UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 
FORM 10-K
 
(Mark One)
 
 
x
Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the fiscal year ended July 31, 2009
 
OR
 
 
¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____________________ to ____________________
 
Commission File Number   0-13176
 
NON-INVASIVE MONITORING SYSTEMS, INC.
 
(Exact name of registrant as specified in its charter)
 
Florida
 
59-2007840
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
4400 Biscayne Blvd., Suite 180, Miami, Florida, 33137
(Address of principal executive offices)     (Zip Code)
 
Registrant’s telephone number, including area code:   (305) 575-4200
 
Securities registered pursuant to Section 12(b) of the Exchange Act:   None
 
Securities registered pursuant to Section 12(g) of the Exchange Act:
 
Common Stock, $0.01 par value per share
(Title of Class)

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   ¨
 
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  ¨
 
Indicate by check mark whether the registrant (1) has 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 the filing requirements for the past 90 days.  Yes  x   No  ¨
 
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-K or any amendment to this Form 10-K.   x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ¨   Accelerated filer ¨   Non-accelerated filer ¨   Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes  ¨   No  x
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity, as of January 31, 2009 was: $14.0 million
 
As of October 15, 2009 there were 68,385,637 shares of Common Stock, $0.01 par value outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Document
Where Incorporated
   
Proxy Statement for the 2010 Annual Meeting of Stockholders
Part III
 
 
 
 

NON-INVASIVE MONITORING SYSTEMS, INC.
 
TABLE OF CONTENTS FOR FORM 10-K
 
PART I
 
5
     
Item 1.
Business
5
Item 1A.
Risk Factors
13
Item 1B.
Unresolved Staff Comments
18
Item 2.
Properties
18
Item 3.
Legal Proceedings
18
Item 4.
Submission of Matters to a Vote of Security Holders
18
     
PART II
 
19
     
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
19
Item 6.
Selected Financial Data
20
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
25
Item 8.
Financial Statements and Supplementary Data
25
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
46
Item 9A(T).
Controls and Procedures
46
Item 9B.
Other Information
46
     
PART III
 
47
 
 
 
Item 10.
Directors, Executive Officers and Corporate Governance
47
Item 11.
Executive Compensation
47
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
47
Item 13.
Certain Relationships and Related Transactions, and Director Independence
47
Item 14.
Principal Accounting Fees and Services
47
     
PART IV
 
48
     
Item 15.
Exhibits, Financial Statement Schedules
48
     
SIGNATURES
 
49
 
 
2
 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), about our expectations, beliefs or intentions regarding, among other things, our product development and commercialization efforts, business, financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those set forth below as well as those contained in “Item 1A - Risk Factors” of this Annual Report on Form 10-K. We do not undertake any obligation to update forward-looking statements, except as required by applicable law. We intend that all forward-looking statements be subject to the safe harbor provisions of the PSLRA, to the extent applicable to an issuer of penny stock. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.
 
Risks and uncertainties, the occurrence of which could adversely affect our business, include the following:
 
 
·
We have a history of operating losses and we do not expect to become profitable in the near future.
 
 
·
The current worldwide economic crisis and concurrent market instability may materially and adversely affect the demand for our products, as well as our ability to obtain credit or secure funds through sales of our stock, which may materially and adversely affect our business, financial condition and ability to fund our operations.
 
 
·
Healthcare policy changes, including pending proposals to reform the U.S. healthcare system, may have a material adverse effect on us.
 
 
·
The terms of clearances or approvals and ongoing regulation of our products may limit how we manufacture and market our products, which could materially impair our ability to generate anticipated revenues.
 
 
·
We rely on third parties to manufacture and supply our products.
 
 
·
Our competitors may develop and market products that are more effective, safer or less expensive than our products, negatively impacting our commercial opportunities.
 
 
·
If we are unable to obtain and enforce patent protection for our products, our business could be materially harmed.
 
 
·
If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.
 
 
·
Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
 
 
·
If we become involved in patent litigation or other proceedings related to a determination of rights, we could incur substantial costs and expenses, substantial liability for damages or be required to stop our product development and commercialization efforts.
 
 
3
 

 
·
We will likely require additional funding, which may not be available to us on acceptable terms, or at all.  In addition, we may need to amend our Articles of Incorporation to increase our number of authorized shares of Common Stock.
 
 
·
We do not anticipate paying dividends on our Common Stock in the foreseeable future.
 
 
·
Because our Common Stock is a “penny stock,” it may be more difficult for investors to sell shares of our Common Stock, and the market price of our Common Stock may be adversely affected.
 
 
·
Our stock price has been volatile and there may not be an active, liquid trading market for our Common Stock.
 
 
·
Our quarterly results of operations will fluctuate, and these fluctuations could cause our stock price to decline.
 
* * * * *
 
 
4
 

PART I
 
Item 1.
Business.
 
General
 
Non-Invasive Monitoring Systems, Inc. (together with its consolidated subsidiaries, the “Company” or “NIMS”) was incorporated in Florida on July 16, 1980. The Company’s offices are located at 4400 Biscayne Boulevard, Miami, Florida, 33137 and its telephone number is (305) 575-4200. The Company’s primary business is the research, development, manufacturing and marketing of a line of motorized, non-invasive, whole body, periodic acceleration platforms. These platforms are the home, wellness center and clinic version of the Company’s original acceleration platform, the AT-101. In addition, the Company has developed computer assisted, non-invasive diagnostic 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 diagnostic devices were sold in 1999 to the SensorMedics Division of ViaSys (which is now a unit of Cardinal Health, Inc. (“SensorMedics”)), and to privately held VivoMetrics, Inc. (“VivoMetrics”), both of which are required to pay royalties to NIMS on sales of these products. VivoMetrics ceased operations in July 2009, filed for Chapter 11 bankruptcy protection in October 2009, and has not paid royalties since July 2009.
 
Company Overview
 
Prior to 2002, our primary business was the development of computer assisted, non-invasive diagnostic monitoring devices and related software designed to detect abnormal respiratory, cardiac, and other medical conditions from sensors placed externally on the body’s surface. We assigned our patents for these ambulatory monitoring devices to SensorMedics for cash and royalties on sales. We also assigned certain patents to VivoMetrics, then a related party, for an equity ownership interest in VivoMetrics (now carried at zero value for financial reporting purposes) and royalties on sales and leasing of VivoMetrics’ LifeShirt ® systems. In April 2002, VivoMetrics received FDA clearance to market the LifeShirt ® system, however VivoMetrics stopped selling the LifeShirt ® in July 2009. We continue to receive royalties from SensorMedics, however there can be no assurance as to the future amount of royalty revenue that will be derived from this patent assignment.
 
In 2002, we began restructuring our operations and business strategy to focus on the research, development, manufacturing, marketing, and sales of non-invasive, motorized, whole body periodic acceleration (“WBPA”) platforms. These therapeutic acceleration platforms are intended for use in the home, wellness centers and clinics as an aid to improve circulation and joint mobility, relieve minor aches and pains, relieve morning stiffness, relieve troubled sleep and as a mechanical feedback device for slow rhythmic breathing exercise for stress management. The Company’s first such platform, the AT-101, was initially registered with the United States Food and Drug Administration (the “FDA”) as a Class 1 (exempt) powered exercise device and was sold to physicians and their patients. In January 2005, the FDA disagreed with our device classification, and requested that we cease commercial sales and marketing efforts for the AT-101 until we received clearance from the FDA to market the device following submission of a 510(k) application incorporating appropriate clinical trial data. Accordingly, the Company ceased its commercial sales and marketing of therapeutic platforms in 2005, but continued to receive royalty revenue from sales of diagnostic monitoring hardware and software by SensorMedics and VivoMetrics. The Company additionally has received revenues from small research contracts, sales of parts and units sold for research purposes.
 
In January 2005 we began development of a less costly and more efficient second generation version of the AT-101, the Exer-Rest ® (now designated the Exer-Rest ® AT). In January 2008, we received ISO 13485 certification for Canada, the United Kingdom and Europe from SGS United Kingdom Ltd., the world’s leading verification and certification body. ISO 13485 certification is recognized and accepted worldwide as a sign of design and manufacturing quality for medical devices. In addition to our ISO certification, NIMS’ Exer-Rest ® AT acceleration therapeutic platform (Class IIa) was awarded CE0120 certification, which requires several safety related conformity tests including clinical assessment for safety and effectiveness. The CE0120 marking is often referred to as a “passport” that allows manufacturers from anywhere in the world to sell their goods throughout the European market as well as in many other countries. Prior to obtaining FDA clearance for the sale of our therapeutic acceleration platforms in the United States, we marketed and sold the Exer-Rest ® AT platforms in the United Kingdom, Canada, Europe, India, and Latin America.
 
 
5
 

The Company entered into a Product Development and Supply Agreement with Sing Lin Technology Co., Ltd. (“Sing Lin”) of Taichung, Taiwan on September 4, 2007. Under this agreement, Sing Lin is manufacturing new third generation versions of our patented Exer-Rest ® motorized platforms (designated the Exer-Rest ® SL and the Exer-Rest ® TL). We filed a 510(k) premarket notification submission with the FDA in October 2008 for approval to market the Exer-Rest ® line of platforms in the United States. The submission included 23 investigational and clinical studies on the vasodilatation properties of WBPA, as well as a controlled, four week clinical trial in a group of patients with chronic aches and pains carried out at the Center of Clinical Epidemiology and Biostatistics at the University of Pennsylvania Medical School. The submission supported Exer-Rest ® safety and efficacy for the intended uses as an aid to temporarily increase local circulation, to provide temporary relief of minor aches and pains, and to provide local muscle relaxation. The FDA granted clearance under the 510(k) application in January 2009 to market the full Exer-Rest ® line of products as Class I (Exempt) Medical Devices as described in the Company’s 510(k) premarket notification submission. In June 2009, the FDA granted clearance to market the Exer-Rest ® with the additional intended use as an aid to reduce morning stiffness. Accordingly, we have begun to market and sell the Exer-Rest ® in the U.S and abroad.
 
We have determined that it is in the best interest of NIMS and its shareholders to focus the Company’s time and resources on developing and marketing the Exer-Rest ® line of acceleration therapeutic platforms. These devices are being marketed and sold by NIMS in the US, Canada, UK, Europe, India and Latin America. Sing Lin is selling Exer-Rest ® platforms in the Far East as an authorized distributor.
 
The development of the Exer-Rest ® has necessitated additional expenditures and commitments of capital, and we anticipate experiencing losses through the end of the 2010 fiscal year as we expand sales in the US, Canada, the UK, Europe, India, Latin America and the Far East. We may be required to raise additional capital to fulfill our business plan, but no commitment to raise such additional capital exists or can be assured. If we are unsuccessful in our efforts to expand sales or raise capital, we will not be able to continue operations.
 
Market Opportunities
 
We believe the market for our products is driven by, among other factors:
 
 
·
The aging population;
 
 
·
The increasing number of the elderly reporting chronic ailments;
 
 
·
An increased awareness of the benefits of exercise, particularly as a form of prevention;
 
 
·
An increasing portion of the population that is incapable of performing traditional exercise;
 
 
·
The expanding body of research connecting the body’s production of Nitric Oxide with vasodilatation, reduction of inflammation and improved transmission of neural impulses; and
 
 
·
The expanding body of research linking WBPA to production of Nitric Oxide and related benefits.
 
Our products are designed for use by people who are unable or unwilling to exercise or in whom exercise is contraindicated. The Exer-Rest ® line of platforms has been cleared for the intended uses of temporarily increasing local circulation, relieving minor aches and pains, providing local muscle relaxation and as an aid to reduce morning stiffness. These symptoms are frequently reported by individuals with chronic neurological or musculoskeletal conditions such as Multiple Sclerosis, Parkinson’s Disease, Neuropathy, Arthritis and Fibromyalgia.
 
 
6
 

Products
 
Acceleration Therapeutic Vibrators
 
The original AT-101 therapeutic vibrator is a comfortable gurney styled device that moves a platform repetitively in a head-to-foot motion, similar to the movement used to comfort a child in a baby carriage but at a much more rapid pace. Sales of the AT-101 commenced in October 2002 in Japan and in February 2003 in the United States. QTM Incorporated (“QTM”), an FDA registered manufacturer (Oldsmar, FL) manufactured the device, which was built in accordance with ISO and FDA Good Manufacturing Practices. As discussed above, we stopped selling the AT-101 in the United States in January 2005, but continued selling overseas as we began development of the Exer-Rest®. We ceased manufacturing the AT-101 in January 2005 and we no longer market this product.
 
The Exer-Rest ® AT therapeutic vibrator is based upon the design and concept of the AT-101 therapeutic vibrator, but has the dimensions and appearance of a commercial extra long twin bed. The Exer-Rest ® AT, which is also manufactured by QTM, weighs about half as much as the AT-101, has a much more efficient and less costly drive mechanism, has a much lower selling price than the AT-101, and is designed such that the user can utilize and operate it without assistance. The wired hand held controller provides digital values of speed, travel and time rather than analog values of speed and arbitrary force values as in the AT-101. Sales of the Exer-Rest ® AT began outside the US in October 2007 and in the US in February 2009.
 
The Exer-Rest ® SL and Exer-Rest ® TL, which are being manufactured by Sing Lin, are next generation versions of the Exer-Rest ® AT and further advance the acceleration therapeutic platform technology. The SL (“single” bed) and TL (“twin” bed) models combine improved drive technology for quieter operation, a more comfortable “memory-foam” mattress, more convenient operation with a multi-function wireless remote and a more streamlined look to improve the whole body, periodic acceleration experience. Sales of the Exer-Rest ® SL and Exer-Rest ® TL platforms began outside the US in October 2008, and US sales commenced in February 2009.
 
The Somno-Ease ™ , a variation of the Exer-Rest ® currently in development, is designed to aid patients with sleep disorders as well as provide feedback for slow rhythmic breathing exercises for the relief of stress associated with daily living. The Somno-Ease™ will have a similar appearance to the Exer-Rest ® SL and TL models, but produces slower motion over a greater travel distance than Exer-Rest ® and is based upon the notion of “rocking” the adult to sleep analogous to rocking a baby to sleep. The Exer-Rest ® Plus, which is also in development, will combine the features of both the Exer-Rest ® and Somno-Ease ™ .
 
LifeShirt ®
 
The LifeShirt ® is a Wearable Physiological Computer (US Patents 6,551,252 [issued April 22, 2003], 6,413,225 [issued July 2, 2002], 6,047,203 [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. This module interfaces with the compact flash memory of a Personal Digital Assistant (“PDA”) for collection of raw waveforms and digital data. Such data are then transmitted from the flash memory to a Data Collection Center that transforms the data into minute-by-minute median trends of over 30 physical and emotional signs of health and disease. In addition, the monitored patient can enter symptoms with intensity, mood, and medication directly into the PDA for integration with the physiologic information collected with the LifeShirt ® garment. 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. The LifeShirt ® was sold exclusively by VivoMetrics until July 2009, and is currently not being marketed.
 
Intellectual Property
 
The Company currently holds five United States 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 United States provisional patent as well as four foreign patents. 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 following table lists the Company’s patents, along with their expiration dates (each of which is 20 years from the filing date):
 
 
7
 
 
US Patent
 
Inventors
 
Title
 
Expiration Date
7,404,221
 
Sackner, Marvin A.
 
Reciprocating movement platform for the external addition of pulses to the fluid channels of a subject
 
August 4, 2028
             
7.228,576
 
 
Inman, D. Michael;
Sackner, Marvin A.
 
Reciprocating movement platform for the addition of pulses of the fluid channels of a subject
 
June 12, 2027
             
7,111,346
 
Inman, D. Michael;
Sackner, Marvin A.
 
Reciprocating movement platform for the addition of pulses of the fluid channels of a subject
 
May 15, 2023
             
7,090,648
 
Sackner, Marvin A.;
Inman, D. Michael
 
External addition of pulses to fluid channels of body to release or suppress endothelial mediators and to determine effectiveness of such intervention
 
September 28, 2021
             
6,155,976
 
Sackner, Marvin A.;
Inman, D. Michael;
Meichner, William J.
 
Reciprocating movement platform for shifting subject to and fro in headwards-footwards direction
 
May 24, 2019
 
With respect to its present and proposed product line, the Company has 17 trademarks and trade names which are registered in the United States and in several foreign countries, including the Company’s principal trademark, Exer-Rest ® .
 
Research and Development
 
Our strategy is to develop a portfolio of non-invasive products through a combination of internal development and collaborations with external partners. We are also sponsoring or monitoring research investigating the effectiveness of WBPA in treating stroke, fibromyalgia, cystic fibrosis, delayed onset muscle soreness (DOMS), traumatic brain injury, angina, sickle cell disease, asthma, smoking, myocardial infarction and sleep apnea. We are also investigating the expansion of our product line with other non-invasive vibration therapies. For the fiscal years ended July 31, 2009 and 2008, research and development costs were $176,000 and $178,000, respectively.
 
Competition
 
The Company competes with several entities that market, sell or distribute therapeutic vibratory devices that are registered with FDA as powered exercise devices, or therapeutic vibrators. These include Power Plate of North America, Vibraflex, CERAGEM International, Inc . all of which are larger, have longer operating histories and have financial and personnel resources far greater than those of the Company. We believe that we effectively compete with such competitors based upon the uniqueness of our products and their differentiation on the basis of intended uses and operation.
 
Government Regulation of our Medical Device Development and Distribution Activities
 
Healthcare is heavily regulated by the federal government and by state and local governments. The federal laws and regulations affecting healthcare change constantly thereby increasing the uncertainty and risk associated with any healthcare-related venture.
 
The federal government regulates healthcare through various agencies, including but not limited to the following: (i) the FDA which administers the Food, Drug, and Cosmetic Act (“FD&C Act”), as well as other relevant laws; (ii) the Centers for Medicare & Medicaid Services (“CMS”) which administers the Medicare and Medicaid programs; (iii) the Office of Inspector General (“OIG”), which enforces various laws aimed at curtailing fraudulent or abusive practices including, by way of example, the Anti-Kickback Law, the Anti-Physician Referral Law, commonly referred to as Stark, the Anti-Inducement Law, the Civil Money Penalty Law, and the laws that authorize the OIG to exclude health care providers and others from participating in federal healthcare programs; and (iv) the Office of Civil Rights which administers the privacy aspects of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). All of the aforementioned are agencies within the Department of Health and Human Services (“HHS”). Healthcare is also provided or regulated, as the case may be, by the Department of Defense through its TriCare program, the Department of Veterans Affairs under, among other laws, the Veterans Health Care Act of 1992, the Public Health Service within HHS under the Public Health Service Act, the Department of Justice through the Federal False Claims Act and various criminal statutes, and state governments under the Medicaid program and their internal laws regulating all healthcare activities.
 
 
8
 

FDA Regulation of the Design, Manufacture and Distribution of Medical Devices
 
The testing, manufacture, distribution, advertising and marketing of medical devices are subject to extensive regulation by federal, state and local governmental authorities in the United States, including the FDA, and by similar agencies in other countries. Any product that we develop must receive all relevant regulatory clearances or approvals, as the case may be, before it may be marketed in a particular country. Under United States law, a “medical device” (“device”) is an article, which, among other things, is intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment or prevention of disease, in man or other animals. See FD&C Act § 201(h). Substantially all of our products are classified as medical devices and subject to regulation by numerous agencies and legislative bodies, including the FDA and its foreign counterparts.
 
Devices are subject to varying levels of regulatory control, the most comprehensive of which requires that a clinical evaluation be conducted before a device receives approval for commercial distribution. The FDA classifies medical devices into one of three classes. Class I devices are relatively simple and can be manufactured and distributed with general controls. Class II devices are somewhat more complex and require greater scrutiny. Class III devices are new and frequently help sustain life.
 
In the United States, a company generally can obtain permission to distribute a new device in two ways – through a Section 510(k) premarket notification application (“510(k) submission”), or through a Section 515 premarket approval (“PMA”) application. The 510(k) submission applies to any device that is substantially equivalent to a device first marketed prior to May 1976 or to another device marketed after that date, but which was substantially equivalent to a pre-May 1976 device. These devices are either Class I or Class II devices. Under the 510(k) submission process, the FDA will issue an order finding substantial equivalence to a predicate device (pre-May 1976 or post-May 1976 device that was substantially equivalent to a pre-May 1976 device) and permitting commercial distribution of that device for its intended use. A 510(k) submission must provide information supporting its claim of substantial equivalence to the predicate device. FDA permits certain low risk medical devices to be marketed without requiring the manufacturer to submit a premarket notification. In other instances, FDA may require that a premarket notification not only be submitted, but also be accompanied by clinical data. If clinical data from human experience are required to support the 510(k) submission, these data must be gathered in compliance with investigational device exemption (“IDE”) regulations for investigations performed in the United States. The FDA review process for premarket notifications submitted pursuant to section 510(k) takes on average about 90 days, but it can take substantially longer if the agency has concerns, and there is no guarantee that the agency will “clear” the device for marketing, in which case the device cannot be distributed in the United States. Nor is there any guarantee that the agency will deem the article subject to the 510(k) process, as opposed to the more time-consuming, resource intensive and problematic PMA process described below.
 
After clearance or approval to market is given, the FDA and foreign regulatory agencies, upon the occurrence of certain events, are authorized under various circumstances to withdraw the clearance or approval or require changes to a device, its manufacturing process or its labeling or additional proof that regulatory requirements have been met.
 
A manufacturer of a device cleared through a 510(k) submission must submit another premarket notification if it intends to make a change or modification in the device that could significantly affect the safety or effectiveness of the device, such as a significant change or modification in design, material, chemical composition, energy source or manufacturing process. Any change in the intended uses of a 510(k) device requires an approval supplement or cleared premarket notification. Exported devices are subject to the regulatory requirements of each country to which the device is exported, as well as certain FDA export requirements.
 
 
9
 

As a company that manufactures medical devices, we are required to register with the FDA. As a result, we and any entity that manufactures products on our behalf will be subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation requirements and other regulations. In the European Community, we will be required to maintain certain International Organization for Standardization (“ISO”) certifications in order to sell products and we or our manufacturers undergo periodic inspections by notified bodies to obtain and maintain these certifications. These regulations require us or our manufacturers to manufacture products and maintain documents in a prescribed manner with respect to design, manufacturing, testing and control activities. Further, we are required to comply with various FDA and other agency requirements for labeling and promotion. The Medical Device Reporting regulations require that we provide information to the FDA whenever there is evidence to reasonably suggest that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. In addition, the FDA prohibits us from promoting a medical device for unapproved indications.
 
The FDA in the course of enforcing the FD&C Act may subject a company to various sanctions for violating FDA regulations or provisions of the Act, including requiring recalls, issuing Warning Letters, seeking to impose civil money penalties, seizing devices that the agency believes are non-compliant, seeking to enjoin distribution of a specific type of device or other product, seeking to revoke a clearance or approval, seeking disgorgement of profits and seeking to criminally prosecute a company and its officers and other responsible parties.
 
Medicare and other Third-Party Payments
 
A.       Medicare Coverage
 
Inasmuch as a percentage of the projected patient population that could potentially benefit from our devices is elderly, Medicare would likely be a potential source of reimbursement. Medicare is a federal program that provides certain hospital and medical insurance benefits to persons age 65 and over, certain disabled persons, persons with end-stage renal disease and those suffering from Lou Gehrig’s Disease. In contrast, Medicaid is a medical assistance program jointly funded by federal and state governments and administered by each state pursuant to which benefits are available to certain indigent patients. The Medicare and Medicaid statutory framework is subject to administrative rulings, interpretations and discretion that affect the amount and timing of reimbursement made under Medicare and Medicaid.
 
Medicare reimburses for medical devices in a variety of ways depending on where and how the device is used. However, Medicare only provides reimbursement if CMS determines that the device should be covered and that the use of the device is consistent with the coverage criteria. A coverage determination can be made at the local level (“Local Coverage Determination”) by the Medicare administrative contractor (formerly called carriers and fiscal intermediaries), a private contractor that processes and pays claims on behalf of CMS for the geographic area where the services were rendered, or at the national level by CMS through a National Coverage Determination. There are statutory provisions intended to facilitate coverage determinations for new technologies under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) §§ 731 and 942. Coverage presupposes that the device has been cleared or approved by the FDA and, further, that the coverage will be no broader than the FDA approved intended uses of the device (i.e., the device’s label) as cleared or approved by the FDA, but coverage can be narrower. In that regard, a narrow Medicare coverage determination may undermine the commercial viability of a device. It is unclear whether the therapies and treatments that would use our primary products would be covered under Local or National Coverage Determinations.
 
Seeking to modify a coverage determination, whether local or national, is a time-consuming, expensive and highly uncertain proposition, especially for a new technology, and inconsistent local determinations are possible. On average, according to an industry report, Medicare coverage determinations for medical devices lag 15 months to five years or more behind FDA approval for respective devices. Moreover, Medicaid programs and private insurers are frequently influenced by Medicare coverage determinations. Our inability to obtain a favorable coverage determination may adversely affect our ability to market our products and thus, the commercial viability of our products.
 
