FORM 10-QSB/A

(Amendment No. 1)

 

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2007

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ________ to ________

 

Commission file number 000-13176  

 

4400 Biscayne Blvd., Suite 680, Miami, Florida 33137

(Address of principal executive offices)

(305) 861-0075

(Issuer ^' s telephone number)

 

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x  

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.   Yes ¨ No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

The number of shares outstanding of the registrant’s Common Stock, par value $.01 per share (the “Common Stock”), as of October 31, 2007 was 67,455,399

Indicate if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No x  

 

Transitional Small Business Disclosure Format (Check one):   Yes ¨     No x

NON-INVASIVE MONITORING SYSTEMS, INC .

Report on Form 10-QSB/A

For the Fiscal Quarter Ended October 31, 2007

 

NON-INVASIVE MONITORING SYSTEMS, INC.

Report on Form 10-QSB/A

For the Fiscal Quarter Ended October 31, 2007

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 forgoing, words such as “may,” “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 future sales of the “Exer-Rest,” motion platform; 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.

Explanatory Note

 

This Amendment No. 1 to the Quarterly Report on Form10-QSB for the fiscal quarter ended October 31, 2007 of the Company is being filed to restate in their entirety Part I, Items 1, 2, and 3 and Part II, Items 2 and 6 as set forth on the Form 10-QSB filed on December 17, 2007 (the “Original Filing”). The changes to Part I, Item 1 and Item 2 relate to a change in previously reported compensation for options granted in October 2007. The net effect of this change was to increase stock-based compensation and operating expenses for the three months ended October 31, 2007 by $108,257, thus increasing the net loss for the period to $329,813. In addition, the number of options outstanding as of October 31, 2007 has been corrected in Footnote 3 of the Notes to Condensed Financial Statements in Part I, Item 1. Furthermore, we corrected certain information relating to our relationship with VivoMetrics in Footnote 6 of the Notes to Condensed Financial Statements in Part I, Item 1. In light of the errors cited above we have reconsidered the effectiveness of our controls and procedures at October 31, 2007 and as a result we have amended Part I, Item 3. In Part II, Item 2, we have added the issuances of options previously reported on Form 8-K filed October 23, 2007 under Item 8.01, as a recent sale of unregistered securities. We have also added a product development and supply agreement previously described in a Form 8-K filed September 11, 2007 to our list of Exhibits and are thus amending Part II, Item 6.

 

Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this Amendment No. 1 amends the foregoing items in their entirety and contains new certifications pursuant to Rules 13a-14 and 15d-14 under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002. Other than as set forth above and the inclusion of new certifications pursuant to Rules 13a-14 and 15d-14 under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002, no other changes or amendments to the Original Filing are being made.

 

This Amendment No. 1 contains only the sections and exhibits to the Original Filing that are being amended, and those unaffected parts or exhibits are not included herein. This Amendment No. 1 contains adjustments as of the date of the Original Filing and the Company has not updated the disclosure contained herein to reflect events that have occurred since the date of the Original Filling. Accordingly, this Amendment No. 1 should be read in conjunction with the Company’s other filings made with the Securities and Exchange Commission, and is subject to updating and supplementing as provided in the periodic reports that the Company has filed and will file after the date of the Original Filing with the Securities and Exchange Commission.

NON-INVASIVE MONITORING SYSTEMS, INC.

CONDENSED BALANCE SHEET

(Unaudited)

 

		October   31,   2007 (Restated - Note 9)
ASSETS
Current assets
Cash		$	771,164
Restricted cash			400,000
Royalties receivable			44,643
Inventory			99,333
Prepaid expenses, deposits, and other current assets			18,185
Total current assets			1,333,325
Furniture, equipment, website and tooling, net			193,778
Total assets		$	1,527,103
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable - bank		$	500,000
Notes payable - other			7,305
Accounts payable and accrued expenses			221,147
Deferred warranty income			3,900
Total current liabilities			732,352
Deferred warranty income			1,500
Total liabilities			733,852
Commitments (Note 7)
Shareholders' equity
Series B Preferred Stock, par value $1.00 per share;  100 shares authorized, issued and outstanding			100
Series C Preferred Stock, par value $1.00 per share; 62,048 shares authorized, issued and outstanding			62,048
Common Stock, $ .01 par value; 100,000,000 shares authorized; 67,455,399 shares issued and outstanding			674,554
Additional paid in capital			16,585,358
Accumulated deficit			(16,528,809	)
Total shareholders' equity			793,251
Total liabilities and shareholders' equity		$	1,527,103

The accompanying notes are an integral part of these unaudited condensed financial statements.

