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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT
OF 1934



For the Fiscal Year Ended July 31, 2005



Commission File Number: 000-13176



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NON-INVASIVE MONITORING SYSTEMS, INC.

(name of small business issuer as
specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Florida                                                        |  | 59-2007840                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



1666 Kennedy
Causeway Avenue, Suite 308, North Bay Village Florida 33141

(Address of principal executive offices) (Zip Code)



(305) 861-0075

(Registrants telephone number)





(Former name or former address, if changed since last report)



Securities Registered Under Section 12(b) of the Exchange Act:



None



Securities Registered Under Section 12(g) of the Exchange Act:



Common Stock, $0.01



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



Check if
there is no disclosure of delinquent filers in response to Item 405 of Regulation SB contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10KSB or any amendment to this Form 10KSB.  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



State issuers revenues for its most recent fiscal year: $461,675.



The aggregate market value of the registrants common stock held by non-affiliates of the registrant as of November 8, 2005 was
approximately $2,776,855. Solely for purposes of the foregoing calculation, all of the registrants directors and officers are deemed to be affiliates.



APPLICABLE ONLY TO CORPORATE ISSUERS



The number of shares outstanding of the registrants Common Stock, par value $.01 per share (the Common Stock), as of July 31, 2005, was 31,221,971.



Transitional Small Business Disclosure
Format:    Yes ̈No  x



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NON-INVASIVE MONITORING SYSTEMS, INC.

Report on Form 10-KSB

For the Fiscal Year Ended July 31, 2005



TABLE OF CONTENTS



|           |  |                                                                                                                 |  |     
|---------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                 |  | PAGE
|PART I    
|           |  |                                                                                                                
|Item 1.    |  | Description of Business                                                                                         |  | 1   
|Item 2.    |  | Description of Property                                                                                         |  | 6   
|Item 3.    |  | Legal Proceedings                                                                                               |  | 6   
|Item 4.    |  | Submission of Matters to Vote of Security Holders                                                               |  | 6   
|          
|PART II   
|           |  |                                                                                                                
|Item 5.    |  | Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities  |  | 7   
|Item 6.    |  | Managements Discussion and Analysis or Plan of Operation                                                       |  | 8   
|Item 7.    |  | Financial Statements                                                                                            |  | 12  
|Item 8.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 12  
|Item 8A.   |  | Controls and Procedures                                                                                         |  | 12  
|Item 8B.   |  | Other Information                                                                                               |  | 12  
|          
|PART III  
|           |  |                                                                                                                
|Item 9.    |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act |  | 13  
|Item 10.   |  | Executive Compensation                                                                                          |  | 16  
|Item 11.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                  |  | 17  
|Item 12.   |  | Certain Relationships and Related Transactions                                                                  |  | 19  
|Item 13.   |  | Exhibits                                                                                                        |  | 21  
|Item 14    |  | Principal Accountant Fees and Services                                                                          |  | 22  
|           | 
|Signatures |  | 23                                                                                                             



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Forward-Looking Statements



This Report contains, in addition to historical information, forward-looking statements regarding Non-Invasive Monitoring Systems, Inc. (the
Company or NIMS), which represent the Companys expectations or beliefs including, but not limited to, statements concerning the Companys operations, performance, financial condition, business strategies, and other
information and that involve substantial risks and uncertainties. The Companys actual results of operations, some of which are beyond the Companys control, could differ materially. For this purpose, any statements contained in this
Report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as may, will, expect, believe,
anticipate, intend, could, estimate, or continue or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. Factors that
could cause or contribute to such difference include, but are not limited to, history of operating losses and accumulated deficit; need for additional financing; dependence on future sales of the AT101 motion platform; competition; dependence on
management; risks related to proprietary rights; government regulation; and other factors discussed herein and in the Companys other filings with the Securities and Exchange Commission.



PART I



ITEM 1. DESCRIPTION OF BUSINESS



A. General Development of Business.



Introduction



Non-Invasive Monitoring Systems, Inc. (the
Company or NIMS) primary business is the research, development, manufacturing and marketing of a non-invasive, whole body, periodic acceleration, therapeutic vibrator, which has been designated as 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 have been sold to SensorMedics Division of ViaSys (NYSE) for cash and royalties on sales and to privately held VivoMetrics in Ventura CA for royalties on sales and an equity position.



Business Strategy



During the calendar years 2002 through 2005, the Company restructured its operations and revised its business strategy to transform the
Company from a research and development company into a company that markets and distributes the AT-101 therapeutic vibrator device on a worldwide basis. The Company will promote its use for the relief of minor aches and pain.



The Company had originally submitted the AT-101 to FDA as a Class 1 (exempt) powered exercise
device and was selling it to physicians and patients on prescriptions but in January 2005, FDA disagreed with the Companys classification. FDA instructed the Company that it submit a 510(k) application for the AT-101 as a therapeutic vibrator
and cease marketing the AT-101 until receiving approval on the 510(k) submission to FDA. Accordingly, the Company ceased its sales and marketing efforts thereafter. Revenue has continued to be received from royalties of sales of its diagnostic
monitoring hardware and software from the SensorMedics and VivoMetrics companies and small research contracts.



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Effective August 18, 2005, the Company closed on a financing transaction with a group of private investors of
$1,000,000. The financing consisted of the sale of two components: (a) an aggregate of 20 Million shares of the Companys common stock; and (b) Warrants registered in the name of each Investor to receive an aggregate of 10 Million
shares of common stock to be issued to the Investors pro rata based upon their investment.



This capital sufficiently funds our business plan and capital requirements through the second quarter of year 2006 provided the Company receives FDA 510(k) clearance to market the AT-101 therapeutic vibrator, as an
effective, safe, non-invasive means for relief of minor aches and pains. From February to now, the Company has developed a working prototype of a less expensive home version of the AT-101. It has engaged an industrial design group to develop plans
for its appearance based upon market research. It is anticipated that a production model will be available in 2006.



