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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
1840 West Avenue, Miami Beach, Florida, 33139
(Address of principal executive offices)(Zip Code)
(305) 534-3694
(Registrant's telephone number:)
_______________________
Securities registered pursuant to
Section 12(b) of the Act:
NONE
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
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Check whether the issuer: (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 X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B 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-KSB or any
amendment to this Form 10-KSB [ ].
State issuer's revenues for the most recent fiscal year: $1,632,247
State the aggregate market value of the voting stock held by
non-affiliates of the registrant on October 16, 1995, computed by reference to
the price at which the stock was sold on that date: $1,420,110.
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the registrant's Common Stock, par
value $.01 per share (the "Common Stock"), as of October 16, 1995, was
12,439,731.
Transitional Small Business Disclosure Format:
Yes No X
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PART I
ITEM 1. BUSINESS.
A. General Development of Business.
Non-Invasive Monitoring Systems, Inc. (the "Company" or "Nims") is
engaged in developing, manufacturing and marketing of computer assisted,
non-invasive monitoring devices designed to detect abnormal respiratory,
cardiac, and other medical conditions from sensors placed on the body's
surface.
During fiscal year ended July 31, 1995 the Company continued to focus
efforts on marketing three of its products: 1) Respitrace Plus - a small,
portable respiratory and cardiac monitor, 2) Respicardio Central - a device
which allows the simultaneous monitoring of the respiratory and cardiac
function from a central station monitor to which up to eight individual
Respitrace Plus units can be connected and 3) Respitrends - a personal computer
based software program used in conjunction with the Respitrace Plus for patient
trend data display, analysis, storage and hard copy report. Effective October
1, 1994, the Company granted the exclusive domestic and international marketing
rights for it's products to SensorMedics Corporation ("SMC"), with facilities
located in Yorba Linda, California and Bilthoven, The Netherlands, pursuant to
a one year marketing agreement which expired July 31, 1995. The marketing
agreement with SMC was renegotiated with SMC through August 1997. The
marketing agreement with SMC is more fully described below.
In addition to its three current products, Nims has several products
under development. These products include Respitrace PT, a home breathing
monitor designed to monitor infants prone to Sudden Infant Death Syndrome
("SIDS"). The Respitrace PT in conjunction with RespiEvents software, detects
and alarms for apnea (cessation of breathing), slowing of heartbeat, diminution
of blood oxygen and other indices that might predispose to the onset of SIDS.
Pursuant to an agreement with the Steering Committee of the Collaborative Home
Infant Monitoring Evaluation Study ("CHIME"), Nims has since 1993 supplied 250
Respitrace PT monitors for a study of high risk infants subject to apneas and
SIDS, a study supported by the National Institutes of Health (the"NIH").
As a result of working capital constraints, the Company continued to
downsize operations throughout while focusing its limited resources on the
following areas of activity during fiscal 1995. These areas included: 1) in
connection with the NIH CHIME study vendor of choice production, shipment,
technical involvement and participation as a non-voting member to regular CHIME
Steering Committee meetings 2) servicing the product marketing agreement with
SMC 3) manufacture and sale of current products; including
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disposable items such as Respiband Plus and 4) the submission of 510K
applications to the Food & Drug Administration (FDA) for permission to market
Respitrace PT and RespiEvents as a diagnostic package for sleep disorders in
adults, children and babies. As a result of the shift in marketing efforts to
SMC, and the Company focusing its limited resources on the foregoing areas
during the fiscal year ending July 31, 1995, the Company had limited net income
as opposed to a significant loss in prior years.
During fiscal 1996 the Company expects to focus efforts on the
following areas of activity:
NIH CHIME STUDY
The Company continued its participation during fiscal year ending
July 31, 1995 in the NIH CHIME Study as discussed above. The Company
is engaged with technical involvement and participation in the CHIME
Study and is a non-voting member of the CHIME Steering Committee.
STRATEGIC MARKETING ALLIANCE
The Company's lengthy ongoing attempts at establishing an
appropriate strategic marketing alliance with another concern capable
of effecting sales of Nims products culminated in August 1994 with the
Company entering into a one year exclusive marketing agreement with
SMC. Under the agreement, SMC serves as the exclusive world-wide
distributor for Nims existing products. SMC has the right of first
refusal to market future Company products. SMC is a privately held
medical electronics company that produces instruments for pulmonary
function testing, metabolic measurements, sleep diagnostics, and life
support. SMC has over 30 years experience in the medical device
industry. With research and manufacturing facilities located in Yorba
Linda, California and Bilthoven, The Netherlands, its latest technical
developments include infant pulmonary function systems, high frequency
oscillatory ventilators, disposable pulse oximeter sensors, and
automated diagnostic sleep monitoring equipment. SMC distributes
through 35 direct representatives in the United States, Benelux,
United Kingdom, France and Germany, and uses 50 dealers in other
countries. The one year marketing Agreement expired July 31, 1995.
The marketing agreement was renegotiated with SMC and extended through
August 1997. Under the terms of the agreement, the Company has
granted exclusive world-wide distribution rights (as defined) for
certain products. In return, SMC must purchase minimum quantities of
the Company's products to maintain these exclusive distribution
rights. Pursuant to the marketing agreement, SMC purchases at a
discount of 30% to 50% of
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NIMS published list price.
MANUFACTURE AND SALE
Manufacture of the Company's current products continued during
fiscal year ending July 31, 1995. In addition, manufacture, testing
and shipment was completed on an additional seventy units of the CHIME
study monitors (Respitrace PT) during the first quarter of fiscal
1995.
FDA 510K APPLICATION
In June 1994 Nims submitted to the Food and Drug Administration
("FDA") Center for Devices and Radiological Health, Premarket
Notification for the Company's Respitrace PT system and RespiEvents,
also known as the Event Display Program ("EDP"). This software
program is more fully described in the Products Under Development
section below. The two Premarket Notifications have been assigned by
the FDA the processing numbers K942852 and K942771, respectively, in
accordance with Section 510(k) of the Federal Food, Drug and Cosmetic
Act. On September 12, 1994 Nims received the first reviewer response
and the Company replied to the reviewer questions on November 17,
1994. On March 7, 1995 Nims received a second reviewer response to
which the Company responded on July 28, 1995 and is currently under
review, and as such the Company can give no assurance as to acceptance
by the FDA.
The term the "Company" refers to both the Company and its
subsidiaries, unless the context requires otherwise. The Company's executive
offices are located at 1840 West Avenue, Miami Beach, Florida 33139 and its
telephone number is (305) 534-3694.
B. Financial Information About Industry Segments.
Not applicable.
C. Narrative Description of Business.
Introduction
In recent years, hospitals and other medical facilities are choosing
to make increasing use of non-invasive medical devices to monitor various vital
signs of patients. Non-invasive monitoring devices do not require insertion of
catheters or similar equipment
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into a patient's body and thereby minimize the risk of injury to patients and
health care providers. Through the use of the Company's non-invasive
monitoring devices, health care professionals are furnished with accurate data
for evaluation and patient diagnosis and are alerted to sudden significant
changes in a patient's condition. The use of such devices also assists medical
facilities in complying with cost containment policies enacted by the Federal
government and private insurers, by permitting continuous monitoring of
patients by fewer nurses and other professional staff and by allowing more
rapid transfer of patients from cost intensive critical care units to more
general treatment areas. Certain non-invasive monitoring devices such as the
electrocardiograph, have come into wide-spread use. However, although
clinical and experimental evidence indicates that pulmonary abnormalities such
as rapid breathing or cessation of breathing can provide an early signal of
potential catastrophic pulmonary events, no non-invasive monitoring device
comparable to an electrocardiograph for the detection of pulmonary
abnormalities has come into widespread use.
Products and Services
Since 1978, the Company has sought to fill what it believes to be the
need for non-invasive respiratory monitoring devices by developing,
manufacturing and marketing computer assisted, non-invasive monitoring devices
designed to detect abnormal respiratory and related pulmonary events from
sensors placed on the body's surface. The Company's products, which are
intended to improve patient care while achieving reduced operating costs, are
designed for use in environments where prompt detection of breathing
difficulties will function as an alert to the possible onset of catastrophic
illness, thereby permitting rapid response and treatment or where the
collection of ongoing data regarding pulmonary function assists in patient
evaluation and diagnosis. Uses of such devices include monitoring of patients
in adult and neonatal critical care units, diagnosis of respiratory-related
sleep disorders, monitoring of patient status during and after in-patient and
out-patient surgical procedures, particularly where adverse reaction to
anesthesia is a possibility, collection of data from patients whose breathing
is being mechanically assisted and monitoring of infants prone to Sudden Infant
Death Syndrome, an often fatal condition marked by sudden cessation of
breathing. The Company's products are intended to be user-friendly and
operated without extensive training and are price justified to be in line with
health care cost containment policies.
Current Products
-- RESPITRACE PLUS, introduced in April 1991, is a small,
portable, non-invasive, stand-alone patient monitoring unit designed
to continuously monitor heart
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and breathing abnormalities in a variety of environments inside and
outside a hospital at an economically viable selling price. It can
also be used as a portable battery-powered device during
transportation of patients in ambulances and within a hospital from
patient rooms to diagnostic areas. The system furnishes digital and
analog displays of the electrocardiograph and breath waveforms and
interfaces with computer and video display equipment. The Company
originally received FDA permission to market Respitrace Plus in
October 1989. However, as a result of data collected in field
testing, the Company elected to redesign the Respitrace Plus to
improve electrical circuitry, patient sensor interface and graphic
display. The Company reapplied for FDA marketing permission for the
redesigned product in July 1990, received FDA permission to market
Respitrace Plus in April 1991 and commenced marketing the product
during the fourth quarter of fiscal 1991.
