NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION AND BUSINESS
Organization.
Non-Invasive Monitoring Systems, Inc., a Florida corporation (together with its consolidated subsidiaries, the “Company”
or “NIMS”). The Company previously developed and marketed its Exer-Rest® line of acceleration therapeutic
platforms based upon unique, patented whole body periodic acceleration (“WBPA”) technology of which the Company maintains
patents. The Company maintains limited administration, but does not have any operations or inventory.
Business.
The Company is currently a shell company (as defined in Rule 12b-2 of the Exchange Act).
Going
Concern. The Company’s consolidated financial statements have been prepared and presented on a basis assuming it will continue
as a going concern. As reflected in the accompanying consolidated financial statements, the Company had net losses from continuing operations
of approximately $0.2 million for each of the years ended July 31, 2022 and 2021 and has experienced cash outflows from operating activities.
The Company also has an accumulated deficit of $28.5 million as of July 31, 2022. The Company had $15,000 of cash at July 31, 2022 and
negative working capital of approximately $249,000. These matters raise substantial doubt about the Company’s ability to continue
as a going concern.
On
September 16, 2022, the Company entered into two Promissory Notes in the principal amount of $75,000
each with Frost Gamma Investments Trust (the “Frost Gamma Note 2”), a trust controlled by Dr. Phillip Frost and with
Jane Hsiao, Ph.D., the Company’s Chairman and Interim CEO (the “Hsiao Note 2”), both which beneficially owns in
excess of 10%
of NIMS’ common stock. The interest rate payable by NIMS on the Frost Gamma Note 2 and Hsiao Note 2 is 11%
per annum, payable on the Maturity Date. The Frost Gamma Note 2 and Hsiao Note 2 may be prepaid in advance of the Maturity Date
without penalty.
The
Company is seeking potential mergers, acquisitions and strategic collaborations. There is no assurance that the Company will be successful
in this regard, and, if not successful, that it will be able to continue its business activities. The accompanying consolidated financial
statements do not include any adjustments that might be necessary from the outcome of this uncertainty.
Discontinued
Operations. On May 3, 2019 the Company exchanged inventory for forgiveness of accrued unpaid rent. The Company has no inventory,
no immediate plans to replenish inventory and has no current plans to develop or market new products.
Accordingly,
the Company determined that the assets and liabilities met the discontinued operations criteria in Accounting Standards Codification
205-20-45 and were classified as discontinued operations at May 3, 2019. See Discontinued Operations Note 3.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Non-Invasive Monitoring
Systems of Florida, Inc., which has no current operations, and NIMS of Canada, Inc., a Canadian corporation, which has no current operations.
All inter-company accounts and transactions have been eliminated in consolidation.
Discontinued
Operations. For the years ended July 31, 2022 and 2021, results from operations for our Exer-Rest Business are classified as
discontinued operations. The carve out of the discontinued operations (i) were prepared in accordance with the SEC’s carve out
rules under Staff Accounting Bulletin (“SAB”) Topic 1B1 and (ii) are derived from identifying and carving out the specific
assets, liabilities, operating expenses and interest expense associated with the Exer-Rest Business’s operations (see Note 3).
Use
of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America (“GAAP”) requires management to make estimates and assumptions, such as deferred taxes as estimates, that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and reported amounts of expenses during the reporting period. Actual results could differ materially from these
estimates.
Cash
and Cash Equivalents. The Company considers all highly liquid short-term investments purchased with an original maturity date
of three months or less to be cash equivalents. The Company had approximately $15,000 and $55,000, on deposit in bank operating accounts
at July 31, 2022 and July 31, 2021, respectively.
Income
Taxes. The Company provides for income taxes using an asset and liability based approach. Deferred income tax assets and liabilities
are recorded to reflect the tax consequences in future years of temporary differences between the carrying amounts of assets and liabilities
for financial statement and income tax purposes. The deferred tax asset for loss carryforwards and other potential future tax benefits
has been fully offset by a valuation allowance since it is uncertain whether any future benefit will be realized. The utilization of
the loss carryforward is limited to future taxable earnings of the Company and may be subject to severe limitations if the Company undergoes
an ownership change pursuant to the Internal Revenue Code Section 382.