Gary Macleod was elected Chief Executive Officer on August 22, 2005. Gary Macleod was President and Chief Executive Officer of V-Mobile, Inc. from 2003 to the
present. From 2000 to 2003, Mr. Macleod was President and Chief Executive Officer Unplugin, Inc. Mr. Macleod served as President and Chief Executive Officer of Courtroom Technologies, Inc. from 1991 to 2000. Mr. Macleod is a business
graduate of Franklin Pierce College in New Hampshire, graduating in 1985.



On
August 16, 2005 The Company submitted a 510(k) application to FDA to market the AT-101 as a therapeutic vibrator through its legal counsel and is awaiting a response from the FDA.



Revenue will be derived from sales of the AT-101 therapeutic vibrator device, royalties and research contracts. Management of the Company
has determined that it is in the best interest of the Company and its shareholders to focus the Companys time and recourses of developing and marketing the AT-101 therapeutic vibrator.



NIMS assigned its patents for an ambulatory monitoring shirt to VivoMetrics, Inc., a health
care information company based in Ventura, California. In return for these patent rights, NIMS was given equity ownership in VivoMetrics, Inc. and paid royalties on sales and leasing of LifeShirt(TM) systems. In April, 2002, VivoMetrics, Inc.
received FDA clearance allowing VivoMetrics, Inc. to market the LifeShirtTMSystem. Initial marketing has commenced
on the LifeShirt System. There can be no assurances as to the amount of revenues that will be derived from the marketing of the LifeShirt system.



This annual financial report strongly reflects the FDAs action in halting sales of the AT-101 that previously was registered with FDA as a Class 1 (exempt) powered
exercise device in January 2005. Further, the preparation and submission of a 510(k) application for the AT-101 as a therapeutic vibrator, as suggested by FDA, has required additional financial resources. Finally, a fabrication design of a less
costly version of the AT-101 for home use and market research analysis contract for this new device was necessitated a capital commitment The Company anticipates experiencing losses at least through the next three fiscal quarters as it awaits 510(k)
approval to market the AT-101 therapeutic vibrator.



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B. Financial Information About Industry Segments.



Not applicable.



C. Narrative Description of Business.



Introduction



The Company is engaged in the marketing and sales of a non-invasive, therapeutic, periodic
acceleration, therapeutic vibrator which has been designated as the AT-101.



Current Products



AT-101 Therapeutic Vibrator



Sales of the AT-101 commenced in October 2002 in Japan and in February
2003 in USA. QTM Incorporated, an FDA registered manufacturer (Oldsmar, FL) is currently manufacturing the device. The AT-101 is built in accordance with ISO and FDA Good Manufacturing Practices.



Several animal and human research studies this past year have revealed that application of
the AT-101 causes release of beneficial substances from the inner lining of blood vessels. These data are not being claimed as an intended use of the device for marketing the AT-101 but demonstrate a potential mechanism for benefits.
Dr. Sackner and associates from Mt. Sinai Medical Center Miami Beach published a paper in the January 2005 issue of Chest (Nitric oxide is released into circulation with whole-body, periodic acceleration) that included 14 healthy adults and 40
adult patients with inflammatory diseases who underwent single 45-min trials with the AT-101. Increased nitric oxide bioactivity occurred in every healthy adult and adult patient with inflammatory disease. The application of the AT-101 was well
tolerated over the 45-min period in all healthy adults and adult patients; everyone completed the full treatment time without interruption.



Dr. Adams and associates from Mt Sinai Medical Center Miami Beach published a paper in the May 2005 issue of Journal of Applied Physiology (Periodic acceleration:
effects on vasoactive, fibrinolytic, and coagulation factors.), a study with a modified AT-101 in pigs. This demonstrated that AT-101 safely produces increases of vasoactive and fibrinolytic activity. And has potential to achieve mediator-related
benefits from the actions of nitric oxide and prostaglandins. Kuchera .and Daghigh.from the Philadelphia College of Osteopathic Medicine in a presented a study entitled Determination of enhanced nitric oxide production using external
mechanical stimuli at the National Meeting of the American Osteopathic Association in October 2004. They showed that the AT-101 elevates nitric oxide in the range associated with release from eNOS in the plasma of normal controls as well as
individuals with disorders that have the potential to benefit from such elevations.



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Sackner and associates from Mt Sinai Medical Center presented a paper entitled Periodic acceleration modifies
antigen-induced airway responses in sheep by nitric oxide (NO)mediated down regulation of nuclear factor kappa beta (NF-kB)at the European Respiratory Society in September 2004. This showed that the AT-101 increased the release of nitric
oxide throughout an allergic sheeps body which blocked the activation of nuclear factor kappa beta mediated inflammation. The was accompanied by relief of bronchospasm.



Dr Adams and associates have been investigating a modified AT-101 for cardiopulmonary resuscitation in anesthetized pigs, which is not
presently under consideration for marketing by the Company. In a paper published in the January issue of Resuscitation entitled, Echocardiographic comparison of cardiopulmonary resuscitation (CPR) using periodic acceleration (pGz) versus chest
compression. They concluded that the AT-101 holds promise as a new method for CPR with better left ventricular (LV) function post-CPR than the more traditional chest compression method.



The AT-101 therapeutic vibrator is another invention by Marvin A. Sackner, M.D., Professor of
Medicine at the University of Miami at Mt. Sinai and Emeritus Director of Medical Services at Mt. Sinai Medical Center. Dr. Sackner is a past President of the American Thoracic Society, past Chairman of the Pulmonary Disease Subspecialty Board
and a past Member of the American Board of Internal Medicine. He holds 27 United States patents.



The AT-101 therapeutic vibrator is a comfortable gurney styled device that moves 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.
A 510(k) application has been submitted to FDA to allow the Company to market the AT-101 therapeutic vibrator for the relief of minor aches and pains



The Company will require additional capital in 2006 to remain in business and commercialize the AT-101 therapeutic vibrator for physician offices, sports medicine
centers, athletic teams, and home use. Failure to secure necessary financing will result in reduction and curtailment of operations.



The term the Company and NIMS refers to both the Company and its subsidiaries, unless the context requires otherwise. The Companys offices
are located at 1666 Kennedy Causeway Avenue, Suite 308, North Bay Village Florida 32341 and its telephone number is (305) 861-0075.



