846,000 on deposit with Great Eastern
Bank of Florida. Approximately $125,000 and $821,000 of these balances were collateralized by
repurchase contracts for US Government securities at July 31, 2010 and 2009, respectively.
10. COMMITMENTS
Leases.
The Company is obligated under various operating lease agreements for office, warehouse and retail
space. Generally, the lease agreements require the payment of base rent plus escalations for
increases in building operating costs and real estate taxes. Rental expense under these operating
leases amounted to $129,000 and $106,000 for the years ended July 31, 2010 and 2009, respectively.
At July 31, 2010, the Company was obligated under non-cancellable operating leases to make future
minimum lease payments (excluding sales taxes) as follows:
| Year Ending July 31, | ||||
2011 |
$ | 130,000 | ||
2012 |
105,000 | |||
2013 |
32,000 | |||
2014 |
— | |||
| $ | 267,000 | |||
Product Development and Supply Agreement.
On September 4, 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. These
amounts have been recorded as tooling costs, and are included in tooling and equipment, net. The
net book value of the tooling at July 31, 2010 was approximately $283,000.
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 has agreed not to sell the
Products outside its geographic areas in the Far East.
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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, 2010, the Company had paid Sing Lin $1.7
million in connection with orders placed through that date. Of this amount, $90,000 is included in
advances to contract manufacturer in the accompanying consolidated financial statements. As of
July 31, 2010, the Company has approximately $110,000 of net receivables from Sing Lin. As of July
31, 2010, aggregate minimum future purchases under the Agreement totaled approximately $13.9
million.
As of July 31, 2010, 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. There can be no assurance that Sing Lin will not attempt to enforce
its remedies under the Agreement, or pursue other potential remedies.
11. LONG-LIVED ASSETS
The Company’s long-lived assets include furniture and equipment, computers, tooling, websites and
software, leasehold improvements, patents and trademarks. Tooling and equipment, net of
accumulated depreciation, consisted of the following at July 31, 2010 and 2009 (in thousands):
| Estimated | July 31, | July 31, | ||||||||||
| Useful Life | 2010 | 2009 | ||||||||||
Tooling and equipment (Note 10) |
5 years | $ | 471 | $ | 471 | |||||||
Furniture and fixtures, leasehold
improvements, office equipment and
computers |
3 – 5 years | 99 | 94 | |||||||||
Website and software |
3 years | 26 | 26 | |||||||||
| 596 | 591 | |||||||||||
Less accumulated depreciation |
(254 | ) | (131 | ) | ||||||||
Tooling and equipment, net |
$ | 342 | $ | 460 | ||||||||
Depreciation expense was $123,000 and $114,000 for the years ended July 31, 2010 and 2009,
respectively. Depreciation on the tooling commenced in August 2008 based upon an estimated useful
life of five years. Thirteen Exer-Rest AT3800 and AT4700 demonstration units are included in
furniture and fixtures at an aggregate cost of $40,000. These units were placed in service in
fiscal 2009 and 2010, and are being depreciated based upon five-year estimated useful lives. Five
Exer-Rest AT demonstration units were disposed of in the year ended July 31, 2009 and the Company
recorded an aggregate $17,000 loss on the disposals, which is included in other expense in the
accompanying consolidated comprehensive statements of operations. As of July 31, 2010, tooling and
equipment with a net book value of approximately $283,000 remains in possession of Sing Lin and its
suppliers in Asia. The ultimate realization of these assets is dependent on the Company’s ability to
resolve the issue with Sing Lin, and no amounts have been provided for potential losses on these
assets.
Patents and trademarks had been fully amortized as of October 31, 2007, and the Company did not
record any amortization expense for the fiscal years ended July 31, 2010 and 2009.
12. 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.
Effective August 1, 2007, the Company adopted the provisions of an accounting standard on
uncertainty in income taxes which clarifies the accounting for uncertainties in income taxes
recognized in a company’s financial statements and prescribes a recognition threshold and
measurement attribute for financial disclosure of tax positions taken or expected to be taken on a
tax return. In addition, this accounting standard provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
The application of this accounting standard did not impact the Company’s financial position,
results of operations or cash flows for the years ended July 31, 2010 and 2009.
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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 2007 to 2009 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 2006 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.