The
Company files its tax returns as prescribed by the laws of the jurisdictions in which it operates. Tax years ranging from 2018 to
2022 remain open to examination by various taxing jurisdictions as the statute of limitations has not expired. It is the
Company’s policy to include income tax interest and penalty expense in its tax provision.
Fair
Value of Financial Instruments. Fair value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of July 31, 2022 and 2021. The respective carrying value of certain
on-balance-sheet financial instruments such as cash, prepaid expenses and accounts payable and accrued expenses approximate fair
values because they are short term in nature.
Notes Payable. The carrying value of such financial
instruments approximates their fair value since the stated interest rates approximates market rates for loans with similar terms for borrowers
with similar credit profiles. The respective carrying value of the notes payable – related party approximate our current borrowing
rate for similar debt instruments of comparable maturity.
Loss
Contingencies. We recognize contingent losses that are both probable and estimable. In this context, we define probability as
circumstances under which events are likely to occur. In regard to legal costs, we record such costs as incurred.
Related
Parties. The Company follows ASC 850 “Related Party Disclosures,” for the identification of related parties and disclosure
of related party transactions.
Reclassification
of Prior Year Presentation. Certain
prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on
the reported results of operations.
An
adjustment has been made to the Consolidated Balance Sheets for the fiscal year ended July 31, 2021, to reclassify
approximately $1,000
from continued operations accounts payable and accrued expenses to current liabilities - discontinued operations.
Recent
Accounting Pronouncements. The Company considers the applicability and impact of all relevant Accounting Standard Updates (“ASU’s”).
Our conclusion was that they did not have any material effect on the consolidated financial statements.
3.
DISCONTINUED OPERATIONS
On
May 3, 2019 the Company exchanged its inventory for forgiveness of accrued unpaid rent. Concurrent with the exchange management with
the appropriate level of authority determined to discontinue the operations of the product segment.
The
detail of the consolidated balance sheets for discontinued
operations is as stated below:
SCHEDULE OF BALANCE SHEETS OF DISCONTINUED OPERATIONS
| | |
As of July 31, 2022 | | |
As of July 31, 2021 | |
| | |
| | |
| |
| Current liabilities – discontinued operations | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 51 | | |
$ | 51 | |
| Total current liabilities – discontinued operations | |
| 51 | | |
| 51 | |
| Total liabilities – discontinued operations | |
$ | 51 | | |
$ | 51 | |
4.
STOCK-BASED COMPENSATION
The
Company measures the cost of employee, officer and director services received in exchange for an award of equity instruments based on
the grant-date fair value of the award. The fair value of the Company’s stock option awards is expensed over the vesting life of
the underlying stock options using the graded vesting method, with each tranche of vesting options valued separately. The Company did
not record any stock-based compensation during the twelve months ended July 31, 2022 and 2021.
In
November 2010, the Company’s Board and Compensation Committee approved the Non-Invasive Monitoring Systems, Inc. 2011 Stock
Incentive Plan (the “2011 Plan”). Awards granted under the 2011 Plan may have consisted of incentive stock options, stock
appreciation rights (SAR), restricted stock grants, restricted stock units (RSU) performance shares, performance units or cash
awards. Subject to adjustment in certain circumstances, the 2011 Plan authorized up to 4,000,000
shares of the Company’s common stock for issuance pursuant to the terms of the 2011 Plan. The 2011 Plan was approved by our
shareholders in March 2012 and the 2011 Plan expired in November 2020. No
awards have been granted under the 2011 Plan as of July 31, 2022.
As
of July 31, 2022, there were no
outstanding stock options and there were no
unrecognized costs related to outstanding stock
options. As of July 31, 2022 the Company does not have an equity compensation plan.
5.
