NON INVASIVE MONITORING SYSTEMS INC /FL/ - Quarter Report: 2011 October (Form 10-Q)
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-Q
(Mark
One) |
| þ | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
for
the Quarterly Period ended October 31, 2011
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 000-13176
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)
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (305) 575-4200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
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
68,922,423 shares of the Company’s common stock, par value $0.01 per share, were outstanding
as of December 14, 2011.
NON-INVASIVE MONITORING SYSTEMS, INC.
TABLE OF CONTENTS FOR FORM 10-Q
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NON-INVASIVE MONITORING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(In thousands, except share and per share data)
| October 31, 2011 | July 31, 2011 | |||||||
| (Unaudited) | ||||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash |
$ | 109 | $ | 64 | ||||
Royalties and other receivables, net |
46 | 69 | ||||||
Inventories, net |
523 | 531 | ||||||
Prepaid expenses, deposits, and other current assets |
28 | 31 | ||||||
Total current assets |
706 | 695 | ||||||
Tooling and equipment, net |
22 | 28 | ||||||
Total assets |
$ | 728 | $ | 723 | ||||
LIABILITIES AND SHAREHOLDERS’ DEFICIT |
||||||||
Current liabilities |
||||||||
Notes payable — Related Party |
$ | 1,000 | $ | 1,000 | ||||
Notes payable — other |
100 | 50 | ||||||
Accounts payable and accrued expenses |
435 | 326 | ||||||
Total current liabilities |
1,535 | 1,376 | ||||||
Total liabilities |
$ | 1,535 | $ | 1,376 | ||||
Shareholders’ deficit |
||||||||
Series B Preferred Stock, par value $1.00 per share;
100 shares authorized, issued and outstanding; liquidation preference $10 |
— | — | ||||||
Series C Convertible Preferred Stock, par value $1.00 per share;
62,048 shares authorized, issued and outstanding; liquidation preference $62 |
62 | 62 | ||||||
Series D Convertible Preferred Stock, par value $1.00 per share; 5,500 shares authorized;
2,795 shares issued and outstanding as of October 31, 2011 and July 31, 2011;
liquidation preference $4,193 of October 31, 2011 and July 31, 2011 |
3 | 3 | ||||||
Common Stock, par value $0.01 per share; 100,000,000 shares authorized;
68,922,423 shares issued and outstanding as of October 31, 2011 and July 31, 2011,
respectively |
689 | 689 | ||||||
Additional paid in capital |
21,495 | 21,487 | ||||||
Accumulated deficit |
(23,000 | ) | (22,819 | ) | ||||
Accumulated other comprehensive loss |
(56 | ) | (75 | ) | ||||
Total shareholders’ deficit |
(807 | ) | (653 | ) | ||||
Total liabilities and shareholders’ deficit |
$ | 728 | $ | 723 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NON-INVASIVE MONITORING SYSTEMS, INC.
CONDENSED CONSOLIDATED COMPREHENSIVE STATEMENTS OF OPERATIONS
— Unaudited
(In thousands, except per share amounts)
(In thousands, except per share amounts)
| Three months ended October 31, | ||||||||
| 2011 | 2010 | |||||||
Revenues |
||||||||
Product sales, net |
$ | 32 | $ | 124 | ||||
Royalties |
32 | 48 | ||||||
Total revenues |
64 | 172 | ||||||
Operating costs and expenses |
||||||||
Cost of sales |
9 | 45 | ||||||
Selling, general and administrative |
173 | 462 | ||||||
Research and development |
7 | 11 | ||||||
Total operating costs and expenses |
189 | 518 | ||||||
Operating loss |
(125 | ) | (346 | ) | ||||
Other income (expense) |
||||||||
Interest expense, net |
(34 | ) | (19 | ) | ||||
Other income (expense) |
(22 | ) | 11 | |||||
Total other income (expense) |
(56 | ) | (8 | ) | ||||
Net loss |
$ | (181 | ) | $ | (354 | ) | ||
Other comprehensive income (loss) |
||||||||
Foreign currency translation adjustment |
19 | (6 | ) | |||||
Comprehensive net loss |
$ | (162 | ) | $ | (360 | ) | ||
Net loss attributable to common shareholders |
$ | (181 | ) | $ | (354 | ) | ||
Weighted average number of common
shares outstanding — basic and diluted |
68,922 | 68,817 | ||||||
Basic and diluted loss per common share |
$ | (0.00 | ) | $ | (0.01 | ) | ||
The accompanying notes are an integral part of these unaudited condensed consolidated
financial statements.