 
10
 

B.        Medicare Reimbursement Levels
 
Even if Medicare covers the procedure that uses our devices the level of reimbursement may not be sufficient for commercial success. The Medicare reimbursement levels for covered procedures are determined annually through two sets of rulemakings, one for outpatient departments of hospitals under the Outpatient Prospective Payment System (“OPPS”) and the other, for procedures in physicians’ offices under the Resource-Based Relative Value Scales (“RBRVS”) (the Medicare fee schedule). If the use of a device is covered by Medicare, a physician’s ability to bill a Medicare patient more than the Medicare allowable amount is significantly constrained by the rules limiting balance billing. For covered services in a physician’s office, Medicare normally pays 80% of the Medicare allowable amount and the beneficiary pays the remaining 20%, assuming that the beneficiary has met his or her annual Medicare deductible and is not also a Medicaid beneficiary. For services performed in an outpatient department of a hospital, the patient’s co-payment under Medicare may exceed 20%, depending on the service and depending on whether CMS has set the co-payment at greater than 20%. If a device is used as part of an in-patient procedure, the hospital where the procedure is performed is reimbursed under the Inpatient Prospective Payment System (“IPPS”). In general, IPPS provides a single payment to the hospital based on the diagnosis at discharge and devices are not separately reimbursed under IPPS.
 
Usually, Medicaid pays less than Medicare, assuming that the state covers the service. In addition, private payors, including managed care payors, increasingly are demanding discounted fee structures and the assumption by healthcare providers of all or a portion of the financial risk. Efforts to impose greater discounts and more stringent cost controls upon healthcare providers by private and public payors are expected to continue.
 
Significant limits on the scope of services covered or on reimbursement rates and fees on those services that are covered could have a material adverse effect on our ability to commercialize our devices and therefore, on our liquidity and financial condition.
 
Anti-Fraud and Abuse Rule
 
There are extensive federal and state laws and regulations prohibiting fraud and abuse in the healthcare industry that can result in significant criminal and civil penalties that can materially affect us. These federal laws include, by way of example, the following:
 
 
·
The anti-kickback statute (Section 1128B(b) of the Social Security Act) prohibits certain business practices and relationships that might affect the provision and cost of healthcare services reimbursable under Medicare, Medicaid and other federal healthcare programs, including the payment or receipt of remuneration for the referral of patients whose care will be paid by Medicare or other governmental programs;
 
 
·
The physician self-referral prohibition (Ethics in Patient Referral Act of 1989, as amended, commonly referred to as the Stark Law, Section 1877 of the Social Security Act), which prohibits referrals by physicians of Medicare or Medicaid patients to providers of a broad range of designated healthcare services in which the physicians (or their immediate family members) have ownership interests or with which they have certain other financial arrangements.
 
 
·
The anti-inducement law (Section 1128A(a)(5) of the Social Security Act), which prohibits providers from offering anything to a Medicare or Medicaid beneficiary to induce that beneficiary to use items or services covered by either program;
 
 
·
The False Claims Act (31 U.S.C. § 3729 et seq.), which prohibits any person from knowingly presenting or causing to be presented false or fraudulent claims for payment to the federal government (including the Medicare and Medicaid programs); and
 
 
·
The Civil Monetary Penalties Law (Section 1128A of the Social Security Act), which authorizes the United States Department of Health and Human Services to impose civil penalties administratively for fraudulent or abusive acts.
 
Sanctions for violating these federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments, monetary penalties, imprisonment, denial of Medicare and Medicaid payments or exclusion from the Medicare and Medicaid programs, or both. These laws also impose an affirmative duty on those receiving Medicare or Medicaid funding to ensure that they do not employ or contract with persons excluded from the Medicare and other government programs.
 
 
11
 

Many states have adopted or are considering legislative proposals similar to the federal fraud and abuse laws, some of which extend beyond the Medicare and Medicaid programs, to prohibit the payment or receipt of remuneration for the referral of patients and physician self-referrals regardless of whether the service was reimbursed by Medicare or Medicaid. Many states have also adopted or are considering legislative proposals to increase patient protections, such as limiting the use and disclosure of patient specific health information. These state laws also impose criminal and civil penalties similar to the federal laws.
 
In the ordinary course of their business, medical device manufacturers and suppliers have been and are subject regularly to inquiries, investigations and audits by federal and state agencies that oversee these laws and regulations. Recent federal and state legislation has greatly increased funding for investigations and enforcement actions, which have increased dramatically over the past several years. This trend is expected to continue. Private enforcement of healthcare fraud also has increased due in large part to amendments to the civil False Claims Act in 1986 that were designed to encourage private persons to sue on behalf of the government. These whistleblower suits by private persons, known as qui tam relators, may be filed by almost anyone, including present and former patients or nurses and other employees, as well as competitors. HIPAA, in addition to its privacy provisions, created a series of new healthcare-related crimes.
 
As federal and state budget pressures continue, federal and state administrative agencies may also continue to escalate investigation and enforcement efforts to root out waste and to control fraud and abuse in governmental healthcare programs. A violation of any of these federal and state fraud and abuse laws and regulations could have a material adverse effect on a supplier’s liquidity and financial condition. An investigation into the use of a device by physicians may dissuade physicians from either purchasing or using the device. This could have a material adverse effect on our ability to commercialize our devices.
 
The Privacy Provisions of HIPAA
 
HIPAA, among other things, protects the privacy and security of individually identifiable health information by limiting its use and disclosure. HIPAA directly regulates “covered entities,” such as healthcare providers, insurers and clearinghouses, and indirectly regulates “business associates,” with respect to the privacy of patients’ medical information. All entities that receive and process protected health information are required to adopt certain procedures to safeguard the security of that information. It is uncertain whether we would be deemed to be a covered entity under HIPAA and it is unlikely that we, based on our current business model, would be a business associate. Nevertheless, we will likely be contractually required to physically safeguard the integrity and security of any patient information that we receive, store, create or transmit. If we fail to adhere to our contractual commitments, then our physician or hospital customers may be subject to civil monetary penalties, which could adversely affect our ability to market our devices. Recent changes in the law wrought by the American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009), may increase the likelihood that we would be treated as a business associate thereby subjecting us to direct government regulation, increasing our compliance costs and our exposure to civil monetary penalties and other government sanctions.
 
Manufacturing
 
We have no commercial manufacturing facilities and we do not intend to build commercial manufacturing facilities of our own in the foreseeable future. All of our current manufacturing is performed by Sing Lin under the aforementioned agreement. Sing Lin and their manufacturing facilities must comply with FDA regulations, current quality system regulations (referred to as QSRs), which include current good manufacturing practices, or cGMPs, and to the extent laboratory analysis is involved, current good laboratory practices, or cGLPs.
 
Sales & Marketing
 
We have limited number of dedicated sales and marketing personnel, and our Chief Operating Officer is presently leading our current marketing efforts. In addition to direct sales efforts by our sales management personnel, our sales and distribution network consists of independent sales representatives, distributors, and a storefront demonstration and therapy center in Toronto, Canada. We intend to expand our distributor and independent sale representative networks and open additional demonstration and therapy centers in the US and Canada. There can be no assurance that we will be able to enter into additional distribution and representation agreements on terms acceptable to us or at all, or that our sales and distribution network and demonstration centers will generate significant sales.
 
 
12
 

Employees
 
The Company currently employs eight employees on a full-time basis. Six are engaged in general and administrative, marketing and distribution duties and two in research and development. None of our employees are represented by a collective bargaining agreement, and we believe relations with our employees are good.
 
Executive Officers of the Registrant
 
Marvin A. Sackner, M.D. Dr. Sackner, 77, has served as a Director since he was first elected as our Chairman of the Board, Chief Executive Officer and Director in November 1989 and served as Chairman of the Board from November 1989 until October 2008. He served as CEO from 1989 until 2002 and from December 2007 to the present. Dr. Sackner co-founded Respitrace Corporation, a predecessor to the Company, in 1977 and was the Chairman of its Board from 1981 until October 1989. From 1974 until October 1991, Dr. Sackner was the Director of Medical Services at Mount Sinai in Miami Beach, Florida. From 1973-1996, he served as Professor of Medicine, University of Miami at Mount Sinai. Since 2004, he has been Voluntary Professor of Medicine, Leonard Miller Medical School of University of Miami. From 1979 to 1980, 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. In 2007, he was awarded an Honorary Doctorate Degree for "outstanding work in the entire field of pulmonology and sleep disorders," by the University of Zurich (Switzerland). Dr. Sackner holds 33 United States Patents and has written 223 scientific papers and four books.
 
Steven B. Mrha. Mr. Mrha, 44, was appointed Chief Operating Officer effective January 14, 2008. From 2005 to 2008, Mr. Mrha held the position of Vice President, Sales & Marketing for IVX Animal Health (“IVX”), a subsidiary of Teva Pharmaceuticals, Inc. From 1999 to 2005, Mr. Mrha held the same position with DVM Pharmaceuticals (“DVM”) until the 2005 merger of DVM and Phoenix Scientific which created IVX. From 1991 to 1999, Mr. Mrha held numerous positions at DVM, including Territory Manager, Regional Manager, Director of Corporate Training and Director of Marketing.
 
Adam S. Jackson . Mr. Jackson, 47, was appointed Chief Financial Officer on May 12, 2008. From 2006 to 2008, Mr. Jackson served as Senior Vice President, Finance for Levitt Corporation (“Levitt”), a New York Stock Exchange-traded real estate development company (now Woodbridge Holdings Corp.). From 2003 to 2006, Mr. Jackson served as Levitt’s Senior Vice President, Controller. From 2001 to 2003, Mr. Jackson served as Chief Financial Officer of Romika-USA, Inc., a privately-held consumer goods manufacturing and distribution company. Mr. Jackson has also served since March 2008 as the Chief Financial Officer of SafeStitch Medical, Inc., a publicly-held developmental-stage medical device company, and as Vice President, Finance of Aero Pharmaceuticals, Inc., a privately-held pharmaceutical distribution company.
 
Item 1A.
Risk Factors.
 
Our future operating results may vary substantially from anticipated results due to a number of factors, many of which are beyond our control. The following discussion highlights some of these factors and the possible impact of these factors on future results of operations. If any of the following factors actually occur, our business, financial condition or results of operations could be materially harmed. In that case, the value of our common stock could decline substantially.
 
 
13
 

Risks Relating to Our Business.
 
Our financial statements indicate that we may be unable to continue as a going concern. We have a history of operating losses and we do not expect to become profitable in the near future:
 
Our consolidated financial statements for the years ended July 31, 2009 and 2008 were prepared on a “going concern” basis; however substantial doubt exists about our ability to continue as a going concern as a result of recurring losses and an accumulated deficit. We are not profitable and have been incurring material losses. Our net losses for our fiscal years ended July 31, 2009, 2008 and 2007 were $1.8 million, $1.8 million and $1.4 million, respectively. As of July 31, 2009, we had an accumulated deficit of $19.8 million. Our revenues from 2005 through 2008 were primarily derived from royalties on sales of diagnostic monitoring hardware and software licensed to two third parties (one of which is no longer operating) and from sales of parts and services related to acceleration therapeutics platforms used for research purposes. Although we have obtained regulatory clearance to market our principal products in the US and abroad, there can be no assurance that our products will achieve market acceptance. Market acceptance of our products may depend upon: the timing of market introduction of competitive products; the safety and efficacy of our products; and the potential advantage or disadvantages of alternative treatments. If our products fail to achieve market acceptance, we may not be able to generate significant revenues or be profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.
 
The current worldwide economic crisis and concurrent market instability may materially and adversely affect the demand for our products, as well as our ability to obtain credit or secure funds through sales of our stock, which may materially and adversely affect our business, financial condition and ability to fund our operations:
 
The current worldwide economic crisis may reduce the demand for new and innovative medical devices, resulting in delayed market acceptance of our products. Such a delay could have a material adverse impact on our business, expected cash flows, results of operations and financial condition.
 
Additionally, we have funded our operations to date primarily through private sales of our common stock and through borrowings under credit facilities available to us from stockholders and other individuals. The current economic turmoil and instability in the world’s equity and credit markets may materially adversely affect our ability to sell additional shares of our stock and/or borrow cash. There can be no assurance that we will be able to raise additional working capital on acceptable terms or at all, which may materially adversely affect our ability to continue our operations.
 
Healthcare policy changes, including pending proposals to reform the U.S. healthcare system, may have a material adverse effect on us:
 
Healthcare costs have risen significantly over the past decade. There have been and continue to be proposals by legislators, regulators, and third-party payors to keep these costs down. Certain proposals, if passed, may impose limitations on the prices we will be able to charge for our products, or the amounts of reimbursement available for our products from governmental agencies or third-party payors. These limitations could have a material adverse effect on our financial position and results of operations.
 
Recently, President Obama and members of Congress have proposed significant reforms to the U.S. healthcare system. Both the U.S. Senate and House of Representatives have conducted hearings about U.S. healthcare reform. In the Obama administration’s fiscal year 2010 federal budget proposal, the administration emphasized maintaining patient choice, reducing inefficiencies and costs, increasing prevention programs, increasing coverage portability and universality, improving quality of care and maintaining fiscal sustainability. The Obama administration’s fiscal year 2010 budget included proposals to limit Medicare payments, reduce drug spending and increase taxes. In addition, some members of Congress have proposed a government health insurance option to compete with private plans and other expanded public healthcare measures. Various healthcare reform proposals have also emerged at the state level. We cannot predict what healthcare initiatives, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on us. However, an expansion in government’s role in the U.S. healthcare industry may lower reimbursements for our products, reduce medical procedure volumes and adversely affect our business, possibly materially.
 
 
14
 

The terms of clearances or approvals and ongoing regulation of our products may limit how we manufacture and market our products, which could materially impair our ability to generate anticipated revenues:
 
Once regulatory clearance or approval has been granted, the cleared or approved product and its manufacturer are subject to continual review. Any cleared or approved product may only be promoted for its indicated uses. Accordingly, it is possible that our products may be cleared or approved for fewer or more limited uses than we request or that clearance or approval may be granted contingent on the performance of costly post-marketing clinical trials. In addition, if the FDA or other non-U.S. regulatory authorities clear or approve our products, the labeling, packaging, adverse event reporting, storage, advertising and promotion for the products will be subject to extensive regulatory requirements. It is possible that the FDA or other non-U.S. regulatory authorities may not approve the labeling claims necessary or desirable for the successful commercialization of our products. Further, regulatory agencies must approve our manufacturing facilities before they can be used to manufacture our products, and these facilities are subject to ongoing regulatory inspection. If we fail to comply with the regulatory requirements of the FDA and other non-U.S. regulatory authorities, or if previously unknown problems with our products, manufacturers or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions.
 
In addition, the FDA and other non-U.S. regulatory authorities may change their policies and additional regulations may be enacted that could prevent or delay regulatory clearance or approval of our products. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are not able to maintain regulatory compliance, we would likely not be permitted to market our products and we may not achieve or sustain profitability.
 
We rely on third parties to manufacture and supply our products:
 
We do not own or operate manufacturing facilities for clinical or commercial production of our products. We have no experience in medical device manufacturing, and we lack the resources and the capability to manufacture any of our products on a commercial scale. We entered into a Product and Development and Supply Agreement with Sing Lin Technology Co. Ltd. (“Sing Lin”) to, among other things, manufacture all of our acceleration therapeutic platforms. If Sing Lin is unable to produce our products in the amounts that we require, we may not be able to establish a contract and obtain a sufficient alternative supply from another supplier on a timely basis and in the quantities we require. We expect to depend on Sing Lin and other third-party contract manufacturers for the foreseeable future.
 
Our ability to replace an existing manufacturer may be difficult because the number of potential manufacturers is limited and the FDA must approve any replacement manufacturer before it can begin manufacturing our product. It may be difficult or impossible for us to identify and engage a replacement manufacturer on acceptable terms in a timely manner, or at all.
 
Our competitors may develop and market products that are more effective, safer or less expensive than our products, negatively impacting our commercial opportunities:
 
The life sciences industry is highly competitive, and we face significant competition from many medical device companies that are researching and marketing products designed to address the same ailments we are endeavoring to address. The medical devices that we have developed or are developing will compete with other medical devices that currently exist or are being developed. Products we may develop in the future are also likely to face competition from other medical devices and therapies. Many of our competitors have significantly greater financial, manufacturing, marketing and product development resources than we do. If our competitors market products that are more effective, safer, easier to use or less expensive than our products, or that reach the market sooner than our products, we may not achieve commercial success. In addition, the medical device industry is characterized by rapid technological change. It may be difficult for us to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or products obsolete or less competitive.
 
If we are unable to obtain and enforce patent protection for our products, our business could be materially harmed:
 
We currently hold four United States patents with respect to overall design and specific features of our present and proposed products and have submitted applications with respect to four foreign patents. The issuance of a patent does not guarantee that it is valid or enforceable. Any patents we have obtained, or obtain in the future, may be challenged, invalidated, unenforceable or circumvented. Moreover, the United States Patent and Trademark Office (the “USPTO”) may commence interference proceedings involving our patents or patent applications. Any challenge to, finding of unenforceability or invalidation or circumvention of, our patents or patent applications would be costly, would require significant time and attention of our management and could have a material adverse effect on our business.
 
15
 
Our pending patent applications may not result in issued patents. The patent position of medical device companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards that the USPTO and its foreign counterparts use to grant patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in medical device patents. Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth of claims that will be allowed in any patents issued to us or to others.
 
If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected:
 
In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, know-how and confidential and proprietary information. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions.
 
Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties:
 
Other entities may have or obtain patents or proprietary rights that could limit our ability to manufacture, use, sell, offer for sale or import products or impair our competitive position. In addition, to the extent that a third party develops new technology that covers our products, we may be required to obtain licenses to that technology, which licenses may not be available or may not be available on commercially reasonable terms, if at all. Our failure to obtain a license to any technology that we require may materially harm our business, financial condition and results of operations.
 
If we become involved in patent litigation or other proceedings related to a determination of rights, we could incur substantial costs and expenses, substantial liability for damages or be required to stop our product development and commercialization efforts:
 
Third parties may sue us for infringing their patent rights. Likewise, we may need to resort to litigation to enforce a patent issued or licensed to us or to determine the scope and validity of proprietary rights of others. In addition, a third party may claim that we have improperly obtained or used its confidential or proprietary information. The cost to us of any litigation or other proceeding relating to intellectual property rights, even if resolved in our favor, could be substantial, and the litigation would divert our management’s efforts. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources.
 
We will likely require additional funding, which may not be available to us on acceptable terms, or at all. In addition, we may need to amend our Articles of Incorporation to increase our number of authorized shares of Common Stock:
 
We will likely need to raise additional capital in order for us to continue our operations as currently contemplated. Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we will need to finance future cash needs primarily through public or private equity offerings, debt financings or strategic collaborations. We do not know whether additional funding will be available on acceptable terms, or at all. In order to raise additional capital we may need to amend our Articles of Incorporation to increase our number of authorized shares of Common Stock, which would require shareholder approval. We anticipate that shareholder approval of such an amendment would be obtained; however, there can be no absolute assurance that approval will be granted. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate our research and development programs and operations. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution, and debt financing, if available, may involve restrictive covenants. To the extent that we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our product candidates or grant licenses on terms that may not be favorable to us.
 
16
 
Risks Relating to Our Stock.
 
We do not anticipate paying dividends on our Common Stock in the foreseeable future:
 
We have not declared and paid cash dividends on our common stock in the past and we do not anticipate paying any cash dividends in the foreseeable future. We intend to retain all of our earnings, if any, for the foreseeable future to finance the operation and expansion of our business. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.
 
Because our Common Stock is a “penny stock,” it may be more difficult for investors to sell shares of our Common Stock, and the market price of our Common Stock may be adversely affected:
 
Our Common Stock is a “penny stock” since, among other things, the stock price is below $5.00 per share, it is not listed on a national securities exchange or approved for quotation on the Nasdaq Stock Market or any other national stock exchange and it has not met certain net tangible asset or average revenue requirements. Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the Securities and Exchange Commission (“SEC”). This document provides information about penny stocks and the nature and level of risks involved in investing in the penny-stock market. A broker must also give a purchaser, orally or in writing, bid and offer quotations and information regarding broker and salesperson compensation, make a written determination that the penny stock is a suitable investment for the purchaser and obtain the purchaser’s written agreement to the purchase. Broker-dealers must also provide customers that hold penny stock in their accounts with such broker-dealer a monthly statement containing price and market information relating to the penny stock. If a penny stock is sold to an investor in violation of the penny stock rules, the investor may be able to cancel its purchase and get its money back.
 
If applicable, the penny stock rules may make it difficult for investors to sell their shares of our Common Stock. Because of the rules and restrictions applicable to a penny stock, there is less trading in penny stocks and the market price of our Common Stock may be adversely affected. Also, many brokers choose not to participate in penny stock transactions. Accordingly, investors may not always be able to resell their shares of our Common Stock publicly at times and prices acceptable to them.
 
Our stock price has been volatile and there may not be an active, liquid trading market for our Common Stock:
 
Our stock price has experienced significant price and volume fluctuations and may continue to experience volatility in the future. Factors that have a significant impact on the price of our common stock, in addition to the other issues described in this report, include results of or delays in our pre-clinical and clinical studies, announcements of technological innovations or new commercial products by us or others, developments in patents and other proprietary rights by us or others, future sales of our common stock by existing stockholders, regulatory developments or changes in regulatory guidance, the departure of our officers, directors or key employees, and period-to-period fluctuations in our financial results. Also, you may not be able to sell your shares at the best market price if trading in our stock in not active or if the volume is low. There is no guarantee that an active trading market for our common stock will be maintained on the OTC Bulletin Board Market.
 
17
 
Our quarterly results of operations will fluctuate, and these fluctuations could cause our stock price to decline:
 
Our quarterly operating results are likely to fluctuate in the future. These fluctuations could cause our stock price to decline. The nature of our business involves variable factors, such as the timing of the research, development and regulatory submissions of our devices that could cause our operating results to fluctuate. As a result, in some future quarters our clinical, financial or operating results may not meet the expectations of securities analysts and investors which could result in a decline in the price of our stock.
 
Item 1B.
Unresolved Staff Comments.
 
As a smaller reporting company as defined in Rule 12b-2 of the Exchange Act, we are not required to include information otherwise required by this item.
 
Item 2.
Properties.
 
Our principal corporate office is located at 4400 Biscayne Blvd., Miami, Florida. We rent this space from Frost Real Estate Holdings, LLC, which is a company controlled by Dr. Phillip Frost, one of our largest beneficial shareholders. We currently lease approximately 1,800 square feet under the lease agreement, which is for a five-year term that began on January 1, 2008.
 
We lease approximately 5,200 square feet of space in Hialeah, Florida from an entity controlled by Dr. Frost and Dr. Jane Hsiao, our Chairman, to house inventory. We also lease approximately 1,100 square feet of space in Toronto, Canada in which we operate our demonstration and therapy center.
 
Item 3.
Legal Proceedings.
 
None.
 
Item 4.
Submission of Matters to a Vote of Security Holders.
 
None.
 
18
 
PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Recent Sales of Unregistered Securities
 
On July 30, 2009 the Company issued 325,000 shares of its common stock upon exercise of warrants at an exercise price of $0.15 per share for total consideration of $49,000. The proceeds will be used for general working capital purposes. The Company issued the above-described Common Stock to an accredited investor in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended and/or Regulation D promulgated under the Securities Act of 1933. The exercised warrants restrict transfer of Common Stock acquired upon exercise thereof unless an applicable exemption exists under the securities laws, and a legend was placed on the stock certificates representing the Common Stock issued upon exercise to the effect that the shares were not registered and absent registration could only be transferred with an appropriate exemption.
 
Market for Common Stock
 
The table below sets forth, for the respective periods indicated, the high and low bid prices for the Company’s common stock in the over-the-counter market as reported by the OTC Bulletin Board under the symbol NIMU.OB. The bid prices represent inter-dealer transactions, without adjustments for retail mark-ups, mark-downs or commissions and may not necessarily represent actual transactions.
 
Quarter Ended
 
High
   
Low
 
October 31, 2007
  $ 1.06     $ 0.75  
January 31, 2008
  $ 0.81     $ 0.43  
April 30, 2008
  $ 0.64     $ 0.41  
July 31, 2008
  $ 0.57     $ 0.36  
October 31, 2008
  $ 0.61     $ 0.29  
January 31, 2009
  $ 0.46     $ 0.27  
April 30, 2009
  $ 0.40     $ 0.26  
July 31, 2009
  $ 0.40     $ 0.30  

Since our inception, we have not paid any dividends on our Common Stock, and we do not anticipate that we will pay dividends in the foreseeable future. At July 31, 2009, we had 1,561 shareholders of record based on information provided by our transfer agent, American Stock Transfer & Trust Company. We believe that the actual number of beneficial shareholders is considerably higher.
 