The difference between income taxes at the statutory federal income tax rate and income taxes
reported in the consolidated statements of operations are attributable to the following:
| July 31, 2010 | July 31, 2009 | |||||||
Income tax benefit at the federal statutory rate |
34.00 | % | 34.00 | % | ||||
State and local income taxes, net of effect of federal taxes |
3.11 | 3.22 | ||||||
Expiration of net operating losses |
(0.11 | ) | (18.33 | ) | ||||
Other, net |
(0.40 | ) | (0.40 | ) | ||||
Increase in valuation allowance |
(36.60 | ) | (18.49 | ) | ||||
Provision for income tax |
0.00 | % | 0.00 | % | ||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets consist of the following (in thousands):
| July 31, 2010 | July 31, 2009 | |||||||
Federal and State net operating loss |
$ | 4,568 | $ | 4,038 | ||||
Foreign net operating loss |
145 | 61 | ||||||
Stock-based compensation and other |
354 | 359 | ||||||
| 5,067 | 4,458 | |||||||
Less: Valuation allowance |
(5,067 | ) | (4,458 | ) | ||||
Net deferred tax asset |
$ | — | $ | — | ||||
At July 31, 2010, the Company had available Federal and State net operating loss carry forwards of
approximately $12.1 million and Foreign net operating loss carry forwards of approximately $0.5
million which expire in various years through 2030. Total Federal and State net operating loss
carry forwards include approximately $2.0 million generated from the exercise of non-statutory
stock options. 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 $5.1 million valuation allowance at July 31, 2010 ($4.5
million at July 31, 2009) was necessary. The increases in the valuation allowance for the years
ended July 31, 2010 and 2009 were $600,000 and $330,000, respectively. Of the total increase in
the valuation allowance for the years ended July 31, 2010 and 2009, approximately $5,000 and
$3,000, respectively, was attributed to the exercise of non-statutory stock options.
The Company paid no income taxes in 2010 or 2009.
The following table reconciles the Company’s losses before income taxes by jurisdiction (in
thousands):
| Year Ended | Year Ended | |||||||
| July 31, 2010 | July 31, 2009 | |||||||
U.S. |
$ | (1,395 | ) | $ | (1,578 | ) | ||
Foreign |
(229 | ) | (190 | ) | ||||
Total |
$ | (1,624 | ) | $ | (1,768 | ) | ||
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13. EMPLOYEE BENEFIT PLANS
Effective July 2008, the Non-Invasive Monitoring Systems 401(k) Plan (the “401k Plan”) permits
employees to contribute up to 100% of qualified annual compensation up to annual statutory
limitations. Employee contributions may be made on a pre-tax basis to a regular 401(k) account, or
on an after-tax basis to a “Roth” 401(k) account. The
Company will contribute to the 401k Plan a “safe harbor” match of 100% of each participant’s
contributions to the 401k Plan up to a maximum of 4% of the participant’s qualified annual
earnings. For the years ended July 31, 2010 and 2009, the Company recorded compensation expense
related to matching contributions to the 401k Plan totaling approximately $19,000 and $15,000,
respectively.
14. CONCENTRATIONS OF RISK
Financial instruments that potentially subject the Company to risk consist principally of cash,
royalties and other receivables, and purchases and advances to contract manufacturer.
Cash. The Company at times may have cash deposits in excess of the Federal Deposit Insurance
Corporation (“FDIC”) limit. The Company maintains its cash with banks and deposits above the FDIC
limit are maintained in sweep accounts collateralized by overnight repurchase agreements. The
Company has not experienced losses on these accounts and management believes that the Company is
not exposed to significant risks on such accounts.
Royalties and Other Receivables. The Company currently grants credit to a limited number of
customers, substantially all of whom are corporations and medical providers located throughout the
United States and Canada. The Company typically does not require collateral from these customers.
Purchases from and Advances to Contract Manufacturer. Virtually 100% of the Company’s active
inventory has been acquired from Sing Lin pursuant to the now-terminated Agreement. Advances and
accounts payable to Sing Lin at July 31, 2010 were approximately $90,000 and $41,000, respectively.
Should Sing Lin be unable or unwilling to deliver inventory orders to the Company, the loss of
funds advanced and delayed product deliveries could have a material adverse effect on the Company’s
consolidated financial position, results of operations and liquidity. The Company notified Sing
Lin in June 2010 that it was terminating the agreement effective September 2010. If the Company is
unable to establish a contract and obtain a sufficient alternative supply from Sing Lin or another
supplier, it may not be able to procure additional inventory on a timely basis or in the quantities
required. Sing Lin and its subcontractors currently maintain custody of the Company’s specialized
tooling, which could adversely impact the Company’s ability to reallocate production to other
vendors.