-- RESPICARDIO CENTRAL, introduced in April 1991, is a system for
monitoring the respiratory and cardiac ("ECG") functions of up to
eight patients simultaneously from a central station monitor, to
which individual Respitrace Plus bedside units are connected. The
monitor receives a continuous stream of data from bedside Respitrace
Plus monitoring units linked to the central monitor by interconnecting
cables or telemetry. Respicardio Central permits detection and
classification of cardiorespiratory rhythm disturbances and abnormal
cardiac beats. The system operates with a laser printer, and/or an
optional integral thermal-paper ECG/Respiration Strip-chart recorder
to produce hard copy documentation for later analysis and patient
diagnosis. Respicardio Central displays real-time ECG, heart rate,
arrhythmia diagnoses, breath waveforms, breath rate, labored breathing
index, percent tidal volume, and percent oxygen saturation in clear,
precise graphics. Respicardio Central's monitor provides alarms for
high or low heart rate; cardiac arrhythmias; high, low, labored or
zero breathing; and system function. These audio and visual alarms
can be programmed to meet the requirements of individual patients.
Nims applied for FDA permission to market the Respicardio Central in
July 1990, received FDA permission to market in April 1991, and
commenced marketing the product during the fourth quarter of fiscal
1991.
-- RESPITRENDS, introduced in July 1992, is a medical data
storage software program which permits real-time reception and storage
of Respitrace Plus cardiac and respiratory information for display on
the screen of the device. It also generates a variety of reports and
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trend-plots of patient status. The software program also allows the
user to down load RespiTrends from Respitrace Plus to a personal
computer for further analysis and report generation. All Respitrace
Plus data, including heart, breath, and system values, conditions, and
alarms during a 24-hour period or less may be loaded into a personal
computer using the RespiTrends software. Time periods from 15 minutes
to the full 24 hours for each value, condition and alarm may then be
viewed, analyzed, and/or printed. RespiTrends software is user
friendly with an intuitive graphical interface. Learning time is
minimal and no special knowledge of medical procedures is required to
load or print RespiTrends data. Statistical reports and comparison of
patient status with normative standards can be viewed and/or printed.
To date Respitrends has been offered as an inducement to potential
purchasers of the Respitrace Plus system.
-- RESPI-ECG SIMULATOR, introduced in January 1994, is an all
electronic simulator capable of simulating breathing for the rib cage
and abdomen channels as inputs to all Respitrace monitors.
Additionally, it also has a channel for simulating ECG and heart rate
for monitors. The breathing part of the simulator is theoretically
correct to produce an exact calibration of breathing waveforms and can
produce an apnea at the touch of a button. The ECG section of the
simulator is capable of producing two heart rates, allowing a
functional check of Bradycardia alarms on monitor heart channels.
This device is useful to all users of Respitrace Plus products and as
such the Company feels it should be attractive to all hospitals that
have Respitrace equipment.
-- RESPITRACE BASIC SYSTEM, was introduced in 1979 as the
Company's initial product. By placing one Respiband over the thorax
and the other over the abdomen, changes in the capacity of the
thoracic and abdominal cavities during pulmonary functions are
measured and graphically displayed on a recording device. The Company
does not currently manufacture or market the Respitrace Basic System
directly, but rather has licensed the rights for its manufacture and
marketing in the United States, Canada and Japan to a concern owned by
a former principal shareholder and executive officer of Nims/FLA and
has licensed the rights for its manufacturing and marketing in the
entire world except the United States, Canada and Japan to a second
concern owned by another former principal shareholder and executive
officer of Nims/FLA. Such licenses, which are exclusive, run in
perpetuity and for 20 years, respectively, and provide for royalty
payments of 25% and 20% of net sales (as defined), respectively. Such
entities are also licensed to sell
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certain other Nims products on a non-exclusive basis in such
territories. Pursuant to these license agreements, the Company earned
royalties of approximately $21,000, $26,000, and $28,000 during each
of the years ended July 31, 1995, 1994, and 1993, respectively.
-- DISPOSABLE AND ACCESSORIES Nims also markets disposable and
accessory items utilized with its products, including the Respiband
Plus.
Respitrace Plus has been tested and reviewed by Underwriter's
Laboratories ("UL") and approval has been granted to apply the UL mark, which
certifies that the product has met UL Standard 544, Safety in Medical and
Dental Equipment. Components purchased for the Respicardio Central also carry
the UL 544 mark.
RESPITRACE PT; CHIME STUDY
In May 1992, Nims was invited to submit a proposal to the National
Institutes of Health (the"NIH") to supply home breathing monitors in a
multi-center research study of infants prone to SIDS. During the summer of
1992, Nims developed a prototype monitor called Respitrace PT and submitted a
proposal. The Respitrace PT detects and alarms for apneas, slowing of
heartbeat and other indicators, of the onset of SIDS. In September 1992, the
NIH informed Nims that the Company was selected as one of two finalists to
supply the apnea monitors for home monitoring of infants participating in a
pilot study in the fall of 1992.
In February 1993, Nims was informed that it had been selected by the
Steering Committee of the Collaborative Home Infant Monitoring Evaluation Study
("CHIME") as the vendor to supply 100 Respitrace PT monitors for the study of
high risk infants subject to apneas and SIDS, which study is supported by the
NIH. In March 1993, Nims and CHIME entered into an agreement to supply the
monitors. Delivery of the 100 Respitrace PT monitors to CHIME was completed in
July 1993. The agreement also granted to CHIME the option to purchase up to an
additional 350 monitors.
In February 1994 CHIME placed a second order with the Company for an
additional 150 Respitrace PT monitors of which 80 monitors were delivered to
CHIME as of March 1994 and the balance of 70 monitors were delivery to CHIME in
the first quarter of fiscal 1995. No assurance can be given that the total
option for 350 additional monitors will be exercised by CHIME or as to the
ultimate commercial viability of the Respitrace PT.
Products Under Development
The Company has undertaken development of several new products in
order to further expand its product line. The principal products under
development are as follows:
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-- RESPITRACE PT is a apnea monitor system developed in
connection with the CHIME Study proposal described in "General
Development of Business" above. The Company applied for FDA 510K
permission to market the Respitrace PT as a digonistic package for
sleep disorders in adults, children and babies in June 1994.
-- RESPIEVENTS, also known as the Event Display Program ("EDP"),
is a software program for a personal computer ("PC") designed to be
used in conjunction with Respitrace Plus. It enables the PC to
receive digital information from the Respitrace Plus Digital Interface
(RS232 output) and display real- time Respitrace Plus waveforms on the
computer screen. It allows storage of Respitrace Plus information on
the hard drive of the PC for subsequent display of full fidelity
waveforms and derived numerical values and indices. EDP includes
tools to manipulate the vertical and horizontal gain displays of
waveform information stored on the PC. EDP also includes a subsidiary
program called RIPDATA that puts the numerical values of the data
files into ASCII format enabling them to be imported into other
programs such as spread sheets (e.g., Lotus 123, Quattro Pro,
Paradox), databases (e.g., FoxPro, Paradox), and statistical packages
(e.g., SigmaPlot) so that numerical and statistical analysis and plots
can be carried out.
RespiEvents transforms the PC into a versatile polygraph recorder
for Respitrace Plus information and can be used in any situation where
such a recorder might be employed. One application is polysomnography
in which apneic/hypopneic events may be classified and sleep stages
characterized according to breath waveform patterns. Another is to
monitor breath by breath changes in ventilation and breathing pattern
during exercise. EDP permits documentation of unusual patterns of
breathing and electrocardiographic waveforms, which is particularly
useful in documentation of such occurrences in critically ill
pulmonary, cardiac, and neurologic patients.
The Company, based on current market information, believes that the
features presented by RespiEvents are of particular importance to
clinicians treating not only adult patients with cardiorespiratory and
sleep disorders but also in the monitoring of infants both in hospital
and at home. In addition, the Company applied for FDA 510K permission
to market RespiEvents as a diagnostic package for sleep disorders in
adults, children and babies in June 1994.
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-- NIMS INFORMATION SYSTEM, an information system designed to be
used in hospital at the bedside, incorporates the elements of a
Respitrace Plus along with the RespiEvents program. This system
allows continuous monitoring at the bedside with the ability to record
and display trends, waveforms and events as they occur. The system
can be permanently mounted at the bedside or can be mounted on a cart
with wheels for portable use in the ICU and other areas within the
hospital. The system includes a 486 microprocessor with a high
resolution color display used for waveform and event display and
review. Additionally, the microprocessor has Ethernet connection
capabilities allowing remote file access and retrieval.
-- RESPITRACE DC OUTPUT OPTION FOR RESPITRACE PLUS, is a DC
output option for the Respitrace Plus which allows the continuous
monitoring of the baseline associated with breathing. This option was
previously in all prior Respitrace equipment but was deleted from the
Respitrace Plus. Customer demand has driven the need to add this
option to the Respitrace Plus which is implemented by a simple
modification that places a switch on the rear panel of the Respitrace
Plus that allows the user to choose either AC or DC modes of operation
before turning on the monitor.
-- RESPICVP is a non-invasive method for estimation of central
venous pressure. Its accuracy has been validated against invasive
central venous catheter measurements. A scientific paper providing
details of this measurement has been published in Chest 100:371, 1991.
The Company is currently planning refinements to take this technique
from the research to the clinical stage in conjunction with the
Respicardiograph more fully described below.
-- RESPICARDIOGRAPH is a system which is designed to monitor and
record cardiac signals by placing Respibands around different
locations on the chest. This technology depicts left and right
ventricular volume curves of the heart and serves as a continuous
non-invasive monitor of the mechanical function of the heart. By
providing a recording of changes in blood pumped from the heart, it
measures changes in cardiac output. In addition, analysis of various
points on the ventricular volume curve, provide assessment of systolic
(contraction) and diastolic (relaxation) properties of the heart. The
Respicardiograph also provides data on regional cardiac motion, which
is a key factor in early detection of acute heart attacks. Two
scientific papers have already been published on this technology
(Chest 99:613, 1991; and 99:896, 1991). The Company believes that the
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Respicardiograph will serve as a low cost, less labor-intensive
technology for certain aspects of Doppler-Echo technology, a low cost,
less labor-intensive, more easily interpretable technologic,
alternative to the echocardiogram for detection of regional myocardial
dysfunction due to coronary artery disease, and as a safe low-cost
alternative to invasive Swan-Ganz catheter technology for monitoring
the status of the pulmonary circulation and heart in critically ill
patients, and several papers have been presented at national meetings.