Equity Compensation Plan Information
 
A majority of our stockholders approved the Non-Invasive Monitoring Systems, Inc. 2000 Stock Option Plan (the “Stock Option Plan”) on March 28, 2001, which is our sole equity compensation plan. We have reserved a total of 2,000,000 shares of our common stock for issuance under the Stock Option Plan, subject to adjustment for a stock split or any future stock dividend or other similar change in our common stock or our capital structure. As of July 31, 2009, 1,251,000 options to purchase shares of common stock have been granted under the Stock Option Plan. A more detailed summary of the Stock Option Plan is contained in Note 4 to our consolidated financial statements set forth under Item 8 to this Annual Report on Form 10-K. The following table provides information about our equity compensation plans as of July 31, 2009:
 
19
 
   
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
   
 Weighted-average
exercise price of
outstanding
options, warrants
and rights
                 (b)                 
   
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
 
Equity compensation plans approved by security holders(1)
    1,251,000     $ 0.49       749,000  
Equity compensation plans not approved by security holders
    1,085,831     $ 0.66       –  
                         
Total
    2,336,831     $ 0.57       749,000  
(1)
 
Non-Invasive Monitoring Systems, Inc. 2000 Stock Option Plan.

Item 6.
Selected Financial Data.
 
As a smaller reporting company as defined in Rule 12b-2 of the Exchange Act, we are not required to include information otherwise required by this item.
 
20
 
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), about our expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those set forth below as well as those contained in “Item 1A - Risk Factors” of this Annual Report on Form 10-K. We do not undertake any obligation to update forward-looking statements, except as required by applicable law. We intend that all forward-looking statements be subject to the safe harbor provisions of the PSLRA, to the extent applicable to issuers of penny stock. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.
 
Overview
 
We are primarily engaged in the development, manufacture and marketing of non-invasive, whole body periodic acceleration (“WBPA”) therapeutic platforms, which are motorized platforms that move a subject repetitively from head to foot. Our acceleration therapeutic platforms are the inventions of Marvin A. Sackner, M.D., our founder, Chief Executive Officer and a director. Twenty-six peer reviewed scientific publications attest to the benefits of whole body periodic acceleration in animal and human research investigations. The application of this technology causes release of beneficial substances such as nitric oxide from the inner lining of blood vessels to the same extent as moderate to strenuous exercise. These findings are not being claimed as an intended use of the device for marketing purposes, but demonstrate a potential mechanism for its benefits.
 
Critical Accounting Policies and Estimates
 
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to accounts receivable, inventory, property and equipment, intangible assets, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. A more detailed discussion on the application of these and other accounting policies can be found in Note 2 in the Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K. Actual results may differ from these estimates under different assumptions or conditions.
 
Results of Operations
 
In January 2005, we began developing the Exer-Rest ® line of acceleration therapeutic platforms, which were designed to be more efficient and less expensive than the AT-101. The Exer-Rest ® AT platform was first available for delivery to certain locations outside of the United States in October 2007. Prior to the first export sales of the Exer-Rest ® AT, we continued to sell the AT-101 in certain locations outside of the United States. In anticipation of the launch of the Exer-Rest line, in July 2006 we wrote down as obsolete our existing inventory of AT-101 platforms and parts to zero value. Our newest platforms, the Exer-Rest ® SL and TL, which have been developed under our agreement with Sing Lin, became available for sale in October 2008. The Exer-Rest ® line of therapeutic platforms was cleared by the FDA for sale in the United States in January 2009. We began our US and international sales activity with aggressive marketing and promotional pricing beginning in February 2009 and opened our first demonstration and therapy center in Toronto, Canada in April 2009.
 
21
 
Year Ended July 31, 2009 Compared to Year Ended July 31, 2008
 
Gross revenues. Gross revenues increased from $302,000 for the year ended July 31, 2008 to $546,000 for the year ended July 31, 2009. This $244,000 increase primarily result from a $284,000 increase in product sales, offset in part by a $37,000 decrease in royalty income. Exer-Rest ® platform unit sales during the 2009 fiscal year increased 900% over the 2008 fiscal year, primarily due to the availability of the new Exer-Rest ® SL and TL models and the clearance to market the Exer-Rest ® in the US. Royalty revenue in fiscal 2009 decreased approximately 14% from fiscal 2008 due to lower product sales by SensorMedics and VivoMetrics. VivoMetrics ceased operations in July 2009 and filed for Chapter 11 bankruptcy protection in October 2009. We expect fiscal 2010 royalty revenues to be significantly below fiscal 2009 levels.
 
Cost of sales. Cost of sales increased to $250,000 for the year ended July 31, 2009 from $19,000 for the year ended July 31, 2008, primarily due to the increased number of units sold during the year. Also included in this $231,000 increase was approximately $113,000 of inventory valuation adjustments for damaged, obsolete and slow moving inventory.
 
Selling, general and administrative costs and expenses. Selling, general and administrative (“SG&A”) costs and expenses were approximately $2.0 million for each of the years ended July 31, 2009 and 2008. The $4,000 decrease in the year ended July 31, 2009 was primarily attributable to lower severance and stock-based compensation costs, offset by increased salaries and wages related to a full-year of employment of administrative, sales and finance personnel added during fiscal 2008 and the March 2009 establishment of the Toronto demonstration center. SG&A expense includes stock based compensation expense, which totaled $189,000 for fiscal 2009, as compared to $314,000 for fiscal 2008. The decrease in stock-based compensation was primarily due to a decrease in the number of options granted during the year ended July 31, 2009. Also included in fiscal 2008 was $126,000 severance paid to our former Chief Executive Officer.
 
Research and development costs. Research and development costs decreased $2,000 from $178,000 for the year ended July 31, 2008 to $176,000 for the year ended July 31, 2009. Research and development costs in each of the 2009 and 2008 fiscal years consisted primarily of costs related to obtaining FDA clearance to market the Exer-Rest ® in the US and the placement of Exer-Rest ® units in research studies.
 
Total operating expenses. Total operating expenses increased $225,000 from $2.2 million for the year ended July 31, 2008 to $2.4 million for the year ended July 31, 2009. This increase is primarily attributable to the increase in cost of sales related to higher sales volume, as well as higher SG&A expense and increased research and development expense related to our pursuit of FDA clearance to market the Exer-Rest ® .
 
Other income and expense. Other income increased $49,000 from $12,000 for the year ended July 31, 2008 to $61,000 for the year ended July 31, 2009. The increase was primarily attributable to $85,000 of foreign currency exchange gains at our Canadian subsidiary, offset in part by a $19,000 increase in net interest expense and a $17,000 loss on the disposal of certain Exer-Rest ® AT units previously included in fixed assets as demonstration units.
 
Liquidity and Capital Resources
 
Our operations have been primarily financed through private sales of our equity securities. At July 31, 2009, we had cash of $886,000 and working capital of $1.8 million. We expect these funds will be sufficient to expand our marketing efforts in the US and Canada at least through the remainder of the 2009 calendar year. If we are not able to generate significant revenue with these expanded marketing efforts, we will likely be required to obtain additional external financing to continue operations beyond the end of the 2010 fiscal year. No assurance can be given that such additional financing will be available on acceptable terms or at all. Our ability to sell additional shares of our stock and/or borrow cash could be materially adversely affected by the recent economic turmoil in the global equity and credit markets. Current economic conditions have been, and continue to be, volatile and continued instability in these market conditions may limit our ability to access the capital necessary to fund and grow our business and to replace, in a timely manner, maturing liabilities.
 
22
 
Net cash used in operating activities decreased to $1.9 million for the year ended July 31, 2009 from $2.2 million for the year ended July 31, 2008. This $364,000 decrease was principally due to a decrease in inventory expenditures as advances to Sing Lin were applied against inventory purchases.
 
Net cash used by investing activities was $232,000 for the year ended July 31, 2009, due primarily to the payment of the $171,000 balance due on the Exer-Rest ® production tooling, $26,000 for website development and $32,000 for leasehold improvements and warehouse equipment. Net cash provided by investing activities was $86,000 for the year ended July 31, 2008, due primarily to the redemption of $400,000 in certificates of deposit held as collateral for bank notes, offset in part by cash payments of $300,000 primarily for Exer-Rest ® tooling.
 
Net cash provided by financing activities increased from $1.1 million for the year ended July 31, 2008 to $2.9 million for the year ended July 31, 2009. This $1.8 million increase was principally due to the difference between the $1.5 million raised by the April 2008 Series D Preferred Stock Offering described below and the $2.8 million raised by the December 2008 and January 2009 Series D Preferred Stock Offerings described below. Cash flows from financing activities were also lower in 2008 due to the repayment of the $500,000 of bank notes secured by the certificates of deposit described above.
 
Aggregate collections of royalty payments from VivoMetrics and SensorMedics were $248,000 and $266,000 in 2009 and 2008, respectively. There can be no assurances that the Company will continue to receive similar royalty payments, and we expect a decline in royalty revenues in 2010 because VivoMetrics ceased operations in July 2009 and has not made any royalty payments since that time. In 2009, VivoMetrics accounted for approximately $39,000 of our royalty revenue and $56,000 of our royalty collections. VivoMetrics filed for Chapter 11 bankruptcy protection in October 2009. As of October 15, 2009, our outstanding receivable from VivoMetrics totaled $10,000, which was fully reserved.
 
Under the agreement with Sing Lin, we are committed to purchase approximately $2.6 million of Exer-Rest ® and Somno-Ease ™ units within one year of acceptance of the final product, which acceptance occurred in September 2008, and an additional $4.1 million and $8.8 million of products in the second and third years following acceptance of the final product, respectively. Under the Agreement, the Company must pay a portion of the product purchase price at the time production orders are placed, with the balance due upon delivery. Through July 31, 2009, we have paid Sing Lin $1.6 million in connection with orders placed through that date, and we will be required to make additional payments totaling approximately $98,000 upon taking delivery of the units currently in production. We began taking delivery of units from Sing Lin in October 2008 and we expect such deliveries to continue periodically throughout the 2010 fiscal year. As of October 15, 2009, we had not placed orders sufficient to satisfy our first-year purchase commitment under the Agreement. Our discussions with Sing Lin are ongoing, and we expect our commitments under the Agreement to be modified to reflect current market conditions. There can be no assurance that the Agreement will be modified on terms acceptable to us or at all, or that Sing Lin will not attempt to enforce its rights under the Agreement.
 
At July 31, 2009, we had available Federal and State net operating loss carryforwards of approximately $10.7 million which expire in various years through 2029. The net operating loss carryforwards may be subject to limitation due to change of ownership provisions under Section 382 of the Internal Revenue Code and similar state provisions.
 
Series D Preferred Stock Offerings. In April 2008, we authorized a new series of our Preferred Stock, par value $1.00 per share (the “Preferred Stock”), designated as Series D Convertible Preferred Stock (the “Series D Preferred Stock”). Each holder of a share of the Series D Preferred Stock has the right, at any time, to convert such share of Series D Preferred Stock into shares of the Company’s common stock at an initial rate of 5,000 shares of common stock per share of Series D Preferred Stock. The Series D Preferred Stock has a $1,500 per share liquidation preference, and is issued at $1,500 per share, which is equivalent to $0.30 per share of Common Stock on an “as-converted” basis.
 
23
 
April 2008 Series D Preferred Stock Offering. On April 7, 2008, we completed the sale of an aggregate of 1,000 shares of our Series D Preferred Stock to certain private investors (collectively, the “Investors”) pursuant to a Stock Purchase Agreement entered into on April 3, 2008 (the “Stock Purchase Agreement”). The Investors include Marvin Sackner, a director and executive officer of the Company who also holds more than 10% of the outstanding Common Stock; Steven Mrha, an executive officer of the Company, and Frost Gamma Investments Trust (“Frost Gamma”), a holder of more than 10% of the outstanding Common Stock (collectively, the “Related Party Investors”). Dr. Jane Hsiao, who became a director and Chairman in October 2008, is trustee of one of the Investors which is not one of the Related Party Investors. The aggregate purchase price for the Series D Preferred Stock was $1.5 million, of which $795,000 was paid by the Related Party Investors. The April 7, 2008 closing price of the Common Stock on the over-the-counter bulletin board was $0.53 per share, resulting in a $1,150 intrinsic value per share of Series D Preferred Stock on the issue date. The $1.2 million aggregate intrinsic value of the Series D Preferred Stock on the issue date was deemed a dividend paid to the Investors on the closing date and as an increase in loss attributable to common shareholders in the financial statements for the period then ended.
 
December 2008 Series D Preferred Stock Offering. On December 2, 2008, we completed the sale of an aggregate of 491 additional shares of our Series D Preferred Stock to certain investors pursuant to stock purchase agreements entered between December 1, 2008 and December 2, 2008 (the sale of 286 shares closed on December 1, 2008 and the sale of 205 shares closed on December 2, 2008). These investors include Dr. Sackner, Frost Gamma, Hsu Gamma Investments, LP (“Hsu Gamma”), an entity controlled by our Chairman, and a director (collectively, the “New Related Party Investors”). The aggregate purchase price for the Series D Preferred Stock was $736,500, of which $382,500 was paid by the New Related Party Investors. Of the $382,500 paid by the New Related Party Investors, $282,200 was paid from the proceeds of their respective interests in the Revolver described below. (See Note 6 to the accompanying financial statements.) The closing prices of the Common Stock on the over-the-counter bulletin board on December 1 and 2, 2008 were $0.36 and $0.38 per share, respectively, resulting in a $168,000 aggregate intrinsic value on the issue dates. The $168,000 aggregate intrinsic value of the Series D Preferred Stock on the issue dates was deemed a dividend paid to the investors on the closing dates and as an increase in loss attributable to common shareholders in the financial statements for the period then ended.
 
January 2009 Series D Preferred Stock Offering. On January 28, 2009, we completed the sale of 700 additional shares of our Series D Preferred Stock to each of Frost Gamma and Hsu Gamma (1,400 total shares) for aggregate proceeds of $2.1 million. The January 28, 2009 closing price of the Common Stock on the over-the-counter bulletin board was $0.43 per share, resulting in a $650 intrinsic value per share of Series D Preferred Stock on the issue date. The $910,000 aggregate intrinsic value of the Series D Preferred Stock on the issue date was deemed a dividend paid to the investors on the closing date and as an increase in loss attributable to common shareholders in the financial statements for the period then ended.
 
August 2008 Revolver Loan . On August 28, 2008 we entered into a Note and Security Agreement (the “Agreement”) with four persons (the “Lenders”), pursuant to which the Lenders granted us a revolving credit line (the “Revolver”) in the aggregate amount of $300,000, secured by all of the Company’s personal property. The Lenders included Dr. Sackner, Frost Gamma and Hsu Gamma. We were permitted to borrow and reborrow from time to time under the Revolver until October 31, 2008 (the “Maturity Date”). The interest rate payable by us on amounts outstanding under the Revolver was 11% per annum, and increased to 16% after the Maturity Date or after an Event of Default. We were required to repay all amounts owing under the Revolver by the Maturity Date, and amounts outstanding were prepayable at any time. On August 29, 2008 we drew down $300,000 under the Revolver. The Revolver was amended, effective October 31, 2008, to extend the Maturity Date until November 30, 2008. All principal and interest outstanding under the Revolver as of November 30, 2008 was repaid with proceeds from the sale of Series D Preferred Stock on December 1, 2008 as described above. (See Notes 6 and 7 to the accompanying consolidated financial statements.)
 
As of September 30, 2009, we had cash and cash equivalents of approximately $672,000. If we are unable to generate significant revenues from sales of Exer-Rest ® platforms, we will have insufficient funds to continue operations beyond the end of the 2010 fiscal year without raising additional capital. There can be no assurance that we will be able to raise such additional capital on terms acceptable to us or at all.
 
24
 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
 
As a smaller reporting company as defined in Rule 12b-2 of the Exchange Act, we are not required to include the information otherwise required by this item.
 
Item 8.
Financial Statements and Supplementary Data.
 
Reports of Independent Registered Public Accounting Firms
27
   
Consolidated Balance Sheets at July 31, 2009 and 2008
29
   
Consolidated Comprehensive Statements of Operations for the years ended July 31, 2009 and 2008
30
   
Consolidated Statements of Changes in Shareholders’ Equity for years ended July 31, 2009 and 2008
31
   
Consolidated Statements of Cash Flows for the years ended July 31, 2009 and 2008
32
   
Notes to Consolidated Financial Statements
33
 
25
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors and Stockholders
Non-Invasive Monitoring Systems, Inc.
 
We have audited the accompanying consolidated balance sheet of Non-Invasive Monitoring Systems, Inc. and subsidiaries as of July 31, 2009 and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the year ended July 31, 2009. 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 audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 as of July 31, 2009 and the results of their operations and their cash flows for the year ended July 31, 2009 in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the Note 1 to the consolidated financial statements, the Company has experienced recurring net losses, cash outflows from operating activities and has an accumulated deficit and substantial purchase commitments that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Morrison, Brown Argiz & Farra, LLP
Morrison, Brown Argiz & Farra, LLP
Miami, Florida
October 28, 2009
 
26
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors and Stockholders
Non-Invasive Monitoring Systems, Inc.
 
We have audited the accompanying balance sheet of Non-Invasive Monitoring Systems, Inc. as of July 31, 2008 and the related statements of operations, changes in shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Non-Invasive Monitoring Systems, Inc. as of July 31, 2008 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the Note 1 to the financial statements, the Company has experienced recurring net losses, cash outflows from operating activities and has an accumulated deficit and substantial purchase commitments that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ Eisner, LLP
Eisner, LLP
New York, New York
October 28, 2008
 
27
 
NON-INVASIVE MONITORING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

   
July 31,  2009
   
July 31,  2008
 
ASSETS
           
Current assets
           
Cash
  $ 886     $ 86  
Royalties and other receivables, net
    60       43  
Inventories, net
    911       173  
Advances to contract manufacturer
    144       659  
Prepaid expenses, deposits, and other current assets
    75       28  
                 
Total current assets
    2,076       989  
                 
Tooling and equipment, net
    460       470  
                 
Total assets
  $ 2,536     $ 1, 459  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
Current liabilities
               
Notes payable – other
  $ 34     $ 19  
Accounts payable and accrued expenses
    242       474  
Customer deposits
    9       –  
Deferred warranty income
    –       2  
                 
Total current liabilities
    285       495  
                 
Total liabilities
  $ 285     $ 495  
                 
Commitments and Contingencies (Note 10)
    –       –  
                 
Shareholders' equity
               
Series B Preferred Stock, par value $1.00 per share; 100 shares authorized, issued and outstanding; liquidation preference $10
    –       –  
Series C Convertible Preferred Stock, par value $1.00 per share; 62,048 shares authorized, issued and outstanding; liquidation preference $62
    62       62  
Series D Convertible Preferred Stock, par value $1.00 per share; 5,500 shares authorized; 2,891 and 1,000 shares issued and outstanding, respectively; liquidation preference $4,337
    3       1  
Common Stock, par value $0.01 per share; 100,000,000 shares authorized; 68,385,637 and 68,039,065 shares issued and outstanding, respectively
    684       680  
Additional paid in capital
    21,327       18,256  
Accumulated deficit
    (19,803 )     (18,035 )
Accumulated other comprehensive loss
    (22 )     –  
Total shareholders' equity
    2,251       964  
Total liabilities and shareholders' equity
  $ 2,536     $ 1,459  

The accompanying notes are an integral part of these consolidated financial statements.
 
28
 
NON-INVASIVE MONITORING SYSTEMS, INC.
CONSOLIDATED COMPREHENSIVE STATEMENTS OF OPERATIONS
Years ended July 31, 2009 and 2008
(In thousands, except share and per share data)

   
2009
   
2008
 
Revenues
           
Product sales, net
  $ 325     $ 41  
Royalties
    219       256  
Research, consulting and warranty
    2       5  
                 
Total revenues
    546       302  
                 
Operating costs and expenses
               
                 
Cost of sales
    250       19  
Selling, general and administrative
    1,949       1,953  
Research and development
    176       178  
                 
Total operating costs and expenses
    2,375       2,150  
                 
Operating loss
    (1,829 )     (1,848 )
                 
Other income
               
Interest income (expense), net
    (7 )     12  
Other income (expense)
    68       –  
Total other income
    61       12  
                 
Net loss
  $ (1,768 )   $ (1,836 )
                 
Other comprehensive loss
               
Foreign currency translation adjustment
    (22 )     –  
                 
Comprehensive net loss
  $ (1,790 )   $ (1,836 )
                 
Net loss attributable to common shareholders and loss per common share:
               
Net loss
    (1,768 )     (1,836 )
Deemed dividend on Series D Preferred Stock
    1,078       1,150  
                 
Net loss attributable to common shareholders
  $ (2,846 )   $ (2,986 )
                 
Weighted average number of common shares outstanding - basic and diluted
    68,050,943       67,673,063  
                 
Basic and diluted loss per common share
  $ (0.04 )   $ (0.04 )

The accompanying notes are an integral part of these consolidated financial statements.
 
29
 
NON-INVASIVE MONITORING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years ended July 31, 2009 and 2008
(Dollars in Thousands)

   
Preferred Stock
         
Additional
   
Accum-
   
Accumu-
lated Other
Compre-
       
   
Series B
   
Series C
   
Series D
   
Common Stock
   
Paid in
   
ulated
   
hensive
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Loss
   
Total
 
                                                                         
Balance at July 31, 2007
    100     $ –       62,048     $ 62       –     $ –       67,293,734     $ 673     $ 16,374     $ (16,199 )   $ –     $ 910  
                                                                                                 
Issuance of  series D preferred stock
    –       –       –       –       1,000       1       –       –       1,489       –       –     $ 1,490  
Fair value of beneficial conversion feature of Series D Preferred Stock
    –       –       –       –       –       –       –       –       1,150       –       –     $ 1,150  
Deemed dividend to Series D Preferred Shareholders, charged to additional paid-in-capital in the absence of retained earnings
    –       –       –       –       –       –       –       –       (1,150 )     –       –     $ (1,150 )
Common stock issued for cash on exercise of options
    –       –       –       –       –       –       195,331       2       84       –       –     $ 86  
Cashless exercise of options
    –       –       –       –       –       –       550,000       5       (5 )     –       –     $ –  
Stock based compensation
    –       –       –       –       –       –       –       –       314       –       –     $ 314  
Net loss
    –       –       –       –       –       –       –       –       –       (1,836 )     –     $ (1,836 )
Balance at July 31, 2008
    100     $ –       62,048     $ 62       1,000     $ 1       68,039,065     $ 680     $ 18,256     $ (18,035 )   $ –     $ 964  
                                                                                                 
Issuance of  series D preferred stock
    –       –       –       –       1,891       2       –       –       2,835       –       –     $ 2,837  
Fair value of beneficial conversion feature of Series D Preferred Stock
    –       –       –       –       –       –       –       –       1,078       –       –     $ 1,078  
Deemed dividend to Series D Preferred Shareholders, charged to additional paid-in-capital in the absence of retained earnings
    –       –       –       –       –       –       –       –       (1,078 )     –       –     $ (1,078 )
Common stock issued for cash on exercise of options and warrants
    –       –       –       –       –       –       338,333       4       47       –       –     $ 51  
Cashless exercise of 13,333 options
    –       –       –       –       –       –       8,239       –       –       –       –     $ –  
Stock based compensation
    –       –       –       –       –       –       –       –       189       –       –     $ 189  
Foreign currency translation adjustment
    –       –       –       –       –       –       –       –       –       –       (22 )   $ (22 )
Net loss
    –       –       –       –       –       –       –       –       –       (1,768 )     –     $ (1,768 )
Balance at July 31, 2009
    100     $ –       62,048     $ 62       2,891     $ 3       68,385,637     $ 684     $ 21,327     $ (19,803 )   $ (22 )   $ 2,251  

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

 
30
 

NON-INVASIVE MONITORING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years ended July 31, 2009 and 2008
(Dollars in Thousands)

   
2009
   
2008
 
Operating Activities
           
Net loss
  $ (1,768 )   $ (1,836 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Deferred warranty income
    (2 )     (4 )
Depreciation and amortization
    114       6  
Stock based compensation expense
    189       314  
Loss on disposal of assets
    17       –  
Allowance for doubtful accounts
    10       –  
Foreign currency transaction gain
    (85 )     –  
Changes in operating assets and liabilities
               
Accounts and royalties receivable, net
    (24 )     5  
Inventories, net
    (711 )     (173 )
Advances to contract manufacturer
    515       (659 )
Prepaid expenses, deposits and other current assets
    (47 )     1  
Accounts payable and accrued expenses
    (85 )     114  
Customer deposits
    9       –  
Net cash used in operating activities
    (1,868 )     (2,232 )
Investing Activities
               
Fixed asset purchases
    (232 )     (314 )
Certificates of deposit redeemed
    –       400  
Net cash provided by (used in) investing activities
    (232 )     86  
                 
Financing Activities
               
Net proceeds from issuance of common stock and exercise of options and warrants
    51       86  
Net proceeds from issuance of preferred stock
    2,837       1,490  
Net proceeds from issuance of notes payable
    363       –  
Repayments of notes payable
    (348 )     (500 )
Net cash provided by financing activities
    2,903       1,076  
Effect of exchange rate changes on cash
    (3 )     –  
Net increase (decrease) in cash
    800       (1,070 )
Cash, beginning of year
    86       1,156  
Cash, end of year
  $ 886     $ 86  
                 
Supplemental disclosure
               
Cash paid for interest
  $ 8     $ 23  
                 
Supplemental schedule of non-cash financing activities
               
(Satisfaction) incurrence of liability for tooling development in progress
  $ (142 )   $ 142  
Transfer of demonstration units from inventory to fixed assets
  $ ( 31 )   $ –  

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

 
31
 
 
NON-INVASIVE MONITORING SYSTEMS, INC.
 