LifeShirt:



The LifeShirt is a Wearable Physiological Computer (patent, PhysiologicSigns Feedback System, issued April 4, 2000) that incorporates four inductive plethysmographic transducers, electrocardiographic electrodes,
and a two posture sensor into a low turtle neck sleeveless garment. Pulse oximetry is an optional add-on. These transducers are connected to a



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miniaturized, battery powered, electronic module that has been fabricated. This in turn interfaces with a Personal
Digital Assistant (PDA) with compact flash memory for collection of raw waveforms and digital data from the electronic module. Such data are transmitted from flash memory to a Data Collection Center that checks for quality control from
full disclosure, transforms data into minute-by-minute median trends of over 30 physical and emotional signs of health and disease. In addition, the monitored patient can enter symptoms with intensity, mood, and medication diary into the PDA for
integration with the physiologic information collected with the LifeShirt garment. Data from flash memory can be mailed to the VivoMetrics, Inc.s Data Collection Center for quality control, generation of reports, and database storage. Vital
and physiological signs can be obtained non-invasively, continuously, cheaply, and reliably with the comfortably worn LifeShirt garment system while at rest, during exercise, at work, and during sleep.



Regulatory Compliance



Medical device manufacturers are subject to extensive federal and state regulations relating
to nearly every aspect of the development, manufacture and commercialization of such products. The FDA is the principal regulatory authority over medical devices in the United States. Additionally, in order to manufacture and market medical devices
overseas, which the Company believes is a significant potential market for its products, the Company must comply with regulatory requirements and procedures in various foreign countries. The CE mark is required for marketing in the European
Community



Patents and Trademarks



The Company currently holds 5 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 2 United States and 4 (international) foreign patents. The Company transferred 14 U.S. patents to VivoMetrics,
Inc. No assurance can be given as to the scope of protection afforded by any patent issued, whether patents will be issued with respect to any pending or future patent application, that patents issued will not be designed around, infringed or
successfully challenged by others, that the Company will have sufficient resources to enforce any proprietary protection afforded by its patents or that the Companys technology will not infringe on patents held by others. The Company believes
that in the event its patent protection is materially impaired, a material adverse effect on its present and proposed business could result. The expiration dates of the patents are as follows:



Expiration Year



|      |  |          |  |     
|----- |  | -------- |  | ----
|      |  | Domestic |  |     
|      |  | 1        |  | 2006
|      |  | 1        |  | 2011
|      |  | 1        |  | 2013
|      |  | 1        |  | 2018
|      |  | 1        |  | 2019
|Total |  | 5        |  |     



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With respect to its present and proposed product line, the Company has 16 trademarks and trade names which are registered
in the United States and in several foreign countries, including the Companys principal trademark.



Competition



The Company competes with
several concerns that therapeutic vibratory devices or vibratory devices that are registered with FDA as powered exercise devices that market non-invasive therapeutic vibrators or powered exercise devices. 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. Management believes, however, that it effectively competes with
such concerns on the basis of uniqueness of its product.



Employees



The Company currently employs four full-time employees on a full-time
basis. Three are engaged in general, marketing and administrative duties and one in research and development.



ITEM 2. DESCRIPTION OF PROPERTY.



None



ITEM 3. LEGAL PROCEEDINGS.



Richard Buckley,
an individual and past employee of the Company, who was terminated in September 2003, filed suit against the Company in August 2005 for an alleged severance payment (Case #05-15970; 11thJudicial Circuit in and for Dade County). The Company has engaged legal counsel to defend the allegations



Apart from the above, there are no material legal proceedings that are currently pending or,
to the Companys knowledge, contemplated against the Company to which it is a party



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.



No matters were submitted to a vote of shareholders of the Company during the fourth quarter of the fiscal year ended July 31, 2005.



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PART II



ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.



Market Information.



The table below sets forth, for the respective periods indicated, the prices for the Companys common stock in the over-the-counter market as reported by the
NASDs OTC Bulletin Board under the symbol NIMU. The closing prices represent inter-dealer quotations, without adjustments for retail mark-ups, mark-downs or commissions and may not necessarily represent actual transactions.



|                 |  |      |      |     |   |     
|---------------- |  | ---- | ---- | --- | - | ----
|Quarter Ended    |  | High |      | Low
|January 30, 2003 |  | $    | 0.31 |     | $ | 0.29
|April 30, 2003   |  | $    | 0.25 |     | $ | 0.22
|July 31, 2003    |  | $    | 0.28 |     | $ | 0.25
|October 31, 2003 |  | $    | 0.16 |     | $ | 0.15
|January 30, 2004 |  | $    | 0.10 |     | $ | 0.09
|April 30, 2004   |  | $    | 0.08 |     | $ | 0.08
|July 30, 2004    |  | $    | 0.10 |     | $ | 0.08
|October 31, 2005 |  | $    | 0.18 |     | $ | 0.18
|January 31, 2005 |  | $    | 0.07 |     | $ | 0.06
|April 29, 2005   |  | $    | 0.07 |     | $ | 0.07
|July 29, 2005    |  | $    | 0.11 |     | $ | 0.10



At November 8, 2005, the
Companys Common Stock was quoted on the OTC Bulletin Board at a closing price of $0.297 per share.



The quotations set forth above reflect inter-dealer prices, without retail markup, markdown, or commission, and may not necessarily represent actual transactions.



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, 2005, we had approximately 1615 shareholders of record based on information provided by our transfer agent, American Stock Transfer & Trust Company.



Recent Issuances of Unregistered
Securities



On August 18, 2005, we the sale of two equity components:
(a) an aggregate of Twenty Million (20,000,000) shares of the Companys common stock; and (b) Warrants registered in the name of each investor to receive an aggregate of Ten Million (10,000,000) shares of the Companys



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Common Stock to be issued to the Investors pro rata based upon their investment, with an exercise price of $0.15 (with
the right to a cashless exercise) and an expiration date of February 18, 2007. All of our shares and warrants issued in the foregoing transactions were issued in reliance on the exemption from registration and prospectus delivery requirements
of the Act set forth in Section 3(b) and/or Section 4(2) of the Securities Act and the regulations promulgated thereunder.



ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.



