SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2000
( ) 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 of (I.R.S. Employer
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:)
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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-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].
State issuer's revenues for the most recent fiscal year: $691,773.
State the aggregate market value of the voting stock held by
non-affiliates of the registrant on October 27, 2000, computed by reference to
the price at which the stock was sold on that date: $2,151,472.
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 30, 2000, was
21,514,726.
Transitional Small Business Disclosure Format:
Yes No X
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Forward-Looking Statements
This Report contains, in addition to historical information, forward-looking
statements regarding Non-Invasive Monitoring Systems, Inc. (the "Company" or
"NIMS"), which represent the Company's expectations or beliefs including, but
not limited to, statements concerning the Company's operations, performance,
financial condition, business strategies, and other information and that involve
substantial risks and uncertainties. The Company's actual results of operations,
some of which are beyond the Company's control, could differ materially. For
this purpose, any statements contained in this Report that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "estimate," or "continue" or the
negative or other variations thereof or comparable terminology are intended to
identify forward-looking statements. Factors that could cause or contribute to
such difference include, but are not limited to, history of operating losses and
accumulated deficit; need for additional financing; dependence on relationship
with SensorMedics Corporation ("SMC"); competition; dependence on management;
risks related to proprietary rights; government regulation; and other factors
discussed herein and in the Company's other filings with the Securities and
Exchange Commission.
PART I
ITEM 1. BUSINESS
A. General Development of Business.
--------------------------------
The Company is engaged in research and development of computer
assisted, non-invasive monitoring devices and related software designed to
detect abnormal respiratory, cardiac, and other medical conditions from sensors
placed externally on the body's surface. These devices provide diagnostic
information regarding cardiorespiratory and sleep disorders in infants, children
and adults; in addition, alarms are sounded for adverse cardiac and respiratory
events in critically ill patients. The Company, pursuant to a Research and
Consulting Agreement by and between LifeShirt.com, Inc. and the Company dated
November 2, 1999, (the "R&D Agreement"), has also undertaken development of the
LifeShirt system, a product that incorporates an array of the Company's patented
sensor technology into a wearable garment designed to transmit physical and
emotional signs of health and disease over the Internet. In addition, NIMS has
licensed, pursuant to a License Agreement dated November 2, 1999 by and between
LifeShirt.com, Inc. and the Company (the "License Agreement"), the LifeShirt
system to LifeShirt.Com, Inc. Pursuant to the terms and conditions of the
License Agreement, LifeShirt.com, Inc. will manufacture, market and sell the
LifeShirt system. On August 14, 2000, the Company entered into a one year
agreement with LifeShirt.com, Inc. to continue development of the LifeShirt
system. The Company also agreed to assign its patents relating to the LifeShirt
system to LifeShirt.com, Inc. with LifeShirt.com, Inc. licensing to the Company
the rights to the sale of products in bedside systems except for ambulatory
monitoring. Finally, the Company has been investigating and developing a
non-invasive, therapeutic, cardiorespiratory device based upon periodic
acceleration. This device helps to soothe babies to sleep in the same way as a
mother soothes her baby by pushing her baby carriage back and forth, allows
non-invasive ventilation without requiring delivery of gas volume from a
mechanical ventilator at the
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airway, achieves cardiopulmonary resuscitation without imposing external
pressures on the chest and/or abdomen, and promotes the body's release of nitric
oxide, a substance that the Company believes is the most powerful endogenous
vasodilator mediator in the body as well as other beneficial mediators such as
prostacyclin and tissue plasminogen activator from the lining layer of blood
vessels . Release of nitric oxide into the circulation is likely a major reason
in enhancing the beneficial effects of exercise and prevention of coronary
artery disease. Two papers on topics related to the benefits and effects of such
periodic acceleration in animal experiments are to be published in a peer
reviewed scientific journal. The Company also received notification by the U.S.
Patent office that the Company's patent application, Reciprocating Movement
Platform For Shifting Subject To and fro in Headwards-Footwards Direction, has
received its Notice of Allowance. The Company has fabricated two adult prototype
devices and tests indicate that application in adults is feasible. Further,
tests suggest that nitric oxide is released during periodic acceleration. The
Company is engaged in discussions with another company on means to commercialize
this product.
NIMS' principal products in commerce are:
RESPITRACE 200 and 204 are small stand alone devices that produce
breath waveforms with respiratory inductive plethysmography; these are used for
diagnostic polysomnography.
RESPIEVENTS is a PC based software package used in conjunction with the
Respitrace PT, Respitrace Plus and Respitrace 200/204 Data Acquisition System to
detect apnea (cessation of breathing), slowing of heartbeat, diminution of blood
oxygen, and other adverse breathing and cardiac events.
RESPIPANEL is a personal computer-based software program used in
conjunction with Respitrace 200/204 for PC interaction. RespiPanel allows the
operator to display breath waveforms, calibrate the waveforms to absolute volume
units and switch between AC and DC modes of operation.
RESPITRACE PLUS is a small portable cardiorespiratory monitor used to
detect and alert the patient of adverse cardiac and respiratory conditions or
diagnostic polysomnography. The Respitrace Plus is manufactured and marketed
non-exclusively by SMC under the arrangement described below.
RESPITRACE PT is a breathing recorder originally developed to monitor
infants prone to Sudden Infant Death Syndrome. The Respitrace PT is manufactured
and marketed as SomnoStar PT by SMC under the arrangement described below.
RESPITRENDS is a personal computer-based software program used in
conjunction with Respitrace Plus for patient minute-by-minute trends of patient
data, display, analysis, storage and hard copy report.
RESPIBANDS PLUS are patented, disposable non-invasive Respitrace
transducers worn around the torso manufactured by SMC under the arrangement
described below.
In December 1996, the Company and SMC entered into a Joint Development,
Manufacturing and Marketing Agreement (the "SMC Agreement") pursuant to which
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the Company granted SMC the exclusive rights to manufacture the Company's
Respiband Plus and the non-exclusive rights to manufacture the Company's
Respitrace Plus and Respitrace PT. NIMS also granted SMC first rights of refusal
for new Respitrace products developed by NIMS. In exchange for such rights, NIMS
received fixed payments from SMC, as well as ongoing royalties. SMC also
produces instruments for pulmonary function testing, metabolic measurements,
sleep diagnostics and like support and has over 30 years experience in the
medical device industry.
The contract with SMC was amended in April 1999 to reflect that the
right of first refusal to NIMS' Respitrace products was terminated. In turn, the
Company agreed to allow SMC to scale down Somnostar PT to include Respitrace
channels only and allow designation of this device as Respitrace QDC. Royalties
on this new device would continue at the same percentage of sales as Somnostar
PT. Further, the Company granted SMC the non-exclusive rights to manufacture,
incorporate into their own devices, and sell Respitrace 200 printed circuit
boards within SMC's product line at a fixed dollar amount royalty to the Company
for each board produced.