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NON-INVASIVE MONITORING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
— Unaudited
For the three months ended October 31, 2011
(Dollars in Thousands)
| Accumu- | ||||||||||||||||||||||||||||||||||||||||||||||||
| lated Other | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Additional | Accumu- | Compre- | |||||||||||||||||||||||||||||||||||||||||||||
| Series B | Series C | Series D | Common Stock | Paid in | lated | hensive | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Total | |||||||||||||||||||||||||||||||||||||
Balance at July 31, 2011 |
100 | $ | — | 62,048 | $ | 62 | 2,795 | $ | 3 | 68,922,423 | $ | 689 | $ | 21,487 | ($22,819 | ) | $ | (75 | ) | $ | (653 | ) | ||||||||||||||||||||||||||
Stock-based compensation |
— | — | — | — | — | — | — | — | 8 | — | — | 8 | ||||||||||||||||||||||||||||||||||||
Currency translation adjustment |
— | — | — | — | — | — | — | — | — | — | 19 | 19 | ||||||||||||||||||||||||||||||||||||
Net loss |
— | — | — | — | — | — | — | — | — | (181 | ) | — | (181 | ) | ||||||||||||||||||||||||||||||||||
Balance at October 31, 2011 |
100 | $ | — | 62,048 | $ | 62 | 2,795 | $ | 3 | 68,922,423 | $ | 689 | $ | 21,495 | ($23,000 | ) | $ | (56 | ) | $ | (807 | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NON-INVASIVE MONITORING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
— Unaudited
(Dollars in thousands)
(Dollars in thousands)
Three months ended October 31, 2011 and 2010
| 2011 | 2010 | |||||||
Operating activities |
||||||||
Net loss |
$ | (181 | ) | $ | (354 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities |
||||||||
Depreciation and amortization |
6 | 31 | ||||||
Stock-based compensation expense |
8 | 22 | ||||||
Foreign currency transaction gain |
22 | (11 | ) | |||||
Changes in operating assets and liabilities |
||||||||
Accounts and royalties receivable, net |
21 | (17 | ) | |||||
Inventories, net |
6 | 46 | ||||||
Prepaid expenses, deposits and other current assets |
3 | 26 | ||||||
Accounts payable and accrued expenses |
109 | 40 | ||||||
Customer deposits |
— | (15 | ) | |||||
Net cash used in operating activities |
(6 | ) | (232 | ) | ||||
Financing activities |
||||||||
Net proceeds from issuance of notes payable |
50 | 200 | ||||||
Repayments of notes payable |
— | (21 | ) | |||||
Net cash provided by financing activities |
50 | 179 | ||||||
Effect of exchange rate changes on cash |
1 | (1 | ) | |||||
Net increase (decrease) in cash |
45 | (54 | ) | |||||
Cash, beginning of period |
64 | 165 | ||||||
Cash, end of period |
$ | 109 | $ | 111 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
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NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
October 31, 2011
The following (a) condensed consolidated balance sheet as of July 31, 2011, which has been
derived from audited financial statements, and (b) the unaudited condensed consolidated interim
financial statements included herein have been prepared by Non-Invasive Monitoring Systems, Inc.
(together with its consolidated subsidiaries, the “Company” or “NIMS”) in accordance with
accounting principles generally accepted in the United States (“GAAP”) for interim financial
information and the instructions to the quarterly report on Form 10-Q and Rule 8-03 of
Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. These statements reflect adjustments, all of which
are of a normal, recurring nature, and which are, in the opinion of management, necessary to
present fairly the Company’s financial position as of October 31, 2011, and results of
operations and cash flows for the interim periods ended October 31, 2011 and 2010. The results
of operations for the three months ended October 31, 2011, are not necessarily indicative of the
results for a full year. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with GAAP have been condensed or omitted. The
Company’s accounting policies continue unchanged from July 31, 2011. These financial statements
should be read in conjunction with the financial statements and notes thereto included in the
Company’s annual report on Form 10-K for the year ended July 31, 2011.
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. 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.
Business. The Company is developing and marketing its Exer-Rest® line of
acceleration therapeutic platforms based upon unique, patented whole body periodic acceleration
(“WBPA”) technology. The Exer-Rest line of acceleration therapeutic platforms currently
includes the Exer-Rest AT, AT3800 and AT4700 models.
The Company received revenue from royalties on sales of diagnostic monitoring hardware and
software by SensorMedics and from VivoMetrics in prior years. VivoMetrics ceased operations in
July 2009 and filed for Chapter 11 bankruptcy protection in October 2009. Under VivoMetrics’
proposed bankruptcy plan of reorganization, our license with VivoMetrics was assigned to another
company; however, there can be no assurance as to the future amount of royalty revenue, if any,
that we may derive from this license or from our existing license with SensorMedics.
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. 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 unaudited condensed consolidated
financial statements, the Company had net losses in the amount of $0.2 million and $0.4 million
for each of the three month periods ended October 31, 2011 and 2010, and has experienced
significant cash outflows from operating activities. The Company also has an accumulated
deficit of $23.0 million as of October 31, 2011, and has substantial purchase commitments at
October 31, 2011 (see note 10). The Company had $109,000 of cash at October 31, 2011 and
negative working capital of approximately $829,000. These matters raise substantial doubt about
the Company’s ability to continue as a going concern.
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NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
October 31, 2011
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. Management intends 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 condensed 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, 2011, the Company has payables due to Sing Lin of approximately $41,000. The
Company also recorded a $430,000 impairment loss on the value of its assets related to Sing Lin
(Note 10) during the year ended July 31, 2011.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The condensed consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Non-Invasive Monitoring Systems of
Florida, Inc., which has no current operations, and NIMS of Canada, Inc., a Canadian
corporation. All material inter-company accounts and transactions have been eliminated in
consolidation.