Cautionary Statement Regarding Forward-looking Statements



This report may contain forward-looking statements within the meaning of Section 17A of the Securities Exchange Act of 1933, as amended, and
Section 21E of the Securities Exchange Act, as amended. Examples of forward-looking statements include, but are not limited to: (a) projections of our revenues, capital expenditures, growth, prospects, dividends, capital structure and
other financial matters; (b) statements of our plans and objectives; (c) statements of our future economic performance; (d) statements of assumptions underlying other statements and statements about us and our business relating to the
future; and (e) any statements using the words believes, budget, target, goal, anticipate, expect, plan, outlook, objective,
may, project, intend, estimate, or similar expressions.



Current Accounting Policies



Goodwill and Indefinite-Lived Purchased Intangible AssetsIn accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill acquired in business combinations is assigned to reporting units that
are expected to benefit from the synergies of the combination as of the acquisition date. The Company assesses goodwill and indefinite-lived intangible assets for impairment annually at the beginning of the fourth quarter, or more frequently if
events and circumstances indicate impairment may have occurred in accordance with SFAS No. 142. If the carrying value of a reporting units goodwill exceeds its implied fair value, the Company records an impairment loss equal to the
difference. SFAS No. 142 also requires that the fair value of indefinite-lived purchased intangible assets be estimated and compared to the carrying value. The Company recognizes an impairment loss when the estimated fair value of the
indefinite-lived purchased intangible assets is less than the carrying value.



The Company reviews its long-lived assets that consist of patents for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In performing the review for recoverability, the Company
estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the assets, an impairment loss is recognized as the
difference between the sum of the estimated future cash flows and the carrying amount of the asset. Management reviewed its long-lived assets and determined that a reduction of $101,975 and $0 should be recorded as an impairment of the carrying
amount of AT-101 patents as of July 31, 2005 and 2004, respectively.



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Income Taxes.The Company provides for income taxes in accordance with Statements of Financial Accounting
Standards (SFAS) No. 109 using an asset and liability based approach. Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences of revenue and expense items for
financial statement and income tax purposes.



As of July 31, 2005 the
Company had a net operating loss carry forward available to offset future taxable income for federal and state income tax purposes.



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



Share-Based Paymentin December 2004, the FASB issued a revision of SFAS 123 (SFAS 123(R)) that will require compensation costs related to
share-based payment transactions to be recognized in the statement of operations. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In
addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. SFAS 123(R) replaces SFAS 123 and is effective as of the first
interim period beginning after June 15, 2005. Based on the number of shares and awards outstanding as of December 31, 2004 (and without giving effect to any awards which may be granted in 2005), we expect that the adoption of SFAS
123(R) will have no material impact to the financial statements.



YEAR ENDED JULY 31, 2005

COMPARED YEAR ENDED JULY 31, 2004



Gross Revenues and Costs of Operations



Gross revenues. Gross revenues decreased from $851,514 for the year ended
July 31, 2004 to $461,675 for the year ended July 31, 2005, a decrease of $389,839, primarily as a result of a decrease in sales of $176,285, royalties of $155,898 and research and consulting income of $57,656.



Costs of goods sold. Costs of goods sold decreased from $168,228 for the year ended
July 31, 2004 to $133,503 for the year ended July 31, 2005, a decrease of $34,725, primarily due to a decrease in AT-101 units sold.



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Selling, general and administrative expenses.Selling, general and administrative expenses decreased from $404,852
for the year ended July 31, 2004 to $403,602 for the year ended July 31, 2005, a decrease of $1,250.



Research and development costs. Research and development costs decreased from $252,244 for the year ended July 31, 2004 to $182,561 for the year ended July 31, 2005, a decrease of $69,683, primarily
due to a decrease costs of development of the AT-101.



Total operating
expenses. Total operating expenses increased from $825,324 for the year ended July 31, 2004 to $858,356 for the year ended July 31, 2005, an increase of $33,032. The increase is primarily attributed to impairment loss on patents of
$101,975 and inventory of $36,715.



Net Loss.Net loss increased from a
net profit of $26,190 for the year ended July 31, 2004 to a net loss of ($396,681) for the year ended July 31, 2005. The increase is mainly attributed to an increase reserves for patents, reserves for inventory and a decrease in gross
revenues.



Current Assets



Cash. Cash decreased from $133,671 at July 31, 2004 to $1,742 at July 31,
2005, a decrease of $131,929, primarily as a result of the use of cash for operations.



Accounts Receivable and Royalties Receivable. Accounts Receivable and Royalties Receivable decreased from $97,376 at July 31, 2004 to $52,047 at July 31, 2005, a decrease of $45,689, primarily as a result of reduced sales of the
AT-101 and reduced royalty income.



Inventories. Inventories increased
from $20,635 at July 31, 2004 to $36,715 at July 31, 2005, an increase of $16,080, primarily as a result of reduced sales of the AT-101.



Prepaid expenses and other current assets. Prepaid expenses and other current assets decreased from $57,043 at July 31, 2004 to $10,988 at July 31, 2005,
a decrease of $46,055, due to a decrease in prepaid inventory.



Furniture
and equipment. Furniture and equipment decreased from $33,553 at July 31, 2004 to $16,709 at July 31, 2005, a decrease of $16,844.



Patents. Patents decreased from $112,046 at July 31, 2004 to $15,253 at July 30, 2005, a decrease of $96,793 as a result of impairment loss on patents.



Total assets. Total assets decreased from $454,684 at July 31,
2004 to $133,454 at July 31, 2005, a decrease of $321,230.



Liabilities



Accounts payable and accrued expenses.Accounts payable and accrued expenses increased from $98,924 at July 31, 2004 to $128,717 at July 31, 2005, an increase of $29,793, primarily as a result of increased accrued legal costs.



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Deferred research and consulting revenue. Deferred research and consulting revenue decreased from $25,000 at
July 31, 2004 to $5,000 at July 31, 2005, a decrease of $20,000.



Current Liabilities. Current liabilities increased from $288,924 at July 31, 2004, to $521,261 at July 31, 2005, an increase of $232,337, primarily as a result of the increase in current potion of the bank note payable,
$122,544, and other borrowings of $100,000.