In, March 1999, Marvin Sackner, CEO and Chairman of the Board of
Directors, agreed to loan the Company certain funds to continue funding
operations, at a rate of 12% per annum in return for an option to purchase
1,000,000 shares of the Common Stock at an exercise price of 14.5 cents per
share. As of July 31, 2000, the principal and interest outstanding on this loan
is $51,980.
On August 14, 2000, the Company entered into several agreements with
LifeShirt.com, Inc., a start-up company that received equity funding of $7.5
million from third parties with rights to increase this funding from third
parties by an additional $7.5 million, based upon milestones to be met by
LifeShirt.com, Inc. These agreements included the R&D Agreement, a License
Agreement, an Agreement Regarding Assignment of Patents and related Intellectual
property, an Invention Assignment, and a Software Assignment. The License
Agreement provides that LifeShirt.com, Inc. will license the Company's
technology and software, which is incorporated into a wearable garment system
termed "LifeShirt". The Company received an equity position in LifeShirt.com,
Inc., as well as royalties based upon the revenues of LifeShirt.com, Inc. In
addition, an R&D Agreement was signed that called for research and development
of the LifeShirt system. The Company anticipates that revenues from the R&D
Agreement will fund Company operations through August 2001. As long as
LifeShirt.com, Inc. meets its fiscal responsibilities through the R&D Agreement,
the Company should be able to meet its working capital requirements during
fiscal 2001. However, if LifeShirt.com, Inc. fails to meet its financial
obligations to the Company, then the Company may require additional capital to
remain in business. Failure to secure necessary financing might result in the
further reduction and curtailment of operations.
The term the "Company" and "NIMS" refers to both the Company and its
subsidiaries, unless the context requires otherwise. The Company's offices are
located at 1840 West Avenue, Miami Beach, Florida 33139 and its telephone number
is (305) 534-3694.
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B. Financial Information About Industry Segments.
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Not applicable.
C. Narrative Description of Business.
---------------------------------
Introduction
The Company is engaged in the research and development of computer
assisted, non-invasive monitoring devices designed to detect abnormal
respiratory and related pulmonary events from sensors placed on the body's
surface. These devices provide diagnostic information regarding
cardiorespiratory and sleep disorders in infants, children and adults; in
addition, alarms are sounded for adverse cardiac and respiratory events in
critically ill patients.
The Company has undertaken development of the LifeShirt system, a
product that incorporates an array of the Company's patented sensor technology
into a wearable garment designed to transmit physical and emotional signs of
health and disease over the Internet. The Company has been able to miniaturize
its patented system Physiologic Signs Feedback System, issued April 4, 2000,so
that it can be worn on the body with battery power. Further, the Company
received 510(k) approval from the U.S. and Drug Administration (the "FDA") on
May 1, 2000 to market an expanded indication for software that is used to
analyze data from the LifeShirt system. This expanded indication deals with the
capability of monitoring data from the technology during the activities of daily
living such as walking, running, cycling, climbing stairs, sitting at a desk,
reading, etc. Finally, the Company has been investigating and developing a
non-invasive, therapeutic, cardiorespiratory device based upon periodic
acceleration. This device helps to soothe babies to sleep in the same way as a
mother soothes her baby by pushing her baby carriage back and forth, allows
non-invasive ventilation without requiring delivery of gas volume from a
mechanical ventilator at the airway, achieves cardiopulmonary resuscitation
without imposing external pressures on the chest and/or abdomen, and promotes
the body's release of nitric oxide, a substance that the Company believes is the
most powerful endogenous vasodilator mediator in the body as well as other
beneficial mediators such as prostacyclin and tissue plasminogen activator. The
Company received notification from the U.S. Patent office that a patent
submitted by the company entitled Reciprocating Movement Platform For Shifting
Subject To and fro in Headwards-Footwards Direction, has received its Notice of
Allowance. An additional patent on periodic acceleration is pending. Two papers
on the benefits and effects of such periodic acceleration in experimental
animals are to be published in a peer reviewed scientific journal. Two adult
prototype motion platforms have been fabricated. Tests demonstrate that humans
can tolerate periodic acceleration at the intensity that causes nitric oxide to
be released from the inner lining of blood vessels. Further, a means to
non-invasively demonstrate that nitric oxide is probably being released has been
tested and constitutes part of the pending patent application.
Current Products
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Respitrace 200/204 Data Acquisition System Series - commercially
introduced in April 1998, are small stand-alone devices that produce breath
waveforms from respiratory inductive plethysmographic transducers placed around
the Rib Cage and Abdomen. These devices also
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provide waveforms that depict respiratory efforts. The Respitrace 200 series
devices are indicated in diagnostic polysomnography and are the lowest priced
Respitrace based devices ever marketed. They offer digital sampling rates that
are four times faster than all other marketed Respitrace products for better
display of breath waveforms. Multiplexing is used for the first time in a
Respitrace product to minimize electrical cross talk between the rib cage and
abdominal signals and hence provide a signal with a higher level of signal/noise
ratio. The Waveforms output may be viewed with a polygraph interface, or a
personal computer with RespiPanel or RespiEvents software.
Respitrace Plus - commercially introduced in April 1991, is a small,
portable, non-invasive, stand-alone patient monitoring unit designed to
continuously monitor heart and breathing abnormalities in a variety of
environments inside and outside a hospital at an economically viable selling
price. It can also be used as a portable battery-powered device during
transportation of patients in ambulances and within a hospital from patient
rooms to diagnostic areas. The system furnishes digital and analog displays of
the electrocardiograph and breath waveforms and interfaces with computer and
video display equipment.
RespiEvents - which was commercially introduced in April 1996, is a
software program for a personal computer ("PC") designed to be used in
conjunction with Respitrace Plus and Respitrace PT. It enables the PC to receive
digital information from the Respitrace Plus Digital Interface (RS232 output)
and display real-time Respitrace Plus waveforms on the computer screen.
RespiEvents 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. It includes tools to manipulate the vertical and horizontal
gain displays of waveform information stored on the PC. It can convert the
numerical values of the data files into ASCII format enabling them to be
imported into other programs such as spread sheets (e.g., Excel, Lotus 123,
Quattro Pro, Paradox), databases (e.g., FoxPro, Paradox), and statistical
packages (e.g., SigmaPlot, Statistica) so that sophisticated analysis and plots
can be carried out.
RespiEvents - transforms the PC into a polygraph recorder for
Respitrace Plus generated waveforms and can be used in any situation where such
a device might be employed. This software operates upon the DOS platform. One
application is polysomnography in which apneic/hypopneic events may be diagnosed
and classified and sleep stages characterized according to breath waveform
patterns. Another is to monitor breath by breath changes in ventilation and
breathing pattern during exercise. RespiEvents permits analyses of unusual
patterns of breathing and electrocardiographic waveforms that are particularly
useful in documentation of such occurrences in critically ill pulmonary,
cardiac, and neurologic patients.