Major Customers. Approximately 28% of the Company’s revenues result from sales to authorized distributors outside the United States. Sales to foreign distributors generally require prepayment or letter of credit guarantees. Because Sing Lin served as both a vendor and a customer prior to the termination of the Agreement, the Company extended credit terms to Sing Lin and offsets collections from Sing Lin for sales against payments to Sing Lin for inventory purchases. For the year ended July 31, 2010, Sing Lin accounted for approximately 25% of the Company’s total revenues, and accounts receivable from Sing Lin at July 31, 2010 were approximately $152,000, representing approximately 72% of total accounts receivable. It is uncertain whether Sing Lin will continue to act as the Company’s authorized distributor in Asia, and the loss of Sing Lin as a customer could have a material adverse effect on the Company’s consolidated financial position, results of operations and liquidity.
15. RECENT ACCOUNTING PRONOUNCEMENTS
Noncontrolling Interests — Effective August 1, 2009, the Company adopted authoritative guidance
which established accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. The adoption of this guidance has not
had a material impact on the Company’s consolidated financial statements.
Codification — In June 2009, the Financial Accounting Standards Board (“FASB”) established the FASB
Accounting Standards Codification™ (“Codification”) as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in accordance with GAAP. All existing accounting standard documents are
superseded by the Codification and any accounting literature not included in the Codification will
not be authoritative. However, rules and interpretive releases of the SEC issued under the
authority of federal securities laws will continue to be sources of authoritative GAAP for SEC
registrants. The Codification became effective beginning with the Company’s first fiscal quarter
of 2010. The Codification does not change or alter existing GAAP and, therefore, has not had any
impact on the Company’s consolidated financial statements.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A(T). Controls and Procedures.
The Company’s management, with the participation of its 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, 2010. Based upon that evaluation, the 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, 2010, 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, 2010, our internal control over financial
reporting was effective.
This annual report does not include an attestation report of our registered public accounting
firm, Morrison, Brown, Argiz & Farra, 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 Controls 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. Other Information.
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item is incorporated by reference to the definitive proxy
statement for our 2011 Annual Meeting of Shareholders to be filed with the SEC within 120 days of
July 31, 2010.
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to the definitive proxy
statement for our 2011 Annual Meeting of Shareholders to be filed with the SEC within 120 days of
July 31, 2010.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information required by this Item is incorporated by reference to the definitive proxy
statement for our 2011 Annual Meeting of Shareholders to be filed with the SEC within 120 days of
July 31, 2010.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated by reference to the definitive proxy
statement for our 2011 Annual Meeting of Shareholders to be filed with the SEC within 120 days of
July 31, 2010.
Item 14. Principal Accountant Fees and Services.
The information required by this Item is incorporated by reference to the definitive proxy
statement for our 2011 Annual Meeting of Shareholders to be filed with the SEC within 120 days of
July 31, 2010.
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Table of Contents
PART IV
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.
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Table of Contents
SIGNATURES
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.
| NON-INVASIVE MONITORING SYSTEMS, INC. |
||||
| Date: October 29, 2010 | By: | /s/ Marvin A. Sackner, M.D. | ||
| Marvin A. Sackner, M.D. | ||||
| Chief Executive Officer and President | ||||
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/ Marvin A. Sackner, M.D.
|
Chief Executive Officer and
President (Principal Executive Officer) |
October 29, 2010 | ||
/s/ Jane H. Hsiao, Ph.D.
|
Chairman of the Board of Directors | October 29, 2010 | ||
/s/ Taffy Gould
|
Director | October 29, 2010 | ||
/s/ Morton J. Robinson, M.D.
|
Director | October 29, 2010 | ||
/s/ Steven D. Rubin
|
Director | October 29, 2010 | ||
/s/ Subbarao Uppaluri
|
Director | October 29, 2010 | ||
/s/ Adam S. Jackson
|
Chief Financial Officer (Principal Financial Officer) |
October 29, 2010 |
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Table of Contents
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) |
|||
| 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) |
|||
| 10.9 | Offer Letter from the Company to Steven B. Mrha dated December 21, 2007 and executed on December
22, 2007 detailing the terms of employment of Mr. Mrha (incorporated by reference from Exhibit 10.1
to Form 8-K filed on December 27, 2007) |
|||
| 10.10 | Offer Letter from the Company to Adam S. Jackson dated March 11, 2008 (incorporated by reference
from Exhibit 10.1 to the Form 8-K filed on May 15, 2008) |
|||
| 10.11 | Offer Letter from SafeStitch Medical, Inc. to Adam S. Jackson, dated March 11, 2008 (incorporated
by reference to the Current Report on Form 8-K filed by SafeStitch Medical, Inc. on April 4, 2008) |
|||
| 10.12 | 2000 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). |
|||
| 10.15 | 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). |
|||
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Table of Contents
| Exhibit No. | Description of Exhibits | |||
| 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 |
47