Liquidity and Capital Resources



On August 18, 2005, the
Company closed on a financing transaction with a group of private investors (Investors) of $1,000,000. The financing consisted of the sale of two components: (a) an aggregate of Twenty Million (20,000,000) shares of the
Companys common stock; and (b) Warrants registered in the name of each Investor to receive an aggregate of Ten Million (10,000,000) shares of Common Stock to be issued to the Investors pro rata based upon their investment, with an
exercise price of $0.15 (with the right to a cashless exercise) and an expiration date of August 18, 2009. The shares sold in this financing transaction have five year unlimited piggy-back registration rights and may be registered
for resale on a Registration Statement to be filed by the Company if the Investors holding at least 50% of the securities request such registration.



Royalties to date from VivoMetrics and Sensormedics have been an aggregate of approximately $171,382 and $327,280 in 2004 and 2005 respectively. There can be no
assurances that the Company will receive similar royalties in 2006.



At
July 31, 2005, we had available net operating loss carry forwards of approximately $13,008,000 which expire in various years through 2024.



This annual financial report strongly reflects the FDAa action in halting sales of the AT-101 that previously was registered with FDA as a Class 1 (exempt) powered
exercise device in January 2005. Further, the preparation and submission of a 510(k) application for the AT-101 as a therapeutic vibrator as recommended by FDA required financial resources. Finally, fabrication of a less costly version of a
prototype AT-101 for home use and an industrial design and market research analysis contract for this new device was necessitated a capital commitment The Company anticipates experiencing losses at least through the next three fiscal quarters as it
awaits 510(k) approval to market the AT-101 therapeutic vibrator. NIMS controls production and marketing of this product through its new division, Acceleration Therapeutics.



Management believes that this capital sufficiently funds our business plan and capital requirements through the second quarter fiscal year
2006 provided the Company receives FDA 510(k) clearance to market the AT-101 therapeutic vibrator, as an effective, safe, non-invasive means for relief of minor aches and pains.



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ITEM 7. FINANCIAL STATEMENTS.



The financial statements required by this Item, the accompanying notes thereto and the reports of independent accountants are included as part of this Form 10-KSB immediately following the signature page, beginning
at page F-1.



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.



None.



ITEM 8A CONTROLS AND PROCEDURES.



We
carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Sections 13a-14(c) and 15d- 14(c) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. The evaluation was undertaken in consultation with our accounting personnel. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.



There were no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent
to the date of their evaluation.



While we believe our disclosure controls and
procedures and our internal control over financial reporting are adequate, no system of controls can prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance
that the control systems objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with its policies or procedures. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.



ITEM 8B OTHER INFORMATION



None.



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PART III



ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.



The following table sets forth the name, age, and position of each executive officer and director who have served during the fiscal year ended July 31, 2005 and the
term of office of each director of the Company.



|                         |  |     |  |                                        
|------------------------ |  | --- |  | ---------------------------------------
|Name                     |  | Age |  | Position                               
|Marvin A. Sackner, M.D.  |  | 73  |  | Chairman of the Board                  
|                         |  |    
|Taffy Gould              |  | 62  |  | Director and Vice Chairman of the Board
|                         |  |    
|Morton J. Robinson, M.D. |  | 73  |  | Director and Secretary                 
|                         |  |    
|Gerard Kaiser, M.D.      |  | 73  |  | Director                               
|                         |  |    
|Leila Kight              |  | 57  |  | Director                               
|                         |  |    
|John G. Clawson          |  | 77  |  | Director                               
|                         |  |    
|Gary W. Macleod          |  | 42  |  | Director and Chief Executive Officer   



Directors of the Company hold their
offices until the next annual meeting of the Companys shareholders until their successors have been duly elected and qualified or until their earlier resignation, removal of office or death. The Board of Directors met three times in fiscal
2005. The officers of the Company are elected by the Board of Directors to serve until their successors are elected and qualified.



The following is a brief description of the business experience of our executive officers, directors and significant employees:



MARVIN A. SACKNER, M.D., was elected as Chairman of the Board, Chief
Executive Officer and Director with the Company in November 1989. Dr. Sackner co-founded predecessor to the Company in 1977 and was the Chairman of the 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 to 1986, Dr. Sackner was the President of the American Thoracic Society. Dr. Sackner was the Chairman of the Pulmonary Disease Subspecialty Examining Board of
the American Board of Internal Medicine from 1977 to 1980. He also currently serves as a member of the Scientific Advisory Board of VivoMetrics, Inc.



TAFFY GOULD was elected a Director of the Company in December, 2000 and Vice Chairman of the Board of Directors in April, 2002. From 1977 to December,
2000, she was the President of Housing Engineers of Florida, Inc., a Florida real estate management company. In



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December, 2000, she founded and is a managing member of GlobalTechnologyAgents.com, LLC, a Florida limited liability
company which advises technology companies and end-users in the business, academic, and medical spheres, worldwide.



MORTON J. ROBINSON, M.D. was elected a Director of the Company in November 1989. Dr. Robinson was appointed Secretary of the Board in August 2001.
Dr. Robinson is Director of the Department of Pathology and Laboratory Medicine at Mount Sinai Medical Center, Miami Beach.



GERARD KAISER, M.D. was elected a Director of the Company in November 1989. Since 1971, he has been at the University of Miami School of Medicine and
currently serves as Deputy Dean for Clinical Affairs. He also serves as Senior Vice President for Medical Affairs at Jackson Memorial Hospital.



LEILA KIGHT was elected as a director in May, 2002. From January 1, 1975, Ms. Kight was the owner and chief executive officer of Washington
Researchers, Ltd, a District of Columbia corporation. Since January, 1999, Ms. Kight has been semi-retired.



JOHN G. CLAWSON was elected as a director in May, 2002. From 1975 to 1993, Mr. Clawson served as Chief Executive Officer of Hill Rom, Inc. From 1994
to the date hereof, Mr. Clawson serves as the Chairman of the Board of Endocyte, Inc., a Delaware corporation.



GARY W. MACLEOD was elected our Chief Executive Officer on August 22, 2005. Gary W. Macleod was President and Chief Executive Officer of V-Mobile,
Inc. from 2003 to the present. From 2000 to 2003, Mr. Macleod was President and Chief Executive Officer Unplugin, Inc. Mr. Macleod served as President and Chief Executive Officer of Courtroom Technologies, Inc. from 1991 to 2000.
Mr. Macleod is a business graduate of Franklin Pierce College in New Hampshire, graduating in 1985.