The Company has developed prototype models of the Respicardiograph
system and has continued with refinements to hardware and software
which are undergoing testing. Such hardware will allow collection
from up to five Respiband Plus transducers simultaneously and
eliminate electrical interferences when several Respiband Plus
transducers are placed upon the body.
During the fiscal year ended July 31, 1995, the Company's product
development activities were limited by working capital constraints.
Accordingly the Company focused its efforts on lower cost clinically relevant
products that could gain rapid FDA 510K permission to market and would have the
potential to generate sales in the short term.
Mount Sinai Medical Center of Greater Miami ("Mount Sinai") has
assisted and continues to assist the Company in its development efforts with
respect to such products. In consideration therefore, the Company entered into
an agreement with Mount Sinai, pursuant to which the Company agreed to pay
royalties to such institution based on a percentage of net sales for each of
the calendar years 1986 through 1995. Such agreement requires the payment of
minimum royalties of $50,000 for each calendar year except 1986, where the
minimum was $25,000 and provides for maximum royalties of $150,000 during each
remaining year of the term of the agreement. For the years 1989 through 1995,
royalties can increase based on a percentage of sales (on an annual sliding
scale ranging from 1/4% to 1/2%). Royalties accrued to Mount Sinai by the
Company aggregated approximately $50,000 for each of the three years in the
period ended July 31, 1995.
Manufacturing and Sources of Supply
The Company's products are assembled utilizing a variety of
off-the-shelf components available from a variety of sources, as well as custom
components, such as printed circuit boards and software fabricated to Company
specifications. In order to reduce manufacturing costs for new products, the
Company entered into purchase agreements with various non-affiliated third
parties to manufacture boards for the Respitrace Plus and Respitrace PT units.
The Company provides the specifications for the manufacture of the
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boards and monitors their assembly. The Company then provides sub assembly,
top assembly, and all stages of testing of the product at its facility in Miami
Beach. The Company has also entered into a purchase agreement with another
third party to co-produce the software for the Respicardio Central. The final
products are approved, packaged, and shipped from the Company's facility in
Miami Beach.
When necessary, the Company installs its products, instructs the
customer's employees in their operation and provides ongoing service. The
Company's new products are generally warranted for a one year period. The
Company has not encountered material warranty costs or service problems to
date.
Because the manufacture of its products generally entails only
assembly from its component inventory, the Company has generally been able to
fill customer orders within 30 to 45 days of receipt. Accordingly, to date,
backlog has not been a material factor in its operations. At July 31, 1995,
the Company had no material backlog.
Marketing and Sales
Marketing efforts are directed to hospitals and other health care
facilities such as outpatient surgical units, sleep disorder centers, home
health care monitoring services, research facilities and governmental agencies
well as to health care professionals such as pulmonary and critical care
physicians, anesthesiologists, respiratory therapists, hospital administrators
and directors of home health care agencies.
- - STRATEGIC MARKETING ALLIANCE The Company's lengthy ongoing
attempts at establishing an appropriate strategic marketing alliance
with another concern capable of effecting sales of Nims products
culminated in August 1994 with the Company entering into a one year
exclusive marketing agreement with SMC. Under the agreement, SMC
serves as the exclusive world-wide distributor for Nims existing
products. SMC has the right of first refusal to market future Company
products. SMC is a privately held medical electronics company that
produces instruments for pulmonary function testing, metabolic
measurements, sleep diagnostics, and life support. SMC has over 30
years experience in the medical device industry. With research and
manufacturing facilities located in Yorba Linda, California and
Bilthoven, The Netherlands, its latest technical developments include
infant pulmonary function systems, high frequency oscillatory
ventilators, disposable pulse oximeter sensors, and automated
diagnostic sleep monitoring equipment. SMC distributes through 35
direct representatives in the United States, Benelux, United Kingdom,
France and Germany, and uses 50 dealers in other countries. The one
year marketing
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Agreement expired July 31, 1995. The marketing agreement was
renegotiated with SMC and extended through August 1997. The
renegotiated marketing agreement provides for SMC to purchase certain
quantities of product during its term. Pursuant to the marketing
agreement, SMC purchases at a discount of 30% to 50% of NIMS published
list price.
- - NIH CHIME STUDY, the Company is participating in the NIH CHIME
Study as discussed above. The Company is engaged with technical
involvement and participation in the CHIME Study as a non-voting
member at regular CHIME Steering Committee meetings and discussions
dealing with this multi-center study.
- - REFERENCE SITE PROGRAM, the Company has three designated hospitals
in the United States and two in Canada as part of its Reference Site
Program. Agreements call for these selected medical facilities to;
1) serve as host for potential customer visits and 2) call for the
medical staff involved at each facility to analyze and report on
information derived from clinical use of the Respitrace Plus and
Respicardio Central products. Each Reference Site received one
Respicardio Central and eight Respitrace Plus units without charge
during 1991. These Reference Sites are also available as
demonstration sites for the products. Of the three United States
sites, two are located at Mount Sinai in Miami Beach, Florida. The
two Canadian Reference Sites have been established in separate
hospitals with one in Montreal and Toronto.
The total number of Company products, by type, sold during fiscal years ended
July 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------
1995 1994
---- ----
PRODUCTS
--------
<S> <C> <C>
Respitrace Plus............... 172 53
Respicardio Central........... 3 0
Respitrends .................. 9 * 0 *
Respitrace PT ................ 82 ** 81 **
Respitrace PT Base Station ... 0 0
Respi-ECG Simulator .......... 34 10
------------
</TABLE>
* Respitrends was made available for marketing in April 1992 and has
been offered as an inducement to potential purchasers of the
Respitrace Plus System.
** Represents CHIME Study sales for research purposes.
Sales of the Company's products, exclusive of royalties from
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the license of the Respitrace Basic System, aggregated approximately $1,632,000
and $936,000 during the years ended July 31, 1995 and 1994 respectively.
Sales to Mount Sinai aggregated approximately $58,000 and $169,000
(approximately 4% and 18% of sales) during the years ended July 31, 1995 and
1994 respectively. Sales to CHIME, a non-affiliated customer, were
approximately $436,000 and $354,000 (approximately 27% and 38% of sales) during
the years ended July 31, 1995 and 1994 respectively. Sales to SMC were
approximately $861,000 (approximately 52% of sales) during the year ended July
31, 1995. Except for the foregoing customers, no other customer accounted for
10% or more of the Company's revenues during such fiscal years. Management
believes that as a result of the marketing agreement with SMC, the Company is
currently dependent upon SMC as its single customer for the Company's current
products.
Government Regulation
Manufacturers of medical devices are subject to extensive regulation
by various federal and state government entities relating to nearly every
aspect of the development, manufacture and commercialization of such products.
The FDA is the principal regulatory authority over medical devices in the
United States. Under FDA regulations, most new medical products are subject to
FDA Pre-marketing Approval Requirements and, therefore, are required to undergo
extensive and rigorous testing prior to their regulatory approval for
commercial marketing. Such testing is typically time consuming and expensive.
Because, however, the Company's proposed products are modified forms of devices
previously cleared by the FDA under the less onerous "Section 510(k)"
procedures, the Company expects that it will be able to market its new products
based on an FDA-issued 510K submittal letter of equivalence. Such letter may
usually be obtained in three to twelve months. However, there is no assurance
that this will occur.
The Company received the required FDA permission to market the
original version of Respitrace Plus in 1989. The Company applied for FDA
permission to market the redesigned Respitrace Plus, Respicardio Central and
Respiband Plus products in July 1990 via a Section 510(k) notification. The
Company received the required FDA permission to market the Respitrace Plus,
Respicardio Central and Respiband Plus in April 1991. In June 1994, the
Company filed applications with the FDA for permission to market Respitrace PT
and Respi Events - EDP which were products under development during fiscal
years 1994 and 1995. No assurance can be given that any application for such
permission to market will be made or, if made, that it will be cleared by FDA.
The failure by the Company to obtain necessary regulatory approvals, whether on
a timely basis, or at all, would have a material adverse effect on the business
and financial condition of the Company.
15
<PAGE> 16
In addition, Company manufacturing facilities are required to continue
to comply with "good manufacturing practices" regulations established by the
FDA with respect to manufacturing processes, facilities, and record keeping.
The Company cannot predict the extent to which it may be affected by
legislative and other regulatory developments concerning its products and the
health care field generally. The Company is dependent on obtaining timely
authorizations from the FDA before marketing its products, and such
authorizations may be subject to unforeseen delays. The Company's facilities
and products will continue to be inspected from time to time by the FDA, which
has the power, through the courts, to halt operations of noncomplying
manufacturers. Any halting of operations could have a material adverse effect
on the operations of the Company.
Patents and Trademarks
The Company currently holds fifteen United States and eight foreign
patents with respect to both overall design and specific features of its
present and proposed products and has submitted applications with respect to an
additional two United States and six foreign patents. During fiscal year
ending July 31, 1995, the Company abandoned one United States patent and
stopped application of one United States and three foreign patent applications
due to cost constraints. 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
the Company will have sufficient resources to enforce any proprietary
protection afforded by its patents or that the Company's technology will not
infringe on patents held by others. The Company believes that in the event its
patent protection is materially impaired, a material adverse effect on its
present and proposed business could result. The expiration dates of the
patents are as follows:
<TABLE>
<CAPTION>
Number of Patents Expiration
Domestic Foreign Date
-------- ------- ----
<S> <C> <C>
2 1997
1 1999
1 2000
2 2001
2 2004
1 2005
4 1 2006
2 2007
2 2008
1 2009
1 2010
2 1 2011
--- --
15 8
</TABLE>
16
<PAGE> 17
With respect to its present and proposed product line the Company has
nine trademarks and trade names which are registered in the United States and
thirteen which are registered in several foreign countries, including the
Company's principal trademark.