SHAREHOLDERS’ EQUITY
The
Company has one class of Preferred Stock. Holders of Series B Preferred Stock are entitled to vote with the holders of common stock as
a single class on all matters. We are currently authorized to issue an aggregate of 401,000,000 shares of capital stock, consisting of
400,000,000 shares of common stock and 1,000,000 designated shares of preferred stock with preferences and rights to be determined by
our Board of Directors.
Series
B Preferred Stock is not redeemable by the Company and has a liquidation value of $100 per share, plus declared and unpaid dividends,
if any. Dividends are non-cumulative, and are at the rate of $10 per share, if declared.
No
preferred stock dividends were declared for the years ended July 31, 2022 and 2021.
The
Company did not issue any shares of the Company’s common stock during the
years ended July 31, 2022 and 2021.
6.
BASIC AND DILUTED LOSS PER SHARE
Basic
net loss per common share is computed by dividing net loss attributable to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted net loss per common share is computed giving effect to all dilutive potential common shares
that were outstanding during the period. Diluted potential common shares consist of incremental shares issuable upon conversion of preferred
stock. In computing diluted net loss per share for the years ended July 31, 2022 and 2021, no dilution adjustment has been made to the
weighted average outstanding common shares because the assumed conversion of preferred stock would be anti-dilutive.
7.
RELATED PARTY TRANSACTIONS
Dr.
Hsiao, Dr. Frost and directors Steven Rubin and Rao Uppaluri are each stockholders, current or former officers and/or directors or former
directors of Asensus Surgical, Inc. (formerly TransEnterix, Inc.) (“Asensus”), a publicly-traded medical device company.
The Company’s Chief Financial Officer also serves as the Chief Financial Officer and Co-Interim Chief Executive Officer of Cocrystal
Pharma, Inc., a clinical stage Nasdaq listed biotechnology company, and in which Steve Rubin serves on the Board. From December 2009
until August 31, 2021, the Company’s Chief Legal Officer had served under a cost sharing arrangement as the Chief Legal Officer
of Asensus. The Company recorded additions to general and administrative costs and expenses to account for the sharing of costs under
this arrangement of $400 and $4,800 for the years ended July 31, 2022 and 2021, respectively. Aggregate accounts payable to Asensus totaled
approximately $0 and $400 at July 31, 2022 and 2021, respectively.
The
Company signed a five year lease for administrative office space in Miami, Florida with a company controlled by Dr. Phillip Frost, who
is the beneficial owner of more than 10% of the Company’s common stock. The rental payments under the Miami office lease, which
commenced January 1, 2008 and expired on December 31, 2012, were approximately $1,250 per month and then continued on a month-to-month
basis. In February 2016 the rent was reduced to $0 per month. For the years ended July 31, 2022 and 2021, the Company did not record
any rent expense related to the Miami lease. At July 31, 2022 and 2021 there was $0 rent payable.
The
Company is under common control with multiple entities and the existence of that control could result in operating results or financial
position of each individual entity significantly different from those that would have been obtained if the entities were autonomous.
One of those related parties, OPKO Health, Inc. (“OPKO”) and the Company are under common control and OPKO has a one percent
ownership interest in the Company that OPKO has accounted for as an equity method investment due to the ability to significantly influence
the Company.
8.
COMMITMENTS AND CONTINGENCIES
Leases.
The
Company was under an operating lease agreement for our corporate office space that expired in 2012. The lease currently continues on
a month to month basis at no cost.
Product
Development and Supply Agreement.
In
September 2007, the Company entered into a Product Development and Supply Agreement (the “Agreement”) with Sing Lin Technologies
Co. Ltd., a company based in Taichung, Taiwan (“Sing Lin”). Pursuant to the Agreement, the Company consigned to Sing Lin
the development and design of the next generation Exer-Rest and related devices. The Agreement commenced as of September 3, 2007 and
had a term that extended three years from the acceptance by NIMS of the first run of production units. Thereafter, the Agreement automatically
renewed for successive one year terms unless either party sent the other a notice of non-renewal. Either party was permitted to terminate
the Agreement with ninety days prior written notice. Upon termination, each party’s obligations under the Agreement were to be
limited to obligations related to confirmed orders placed prior to the termination date.