Use of Estimates. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) requires management to
make estimates and assumptions, such as accounts receivable, warranty accrual, deferred taxes,
and the input variables for stock based compensation as estimates, that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses during the
reporting period. 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. At October 31, 2011 and July 31, 2011, the Company had
approximately $109,000 and $64,000, respectively, on deposit in such sweep accounts.
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.
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 October 31, 2011 and
July 31, 2011 primarily consist of finished Exer-Rest units, spare parts and accessories.
Provisions for potentially obsolete or slow-moving inventory are made based on management’s
analysis of inventory levels, historical obsolescence and future sales forecasts.
Tooling and Equipment. These assets are stated at cost and depreciated or amortized using the
straight-line method, over their estimated useful lives.
Long-lived Assets. The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. In
performing the review for recoverability, the Company estimates the future undiscounted cash
flows expected to result from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows is less than the carrying amount of the assets, an impairment
loss is recognized as the difference between the fair value and the carrying amount of the
asset.
Taxes Assessed on Revenue-Producing Transactions. The Company presents
sales taxes assessed on revenue-producing transactions between a seller and customer using the net presentation; thus, sales and cost of revenues are not affected by such taxes.
Income Taxes. The Company provides for income taxes using an asset and liability based
approach. Deferred income tax assets and liabilities are recorded to reflect the tax
consequences in future years of temporary differences between the carrying amounts of assets and
liabilities for financial statement and income tax purposes. 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 2008 to 2010 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.
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NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
October 31, 2011
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 as incurred. Advertising and
promotional costs for the three months ended October 31, 2011 and 2010 totaled $0 and $8,000,
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 and other 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 during the three months ended October 31, 2011 and 2010, and management estimates that
the Company’s accrued warranty expense at October 31, 2011 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 condensed consolidated
comprehensive statements of operations for all periods presented.
Fair Value of Financial Instruments. Fair value estimates discussed herein are based upon
certain market assumptions and pertinent information available to management as of October 31,
2011 and July 31, 2011. 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 stockholders’ deficit and other comprehensive loss. Foreign currency
translation adjustments totaled $19,000 and ($6,000), respectively, for the three months ended
October 31, 2011 and 2010.
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.
Loss Contingencies. We recognize contingent losses that are both probable and estimable. In
this context, we define probability as circumstances under which events are likely to occur. In
regards to legal costs, we record such costs as incurred.
3. INVENTORIES
The Company’s inventory consisted of the following at October 31, 2011 and July 31, 2011
(in thousands):
| October 31, 2011 | July 31, 2011 | |||||||
Work-in-progress, spare parts and accessories |
$ | 4 | $ | 4 | ||||
Finished goods |
519 | 527 | ||||||
Total inventories |
$ | 523 | $ | 531 | ||||
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 $8,000 and $22,000,
respectively, for the three months ended October 31, 2011 and 2010. All stock-based
compensation is included in the Company’s selling, general and administrative costs and
expenses.
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NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
October 31, 2011
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.
In November 2010, the Board and Compensation Committee approved the Non-Invasive Monitoring
Systems, Inc. 2011 Stock Incentive Plan (the “2011 Plan”). Awards granted under the 2011 Plan
may consist of incentive stock options, stock appreciation rights (SAR), restricted stock
grants, restricted stock units (RSU) performance shares, performance units or cash awards. The
2011 Plan authorizes up to 4,000,000 shares of our common stock for issuance pursuant to the
terms of the 2011 Plan. The 2011 Plan has not yet been approved by our shareholders, and no
awards have been granted under the 2011 Plan.
The Company did not grant any stock options during the three months ended October 31, 2011 or
2010. The fair values of options granted are estimated on the date of their grant using the
Black-Scholes option pricing model based on assumptions regarding expected term, volatility,
risk-free interest rates, dividend yield and forfeiture rates. The expected term of stock
option awards granted is generally based upon the “simplified” method for “plain vanilla”
options discussed in SAB No. 107, as amended by SEC Staff Accounting Bulletin No. 110. The
expected volatility is derived from historical volatility of the Company’s stock on the U.S.
over-the-counter bulletin board 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.
A summary of the Company’s stock option activity for the three months ended October 31, 2011 is
as follows:
| Weighted | ||||||||||||||||
| Weighted | average | |||||||||||||||
| Average | remaining | Aggregate | ||||||||||||||
| Exercise | contractual | intrinsic | ||||||||||||||
| Shares | Price | term (years) | Value | |||||||||||||
Options outstanding, July 31, 2011 |
1,841,250 | $ | 0.592 | |||||||||||||
Options granted |
— | n/a | ||||||||||||||
Options exercised |
— | n/a | ||||||||||||||
Options forfeited or expired |
350,000 | $ | 0.569 | |||||||||||||
Options outstanding, October 31, 2011 |
1,491,250 | $ | 0.598 | 2.26 | $ | 9,600 | ||||||||||
Options expected to vest, October
31, 2011 |
1,478,540 | $ | 0.599 | 2.23 | $ | 9,600 | ||||||||||
Options exercisable, October 31, 2011 |
1,313,750 | $ | 0.624 | 1.88 | $ | 9,600 | ||||||||||
Of the 1,491,250 options outstanding at October 31, 2011, 498,750 were issued under the 2000
Plan and 992,500 were issued outside of shareholder approved plans. There were no options
exercised or expired during the three month period ended October 31, 2011 and 2010. There were
350,000 and 40,000 options forfeited during the three month periods ending October 31, 2011 and
2010, respectively, as a result of employee terminations.