The accompanying notes are an integral part of the unaudited condensed financial statements.

The accompanying notes are an integral part of these unaudited condensed financial statements.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

October 31, 2007

The unaudited interim financial statements included herein have been prepared by Non-Invasive Monitoring Systems, Inc. (the “Company” or “NIMS”). These statements reflect adjustments, all of which are of a normal, recurring nature, and which are, in the opinion of management, necessary to present fairly the Company’s financial position as of October 31, 2007, and results of operations and cash flows for the three months ended October 31, 2007 and 2006. The results of operations for the three months ended October 31, 2007 are not necessarily indicative of the results for a full year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. Preparing financial statements requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. The Company’s accounting policies continue unchanged from July 31, 2007. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on form 10-KSB for the year ended July 31, 2007.

 

1.	ORGANIZATION AND BUSINESS

Organization. Non-Invasive Monitoring Systems, Inc. (the “Company” or “NIMS”), a Florida corporation, has licensed its rights to its computer-aided continuous monitoring devices to detect abnormal respiratory and cardiac events using sensors placed on the body’s surface to the SensorMedics Division of ViaSys Health Care Inc. (“SensorMedics”) and to VivoMetrics, Inc. (“VivoMetrics”). The Company is concentrating on the marketing and selling of the Exer-Rest™ therapeutic motion platform, a more efficient, cost effective, home and clinic version of its patented AT-101 motion platform technology. In addition, the Company performs consultative research of diagnostic monitoring devices. The Company is seeking FDA approval to market the Exer-Rest™ for sales in the United States.

Business. During the calendar years 2002 through January 2005, the Company restructured its operations and revised its business strategy to transform the Company from a research and development company into a company that marketed and distributed the AT-101 powered exercise device on a worldwide basis. During the calendar years 2005 to 2007, the Company reorganized its operations and designed, developed and manufactured the Exer-Rest™ motorized platform, to replace the Company’s flagship AT- 101 and promote its use for the improved circulation and joint mobility.

The Company had originally registered the AT-101 with the Food and Drug Administration (“FDA”) as a Class 1 (exempt) powered exercise device and was selling it to physicians and patients on prescriptions but in January 2005, FDA disagreed with the Company’s device classification. FDA instructed the Company that it submit a 510(k) application for the AT-101 as a therapeutic vibrator and cease marketing the AT-101 until receiving approval on the 510(k) submission to FDA. Accordingly, the Company ceased its sales and marketing efforts thereafter. Revenue has continued to be received from royalties on sales of diagnostic monitoring hardware and software by SensorMedics and VivoMetrics (a related party). Additionally, the Company has received revenues from sales of parts and units sold for research purposes.

Basis of Presentation. The Company’s financial statements have been prepared and presented on a basis assuming it will continue as a going concern. As reflected in the accompanying financial statements the Company had a net loss in the amount of $329,813 and $494,789 for the three months ended October 31, 2007 and 2006 respectively, and has an accumulated deficit of $16,528,809 as of October 31, 2007, and has substantial purchase commitments at October 31, 2007 (see Note 7). These matters raise substantial doubt about the Company’s ability to continue as a going concern.

The Company will need to raise additional capital during fiscal year 2008. Additional debt or equity financing will be required for the Company to continue its business activities, which are currently focused on the development, marketing and production of the Exer-Rest. It is management’s intention to obtain the required additional capital needed to continue its business activities through new debt or equity financing, but there can be no assurance that it will be successful in this regard. The accompanying financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Such items include input variables for stock based compensation. Actual results could differ from these estimates.

 

Inventories. Inventories are stated at lower of cost or market using the first-in, first-out method. Inventories at October 31, 2007, consist of purchased sub-assemblies to be used by the Company’s contract manufacturer in production of the Exer-Rest™.