The Company is permitted up to eight directors consisting of two directors in Class One, two directors in Class Two, and four directors in Class Three. Class One Directors were elected in 2002 to serve initially for
two years and then for periods of six years. Gerard Kaiser, M.D. was elected as a Class One Director Class Two Directors were elected in 2002 to serve initially for four years and then for periods of six years. Leila Kight and John G. Clawson were
elected in 2002 as Class Two Directors. Class Three Directors were elected in 2002 to serve initially for six years and then for periods of six years. Marvin A. Sackner, M.D., Taffy Gould, and Morton J. Robinson, M.D. were elected as Class Three
Directors.



The Company has an Executive Committee consisting of Marvin A.
Sackner, Morton J. Robinson, M.D and Taffy Gould, with such Committee acting as Audit and Legal Committee as well as Compensation and a Stock Option Review Committee. There are no other committees of the Board of Directors.



One of the principal functions of the Executive Committee acting as the Companys Audit
Committee is to recommend the annual appointment of the Companys independent auditors, to consult and review with the Companys auditors concerning the scope of the audit and the results of their examination, to review and approve any
material accounting policy changes affecting the



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Companys operating results and to review the Companys internal control procedures. The Executive Committee,
acting as the Compensation and Stock Option Review Committee, reviews and recommends compensation and benefits for the executives and key employees of the Company as well as administer and interpret the Companys Stock Option Plan and are
authorized to grant options pursuant to the terms of such plans.



Involvement in Certain Legal Proceedings



To the best of our
knowledge, during the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and
other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the commodities futures trading
commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors and persons who own more than 10% of a registered class
of our equity securities to file certain reports with the SEC regarding ownership of, and transactions in, our securities. Such officers, directors and 10% shareholders are also required by the SEC to furnish us with all Section 16(a) forms
that they file.



Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Companys directors and executive officers, and persons who beneficially own more than 10% of a registered class of the Companys equity securities, to file reports of beneficial ownership and changes in beneficial
ownership of the Companys securities with the SEC on Form 3 (Initial Statement of Beneficial Ownership), Form 4 (Statement of Changes of Beneficial Ownership of Securities) and Form 5 (Annual Statement of Beneficial Ownership of Securities).
Directors, executive officers and beneficial owners of more than 10% of the Companys Common Stock are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms that they file. Except as otherwise set forth
herein, based solely on review of the copies of such forms furnished to the Company, or written representations that no reports were required, the Company believes that for the fiscal year ended July 31, 2005, beneficial owners complied with
Section 16(a) filing requirements applicable to them, except that our executives are in the process of completing the appropriate forms but have not filed such forms for fiscal year ended July 31, 2005.



15



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Code of Ethics



The Company has adopted a code of business conduct and ethics that applies to its directors, officers, and employees, including its principal executive officers,
principal financial officer, principal accounting officer, controller or persons performing similar functions. The Code of Business Conduct is filed as Exhibit 14.1 to this Annual Report on Form 10-KSB for July 31, 2005.



ITEM 10. EXECUTIVE COMPENSATION.



The
following tables set forth certain summary information concerning the compensation paid or accrued during each of our last three completed fiscal years to our chief executive officer and each of our other executive officers who received compensation
in excess of $100,000 during such period (as determined at July 31, 2005, the end of our last completed fiscal year):



|                                         |  |                     |  |        |          |         |     |                          |     |                         |     |                                      |     |             |     |                       |    
|---------------------------------------- |  | ------------------- |  | ------ | -------- | ------- | --- | ------------------------ | --- | ----------------------- | --- | ------------------------------------ | --- | ----------- | --- | --------------------- | ---
|                                         |  |                     |  |        |          |         |     | Long Term Compensation  
|                                         |  | Annual Compensation |  | Awards |          | Payouts
|Name and Principal Position              |  | Year                |  | Salary |          | Bonus   |     | Other AnnualCompensation |     | RestrictedStockAward(s) |     | SecuritiesUnderlyingOptions/SARs (#) |     | LTIPPayouts |     | All OtherCompensation
|Marvin A. SacknerChief Executive Officer |  | 200320042005        |  | $      | 99.000 |         |  |                          |  |                         |  |                                      |  |             |  |                       | 
|                                         |  |                     |  |        |          |         |     |                         
|Gary W. MacLeodChief Executive Officer   |  | 2005                |  |        |         |         |    |                          |    |                         |    |                                      |    |             |    |                       |   



Options and Stock Appreciation
Rights Grant Table



There were no grants of stock options
to the Named Executive Officers during the fiscal year ended July 31, 2005.



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Aggregated Option Exercises and Fiscal Year-End Option Value Table



We did not have any outstanding stock options or stock
appreciation rights at end the fiscal year ended July 31, 2005.



Long-Term Incentive Plan Awards Table



We do not have any Long-Term Incentive Plans.



Compensation of
Directors



We currently have seven directors. We do not
currently provide our directors with compensation, although we do reimburse their expenses. No additional amounts are payable to the Companys directors for committee participation or special assignments. There are no other arrangements
pursuant to which any director was compensated during the Companys last completed fiscal year for any service provided as director.



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.



The following table sets forth certain information regarding beneficial ownership of the common stock as of July 31, 2005, by (i) each person who is known by the Company to own beneficially more than 5% of
the any classes of outstanding Stock, (ii) each director of the Company, (iii) each of the Chief Executive Officers and the four (4) most highly compensated executive officers who earned in excess of $100,000 for all services in all
capacities (collectively, the Named Executive Officers) and (iv) all directors and executive officers of the Company as a group.



The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 and 13d-5 of the Exchange Act, and the information
is not necessarily indicative of beneficial ownership for any other purpose. We believe that each individual or entity named has sole investment and voting power with respect to the securities indicated as beneficially owned by them, subject to
community property laws, where applicable, except where otherwise noted.