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”), began business as a medical diagnostic monitoring company to develop computer-aided continuous monitoring devices to detect abnormal respiratory and cardiac events using sensors on the body’s surface.  It has ceased to operate in this market and has licensed the rights to its technology to the SensorMedics division of ViaSys Healthcare Inc. (which is now a unit of Cardinal Health, Inc. (“SensorMedics”)), and to VivoMetrics, Inc. (“VivoMetrics”).  The Company is now focused on developing and marketing its Exer-Rest ® line of acceleration therapeutic platforms based upon unique, patented whole body periodic acceleration (“WBPA”) technology.  The Exer-Rest ® line of acceleration therapeutic platforms currently includes the Exer-Rest ® AT, SL and TL models.
 
NIMS received US Food and Drug Administration (“FDA”) clearance in January 2009 to market the full Exer-Rest ® line of products as Class I (Exempt) Medical Devices as described in the Company’s 510(k) premarket notification submission.  The submission included 23 investigational and clinical studies on the vasodilatation properties of WBPA, as well as a controlled, four week clinical trial in a group of patients with chronic aches and pains carried out at the Center of Clinical Epidemiology and Biostatistics at the University of Pennsylvania Medical School.  The submission supported Exer-Rest ® safety and efficacy for the cleared intended uses as an aid to temporarily increase local circulation, to provide temporary relief of minor aches and pains, and local muscle relaxation.  The clearance was based upon the FDA’s determination that the Exer-Rest ® line of devices was exempt from the premarket notification requirements of the Federal, Food Drug and Cosmetic Act.  In June 2009, the FDA authorized the expansion of intended use claims for the Exer-Rest ® to include a claim of reducing morning stiffness.  These authorizations to market the Exer-Rest ® in the United States complement NIMS’ existing international clearance to market the Exer-Rest ® as a class IIa medical device (CE120) in Canada, the United Kingdom, the European Economic Area, India, the Middle East and certain other markets that recognize FDA and/or CE certifications with the intended use described above plus the claim of improving joint mobility.
 
Business.   The Company receives revenue from royalties on sales of diagnostic monitoring hardware and software by    SensorMedics and VivoMetrics.  Additionally, the Company receives revenues from sales of parts and service and from sales of acceleration therapeutics platforms used for research purposes.  In fiscal year 2009, NIMS began commercial sales of its third generation Exer-Rest ® therapeutic platforms.
 
During the calendar years 2005 to 2007, the Company designed, developed and manufactured the first Exer-Rest ® platform (now the Exer-Rest ® AT), a second generation acceleration therapeutics platform, and updated its operations to promote the Exer-Rest ® AT overseas as an aid to improve circulation and joint mobility, and to relieve minor aches and pains.  
 
The Company has developed a third generation of Exer-Rest ® acceleration therapeutic platforms (designated the Exer-Rest ® SL and the Exer-Rest ® TL) that are being manufactured by Sing Lin Technologies Co. Ltd. (“Sing Lin”) based in Taichung, Taiwan (see Note 10).
 
NIMS, an ISO 13485 certified company, began marketing operations in the United States in 2009 upon receiving the FDA clearance described above.  The Company is also permitted to sell Exer-Rest ® in Canada, the United Kingdom, the European Economic Area, India, the Middle East and certain other markets that recognize FDA and/or CE certifications, and began international marketing operations during 2008.
 
Sing Lin also has distribution rights to the Company’s acceleration therapeutics platforms in certain Far East markets.  The Company has also engaged Sing Lin to build the Somno-Ease ™ platform, a variation of the Exer-Rest ® that is designed to aid patients with sleep disorders as well as provide feedback for slow rhythmic breathing exercises for the relief of stress associated with daily living.  The Company is also developing a further product line extension called Exer-Rest ® Plus, a device that combines the features of the Exer-Rest ® and Somno-Ease ™ for future marketing in the United States and other markets.
 
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 consolidated financial statements, the Company had net losses in the amount of $1.8 million for each of the years ended July 31, 2009 and 2008, and has experienced cash outflows from operating activities.  The Company also has an accumulated deficit of $19.8 million as of July 31, 2009, and has substantial purchase commitments at July 31, 2009 (see note 10).  These matters raise substantial doubt about the Company’s ability to continue as a going concern.

 
32
 
 
Although the Company has commenced sales of the Exer-Rest ® in the United States and has raised approximately $2.8 million from the sales of its Series D Preferred Stock in December 2008 and January 2009 (see Note 7), the Company will likely need to generate additional funds during the next 12 months.  Absent any significant revenues from product sales, additional debt or equity financing will be required for the Company to continue its business activities, which are currently focused on the production, marketing and commercial sale of the Exer-Rest ® .  It is management’s intention to obtain any additional capital needed to continue its business activities through new debt or equity financing, but there can be no assurance that it will be successful in this regard.  The accompanying consolidated financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.
 
2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Consolidation.   The financial statements include the accounts of the Company for the year ended July 31, 2008 and for the year ended July 31, 2009 also include in consolidation its wholly-owned subsidiaries, Non-Invasive Monitoring Systems of Florida, Inc., which has no current operations, and NIMS of Canada, Inc., a Canadian corporation.  All inter-company accounts and transactions have been eliminated in consolidation.
 
Use of Estimates.   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
 
Cash and Cash Equivalents.   The Company considers all highly liquid short-term investments purchased with an original maturity date of three months or less to be cash equivalents.  The Company includes overnight repurchase agreements securing its depository bank accounts (sweep accounts) in its cash balances.  At July 31, 2009, the Company had approximately $821,000 on deposit in such sweep accounts.
 
Allowances for Doubtful Accounts.   The Company provides an allowance for royalties and other receivables it believes it may not collect in full.  Receivables are written off when they are deemed to be uncollectible and all collection attempts have ceased.  The amount of bad debt recorded each period and the resulting adequacy of the allowance at the end of each period are determined using a combination of the Company’s historical loss experience, customer-by-customer analysis of the Company’s accounts receivable each period and subjective assessments of the Company’s future bad debt exposure.
 
Inventories.   Inventories are stated at lower of cost or market using the first-in, first-out method, and are evaluated at least annually for impairment.  Inventories at July 31, 2009 and 2008 primarily consist of finished Exer-Rest ® units and purchased sub-assemblies to be used by the Company’s US-based contract manufacturer in production of the Exer-Rest ® AT.  Provisions for potentially obsolete or slow-moving inventory are made based on management’s analysis of inventory levels, historical obsolescence and future sales forecasts.
 
Tooling and Equipment.   These assets are stated at cost and depreciated or amortized using the straight-line method over their estimated useful lives.
 
Long-lived Assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  In performing the review for recoverability, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition.  If the sum of the expected future cash flows is less than the carrying amount of the assets, an impairment loss is recognized as the difference between the fair value and the carrying amount of the asset.

 
33
 
 
Income Taxes.   The Company provides for income taxes in accordance with Statement of Financial Accounting Standards 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.  The deferred tax asset for loss carryforwards and other potential future tax benefits has been fully offset by a valuation allowance since it is uncertain whether any future benefit will be realized.  The Company files its tax returns as prescribed by the laws of the jurisdictions in which it operates.  Tax years ranging from 2005 to 2008 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.

Revenue Recognition.   Revenue from product sales is recognized when persuasive evidence of an arrangement exists, the goods are shipped and title has transferred, the price is fixed or determinable, and the collection of the sales proceeds is reasonably assured.  The Company recognizes royalties as they are earned, based on reports from licensees.  Research and consulting revenue and revenue from sales of extended warranties on therapeutic platforms are recognized over the term of the respective agreements.
 
Advertising Costs. The Company expenses all costs of advertising and promotions as incurred.  Advertising and promotional costs for the years ended July 31, 2009 and 2008 totaled $43,000 and $3,000, respectively, and are included in selling, general and administrative costs and expenses for all periods presented.
 
Research and Development Costs.   Research and development costs are expensed as incurred, and primarily consist of payments to third parties for research and development of the Exer-Rest ® device and regulatory testing costs to obtain FDA approval.
 
Warranties.   The Company’s warranties are two years on all Exer-Rest ® products sold and are accrued based on management’s estimates and the history of warranty costs incurred.  There were no material warranty costs incurred during the years ended July 31, 2009 and 2008, and management estimates that the Company’s accrued warranty expense at July 31, 2009 will be sufficient to offset claims made for units under warranty.
 
Stock-based compensation.   The Company follows SFAS No. 123R, “Share Based Payment,” which requires all share-based payments, including grants of stock options, to be recognized in the income statement as an operating expense, based on their grant date fair values.  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.  Stock-based compensation is included in selling, general and administrative costs and expenses for all periods presented.
 
Fair Value of Financial Instruments.   Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of July 31, 2009 and 2008.  The respective carrying value of certain on-balance-sheet financial instruments such as cash and cash equivalents, royalties and other receivables, accounts payable, accrued expenses and notes payable approximate fair values because they are short term in nature or they bear current market interest rates.
 
Foreign Currency Translation.  The functional currency for the Company’s foreign subsidiary is the local currency.  Assets and liabilities are translated at exchange rates in effect at the balance sheet date while income and expense amounts are translated at average exchange rates during the period.  The resulting foreign currency translation adjustments are disclosed as a separate component of shareholders’ equity and other comprehensive loss.  There were $22,000 of foreign currency translation adjustments for the year ended July 31, 2009.
 
Comprehensive Income (Loss).   Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translations.

3.      INVENTORIES
 
The Company’s inventory consists of the following (in thousands):

   
July 31, 2009
   
July 31, 2008
 
Work-in-progress, including sub-assemblies and spare parts
  $ 11     $ 66  
Finished goods
    900       107  
 Total inventories
  $ 911     $ 173  
 
The Company recorded valuation adjustments to work-in-progress and finished goods inventories of $55,000 and $58,000, respectively during the year ended July 31, 2009.  This $113,000 total adjustment is included in cost of sales in the accompanying consolidated statements of operations.  No inventory valuation adjustments were recorded during the year ended July 31, 2008.

 
34
 

4.      STOCK BASED COMPENSATION
 
The Company follows SFAS No. 123R, “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.  The fair value of the Company’s stock option awards is expensed over the vesting life of the underlying stock options using the graded vesting method, with each tranche of vesting options valued separately.  The Company recorded stock based compensation of $189,000 and $314,000, respectively, for the years ended July 31, 2009 and 2008.  All stock based compensation is included in the Company’s selling, general and administrative costs and expenses.
 
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, if any, must be granted at an exercise price not less than the fair market value of the Company’s Common Stock as of the grant date or an exercise price of not less than 110% of the fair value for a 10% shareholder.  Options expire up to ten years from the date of the grant and are exercisable according to the terms of the individual options agreement.
 
The Company granted 340,000 and 908,500 stock options, respectively, during the years ended July 31, 2009 and 2008.  The weighted average grant date fair value of the options granted during 2009 was $0.249 per share and the weighted average grant date fair value of the options granted during 2008 was $0.517 per share.  The fair values of options granted are estimated on the date of their grant using the Black-Scholes option pricing model based on the assumptions included in the table below.  The expected term of stock option awards granted is generally based upon the “simplified” method for “plain vanilla” options discussed in SEC Staff Accounting Bulletin (“SAB”) No. 107, as amended by SAB No. 110.  The expected volatility is derived from historical volatility of the Company's stock on the U.S. over-the-counter bulletin board for a period that matches the expected term of the option.  The risk-free interest rate is the yield from a Treasury bond or note corresponding to the expected term of the option.  The Company has not paid cash dividends and does not expect to pay cash dividends in the future.  Forfeiture rates are based on management’s estimates.  The fair value of each option granted during the years ended July 31, 2009 and 2008 was estimated using the following assumptions:

 
Year ended July 31, 2009
 
Year ended July 31, 2008
Expected volatility
91.63% - 110.18%
 
77.00% –  116.96%
Expected dividend yield
0.00%
 
0.00%
Risk-free interest rate
1.50% - 2.83%
 
2.45% – 4.23%
Expected life
4.0 - 5.5 years
 
3.0 – 5.5  years
Forfeiture rate
0.00% - 2.50%
 
0.00% – 2.50%
 
A summary of the Company’s stock option activity for the two years ended July 31, 2009 is as follows:

   
Shares
   
Weighted
Average
Exercise
Price
   
Weighted average
remaining
contractual term
(years)
   
Aggregate
Intrinsic
Value
 
Options outstanding, July 31, 2007
    2,886,161     $ 0.376              
Options granted *
    908,500     $ 0.774              
Options exercised
    (1,296,557 )   $ 0.321              
Options forfeited
    (423,774 )   $ 0.334              
Options outstanding, July 31, 2008
    2,074,330     $ 0.593              
Options granted
    340,000     $ 0.338              
Options exercised
    (26,666 )   $ 0.150              
Options forfeited
    (50,833 )   $ 0.334              
Options outstanding, July 31, 2009
    2,336,831     $ 0.567       3.40     $ 66,166  
Options expected to vest, July 31, 2009
    2,316,290     $ 0.568       3.37     $ 65,380  
Options exercisable, July 31, 2009
    1,839,831     $ 0.589       2.83     $ 50,266  

* 547,500 options were issued outside of the Company's 2000 Stock Option Plan.

 
35
 
 
Of the 2,336,831 options outstanding at July 31, 2009, 1,251,000 were issued under the 2000 Plan and 1,085,831 were issued outside of shareholder approved plans.  All of the options exercised, forfeited and expired during the years ended July 31, 2009 and 2008 were granted outside of shareholder approved plans.
 
During the year ended July 31, 2009, the Company received $2,000 from an existing option holder for the exercise of options to purchase 13,333 shares of Common Stock, and 8,239 shares were issued to another option holder upon the cashless exercise of 13,333 options.  During the year ended July 31, 2008, the Company received $86,000 from existing optionholders for the exercise of options to purchase 195,331 shares of Common Stock.  On January 24, 2008, Gary Macleod, the Company’s former Chief Executive Officer and Director, provided the Company with a notice of cashless exercise with respect to options to purchase 1,500,000 shares of common stock issued to him on November 11, 2005, which vested in full upon his termination as Chief Executive Officer in December 2007.  On February 29, 2008, the Company entered into a Separation and Release Agreement with Mr. Macleod (the “Separation Agreement”).  Pursuant to the Separation Agreement, Mr. Macleod was entitled to exercise options for 1,101,226 shares and received 550,000 shares for such cashless exercise, and forfeited options to purchase 398,774 shares, which if not forfeited would have resulted in an issuance of  an additional 199,165 shares.  Mr. Macleod also forfeited options to purchase 25,000 shares of the Company’s common stock awarded in October 2007.  The intrinsic value of the 26,666 options exercised during the year ended July 31, 2009 was $8,000 on the dates exercised, and the intrinsic value of the 1,296,557 options exercised during the year ended July 31, 2008 was $406,000 on the dates exercised.  There was no tax effect on the exercise of options in the consolidated statements of cash flows because the Company has a full valuation allowance against its deferred income tax assets.
 
A summary of the status of the Company’s non-vested options and changes during the year ended July 31, 2009 is presented below.

   
Stock Options
   
Weighted Average
Grant Date Fair Value
 
Unvested at July 31, 2008
    476,000     $ 0.500  
Options granted
    340,000     $ 0.249  
Options vested
    (319,000 )   $ 0.473  
Unvested at July 31, 2009
    497,000     $ 0.345  
 
As of July 31, 2009, there was approximately $91,000 of unrecognized costs related to outstanding stock options.  These costs are expected to be recognized over a weighted average period of 1.42 years.

The following table sets forth the range of exercise prices, number of shares, weighted average exercise price, and remaining contractual lives by groups of similar price as of July 31, 2009:
 
   
Options Outstanding
         
Options Exercisable
 
         
Weighted
   
Weighted
             
   
Number of
   
Average
   
Average
   
Number of
   
Weighted
 
Range of
 
Underlying
   
Exercise
   
Contractual
   
Underlying
   
Average
 
Exercise Prices
 
Shares
   
Price
   
Life (years)
   
Shares
   
Price
 
15¢ - 30¢
    253,331     $ 0.182       3.35       253,331     $ 0.182  
31¢ - 60¢
    1,126,000     $ 0.453       3.59       759,000     $ 0.491  
61¢ - 90¢
    957,500     $ 0.802       3.19       827,500     $ 0.803  
     Total
    2,336,831     $ 0.567       3.40       1,839,831     $ 0.589  

 
36
 

5.      ROYALTIES
 
The Company is a party to two licensing agreements and receives royalty income from the sale of its diagnostic monitoring hardware and software from SensorMedics and VivoMetrics.
 
Royalty income from these licenses amounted to $219,000 and $256,000 for the years ended July 31, 2009 and 2008, respectively.  Royalties from SensorMedics amounted to $180,000 and $184,000 for the years ended July 31, 2009 and 2008, respectively.  Royalties from VivoMetrics amounted to $39,000 and $72,000 for the years ended July 31, 2009 and 2008, respectively.  VivoMetrics ceased operations in July 2009 and filed for Chapter 11 bankruptcy protection in October 2009.  VivoMetrics has not made a royalty payment since July 2009, and aggregate royalties receivable at July 31, 2009 of $14,000 include a $10,000 allowance for doubtful accounts to reserve all outstanding receivables from VivoMetrics.

6.      NOTES PAYABLE
 
The Company refinanced its then-existing bank debt in February 2007 by securing a $500,000 line of credit, which was set to expire in March, 2008.  The debt was initially collateralized by certificates of deposit in the amount of $400,000 (which were classified as restricted cash), and bore interest at one percent per annum below prime rate.  The Company retired $320,000 of the outstanding debt in March 2008 by redeeming certificates of deposit totaling $320,000.  The remaining $180,000 note payable was extended to May 2008, bore interest at a rate of 6.50%, and was collateralized by the remaining $80,000 certificate of deposit in restricted cash.  The Company retired this $180,000 balance in April 2008 with $100,000 cash and the proceeds from the redemption of the final $80,000 certificate of deposit in restricted cash.
 
On August 28, 2008 the Company entered into a Note and Security Agreement (the “Agreement”) with four persons (the “Lenders”), pursuant to which the Lenders granted the Company a revolving credit line (the “Revolver”) in the aggregate amount of $300,000, secured by all of the Company’s personal property.  The Lenders included a holder of more than 10% of the outstanding Common Stock, a director and executive officer of the Company who also holds more than 10% of the outstanding Common Stock and an entity controlled by the Company’s Chairman.  The Company was permitted to borrow and reborrow from time to time under the Revolver until October 31, 2008 (the “Maturity Date”).  The interest rate payable on amounts outstanding under the Revolver was 11% per annum, and increased to 16% after the Maturity Date or after an Event of Default.  All amounts owing under the Revolver were required to be repaid by the Maturity Date, and amounts outstanding were prepayable at any time.  On August 29, 2008 the Company drew down $300,000 under the Revolver.  The Revolver was amended, effective October 31, 2008, to extend the Maturity Date until November 30, 2008.  All principal and interest outstanding under the Revolver as of November 30, 2008 was repaid with proceeds from the sale of Series D Preferred Stock on December 1, 2008 as described in Note 7 below.
 
The $34,000 and $19,000 notes payable balances at July 31, 2009 and 2008, respectively, relate to the third-party financing of certain of the Company’s insurance policies.  The notes outstanding as of July 31, 2009 are self-amortizing, 7.69% installment loans which mature at various dates from December 2009 to January 2010.

7.      SHAREHOLDERS' EQUITY
 
During the year ended July 31, 2009, the Company received $2,000 from an existing option holder for the exercise of options to purchase 13,333 shares of Common Stock, and 8,239 shares were issued to another option holder upon the cashless exercise of 13,333 options.  The Company also received $49,000 from an existing warrant holder for the exercise of warrants to purchase 325,000 shares of Common Stock during the year ended July 31, 2009.  During the year ended July 31, 2008, the Company received $86,000 from existing optionholders for the exercise of options to purchase 195,331 shares of Common Stock, and issued 550,000 shares of Common Stock to Mr. Macleod pursuant to the cashless exercise described in Note 4, above.  No warrants were exercised in the year ended July 31, 2008.

 
37
 
 
Series D Convertible Preferred Stock.
 
In April 2008, the Company authorized a new series of its Preferred Stock, par value $1.00 per share (the “Preferred Stock”), designated as Series D Convertible Preferred Stock (the “Series D Preferred Stock”).  The Series D Preferred Stock has no preference with respect to dividends to the Company’s common stock, and is entitled to receive dividends when, as and if declared by the Company’s Board of Directors, together with the holders of the common stock, ratably on an “as-converted” basis.  Each holder of a share of the Series D Preferred Stock has the right, at any time, to convert such share of Series D Preferred Stock into shares of Common Stock at an initial rate of 5,000 shares of Common Stock per share of Series D Preferred Stock.  The holders of the Series D Preferred Stock are entitled to vote, on an “as-converted basis,” together with the holders of the Common Stock and holders of any other series of Preferred Stock or other class of the Company’s capital stock which are granted such voting rights as a single class on all matters, except as otherwise provided by law.  In the event of any liquidation, dissolution or winding up of the affairs of the Company, either voluntarily or involuntarily, the holders of the Series D Preferred Stock will be entitled to a liquidation preference of $1,500 per share of Series D Preferred Stock prior to any distribution to the holders of the Common Stock.  The Series D Preferred Stock ranks (1) pari passu in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution or winding up of the Company to all shares of Series C Preferred Stock, par value $1.00 per share, of the Company and (2) senior in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution or winding up of the Company to all shares of Common Stock.  The Series D Preferred Stock is not redeemable.
 
April 2008 Offering.   On April 7, 2008, the Company completed the sale of an aggregate of 1,000 shares of Series D Preferred Stock to certain private investors (collectively, the “Investors”) pursuant to a Stock Purchase Agreement entered into on April 3, 2008 (the “Stock Purchase Agreement”).  The Investors include an executive officer of the Company, a holder of more than 10% of the outstanding Common Stock and a director and executive officer of the Company who also holds more than 10% of the outstanding Common Stock (collectively, the “Related Party Investors”).  Dr. Jane Hsiao, who became a director and Chairman in October 2008, is trustee of one of the Investors which is not one of the Related Party Investors.  The aggregate purchase price for the Series D Preferred Stock was $1,500,000, of which $795,000 was paid by the Related Party Investors.
 
December 2008 Offering.   In December 2008, the Company sold an aggregate of 491 additional shares of its Series D Preferred Stock to certain private investors at a price of $1,500 per share pursuant to Stock Subscription Agreements entered between December 1, 2008 and December 2, 2008 (the sale of 286 shares closed on December 1, 2008 and the sale of 205 shares closed on December 2, 2008).  The investors in the December 2008 Offering include a director of the Company, an entity controlled by the Company’s Chairman and certain of the Related Party Investors that participated in the April 2008 Offering (collectively, the “December Related Party Investors”).  The aggregate purchase price for the Series D Preferred Stock was $736,500, of which $382,500 was paid by the December Related Party Investors.  Of the $382,500 paid by the December Related Party Investors, $282,200 was paid from the proceeds of their respective interests in the Revolver described in Note 6 above.
 
January 2009 Offering.   On January 28, 2009, pursuant to Stock Subscription Agreements accepted by the Company on that date, the Company completed the sale of an aggregate of 1,400 additional shares of Series D Preferred Stock at a price of $1,500 per share to certain of the Related Party Investors that participated in the December 2008 offering described above.  The aggregate price paid for the shares issued in the January 2009 offering was $2.1 million.
 
The Series D Preferred Stock was issued in each of the above transactions at $1,500 per share, which is equivalent to $0.30 per share of Common Stock on an “as-converted” basis.  The closing price of the Common Stock on the over-the-counter bulletin board was $0.53, $0.36, $0.38 and $0.43, respectively, on each of April 7, 2008, December 1, 2008, December 2, 2008 and January 28, 2009, resulting in beneficial conversion features of $1,150, $300, $400 and $650, respectively, per share of Series D Preferred Stock on the respective issue dates.  In accordance with the guidance in FASB Emerging Issues Task Force Issue Nos. 98-5, “ Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratio,” and 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments,” the $2.2 million aggregate beneficial conversion feature of the Series D Preferred Stock on the issue dates was deemed a discount on the issuance of the shares and was recorded as an increase to additional paid in capital in the consolidated balance sheets.  Because the Series D Preferred Stock was immediately convertible to Common Stock, the portion of the $2.2 million aggregate intrinsic value applicable to a closing date is deemed a dividend paid to the investors on such closing date.  Such deemed dividends have been recorded as increases in losses attributable to common shareholders and, in the absence of retained earnings, as reductions of additional paid in capital.
 