Pursuant
to the Agreement, Sing Lin designed, developed and manufactured the tooling required to manufacture the acceleration therapeutic platforms
for a total cost to the Company of $471,000. Sing Lin utilized the tooling in the performance of its production obligations under the
Agreement. The Company paid Sing Lin $150,000 of the tooling cost upon execution of the Agreement and $150,000 upon the Company’s
approval of the product prototype concepts and designs. The balance of the final tooling cost became due and payable in September 2008
upon acceptance of the first units produced using the tooling, and was paid in full during the year ended July 31, 2009.
Under
the now-terminated Agreement, the Company also granted Sing Lin the exclusive distribution rights for the products in certain countries
in the Far East, including Taiwan, China, Japan, South Korea, Malaysia, Indonesia and certain other countries. Sing Lin agreed not to
sell the Products outside its geographic areas in the Far East.
The
Agreement provided for the Company to purchase approximately $2.6 million of Exer-Rest units within one year of the September 2008 acceptance
of the final product. The Agreement further provided for the Company to purchase $4.1 million and $8.8 million of Exer-Rest products
in the second and third years following such acceptance, respectively. These minimum purchase amounts were based upon 2007 product costs
multiplied by volume commitments. Through July 31, 2022, the Company had paid Sing Lin $1.7 million in connection with orders placed
through that date. As of July 31, 2022, the Company has approximately $41,000 of payables due to Sing Lin. As of July 31, 2022, aggregate
minimum future purchases under the Agreement totaled approximately $13.9 million.
As
of July 31, 2022, the Company had not placed orders sufficient to meet the purchase obligations under the Agreement. The Company notified
Sing Lin in June 2010 that it was terminating the Agreement effective September 2010, and Sing Lin in July 2010 demanded that the Company
place orders sufficient to fulfill the three year minimum purchase obligations in the Agreement. As of the date of this filing, Sing
Lin has not followed up on its July 2010 demand. There can be no assurance that Sing Lin will not attempt to enforce its remedies under
the Agreement, or pursue other potential remedies. The Company believes that Sing Lin in no longer in business.
9.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses from continuing operations are summarized in the following table (in thousands):
SCHEDULE
OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| | |
July 31, 2022 | | |
July 31, 2021 | |
| Accounts payable | |
$ | 203 | | |
$ | 217 | |
| Accrued redemption | |
| 10 | | |
| 10 | |
| Accrued other | |
| 6 | | |
| 21 | |
| Total | |
$ | 219 | | |
$ | 248 | |
10.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Pursuant to this method, deferred tax assets and liabilities are established for the differences between the financial reporting and the
tax bases of the Company’s assets and liabilities and net operating loss carryforwards at enacted tax rates expected to be in effect when
such amounts are realized or settled. A valuation allowance related to deferred tax
assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The
accounting for uncertain tax positions guidance under ASC 740 requires that we recognize the financial statement benefit of a tax position
only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions
meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater
than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The application of this guidance
does not affect the Company’s financial position, results of operations or cash flows for the years ended July 31, 2022 and 2021.
The
Company files its tax returns in the U.S. federal jurisdiction and with U.S. states. The Company is subject to tax audits in all jurisdictions
for which it files tax returns. Tax audits by their very nature are often complex and can require several years to complete. There are
currently no tax audits that have commenced with respect to income tax or any other returns in any jurisdiction. Tax years ranging from
2018 to 2022 remain open to examination by various taxing jurisdictions as the statute of limitations has not expired. Because the Company
is carrying forward income tax attributes, such as net operating losses and tax credits from 2018 and earlier tax years, these attributes
can still be audited when utilized on returns filed in the future. It is the Company’s policy to include income tax interest and
penalties expense in its tax provision.