Furniture and Equipment, Website and Tooling. These assets are stated at cost and depreciated or amortized using the straight-line method, over their estimated useful lives.

 

Long-lived Assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In performing the review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the assets, an impairment loss is recognized as the difference between the fair value and the carrying amount of the asset.

Income Taxes. The Company provides for income taxes in accordance with Statements of Financial Accounting Standard, No. 109, Accounting for Income Taxes (“SFAS No. 109”) 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

As of October 31, 2007, the Company had a net operating loss carryforward of approximately $15,100,000 available to offset future taxable income for federal and state income tax purposes. The net operating loss carryforward is subject to limitation if there have been significant changes of ownership as defined in provisions under Section 382 of the Internal Revenue Code and similar state provisions.

SFAS No. 109 provides that the Company recognize income tax benefits for loss carryforwards. The tax benefits recognized must be reduced by a valuation allowance if it is more likely than not that loss carryforwards will expire before the Company is able to realize their benefit, or if future deductibility is uncertain. For financial statement purposes, the deferred tax asset for loss carryforwards has been fully offset by a valuation allowance since it is uncertain whether any future benefit will be realized.

Effective August 1, 2007, we adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No.109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainties in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109 and prescribes a recognition threshold and measurement attribute for financial disclosure of tax positions taken or expected to be taken on a tax return. In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN 48 did not impact our financial position, results of operations or cash flows for the three months ended October 31, 2007.

We file our tax returns as prescribed by the laws of the jurisdictions in which we operate. Our tax years ranging from 2004 to 2007 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 penalties expense in its tax provision.

Revenue Recognition. Revenue from product sales is recognized when persuasive evidence of an arrangement exists, the goods are shipped and title has transferred, the price is fixed or determinable, and the collection of the sales proceeds is reasonably assured. The Company recognizes royalties as they are earned, based on reports from licensees. Research and consulting revenue and warranty income on extended AT-101 warranties outstanding are recognized over the term of the respective agreements.

Advertising Costs. The Company expenses all costs of advertising as incurred. There were no advertising costs included in general and administrative expenses for the three months ended October 31, 2007 and October 31, 2006.

Research and Development Costs. Research and development costs primarily consist of expenditures by the Company for research and development of the “Exer-Rest™” device to third parties and are expensed as incurred.

Warranties. The Company’s warranties are one-year on all products sold and are accrued based on management’s estimates and the history of warranty costs incurred. There were no warranty costs during the three months ended October 31, 2007 and October 31, 2006.

Earnings (Loss) Per Share. Basic net loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. In computing diluted net loss per share, no effect has been given to the 3,251,663 options, 1, 551,200 common shares issuable upon conversion of the Class C preferred stock, and 325,000 warrants outstanding at October 31, 2007, due to the net loss reported for the three months then ended. For the three months ended October 31, 2006 no effect has been given to the 4,398,655 options, 1,551,200 common shares issuable upon conversion of the Class C preferred stock, and 325,000 warrants outstanding, due to the net loss reported.

Fair Value of Financial Instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of October 31, 2007. The respective carrying value of certain on-balance-sheet financial instruments such as royalties receivable, accounts payable, accrued expenses and notes payable approximate fair values because they are short term in nature or they bear current market interest rates.

Stock-Based Compensation . In December 2004, the FASB issued a revision of SFAS 123 (“SFAS 123(R)”) that requires employee compensation costs related to share-based payment transactions to be recognized in the statement of operations. With limited exceptions, the amount of compensation cost is measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards are remeasured each reporting period. Compensation cost is recognized over the period that an employee provides service in exchange for the award. SFAS 123(R) replaces SFAS 123 and was effective for the Company August 1, 2006.

 

3.	STOCK BASED COMPENSATION

 

Effective August 1, 2006, the Company adopted Statement of Financial Accounting Standard No. 123 (Revised 2004), Share Based Payment (SFAS No. 123R), which requires a public entity to measure 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. SFAS No. 123R supersedes the Company’s previous accounting under FAS No. 123, accounting for Stock-Based Compensation (SFAS No. 123), which permitted the Company to account for such compensation under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). Pursuant to APB No. 25, and related interpretations, no compensation cost had been recognized in connection with the issuance of stock options, as all options granted under the Company’s stock option plan had an exercise price equal to or greater than the market value of the underlying common stock on the date of the grant.