The Company has three classes of Preferred Stock.  Holders of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are entitled to vote with the holders of common stock as a single class on all matters.
 
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.

 
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Series C Preferred Stock is redeemable by the Company at a price of $0.10 per share upon 30 days prior written notice.  This series has a liquidation value of $1.00 per share, plus declared and unpaid dividends, if any.  Dividends are non-cumulative, and are at the rate of $0.10 per share, if declared.  Each share of Series C Preferred Stock is convertible into 25 shares of the Company’s common stock upon payment of a conversion premium of $4.20 per share of common stock.  The conversion rate and the conversion premium are subject to adjustments in the event of stock splits, stock dividends, reverse stock splits and other events, as defined.
 
Series D Preferred Stock is not redeemable by the Company.  This series has a liquidation value of $1,500 per share, plus declared and unpaid dividends, if any.  Each share of Series D Preferred Stock is convertible into 5,000 shares of the Company’s common stock.  The conversion rate is subject to adjustments in the event of stock splits, stock dividends, reverse stock splits and other events, as defined.
 
No preferred stock dividends have been declared as of July 31, 2009.
 
The Company has no common stock warrants outstanding as of July 31, 2009.  At July 31, 2008, the Company had warrants to purchase 325,000 shares of common stock outstanding which had an expiration date of August 17, 2009 and were exercisable at $0.15 per share.  All such warrants were exercised on July 30, 2009.

8.      BASIC AND DILUTED LOSS PER SHARE
 
Basic net loss per common share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted net loss per common share is computed giving effect to all dilutive potential common shares that were outstanding during the period.  Diluted potential common shares consist of incremental shares issuable upon exercise of stock options and warrants and conversion of preferred stock.  In computing diluted net loss per share for the years ended July 31, 2009 and 2008, no dilution adjustment has been made to the weighted average outstanding common shares because the assumed exercise of outstanding options and warrants and the conversion of preferred stock would be anti-dilutive.
 
Potential common shares not included in calculating diluted net loss per share are as follows:

   
July 31, 2009
   
July 31, 2008
 
Stock options
    2,336,831       2,074,330  
Stock warrants
    –       325,000  
Series C Preferred Stock
    1,551,200       1,551,200  
Series D Preferred Stock
    14,455,000       5,000,000  
     Total
    18,343,031       8,950,530  

9.      RELATED PARTY TRANSACTIONS
 
Dr. Marvin A. Sackner, the Company’s CEO and director, formerly leased office space to the Company on a month to month basis in North Bay Village, Florida under an arrangement with the Company which was discontinued effective October 31, 2007.  The Company reimbursed Dr. Sackner for the cost of the space monthly.  The amount reimbursed to Dr. Sackner by the Company for the year ended July 31, 2008 was $5,000.
 
The Company signed a five year lease for 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, are approximately $4,000 per month for the first year and escalate 4.5% annually over the life of the lease.  In the years ended July 31, 2009 and 2008, the Company recorded rent expense related to the Miami lease of $49,000 and $28,000, respectively.
 
The Company signed a three year lease for warehouse space in Hialeah, Florida with a company jointly controlled by the Dr. Frost and Dr. Jane Hsiao, the Company’s Chairman.  The rental payments under the Hialeah warehouse lease, which commenced February 1, 2009, are approximately $5,000 per month for the first year and escalate 3.5% annually over the life of the lease.  The Company recorded $29,000 of rent expense related to the Hialeah lease in the year ended July 31, 2009.

 
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Adam Jackson, the Company’s Chief Financial Officer, also serves as the Chief Financial Officer and supervises the accounting staffs of SafeStitch Medical, Inc. (“SafeStitch”), a publicly-traded, developmental-stage medical device manufacturer, and Aero Pharmaceuticals, Inc. (“Aero”), a privately held pharmaceutical distributor.  The Company’s Chairman, Dr. Jane Hsiao, also serves as Chairman of SafeStitch and President of Aero.  Director Steven Rubin also serves as a director of SafeStitch and as director and Secretary of Aero, and director Rao Uppaluri also serves as Treasurer of Aero.  The total salaries of the accounting staffs of NIMS, SafeStitch and Aero have been shared under a board-approved cost sharing arrangement since March 2008.  The Company reimbursed Aero and SafeStitch aggregate fees of $42,000 and $15,000 for the years ended July 31, 2009 and 2008, respectively, for the sharing of costs under this arrangement.  These amounts have been included in selling, general and administrative costs and expenses in the accompanying consolidated statements of operations.  Aggregate accounts payable to SafeStitch and Aero totaled approximately $3,000 at July 31, 2009.
 
Dr. Hsiao is a director of Great Eastern Bank of Florida, a bank where the Company maintains a bank account in the normal course of business.  As of July 31, 2009, the Company had approximately $846,000 on deposit with Great Eastern Bank of Florida, including approximately $821,000 collateralized by repurchase contracts for US Government securities.
 
On January 24, 2008, Mr. Macleod provided the Company with a notice of cashless exercise with respect to options to purchase 1,500,000 shares of common stock issued to him on November 11, 2005, which vested in full upon his termination as Chief Executive Officer in December 2007.  Pursuant to the Separation Agreement described in Note 4 above, Mr. Macleod received only 550,000 shares for such cashless exercise, instead of the 749,165 shares to which he would otherwise have been entitled.  He also forfeited options to purchase 25,000 shares of our common stock awarded in October, 2007.  Pursuant to the Separation Agreement and as provided for in his Employment Agreement dated November 11, 2005, Mr. Macleod was entitled to one year’s severance.  Such severance of $126,000 was paid in connection with his termination as Chief Executive Officer in December 2007.  Mr. Macleod also agreed to repurchase for approximately $12,000, furniture and equipment previously sold to the Company at that price.  The Separation Agreement also contained mutual releases and provided that Mr. Macleod would resign as a Director of the Company, which he did on February 29, 2008.

10.    COMMITMENTS
 
Leases .
 
The Company is obligated under various operating lease agreements for office, warehouse and retail space.  Generally, the lease agreements require the payment of base rent plus escalations for increases in building operating costs and real estate taxes.  Rental expense under these operating leases amounted to $106,000 and $82,000 for the years ended July 31, 2009 and 2008, respectively.   At July 31, 2009, the Company was obligated under non-cancellable operating leases to make future minimum lease payments (excluding sales taxes) as follows:

Year Ending July 31,
     
       
2010
  $ 123,000  
2011
    127,000  
2012
    95,000  
2013
    24,000  
    $ 369,000  
 
Product Development and Supply Agreement.
 
On September 4, 2007, the Company executed 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 ® , Somno-Ease™ and Exer-Rest ® Plus devices.  Sing Lin will also manufacture all of the Company’s acceleration therapeutic platforms.  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.  Either party may terminate the Agreement with ninety days prior written notice.  Upon termination, each party’s obligations under the Agreement will be limited to obligations related to confirmed orders placed prior to the termination date.

 
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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 will utilize 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.  These amounts have been recorded as tooling costs, and are included in tooling and equipment, net.
 
Under the Agreement, the Company also grants 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 has agreed not to sell the Products outside its geographic areas in the Far East.
 
The Company has committed to purchase approximately $2.6 million of Exer-Rest ® and Somno-Ease™ units within one year of the September 2008 acceptance of the final product.  Additionally, the Company has agreed to purchase $4.1 million and $8.8 million of Exer-Rest ® , Exer-Rest ® Plus and Somno-Ease™ products in the second and third years following such acceptance, respectively.  These purchase commitment amounts are based upon current product costs multiplied by volume commitments.  Through July 31, 2009, the Company had paid Sing Lin $1.6 million in connection with orders placed through that date.  Of this amount, $144,000 is included in advances to contract manufacturer in the accompanying consolidated financial statements.  As of July 31, 2009, aggregate future purchase commitments under the Agreement totaled approximately $13.9 million.  As of October 15, 2009, the Company had not placed orders sufficient to satisfy its commitment to purchase a minimum number of units in the first year after acceptance of the final product.  The Company’s discussions with Sing Lin are ongoing, and the Company expects its commitments under the Agreement to be modified to reflect current market conditions.  There can be no assurance that the Agreement will be modified on terms acceptable to the Company or at all, or that Sing Lin will not attempt to enforce its rights under the Agreement.

11.    LONG-LIVED ASSETS
 
The Company’s long-lived assets include furniture and equipment, tooling, websites and software, leasehold improvements, patents and trademarks and long-term investments.  Tooling and equipment, net of accumulated depreciation, consisted of the following at July 31, 2009 and 2008 (in thousands):

 
Estimated
Useful Life
 
July 31,
2009
   
July 31,
2008
 
Tooling and equipment
5 years
  $ 471     $ 442  
Furniture and fixtures, leasehold improvements, office equipment and computers
3 – 5 years
    94       51  
Website and software
3 years
    26       –  
        591       493  
Less accumulated depreciation
      (131 )     (23 )
Tooling and equipment, net
    $ 460     $ 470  
 
Depreciation expense was $114,000 and $6,000 during the years ended July 31, 2009 and 2008, respectively.  Depreciation on the tooling commenced in August 2008 based upon an estimated useful life of five years.  Ten Exer-Rest ® SL and TL demonstration units are included in furniture and fixtures at an aggregate cost of $31,000.  These units were placed in service in fiscal 2009, and are being depreciated based upon a five-year estimated useful life.  Five Exer-Rest ® AT demonstration units were previously included in furniture and fixtures at an aggregate cost of $23,000.  All five of these units were disposed of in the year ended July 31, 2009 and the Company recorded an aggregate $17,000 loss on the disposals, which is included in other expense in the accompanying consolidated statements of operations.
 
Patents and trademarks have been fully amortized as of October 31, 2007.  Amortization expense was $0 during each of the fiscal years ended July 31, 2009 and 2008.

 
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The Company’s long-term investments consisted of 940,000 shares (approximately a 2% interest) of LifeShirt.com, Inc. (now VivoMetrics, Inc.), a privately-held company.  These shares were obtained as consideration for the Company’s assignment of all of its rights, title and interest in certain patents and intellectual property as well as a non-exclusive, worldwide license under all of the Company’s patents and intellectual property for use in connection with certain products to VivoMetrics.  The shares are carried at zero value in the accompanying consolidated financial statements.  The Company was informed that, in July 2008, VivoMetrics entered into a series of debt and equity transactions with its largest creditor to effect a recapitalization which diluted the Company’s holdings to the point where NIMS’ investment became worthless.

12.    INCOME TAXES
 
The Company provides for income taxes in accordance with Statement of Financial Accounting Standards 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.  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.
 
Effective August 1, 2007, the Company 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 application of FIN 48 did not impact the Company’s financial position, results of operations or cash flows for the years ended July 31, 2009 and 2008.
 
The Company files its tax returns in the U.S. federal jurisdiction, Canada federal jurisdiction and with various U.S. states and the Ontario province in Canada.  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 returns in any jurisdiction.  Tax years ranging from 2005 to 2008 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 2004 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 and income taxes reported in the consolidated statements of operations are attributable to the following:
   
July 31, 2009
   
July 31, 2008
 
Income tax benefit at the federal statutory rate
    34.00 %     34.00 %
State and local income taxes, net of effect of federal taxes
    3.22       3.61  
Expiration of net operating losses
    (18.33 )     (33.85 )
Other, net
    (0.40 )     (0.14 )
Increase in valuation allowance
    (18.49 )     (3.62 )
     Provision for income tax
    0.00 %     0.00 %
 
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets consist of the following (in thousands):

   
July 31, 2009
   
July 31, 2008
 
Federal and State net operating loss
  $ 4,038     $ 3,975  
Fo reign net operating loss
 
  61       –  
Stock-based compensation and other
    359       153  
      4,458       4,128  
Less: Valuation allowance
    (4,458 )     (4,128 )
Net deferred tax asset
  $ –     $ –  
 
At July 31, 2009, the Company has available Federal and State net operating loss carry forwards of approximately $10.7 million and Foreign net operating loss carry forwards of approximately $0.2 million which expire in various years through 2029.  Total Federal and State net operating loss carry forwards include approximately $2.0 million generated from the exercise of non-statutory stock options.  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.

 
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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 $4.5 million valuation allowance at July 31, 2009 ($4.1 million at July 31, 2008) was necessary.  The increases in the valuation allowance for the years ended July 31, 2009 and 2008 were $330,000 and $219,000, respectively.  Of the total increase in the valuation allowance for the years ended July 31, 2009 and 2008, approximately $3,000 and $153,000, respectively, was attributed to the exercise of non-statutory stock options.
 
The Company paid no income taxes in 2009 or 2008.
 
The following table reconciles the Company’s losses before income taxes by jurisdiction (in thousands):

   
Year Ended
July 31, 2009
   
Year Ended
July 31, 2008
 
U.S.
  $ (1,578 )   $ (1,836 )
Foreign
    (190 )     –  
Total
  $ (1,768 )   $ (1,836 )

13.    EMPLOYEE BENEFIT PLANS
 
Effective July 2008, the Non-Invasive Monitoring Systems 401(k) Plan (the “401k Plan”) permits employees to contribute up to 100% of qualified annual compensation up to annual statutory limitations.  Employee contributions may be made on a pre-tax basis to a regular 401(k) account, or on an after-tax basis to a “Roth” 401(k) account.  The Company will contribute to the 401k Plan a “safe harbor” match of 100% of each participant’s contributions to the 401k Plan up to a maximum of 4% of the participant’s qualified annual earnings.  The Company recorded approximately $15,000 of compensation expense related to matching contributions to the 401k Plan for the year ended July 31, 2009.  No matching contributions were included in compensation expense for the year ended July 31, 2008.

14.    CONCENTRATIONS OF RISK
 
Financial instruments that potentially subject the Company to risk consist principally of cash, royalties and other receivables, and purchases and advances to contract manufacturer.
 
Cash.   The Company at times may have cash deposits in excess of the Federal Deposit Insurance Corporation (“FDIC”) limit.  The Company maintains its cash with banks and deposits above the FDIC limit are maintained in sweep accounts collateralized by overnight repurchase agreements.  The Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks on such accounts.
 
Royalties and Other Receivables.   The Company currently grants credit to a limited number of customers, substantially all of whom are corporations and medical providers located throughout the United States and Canada.  The Company typically does not require collateral from these customers.
 
Purchases and Advances to Contract Manufacturer.   Virtually 100% of the Company’s active inventory is acquired from Sing Lin pursuant to the Agreement.  Advances and accounts payable to Sing Lin at July 31, 2009 were approximately $144,000 and $18,000, respectively.  Should Sing Lin be unable or unwilling to deliver inventory orders to the Company, the loss of funds advanced and delayed product deliveries could have a material adverse effect on the Company’s consolidated financial position, results of operations and liquidity.  In the event of a delivery interruption, the Company would have the right to procure its products from other vendors, however Sing Lin currently maintains custody of the Company’s specialized tooling, which could adversely impact the Company’s ability to reallocate production to such other vendors.  The Company believes its relationship with Sing Lin is good and that it is highly unlikely that it will refuse to fill future orders.

 
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15.    RECENT ACCOUNTING PRONOUNCEMENTS
 
Effective August 1, 2008, the Company adopted SFAS 157, which defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements.  In February 2008, the Financial Accounting Standards Board (“FASB”) delayed the effective date of SFAS 157 for one year for all nonfinancial assets and nonfinancial liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis.  Management has determined that the adoption of SFAS 157 did not have a material impact on the Company’s financial position and results of operations.
 
In April 2009, the FASB issued FASB Staff Position FAS-157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”).  FSP FAS 157-4 provides guidelines for making fair value measurements more consistent with the principles presented in SFAS 157.  FSP FAS 157-4 supersedes FSP FAS 157-3 and provides additional authoritative guidance in determining whether a market is active or inactive and whether a transaction is distressed.  FSP FAS 157-4 is applicable to all assets and liabilities (i.e. financial and nonfinancial) and will require enhanced disclosures.  FSP FAS 157-4 will be effective for the Company’s fiscal year beginning August 1, 2009.  The Company does not expect the adoption of FSP FAS 157-4 to have a material impact on its consolidated financial statements.
 
Effective August 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities- including an amendment of FASB Statement 115” (“SFAS 159”).  This statement provides companies with an option to report selected financial assets and liabilities at fair value.  The Company has not elected to use the fair value option allowed by SFAS 159.
 
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Non-Controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS No. 160”).  This statement requires that noncontrolling 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 noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income.  SFAS No. 160 will be effective for the Company’s fiscal year beginning August 1, 2009.  Currently, the Company does not anticipate that this statement will have a significant impact on its financial statements.
 
In June 2007, the FASB ratified Emerging Issues Task Force Issue No. 07-3, “ Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities ” (“EITF 07-3”).  EITF 07-3 requires non-refundable advance payments for goods and services to be used in future research and development activities to be recorded as an asset and the payments to be expensed when the research and development activities are performed.  EITF 07-3 became effective for the Company’s fiscal year beginning August 1, 2008.  Management has determined that the application of this standard has not had a significant impact on its financial statements.
 
In December 2007, the FASB ratified the consensus reached on Emerging Issues Task Force Issue No. 07-1, “ Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property ” (“EITF 07-1”).  EITF 07-1 defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties.  EITF 07-1 will be effective for the Company’s fiscal year beginning August 1, 2009.  The Company is currently evaluating the potential impact of this standard on the financial statements.
 
In April 2009, the FASB issued FASB Staff Positions FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2”) and (“FSP FAS 124-2”).  FSP FAS 115-2 and FSP FAS 124-2 provide additional guidance to provide greater clarity about the credit and noncredit component of an other-than-temporary impairment event and to improve presentation and disclosure of other than temporary impairments in the financial statements.  FSP FAS 115-2 and FSP FAS 124-2 will be effective for the Company’s fiscal year beginning August 1, 2009.  The Company is currently evaluating the potential impact of the adoption of FSP FAS 115-2 on its consolidated financial statements.
 
In April 2009, the FASB issued FASB Staff Position FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1”) and (“APB 28-1”).  FSP FAS 107-1 amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments” , to require disclosures about fair value of financial instruments in interim as well as in annual financial statements and amends APB Opinion No. 28 “Interim Financial Reporting” , to require those disclosures in interim financial statements.  FSP FAS 107-1 and APB 28-1 will be effective for the Company’s fiscal year beginning August 1, 2009.  The Company is currently evaluating the potential impact of the adoption of FSP FAS 107-1 on its consolidated financial statements.

 
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Effective July 31, 2009, the Company adopted SFAS No. 165,  “Subsequent Events.”   SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or ready to be issued.  The adoption of SFAS 165 has not had a material impact on the Company’s consolidated financial statements.  The Company has evaluated subsequent events through October 28, 2009, which is the date the financial statements were available to be issued.
 
In June 2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)” (‘Consolidation of Variable Interest Entities’) (“SFAS 167”).  These amendments primarily include: (i) amending the guidance for determining whether an entity is a variable interest entity (“VIE”); and (ii) amending the criteria for identification of the primary beneficiary of a VIE.  SFAS No. 167 also requires the Company to continually reassess whether the Company is the primary beneficiary of a VIE and requires certain enhanced disclosures in the financial statements about the Company’s relationships with VIEs.  The amended provisions of SFAS No. 167 are effective for the Company’s financial statements for the period beginning on August 1, 2010, and earlier adoption is prohibited.  The Company does not believe that adoption of the amended provisions of SFAS No. 167 will have a material effect on the Company’s consolidated financial statements.
 
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162” (“SFAS No. 168”).  SFAS No. 168 replaces SFAS No. 162 and establishes the FASB Accounting Standards Codification™ (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with GAAP.  All existing accounting standard documents are superseded by the Codification and any accounting literature not included in the Codification will not be authoritative.  However, rules and interpretive releases of the SEC issued under the authority of federal securities laws will continue to be sources of authoritative GAAP for SEC registrants.  SFAS No. 168 will be effective beginning with the Company’s first fiscal quarter of 2010.  Therefore, all references made by it to GAAP in its consolidated financial statements will use the new Codification numbering system.  The Codification does not change or alter existing GAAP and, therefore, it is not expected to have any impact on the Company’s consolidated financial statements.

 
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Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
 
The information required by Item 304(a) of Regulation S-K was previously reported.  There are no disagreements or reportable events required to be reported under Item 304(b) of Regulation S-K.
 
Item 9A(T).
Controls and Procedures.
 
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e)) as of July 31, 2009.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of that date, the Company’s disclosure controls and procedures were effective as of the end of the period covered by this annual report.  This annual report does not include an attestation report of our registered public accounting firm, Morrison, Brown, Argiz & Farra, LLP, regarding internal control over financial reporting.  Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.
 
Management’s Report on Internal Control over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
For the period ended July 31, 2009, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, management (with the participation of our principal executive officer and principal financial officer) conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on this evaluation, management concluded that, as of July 31, 2009, our internal control over financial reporting was effective.
 
Changes in Internal Controls Over Financial Reporting
 
There were no changes in the Company’s internal control over financial reporting during the last quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Item 9B.
Other Information.
 
None.

 
46
 

PART III
 
Item 10.
Directors, Executive Officers and Corporate Governance.
 
The information required by this Item is incorporated by reference to the definitive proxy statement for our 2010 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of July 31, 2009.

Item 11.
Executive Compensation.
 
The information required by this Item is incorporated by reference to the definitive proxy statement for our 2010 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of July 31, 2009.

Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
The information required by this Item is incorporated by reference to the definitive proxy statement for our 2010 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of July 31, 2009.

Item 13.
Certain Relationships and Related Transactions, and Director Independence.
 
The information required by this Item is incorporated by reference to the definitive proxy statement for our 2010 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of July 31, 2009.

Item 14.
Principal Accountant Fees and Services.
 
The information required by this Item is incorporated by reference to the definitive proxy statement for our 2010 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of July 31, 2009.

 
47
 

PART IV
 
Item 15.
Exhibits, Financial Statement Schedules
 
(a) List of documents filed as part of this report:
 
1. Financial Statements:  The information required by this item is contained in Item 8 of this Annual Report on Form 10-K.
 
2. Financial Statement Schedules:  The information required by this item is included in the consolidated financial statements contained in Item 8 of this Annual Report on Form 10-K.
 
3. Exhibits:  See Index to Exhibits.

 
48
 
 
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.
   
Date:  October 28, 2009
By:
/s/ Marvin A. Sackner, M.D.
   
Marvin A. Sackner, M.D.
   
Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Signature
 
Title
 
Date
         
/s/ Marvin A. Sackner, M.D.
 
Chief Executive Officer and President (Principal
 
October 28, 2009
Marvin A. Sackner, M.D.
 
Executive Officer)
   
         
/s/ Jane H. Hsiao, Ph.D.
 
Chairman of the Board of Directors
 
October 28, 2009
Jane H. Hsiao, Ph.D.
       
         
/s/ Taffy Gould
 
Director
 
October 28, 2009
Taffy Gould
       
         
/s/ Morton J. Robinson, M.D.
 
Director
 
October 28, 2009
Morton J. Robinson, M.D.
       
         
/s/ Steven D. Rubin
 
Director
 
October 28, 2009
Steven D. Rubin
       
         
/s/ Subbarao Uppaluri
 
Director
 
October 28, 2009
Subbarao Uppaluri
       
         
/s/ Adam S. Jackson
 
Chief Financial Officer (Principal Financial Officer)
 
October 28, 2009
Adam S. Jackson
  
 
  
 

 
49
 

INDEX TO EXHIBITS
 
The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.
 
Exhibit
No.
 