Competition
The Company competes with several concerns which manufacture and
market non-invasive respiratory monitoring devices, including Healthdyne
Corporation, Hewlett Packard and Spacelabs, all of which are larger, have
longer operating histories and have financial and personnel resources far
greater than those of the Company. Management believes, however, that it
effectively competes with such concerns based upon; 1) rapid prototype of
products under development, 2) shortened time to market, prior regulatory
approval record, 3) aggressive pricing policies, 4) clinical relevance of
information provided to health care givers and 5) health care cost reductions
afforded purchasers of the Company's products.
Employees
The Company currently employs approximately thirteen employees on a
full-time basis including its executive officers. Five are engaged in general
and administrative duties, Four in research and development, and four in
product assembly. The Company believes that its employee relations are good.
D. Financial Information About Foreign and Domestic
Operations and Export Sales.
Sales to foreign distributors of the Company's products aggregated
approximately $21,000 and $44,000 (approximately 2% and 5% of sales) during the
years ended July 31, 1995 and 1994 respectively.
ITEM 2. PROPERTIES.
As of September 1994 the Company had reduced its occupied space from
approximately 8,000 square feet to approximately 6,000 square feet at 1840 West
Avenue, Miami Beach, Florida, which houses its executive offices, assembly and
research facilities. Such space is leased on a month-to-month basis from a
non-affiliated party at an annual rental of approximately $31,000. The Company
believes that its facilities are adequate for the Company's production,
research and administrative needs in the near future.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings which are currently pending
or, to the Company's knowledge, contemplated against the
17
<PAGE> 18
Company to which it is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
A. Market Information.
Until October 12, 1994, the Company's Common Stock was quoted on the
NASDAQ Small-Cap Market under the symbol NIMU. Effective October 12, 1994, the
Common Stock was delisted from NASDAQ for failure to meet minimum bid price
criteria. The Common Stock is currently traded in the over-the-counter market
and is listed on the OTC Bulletin Board.
The high and low prices for the Common Stock, as reported by Dow Jones
Tradeline for each calandar quarter during the last two fiscal years were as
follows:
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ----- ---
<S> <C> <C>
September 30, 1993 $ 3-3/8 $ 2-1/4
December 31, 1993 2-5/8 15/16
March 31, 1994 1-3/8 5/8
June 30, 1994 1-1/8 5/16
September 30, 1994 15/16 1/4
December 31, 1994 3/8 9/32
March 31, 1995 3/8 3/16
June 30, 1995 1/4 11/64
</TABLE>
The quotations set forth above reflect inter-dealer prices, without
retail markup, markdown, or commission, and may not necessarily represent
actual transactions.
B. Holders.
At October 16, 1995 there were approximately 2,125 holders of record
of the Common Stock.
C. Dividends.
The Company has not paid any dividends on its capital stock since its
inception and the Board of Directors does not contemplate doing so in the near
future. Any decision as to future payment of
18
<PAGE> 19
dividends depends on the factors as the Board of Directors deems relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations.
Fiscal 1995 Compared to Fiscal 1994
The Company's net income for fiscal 1995 was approximately $11,000 as
compared to a net loss of approximately $927,000 for fiscal 1994. For fiscal
1995, net sales were approximately $1,632,000 as compared to approximately
$936,000 in fiscal 1994. This increase in sales of approximately $696,000 is a
result of increased sales to SMC pursuant to the marketing agreements discussed
above and Company direct sales of Respitrace PT units to the NIH CHIME Study.
Cost of goods sold expressed as a percentage of net sales was
approximately 44% for fiscal 1995 compared to 75% in fiscal 1994. The decrease
is due to increased sales of Respitrace Plus units and decreased sales of
Respitrace PT units to the NIH CHIME Study; gross margins are higher for the
Respitrace Plus as compared to the Respitrace PT units sold to the NIH CHIME
Study.
Operating expenses were approximately $830,000 for fiscal 1995
compared to $1,121,000 in fiscal 1994. The decrease of approximately $291,000
over fiscal 1994 is a result of continued operational downsizing due to cash
constraints as described in "Liquidity and Capital Resources" below. Selling
and distribution expenses were approximately $67,000 lower in fiscal 1995 as
compared to fiscal 1994, also due to the continued operational downsizing of
the sales department as a result of the SMC marketing Agreements. General and
administrative expenses were approximately $158,000 lower in fiscal 1995 as
compared to fiscal 1994 due to lower operating expense and a reduction of
employee benefits. Research and development expenses were approximately
$65,000 lower in fiscal 1995 as compared to fiscal 1994 due to reduced expenses
incurred during the development of the prototype monitor Respitrace PT in
connection with the NIH CHIME study. In addition, interest expense decreased
approximately $61,000 due to lower outstanding debt during fiscal 1995 as
compared to fiscal 1994.
Other - net includes expenses of $70,000 relating to the search for a
marketing partner and a proposed business combination that was not consummated.
It also includes income of $48,000 resulting from elimination of a prior period
accrual that was determined to be unnecessary.
19
<PAGE> 20
Liquidity and Capital Resources
As of July 31, 1995, Nims primary sources of working capital were
revenues from operations and proceeds from a private offering of Common Stock,
as described below.
Working capital at July 31, 1995 was $743,000 as compared to $630,000
at July 31, 1994. During the fiscal year ended July 31, 1994, the Company
continued to incur operating losses and negative cash flow. In order to
maintain operations, the Company raised approximately $250,000 during fiscal
1994 from a private offering of Common Stock as described below.
Ongoing working capital constraints have dictated that the Company
continue to downsize operations through implementation of personnel and
operational expense reductions while limiting other operational expenditures to
new product development activities which have the potential to generate revenue
in the short term.
As a result of working capital constraints, the Company focused its
limited resources on the following areas of activity during fiscal 1995. These
areas included: 1) in connection with the NIH CHIME study vendor of choice
production, shipment, technical involvement and participation as a non-voting
member to regular CHIME Steering Committee meetings 2) servicing the product
marketing agreement with SMC as described above, 3) manufacture and sale of
current products, including disposable items such as Respiband Plus and 4) the
submission of 510K applications to the Food and Drug Administration (FDA) for
permission to market Respitrace PT and RespiEvents as a diagnostic package for
sleep disorders in adults, children and babies. The Company expects to
continue efforts on these areas of activity during fiscal 1996, each of which
being more fully described in the "General Development of Business" section
above.
Cash used in operating activities during fiscal 1995 was approximately
$50,000 compared to $156,000 during fiscal 1994. The decrease in cash used in
operating activities in fiscal 1995 is primarily attributable to a decrease of
approximately $938,000 in the Company's net loss. In addition, operating
assets (net of liabilities) were increased by approximately $250,000 in 1995
(principally a reduction in customer deposits), while they were reduced by
$500,000 in 1994 (principally a reduction of inventories and receipt of
customer deposits), and non-cash charges were $69,000 lower in 1995.
Cash used in investing activities in fiscal 1995 and 1994 was
approximately $92,000 and $27,000, respectively. Investing activities consist
primarily of purchases of marketable securities, plant and equipment and costs
for patents.
20
<PAGE> 21
Cash provided by financing activities was approximately $35,000 in
fiscal 1995 and $446,000 in fiscal 1994. Cash provided by financing activities
in fiscal 1994 was received from the proceeds of a private offering of Common
Stock and an increase in notes payable.
The report of independent auditors on financial statements at and for
the two years ending July 31, 1995, contains an explanatory paragraph raising
substantial doubt of the ability to continue as a going concern. Note 2 to the
consolidated financial statements describes the conditions which raise this
doubt and management's plans. Management believes that sales resulting from the
renegotiated marketing agreement with SMC will generate sufficient cash flows
to meet working capital needs and continue for the fiscal year ending July 31,
1996. No assurance can be given that such assumptions will prove to be
correct, that the Company will not require additional financing during the
current fiscal year or as to availability of terms of any such financing
required. Failure to secure adequate financing, if and when needed, would have
a material adverse effect on operations.
ITEM 7. FINANCIAL STATEMENTS.
The response to this item is submitted in a separate section of this
report, beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no changes in accountants during the 24 months prior
to July 31, 1995.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS and CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
The current directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Marvin A. Sackner, M.D. 63 Chairman of the Board, Chief Executive Officer and Director
Richard L. Dougherty 50 President, Chief Operating Officer and
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C> <C>
Director
Herman L. Watson 49 Vice President Research and Development and Director
Ruth Sackner 59 Secretary and Director
Gerard Kaiser, M.D. 63 Director
Morton J. Robinson, M.D. 63 Director
Stanley C. Sackner, D.O. 59 Director
Edward Shapiro 81 Director
</TABLE>
MARVIN A. SACKNER, M.D. was elected to his positions with the Company
in November 1989, upon the Company's acquisition by merger (the "Merger") of
all of the capital stock of Non-Invasive Monitoring Systems, Inc, a privately
held Florida corporation ("Nims/Fla"). Dr. Sackner co-founded Nims/FLA in 1977
and was the Chairman of the Board from 1981 until October 1989 and Chief
Executive Officer from 1985 until the Merger. From 1974 until October 1991,
Dr. Sackner was the Director of Medical Services at Mount Sinai in Miami
Beach, Florida. From 1973 to 1986, Dr. Sackner was consultant to Key
Pharmaceutical, Inc. and has been a consultant to the Sherwood Medical Division
of American Home Products and Schering-Plough Corporation since 1986. Dr.
Sackner was the President of the American Thoracic Society from 1979 to 1980
and was the Chairman of the Pulmonary Disease Subspecialty Examining Board of
the American Board of Internal Medicine from 1977 to 1980.