The Company, based on current market information, believes that the
features presented by RespiEvents are of particular importance to clinicians
treating not only adult patients with cardiorespiratory and sleep disorders but
also in the monitoring of infants both in hospital and at home. The Company has
retained exclusive rights to RespiEvents. Such software is sold to customers
directly by the Company and also to SMC according to the pricing set forth in
the SMC Agreement.
RespiEvents 5.2 - RespiEvents 4.0 version is a MS DOS software program
introduced to commerce in 1996 that analyzed Respitrace breath waveforms and
Electrocardiographic signals.
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A new Y2000 compliant version has been converted to the MS Windows 95/98
platform and is called RespiEvents 5.2. It provides on-line video display of 1)
breath, electrocardiographic, pulse oximeter, and other physiological waveforms,
2) minute by minute trends of selected variables, 3) tidal flow-volume and
Konno-Mead loops and 4) numerical values of processed information. In the prior
DOS version of the program (also Y2000 compliant), trends and loop displays were
available only in off-line mode. This new version was released to the market in
December 1998. The Windows 95/98 RespiEvents software speeds up clinical
decision making abilities through presentation of relevant on-line information
about breathing and cardiac activities while still retaining the report
capabilities of off-line analysis. RespiEvents 5.4, an upgrade of RespiEvents
5.2, has much more features than RespiEvents 5.2 and also will be utilized as
the basis for the data collection and analysis software in the LifeShirt system.
The Company intends to submit a 510(k) application to FDA in the first quarter
of 2001.
Respitrace PT - commercially introduced in April 1996, is manufactured
and marketed by SMC under the name SomnoStar PT. The Respitrace PT is a
diagnostic sleep recorder for detecting sleep disorders in adults, children and
babies.
RespiTrends - commercially introduced in July 1992 was a PC based MS
DOS software program for use with Respitrace Plus. In September 1998, a new
Y2000 compliant MS Windows 95 version of the software was released. RespiTrends
is a medical data storage software program that permits real-time reception and
storage of cardiac and respiratory information for display on the screen of the
device. It also generates a variety of reports and trend-plots of patient
status. The software program also allows the user to down load RespiTrends from
Respitrace Plus to a personal computer for further analysis and report
generation. The new Y2000 RespiTrends software offers enhanced graphics and on
line help. Respitrends v1.6c software does not impact on the safety and
effectiveness of the Respitrace Plus. Incorrect dates and birth date
computations will appear on screens and reports. RespiTrends is sold to SMC by
NIMS.
Respi-Ecg Simulator - commercially introduced in January 1994, is an
electronic simulator capable of simulating breathing for the rib cage and
abdomen channels as inputs to all Respitrace monitors. Additionally, it also has
a channel for simulating ECG and heart rate for monitors. The breathing part of
the simulator is theoretically correct to produce an exact calibration of
breathing waveforms and can produce an apnea at the touch of a button. The ECG
section of the simulator is capable of producing two heart rates, allowing a
functional check of Bradycardia alarms on monitor heart channels.
Disposable and Accessories - The Company has also developed disposable
and accessory items utilized with its products including the Respiband Plus.
Products Under Development
--------------------------
The Company has continued to develop upgrades to its RespiEvents
software for the following products listed below and plans to apply to the FDA
for approval to market them through the 510(k) mechanism.
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Respi-Neckband - The hardware component of this device, which involves
wearing a Respitrace transducer band around the neck has already been 510(k)
approved for marketing of respiratory efforts detection. This technology
provides carotid arterial pulses and jugular venous pulses with appropriate
digital filtering and or electrocardiographic triggered ensemble averaging. One
scientific peer-reviewed paper has been published on using this technology to
obtain systolic time intervals at rest and exercise, a non-invasive measure for
assessing mechanical function of the heart. Another scientific peer reviewed
paper has been published on non-invasive determination of central venous
pressure ("CVP"), a measure that reflects fluid loading of the cardiovascular
system. Its accuracy has been validated against invasive central venous catheter
measurements. The Company plans an upgrade to RespiEvents 5.4 to market this
software and also incorporate it into the LifeShirt system that is described
below.
RespiCardiograph (Thoracocardiograph) - is a system that is designed to
monitor and record cardiac signals by placing a Respiband around the lower
chest. This technology displays left ventricular cardiac volume curves and
serves as a continuous, non-invasive monitor of the mechanical function of the
heart. By providing recording of changes in blood pumped from the heart, it
measures changes in cardiac output. In addition, analysis of various points of
the ventricular volume curve, provide assessment of systolic (contraction) and
diastolic (relaxation) properties of the heart. The RespiCardiograph also
provides data on regional cardiac motion, which is a key factor in early
detection of acute heart attacks. Six scientific peer-reviewed papers have been
published on this technology. Its accuracy has been validated against invasive
thermodilution cardiac output measurements, automated border edge detection
echocardiography, and Doppler measurements of transmitral blood flows. The
RespiCardiograph is a low cost, much less labor-intensive substitute for certain
aspects of Doppler-Echo technology and a low cost, safe alternative to invasive
Swan-Ganz catheter technology for monitoring the status of the pulmonary
circulation and heart in critically ill patients. The Company plans an upgrade
to RespiEvents 5.4 to market this software and also to incorporate it into the
LifeShirt system that is described below.
Respi-HemithoracicBands - consists of two Respitrace bands, one placed
over the right and the other over the left sides of the chest. Differences in
volume expansion and lag of one side to the other help in deciding whether
pleural effusions, pneumothorax or atelectasis might be present. One paper on
this technology has been presented to a National Medical Meeting. The Company
plans an upgrade to RespiEvents 5.4 to market this software and also to
incorporate it into the LifeShirt system that is described below.
LifeShirt - is a Wearable Physiological Computer (patent,
PhysiologicSigns Feedback System, issued April 4, 2000) that incorporates four
inductive plethysmographic transducers, electrocardiographic electrodes, and a
two posture sensor into a low turtle neck sleeveless garment. Pulse oximetry is
an optional add-on. These transducers are connected to a miniaturized, battery
powered, electronic module that has been fabricated. This in turn interfaces
with a Personal Digital Assistant ("PDA") with compact flash memory for
collection of raw waveforms and digital data from the electronic module. Such
data are transmitted from flash memory to a Data Collection Center that checks
for quality control from full disclosure, transforms data into minute-by-minute
median trends of over 40 physical and emotional signs of health and disease. In
addition, the monitored patient can enter symptoms with intensity, mood, and
medication diary into the PDA for integration with the physiologic information
collected
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with the LifeShirt garment. Data from flash memory can be uploaded into a PC and
then transmitted over the Internet up to the LifeShirt.com, Inc. Data Collection
Center for quality control, generation of reports, and database storage. Vital
and physiological signs can be obtained non-invasively, continuously, cheaply,
and reliably with the comfortably worn LifeShirt garment system while at rest,
during exercise, at work, and during sleep.