As of October 31, 2011, there was $35,000 of unrecognized costs related to outstanding stock
options. These costs are expected to be recognized over a weighted average period of 1.55
years.
5. ROYALTIES
The Company is a party to two licensing agreements with SensorMedics and VivoMetrics. The
Company receives royalty income from the sale of its diagnostic monitoring hardware and software
from SensorMedics. Royalty income from the SensorMedics license amounted to $32,000 and $48,000
for the three months ended October 31, 2011 and 2010, respectively. No royalties from
VivoMetrics were recognized for the three months ended October 31, 2011 and 2010, respectively.
VivoMetrics ceased operations in July 2009 and filed for Chapter 11 bankruptcy protection in
October 2009. Under
VivoMetrics’ proposed bankruptcy plan of reorganization, our license with VivoMetrics was
assigned to another company; however, there can be no assurance as to the future amount of
royalty income, if any, that may result from this license.
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NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
October 31, 2011
6. NOTES PAYABLE
2010 Credit Facility. On March 31, 2010, the Company entered into a new Note and Security
Agreement with Frost Gamma Investments Trust, a trust controlled by Dr. Phillip Frost, which
beneficially owns in excess of 10% of the Company’s common stock, and Hsu Gamma Hsu Gamma
Investments, LP, an entity controlled by the Company’s Chairman (together, the “Lenders”),
pursuant to which the Lenders have provided a revolving credit line (the “Credit Facility”) in
the aggregate principal amount of up to $1.0 million, secured by all of the Company’s personal
property. The Company is permitted to borrow and reborrow from time to time under the Credit
Facility until July 31, 2012 (the “Credit Facility Maturity Date”). The interest rate payable
on amounts outstanding under the Credit Facility is 11% per annum, and increases to 16% per
annum after the Credit Facility Maturity Date or after an event of default. All amounts owing
under the Credit Facility are required to be repaid by the Credit Facility Maturity Date, and
amounts outstanding are prepayable at any time. As of October 31, 2011, the Company had drawn
an aggregate of $1,000,000 under the Credit Facility.
2011 Promissory Notes. On September 12, 2011, the Company entered into two Promissory Notes
(“Promissory Notes”) in the principal amount of $50,000 each with Frost Gamma Investments Trust,
a trust controlled by Dr. Phillip Frost, which beneficially owns in excess of 10% of the
Company’s common stock, and with an unrelated third party for a total of $100,000. The $50,000 promissory note entered into with the unrelated
third party was as a result of a $50,000 advance received by the Company in June 2011. The interest
rate payable by NIMS on both the Frost Gamma Note and the unrelated third party note is 11% per
annum, payable on the maturity date of September 12, 2014. The Company may prepay either or
both notes without premium or penalty.
7. SHAREHOLDERS’ EQUITY
The Company did not issue any shares for the three months ended October 31, 2011. The
Company issued 165,000 shares of common stock for the three months ended October 31, 2010 upon
the conversion of an aggregate of 33 shares of Series D Preferred Stock pursuant to the terms of
the Series D Preferred Stock.
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 three months ended October 31,
2011 and 2010, 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:
| October 31, 2011 | October 31, 2010 | |||||||
Stock options |
1,491,250 | 2,505,832 | ||||||
Series C Preferred Stock |
1,551,200 | 1,551,200 | ||||||
Series D Preferred Stock |
13,975,000 | 13,975,000 | ||||||
Total |
17,017,450 | 18,032,032 | ||||||
9. RELATED PARTY TRANSACTIONS
The Company signed a five year lease for office space in Miami, Florida with a company
owned by Dr. Phillip Frost, who is the beneficial owner of more than 10% of the Company’s Common
Stock. The current rental payments under the Miami office lease, which commenced January 1,
2008, are approximately $5,000 per month and escalate 4.5% annually over the life of the lease.
The Company recorded rent expense related to the Miami lease of approximately $13,000 for the
three months ended October 31, 2011 and 2010.
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NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
October 31, 2011
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 of the Board. The
current rental payments under the Hialeah warehouse lease, which commenced February 1, 2009, are
approximately $5,000 per month and escalate 3.5% annually over the life of the lease. The
Company recorded rent expense related to the Hialeah warehouse of approximately $15,000 for the
three months ended October 31, 2011 and 2010.
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 $0 and $200,000, respectively, for the three months
ended October 31, 2011 and 2010, and $1,000,000 was outstanding as of October 31, 2011 and July
31, 2011. The Company accrued interest expense related to the Credit Facility of approximately
$31,000 for the three months ended October 31, 2010 and approximately $156,000 of accrued
interest remained outstanding at October 31, 2011.
On September 12, 2011, the Company entered into two Promissory Notes in the principal amount of
$50,000 each with Frost Gamma Investments Trust, a trust controlled by Dr. Phillip Frost, which
beneficially owns in excess of 10% of the Company’s common stock, and with an unrelated third
party for a total of $100,000. The interest rate payable by NIMS on both the Frost Gamma Note
and the unrelated third party note is 11% per annum, payable on the maturity date of September
12, 2014. The Company may prepay either or both notes without premium or penalty.