RICHARD L. DOUGHERTY was elected to his positions with the Company in
November 1989, upon the consummation of the Merger. From 1985 until the
Merger, Mr. Dougherty was the President and Chief Operating Officer of
Nims/FLA. From 1981 to 1985 Mr. Dougherty was the Assistant Director of Mount
Sinai and prior thereto worked in various other capacities at Mount Sinai.
HERMAN L. WATSON was elected to his positions with the Company in
November 1989, upon the consummation of the Merger. Mr. Watson co-founded
Nims/FLA in 1977. From 1977 until the Merger Mr. Watson was a Director of
Nims/FLA and from 1985 until the Merger he has been its Vice President of
Research and Development.
RUTH SACKNER was elected a Director of the Company in November 1989
upon completion of the Merger. Mrs. Sackner was a Director of Nims/FLA from
1986 until the Merger. Mrs. Sackner is an Overseer of the Library Committee at
the University of Pennsylvania and
22
<PAGE> 23
Trustee, Wolfsonian Foundation, Miami Beach, FL.
GERARD KAISER, M.D. was elected a Director of the Company in November
1989 upon completion of the Merger. From 1988 until the Merger, Dr. Kaiser was
a Director of Nims/FLA. Since 1971, he has been at the University of Miami
School of Medicine and presently serves as Deputy Dean for Clinical Affairs and
Daughtry Professor of Cardiothoracic Surgery. He also serves as Senior Vice
President for Medical Affairs at Jackson Memorial Hospital.
MORTON J. ROBINSON, M.D. was elected a Director of the Company in
November 1989 upon completion of the Merger. Dr. Robinson was a Director of
Nims/FLA from 1986 until the Merger. For at least the past 5 years, Dr.
Robinson has been a Director of the Department of Pathology and Laboratory
Medicine at Mount Sinai.
STANLEY C. SACKNER, D.O. was elected a Director of the Company in
November 1989 upon completion of the Merger. Dr. Sackner was a Director of
Nims/FLA from 1986 until the Merger. Dr. Sackner is on staff of Department
Anesthesiology at Memorial Hospital in Union, New Jersey.
EDWARD SHAPIRO was elected a Director of the Company in November 1989
upon completion of the Merger. Mr. Shapiro was a Director of Nims/FLA from
1987 until the Merger. From 1969 to the present, Mr. Shapiro has been a
private real estate investor. From 1950 until 1981, he was a Director and
President of several divisions of Maryland Cup Corporation. From 1979 until
1982, Mr. Shapiro was the Chairman of the Board of Directors of Mount Sinai.
Ruth Sackner and Dr. Stanley C. Sackner are Marvin A. Sackner's spouse
and brother, respectively.
Directors of the Company hold their offices until the next annual
meeting of the Company's shareholders until their successors have been duly
elected and qualified or until their earlier resignation, removal of office or
death. Other than an Audit and Legal Committee consisting of Edward Shapiro,
Gerard Kaiser and Ruth Sackner and a Compensation and Stock Option Review
Committee consisting of Marvin A. Sackner and Morton J. Robinson, there are no
committees of the Board of Directors.
Officers of the Company serve at the pleasure of the Board of
Directors and until the first meeting of the Board of Directors following the
next annual meeting of the Company's shareholders and until their successors
have been chosen and qualified.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's Directors, executives officers and holders of more than
ten percent of the Company's Common Stock, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and NASDAQ.
Such persons are
23
<PAGE> 24
required to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it,
or oral or written representations from certain reporting persons that no Forms
5 were required for those persons, the Company believes that, during the year
ended July 31, 1995, all filing requirements applicable to its directors,
executive officers and greater than 10% beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION.
A. Summary Compensation Table.
The following compensation table sets forth, for the fiscal years
ending July 31, 1995 and 1994, the cash and certain other compensation paid by
the Company to the Company's Chief Executive Officer ("CEO"). No other current
executive officer had an annual salary and bonus in excess of $100,000 during
any such years:
<TABLE>
<CAPTION>
Other Annual
Salary Compensation
Name and Principal Position Year ($) (1) ($)
- --------------------------- ---- ------- ---
<S> <C> <C> <C>
Marvin A. Sackner
Chairman of the Board, and
Chief Executive Officer 1995 -0- --
1994 -0- --
- --------------
</TABLE>
(1) Due to the Company's fiscal constraints and in order to assist the Company
in conserving cash flow Dr. Sackner waived all the compensation due to him in
fiscal 1995 and 1994.
B. Employment Agreements.
None
C. Other Compensation.
None
D. Compensation of Directors.
Directors of the Company are not compensated for services as such,
although all Directors are reimbursed for travel and lodging expenses in
connection with attendance at meetings of the Board of Directors.
E. Termination of Employment and Change of Control
Arrangement.
None
24
<PAGE> 25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding NIMS' Common
Stock, Series C Convertible Preferred Stock and NIMS' voting securities
beneficially owned on October 16, 1995 and giving effect to the Exchange Offer,
by (i) each person who is known by NIMS to own beneficially or exercise voting
or dispositive control over 5% or more of NIMS' Common Stock, (ii) each of
NIMS' Directors and (iii) all executive officers and Directors as a group:
<TABLE>
<CAPTION>
No. of Shares of Series No. of Shares
No of Shares of C Convertible of Voting Percentage
Name and Address Common Stock Percentage of Preferred Stock Percentage Securities of
or Identity of Group Beneficially Beneficial Beneficially of Class Beneficially Beneficial
Owned (1) Ownership Owned Owned (1) Ownership
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Marvin A. Sackner, M.D. 3,352,634 (2) 27.0% 36,855.92 (2) 59.4% 3,389,489.92 (2) 27.1%
1840 West Avenue
Miami Beach,Florida 33139
Richard L. Dougherty 108,659 (3) * 2,023.19 (3) 3.3% 110,682.19 (3) *
1840 West Avenue
Miami Beach, Florida 33139
Herman L. Watson 358,791 (4) 2.9% 3,475.81 (4) 5.6% 362,266.81 (4) 2.9%
1840 West Avenue
Miami Beach, Florida 33139
Morton J. Robinson, M.D. 76,159 (5) * 1,073.19 (5) 1.7% 77,232.19 (5) *
1840 West Avenue
Miami Beach, Florida 33139
Ruth Sackner 3,352,634 (2) 27.0% 36,855.92 (2) 59.4% 3,389,489.92 (2) 27.1%
1840 West Avenue
Miami Beach, Florida 33139
Stanley C. Sackner, D.O. 249,909 (6) 2.0% 1,198.19 (6) 1.9% 251,107.19 (6) 2.0%
1840 West Avenue
Miami Beach, Florida 33139
Edward Shapiro 26,250 (7) * 525.00 (7) * 26,775.00 (7) *
1840 West Avenue
Miami Beach,Florida 33139
Gerard Kaiser, M.D. 4,875 (8) * 75.00 ( 8) * 4,950.00 (8) *
1840 West Avenue
Miami Beach, Florida 33139
All executive officers and 4,177,277 (2)-(8) 33.6% 45,226.30 (2)-(8) 72.9% 4,222,437.30 (2)-(8) 33.8%
Directors as a group
(8 persons)
- ----------------------------------
* Less than 1%
</TABLE>
25
<PAGE> 26
ITEM 11. CONTINUED
(1) Does not include shares of Common Stock issuable upon conversion of
Series C Convertible Preferred Stock. Each share of Series C
Convertible Preferred Stock is convertible, at the option of the
holder thereof, at any time, in whole or in part, into 25 shares of
Common Stock upon payment of a conversion premium of $4.20 per share
of Common Stock. Holders of Series C Convertible Preferred Stock are
entitled to vote together with the holders of shares of Common Stock
and Series B Convertible Preferred Stock, on a share-for-share basis
as a single class, on all matters except as otherwise required by law.
(2) Represents securities held by Dr. Marvin A. Sackner, Ruth Sackner, his
spouse, and a pension trust established in connection with Dr. Marvin
A. Sackner's medical practice. Does not include securities held by or
for the benefit of the children of Dr. and Mrs. Sackner, in which
securities they disclaim beneficial ownership.
(3) Includes securities held individually by Mr. Dougherty's spouse,
securities held jointly with his spouse and securities held in trust
for Mr. Dougherty's minor children.
(4) Includes 5,000 shares of Common Stock held by Mr. Watson's spouse.
(5) Includes securities held jointly by Dr. Robinson and his spouse and by
a pension plan established in connection with Dr. Robinson's medical
practice. Does not include securities held by trust established for
the benefit of Dr. Robinson's children, in which securities he
disclaims beneficial ownership.
(6) Includes shares of Common Stock held by a pension plan established in
connection with Dr. Stanley Sackner's medical practice and securities
held jointly by Dr. Sackner and his spouse.
(7) Includes securities held jointly by Mr. Shapiro and his spouse.
(8) Includes 2,000 shares of Common Stock held by Dr. Kaiser's spouse.
26
<PAGE> 27
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
<TABLE>
<S> <C>
(a). Exhibits
--------
Exhibit No. Description of Exhibits
----------- -----------------------
3(a) - Articles of Incorporation, as amended(1)
(b) - By-Laws, as amended(2)
4(a) - Form of Certificate evidencing shares of Common Stock(3)
10 (a) - Royalty Agreement dated September 16, 1986 between Non-
Invasive Monitoring Systems, Inc. and Mount Sinai Medical
Center of Greater Miami, Inc. (4)
(b) - Subsidiaries of the Company (2)
(c) - Revised SMC Agreement
27 - Financial Data Schedule (for SEC use only)
- --------------
</TABLE>
(1) Included as an Exhibit to the Company's Registration Statement
on Form S-1 (File No. 33-14451), including all pre and post effective
Amendments thereto, and incorporated herein by reference, except for
Articles of Amendment and a Certificate of Designation, Rights,
Preferences and Limitations of Series C Convertible Preferred Stock,
which are included as Exhibits to the Company's Annual Report on Form
10-K for the year ended July 31, 1989 and are incorporated herein by
reference.