Non-Invasive Therapeutic Motion Platform - The Company has developed
and continues to test a horizontal motion platform that imparts periodic
acceleration to the body in a headward-footward direction at rates of
approximately 90 to 240 times per minute. The Company received notification from
the U.S. Patent Office that its patent application, Reciprocating Movement
Platform for Shifting Subject To and Fro in Headwards-Footwards Direction,
received its Notice of Allowance. As a consequence of experimental animal
studies, it has been found and reported at scientific meetings that this device
has several major clinical applications. Two papers on the benefits and effects
of such periodic acceleration are being published in a peer reviewed scientific
journal and another one has been submitted for consideration of publication. For
example, the system is capable of supporting ventilation in both normal and
diseased lungs even when the respiratory muscles are paralyzed. This method does
not require connection to the airway for imposed positive pressures, as is the
case with conventional mechanical ventilators. As such, it has the potential to
eliminate lung injury produced by conventional ventilators, a point that is the
subject of several scientific papers. The system also has potential to serve as
a stand-alone device in cardiopulmonary resuscitation and organ preservation.
The motion platform through periodic acceleration also appears to
release nitric oxide and other beneficial mediators such as prostacyclin and
tissue plasminogen activator (tPA) from the vascular lining cells. The motion
platform is the first device invented that can accomplish the release of these
natural substances. Nitric oxide is believed to be the most important mediator
of vasodilatation on the body. As such, it has favorable actions in chronic
heart failure, high blood pressure, pulmonary hypertension, coronary artery
disease, stroke, wound healing, and prevention of arteriosclerosis among others.
Prostacyclin also is a vasodilator and might be more effective in reducing
pulmonary arterial pressures than nitric oxide. Finally, tissue plasminogen
activator has a role in prevention of clot formation. A patent application on
such actions, as well as others, is pending.
During fiscal year 1999, the Company designed and had fabricated two
adult capacity motion platforms for inducing periodic acceleration. Tests with
these two systems revealed that adults tolerated the gravitational intensity to
effect nitric oxide release and that a non-invasive test revealed that nitric
oxide was released in a dose-dependent manner.
The Company is currently seeking financial support from larger medical
device companies to bring this device to market.
During the fiscal year ended July 31, 2000, ("fiscal 2000") the
Company's principal product development activities were focused on the LifeShirt
system, RespiEvents 5.4 and the therapeutic motion platform.
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Manufacturing
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As described in "General Development of Business" above, in December
1996, the Company granted SMC the exclusive rights to manufacture Respiband Plus
and non-exclusive rights to manufacture certain other products. To reduce the
manufacturing costs for new products, the Company has chosen to outsource the
manufacture of the Respitrace 200 and Respitrace 204. The Company's products are
assembled utilizing a variety of off-the-shelf components available from a
variety of sources, in addition to custom components such as printed circuit
boards and software fabricated to Company's specifications. The Company provides
the manufacturer a request for materials for parts procurement by the
manufacturer to the Company's specifications. This includes PC boards and cable
assemblies. The device is manufactured and the final testing of the product is
completed at the Company. The Company then packages and ships the completed
products. The Company will continue to outsource the manufacturing of its
products.
Marketing and Sales
-------------------
The Company's products are designed for hospitals and other health care
facilities such as outpatient surgical units, sleep disorder centers, nursing
homes, skilled nursing facilities, research facilities and governmental agencies
as well as to health care professionals such as pulmonary and critical care
physicians, neonatologists, anesthesiologists, respiratory therapists, hospital
administrators and directors of home health care agencies.
Pursuant to the SMC Agreement, the Company granted SMC the exclusive
rights to manufacture the Company's Respiband Plus and non-exclusive rights to
manufacture the Company's Respitrace Plus and Respitrace PT. SMC produces
instruments for pulmonary function testing, metabolic measurements, sleep
diagnostics and similar support and has over 30 years experience in the medical
device industry. SMC distributes its products through 35 direct representatives
in the United States, the United Kingdom, the Benelux countries, France, and
Germany and uses 50 dealers in other countries.
Since introducing the Respitrace 200 and 204 Data Acquisition Systems
above, the Company has been selling these systems directly through
advertisements in peer reviewed medical trade journals, the Internet, trade show
leads, and its existing customer base.
Respitrends and RespiEvents 5.2 are marketed to SMC and the Company's
existing Respitrace Plus customer base. RespiEvents 52 is marketed by the
Company to Respitrace 200 and 204 customers.
Regulatory Compliance
---------------------
Medical device manufacturers are subject to extensive federal and state
regulations relating to nearly every aspect of the development, manufacture and
commercialization of such products. The FDA is the principal regulatory
authority over medical devices in the United States. Additionally, in order to
manufacture and market medical devices overseas, which the Company believes is a
significant potential market for its products, the Company must comply with
regulatory requirements and procedures in various foreign countries. The CE mark
is required for marketing in the European Community. The Company obtained ISO
9001 and
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equivalent FDA Quality Assurance certification from TUV Rheinland in May 1999.
Therefore, the Company is permitted to utilize the CE mark on its products. The
Company received recertification of ISO 9001 and equivalent FDA Quality
Assurance certifications in their April 2000 audit by TUV Rheinland.
In May 1, 2000, the Company received 510(k) approval from the FDA to
market the Company's RespiEvents software with an expanded indication of
intended use. This relates to the utilization of the software during the daily
activities of living, a necessity for analyzing data in ambulatory monitoring
devices such as the LifeShirt system.
Patents and Trademarks
----------------------
The Company currently holds 2 United States and 8 foreign patents with
respect to both overall design and specific features of its present and proposed
products and has submitted applications with respect to an additional 2 United
States and 2 foreign patents. The Company transferred 14 U.S. patents to
LifeShirt.com. The Company was granted one new patent in 1999; Means for
Analyzing Breath Waveforms as to their Neuromuscular Respiratory Implications
and another, PhysiologicSigns Feedback System, issued April 4, 2000. 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:
Number of Patents Expiration Date
Domestic Foreign
-------- -------
1 2001
2 2 2004
2 2005
1 1 2006
1 2 2007
2 2008
2 2009
2 1 2011
2 2015
1 2016
1 2017
Total 15 8
With respect to its present and proposed product line, the Company has
13 trademarks and trade names which are registered in the United States and 13,
which are registered in several foreign countries, including the Company's
principal trademark.