 

The Company adopted SFAS No. 123(R) using the modified prospective transition method, which requires that compensation cost be recorded as earned for all unvested stock options outstanding at August 1, 2006 based upon the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and for compensation cost for all share-based payments granted or modified subsequent to the adoption, based on fair value estimated in accordance with the provisions of SFAS No. 123(R). The Company’s financial statements for the three months ended October 31, 2007 reflect the current impact of the adoption of SFAS No. 123R. The Company recorded share-based compensation of $131,963 and $23,006 which is included in the Company’s selling, general and administrative expenses for the three months ended October 31, 2007 and 2006 respectively.

 

The Company’s 2000 Stock Option Plan (the “Plan”), as amended, provides for a total of 2,000,000 shares of Common Stock. The Plan allows the issuance of incentive stock options, stock appreciation rights and restricted stock awards. The exercise price of the options is determined by the compensation committee of the Company’s Board of Directors, but incentive stock options must be granted at an exercise price not less than the fair market value of the Company’s Common Stock as of the grant date or an exercise price of not less than 110% of the fair value for a 10% shareholder. Options expire ten years from the date of the grant and are exercisable according to the terms of the individual options agreement.

 

A summary of the Company’s stock options activity for the three months ended October 31, 2007 is as follows:

 

 

* Number of options as restated in July 31, 2007 Amended Form 10-KSB/A.

The Company estimates the fair value of stock options using a Black-Scholes valuation model, consistent with provisions of SFAS No.123(R), Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 107 and the Company’s prior period pro forma disclosures of net loss, including the fair value of stock-based compensation. Key input assumptions used to estimate the fair value of stock options include the expected term until exercise of the option, expected volatility of the Company’s stock, the risk free interest rate, option forfeiture rates, and dividends, if any. The expected term of the option is based on a historical weighted average of exercised options. The expected volatility is derived from historical volatility of the Company’s stock on the U.S. Over the Counter market for a period that matches the expected term of the option. The risk-free interest rate is the yield from a treasury bond or note corresponding to the expected term of the option. The Company has not paid dividends and does not expect to pay dividends in the future.

Compensation costs for stock options with graded vesting are recognized over the vesting period. As of October 31, 2007, there was $308,890 of unrecognized costs related to granted stock options. These costs are expected to be recognized over a weighted average period of 1.37 years.

 

There were 547,500 options granted during the three months ended October 31, 2007 to directors and officers of the Company and no options were granted for the three months ended October 31, 2006. There were 161,665 options exercised during the three months ended October 31, 2007. There were 3,105,004 options exercised during the three months ended October 31, 2006. The total intrinsic value of stock options exercised for the three months ended October 31, 2007 and 2006 were $53,350 and $1,285,319 respectively.

 

4.	NOTES PAYABLE

As of July 31, 2006 notes payable to the Company’s Chairman of the Board and shareholder of the Company totaled $165,000. There were two notes outstanding; $100,000 and $65,000. The notes were payable upon demand in cash or common or preferred stock of the Company and in the event of default the notes would become immediately due and payable in cash with interest accruing at 1.5% per month on any unpaid balance. The $100,000 note bore interest at the prime rate plus 2% and the $65,000 note was non-interest bearing. The Chairman of the Board waived the interest on the $100,000 note.

The notes totaling $165,000 plus cash of $10,000 were used by the Chairman in exercising his options to purchase 562,500 common shares plus 112,500 bonus common shares in the October, 2006 private placement. (See Note 5.)

The Company refinanced its existing bank debt in February, 2007 at another bank by securing a $500,000 line of credit, which expires in March, 2008. The debt is collateralized by certificates of deposit in the amount of $400,000, and bears interest at one percent per annum below prime rate.

Notes payable – other were issued to finance insurance premiums and are payable in ten monthly installments through December, 2007, with interest at 12.73 % per annum.

 

5.	SHAREHOLDERS’ EQUITY

Effective October 16, 2006, the Company accepted $2.193 million for the exercise of outstanding options and warrants held by Board members and private investors. In addition, the Chairman of the Board utilized outstanding notes totaling $165,000 plus cash of $10,000 to purchase common stock. As a result of the exercise, 14,616,005 shares of the Company’s common stock, $0.01 par value (“Common Stock”) were issued to the exercising optionholders and warrantholders.