(2) Included as an Exhibit to the Company's Registration Statement on
Form S-1 (File No. 33-14451) including all pre and post effective
Amendments thereto, and incorporated herein by reference.
(3) Included as an Exhibit to the Company's Annual Report on Form
10-K for the year ended July 31, 1990 and incorporated herein by
reference.
27
<PAGE> 28
(4) Included as an Exhibit to the Company's Registration Statement on
Form S-4 (File No. 33-28388) and incorporated herein by reference.
(b). Reports on Form 8-K
None.
28
<PAGE> 29
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.
Dated: October 25, 1995 By:/S/ Marvin A. Sackner
---------------------
Marvin A. Sackner,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/S/ Marvin A. Sackner Chairman of the Board, Chief October 25, 1995
--------------------- Executive Officer and Director
MARVIN A. SACKNER
/S/ Richard Dougherty President, Chief Operating Officer October 25, 1995
--------------------- and Director
RICHARD L. DOUGHERTY
/S/ Herman L. Watson Vice President of Research and October 25, 1995
-------------------- Development and Director
HERMAN L. WATSON
/S/ Morton J. Robinson Director October 25, 1995
----------------------
MORTON J. ROBINSON
/S/ Ruth Sackner Director and Secretary October 25, 1995
----------------
RUTH SACKNER
/S/ Stanley C. Sackner Director October 25, 1995
----------------------
STANLEY C. SACKNER
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C> <C>
/S/ Edward Shapiro Director October 25, 1995
------------------
EDWARD SHAPIRO
/S/ Gerard Kaiser Director October 25, 1995
-----------------
GERARD KAISER
</TABLE>
30
<PAGE> 31
Audited Consolidated Financial Statements
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Years ended July 31, 1995 and 1994
with Report of Independent Auditors
<PAGE> 32
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Form 10-KSB-Item 13
Index to Financial Statements
CONTENTS
The following consolidated financial statements of Non-Invasive Monitoring
Systems, Inc. and subsidiaries are included in Item 7:
Consolidated Balance Sheet--July 31, 1995
Consolidated Statements of Operations--Years ended July 31, 1995 and 1994
Consolidated Statements of Stockholders' Equity--Years ended July 31, 1995
and 1994
Consolidated Statements of Cash Flows--Years ended July 31, 1995 and 1994
Notes to Consolidated Financial Statements--July 31, 1995
F-1
<PAGE> 33
[LOGO] - CERTIFIED PUBLIC ACCOUNTANTS - Phone: 305 358 4111
ERNST & YOUNG LLP Suite 3900
200 South Biscayne Boulevard
Miami, Florida 33131-5313
Report of Independent Certified Public Accountants
The Board of Directors and Shareholders
Non-Invasive Monitoring Systems, Inc.
We have audited the consolidated financial statements of Non-Invasive
Monitoring Systems, Inc. and subsidiaries listed in the accompanying index to
financial statements (Item 13). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements listed in the accompanying index to
financial statements (Item 13) present fairly, in all material respects, the
consolidated financial position of Non-Invasive Monitoring Systems, Inc. and
subsidiaries at July 31, 1995, and the consolidated results of their operations
and their cash flows for each of the two years in the period ended July 31,
1995, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Non-Invasive Monitoring Systems, Inc. and subsidiaries will continue as a
going concern. As more fully described in Note 2, the Company incurred
operating losses in prior years and continues to have negative cash flows.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans as to these matters are also
described in Note 2. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that might result from
the possible inability of the Company to continue as a going concern.
/s/ ERNST & YOUNG LLP
Miami, Florida
October 9, 1995
F-2
<PAGE> 34
NON-INVASIVE MONITORING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AT JULY 31, 1995
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 189,769
Accounts and royalties receivable 108,752
Inventories 623,575
Prepaid expenses and other current assets 42,539
------------
Total current assets 964,635
Plant and equipment:
Furniture and equipment 608,070
Leasehold improvements 15,730
------------
623,800
Less accumulated depreciation and amortization (509,925)
------------
113,875
Other assets:
Deferred software production costs, net of
accumulated amortization of $357,704 127,606
Patent costs, net of accumulated amortization
of $107,537 238,066
------------
365,672
------------
$ 1,444,182
============
</TABLE>
F-3
<PAGE> 35
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Consolidated Balance Sheet (continued)
At July 31, 1995
<TABLE>
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Customer deposit $ 12,983
Accounts payable 63,604
Accrued expenses 99,110
Royalties payable to related party 45,267
------------
Total current liabilities 220,964
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Convertible Preferred Stock, $1.00 par value,
1,000,000 shares authorized:
Series B - 100 shares issued and outstanding
(liquidation preference of $100 per share,
aggregating $10,000) 100
Series C - 62,048 shares issued and outstanding 62,048
Common Stock, $.01 par value, 100,000,000 shares
authorized, 12,439,729 issued and outstanding 124,398
Additional paid-in capital 10,693,126
Accumulated deficit (9,656,454)
------------
1,223,218
------------
$ 1,444,182
============
</TABLE>
See accompanying notes.
F-4
<PAGE> 36
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED JULY 31
1995 1994
-----------------------------
<S> <C> <C>
Net sales $1,632,247 $ 936,415
Less:
Cost of goods sold 714,359 702,583
Amortization of software production costs 90,000 90,000
-----------------------------
804,359 792,583
-----------------------------
827,888 143,832
Operating expenses:
Selling and distribution 150,157 217,677
General and administrative 349,487 507,974
Research and development 330,662 395,361
-----------------------------
830,306 1,121,012
-----------------------------
Loss from operations (2,418) (977,180)
Other (expense) income:
Interest expense (17,005) (78,464)
Interest income 15,105 60,726
Royalties 19,600 40,385
Other - net (4,212) 27,386
-----------------------------
13,488 50,033
-----------------------------
Net income (loss) $ 11,070 $ (927,147)
=============================
Average common shares outstanding 12,439,729 10,843,154
=============================
Income (loss) per common share $ 0.00 $(0.09)
=============================
</TABLE>
See accompanying notes.
F-5
<PAGE> 37
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
CONVERTIBLE COMMON STOCK
PREFERRED STOCK ------------ ADDITIONAL
--------------- NUMBER OF PAID IN ACCUMULATED
SERIES B SERIES C SHARES AMOUNT CAPITAL DEFICIT
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1993 100 62,048 10,689,729 $106,898 $10,460,626 $(8,740,377)
Private offering of Common
Stock - - 1,750,000 17,500 232,500 -
Net loss for the year - - - - - (927,147)
----------------------------------------------------------------------
Balance at July 31, 1994 100 62,048 12,439,729 124,398 $10,693,126 $(9,667,524)
Net income for the year - - - - - 11,070
----------------------------------------------------------------------
Balance at July 31, 1995 100 62,048 12,439,729 $124,398 $10,693,126 $(9,656,454)
======================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 38
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED JULY 31
--------------------------------
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 11,070 $ (927,147)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 178,949 206,461
Write down of patent costs 16,056 57,420
Changes in operating assets and liabilities:
(Increase) decrease in accounts and royalties receivable (32,585) 315,486
Decrease in inventories 62,446 102,826
(Increase) decrease in prepaid expenses and other current assets (25,361) 19,256
(Decrease) increase in customer deposits (188,647) 201,630
(Decrease) in accounts payable and accrued expenses (71,919) (132,289)
--------------------------------
Net cash used in operating activities (49,991) (156,357)
INVESTING ACTIVITIES
Purchases of plant and equipment (61,405) (33,151)
Patent costs (30,923) (35,431)
Proceeds from sale of marketable securities - 42,000
Net cash used in investing activities ------------------------------
(92,328) (26,582)
FINANCING ACTIVITIES
Proceeds from sale of restricted certificate of deposit 2,000,000 -
Proceeds from (payments of) bank borrowings (1,965,000) 195,500
Net proceeds from exercise of stock options
and stock purchase warrants and private
offerings of Common Stock -- 250,000
------------------------------
Net cash provided by financing activities 35,000 445,500
Net (decrease) increase in cash and cash ------------------------------
equivalents (107,319) 262,561
Cash and cash equivalents at beginning
of period 297,088 34,527
Cash and cash equivalents at end of ------------------------------
period $ 189,769 $ 297,088
==============================
</TABLE>
See accompanying notes.
F-7
<PAGE> 39
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
July 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CONSOLIDATION
The consolidated financial statements include the accounts of Non-Invasive
Monitoring Systems, Inc. (the "Company") and its wholly-owned subsidiary,
Non-Invasive Monitoring Systems of Florida, Inc. ("NIMS, FL"), and Respitrace
Corporation, the wholly-owned subsidiary of NIMS, FL. All significant
intercompany balances have been eliminated in consolidation. Respitrace
Corporation did not have any operations during the 1995 or 1994 fiscal years.
The Company is engaged in the manufacturing, sale and service of computer-aided
continuous monitoring devices to detect abnormal respiratory and cardiac events
using sensors placed upon the body's surface. The Company holds patents on
these devices. The Company also sells peripheral equipment and disposable
supplies for these devices that are manufactured by other companies.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PLANT AND EQUIPMENT
Plant and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
three to five years for furniture and equipment, and three years or the lease
term, if shorter, for leasehold improvements.
PATENTS
Costs incurred in applying for and defending patents are capitalized and
amortized on the straight-line method over the estimated useful lives of the
patents.
F-8
<PAGE> 40
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE PRODUCTION COSTS
The Company defers certain software production costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased, or Otherwise Marketed" ("FAS 86").
Capitalization of software production costs begins upon the establishment of
technological feasibility as defined in FAS 86. Software production costs
incurred prior to establishing technological feasibility are charged to
research and development expense in the period incurred.
The Company has established technological feasibility for certain products
under development. The establishment of technological feasibility and the
ongoing assessment of recoverability of deferred software production costs
requires considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future gross revenues,
estimated economic life and changes in software and hardware technologies.