12
<PAGE>
Competition
-----------
The Company competes with several concerns that market non-invasive
respiratory monitoring devices, including Respironics Corporation, Hewlett
Packard, and Spacelabs, all of which are larger, have longer operating histories
and have financial and personnel resources far greater than those of the
Company. Management believes, however, that it effectively competes with such
concerns on the basis of uniqueness and quality.
Employees
---------
The Company currently employs five full-time employees on a full-time
basis. Two are engaged in general and administrative duties, two in research and
development, and one in product assembly. The Company also employs one part-time
employee as a programmer.
ITEM 2. PROPERTIES.
The Company occupies approximately 2,500 square feet at 1840 West
Avenue, Miami Beach, Florida, which house its executive offices and product
development facilities. Such space is leased on a month-to-month basis from a
non-affiliated party at an annual rental of approximately $30,000. The Company
believes that its facilities are adequate for the Company's needs in the near
future.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings that are currently pending or,
to the Company's knowledge, contemplated against the Company to which it is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
A. Market Information.
-------------------
The Company's Common Stock is currently traded in the over-the-counter
market and is listed on the OTC Bulletin Board. The high and low bid prices for
the Common Stock, as reported by the OTC Bulletin Board for each quarter during
the last two fiscal years were as follows:
Quarter Ended High Low
October 31, 1998 $0.11 $0.070
January 31, 1999 $0.07 $0.065
April 30, 1999 $0.07 $0.065
July 31, 1999 $0.069 $0.045
October 31, 1999 $0.109 $0.109
January 31, 2000 $0.984 $0.500
April 30, 2000 $1.469 $1.125
July 31, 2000 $0.906 $0.781
The quotations set forth above reflect inter-dealer prices, without
retail markup, markdown, or commission, and may not necessarily represent actual
transactions.
B. Holders
-------
As of October 25, 1999 there were approximately 1,545 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 of the Company does not contemplate doing
so in the near future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations.
----------------------
Fiscal 2000 Compared to Fiscal 1999.
The Company's net loss for fiscal 2000 was approximately $35,000 as
compared $569,000 for the year ending July 31, 1999 ("fiscal 1999"). For fiscal
2000, total revenue was approximately $692,000 as compared to approximately
$241,000 in fiscal 1999.
14
<PAGE>
Cost of goods sold expressed as a percentage of product sales were
approximately 18% for fiscal 2000 compared to 22% in fiscal 1999. These
decreases are due to certain product sales having very little cost of sales
associated with them.
Net operating loss carry forward for the Company as of July 31, 2000
was approximately $10,011,000.
Operating expenses were approximately $731,000 for fiscal 2000,
compared to $824,000 in fiscal 1999.
Liquidity and Capital Resources
-------------------------------
Working capital at July 31, 2000 was $(95,000) as compared to $18,000
at July 31, 1999. The significant decrease in working capital for the year ended
July 31, 2000 as compared to July 31,1999 was primarily due to the operating
loss incurred by the Company in 1999.
Cash provided by operating activities during fiscal 2000 was
approximately $78,000 compared to cash used in operating activities of $485,000
during fiscal 1999. The decrease in cash provided by operating activities of
approximately $563,000 in fiscal 2000 as compared to fiscal 1999 is primarily
attributable to an decrease in the Company's net loss (net of non-cash charges)
of $492,000 during fiscal 2000 and a decrease in operating assets (net of
liabilities) of $70,000 in fiscal 2000 as compared to an increase of $1,000 in
fiscal 1999.
Cash used in investing activities was approximately $76,000 in fiscal
2000 compared to cash provided by investing activities of approximately $171,000
in fiscal 1999. Investing activities consist primarily of costs for patents,
software production and purchase/sale of short-term investments.
Cash provided by financing activities in fiscal 2000 was approximately
$22,000 compared to approximately $180,000 in fiscal 1999 due to proceeds from
loans from a shareholder in 1999.
The reports of independent auditors on financial statements at and for
the two years ended July 31, 2000, contain an explanatory paragraph raising
substantial doubt of the Company's ability to continue as a going concern. Note
2 to the consolidated financial statements describes the conditions which raise
this doubt and management's plans. As previously noted, revenues generated from
the LifeShirt and SMC Agreements were insufficient to fund operations during
fiscal 2000. If revenues generated from the LifeShirt and SMC Agreements or
other sales do not reach levels sufficient to fund working capital requirements
during fiscal 2001, the Company will require further financing to continue
operations during fiscal 2001 and in any event may require additional capital to
fund research and development efforts beyond presently contemplated levels.
Failure to secure necessary financing might result in the further reduction and
curtailment of operations.
15
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
The financial statements required by this Item, the accompanying notes
thereto and the reports of independent accountants are included as part of this
Form 10-KSB immediately following the signature page, beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
16
<PAGE>
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:
Name Age Position
Marvin A. Sackner, M.D. 68 Chairman of the Board,
Chief Executive Officer and Director
Ruth Sackner 64 Secretary and Director
Gerard Kaiser, M.D. 68 Director
Morton J., Robinson, M.D. 68 Director
Stanley C. Sackner, D.O. 64 Director
Edward Shapiro 86 Director
MARVIN A. SACKNER, M.D., was elected to his positions as Chairman of
the Board, Chief Executive Officer and Director 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 the President of the American Thoracic Society. Dr.
Sackner was the Chairman of the Pulmonary Disease Subspecialty Examining Board
of the American Board of Internal Medicine from 1977 to 1980. He also currently
serves as Medical Director of LifeShirt.com, Inc.
RUTH SACKNER was elected a Director of the Company in November 1989
upon completion of the Merger.
GERARD KAISER, M.D. was elected a Director of the Company in November
1989 upon completion of the Merger. Since 1971, he has been at the University of
Miami School of Medicine and currently serves as Deputy Dean for Clinical
Affairs. He also serves as Senior Vice President for Medical Affairs at Jackson
Memorial Hospital.
MORTON J. ROBINSON, M.D. was elected a Director of the Company in
November 1989 upon completion of the Merger. Dr. Robinson is Director of the
Department of Pathology and Laboratory Medicine at Mount Sinai Medical Center,
Miami Beach.
17
<PAGE>
STANLEY C. SACKNER, D.O. was elected a Director of the Company in
November 1989 upon completion of the Merger. Dr. Sackner is on honorary staff of
the Department of 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. From 1969 to the present, Mr. Shapiro has been a
private real estate investor.
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. The Board of Directors met 3 times in
fiscal 2000, one time by written consent. The Committees did not meet in fiscal
2000.
Officers of the Company serve at the pleasure of the Board of Directors
and until the first meeting of the Board of Directors following the next annual
meeting of the Company's shareholders and until their successors have been
chosen and qualified.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's Directors, executives officers and holders of more than
ten percent of the Company's Common Stock, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and NASDAQ.