Description of Exhibits
3.1
 
Articles of Incorporation, as amended (Incorporated by Reference from Exhibit 3.1 to Form 8-K filed on April 8, 2008)
     
3.2
 
By-Laws (Incorporated by reference from Exhibit 3(b) to the Company’s Registration Statement on Form S-1 Filed May 15, 1999 (File No. 33-14451))
     
3.1
 
Articles of Amendment to Articles of Incorporation (Incorporated by Reference from Exhibit 3.1 to Form 8-K filed on December 3, 2008)
     
10.1
 
License Agreement dated as of May 22, 1996 between the Company and SensorMedics Corporation (Incorporated by reference from Exhibit 10.1 to Form 10-KSB/A filed on April 22, 2008)
     
10.2
 
Letter of Agreement dated April 21, 1999 between the Company and SensorMedics Corporation (Incorporated by reference from Exhibit 10.2 to Form 10-KSB/A filed on April 22, 2008)
     
10.3
 
Agreement Regarding Assignment of Patents and Intellectual Property dated August 14, 2000 between the Company and LifeShirt.com, Inc. (Incorporated by reference from Exhibit 10.3 to Form 10-KSB/A filed on April 22, 2008)
     
10.4
 
Amendment to Agreement Regarding Assignment of Patents and Intellectual Property dated December 23, 2000 between the Company and LifeShirt.com, Inc. (Incorporated by reference from Exhibit 10.4 to Form 10-KSB/A filed on April 22, 2008)
     
10.5
 
Form of Stock Purchase Agreement dated as of August 1, 2005 between the Company and various Investors (Incorporated by reference from Exhibit 4.1 to Form 8-K filed on August 18, 2005)
     
10.6
 
Preferred Stock Purchase Agreement dated as of April 3, 2008 between the Company and the Investors named therein (Incorporated by reference from Exhibit 10.1 to Form 8-K filed on April 8, 2008)
     
10.7
 
Form of Preferred Stock Purchase Agreements dated as of December 1and 2, 2008 between the Company and the Investors named therein (Incorporated by reference from Exhibit 10.1 to Form 8-K filed on December 3, 2008)
     
10.8
 
Preferred Stock Purchase Agreement dated as of January 29, 2009 between the Company and the Investors named therein (Incorporated by reference from Exhibit 10.1 to Form 8-K filed on April 8, 2008)
     
10.9
 
Product Development and Supply Agreement executed September 4, 2007 between Sing Lin Technologies Ltd and the Company (Incorporated by reference from Exhibit 10.1 to Form 10-QSB/A filed on April 22, 2008) (Confidentiality Treatment has been granted for portions of this Exhibit)
     
10.10
 
Note and Security Agreement dated as of August 28, 2008 between the Company and various lenders (incorporated by reference from Exhibit 10.1 to the Form 8-K filed September 12, 2008)
     
10.11
 
Offer Letter from the Company to Steven B. Mrha dated December 21, 2007 and executed on December 22, 2007 detailing the terms of employment of Mr. Mrha (incorporated by reference from Exhibit 10.1 to the Form 8-K filed on December 27, 2007)
     
10.12
 
Offer Letter from the Company to Adam S. Jackson dated March 11, 2008 (incorporated by reference from Exhibit 10.1 to the Form 8-K filed on May 15, 2008)
     
10.13
 
Offer Letter from SafeStitch Medical, Inc. to Adam S. Jackson, dated March 11, 2008 (incorporated by reference to the Current Report on Form 8-K filed by SafeStitch Medical, Inc. on April 4, 2008)
     
10.14
 
2000 Stock Option Plan (Incorporated by reference from the Company’s Information Statement on Schedule 14C filed April 5, 2001)(SEC Accession No . 0000950170-01-000484)
     
10.15
 
Separation and Release Agreement delivered February 29, 2008 between the Company and Gary Macleod (incorporated by reference from Exhibit 10.1 to the Form 8-K filed on March 4, 2008)
     
10.16
 
Employment Agreement dated November 10, 2005 between the Registrant and Gary Macleod (Incorporated by reference from Exhibit 10.2 to Form 8-K filed on March 4, 2008).
     
10.17
* 
Lease Agreement dated January 1, 2008 between the Registrant and Frost Real Estate Holdings, LLC.
     
10.18
* 
Lease Agreement dated February 1, 2009 between the Registrant and Hialeah Warehouse Holdings, LLC.
     
14.1
* 
Code of Ethics
     
16.1
 
Letter from Eisner LLP dated May 15, 2009 (Incorporated by reference from Exhibit 16.1 to Form 8-K filed on May 15, 2009).

 
50
 

21
* 
Subsidiaries of the Company
     
31.1
* 
Certification of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
     
31.2
* 
Certification of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
     
32.1
* 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2
* 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
*
Filed herewith

 
51
 















WAREHOUSE LEASE
 
1.  Basic Lease Provisions.
 
 
1.1.
Parties:   This Lease is made and entered into as of the 1st day of February 2009 (the” Effective Date”) by and between HIALEAH WAREHOUSE HOLDINGS, LLC, a Florida limited liability company (“Landlord”), and NON-INVASIVE MONITORING SYSTEMS, INC., a Florida corporation (“Tenant”).
 
 
1.2.
Premises:   As shown on Exhibit "A" attached hereto (the "Premises").
 
 
1.3.
Rentable Square Footage of the Premises: 5,175 Square feet.  Landlord and Tenant stipulate and agree that the rentable square footage of the Premises is correct.
 
 
1.4.
Building Address:   621 West 20 th Street,, Miami, Florida 33010, more fully described as the West 100 feet of the the East 210 feet of Tract 1 in Block 2, of BING’S RED ROAD TERMINALS, according to the Plat thereof, recorded in Plat Book 65, at Page 13, of the Public records of Miami-Dade County, Florida.
 
 
1.5.
Permitted Use:   Manufacturing, warehousing and office use.
 
 
1.6.
Term:    Three ( 3 ) years.
 
 
1.7 .
Commencement Date:   February 01, 2009.
 
 
1.8.
Rent:   Tenant shall make rent payments under this Lease on a “gross” basis (the “Rent”), plus applicable sales tax. The rent shall be increased annually by 3.5% on each anniversary date as follows:
 
Lease Period in Months
Rent:
 
Monthly
   
Annual
 
February 1, 2009 - April 30, 2009
    $ 3,000.00 **      
May 1, 2009 - January 31, 2010
    $ 4,528.13        
February 1, 2010 - January 31, 2011
    $ 4,686.61     $ 56,239.32  
February 1, 2011 - January 31, 2012
    $ 4,850.64     $ 58,207.68  
 
 
** Rent for the initial mobilization period of February through April 2009 shall be $3,000 + 7% sales tax
 
Should Landlord and Tenant mutually agree to modify the rentable square footage of the Premises as defined under Section 1.3, the gross rent under this Section 1.8 shall be recalculated by adjusting the gross rent in effect immediately prior to such modification by the percentage change in rentable square footage effected by such modification.
 
 
1.9.
Security Deposit:   N/A.
 
1.10.
Sales Taxes.   Tenant shall pay to Landlord with the monthly payment of Rent all applicable sales taxes imposed directly upon such rent or this Lease.
 
 
1.11.
Real Estate Brokers:         Landlord:  None
 
 
 
Tenant:  None
 
 
1.12.
Addresses for Notices:  

Landlord:
Hialeah Warehouse Holdings, LLC
 
4400 Biscayne Boulevard
 
Miami, Florida 33137
   
Tenant :
NON-INVASIVE MONITORING SYSTEMS INC
 
4400 Biscayne Blvd.
 
Miami, Florida 33137
 
Attention: Steven B. Mrha
 
 
1
 
 
2.  Premises.  
 
2.1.  Lease of Premises .  Landlord hereby leases the Premises to Tenant, together with the right to use any portions of the Project, as hereinafter defined, that are designated by Landlord for the common use of tenants and others (the “Common Areas”).  The “Project” consists of the building of which the Premises is a part (the "Building"), the Common Areas, the land upon which the same are located, along with all other buildings and improvements thereon or hereunder, including all parking facilities.
 
2.2.  Acceptance.   Tenant agrees to accept the Premises in its “as-is” condition existing as of the Commencement Date.
 
3.  Term.   This Lease shall be in full force and effect from the Effective Date.  The Term and Commencement Date of this Lease are as specified in Sections 1.6 and 1.7, if any.
 
4.   Rent.  
 
4.1.  Rent.   Tenant shall pay Landlord the Rent for the Premises on the first day of each calendar month during the Term of this Lease in advance, without notice or demand, deduction, abatement or offset (unless expressly set forth in this Lease).   Rent for any partial month during the Term shall be prorated.  Rent and all other amounts payable to Landlord hereunder shall be payable to Landlord in lawful money of the United States and Tenant shall be responsible for delivering said amounts to Landlord at the address stated herein or to such other persons or to such other places as Landlord may designate in writing.  The Rent payments to be made by Tenant hereunder are made on a “gross” basis and, except as may be expressly stated otherwise herein, Tenant shall not be required to make any additional payments to Landlord for Tenant’s share of any real estate taxes on the Premises or the Building, for any insurance on the Premises or the Building, for any common area maintenance charges, for use of the furniture located within the Premises, for the use of the unreserved and reserved parking spaces provided to Tenant herein, or for the services to be provided by Landlord under Section 11.1.
 
5.   Security Deposit .   N/A.
 
6.  Use.  
 
6.1.  Use.   The Premises shall be used for warehouse space and for general office use, and not for any purpose which would violate the Project's certificate of occupancy, any conditional use permit or variance applicable to the Project or violate any covenants, conditions or other restrictions applicable to the Project.
 
6.2.  Compliance with Law.   Landlord warrants to Tenant that, to the best of Landlord's knowledge, the Premises, in the state existing on the Effective Date,  does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such date and may be used for office purposes.  Tenant shall, at Tenant's sole expense, promptly comply with all laws, statutes, codes, ordinances, orders, covenants, restrictions or record, rating bureaus or governmental agencies, rules and regulations of any municipal or governmental entity whether in effect now or later, including, the Americans With Disabilities Act and all federal, state and local laws and regulations governing occupational safety and health (“Law(s)”) regarding the operation of Tenant’s business and the use, condition, configuration and occupation of the Premises.
 
7.  Maintenance, Repairs and Alterations.
 
7.1.  Landlord's Obligations .  Landlord shall keep and maintain in good repair and working order and perform maintenance upon the (a) structural elements of the Building; (b) mechanical (including HVAC), electrical, plumbing and fire/life safety systems serving the Building in general and the Premises; (c) Common Areas; (d) roof of the Building; (e) exterior windows of the Building; and (f) elevators serving the Building.  Landlord shall promptly make repairs for which Landlord is responsible.
 
7.2.  Tenant's Obligations.  
 
 (a)  Subject to the requirements of Section 7.3, Tenant shall, at its sole cost and expense, promptly perform all maintenance and repairs to the Premises that are not Landlord’s express responsibility under this Lease and shall keep the Premises in good condition and repair, reasonable wear and tear excepted.  Tenant’s repair and maintenance obligations include, without limitation, repairs to: (a) floor coverings; (b) interior partitions; (c) doors; (d) the interior side of demising walls; (e) electronic, fiber, phone and data cabling and related equipment that is installed by or for the exclusive benefit of Tenant (collectively, “Cable”); (f) supplemental air conditioning units, kitchens, including hot water heaters, plumbing, and similar facilities exclusively serving Tenant; and (g) Alterations.  If Tenant fails to keep the Premises in good condition and repair, Landlord may, but shall not be obligated to, make any necessary repairs.  If Landlord makes such repairs, Landlord shall bill Tenant for the cost of the repairs as additional rent, and said additional rent shall be payable by Tenant within ten (10) days.
 
 (b)  On the last day of the Term hereof, or on any sooner termination, Tenant shall remove all Tenant’s Property and Cable from the Premises and quit and surrender the Premises to Landlord, broom clean, in the same or similar condition as received, ordinary wear and tear and damage which Landlord is obligated to repair hereunder excepted.  Tenant shall repair any damage to the Premises occasioned by the installation or removal of Tenant's Property, Cable and other removables.  Tenant shall leave the electrical distribution systems, plumbing systems, lighting fixtures, HVAC ducts and vents, window treatments, wall coverings, carpets and other floor coverings, doors and door hardware , millwork, ceilings and other tenant improvements at the Premises and in good condition, ordinary wear and tear excepted.

 
2
 
 
7.3.  Alterations and Additions.  
 
(a)  Tenant shall not make any alterations, repairs, additions or improvements or install any Cable (collectively referred to as "Alteration(s)") in, on or about the Premises or the Project without Landlord's prior written consent, which shall not be unreasonably withheld.  However, Landlord’s consent shall not be required for any Alteration that satisfies all of the following criteria (a “Cosmetic Alteration”):  (a) is of a cosmetic nature such as painting, wallpapering, hanging pictures and installing carpeting; (b) is not visible from the exterior of the Premises or the Building; (c) will not affect the base Building; and (d) does not require work to be performed inside the walls or above the ceiling of the Premises.
 
(b)   All improvements in and to the Premises, including any Alterations, shall remain upon the Premises at the end of the Term without compensation to Tenant, provided that Tenant, at its expense, in compliance with the National Electric Code or other applicable Laws, shall, on or before the expiration of the Term, remove any Cable.  In addition, and specifically excepting any improvements made by Landlord prior to the Commencement Date, Landlord, by written notice to Tenant at least thirty (30) days prior to the expiration of the Term, may require Tenant, at its expense, to remove any Alterations that in Landlord’s reasonable judgment are not standard office improvements and are of a nature that would require removal and repair costs that are materially in excess of the removal and repair costs associated with standard office improvements (collectively referred to as “Required Removables”).  Tenant shall repair any damage caused by the installation or removal of the Cable and required removables.
 
(c)  Tenant shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Tenant at or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or the Project, or any interest therein.  If Tenant shall, in good faith, contest the validity of any such lien, Tenant shall furnish to Landlord a surety bond satisfactory to Landlord.
 
7.4.  Failure of Tenant to Remove Property.   If Tenant fails to remove any of Tenant’s Property as required by Section 7.2 on or before the expiration or earlier termination of this Lease, Landlord may remove and store Tenant’s Property at the expense and risk of Tenant.  Tenant shall pay Landlord, upon demand, the expenses and storage charges incurred.  If Tenant fails to remove Tenant’s Property from the Premises or storage, within thirty (30) days after notice, Landlord may deem all or any part of Tenant’s Property to be abandoned and title to Tenant’s Property shall vest in Landlord.
 
8.  Insurance.  
 
8.1.  Insurance-Tenant.   Tenant shall maintain at all times during the Term of this Lease commercial general liability insurance with coverages acceptable to Landlord, which by way of example and not limitation, protects Tenant and Landlord (as an additional insured) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto.  If, in the commercially reasonable opinion of the insurance broker retained by Landlord, the amount of public liability or property damage insurance coverage at any time during the Term is not adequate, Tenant shall increase the insurance coverage as required by Landlord’s insurance broker.
 
8.2.  Insurance-Landlord.   Landlord shall maintain general liability insurance with coverage against such risks and in such amounts as Landlord deems advisable insuring Landlord against liability arising out of the ownership, operation and management of the Project.  Landlord shall also maintain a policy or policies of insurance covering loss or damage to the Project in the amount of not less than eighty percent (80%) of the full replacement cost thereof, as determined by Landlord from time to time.
 
8.3.  Insurance Policies.   Tenant shall deliver to Landlord certificates of the insurance policies required under Section 8.1 prior to the earlier of the Commencement Date or the date Tenant is provided with possession of the Premises and thereafter as necessary to assure that Landlord always has current certificates evidencing Tenant’s insurance. Tenant's insurance policies shall not be cancelable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Landlord.  Tenant shall, at least thirty (30) days prior to the expiration of such policies, furnish Landlord with certificates of renewals thereof.  Tenant's insurance policies shall be issued by insurance companies authorized to do business in the state in which the Project is located.
 
9.  Damage or Destruction.   Tenant shall give prompt notice to Landlord in case of any fire or other damage to the Premises.  If the Premises or the Building are damaged by fire or other casualty, Landlord shall diligently and as soon as practicable after such damage occurs (taking into account the time necessary to effectuate a satisfactory settlement with Landlord's insurance company) repair such damage at its own expense, and, the Rent and additional rent shall be abated in proportion to the part of the Premises which is rendered untenantable until such repairs have been completed (in no event shall damage to any parking areas be deemed to render the Premises untenantable).  However, if available insurance proceeds are insufficient or if the Premises or the Building are damaged by fire or other casualty to such an extent that the damage, in Landlord's reasonable opinion, cannot be fully repaired within one hundred eighty (180) days from the date such damage occurs, Landlord shall provide Tenant with written notice of such fact, and thereafter either Landlord or Tenant shall have the right, exercised by giving written notice within such one hundred eighty (180) day period, to terminate this Lease effective as of the date of such damage.

 
3
 
 
10.    Personal Property Taxes .   Tenant shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Tenant contained in the Premises or related to Tenant's use of the Premises.  If any of Tenant's personal property shall be assessed with Landlord's real or personal property, Tenant shall pay to Landlord the taxes attributable to Tenant within ten (10) days after receipt of a written statement from Landlord setting forth the taxes applicable to Tenant's property.  Landlord agrees that Landlord shall be responsible to pay all real property taxes assessed against the Premises or the Building of which the Premises is a part.
 
11.  Building Services; Utilities.  
 
11.1.  Services Provided by Landlord.   Subject to all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide HVAC to the Premises for normal office use during the times described in Section 11.2, reasonable amounts of electricity for normal office lighting and desk-type office machines, water in the Premises or in the Common Areas for reasonable and normal drinking and lavatory use, replacement light bulbs and/or fluorescent tubes and ballasts for standard overhead fixtures, building standard janitorial services (as more particularly described on Schedule 1 attached hereto), elevator service and access to the Building for the Tenant and its employees 24 hours per day/ 7 days per week subject to the terms of this Lease and such protective services or monitoring systems, if any, as Landlord may reasonably impose and such other services as Landlord reasonably determines are necessary or appropriate for the Project.
 
11.2.  Hours of Service.   Building services and utilities shall be provided Monday through Friday from 6:00 a.m. to 10:00 p.m.  HVAC and janitorial service shall not be provided at other times or on nationally recognized holidays.  Nationally recognized holidays shall include, but shall not necessarily be limited to, New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.  Landlord shall use its best efforts to provide HVAC to Tenant at times other than those set forth above subject to (a) the payment by Tenant of Landlord's then standard charge for after hours HVAC and (b) Tenant providing to Landlord at least one (1) business day's advance written notice of Tenant's need for after hours HVAC.
 
11.3    Failure to Provide Essential Services.   In the event the Building experiences an interruption of electrical, telephone, water or HVAC which prevents Tenant from utilizing the Premises to conduct its business (an “Interruption”) which Interruption is within the control of Landlord to cure (i.e. not as a result of the inability of Landlord to obtain the applicable utility service through no fault of Landlord) (a “Controllable Interruption.”) Landlord shall commence and diligently pursue the curative action within a commercially reasonable amount of time after written notice from Tenant of a Controllable Interruption. If Landlord fails to commence and diligently pursue the curative action within a commercially reasonable amount of time after written notice from Tenant, then Tenant shall have the right, after written notice to Landlord to expend commercially reasonable market sums to cure the Controllable Interruption and offset said amount against the next payments of Rent due hereunder.
 
12.  Assignment and Subletting.  
 
12.1.  Landlord's Consent Required.   Tenant shall not voluntarily or by operation of law assign, transfer, hypothecate, mortgage, sublet, or otherwise transfer or encumber all or any part of Tenant's interest in this Lease or in the Premises (hereinafter collectively a "Transfer"), without Landlord's prior written consent, which consent shall not be unreasonably withheld.  Landlord shall respond to Tenant’s written request for consent hereunder within fifteen (15) days after Landlord’s receipt of the written request from Tenant.  Any attempted Transfer without such consent shall be void and shall constitute a default of this Lease.
 
12.2.    Additional Terms and Conditions .    Regardless of Landlord's consent, no Transfer shall release Tenant from Tenant's obligations hereunder or alter the primary liability of Tenant to pay the rent and other sums due Landlord hereunder and to perform all other obligations to be performed by Tenant hereunder or release any guarantor from its obligations under its guaranty. Landlord may accept rent from any person other than Tenant pending approval or disapproval of an assignment or subletting.  The consent by Landlord to any Transfer shall not constitute a consent to any subsequent Transfer by Tenant or to any subsequent or successive Transfer by an assignee or subtenant and no assignment or sublease may be modified or amended without Landlord's prior written consent.    In the event of any default under this Lease, Landlord may proceed directly against Tenant, any guarantors or anyone else responsible for the performance of this Lease, including any subtenant or assignee, without first exhausting Landlord's remedies against any other person or entity responsible therefore to Landlord, or any security held by Landlord.
 
12.3.    Transfers to Affiliates and Collateral Assignments to Lenders.   Notwithstanding anything to the contrary contained in the Lease, Tenant shall have the right, without Landlord’s consent, to assign this Lease or sublet all or any portion of the Premises to: (a) a parent, subsidiary or affiliated entity of Tenant, or (b) any entity to which all or a substantial portion of the assets of Tenant have been transferred, or (c) any entity in connection with a merger, sale of stock, consolidation or other corporate reorganization or transaction involving Tenant (collectively, a “Permitted Transfer”).  Tenant shall also have the right to collaterally assign its interest as a tenant in this Lease as security for loan(s) to be made to Tenant (a ‘Collateral Assignment”). Tenant shall provide Landlord with at least ten (10) business days prior written notice of a Permitted Transfer or a Collateral Assignment.

 
4
 
 
13.  Default; Remedies.  
 
13.1.  Default by Tenant.   Landlord and Tenant hereby agree that the occurrence of any one or more of the following events is a default by Tenant under this Lease and that said default shall give Landlord the rights described in Section 13.2.  Landlord or Landlord's authorized agent shall have the right to execute and deliver any notice of default, notice to pay rent or quit or any other notice Landlord gives Tenant.
 
(a)  Tenant's failure to make any payment of Rent, late charges or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of ten (10) days after written notice thereof from Landlord to Tenant   (provided however that in no event shall Landlord be obligated to provide written notice more than twice in any twelve month period).
 
(b)  The abandonment of the Premises by Tenant in which event Landlord shall not be obligated to give any notice of default to Tenant.
 
(c)  Tenant’s failure to comply with any of the covenants, conditions or provisions of this Lease to be observed or performed by Tenant (other than those referenced in Sections 13.1(a) and (b) above), where such failure shall continue for a period of twenty (20) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant's nonperformance is such that more than twenty (20) days are reasonably required for its cure, then Tenant shall be allowed additional time (not to exceed 60 days) as is reasonably necessary to cure the failure so long as Tenant commences such cure within said twenty (20) day period and thereafter diligently pursues such cure to completion.
 
(d)    (i) The making by Tenant or any guarantor of Tenant's obligations hereunder of any general arrangement or general assignment for the benefit of creditors; (ii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; (iii) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within thirty (30) days; or (iv) the insolvency of Tenant or Tenant becoming subject to state insolvency or federal bankruptcy.  In the event that any provision of this Section 13.1(d) is unenforceable under applicable law, such provision shall be of no force or effect.
 
13.2. Remedies.     Upon the occurrence of any event of default by Tenant under this Lease, Landlord shall have the option to pursue any one or more of the following remedies, in addition to the remedies otherwise provided herein or otherwise available at law or in equity, without any notice or demand whatsoever:

 (a)  Landlord may cancel and terminate this Lease and dispossess Tenant;

(b)  Landlord may without terminating or canceling this Lease declare all amounts and rents due under this Lease for the remainder of the Lease Term (or any applicable extension or renewal thereof) to be immediately due and payable, and thereupon all rents and other charges due hereunder to the end of the Lease Term or any renewal term, if applicable, shall be accelerated (after discounting the same to their present value).

(c)  Landlord   may elect to enter and repossess the Premises and relet the Premises for Tenant’s account, holding Tenant liable in damages for all expenses incurred in any such reletting and for any difference between the amount of rent received from such reletting and the amount due and payable under the terms of this Lease.

(d)  Landlord may enter upon the Premises and do whatever Tenant is obligated to do under the terms of this Lease (and Tenant shall reimburse Landlord on demand for any expenses which Landlord may incur in effecting compliance with Tenant’s obligations under this Lease).
 
All of the foregoing rights, remedies, powers and elections of Landlord reserved herein are cumulative, and pursuit of any of the foregoing remedies shall not preclude other remedies available under this Lease or provided by law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained.  No waiver by Landlord of any violation or breach of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions and covenants herein contained.
 
13.3.  Default by Landlord.  Except with respect to the specific notice and cure periods set forth in Section 11.5 of this Lease,  Landlord shall not be in default under this Lease unless Landlord fails to perform obligations required of Landlord within thirty (30) days after written notice by Tenant to Landlord and to the holder of any mortgage or deed of trust encumbering the Project whose name and address shall have theretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for its cure, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently pursues the same to completion.

 
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13.4.  Late Charges.   If any installment of Rent or any other sum due from Tenant shall not be received by Landlord within five (5) days of when such amount shall be due, then, without any requirement for notice or demand to Tenant, Tenant shall immediately pay to Landlord a late charge equal to one percent (1%) of such overdue amount.  The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant.  Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder including the assessment of interest.
 
14.  Landlord's Right to Cure Default; Payments by Tenant.   If Tenant shall fail to perform any of its obligations under this Lease, Landlord shall have the right to make any such payment or perform any such act on Tenant's behalf without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder.  Tenant shall reimburse Landlord for the cost of such performance upon demand.
 
15.  Condemnation .  If the Premises or the Project are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "Condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs, except with respect to a temporary taking lasting less than ninety (90) days in which case Tenant’s rent will be proportionately abated but the Lease shall continue in full force and effect.
 