Amortization of deferred software production costs is provided on a
product-by-product basis at the greater of the amount computed using (a) the
ratio of current gross revenues for a product to the total of current and
anticipated future gross revenues, or (b) the straight-line method over the
remaining estimated economic life of the product. Generally, an original
estimated economic life of five years is assigned to deferred software
production costs.
INCOME TAXES
Net operating loss carryforwards for income tax purposes at July 31, 1995
amount to approximately $8,600,000 and expire between 1999 and 2009.
F-9
<PAGE> 41
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting amounts and amounts used for income tax purposes and of net
operating loss carryforwards. The deferred tax liability has been reduced by
the net operating loss carryforwards and a valuation allowance equal to the net
deferred tax asset has been established. Consequently, there is no deferred
income tax charge or credit provided in the accompanying financial statements.
Significant components of the Company's deferred tax assets and liabilities as
of July 31, 1995 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $3,248,000
Other 62,000
----------
Total deferred tax assets 3,310,000
Deferred tax liability:
Depreciation and amortization 42,000
----------
Net deferred tax asset 3,268,000
Valuation allowance for net deferred tax asset (3,268,000)
----------
Net deferred tax asset $ -
==========
</TABLE>
During the year ended July 31, 1995, the valuation allowance for net deferred
tax asset increased by $324,000.
WARRANTIES
The Company's warranty policy provides for a one year coverage against defects.
In the opinion of management, warranty costs will not be material. Accordingly,
no provision for warranty costs has been recorded.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped. If installation is
required as a condition of sale, revenue is recognized when the installation
has been completed.
F-10
<PAGE> 42
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME (LOSS) PER COMMON SHARE
Income (loss) per Common Share has been calculated based upon the weighted
average number of shares outstanding each year. Although they are deemed Common
Stock equivalents, outstanding options are not considered because they would be
anti-dilutive or have no effect. Conversion of convertible preferred stock has
not been considered in the calculation of loss per common share because the
conversions would be anti-dilutive or would have no effect.
2. OPERATIONS
As shown in the accompanying financial statements, the Company incurred
operating losses in prior years and continues to have negative cash flows from
operating activities. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. During the last few years,
the Company downsized operations by implementing a series of personnel, salary,
and work schedule reductions and has limited research and development
activities to projects which have the potential for generating revenues in the
short term. The Company has also curtailed direct marketing efforts.
During fiscal 1994, the Company established a strategic alliance with
SensorMedics Corp. ("SensorMedics") to undertake marketing of the Company's
products. This alliance resulted in significantly higher revenues in fiscal
1995.
Effective October 1, 1995, the Company entered into an agreement extending this
alliance for an additional two years. Under the terms of this agreement, the
Company has granted exclusive worldwide distribution rights (as defined) for
certain products. In return, SensorMedics must purchase minimum quantities of
the Company's products to maintain these exclusive distribution rights. The
Company also continues to seek FDA approval for general distribution of its
Respitrace PT product. However, such approval has not yet been granted.
Revenues from this product in 1996 are dependent on both timely FDA approval
and market acceptance of the product.
Management believes that the sales resulting from this agreement will generate
sufficient cash flows to meet working capital needs and continue operations for
the fiscal year ending July 31, 1996.
F-11
<PAGE> 43
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. OPERATIONS (CONTINUED)
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern and do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets, or the amounts or classifications of liabilities that might result from
the possible inability of the Company to continue as a going concern.
3. INVENTORIES
Inventories at July 31, 1995 consisted of the following:
<TABLE>
<S> <C>
Raw materials and purchased components $ 217,353
Work-in-process 266,324
Finished goods 139,898
---------
$ 623,575
=========
</TABLE>
4. RELATED PARTY TRANSACTIONS
The Company is entitled to receive royalties from products sold by certain
former shareholder/officers that were developed by the Company in prior years
and are now manufactured by independent third parties. In connection with these
agreements, the Company earned royalties of approximately $19,600 and $40,000
during the years ended July 31, 1995 and 1994, respectively.
A principal shareholder of the Company holds an honorary executive medical
staff position at a local health care institution (Mt. Sinai Hospital) that
purchases devices and other equipment from the Company. Sales to this
institution totaled approximately $58,000 and $169,000 during the years ended
July 31, 1995 and 1994, respectively. Sales to this health care institution
were at a discount of 15% to 50% from the Company's published list prices.
5. COMMON STOCK AND WARRANTS
During the year ended July 31, 1994, the Company completed a private offering
of 1,750,000 shares of Common Stock at a price of $0.14 per share for total
proceeds of $250,000.
F-12
<PAGE> 44
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. COMMON STOCK AND WARRANTS (CONTINUED)
At July 31, 1995, a total of 1,637,450 shares of the Company's Common Stock
have been reserved under various grants of options and for conversion of the
Series B and Series C Convertible Preferred Stock. Of the total shares
reserved, 2,500 and 1,551,200 shares have been reserved for the conversion of
Series B and Series C Convertible Preferred Stock, respectively. The remaining
shares were reserved for issuance under various grants of options.
6. CONVERTIBLE PREFERRED STOCK
The Series B Convertible Preferred Stock has a liquidation preference of $100
per share and provides for a noncumulative dividend of $10 per share, if
declared.
The Series C Convertible Preferred Stock has a liquidation preference of $1.00
per share, is convertible into 25 shares of Common Stock at a conversion
premium of $4.20 per share of Common Stock, is redeemable at the option of the
Company commencing in 1994 at $.40 per share and provides for a noncumulative
dividend of $.40 per share, if declared.
Holders of the Company's Series B and Series C Convertible Preferred Stock are
entitled to one vote for each share held.
7. STOCK OPTIONS
The Company has a Stock Option Plan (the "Plan") for key officers and employees
of the Company. The Company has reserved 250,000 shares of Common Stock under
the Plan, and no options are outstanding as of July 31, 1995. No options have
been exercised since the Plan's inception.
On April 16, 1990, the Company granted 85,000 stock options to various members
of the Company's Scientific Advisory Board and certain consultants. These
options expired on April 15, 1995 at an exercise price of $8.00 per share. No
options were exercised.
F-13
<PAGE> 45
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. OTHER INFORMATION
During the year ended July 31, 1995, two customers (SensorMedics and National
Institutes of Health) accounted for 52% and 27% of total net sales,
respectively. During the year ended July 31, 1994, two customers (National
Institutes of Health and Mt. Sinai Hospital) accounted for 38% and 18% of total
net sales, respectively. For the year ended July 31, 1994, one of the customers
is a related party (see Note 5).
Accrued expenses at July 31, 1995 consisted of the following:
<TABLE>
<S> <C>
Accrued wages $ 62,110
Accrued professional fees 37,000
--------
$ 99,110
========
</TABLE>
Interest paid during the years ended July 31, 1995 and 1994 was approximately
$17,000 and $78,000, respectively.
The caption other - net includes expenses of $70,000 relating to the search for
a marketing partner and a proposed business combination that was not
consummated. It also includes income of $48,000 resulting from elimination of a
prior period accrual that was determined to be unnecessary.
9. COMMITMENTS AND CONTINGENCIES
ROYALTIES PAYABLE
In recognition of the ongoing contributions of a health care institution (Note
5) to the Company's research and marketing activities, the Company agreed to
pay minimum royalties of $50,000 per calendar year from 1987 through December
1995. Royalties of $50,000 are included in selling expenses in the consolidated
statements of operations for each of the years ended July 31, 1995 and 1994.
10. INTERNATIONAL DISTRIBUTION AGREEMENT
During fiscal years 1995 and 1994, the Company sold its devices in foreign
countries. Sales to foreign countries totaled approximately $163,545 and
$22,000 during the years ended July 31, 1995 and 1994, respectively.
F-14
<PAGE> 46
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. SUBSEQUENT EVENTS
During September 1995, the Company entered into an agreement with SensorMedics,
Corp., a medical electronics company, pursuant to which SensorMedics will
continue as the exclusive worldwide distributor (as defined) for the Company's
products until August 31, 1997. Under the terms of the agreement, the Company
has granted exclusive worldwide distribution rights (as defined) for certain
products. In return, SensorMedics must purchase minimum quantities of the
Company's products to maintain these exclusive distribution rights. Sales to
SensorMedics will be at a discount of 30% to 50% of the Company's published
list price. Management believes that the agreement with SensorMedics will
provide NIMS with necessary marketing capability for its products, while
allowing the Company to focus its efforts and resources on product development.
F-15
<PAGE> 1
EXHIBIT 10(C)
LETTER OF AGREEMENT
1. General. This agreement is between SensorMedics, a California Corporation,
located at 22705 Savi Ranch Parkway, Yorba Linda, California, 92687, herein
referred to as SMC, and, Non-Invasive Monitoring Systems, Inc., located at 1840
West Avenue, Miami Beach, Florida, 33139, herein referred to as NIMS; both SMC
and NIMS together referred to as the parties.
2. Distribution. NIMS grants SMC renewal as exclusive worldwide distributor of
the Current Products.
SMC agrees to market NIMS products through its direct sales representatives,
contracted dealers and factory representatives.
SMC will not be involved in the CHIME study nor with instruments supplied by
NIMS for that study. Further, SMC will not be involved in sales in NIMS
Reference Demonstrations Centers at Mt. Sinai Medical Center, Miami Beach (Drs.
Adams, Kreiger, and Chediak), Montreal Children's Hospital (Dr. Brouliette and
Associates), Hines VA Hospital (Dr. Tobin), University of Massachusetts
Hospital (Dr. Curley) and Toronto General Hospital (Dr. Sandler) and
University Hospital of Zurich (Dr. Block and Associates). However, NIMS will
provide introductions as needed, to SMC to these units for purposes of
demonstrating NIMS products to prospective customers.