Such persons are required to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it, or oral or written representations from certain reporting
persons that no Forms 5 were required for those persons, the Company believes
that, during fiscal 2000, 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, 1999 and 2000, the cash and certain other compensation paid by
the Company to the Company's Chief Executive Officer ("CEO"). No other current
executive officer had an annual salary and bonus in excess of $100,000 during
either of such fiscal years:
Annual Compensation
Name and Principal Position Year Salary ($)
Marvin A. Sackner 1998 $85,000
Chairman of the Board, and 1999 $85,000
Chief Executive Officer 2000 $95,000
18
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding NIMS'
Common Stock, Series C Convertible Preferred Stock and NIMS' voting securities
beneficially owned on October 28, 2000 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>
Name and Address No.of Percentage No. of Percentage No. of Percentage
Identify of Group Shares of of Shares of of Class Shares of of
Common Beneficial Series C (3) Voting Beneficial
Stock Ownership Convertible Securities Ownership
Beneficially (2) Preferred Beneficially (4)
Owned (1) Stock Owned (1)
Beneficially
Owned (1)
<S> <C> <C> <C> <C> <C> <C>
Marvin A. 11,393,945(5) 52.9% 36,855.92 59.4% 11,430,800.92 53%
Sackner, M.D.
1840 West Avenue,
Miami Beach, FL
33139
Ruth Sackner 11,393,945(5) 52.9% 36,855.92 59.4% 11,430,800.92 53%
1840 West Avenue,
Miami Beach, FL
33139
Stanley C. 239,989(6) 1.1% 1,198.19(4) 1.9% 241,187.19(6) 1.1%
Sackner, D.O.
1840 West Avenue,
Miami Beach, FL
33139
Morton J. 409,491(7) 1.9% 1,073.19(3) 1.7% 410,564.19(7) 1.9%
Robinson, M.D.
1840 West Avenue,
Miami Beach, FL
33139
Edward Shapiro 26,250(8) * 525.00(5) * 26,775(8) *
1840 West Avenue,
Miami Beach, FL
33139
Gerard Kaiser, 46,541(9) * 75.00(6) * 46,616(9) *
M.D.
1840 West Avenue,
Miami Beach, FL
33139
All executive 12,116,216 56.3% 39,727.30 64% 12,155,943.3 56.3%
officers and
directors as a
group (6 persons)
</TABLE>
---------------------------
* Less than 1%
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon exercise
of option and warrants. Each beneficial owner's percentage ownership is
determined by assuming that option and warrants that are held by such
person (but not those held by any other person) and that are exercisable
within 60 days from the date hereof have been exercised.
19
<PAGE>
(2) Based on 21,514,726 shares of Common Stock issued and outstanding as of
October 30, 2000.
(3) Based on 62,048 Series C Convertible Preferred Stock issued and
outstanding, as of October 30, 2000.
(4) Based on 21,576,874 shares consisting of 21,514,726 shares of Common Stock,
62,048 Series C Convertible Preferred Stock and 100 shares of Series B
Preferred Stock issued and outstanding. Holders of Series C Preferred Stock
are entitled to vote together with the holders of shares of Common Stock
and Series B Preferred Stock on a share-for-share basis as a single class,
on all matters except as otherwise required by law
(5) Represents securities held by Dr. Marvin A. Sackner and Ruth Sackner, his
spouse.
(6) 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.
(7) 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.
(8) Includes securities held jointly by Mr. Shapiro and his spouse.
(9) Includes shares of Common Stock held by Dr. Kaiser's spouse.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In, March 1999, Marvin Sackner, CEO and Chairman of the Board of
Directors, agreed to loan the Company certain funds to continue funding
operations, at a rate of 12% per annum in return for an option to purchase
1,000,000 shares of the Common Stock at an exercise price of 14.5 cents per
share. As of July 31, 2000, the principal and interest outstanding on this loan
is $51,980.
At July 31, 2000, the Company had a 21.4% interest in LifeShirt.Com,
Inc. ("LifeShirt"), a related entity in the development state. Dr. Sackner's
son-in-law is the Chief Operating Officer and a founder of LifeShirt.Com, Inc.
On October 28, 1999, the Company entered into a license agreement and a
research and consulting agreement with LifeShirt. Under the license agreement,
the Company granted LifeShirt the exclusive world-wide right and license to
certain technology in exchange for 23.5% of the founders' share of LifeShirt and
a royalty equal to 3% of LifeShirt's gross revenues from sales with a minimum
royalty of $250,000 in the second year. The Company retained the right to market
and sell the LifeShirt system and its components to hospitals. Subsequent to the
initial investment, the Company's percentage investment was diluted to 21.4%.
The Company retains title and interest in and to any and all derivative
patents related to the products incorporated within the LifeShirt System in
exchange for a royalty 5% of the Company's sales of certain products and
services.
The agreement is for a period of 10 years.
20
<PAGE>
Under the agreement, LifeShirt pays the Company as follows: $10,000 due
within 10 days of the execution of the agreement and $43,000 per month
thereafter for the Company to develop the LifeShirt System. During the year
ended July 31, 2000, the Company received $397,000.
In August 2000, the Company entered into agreements with LifeShirt,
which superceded or terminated the existing license and research and consulting
agreements.
Under the new agreements, LifeShirt grants to the Company the
non-exclusive, worldwide right and license to use of patents and software for a
period of ten years. If LifeShirt fails to earn gross revenues of $200,000 from
the commercial sale of certain products and/or services to hospitals following
the 2002 calendar year, the Company has the right to sell certain products to
hospitals for the following three years in exchange for a royalty of 5% of the
gross revenues the Company earns on these sales. LifeShirt will also pay the
company $900,000, in payments of $75,000 per month for twelve months beginning
August 11, 2000, in consideration for services to be performed by the Company in
support of the LifeShirt Systems. In addition, the Company assigned all of its
rights, title and interest in certain patents and intellectual property as well
as a non-exclusive, worldwide license under these items to LifeShirt in
consideration for a royalty of 3% of LifeShirt's gross revenues from sales of
certain products. The minimum royalty in the second year is $250,000.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a). Exhibits
Exhibit No. Description of Exhibits
----------- -----------------------
3(a) Articles of Incorporation, as amended (1)
(b) By-Laws, as amended (2)
4(a) Form of Certificate evidencing shares of Common Stock (3)
10(c) Revised SMC Agreement (4)
16 Letter regarding Change in Certifying Accountants (5)
21 Subsidiaries of the Company (2)
27 Financial Data Schedule (SEC use only)
(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.
21
<PAGE>
(2) Included as an Exhibit to the Company's Registration Statement on Form
S-1 (File No. 33-14451) including all pre and post effective Amendments
thereto, and incorporated herein by reference.
(3) Included as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended July 31, 1990 and incorporated herein by reference.
(4) Included as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended July 31, 1996 and incorporated herein by reference.