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, Tiger X Medical (formerly known as Cardo
Medical, Inc.) (“Tiger X”), 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 of Safestitch and
Vice President of Finance for Aero, 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 the 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 Tiger X. The
shared employee costs are allocated to the participating companies based on an estimate of the
time each employee is expected to spend in addressing each company’s requirements. The
allocations are reviewed periodically and, if any adjustment to the allocation methodology is
warranted, the proposed adjustments are presented to the Audit Committee or Board of each
company for approval prior to implementation. Effective August 1, 2010, all of the shared
personnel previously employed directly by NIMS were hired by SafeStitch, resulting in a decrease
in NIMS’ payroll and an increase in shared services fees. Aero ceased its participation in the
shared cost arrangement as of July 2011. The Company recorded additions to selling, general and
administrative costs and expenses to account for the sharing of costs under these arrangements
of $10,000 and $42,000, respectively, for the three months ended October 31, 2011, and 2010.
Accounts payable to SafeStitch related to these arrangements totaled approximately $3,200 at
October 31, 2011 and July 31, 2011.
10. COMMITMENTS
Leases.
The Company signed a five year lease for office space in Miami, Florida commencing January 1,
2008. The current rental payments under the Miami office lease are approximately $5,000 per
month and escalate 4.5% annually over the life of the lease. The Company signed a three year
lease for warehouse space in Hialeah, Florida commencing February 1, 2009. The current rental
payments under this warehouse lease are approximately $5,000 per month and escalate 3.5%
annually over the life of the lease.
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.
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NON-INVASIVE MONITORING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
October 31, 2011
Pursuant to the Agreement, Sing Lin designed, developed and manufactured the tooling required to
manufacture the acceleration therapeutic platforms for a total cost to the Company of $471,000.
Sing Lin utilized the tooling in the performance of its production obligations under the
Agreement. The Company paid Sing Lin $150,000 of the tooling cost upon execution of the
Agreement and $150,000 upon the Company’s approval of the product prototype concepts and
designs. The balance of the final tooling cost became due and payable in September 2008 upon
acceptance of the first units produced using the tooling, and was paid in full during the year
ended July 31, 2009.
Under the now-terminated Agreement, the Company also granted Sing Lin the exclusive distribution
rights for the products in certain countries in the Far East, including Taiwan, China, Japan,
South Korea, Malaysia, Indonesia and certain other countries. Sing Lin agreed not to sell the
Products outside its geographic areas in the Far East.
The Agreement provided for the Company to purchase approximately $2.6 million of Exer-Rest units
within one year of the September 2008 acceptance of the final product. The Agreement further
provided for the Company to purchase $4.1 million and $8.8 million of Exer-Rest products in the
second and third years following such acceptance, respectively. These minimum purchase amounts
were based upon 2007 product costs multiplied by volume commitments. Through July 31, 2011, the
Company had paid Sing Lin $1.7 million in connection with orders placed through that date. Of
this amount, $90,000 was previously included as advances to contract manufacturer. As of
October 31, 2011, aggregate minimum future purchases under the Agreement totaled approximately
$13.9 million. As of October 31, 2011, the Company has approximately $41,000 of payables due to
Sing Lin.
As of October 31, 2011, the Company had not placed orders sufficient to meet the first-year or
second-year minimum purchase obligations under the Agreement. The Company notified Sing Lin in
June 2010 that it was terminating the Agreement effective September 2010, and Sing Lin in July
2010 demanded that the Company place orders sufficient to fulfill the three year minimum
purchase obligations in the Agreement. As of November 12, 2011, Sing Lin has not followed up on
its July 2010 demand. There can be no assurance that Sing Lin will not attempt to enforce its
remedies under the Agreement, or pursue other potential remedies.
For the year ended July 31, 2011, the Company recognized a $430,000 impairment loss on assets
relating to Sing Lin due to the uncertainty of recoverability as a result of the termination of
the agreement. The following table summarizes the asset accounts that are included in the
impairment loss:
Accounts receivable — Trade |
$ | 152,000 | ||
Tooling and equipment, net |
$ | 188,000 | ||
Advance to manufacturer |
$ | 90,000 | ||
Impairment Loss |
$ | 430,000 | ||
11. LONG-LIVED ASSETS
The Company’s long-lived assets include furniture and equipment, tooling, websites and
software, leasehold improvements, patents and trademarks. Tooling and equipment, net of
accumulated depreciation, consists of the following at October 31 and July 31, 2011 (in
thousands):
| Estimated | October 31, | July 31, | ||||||||||
| Useful Life | 2011 | 2011 | ||||||||||
Furniture and fixtures, leasehold
improvements, office equipment and
computers |
3 – 5 years | $ | 92 | $ | 92 | |||||||
Website and software |
3 years | 26 | 26 | |||||||||
| 118 | 118 | |||||||||||
Less accumulated depreciation |
(96 | ) | (90 | ) | ||||||||
Tooling and equipment, net |
$ | 22 | $ | 28 | ||||||||
Depreciation expense was $6,000 and $31,000 during the three months ended October 31, 2011 and
2010, respectively. Eleven Exer-Rest AT3800 and AT4700 demonstration units are included in
furniture and fixtures at an aggregate cost of $33,000. These units were placed in service in
fiscal 2009 and 2010, and are being depreciated based upon five-year estimated useful lives.