3. Current Products. NIMS will provide the Current Products in
electrical configuration for use with 110 and 220 volt power. Current Products
will also be provided with and without alarms and labeled accordingly. NIMS
agrees products and accessories supplied hereunder, are, and will be
manufactured and/or assembled pursuant to Good Manufacturing Practices as
directed by the Food and Drug Administration and will comply with the European
E.M.C. directive, effective no later than 1/1/96, and any subsequent European
or other geographical regulations on safety. SMC will provide NIMS, as soon as
possible, with the regulatory information as to the standards that apply and
NIMS products affected. Compliance costs incurred by NIMS in connection with
European or other geographical regulations on product safety will be shared
equally by NIMS and SMC, unless SMC is able to recover such compliance costs in
the selling price, in which case SMC will absorb the entire cost . If NIMS or
SMC are unwilling or unable to comply with the above, both parties agree they
will in good faith determine a mutually acceptable reduction in committed
volume for the product so affected.
Current Products are:
- - Respitrace Plus
- - RespiCardiocentral
- - Respitrace PT.
- - Other Current Products include RespiBands (disposable Respitrace sensors),
RespiTrend software, Respievents and DC option for Respitrace Plus.
4. New Products. NIMS agrees to give SMC the first right of refusal for all
future NIMS products during the period of this agreement. NIMS agrees to
provide SMC with copies of the Food and Drug Administration notification of
permission to market products as they are granted. SMC will have 30 days from
such notification to exercise its first right of refusal.
<PAGE> 2
5. Technical Support. NIMS shall be responsible for providing technical support
to SMC and directly to NIMS customers for products not distributed by SMC. SMC
will provide technical support to customers of NIMS products distributed by
SMC, including customers who purchased the Respitrace Plus from NIMS prior to
August 2, 1994 which represents the initial agreement date between the parties.
6. Warranty. NIMS agrees to provide SMC its standard one (1) year warranty from
the date of purchase against operational failure and workmanship, for
Respitrace Plus, Respitrace PT, RespiCardio Central and Respitrace Simulator
and above mentioned units sold to SMC for demonstration purposes. As a courtesy
to SMC, NIMS further agrees to furnish SMC with a start of warranty grace
period not to exceed six (6) months on Respitrace Plus, RespiCardio Central.
and Respitrace PT units sold by SMC to end users. This start of warranty grace
period is applicable to SMC only and is intended to cover variable time
conditions associated with product delivery, installation and, when necessary,
in- service by SMC. RespiBands are warranted only for out of box failure.
Warranty shall cover parts and labor; repair will be conducted by exchange. SMC
may elect to send defective product directly from the end user to NIMS for
product repair. SMC has the right to offer an extended warranty for one year on
behalf of NIMS for 10% of instrument list price. SMC and NIMS agree to review
the current extended warranty and out of warranty repair policies and
procedures, and, use their best efforts to develop a new plan and appropriate
pricing acceptable to both parties. This should be concluded by December 1st,
1995.
7. Out of Warrantv Repair. Out of warranty repair will be charged by NIMS to
SMC. SMC agrees not to repair NIMS products. (see above)
8. Product Training. From time to time NIMS will provide SMC designated
employees with product training. End user training for the Respitrace Plus
shall be by video tape; supplied with each instrument by NIMS. On site end user
training for the RespiCardio Central shall be contracted by NIMS to SMC at $500
per day plus expenses.
9. Sales Tools. SMC shall develop printed sales tools as needed, with NIMS
providing technical assistance.
10. Trademarks. NIMS gives SMC the right to use product names, trademarks and
copyrights that apply to current products; the preceding must be used in
conjunction with NIMS corporate identity. SMC agrees not to use the NIMS
corporate identity for other purposes without approval from NIMS.
11. Purchase Commitments, delivery schedule, transfer pricing, payment
schedules:
Purchase commitments, delivery schedule and pricing for Year One and Year Two
appear in Appendix A, attached to this agreement, with Year two transfer
pricing dependent upon committed volumes being realized in Year one of the
agreement.
These statements are summarized as follows:
<PAGE> 3
<TABLE>
<CAPTION>
YEAR ONE
September 1995 to August 1996
<S> <C>
- - Respitrace Plus: 120 units at $ 4,250 ea.
- - Respitrace PT: 50 demo units at $ 6,500 ea.
- - Respitrace PT: first 75 units at $ 8,000 ea.
- - Respitrace PT: next 75 units at $ 7,000 ea.
- - Respi Cardio Central: 4 units at $ 25,000 ea.
- - RespiTrends Software: Furnished with each Respitrace Plus at no charge
- - RespiEvents Software: Furnished with each Respitrace PT at no charge
- - RespiBands Plus: 84 Boxes 15" at $175 for Box of 10
84 Boxes 24" at $175 for Box of 10
240 Boxes 40" at $175 for box of 10
84 Boxes 60" at $210 for Box of 10
- - Respitrace Simulator: 24 units at $ 525 ea.
</TABLE>
<TABLE>
<CAPTION>
YEAR TWO
September 1996 to August 1997
<S> <C>
- - Respitrace Plus: 240 units at $3,750 ea.
- - Respitrace PT : 300 units at $7,000 ea.
- - RespiCardio Central: 4 units at $ 25,000 ea.
- - RespiTrends Software: Furnished with each Respitrace Plus at no charge
- - RespiEvents Software: Furnished with each Respitrace PT at no charge
- - Respibend Plus: 210 Boxes 15" at $175 for Box of 10
210 Boxes 24" at $175 for Box of 10
600 Boxes 40" at $175 for Box of 10
210 Boxes 60" at $210 for Box of 10
- - Respitrace Simulator 24 units at $ 525 ea.
</TABLE>
12. Special Provisions:
A. NIMS agrees to ship and SMC agrees to make payments during the first 90 days
of the agreement as follows:
- - September payment of $ 56,588 representing invoiced amounts owed Nims by SMC
covering the period May 23, 1995 through August 28, 1995
- - Shipments and Payments (First 90 days of agreement)
- 23 Respitrace Plus units to ship in September, payment $ 97,750 thirty days
later.
- - - 20 Respitrace PT demo units to ship in October, payment $130,000
thirty days later.
<PAGE> 4
- - In the event NIMS needs additional funds, in order to meet working capital
requirements as per Appendix B, SMC agrees to advance up to $100,000 for the
month of December 1995 and up to $120,000 for the month of January 1996 as
prepayment against future product purchases.
B. All cost reductions for labor and material of current products shall be
balanced against cost increases and shall be analyzed on a semi-annual basis.
If the net change exceeds 8% in either direction, the transfer price for
subsequent purchases shall be adjusted to reflect equal sharing in the net
change by both panties. This net being shared equally between the parties
through semi-annual transfer price adjustments.
C. The volume committed for the Respitrace PT units, (except for the 50
demonstrator systems) shall be reduced by 25 units for every 30 day period FDA
permission to market slips past Dec. 31, 1995.
D. It is agreed by both parties that SMC shall have the right to substitute
products in order to meet committed volumes. Each Respitrace PT unit above the
committed volume shall count for the proportional transfer price fraction of
Respitrace Plus units at the time of substitution. Similarly each Respitrace
Plus unit above the committed volume shall count for the proportional transfer
price fraction of Respitrace PT units at time of substitution.
E. At the conclusion of the initial six months of this agreement, should SMC
fail to meet the committed volume for the Respitrace Plus units, SMC shall have
90 days from notification by NIMS to makeup the deficit. Should SMC fail to do
so, NIMS will have the option to advise SMC in writing that SMC becomes a non
exclusive distributor, for a two year period, of Respitrace Plus at prices no
less favorable than those extended to any other distributor.
F. At the conclusion of the initial six months of this agreement, should SMC
fail to meet the committed volume for the Respitrace PT units, SMC shall have
90 days from notification by NIMS to makeup the deficit. Should SMC fail to do
so, NIMS will have the option to advise SMC in writing that SMC becomes a non
exclusive distributor, for a two year period, of Respitrace PT at prices no
less favorable than those extended to any other distributor.
G. SMC and NIMS agree they will in good faith enter into discussions on
licensing the R.I.P. technology to SMC for incorporation into a SMC product.
H. Should NIMS be unable to supply the Current Products for reasons other than
those which may be caused by SMC, SMC shall have the right to manufacture these
products. NIMS agrees to use their best efforts to provide technical knowledge
and resources to aid in this endeavor and SMC agrees to provide fair
compensation in the form of a royalty until such time as NIMS can resume
production.
13. Payment Terms: FOB NIMS, Miami Beach, Fl., net 30 days
<PAGE> 5
14. Expiration and Termination: This agreement shall be in effect from September
1, 1995 until August 31, 1997.
15. Renewal: SMC has the right to renew this agreement as long as the committed
volumes have been met.
16. Arbitration: In the event of a dispute between the parties on an matter
governed by this Agreement, both parties agree to submit the dispute to binding
arbitration pursuant to the rules of the American Arbitration Association, such
arbitration to be held in Miami, Florida. The decision of the arbitrator shall
be final and shall have the effect of a judicial determination and be
certifiable to an appropriate court of record as a judgment.
Non-Invasive Monitoring Systems. Inc. SensorMedics Corporation
/S/ Marvin A. Sackner /S/ Robert Crouch
- ----------------------------- -----------------------------
Marvin A. Sackner, Robert Crouch
Chief Executive Officer Vice President, Marketing
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NIMS FOR THE YEAR ENDED JULY 31, 1995, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 189,769
<SECURITIES> 0
<RECEIVABLES> 108,752
<ALLOWANCES> 0
<INVENTORY> 623,575
<CURRENT-ASSETS> 964,635
<PP&E> 623,800
<DEPRECIATION> 509,925
<TOTAL-ASSETS> 1,444,182
<CURRENT-LIABILITIES> 220,964
<BONDS> 0
<COMMON> 124,398
100
62,048
<OTHER-SE> 1,036,672
<TOTAL-LIABILITY-AND-EQUITY> 1,444,182
<SALES> 1,632,247
<TOTAL-REVENUES> 1,632,247
<CGS> 714,359
<TOTAL-COSTS> 804,359
<OTHER-EXPENSES> 830,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,005
<INCOME-PRETAX> 11,070
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,070
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,070
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