16.  Broker's Fee.   Tenant and Landlord each represent and warrant to the other that neither has had any dealings or entered into any agreements with any person, entity, broker or finder, in connection with the negotiation of this Lease, and no other broker, person, or entity is entitled to any commission or finder's fee in connection with the negotiation of this Lease, and Tenant and Landlord each agree to indemnify, defend and hold the other harmless from and against any claims, damages, costs, expenses, attorneys' fees or liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings, actions or agreements of the indemnifying party.
 
17.  Subordination; Estoppel Certificates.
 
17.1.  Subordination.   This Lease and any options granted to Tenant hereunder, upon Landlord’s written election, shall be subject and subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the Project and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof.  Notwithstanding such subordination, Tenant's right to quiet possession of the Premises shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms.
 
17.2.  Estoppel Certificates.   Tenant shall from time to time, upon not less than ten (10) days' prior written notice from Landlord, execute, acknowledge and deliver to Landlord a statement in writing certifying such information as Landlord may reasonably request including, but not limited to, the following: (a) that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) (b) the date to which the Rent and other charges are paid in advance and the amounts so payable, (c) that there are not, to Tenant's knowledge, any uncured defaults or unfulfilled obligations on the part of Landlord, or specifying such defaults or unfulfilled obligations, if any are claimed, (d) that all tenant improvements to be constructed by Landlord, if any, have been completed in accordance with Landlord's obligations and (e) that Tenant has taken possession of the Premises.
 
18.  Indemnity.   Except to the extent caused by the gross negligence or willful misconduct of an Indemnified Party (as hereinafter defined),   Tenant hereby agrees to indemnify, defend and hold harmless Landlord and its employees, partners, agents, contractors, lenders and ground lessors (said persons and entities are hereinafter collectively referred to as the "Indemnified Parties") from and against any and all liability, loss, cost, damage, claims, loss of rents, liens, judgments, penalties, fines, settlement costs, investigation costs, cost of consultants and experts, attorneys fees, court costs and other legal expenses, effects of environmental contamination, cost of environmental testing, removal, remediation and/or abatement of Hazardous Materials (as said term are defined below), insurance policy deductibles and other expenses (hereinafter collectively referred to as "Damages") arising out of or related to an Indemnified Matter (as defined below).  For purposes of this Section, an "Indemnified Matter" shall mean any matter for which one or more of the Indemnified Parties incurs liability or Damages if the liability or Damages arise out of or involve, directly or indirectly, (a) Tenant's or its employees', agents', contractors' or invitees' (all of said persons or entities are hereinafter collectively referred to as "Tenant Parties") use or occupancy of the Premises or the Project, (b) any act, omission or neglect of a Tenant Party, (c) Tenant's failure to perform any of its obligations under the Lease, (d) the existence, use or disposal of any Hazardous Material brought on to the project by a Tenant Party or (e) any other matters for which Tenant has agreed to indemnify Landlord pursuant to any other provision of this Lease.  This indemnity is intended to apply to the fullest extent permitted by applicable law.  Tenant's obligations under this Section shall survive the expiration or termination of this Lease unless specifically waived in writing by Landlord after said expiration or termination.

 
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Landlord hereby agrees to indemnify, defend and hold harmless Tenant and its employees, agents, and contractors (said persons and entities are hereinafter collectively referred to as the “Tenant Indemnified Parties”) from and against any and all Damages that result from the gross negligence or willful misconduct of Landlord its employees and its authorized representatives (a “Tenant Indemnified Matter”).  Landlord’s obligations hereunder shall include, but shall not be limited to (a) compensating the Tenant Indemnified Parties for Damages arising out of Tenant Indemnified Matters within ten (10) days after written demand from a Tenant Indemnified Party plus a reasonable period of time for Landlord’s investigation of the claim and (b) providing a defense, with counsel reasonably satisfactory to the Tenant Indemnified Party, at Landlord’s sole expense, within ten (10) days after written demand from the Tenant Indemnified Party, of any claims, action or proceeding arising out of or relating to an Tenant Indemnified Matter. This indemnity is intended to apply to the fullest extent permitted by applicable law. Landlord’s obligations under this section shall survive the expiration or termination of this Lease unless specifically waived in writing by Tenant after said expiration or termination.  Tenant hereby waives its right to recover consequential, special, indirect, exemplary or punitive damages (including but not limited to, lost profits) arising out of a Tenant Indemnified Matter.
 
19.  Hazardous Material.  
 
19.1.    Indemnity; Duty to Inform Landlord.   Tenant shall not cause or permit any Hazardous Material (as defined hereinafter) to be brought, kept or used in or about the Premises or the Project by Tenant, its agents, employees, contractors, or invitees.  Tenant hereby agrees to indemnify Landlord from and against any breach by Tenant of the obligations stated in the preceding sentence, and agrees to defend and hold Landlord harmless from and against any and all claims, judgments, damages, penalties, fines, costs, liabilities, or losses (including, without limitation, diminution in value of the Project, damages for the loss or restriction or use of rentable space or of any amenity of the Project, damages arising from any adverse impact on marketing of space in the Project, sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees) which arise during or after the Term of this Lease as result of such breach.  This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions and any cleanup, remedial removal, or restoration work required due to the presence of Hazardous Material.  If Tenant knows, or has reasonable cause to believe, that a Hazardous Substance, or a condition involving or resulting from same, has come to be located in, on or under or about the Premises or the Project, Tenant shall immediately give written notice of such fact to Landlord.  Tenant shall also immediately give Landlord (without demand by Landlord) a copy of any statement, report, notice, registration, application, permit, license, given to or received from, any governmental authority or private party, or persons entering or occupying the Premises, concerning the presence, spill, release, discharge of or exposure to, any Hazardous Substance or contamination in, on or about the Premises or the Project.  The provisions of this Section 21 shall survive the termination of the Lease.
 
19.2.  Definition and Consent.   The term "Hazardous Substance" as used in this Lease shall mean any hazardous substance, hazardous waste, infectious waste, or toxic substance, product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or affect, either by itself or in combination with other materials expected to be on the Premises, is either: (a) potentially injurious to the public health, safety or welfare, the environment or the Premises, (b) regulated or monitored by any governmental entity, (c) a basis for liability of Landlord to any governmental entity or third party under any federal, state or local statute or common law theory or (d) defined as a hazardous material or substance by any federal, state or local law or regulation.  Except for small quantities of ordinary office supplies such as copier toner, liquid paper, glue, ink and common household cleaning materials, Tenant shall not cause or permit any Hazardous Substance to be brought, kept, or used in or about the Premises or the Project by Tenant, its agents, employees, contractors or invitees.
 
19.3.  Inspection; Compliance.   Landlord and Landlord's employees, agent, contractors and lenders shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Tenant with this Section 21.  Landlord shall have the right to employ experts and/or consultants in connection with its examination of the Premises and with respect to the installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance on or from the Premises.  The costs and expenses of any such inspections shall be paid by the party requesting same, unless a contamination, caused or materially contributed to by Tenant, is found to exist or be imminent, or unless the inspection is requested or ordered by governmental authority as the result of any such existing or imminent violation or contamination.
 
20.  Force Majeure.   Landlord will not be deemed in default under this lease because of Landlord’s failure to perform any of its obligations under this Lease if the failure is due in part or in full to reasons beyond Landlord’s reasonable control.  Such reasons will include but not be limited to: fire, earthquake, weather delays or other acts of God, strikes, boycotts, war, terrorism, bio-terrorism,  riot, insurrection, embargoes, shortages of equipment, labor or materials, utility failure or defect, delays in issuance of any necessary governmental permit or approval (including building permits and certificates of occupancy), any governmental preemption in connection with a national emergency or any other cause, whether similar or dissimilar, which is beyond a party’s reasonable control (each, hereinafter, a “Force Majeure Event”).  If this Lease specifies a time period for performance of an obligation by Landlord, that time period will be extended by the period of any delay in Landlord’s performance caused by the Force Majeure Event.
 
Tenant will not be deemed in default or have liability to Landlord because of Tenant’s failure to perform any of its obligations under this Lease (other than an obligation to pay money) if the failure is due in part or in full to a Force Majeure Event.  If this Lease specifies a time period for performance of an obligation by Tenant, that time period will be extended by the period of any delay in Tenant’s performance caused by the Force Majeure Event.

 
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21.  Landlord’s Rights.
 
21.1.  Landlord's Access.   Landlord and Landlord's agents, contractors and employees shall have the right to enter the Premises at reasonable times for the purpose of inspecting the Premises, performing any services required of Landlord, showing the Premises to prospective purchasers, lenders, or tenants, undertaking safety measures and making alterations, repairs, improvements or additions to the Premises or to the Project.
 
22.  Holding Over.   If Tenant remains in possession of the Premises or any part thereof after the expiration or earlier termination of the term hereof with Landlord's consent, such occupancy shall be a tenancy from month to month upon all the terms and conditions of this Lease pertaining to the obligations of Tenant, except that the monthly Rent payable shall be one hundred fifty percent (150%) of the monthly Rent that was payable in the month immediately preceding the termination date of this Lease for the first thirty (30) days of such holdover, and thereafter the monthly Rent payable shall be two hundred percent (200%) of the monthly Rent that was payable in the month immediately preceding the termination date of this Lease.   If Tenant remains in possession of the Premises or any part thereof after the expiration of the Term hereof without Landlord's consent, Tenant shall, at Landlord's option, be treated as a tenant at sufferance or a trespasser.  Nothing contained herein shall be construed to constitute Landlord's consent to Tenant holding over at the expiration or earlier termination of the Term of the Lease.  Tenant hereby agrees to indemnify, hold harmless and defend Landlord from any cost, loss, claim or liability (including attorneys' fees) Landlord may incur as a result of Tenant's failure to surrender possession of the Premises to Landlord upon the termination of this Lease.
 
23.  Signs.   Tenant shall not place any sign upon the Premises (including on the inside or the outside of the doors or windows of the Premises) or the Project without Landlord's prior written consent, which may be given or withheld in Landlord's reasonable discretion.  Landlord shall have the right to place any sign it deems appropriate on any portion of the Project except the interior of the Premises.  Any sign Landlord permits Tenant to place upon the Premises shall be maintained by Tenant, at Tenant's sole expense.
 
24.  Notices.   All notices required or permitted by this Lease shall be in writing and shall be delivered (a) by hand, (b) by U.S. Postal Service certified mail, return receipt requested, or (c) by U.S. Postal Service Express Mail, Federal Express or other overnight courier and shall be deemed sufficiently given if served in a manner specified in this Section.   The addresses set forth in Section 1.12 of this Lease shall be the address of each party for notice purposes.  Landlord or Tenant may by written notice to the other specify a different address or addresses for notices purposes, except that upon Tenant's taking possession of the Premises, the Premises shall constitute Tenant's address for the purpose of mailing or delivering notices to Tenant.  Any notice sent by certified mail, return receipt requested, shall be deemed given three (3) days after deposited with the U.S. Postal Service.  Notices delivered by U.S. Express Mail, Federal Express or other courier shall be deemed given on the date delivered by the carrier to the appropriate party's address for notice purposes.  If notice is received on Saturday, Sunday or a legal holiday, it shall be deemed received on the next business day.  Nothing contained herein shall be construed to limit Landlord's right to serve any notice to pay rent or quit or similar notice by any method permitted by applicable law, and any such notice shall be effective if served in accordance with any method permitted by applicable law whether or not the requirements of this Section have been met.  Tenant hereby elects domicile at the Premises for the purpose of service of all notices, writs of summons or other legal documents or process in any suit, action or proceeding which Landlord or any mortgagee may undertake under this Lease.  Notice from Landlord may be given to Tenant by Landlord or Landlord’s agent or attorney.
 
25.  Miscellaneous.
 
25.1.  Severability.   The invalidity of any provision of this Lease as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof.
 
25.2.  Time of Essence.   Time is of the essence with respect to each of the obligations to be performed by Tenant and Landlord under this Lease.
 
25.3.  Incorporation of Prior Agreements.   This Lease contains all agreements of the parties with respect to the lease of the Premises and any other matter mentioned herein.  No prior or contemporaneous agreement or understanding pertaining to any such matter shall be effective.  Except as otherwise stated in this Lease, Tenant hereby acknowledges that no real estate broker nor Landlord or any employee or agents of any of said persons has made any oral or written warranties or representations to Tenant concerning the condition or use by Tenant of the Premises or the Project or concerning any other matter addressed by this Lease.
 
25.4.  Waivers.   No waiver by Landlord or Tenant of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Landlord or Tenant of the same or any other provision.  Landlord's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act by Tenant.  The acceptance of rent hereunder by Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent.  No acceptance by Landlord of partial payment of any sum due from Tenant shall be deemed a waiver by Landlord of its right to receive the full amount due, nor shall any endorsement or statement on any check or accompanying letter from Tenant be deemed an accord and satisfaction.

 
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25.5.  Amendments.   This Lease may be modified in writing only, signed by the parties in interest at the time of the modification.
 
25.6.  Binding Effect; Choice of Law; Conflict .  Subject to any provision hereof restricting assignment or subletting by Tenant, this Lease shall bind the parties, their heirs, personal representatives, successors and assigns.  This Lease shall be governed by the laws of the state in which the Project is located and any litigation concerning this Lease between the parties hereto shall be initiated in the county in which the Project is located.
 
25.7.  Attorneys' Fees .  If Landlord or Tenant brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, or appeal thereon, shall be entitled to its reasonable attorneys' fees and court costs to be paid by the losing party.
 
25.8.  Quiet Possession .  Subject to the other terms and conditions of this Lease, and the rights of any lender, and provided Tenant is not in default hereunder, Tenant shall have quiet possession of the Premises for the entire Term hereof, subject to all of the provisions of this Lease.
 
25.9.  Interpretation.   This Lease shall be interpreted as if it was prepared by both parties and ambiguities shall not be resolved in favor of Tenant because all or a portion of this Lease was prepared by Landlord.  The captions contained in this Lease are for convenience only and shall not be deemed to limit or alter the meaning of this Lease.  As used in this Lease the words tenant and landlord include the plural as well as the singular. Words used in the neuter gender include the masculine and feminine gender.
 
25.10.  Rules and Regulations.   Tenant agrees to abide by and conform to the Rules and to cause its employees, suppliers, customers and invitees to so abide and conform.  Landlord shall have the right, from time to time, to modify, amend and enforce the Rules.
 
25.11.  Confidentiality.   Tenant acknowledges and agrees that the terms of this Lease are confidential and constitute proprietary information of Landlord.  Disclosure of the terms hereof could adversely affect the ability of Landlord to negotiate other leases with respect to the Project and may impair Landlord's relationship with other tenants of the Project.  Tenant agrees that, except as otherwise required by law (including to comply with its obligations under the Federal Securities Laws), it and its partners, officers, directors, employees, brokers, and attorneys, if any, shall not disclose the terms and conditions of this Lease to any other person or entity without the prior written consent of Landlord which may be given or withheld by Landlord, in Landlord's sole discretion.  It is understood and agreed that damages alone would be an inadequate remedy for the breach of this provision by Tenant, and Landlord shall also have the right to seek specific performance of this provision and to seek injunctive relief to prevent its breach or continued breach.
 
26.  RADON DISCLOSURE.   Tenant is hereby advised that radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time.  Levels of radon that exceed federal and state guidelines have been found in buildings in Florida.  Additional information regarding radon and radon testing may be obtained from your county public health unit.  The foregoing disclosure is provided to comply with state law and is for informational purposes only.  Landlord has not conducted radon testing with respect to the Building and specifically disclaims any and all representations and warranties as to the absence of radon gas or radon producing conditions in connection with the Building and the Premises.
 
27.  WAIVER OF JURY TRIAL.   LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, COUNTERCLAIM OR CROSS-COMPLAINT IN ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER LANDLORD AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER ARISING OUT OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY LAW, STATUTE, OR REGULATION, EMERGENCY OR OTHERWISE, NOW OR HEREAFTER IN EFFECT.
 
28.  OPTIONS TO RENEW.
 
A.            Provided no default exists and Tenant is occupying the entire Premises at the time of such election, Tenant may renew this Lease for one (1) additional period of Three (3) years (the “First Extension Term”) on the same terms provided in this Lease (except as set forth below), by delivering written notice (the "First Renewal Notice") of the exercise thereof to Landlord at least Six  (6) months prior to the expiration date of this Lease.  Upon Tenant’s timely notice of the exercise of the option to renew, the Lease shall be extended on the same terms provided in this Lease, subject to the increase in annual rent as set forth in Section 1.8.
 
B.            Provided no default exists and Tenant is occupying the entire Premises at the time of such election, Tenant may renew this Lease for a second additional period of three (3) years (the “Second Extension Term”) on the same terms provided in this Lease (except as set forth below), by delivering written notice (the "Second Renewal Notice") of the exercise thereof to Landlord at least nine (9) months prior to the expiration date of the First Extension Term.  Upon Tenant’s timely notice of the exercise of the option to renew, the Lease shall be extended on the same terms provided in this Lease, subject to the increase in annual rent as set forth in Section 1.8.
 
[SIGNATURE PAGE FOLLOWS]

 
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WITNESSES:
 
LANDLORD:
     
   
HIALEAH WAREHOUSE HOLDINGS, LLC
   
a Florida limited liability company
     
/s/ Yehuda Ben-Horin
 
By:
/s/ Jane H. Hsiao
         
Print Name:
Yehuda Ben-Horin
 
Name:
Jane H. Hsiao
     
/s/ Sharon P. Baum
   
         
Print Name:
Sharon P. Baum
 
Title:
  
     
   
TENANT:
     
   
NON-INVASIVE MONITORING SYSTEMS, INC.
     
/s/ Michelle Espinoza
 
a Florida corporation
     
Print Name:
Michelle Espinoza
   
       
   
By:
/s/ Adam S. Jackson
     
Print Name:
   
Name:
Adam S. Jackson
     
   
Title:
C.F.O.
 
 
10
 

exhibit a
 
premises
 
floor plan

 
A-1
 

exhibit B
 
rules and regulations
 
GENERAL RULES
 
Tenant shall faithfully observe and comply with the following Rules and Regulations.
 
1.   Tenant shall not alter any locks or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord's prior written consent.  Tenant shall bear the cost of any lock changes or repairs required by Tenant.  Keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord.
 
2.   All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises.  Tenant shall assume any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed.
 
3.   Landlord reserves the right to close and keep locked all entrance and exit doors of the Project except during the Project's normal hours of business as defined in Section 11.2 of the Lease.  Tenant, its employees and agents must be sure that the doors to the Project are securely closed and locked when leaving the Premises if it is after the normal hours of business of the Project.  Tenant, its employees, agents or any other persons entering or leaving the Project at any time when it is so locked, or any time when it is considered to be after normal business hours for the Project, may be required to sign the Project register.  Access to the Project may be refused unless the person seeking access has proper identification or has a previously received authorization for access to the Project.  Landlord and its agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Project of any person.  In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property.
 
4.   No furniture, freight or equipment of any kind shall be brought into the Project without Landlord's prior authorization.  All moving activity into or out of the Project shall be scheduled with Landlord and done only at such time and in such manner as Landlord designates.  Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Project and also the times and manner of moving the same in and out of the Project.  Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight, and Tenant shall be solely responsible for the cost of installing all supports.  Landlord will not be responsible for loss of or damage to any such safe or property in any case.  Any damage to any part of the Project, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant.
 
5.   The requirements of Tenant will be attended to only upon application at the management office for the Project or at such office location designated by Landlord.  Tenant shall not ask employees of Landlord to do anything outside their regular duties without special authorization from Landlord.
 
6.   Tenant shall not disturb, solicit, or canvass any occupant of the Project and shall cooperate with Landlord and its agents to prevent the same.  Tenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, halls, stairways, elevators, or any Common Areas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises.  Smoking shall not be permitted in the Common Areas.
 
7.   The toilet rooms, urinals and wash bowls shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein.  The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or agents, shall have caused it.
 
8.   Except for vending machines intended for the sole use of Tenant's employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.
 
9.   Tenant shall not use or keep in or on the Premises or the Project any kerosene, gasoline or other inflammable or combustible fluid or material.  Tenant shall not bring into or keep within the Premises or the Project any animals, birds, bicycles or other vehicles.
 
10.   Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or to otherwise interfere in any way with the use of the Project by other tenants.

 
B-1
 
 
11.   No cooking shall be done or permitted on the Premises, nor shall the Premises be used for the storage of merchandise, for loading or for any improper, objectionable or immoral purposes.  Notwithstanding the foregoing, Underwriters' Laboratory approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors of Tenant, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations; and provided further that such cooking does not result in odors escaping from the Premises.
 
12.   Landlord shall have the right to approve where and how telephone wires are to be introduced to the Premises.  No boring or cutting for wires shall be allowed without the consent of Landlord.  The location of telephone call boxes and other office equipment affixed to the Premises shall be subject to the approval of Landlord.  Tenant shall not mark, drive nails or screws, or drill into the partitions, woodwork or plaster contained in the Premises or in any way deface the Premises or any part thereof without Landlord's prior written consent.  Tenant shall not install any radio or television antenna, satellite dish, loudspeaker or other device on the roof or exterior walls of the Project.  Tenant shall not interfere with broadcasting or reception from or in the Project or elsewhere.
 
13.   Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.
 
14.   Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Project's heating and air conditioning system, and shall refrain from attempting to adjust any controls.  Tenant shall not without the prior written consent of Landlord use any method of heating or air conditioning other than that supplied by Landlord.
 
15.   Tenant shall store all its trash and garbage within the interior of the Premises.  No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash in the vicinity of the Project without violation of any law or ordinance governing such disposal.  All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate.
 
16.   Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.
 
17.   No awnings or other projection shall be attached to the outside walls or windows of the Project by Tenant.  No curtains, blinds, shades or screens shall be attached to or hung in any window or door of the Premises without the prior written consent of Landlord.  All electrical ceiling fixtures hung in the Premises must be fluorescent and/or of a quality, type, design and bulb color approved by Landlord.  Tenant shall abide by Landlord's regulations concerning the opening and closing of window coverings which are attached to the windows in the Premises.  The skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Project shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills.
 
18.   Tenant shall not employ any person or persons other than the janitor of Landlord for the purpose of cleaning the Premises unless otherwise agreed to in writing by Landlord.  Except with the prior written consent of Landlord, no person or persons other than those approved by Landlord shall be permitted to enter the Project for the purpose of cleaning same.  Landlord shall in no way be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant or any of its employees or other persons by the janitor of Landlord.  Janitor service shall include ordinary dusting and cleaning by the janitor assigned to such work and shall not include cleaning of carpets or rugs, except normal vacuuming, or moving of furniture and other special services.  Window cleaning shall be done only by Landlord at reasonable intervals and as Landlord deems necessary.
 
PARKING RULES
 
1.   Parking areas shall be used only for parking by vehicles no longer than full size, passenger automobiles herein called "Permitted Size Vehicles".
 
2.   Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by Landlord for such activities.  Users of the parking area will obey all posted signs and park only in the areas designated for vehicle parking.
 
3.   Parking stickers or identification devices shall be the property of Landlord and shall be returned to Landlord by the holder thereof upon termination of the holder's parking privileges.  Tenant will pay such replacement charges as is reasonably established by Landlord for the loss of such devices.  Loss or theft of parking identification stickers or devices from automobiles must be reported to the parking operator immediately.  Any parking identification stickers or devices reported lost or stolen found on any unauthorized car will be confiscated and the illegal holder will be subject to prosecution.

 
B-2
 
 
4.   Landlord reserves the right to relocate all or a part of parking spaces from floor to floor, within one floor, and/or to reasonably adjacent off site locations(s), and to allocate them between compact and standard size and tandem spaces, as long as the same complies with applicable laws, ordinances and regulations.
 
5.   Unless otherwise instructed, every person using the parking area is required to park and lock his own vehicle.  Landlord will not be responsible for any damage to vehicles, injury to persons or loss of property, all of which risks are assumed by the party using the parking area.
 
6.   Validation of visitor parking, if established, will be permissible only by such method or methods as Landlord may establish at rates determined by Landlord, in Landlord's sole discretion.
 
7.   The maintenance, washing, waxing or cleaning of vehicles in the parking structure or Common Areas is prohibited.
 
8.   Tenant shall be responsible for seeing that all of its employees, agents and invitees comply with the applicable parking rules, regulations, laws and agreements.  Garage managers or attendants are not authorized to make or allow any exceptions to these Parking Rules and Regulations. Landlord reserves the right to terminate parking rights for any person or entity that willfully refuses to comply with these rules and regulations.
 
9.   Every driver is required to park his own car.  Where there are tandem spaces, the first car shall pull all the way to the front of the space leaving room for a second car to park behind the first car.  The driver parking behind the first car must leave his key with the parking attendant. Failure to do so shall subject the driver of the second car to a Fifty Dollar ($50.00) fine.  Refusal of the driver to leave his key when parking in a tandem space shall be cause for termination of the right to park in the parking facilities.  The parking operator, or his employees or agents, shall be authorized to move cars that are parked in tandem should it be necessary for the operation of the garage.  Tenant agrees that all responsibility for damage to cars or the theft of or from cars is assumed by the driver, and further agrees that Tenant will hold Landlord harmless for any such damages or theft.
 