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NON-INVASIVE MONITORING SYSTEMS, INC
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. |
Cautionary Statement Regarding Forward-looking Statements.
This Interim Report on Form 10-Q contains, in addition to historical information, certain
forward-looking statements regarding Non-Invasive Monitoring Systems, Inc. (the “Company” or
“NIMS,” also referred to as “us”, “we” or “our”). These forward-looking statements represent our
expectations or beliefs concerning the Company’s operations, performance, financial condition,
business strategies, and other information and that involve substantial risks and uncertainties.
For this purpose, any statements contained in this Report that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the generality of the
foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,”
“estimate,” or “continue” or the negative or other variations thereof or comparable terminology are
intended to identify forward-looking statements. The Company’s actual results of operations, some
of which are beyond the Company’s control, could differ materially from the activities and results
implied by the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to the Company’s: history of operating losses and
accumulated deficit; immediate need for additional financing; the Company’s inability to repay the
Credit Facility currently due on July 31, 2012 or Promissory Notes due on September 12, 2014,
dependence on future sales of the Exer-Rest® motion platforms; current and future
purchase commitments; competition; dependence on management; changes in healthcare rules and
regulations; risks related to proprietary rights; government regulation, including regulatory
approvals, the Warning Letter the Company received in March 2011 and the FDA Form 483 received in October 2011; other factors described herein as well as the factors contained in “Item 1A — Risk
Factors” of our Annual Report on Form 10-K for the year ended July 31, 2011. We do not undertake
any obligation to update forward-looking statements, except as required by applicable law. These
forward-looking statements are only predictions and reflect our views as of the date they are made
with respect to future events and financial performance.
Overview
We are 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 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 increased 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.
The development and commercialization of the Exer-Rest has necessitated substantial
expenditures and commitments of capital, and we anticipate expenses and associated losses to
continue for the foreseeable future, as we expect to continue sales efforts in the United States,
Canada, the UK, Europe, India, Mexico, Latin America, the Middle East and the Far East. We will be
required to raise additional capital to fulfill our business plan, but no commitment to raise such
additional capital exists or can be assured. If we are unsuccessful in our efforts to expand sales
and/or raise capital, we will not be able to continue operations.
Products
Whole Body Periodic Acceleration (“WBPA”) Therapeutic Devices
The original AT-101 was a comfortable gurney-styled device that provided movement of a
platform repetitively in a head-to-foot motion at a rapid pace. Sales of the AT-101 commenced in
October 2002 in Japan and in February 2003 in the United States. QTM Incorporated (“QTM”), an FDA
registered manufacturer located in Oldsmar, Florida, manufactured the device, which was built in
accordance with ISO and current Good Manufacturing Practices. As discussed above, we ceased
manufacturing and selling the AT-101 in the United States in January 2005 as we began development
of the Exer-Rest AT. We continued selling our existing inventory of AT-101 devices overseas until
the Exer-Rest AT became available in October 2007, at which time we discontinued marketing of the
AT-101.
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NON-INVASIVE MONITORING SYSTEMS, INC
The Exer-Rest AT is based upon the design and concept of the AT-101, but has the dimensions
and appearance of a commercial extra long twin bed. The Exer-Rest AT, which was also manufactured
by QTM until we stopped production in July 2009, weighs about half as much as the AT-101, has a
much more efficient and less costly drive mechanism, has a much lower
selling price than did the AT-101 and is designed such that the user can utilize and operate
it without assistance. The wired hand held controller provides digital values for speed, travel
and time, rather than analog values for speed and arbitrary force values as in the AT-101. Sales
of the Exer-Rest AT began outside the United States in October 2007 and in the United States in
February 2009. We discontinued manufacturing of the Exer-Rest AT in July 2009, and we expect to
utilize our remaining inventory of these units primarily for research purposes.
The Exer-Rest AT3800 and Exer-Rest AT4700, which were manufactured for us by Sing Lin prior to
the termination of our agreement with them, are next generation versions of the Exer-Rest AT and
further advance the acceleration therapeutic platform technology. The AT3800 (38” wide) and AT4700
(47” wide) models combine improved drive technology for quieter operation, a more comfortable
“memory-foam” mattress, more convenient operation with a multi-function wireless remote and a more
streamlined look to improve the WBPA experience. Sales of the Exer-Rest AT3800 and Exer-Rest
AT4700 platforms began outside the United States in October 2008, and U.S. sales commenced in
February 2009.