The
difference between income taxes at the statutory federal income tax rate of 21% in 2022 and 2021 and income taxes reported in the consolidated
statements of operations are attributable to the following (in thousands):
SCHEDULE
OF FEDERAL INCOME TAX RATE AND INCOME TAXES
| | |
July 31, 2022 | | |
% | | |
July 31, 2021 | | |
% | |
| Income tax benefit at the federal statutory rate from continuing operations | |
$ | (36 | ) | |
| 21.0 | | |
$ | (33 | ) | |
| 21.0 | |
| State income taxes, net of effect of federal taxes | |
| (7 | ) | |
| 4.3 | | |
| (7 | ) | |
| 4.3 | |
| Expired net operating losses | |
| 282 | | |
| (164.3 | ) | |
| 14 | | |
| (1.8 | ) |
| Change in valuation allowance | |
| (239 | ) | |
| 139.0 | | |
| 26 | | |
| (23.5 | ) |
| Total | |
$ | - | | |
| - | | |
$ | - | | |
| - | |
The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets consist of the following (in thousands):
SCHEDULE
OF DEFERRED TAX ASSETS
| | |
July 31, 2022 | | |
July 31, 2021 | |
| Federal and State net operating loss | |
$ | 4,081 | | |
$ | 4,320 | |
| Foreign net operating loss | |
| 18 | | |
| 18 | |
| Other | |
| 3 | | |
| 3 | |
| Deferred tax assets gross,total | |
| 4,102 | | |
| 4,341 | |
| Less: Valuation allowance | |
| (4,102 | ) | |
| (4,341 | ) |
| Net deferred tax asset | |
$ | - | | |
$ | - | |
At
July 31, 2022, the Company had available Federal and State net operating loss carry forwards of approximately $16.1 million and foreign
net operating loss carry forwards of approximately $0.1 million which expire in various years beginning in 2023. Net operating loss carry
forwards generated in 2019 and later years never expire. However, these net operating losses can only be used to reduce taxable income
by 80 percent. The net operating loss carry forwards may be subject to limitation due to change of ownership provisions under section
382 of the Internal Revenue Code and similar state provisions. The Company has not conducted a study to determine if any changes in ownership
has occurred.
A
valuation allowance is required to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely
than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive
and negative, management has determined that a full $4.1 million valuation allowance at July 31, 2022 ($4.3 million at July 31, 2021)
was necessary. The valuation allowance decreased by $239,000 and increased by $26,000 for the years ended July 31, 2022 and 2021, respectively.
The Company paid no taxes for the years 2022 or 2021.
11.
PROMISORY NOTES PAYABLE – RELATED PARTY
On
October 4, 2021, the
Company entered into two Promissory Notes in the principal amount of $75,000
each with Frost Gamma Investments Trust (the “Frost Gamma Note”), a trust controlled by Dr. Phillip Frost and with Jane
Hsiao, Ph.D., the Company’s Chairman and Interim CEO (the “Hsiao Note”), both which beneficially owns in excess of
10% of NIMS’ common stock. The interest rate payable by NIMS on the Frost Gamma Note and Hsiao Note is 11%
per annum, payable on the maturity date of October
4, 2023 (the “Maturity Date”). The Frost Gamma Note and Hsiao Note may be prepaid in advance of the Maturity Date
without penalty.
12.
SUBSEQUENT EVENTS
On
September 16, 2022, the
Company entered into two Promissory Notes in the principal amount of $75,000
each with Frost Gamma Investments Trust (the “Frost Gamma Note 2”), a trust controlled by Dr. Phillip Frost and with
Jane Hsiao, Ph.D., the Company’s Chairman and Interim CEO (the “Hsiao Note 2”), both which beneficially owns in
excess of 10% of NIMS’ common stock. The interest rate payable by NIMS on the Frost Gamma Note 2 and Hsiao Note 2 is 11%
per annum, payable on the Maturity Date. The Frost Gamma Note 2 and Hsiao Note 2 may be prepaid in advance of the Maturity Date
without penalty.