17



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|                                                                                                  |  |                                                  |     |  |                                     |   |  |                                                                        |  |                        |   |  |                                                        |     |  |                                     |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------------------------ | --- |  | ----------------------------------- | - |  | ---------------------------------------------------------------------- |  | ---------------------- | - |  | ------------------------------------------------------ | --- |  | ----------------------------------- | -
|Name and Address Identify of
Group                                                                |  | No. of Sharesof CommonStockBeneficiallyOwned (1) |     |  | Percentageof BeneficialOwnership(2) |   |  | No. of Sharesof Series CConvertiblePreferredStockBeneficiallyOwned (1) |  | Percentageof Class (3) |   |  | No. of Shares of VotingSecuritiesBeneficiallyOwned (4) |     |  | Percentage ofBeneficialOwnership(4) |  
|Marvin A. Sackner, M.D. 1666 Kennedy Causeway Avenue,
Suite 308, North Bay Village Florida 32341  |  | 12,055,634                                       | (5) |  | 32.3                                | % |  | 36,855.92                                                              |  | 59.4                   | % |  | 12,092,489.92                                          | (5) |  | 32.3                                | %
|                                                                                                  |  |                                                  |     |  |                                     |  
|Taffy Gould 1666 Kennedy Causeway Avenue, Suite 308,
North Bay Village Florida 32341              |  | 1,086,665                                        | (6) |  | 2.9                                 | % |  | -0-                                                                    |  | -0-                    |   |  | 1,086,665                                              | (6) |  | 2.9                                 | %
|Morton J. Robinson, M.D. 1666 Kennedy Causeway Avenue,
Suite 308, North Bay Village Florida 32341 |  | 639,999                                          | (7) |  | 1.7                                 | % |  | 1,073.19                                                               |  | 1.7                    | % |  | 641,072.19                                             | (7) |  | 1.7                                 | %
|                                                                                                  |  |                                                  |     |  |                                     |  
|Gerard Kaiser, M.D. 1666 Kennedy Causeway Avenue, Suite
308, North Bay Village Florida 32341      |  | 261,666                                          | (8) |  |                                     | * |  | 75.00                                                                  |  |                        | * |  | 261,741                                                | (8) |  |                                     | *
|                                                                                                  |  |                                                  |     |  |                                     |  
|Leila Kight 1666 Kennedy Causeway Avenue, Suite 308,
North Bay Village Florida 32341              |  | 1,321,666                                        | (9) |  | 3.5                                 | % |  | -0-                                                                    |  | -0-                    |   |  | 1,321,666                                              | (9) |  | 3.5                                 | %
|                                                                                                  |  |                                                  |     |  |                                     |  
|John G. Clawson 1666 Kennedy Causeway Avenue, Suite 308,
North Bay Village Florida 32341          |  | 382,500                                          | (9) |  | 1.0                                 | % |  | -0-                                                                    |  | -0-                    |   |  | 382,500                                                | (9) |  | 1.0                                 | %
|                                                                                                  |  |                                                  |     |  |                                     |  
|All executive officers and directors as a group (6 persons)                                       |  | 15,748,130                                       |     |  | 42.2                                | % |  | 38,004.11                                                              |  | 61.2                   | % |  | 15,786,134.11                                          |     |  | 42.2                                | %

---

|* | Less than 1%
|- | ------------

|(1) | A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date hereof upon exercise of option and warrants. Each
beneficial owners percentage ownership is determined by assuming that option and warrants that are held by such person (but not those held by any other person) and that are exercisable within 60 days from the date hereof have been exercised.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Based on 37,346,131 shares of Common Stock, consisting of 31,221,971 shares of Common Stock issued and outstanding as of July 31, 2005 and 6,124,160 shares of Common Stock that
can be acquired within 60 days from the date hereof upon exercise of options to the holder.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Based on 62,048 Series C Convertible Preferred Stock issued and outstanding, as of July 31, 2005.
|--- | -------------------------------------------------------------------------------------------------



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|(4) | Based on 37,408,179 shares consisting of shares of Common Stock, consisting of 31,221,971 shares of Common Stock issued and outstanding as of July 31, 2005, 62,048 Series C
Convertible Preferred Stock and 100 shares of Series B Preferred Stock issued and outstanding as of July 31, 2005 and 6,124,160 shares of Common Stock that can be acquired within 60 days from the date hereof upon exercise of options to the
holder. Holders of Series C Preferred Stock are entitled to vote together with the holders of shares of Common Stock and Series B Preferred Stock on a share-for-share basis as a single class, on all matters except as otherwise required by law
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes securities held by Dr. Marvin A. Sackner and Ruth Sackner, his spouse and includes options to purchase 999,166 shares of Common Stock.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes options to purchase 611,666 shares of Common Stock. Does not include shares of Common Stock and options to purchase Common Stock held by family members.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Includes securities held jointly by Dr. Robinson and his spouse and by a pension plan established in connection with Dr. Robinsons medical practice and includes
options to purchase 181,666 shares of Common Stock. Does not include securities held by trust established for the benefit of Dr. Robinsons children, in which securities he disclaims beneficial ownership.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Includes shares of Common Stock held by Dr. Kaisers spouse and includes options to purchase 120,000 shares of Common Stock.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(9) | Includes securities held by Leila Kight and John Ballou and includes options to purchase 321,666 shares of Common Stock.
|--- | ------------------------------------------------------------------------------------------------------------------------



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.



The Company has approximately a 3% interest in LifeShirt.com, Inc. (now known as VivoMetrics, Inc.), a related entity. Dr. Sackners son-in-law is the Chief Operating Officer and a founder of VivoMetrics,
Inc. Dr. Sackner currently serves as Medical Director and member of the Board of Directors of VivoMetrics, Inc. The Company is a party to a month by month agreement with VivoMetrics, Inc. for continuing research and development on the LifeShirt
system.