LifeShirt®
The LifeShirt is a patented Wearable Physiological Computer that incorporates transducers,
electrodes and sensors into a sleeveless garment. These sensors transmit vital and physiological
signs to a miniaturized, battery-powered, electronic module which saves the raw waveforms and
digital data to the compact flash memory of a Personal Digital Assistant (“PDA”) attached to the
LifeShirt. Users of the LifeShirt can enter symptoms (with intensity), mood and medication
information directly into the PDA for integration with the physiologic information collected by the
LifeShirt garment. The flash memory can then be removed from the LifeShirt and the data uploaded
and converted into minute-by-minute median trends of more than 30 physical and emotional signs of
health and disease. Vital and physiological signs can therefore be obtained non-invasively,
continuously, cheaply and reliably with the comfortably worn LifeShirt garment system while
resting, exercising, working or sleeping. The LifeShirt was sold exclusively by VivoMetrics, but
has not been marketed since VivoMetrics ceased operations in July 2009. Under VivoMetrics’ proposed
bankruptcy plan of reorganization, our license with VivoMetrics was assigned to another company;
however, there can be no assurance as to the future amount of LifeShirt sales, if any, that may
result from this license.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations set
forth below under “Results of Operations” and “Liquidity and Capital Resources” should be read in
conjunction with our financial statements and notes thereto appearing elsewhere in this Form 10-Q.
The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including
those related to royalties, inventory, tooling and equipment and contingencies. The Company’s
accounting policy for loss contingencies complies with ASC 450-20-25-2. 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 our Annual Report on Form
10-K for the year ended July 31, 2011. Actual results may differ from these estimates.
Results of Operations
In January 2005, we began developing the Exer-Rest line of acceleration therapeutic
platforms, which were designed to be more efficient and less expensive than the original AT-101
platform. The Exer-Rest AT platform was first available for delivery to certain
locations outside of the United States in October 2007. Our newest platforms, the Exer-Rest AT3800
and AT4700, which we developed 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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NON-INVASIVE MONITORING SYSTEMS, INC
Three months ended October 31, 2011 compared to three months ended October 31, 2010
Revenues. Total revenues decreased from $172,000 for the three months ended October 31, 2010,
to $64,000 for the three months ended October 31, 2011. This $108,000 decrease resulted from a
$92,000 decrease in product sales and a $16,000 decrease in royalty revenues.
Exer-Rest platform unit sales during the three months ended October 31, 2011 decreased
approximately 80% over the three months ended October 31, 2010. This decrease in product sales was
primarily attributable to reduced sales personnel and a decrease of sales to distributors in the
three months ended October 31, 2011.
Royalties from SensorMedics decreased $16,000 to $32,000 for the three months ended October
31, 2011 from $48,000 for the three months ended October 31, 2010. This decrease was primarily a
result of lower product sales. As discussed above, there can be no assurance that we will receive
any future royalties from the assignment of our license with VivoMetrics.
Cost of Sales. Cost of sales for the three months ended October 31, 2011 and 2010 was $9,000
and $45,000, respectively. This $36,000 decrease was primarily related to the decreased number of
units sold in the first three months of the 2012 fiscal year. As a percentage of revenue, cost of
sales was lower in the three months ended October 31, 2011 primarily because a greater proportion
of units delivered in the three months ended October 31, 2010 were sold to distributors at
discounted prices.
Selling, general and administrative costs and expenses. Selling, general and administrative
(“SG&A”) costs and expenses decreased to $173,000 for the three months ended October 31, 2011 from
$462,000 for the three months ended October 31, 2010. This $289,000 decrease was primarily
attributable to decreases in stock-based compensation expense, payroll expenses, advertising and
trade show expenses, rent and accounting and legal costs attributable to our shared services
arrangement with certain affiliated companies. SG&A costs and expenses include stock-based
compensation expense, which totaled $8,000 for the three months ended October 31, 2011, as compared
to $22,000 for the three months ended October 31, 2010.
Research and development costs and expenses. Research and development (“R&D”) costs and
expenses decreased to $7,000 for the three months ended October 31, 2011 from $11,000 for the three
months ended October 31, 2010, a decrease of $4,000. The higher costs in the three months ended
October 31, 2010 related primarily to costs associated with the commencement of certain clinical
trials.
Total operating costs and expenses. Total operating costs and expenses decreased $329,000
to $189,000 from $518,000 for the three months ended October 31, 2011 and 2010, respectively. This
decrease was primarily attributable to the decrease in cost of sales related to lower sales volume,
as well as the lower SG&A and R&D costs and expenses discussed above.
Interest expense, net. Net interest expense was $34,000 for the three months ended October
31, 2011, as compared to $19,000 for the three months ended October 31, 2010. This $15,000
increase was attributable to the interest accrued on borrowings outstanding on the Credit Facility
during the three months ended October 31, 2011.
Other Income (expense). Other expense was $22,000 for the three months ended October 31,
2011, as compared to income of $11,000 for the three months ended October 31, 2010. This $33,000
decrease was attributable to foreign currency exchange loss.
Liquidity and Capital Resources
Our operations have been primarily financed through private sales of our equity
securities and advances under Credit Facility and Promissory Notes. At October 31, 2011, we had
approximately $109,000 of cash and negative working capital of approximately $829,000. If we are
not able to generate significant additional revenue, we will be required to obtain additional
external financing through public or private equity offerings, debt financings or collaborative
agreements to continue operations beyond December 2011. 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
current climate 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. Additionally, the sales of equity or convertible debt securities may
result in dilution to our stockholders.