(5) Included as an Exhibit to the Company's Current Report on Form 8-K
dated September 10, 1998 and incorporated herein by reference.
(b) Reports on Form 8-K
None.
22
<PAGE>
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 30, 2000 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 Executive
------------------------ Officer and Director (Principal
MARVIN A. SACKNER Executive, Financial and Accounting
Officer) October 30, 2000
/S/ Mortin J. Robinson
------------------------
MORTON J. ROBINSON Director October 30, 2000
/S/ Ruth Sackner
------------------------
RUTH SACKNER Director and Secretary October 30, 2000
/S/ Stanley C. Sackner
------------------------
STANLEY C. SACKNER Director October 30, 2000
/S/ Edward Shapiro
------------------------
EDWARD SHAPIRO Director October 30, 2000
/S/ Gerald Kaiser
------------------------
GERARD KAISER Director October 30, 2000
</TABLE>
23
<PAGE>
Consolidated Financial Statements
Non-Invasive Monitoring Systems, Inc.
and Subsidiaries
Years Ended July 31, 2000 and 1999
<PAGE>
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:
Balance Sheet - July 31, 2000
Statements of Operations - Years Ended July 31, 2000 and 1999
Statements of Shareholders' Equity - Years Ended July 31, 2000 and 1999
Statements of Cash Flows - Years Ended July 31, 2000 and 1999
Notes to Financial Statements
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Non-Invasive Monitoring Systems, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Non-Invasive
Monitoring Systems, Inc. and Subsidiaries as of July 31, 2000 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended July 31, 2000 and 1999. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Non-Invasive
Monitoring Systems, Inc. and Subsidiaries at July 31, 2000 and the results of
their operations and their cash flows for each of the two years in the period
ended July 31, 2000, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements referred to above 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's significant operating losses 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 consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Gerson, Preston & Company, P.A.
------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Miami Beach, Florida
October 16, 2000
F-2
<PAGE>
NON-INVASIVE MONITORING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
At July 31, 2000
ASSETS
Current assets
Cash $ 27,721
Accounts and royalties receivable 36,637
Inventories 18,451
--------------------------------------------------------------------------------
Total current assets 82,809
Furniture and equipment, net of accumulated depreciation of $99,570 16,148
Patents, net of accumulated amortization of $221,025 342,466
--------------------------------------------------------------------------------
Total assets $441,423
================================================================================
F-3
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 125,754
Loan payable to shareholder 51,980
--------------------------------------------------------------------------------
Total current liabilities 177,734
--------------------------------------------------------------------------------
Shareholders' equity
Preferred stock, $1 par value; 1,000,000 shares authorized:
Series B - 100 shares issued and outstanding 100
Series C - 62,048 shares issued and outstanding 62,048
Common stock, $.01 par value; 100,000,000 shares authorized;
21,514,726 shares issued and outstanding 215,148
Additional paid-in capital 10,996,877
Accumulated deficit (11,010,484)
--------------------------------------------------------------------------------
Total shareholders' equity 263,689
--------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 441,423
================================================================================
See accompanying notes.
F-4
<PAGE>
NON-INVASIVE MONITORING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended July 31, 2000 and 1999
2 0 0 0 1 9 9 9
--------------------------------------------------------------------------------
Revenue
Research and consulting $ 397,000 $ --
Product sales 211,292 158,648
Royalties 83,481 82,000
--------------------------------------------------------------------------------
Total revenues 691,773 240,648
--------------------------------------------------------------------------------
Operating expenses
Research and development 350,829 387,516
Cost of goods sold 38,050 35,367
Selling, general and administrative 342,203 400,997
--------------------------------------------------------------------------------
Total costs and expenses 731,082 823,880
--------------------------------------------------------------------------------
Loss from operations before other income (39,309) (583,232)
Other income 4,204 14,347
--------------------------------------------------------------------------------
Net loss $ (35,105) $ (568,885)
================================================================================
Weighted average number of common
shares outstanding 21,514,726 18,199,658
================================================================================
Basic and diluted loss per common share $ (0.002) $ (0.031)
================================================================================
See accompanying notes.
F-5
<PAGE>
NON-INVASIVE MONITORING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
Subscribed Additional
Preferred Stock Common Common Paid-in Accumulated
Series B Series C Stock Stock Capital Deficit Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1998 $ 100 $ 62,048 $ 124,398 $ 40,750 $ 10,896,877 $(10,406,494) $ 717,679
Issuance of common stock -- -- 90,750 (40,750) 100,000 -- 150,000
Net loss -- -- -- -- -- (568,885) (568,885)
------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1999 100 62,048 215,148 -- 10,996,877 (10,975,379) 298,794
Net loss -- -- -- -- -- (35,105) (35,105)
------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 2000 $ 100 $ 62,048 $ 215,148 $ -- $ 10,996,877 $(11,010,484) $ 263,689
====================================================================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
NON-INVASIVE MONITORING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
2 0 0 0 1 9 9 9
--------------------------------------------------------------------------------------------
Operating activities
<S> <C> <C>
Net loss $ (35,105) $(568,885)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization 30,280 84,868
Bad debt expense 12,692 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts and royalties receivable (13,693) 40,361
Decrease (increase) in inventories 19,214 (37,665)
Decrease in prepaid expenses and other assets 3,097 1,012
Increase (decrease) in accounts payable and accrued expenses 61,125 (4,451)
--------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 77,610 (484,760)
--------------------------------------------------------------------------------------------
Investing activities
Sale of short-term investment -- 200,000
Patent costs (75,567) (28,517)
--------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (75,567) 171,483
--------------------------------------------------------------------------------------------
Financing activities
Proceeds from loan from shareholder 22,480 29,500
Proceeds from issuance of common stock -- 150,000
--------------------------------------------------------------------------------------------
Net cash provided by financing activities 22,480 179,500
--------------------------------------------------------------------------------------------
Net increase (decrease) in cash 24,523 (133,777)
Cash, beginning of year 3,198 136,975
--------------------------------------------------------------------------------------------
Cash, end of year $ 27,721 $ 3,198
============================================================================================
</TABLE>
See accompanying notes.
F-7
<PAGE>
NON-INVASIVE MONITORING SYSTEMS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation. The Company manufactures computer-aided
continuous monitoring devices to detect abnormal respiratory and
cardiac events using sensors placed on the body's surface.
The consolidated financial statements include the accounts of the
Company and its wholly-owned inactive subsidiaries. All significant
intercompany balances have been eliminated in consolidation. A
partially-owned affiliate is accounted for under the equity method.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Inventories. Inventories are stated at lower of cost or market using
the first-in, first-out method and consist primarily of finished goods.
Property and Equipment. Property and equipment are stated at cost and
depreciated, using the straight-line method, over the 5 year estimated
useful lives of the assets.