 

The options and warrants were exercised pursuant to an offer (the “Offer”) by the Company to certain optionholders and warrantholders to grant exercising optionholders and warrantholders upon exercise an additional number of shares of Common Stock equal to 20% of the shares received upon exercise (“Bonus Shares”).

Options to purchase 3,105,004 shares of common stock were exercised at exercise prices ranging from $0.145 to $0.50 and warrants to purchase 9,175,000 shares of common stock were exercised at an exercise price of $0.15. An additional 601,001 Bonus Shares were issued to exercising optionholders and an additional 1,835,000 Bonus Shares were issued to exercising

warrantholders.

The exercised warrants were issued pursuant to Stock Purchase Agreements dated August 1, 2005 between the Company and various private investors. The exercised options were issued to directors and others in connection with, among other things, a private placement in 2002, options to Directors in lieu of salary and certain guarantees of the Company’s debt. The Company recorded $296,451 of compensation and interest expense for the three months ended October 31, 2006 for the fair value of bonus shares issued to directors and guarantors of the Company’s indebtedness.

Directors (including a director holding more than 10% of the outstanding Common Stock (a “10% Holder”)) exercised in the aggregate, options to purchase 2,189,164 shares of Common Stock and received 437,833 Bonus Shares for payment of $592,084. A 10% Holder exercised warrants to purchase 3,250,000 shares of Common Stock and received 650,000 Bonus Shares for payment of $487,500. Warrants to purchase 125,000 shares that may be deemed to be beneficially owned by an officer of the Company were exercised for payment of $18,750 and 25,000 Bonus Shares were issued on account of such exercise.

Pursuant to the Offer, the Company also accepted an additional $25,000 from an exercising optionholder for the exercise of options to purchase 62,500 shares of Common Stock, and the issuance of 12,500 Bonus Shares.

During fiscal 2007, the Company accepted an additional $25,000 from an exercising optionholder, for the exercise of options to purchase 62,500 shares of Common Stock. In addition, a former employee of the Company exercised 50,000 options in a cashless transaction and received 44,057 shares of the Company’s common stock during 2007. During the three months ended October 31, 2007 the Company accepted $80,833, from existing optionholders for the exercise of options to purchase 161,665 shares of Common Stock.

 

6.	RELATED PARTY TRANSACTIONS

Dr. Marvin A. Sackner, the Company’s Chairman of the Board, also personally leases office space used by the Company for business on a month-to-month basis in North Bay Village, Florida. Under an arrangement with the Company, the Company reimburses Dr. Sackner for the cost of the space monthly. The amounts reimbursed to Dr. Sackner by the Company for the three months ended October 31, 2007 and 2006 were $5,227 and $5,025, respectively.

The Company has an approximately 2% interest in VivoMetrics. The Company’s interest in VivoMetrics is carried at a zero valuation. For several years, until November 2007, Dr. Sackner’s son-in-law was the Chief Operating Officer for VivoMetrics. Dr. Sackner served as a member of the Scientific Advisory Board of VivoMetrics until 2004, and is currently a less than 1% shareholder of VivoMetrics. Pursuant to an Agreement Regarding Assignment of Patents and Related Intellectual Property dated August 14, 2000, 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 VivoMetrics in consideration for a royalty of 3% of VivoMetrics’ gross revenues from sales of certain products for so long as VivoMetrics sells such products. Royalty income under the agreement with VivoMetrics was $23,143 and $19,277 for the three months ended October 31, 2007 and 2006, respectively. Pursuant to a related license agreement with VivoMetrics, VivoMetrics granted to the Company the non-exclusive, worldwide right and license to use certain patents and software.

 

7.	COMMITMENTS AND CONTINGENCIES

Leases.

The Company leases office space in Sarasota, Florida. The lease expires in November 2008. The minimum future rental payments are $2,712 per month through November 2008. Additionally, the Company leases office space in Miami, Florida on a month to month basis and is in the process of negotiating a long-term lease for new office space.

Product Development and Supply Agreement.