Net cash used in operating activities was $6,000 and $232,000 for three months ended October
31, 2011 and 2010, respectively. This $226,000 decrease was principally due to reductions in SG&A
and R&D costs and expenses for the three months ended October 31, 2011.
No cash was used or provided by investing activities for three months ended October 31, 2011
and 2010.
Net cash provided by financing activities was $50,000 and $179,000 for the three months ended
October 31, 2011 and 2010, respectively, primarily from advances under the notes payable
described in Note 6 to the accompanying unaudited condensed consolidated financial statements.
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NON-INVASIVE MONITORING SYSTEMS, INC
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 October 31, 2011, we paid Sing Lin
$1.7 million in connection with orders placed through that date. As of October 31, 2011, 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 October 31, 2011, the Company had payables
due to Sing Lin of approximately $41,000. The Company also recorded a $430,000 impairment charge on
the value of its assets related to Sing Lin for the year ended July 31, 2011 (See Note 10).
2010 Credit Facility. On March 31, 2010, we entered into a new Note and Security Agreement
with Frost Gamma Investments Trust, a trust controlled by Dr. Phillip Frost, which beneficially
owns in excess of 10% of our common stock, and Hsu Gamma Hsu Gamma Investments, LP, an entity
controlled by our Chairman (together, the “Lenders”), pursuant to which the Lenders have provided a
revolving credit line (the “Credit Facility”) in the aggregate principal amount of up to $1.0
million, secured by all of our personal property. We are permitted to borrow and reborrow from
time to time under the Credit Facility until July 31, 2012 (the “Credit Facility Maturity Date”).
The interest rate payable on amounts outstanding under the Credit Facility is 11% per annum, and
increases to 16% per annum after the Credit Facility Maturity Date or after an event of default.
All amounts owing under the Credit Facility are required to be repaid by the Credit Facility
Maturity Date, and amounts outstanding are prepayable at any time. As of October 31, 2011, we had
drawn an aggregate of $1,000,000 under the Credit Facility.
2011 Promissory Notes. On September 12, 2011, the Company entered into two Promissory Notes
(“Promissory Notes”) in the principal amount of $50,000 each with Frost Gamma Investments Trust, a
trust controlled by Dr. Phillip Frost, which beneficially owns in excess of 10% of the Company’s
common stock, and with an unrelated third party for a total of $100,000. The $50,000 promissory note entered into with the unrelated
third party was as a result of a $50,000 advance received by the Company in June 2011. The interest rate payable
by NIMS on both the Frost Gamma Note and the unrelated third party note is 11% per annum, payable
on the maturity date of September 12, 2014. The Company may prepay either or both notes without
premium or penalty.
As of October 11, 2011, we had cash and cash equivalents of approximately $109,000, and did
not have any further funding available under the Credit Facility. If we are unable to generate
significant revenues from sales of Exer-Rest platforms, we will have insufficient funds to repay
debt and continue operations beyond December 2011 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 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not required for smaller reporting companies as defined in Rule 12b-2 of the Exchange
Act.
| ITEM 4. | CONTROLS AND PROCEDURES. |
We carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this
report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures as of October 31, 2011 were effective to
ensure that information required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the Securities and Exchange Commission’s rules and forms.
There were no material changes in our internal controls over financial reporting or in other
factors that could materially affect, or are reasonably likely to affect, our internal controls
over financial reporting during the quarter ended October 31, 2011. 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.
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NON-INVASIVE MONITORING SYSTEMS, INC
PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings |
None.
| Item 1A. | Risk Factors |
None.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
| Item 3. | Defaults upon Senior Securities |
None.
| Item 4. | (Removed and Reserved) |
| Item 5. | Other Information |
None.
| Item 6. | Exhibits Index |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) |
|||
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) |
|||
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002* |
|||
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002* |
|||
| 101.INS | XBRL Instance Document** |
|||
| 101.SCH | XBRL Taxonomy Extension Schema Document** |
|||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** |
|||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document** |
|||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document** |
|||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document** |
|||
| * | Pursuant to Item 601(b)(32) of Regulation S-K, this exhibit
is furnished, rather than filed, with this Quarterly Report on
Form 10-Q. |
|
| ** | Pursuant to Rule 406T of Regulation S-T, these interactive
data files are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the
Securities Act of 1933 or Section 18 of the Securities Act of 1934
and otherwise not subject to liability. |
18
Table of Contents
NON-INVASIVE MONITORING SYSTEMS, INC
SIGNATURES
In accordance with the requirements of the Exchange Act the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: December 15, 2011 | By: | /s/ Dr. Marvin A. Sackner | ||
| Dr. Marvin A. Sackner, Chief Executive Officer | ||||
| Dated: December 15, 2011 | By: | /s/ James J. Martin | ||
| James J. Martin, Chief Financial Officer | ||||
19
Table of Contents
EXHIBIT INDEX
| 31.1 | Certification of Chief Executive Officer pursuant to Rules 13a—14 and 15d-14 under the Securities
Exchange Act of 1934. |
|||
| 31.2 | Certification of Chief Financial Officer pursuant to Rules 13a—14 and 15d-14 under the Securities
Exchange Act of 1934. |
|||
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350 as enacted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. |
|||
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350 as
enacted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. |