Patents. Costs incurred in applying for and defending patents are
capitalized and amortized, using the straight-line method, over the
lives of the patents.
Long-Lived Assets. The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable.
Fair Value of Financial Instruments. The carrying amount of cash,
accounts receivable, accounts payable and accrued expenses approximate
fair value because of their short duration. In addition, the loan
payable to shareholder approximates fair value because of the interest
rate.
F-8
<PAGE>
NON-INVASIVE MONITORING SYSTEMS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Cont'd)
Warranties. The Company warrants its products for one year. However, in
the opinion of management, warranty costs are not material.
Revenue Recognition. The Company recognizes revenue when products are
shipped or as royalties are earned. If installation is required as a
condition of sale, revenue is recognized when the installation has been
completed.
Research and Development Costs. Research and development costs are
expensed as incurred.
Earnings (Loss) Per Share. Basic net income (loss) per common share is
computed using the weighted average number of common shares outstanding
during the period. Diluted net income (loss) per share is computed
using the weighted average number of common and dilutive common
equivalent shares outstanding during the period.
2. GOING CONCERN - UNCERTAINTY
As shown in the accompanying consolidated financial statements, the
Company's significant operating losses raise substantial doubt about
the Company's ability to continue as a going concern. The Company is
seeking to generate revenues through licensing and research and
consulting agreements (see Note 3). There can be no assurance that the
Company will be able to successfully implement its plans, or if such
plans are successfully implemented, that the Company will achieve its
goals.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern and do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets, or the amounts and
classifications of liabilities that might result from the outcome of
this uncertainty.
F-9
<PAGE>
NON-INVASIVE MONITORING SYSTEMS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT IN AND TRANSACTIONS WITH AN AFFILIATE
At July 31, 2000, the Company had a 21.4% interest in LifeShirt.Com,
Inc. ("LifeShirt"), a related entity in the development stage.
Summarized unaudited financial information for this affiliate at June
30, 2000 and for the period from inception, August 5, 1999 to June 30,
2000, is as follows:
Other assets $ 35,000
--------------------------------------------------------------
Total assets $ 35,000
==============================================================
Current liabilities $ 387,000
Shareholders' deficit (352,000)
--------------------------------------------------------------
Total liabilities and shareholders' deficit $ 35,000
--------------------------------------------------------------
Operating expenses $ 1,263,000
--------------------------------------------------------------
Net loss $ 1,263,000
==============================================================
On October 28, 1999, the Company entered into a license agreement and a
research and consulting agreement with LifeShirt. Under the license
agreement, the Company granted LifeShirt the exclusive world-wide right
and license to certain technology in exchange for 23.5% of the
founders' share of LifeShirt and a royalty equal to 3% of LifeShirt's
gross revenues from sales with a minimum royalty of $250,000 in the
second year. No value was assigned to the 23.5% investment.
Accordingly, the Company's share of the losses of LifeShirt have not
been recorded since to do so, would reduce the Company's investment
below $0. The Company retained the right to market and sell the
LifeShirt system and its components to hospitals. Subsequent to the
initial investment, the Company's percentage investment has been
diluted to 21.4%.
The Company retains title and interest in and to any and all derivative
patents related to the products incorporated within the LifeShirt
System in exchange for a royalty of 5% of the Company's sales of
certain products and services.
F-10
<PAGE>
NON-INVASIVE MONITORING SYSTEMS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT IN AND TRANSACTIONS WITH AN AFFILIATE (Con't)
The agreement is for a period of 10 years.
Under the agreement, LifeShirt pays the Company as follows: $10,000 due
within 10 days of the execution of the agreement and $43,000 per month
thereafter for the Company to develop the Lifeshirt System. During the
year ended July 31, 2000 the Company received $397,000.
In August 2000, the Company entered into agreements with LifeShirt
which superceded or terminated the existing license and research and
consulting agreements.
Under the new agreements, LifeShirt grants to the Company the
non-exclusive, worldwide right and license to use of patents and
software for a period of ten years. If LifeShirt fails to earn gross
revenues of $200,000 from the commercial sale of certain products
and/or services to hospitals following the 2002 calendar year, the
Company has the right to sell certain products to hospitals for the
following three years in exchange for a royalty to LifeShirt of 5% of
the gross revenues the Company earns on these sales. LifeShirt will
also pay the Company $900,000, in payments of $75,000 per month for
twelve months beginning August 11, 2000, in consideration for services
to be performed by the Company in support of the LifeShirt Systems. In
addition, the Company assigned all of its rights, title and interest in
certain patents and intellectual property as well as a non-exclusive,
worldwide license under these items to LifeShirt in consideration for a
royalty of 3% of LifeShirt's gross revenues from sales of certain
products. The minimum royalty in the second year is $250,000.
4. DEFERRED INCOME TAXES
At July 31, 2000, the Company has available net operating loss carry
forwards of approximately $10,011,000, which expire in various years
through 2020.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The significant component of the Company's deferred income
tax asset resulted from the net operating losses and amounted to
approximately $3,800,000.
F-11
<PAGE>
NON-INVASIVE MONITORING SYSTEMS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. DEFERRED INCOME TAXES (Con't)
A valuation allowance is required to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely
than not that some portion or all of the deferred tax assets will not
be realized. After consideration of all the evidence, both positive and
negative, management has determined that a full $3,800,000 valuation
allowance at July 31, 2000 was necessary. The change in the valuation
allowance for the year ended July 31, 2000 is $14,000.
5. PREFERRED STOCK
The Series B 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 Preferred Stock has a liquidation preference of $1 per
share and provides for a noncumulative dividend of $.40 per share, if
declared.
No preferred stock dividends have been declared.
Holders of the Company's Preferred Stock are entitled to one vote for
each share held.
6. COMMON STOCK
In March 1999, the Company issued 5,000,000 shares of common stock for
$150,000.
7. STOCK OPTIONS
The Company has a Stock Option Plan (the Plan) for key officers and
employees. The Company has reserved 250,000 shares of Common Stock for
issuance under the Plan. No options have been granted since the Plan's
inception.
F-12
<PAGE>
NON-INVASIVE MONITORING SYSTEMS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED PARTY TRANSACTIONS
A shareholder has loaned $51,980 to the Company. The loans are due on
demand, and are unsecured with interest at 12%.
9. OTHER INFORMATION
Under an agreement with SensorMedics Corp. ("SMC"), the Company
receives royalties based on a percentage of SMC's net sales of the
Company's products.
During the years ended July 31, 2000 and 1999, one customer accounted
for 7% and 42% of product sales, respectively, and accounted for 93%
and 85%, respectively, of royalty income. This customer represented 84%
of the accounts and royalties receivable balance at July 31, 2000.
Rent expense, under a month-to-month lease, was $26,441 and $35,762 for
the years ended July 31, 2000 and 1999, respectively.
F-13