On September 4, 2007, the Company executed a Product Development and Supply 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 second generation “Exer-Rest™” and “Somno-Ease” devices. Sing Lin will manufacture the Company’s’ patented “Exer-Rest™” motorized platform. This motion platform has the appearance and functionality of either a cot or twin bed in standard and extra-long dimensions.

The Company paid Sing Lin $150,000 upon execution of the Agreement and must pay $150,000 upon final approval by the Company of the product prototypes and $100,000 upon delivery of the product sample. These amounts are to be applied toward tooling development and other tooling costs.

  

Under the Agreement, the Company grants Sing Lin for the term of the agreement, the exclusive distribution rights, for the products in certain countries in the Far East, including Taiwan, China, Japan, South Korea, Malaysia, Indonesia and certain other countries. Sing Lin has agreed not to sell the Products outside its geographic areas in the Far East.

The Agreement commenced as of September 3, 2007 and has a term that extends three years from the acceptance of the first-run of production units by NIMS. Thereafter, the Agreement automatically renews for successive one year terms unless either party sends the other a notice of non-renewal.

The Company has committed to purchase approximately $2.2 million of “Exer-Rest ^TM ” and “Somno-Ease” units, within one year of acceptance of the final product. The Company expects final approval of the products in the third quarter of fiscal 2008. Additionally, the Company has agreed to purchase $3.5 million and $7.5 million of “Exer-Rest ^TM ” and “Somno-Ease” products respectively, in 2009 and 2010.

 

8.	RECENT ACCOUNTING PRONOUCEMENTS

In September 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 157, “ Fair Value Measurements ”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value. SFAS No. 157 is effective for the Company’s fiscal year beginning August 1, 2008. The company is currently evaluating the impact of this standard on the financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 159, “ The Fair Value Option for Financial Assets and Financial Liabilities ”. SFAS No. 159 provides an option to report selected financial assets and financial liabilities using fair value. The standard establishes required presentation and disclosures to facilitate comparisons with companies that use different measurements for similar assets and liabilities. SFAS No. 159 is effective for the Company’s fiscal year beginning August 1, 2008, with early adoption allowed only if SFAS No. 157 is also adopted. The Company is currently evaluating the impact of this standard on the financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 141 (revised 2007), “Business Combinations”. SFAS No. 141 R will replace SFAS 141, and establishes principles and requirements for how the acquirer in a business combination reorganizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Currently the Company does not anticipate that this Statement will have an impact on its financial statements.

In December 2007, the FASB issued Statement No. 160, “Non-Controlling Interests in Consolidated Financial Statements - an Amendment of ARB No. 51.” This statement requires that Non-Controlling or minority interests in subsidiaries be presented in the consolidated statement of financial position within equity, but separate from the parents’ equity, and that the amount of the consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of income. SFAS No. 160 is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Currently the Company does not anticipate that this statement will have an impact on its financial statements.

 

9.	REVISIONS TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED OCTOBER 31, 2007

In connection with the Company’s review of the financial statements for the quarter ended January 31, 2008, Management uncovered an error relating to the number of outstanding options as of July 31, 2006 and July 31, 2007 as reported in reports on Form 10-KSB for the periods ended as of such dates. Also, options previously reported as having been forfeited during the quarter ended October 31, 2007 were found to have been forfeited in prior years. In addition, Management discovered an error in the amortization of stock based compensation expense related to options granted in October 2007. The following tables summarize the adjustments to the Company’s financial statements for the quarter ended October 31, 2007.

Summary of adjustments to the Company’s Balance Sheet as of October 31, 2007:

Summary of adjustments to the Company’s Statement of Operations for the three months ended October 31, 2007:

Summary of adjustments to the Company’s Statement of Cash Flows for the three months ended October 31, 2007:

 

 

NON-INVASIVE MONITORING SYSTEMS, INC .

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: April 22, 2008	By:	/s/ Dr. Marvin A, Sackner
		Dr. Marvin A. Sackner
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities and on the dates indicated.

Dated April 22, 2008	By:	/s/ Gary M. Wetstein
		Gary M. Wetstein
		Chief Financial Officer

 

NON-INVASIVE MONITORING SYSTEMS, INC.