10.   No vehicles shall be parked in the parking garage overnight.  The parking garage shall only be used for daily parking and no vehicle or other property shall be stored in a parking space.
 
Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord's judgment may from time to time be necessary for the management, safety, care and cleanliness of the Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Project.  Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.

 
B-3
 

exhibit C
 
Furniture

 
C-1
 

SCHEDULE 1 [To Be Revised]

Hialeah Warehouse Holdings LLC / 4400 Biscayne Boulevard Miami Fl, 33137
 JANITORIAL SERVICES
Cleaning Specifications
1. OFFICE AREAS

Daily

1.
Vacuum Empty all trash receptacles, replace liners as necessary and wipe off any spills to interior or exterior of receptacle all areas of carpet
2.
Spot clean in all traffic areas, removing staples and other debris.
3.
Sweep and damp mop all tile floors and remove all markings.
4.
Dust exposed surfaces of desks, tables, office furniture, filing cabinets, pictures, clocks, partition tops and other flat surfaces.
5.
Spot clean partition glass, door glass, and mirrors.  Remove all fingerprints and smudges from entry doors, walls, light switch covers, electrical outlet cover plates and doorknob handles.
6.
Dust windows sills and ledges.
7.
Properly position furniture, books and magazines in reception areas..
8.
Empty large recycling bins from offices into separate container to be disposed of into recycling dumpsters.
9.
Clean drinking fountains.
10.
Clean and wash all kitchen and lunchroom table tops, counters, sinks &  stove surfaces (report any insect problems).
11.
Take all dishes from conference rooms and place in kitchen area.
12.
Report safety Hazards, burned-out lights, water leaks and any insect problems

Weekly
1.
Spot clean walls around light switches, doors, and door frames.
2.
Damp wipe all interior doors dust all lower parts of furniture.
3.
Dust all ledges, baseboards and sills.
4.
Clean exposed areas of kitchen counters and wet bar areas.

Monthly
1.
Completely clean all partitions and doors, door jambs, door floor plates, glass and mirrors from floor to ceiling.
2.
Dust and clean all vents, grills, light fixtures and covers.
3.
Dust all ledges, wall moldings, shelves, etc. over seven feet.
4.
Clean and apply floor dressing to all composition, hardwood and parquet floors.
5.
Scrub all tile floors.

Quarterly : Dust clean or vacuum blinds.
Annually: At Tenant’s request, clean the carpet within the Premises.

RESTROOMS

Daily
1.
Clean sinks, urinals, and toilets.
2.
Clean mirrors, bright metal work, and stainless steel.
3.
Damp wipe all chrome, metal fixtures, hand plates, kick plates, utility covers, plumbing, clean-out covers, and door knobs.
4.
Empty and clean trash and sanitary napkin receptacles, replacing liners as necessary.
5.
Clean underside rims of urinals and toilet bowls.
6.
Wash both sides of toilet seats with soap and water.
7.
Re-stock all supplies (toilet paper, hand towels, seat covers, sanitary  bags, hand soap).
8.
Sweep and wet mop floors, paying particular attention to areas under urinals and toilet bowls.
9.
Damp clean stall partitions, doors and tile walls (report any graffiti and remove if possible).
10.
Vacuum and spot clean all carpet areas.
11.
Dust ledges and base boards.
12.
Dust and clean restroom signage and doors.
13.
Report all burned out lights, leaking faucets, running plumbing, or other maintenance needs.

 
S-1
 

Monthly
1.
Wipe clean all ceilings, lights and fixtures.
2.
Clean tile floors.
3.
Dust and clean all grills and vents.
4.
Detail all toilet compartments and fixtures.
 
 
S-2
 
 
 
Code of Business Conduct and Ethics
 
(Adopted September 29, 2009)
 
1.
Policy
 
Non-Invasive Monitoring Systems, Inc. and its subsidiaries (the “ Company ” or “NIMS” ) are committed to maintaining high standards of business conduct and ethics.  This Code of Business Conduct and Ethics (this " Code ") reflects the business practices and principles of behavior behind that commitment.  We expect employees, officers and directors to read and understand this Code and abide by it in the performance of his or her business responsibilities.  We have established the position of Compliance Officer (the “ Compliance Officer ”) to oversee this program and he can address any of your questions or concerns.  The Compliance Officer, our Chief Financial Officer, can be reached at 305-575-4202.  You may also speak with your supervisor or our Chief Executive Officer.
 
2.
Lawful and Ethical Conduct
 
NIMS’ policy is to be a good corporate citizen of the countries in which it does business.  A necessary aspect of this policy is the responsibility of the Company and each director, officer and employee to obey all laws and regulations which are applicable to us.  We must obey not only the letter, but also the spirit of the law.  The Code of Conduct discusses each director, officer and employee’s obligations with respect to certain laws that directly affect the way we do business, such as those covering the manufacture, marketing and sale of medical devices, environmental laws, antitrust laws, laws relating to NIMS stock and stock options, and those governing the Company’s relationship with our directors, officers and employees.  However, the policy to obey the laws extends to all laws, not only the ones discussed below.
 
Another critical aspect of being a good corporate citizen is to promote high standards by conducting our affairs in a clearly ethical manner.  Even the appearance of ethical impropriety is to be avoided.  Integrity is, and must continue to be, the basis of all our corporate relationships.  These policies were established in the firm belief that it is both right and in the best interest of the Company for directors, officers and employees to act in accordance with them.  The corporate policies that are outlined here should be understood and followed by every director, officer and employee who acts on behalf of NIMS anywhere in the world.
 
Violation of these policies could, in many instances, subject NIMS and the individuals involved to criminal or civil actions, fines, and lawsuits for damages.  Also, violation of these policies could subject a director, officer and employee to discipline up to and including termination of director status or employment.  Employees can obtain advice concerning these policies from the persons to whom they report or directly from one of the Company’s executive officers.  On doubtful questions, directors, officers and employees should seek and receive advice in advance of taking action.

 
 
 
 
3.
Conflicts of Interest Are to Be Avoided
 
The Company respects the rights of its directors, officers and employees to manage their affairs and investments and does not wish to impinge upon their personal lives.  At the same time, directors, officers and employees should avoid situations that present a potential conflict between their interests and the interests of the Company.  Also, NIMS directors, officers and employees should pay proper attention to the Company’s best interests.  Employees owe the Company their loyalty and should avoid any investment or association that interferes with the independent exercise of sound judgment in the Company’s best interests.  Accordingly, we must be careful to avoid situations where our personal interests could conflict or appear to conflict with the interests of NIMS.  Where a conflict exists, it must be resolved to the satisfaction of the Company in order for the director or employment relationship to continue.
 
Circumstances that may give rise to conflicts of interest are not always obvious.  There are many areas of uncertainty, as well as conflicts, which arise despite the best intentions of a director, officer or employee.  To avoid potentially damaging effects on both the Company and the individual, the Company asks employees to promptly disclose to their supervisors any facts or circumstances that may involve, or appear to involve, a conflict of interest.  Such disclosure can assist employees in resolving honest doubts as to the propriety of a particular course of conduct.
 
Circumstances which could involve conflicts of interest which should be avoided include: personal or family financial interests in a competitor, supplier, or customer; employment by a competitor in any capacity; placement of business in a firm owned or controlled by an employee or a family member; employment of relatives (any person who is related by blood or marriage, or whose relationship with the director, officer or employee is similar to that of persons who are related by blood or marriage) in a direct working relationship; acting as a consultant to a customer or supplier; or acceptance of entertainment, gifts, payments, services or travel which have more than a nominal value from those seeking to do business with NIMS. While business courtesies are to be encouraged, directors, officers and employees should not accept entertainment, gifts, payments, services or travel that may reasonably be deemed by others to affect their judgment or actions in the performance of their duties.
 
4.
Insider Information and Trading
 
NIMS’ insider trading policy forbids its directors, officers and employees from using, for personal advantage, information that they acquire during the course of their director status or employment with the Company that has not been publicly disclosed ("inside information").  This information could be used for personal advantage in a number of ways.  One way is associated with trading in NIMS stock or listed options.
 
The trading of NIMS stock or listed options in the market, by an employee based upon material inside information, or by others who have acquired inside information from the employee, is forbidden.  Such trading, in addition to raising obvious ethical considerations, subjects the user of such information to legal risks and could prove embarrassing to the individual and to the Company.  All employees must exercise caution not to disclose inside information to outsiders, either intentionally or inadvertently, under any circumstances, whether at meetings held as part of the business day or at informal after-hours discussions.

 
2
 
 
Even after information has been publicly disclosed through appropriate channels, a reasonable time should be allowed to pass before trading in NIMS stock or listed options to allow for public dissemination and evaluation of the information.  In addition to the above, none of us should buy or sell securities in any other company about which we have material inside information obtained in the performance of our duties at NIMS.
 
Because it is often difficult to determine whether the standards described above have been satisfied, to prevent inadvertent violation of the Company’s policy or of the securities laws, directors, officers and employees who have questions should consult with the Compliance Officer or the Company’s legal counsel prior to engaging in any transaction involving NIMS stock, listed options or stock options.
 
5.
Company’s Assets Should be Preserved
 
Each director, officer and employee has a responsibility to preserve the Company’s assets, including its property, plants, equipment and resources.  Inherent in this responsibility is the duty to not misuse the assets of the Company.  The use of Company assets or the use of the services of Company personnel for non-Company purposes is improper.
 
6.
Company’s Proprietary Information Should be Safeguarded
 
In addition to preserving and not misusing the tangible assets and resources of the Company, each director, officer and employee must also protect the Company’s intellectual property.  Such property includes scientific and technical knowledge, know-how, and the experience developed in the course of the Company’s activities, including information NIMS develops in research, production, marketing, sales, legal, and finance.  Such information is a vital asset of the Company, essential to our continued success.
 
This information is highly confidential.  It should be protected by all Company directors, officers and employees and not disclosed to outsiders.  Its loss through inadvertent or improper disclosure could be harmful to the Company.  Employees may be required to sign agreements reminding them of their obligation not to disclose the Company’s confidential information, both while they are employed and after they leave the Company.  The loyalty, integrity, and sound judgment of NIMS directors, officers and employees both on and off the job are essential to the protection of the Company’s proprietary information.
 
7.
Good Community Relations Should be Maintained
 
NIMS has a commitment to function as a good corporate citizen.  NIMS recognizes that constructive interaction with society and a positive relationship with host communities are important to business success.  These goals are achieved by conducting business, whenever possible, so as to contribute to the overall economic vitality of the host community; by operating our facilities in accordance with applicable laws; and by supporting and encouraging public policies that enhance the proper operation of the business and take into account legitimate employee and community interests.  Each director, officer and employee is a representative of the Company in the community, in which he or she lives and works.  Directors, officers and employees should therefore act in a manner, which enhances the Company’s relationships with the communities in which it does business.

 
3
 
 
8.
Good Employee Relations Should be Maintained
 
NIMS seeks to establish and maintain its reputation as an outstanding employer and to ensure high levels of employee motivation and commitment.  It is NIMS’ policy to treat applicants and employees without regard to race, color, religion, sex, sexual orientation, age, national origin, handicap, or veteran status; to provide challenging opportunities for individual growth and advancement; to ensure open communication throughout the organization in order to resolve problems or complaints; to strive to protect its employees’ health and safety; to provide a work environment free from harassment; and to comply with all laws relating to employees.
 
Any violations of this policy should be reported to the Compliance Officer.  All reported complaints will be confidentially investigated and resolved.  Individual managers and supervisory personnel have direct responsibility for implementing this policy.  However, the support of all our employees is essential to the policy’s successful implementation.
 
9.
High Standards of Quality Should be Maintained
 
A commitment to quality is essential to the Company, especially in the medical device business.  NIMS is dedicated to the development, manufacture, and delivery of high quality products meeting both our own quality standards and our customers’ requirements.  In addition, all of our products must be manufactured in accordance with laws, including good manufacturing practices.  To ensure compliance with these policies, we have implemented extensive quality control and testing procedures.  All employees are responsible for maintaining the high quality of our products.  Each employee must bring to his or her supervisor’s attention any lapse in quality control or testing procedures.  If an employee is not satisfied with the actions taken, he should bring the matter to the attention of any of the executive officers of the Company.
 
10.
Maintenance of Corporate Books, Records, Documents and Accounts; Financial Integrity; Public Reporting
 
It has always been the policy of the Company to maintain the integrity of its financial records and to assure that its financial statements fairly and accurately reflect the financial condition and results of operations of the Company.  All funds and assets of the Company are to be recorded in its records of account and are not to be hidden.  No false or artificial entries shall be made in the records of the Company for any reason, and no payment on behalf of the Company shall be approved or made with the intention or understanding that any part of such payment is to be used for any purpose other than that described by the documents supporting the payment.
 
Employees who collect, provide or analyze information for or otherwise contribute in any way in preparing or verifying our internal reports, reports filed with the Securities and Exchange Commission or press releases issued by the Company should strive to ensure that our financial and other disclosure is timely, accurate and transparent and that our reports and press releases contain all of the information about the Company that would be important to enable stockholders and potential investors to assess the soundness and risks of our business and finances and the quality and integrity of our accounting and disclosures.
 
Any employee having information or knowledge of any hidden fund or asset, of any false or artificial entry in the books and records of the Company, or of any such payment shall promptly report the matter to the Company’s Compliance Officer or the CEO.  Additional information dealing with this subject is contained in published corporate and financial policies.

 
4
 
 
11.
Full Disclosure to Physicians Is Required
 
As a manufacturer of medical devices, NIMS intends to keep the medical profession fully informed of the uses, safety, contraindications, and side effects of our products and, where appropriate, of their operational requirements and characteristics.  This policy will be implemented by the use of package inserts, mailings to physicians and other health care professionals, the dissemination of other educational or promotional materials, as well as through oral presentations by our trained professional service representatives.  The Company follows the rule that the essential information given must be consistent both within the worldwide body of scientific knowledge pertaining to the products in question and with local requirements of good medical practice and governmental regulation.
 
12.
The Bribery of Government Officials Is Forbidden
 
NIMS has a policy forbidding bribery of government officials in the conduct of its business throughout the world.  No NIMS director, officer and employee anywhere in the world may engage in bribery of any government official.  NIMS takes this position not only because such payment would be in violation of the law but also because of the Company’s commitment to good government and the fair and impartial administration of the laws.
 
United States law makes it a felony to offer or give anything of value to a government official because of any official act performed or to be performed.  In addition, most government agencies have strict standards, which their employees must follow regarding the receipt of gifts, entertainment, meals, or other things of value.
 
13.
Commercial Bribery Is Prohibited
 
NIMS’ success in the market is based on the value provided to its customers through the delivery of quality products and services.  The Company does not seek to gain any improper advantage through the use of entertainment, meals, other business courtesies or gifts.  Accordingly, their use under circumstances which might infer that favorable treatment is being sought must be avoided.  It is imperative that when we meet with customers, we exercise good judgment and moderation in providing business courtesies and offer them only when appropriate and in accordance with reasonable and lawful customs in the marketplace.
 
NIMS has a policy of prohibiting any director, officer and employee, consultant, middleman, or other agent acting on behalf of the Company from directly or indirectly engaging in commercial bribery.  "Commercial bribery" deals with furnishing something of value to an agent, without the knowledge of the agent’s principal, in the hope that the agent will influence the principal’s commercial conduct.  An example would be paying money or giving a gift to an employee of a customer, without the knowledge of the customer, in the hope that the employee will influence the customer to purchase our products.  Engaging in commercial bribery is unlawful under the laws of the United States and the laws of a number of states, as well as under the laws of a number of countries outside the United States.

 
5
 
 
14.
Federal Corporate Political Contributions Are Prohibited
 
As a corporation, NIMS is prohibited by United States’ law from contributing to candidates for federal office.  Of course, this does not mean that directors, officers and employees of the Company cannot contribute to candidates or otherwise take part in the political process.  In fact, NIMS encourages participation by directors, officers and employees in public affairs and political activities.  Each of us must recognize, however, that our participation must be on an individual basis, on our own time, and at our own expense.  Under no circumstances will the Company provide reimbursement for contributions to the campaign of any candidate for federal, state, or local office or to a political party.
 
15.
Competing Fairly and Complying with Antitrust Laws Is Essential
 
It is NIMS’ policy to compete fairly and legitimately and to comply with antitrust and competition laws.  The antitrust and competition laws apply to many aspects of business behavior, and those directors, officers and employees who have responsibility in areas of the business to which these laws apply must be aware of them and their implications.
 
The United States antitrust laws and the competition laws of many other countries and organizations prohibit agreements and activities that may have the effect of reducing competition without providing counterbalancing benefits to consumers.  Agreements and activities which are prohibited include: agreements with competitors to fix or control prices; agreements with competitors to allocate products, markets or territories; agreements to boycott certain customers or suppliers; agreements to refrain from or limit the manufacture, sale or production of any product; or reciprocal purchase arrangements or tie-ins.
 
To ensure that the Company avoids these illegal agreements, it continues to be the policy of the Company that there are to be no discussions or other contacts, direct or indirect, with competitors regarding (1) prices to be charged by NIMS or others or regarding other terms and conditions of sales, (2) the territories or markets in which products will be sold, (3) persons or companies to whom products will not be sold.  The same applies to the company’s suppliers and customers, except that discussions are permitted regarding the Company’s sales to such customers or purchases from such suppliers.
 
Because of the complexity of the United States antitrust laws and the competition laws of other countries and organizations like the European Economic Community, directors, officers and employees should consult with the Compliance Officer or the Company’s legal counsel when any situations arise which may result in a violation of these laws.  In addition, because the United States antitrust laws and the competition laws of other nations and organizations may be applied to international operations and transaction, employees should seek the advice of the Company’s legal counsel when questions covering international activities arise.
 
16.
Complying with Environmental Laws is Essential
 
NIMS must fully comply with all federal, state, local and foreign laws relating to the protection of the environment in the conduct of its business.  It is recognized that the use of hazardous materials is unavoidable.  However, we have an obligation to use and store these materials properly to ensure that contact with the environment is minimized and limited to established accepted circumstances.  All wastes which are generated must be stored as required by applicable law and must be recycled or disposed of as required by applicable law.  Employees must report, in accordance with applicable Company policies, any circumstances under which hazardous materials or wastes come in contact with the environment, are improperly handled or disposed of, or where a potential violation of the environmental laws may exist.

 
6
 
 
17.
Observe Restrictions on International Trade and Avoid Illegal Boycotts
 
U.S. law prohibits the exportation of products and technology to certain countries and trading partners, and trading restrictions may also be imposed by the laws of other countries in which NIMS companies manufacture products.  Since the application of these laws depends on the type of products and the countries involved, the Company’s legal counsel should be informed of any proposed new business relationships involving international trade.
 
NIMS may receive requests to participate in a boycott imposed by one non-U.S. country against another country that is friendly to the U.S. Participation in any such boycott violates U.S. law, and anyone receiving such a request is required to report it.  Employees should be alert to boycott provisions in forms that they receive from other companies, such as contracts, requests to bid, letters of credit, and purchase orders.  If any document contains language that may potentially be boycott-related, NIMS cannot sign the document, and it must be provided promptly to the Compliance Officer or the Company’s legal counsel for proper handling.
 
18.
Waivers
 
Any waiver of this Code for executive officers including, where required by applicable laws, our principal executive officer, principal financial officer, principal accounting officer or controller (or persons performing similar functions) or directors may be authorized only by our Board or the Audit Committee and will be disclosed to stockholders as required by applicable laws, rules and regulations.
 
19.
Ethics Hotline
 
You may contact our Ethics Hotline via toll-free call (1-877-848-2766), email ( NIMS @signius.com ) or website ( http://www.thecompliancepartners.com/ NIMS ) if you wish to report actual or suspected violations of this Code.  The Ethics Hotline is administered by an independent compliance provider to ensure confidentiality.  You may make your contact anonymously, although the Compliance Officer may be unable to obtain follow-up details from you that may be necessary to investigate the matter.  Your contact with the Ethics Hotline will be kept strictly confidential to the extent reasonably possible within the objectives of this Code.
 
20.
Clarifying Questions and Concerns; Reporting Possible Violations
 
If you encounter a situation or are considering a course of action and its appropriateness is unclear, or if you wish to ask questions about the Company’s policy, discuss the matter promptly with your supervisor, the Compliance Officer or our Chief Executive Officer.  If you are aware of a suspected or actual violation of Code standards by others, you have a responsibility to report it.

 
7
 
 
21.
Compliance with the Code of Business Conduct and Discipline
 
NIMS strives to serve the overall interests of our customers, suppliers, employees, communities and shareholders.  NIMS believes that strict compliance by all directors, officers and employees with this Code of Conduct by each of us will best serve the interests of the Company and these constituencies.  Accordingly, violations of the Code of Conduct will not be tolerated and will result in penalties ranging from warnings and reprimands to discharges as deemed appropriate by the Company.  Willful disregard of criminal statutes underlying this Code of Conduct may require the Company to refer such violation for criminal prosecution or civil action.
 
Each supervisor has the responsibility for employees, including agents, consultants, and other representatives of the Company under his or her direction to: (1) continually stress to all employees the need for a commitment to the principles of the Code of Conduct; (2) ensure that their departments operate in accordance with the highest principles of business ethics; and (3) maintain a workplace environment that encourages open communication regarding the importance of operating under these principles and to reinforce the lines of communications available to employees to resolve concerns related to the Code of Conduct.
 
Each NIMS director, officer and employee is charged with the responsibility of familiarizing himself or herself with the Code of Conduct and reporting each violation or potential violation of the Code of Conduct of which he or she becomes aware.  The Company strongly encourages employees to work with their supervisors on matters concerning the interpretation and application of the Code and in making reports.  If any employee feels that he or she may not discuss a particular situation with his or her supervisor, such employee should feel free to discuss the matter with any of the executive officers of the Company.
 
We wish to assure each employee who reports a violation or potential violation of the Code of Conduct that he or she will, to the extent practicable, remain anonymous.  Under no circumstances will any employee be subject to any disciplinary or retaliatory action as the result of filing a report of a violation or a potential violation.  Concerns in this area should be reported to the head of human resources or to any executive officer.

 
8
 

Exhibit 21.1
 
SUBSIDIARIES
 
Name of Subsidiary
 
State of Incorporation
 
Name Under Which Subsidiary Is Doing Business
Non-Invasive Monitoring Systems of Florida, Inc.
 
Florida
 
Non-Invasive Monitoring Systems of Florida, Inc.
NIMS of Canada, Inc.
  
Ontario, Canada
  
NIMS of Canada, Inc.

 
 

Exhibit 31.1
 
CERTIFICATIONS
 
I, Marvin A. Sackner, M.D., certify that:
 
 
(1)
I have reviewed this Annual Report on Form 10-K of Non-Invasive Monitoring Systems, Inc.;

 
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 
(4)
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
 
(5)
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
By:
/s/ Marvin A. Sackner, M.D.
Marvin A. Sackner, M.D.
Chief Executive Officer (Principal Executive Officer)
October 28, 2009

 
 

Exhibit 31.2
 
CERTIFICATIONS
 
I, Adam S. Jackson, certify that:
 
 
(1)
I have reviewed this Annual Report on Form 10-K of Non-Invasive Monitoring Systems, Inc.;

 
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 
(4)
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 
(5)
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

By:
/s/ Adam S. Jackson
Adam S. Jackson
Chief Financial Officer
October 28, 2009

 
 

Exhibit 32.1
 
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Annual Report on Form 10-K of Non-Invasive Monitoring Systems, Inc. for the fiscal year ended July 31, 2009 (the “Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:
 
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Non-Invasive Monitoring Systems, Inc.
 
By:
/s/ Marvin A. Sackner, M.D.
Marvin A. Sackner, M.D.
Chief Executive Officer and President
October 28, 2009
 
The certification set forth above is being furnished as an Exhibit solely pursuant to Section 906 of the Sarbanes—Oxley Act of 2002 and is not being filed as part of the Report or as a separate disclosure document of Non-Invasive Monitoring Systems, Inc. or the certifying officers

 
 

Exhibit 32.2
 
CERTIFICATION PURSUANT
TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Annual Report on Form 10-K of Non-Invasive Monitoring Systems, Inc. for the fiscal year ended July 31, 2009 (the “Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:
 
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Non-Invasive Monitoring Systems, Inc.
 
By:
/s/ Adam S. Jackson
Adam S. Jackson
Chief Financial Officer
October 28, 2009
 
The certification set forth above is being furnished as an Exhibit solely pursuant to Section 906 of the Sarbanes—Oxley Act of 2002 and is not being filed as part of the Report or as a separate disclosure document of Non-Invasive Monitoring Systems, Inc. or the certifying officers