The Company retains title and interest in and to any and all
derivative patents related to the products incorporated within the LifeShirt System in exchange for a royalty 5% of the Companys sales of certain products and services. The underlying agreement, executed October 28, 1999, is for a period
of 10 years. Under the agreement with Vivometrics, Inc., Vivometrics, Inc. grants to the Company the non-exclusive, worldwide right and license to use of patents and software for a period of ten years. If Vivometrics, Inc. fails to earn gross
revenues of $200,000 from the commercial sale of certain products and/or services to hospitals following the 2002 calendar year, the Company has the right to sell certain products to hospitals for the following three years in exchange for a royalty
of 5% of the gross revenues the Company earns on these sales. In addition, the Company assigned all of its rights, title and interest in certain patents and intellectual property as well as a non-exclusive, worldwide license under these items to
Vivometrics, Inc. in consideration for a royalty of 3% of Vivometrics, Inc.s gross revenues from sales of certain products. The minimum royalty in the second year was $250,000.



On December 30, 2003, the Company amended the agreement regarding assignment of patents and related intellectual property, whereby the
Company agreed to provide for the payment by



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VivoMetrics of the balance of the Additional Minimum Royalty, as defined in twelve equal monthly payments beginning
January 15, 2004. Total royalties receivable from VivoMetrics was $90,075 as of July 31, 2005.



In March 2002, the Company issued 375,000 shares of Common Stock to extinguish a $75,000 loan payable to Dr. Marvin Sackner shareholder and issued 250,000 shares of Common Stock to the Chief Executive Officer in
lieu of compensation. The shares were valued using the market value on the date of issuance and the Company recorded expense of $93,750 during the quarter ended April 30, 2002. Options to purchase 312,500 shares of the Companys common
stock were also issued as part of these transactions. These options are exercisable at $0.40 per share and expire in March 2007. The fair value of the options on the grant date was $78,125 calculated using the Black-Scholes Option Pricing Model.



During fiscal year 2004 the Company issued a Note payable to an officer and
shareholder of the Company in the amount of $65,000. Total Notes payable to such officer and shareholder of the Company was $165,000 at July 31, 2005.



During fiscal year 2004 the Company issued common stock for services as follows: 500,000 shares issued to an officer and shareholder of the Company; 100,000 shares issued
to a shareholder of the Company; 100,000 shares issued to a vendor.



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ITEM 13. EXHIBITS.



|            |     |  |                                                                                                                                   
|----------- | --- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |     |  | Description of Exhibits                                                                                                           
|3           | (a) |  | Articles of Incorporation, as amended (1)                                                                                         
|            |    
|            | (b) |  | By-Laws, as amended (2)                                                                                                           
|            |    
|4           | (a) |  | Form of Certificate evidencing shares of Common Stock (3)                                                                         
|            |    
|10          | (c) |  | Revised SMC Agreement (4)                                                                                                         
|            |    
|14.1        |     |  | Code of Ethics(5)                                                                                                                 
|            |    
|21          |     |  | Subsidiaries of the Company (2)                                                                                                   
|            |    
|23          |     |  | Consent of Independent Auditors(5)                                                                                                
|            |    
|31.1        |     |  | Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002.
(5)
|            |    
|31.2        |     |  | Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002.
(5)
|            |    
|32          |     |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002            

---

|(1) | Included as an Exhibit to the Companys Registration Statement on Form S-1 (File No. 33-14451), including all pre and post effective Amendments thereto, and incorporated
herein by reference, except for Articles of Amendment and a Certificate of Designation, Rights, Preferences and Limitations of Series C Convertible Preferred Stock, which are included as Exhibits to the Companys Annual Report on Form 10-KSB
for the year ended July 31, 1989 and are incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Included as an Exhibit to the Companys Registration Statement on Form S-1 (File No. 33-14451) including all pre and post effective Amendments thereto, and incorporated
herein by reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Included as an Exhibit to the Companys Annual Report on Form 10-K for the year ended July 31, 1990 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(4) | Included as an Exhibit to the Companys Annual Report on Form 10-K for the year ended July 31, 1996 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(5) | Filed herewith.
|--- | ---------------



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ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES



Year ended July 31, 2005



Audit Fees: The aggregate fees, including expenses, billed by the Companys principal accountant in connection with the audit of our consolidated financial
statements for the most recent fiscal year and for the review of our financial information included in our Annual Report on Form 10-KSB; and our quarterly reports on Form 10-QSB during the fiscal year ending July 31, 2005 was $ 22,750.



Audit Related Fees: The aggregate fees, including expenses, billed by the
Companys principal accountant for services reasonably related to the audit for the year ended July 31, 2005 were $13,000.



All Other Fees: The aggregate fees, including expenses, billed for all other services rendered to the Company by its principal accountant during year ended July 31,
2005 was $$0.00.



Year ended July 31, 2004



Audit Fees: The aggregate fees, including expenses, billed by the
Companys principal accountant in connection with the audit of our consolidated financial statements for the most recent fiscal year and for the review of our financial information included in our Annual Report on Form 10-KSB; and our quarterly
reports on Form 10-QSB during the fiscal year ending July 31, 2004 was $20,990.



Audit Related Fees: The aggregate fees, including expenses, billed by the Companys principal accountant for services reasonably related to the audit for the year ended July 31, 2004 were $0.00.



All Other Fees: The aggregate fees, including expenses, billed for all other services
rendered to the Company by its principal accountant during year ended July 31, 2005 was $$0.00.



AUDITOR INDEPENDENCE



Our Board of
Directors considers that the work done for us in the year ended July 31, 2005 by Jewett Schwartz & Associates, L.L.P. is compatible with maintaining Jewett Schwartz & Associates, L.L.P.s independence.



AUDITORS TIME ON TASK



All of the work expended by Jewett Schwartz & Associates, L.L.P. on our
July 31, 2005 audit was attributed to work performed by Jewett Schwartz & Associates, L.L.P.s full-time, permanent employees.



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SIGNATURES



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





|                        |  |                                       |  |                        
|----------------------- |  | ------------------------------------- |  | -----------------------
|                        |  | NON-INVASIVE MONITORING SYSTEMS, INC.
|                        |  |                                      
|Dated: November 9, 2005 |  | By:                                   |  | /s/ Gary W. Macleod    
|                        |  |                                       |  | Gary W. Macleod,       
|                        |  |                                       |  | Chief Executive Officer



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



|                       |  |                                         |  |                 
|---------------------- |  | --------------------------------------- |  | ----------------
|Signatures             |  | Title                                   |  | Date            
|/S/ Marvin A. Sackner  |  | Chairman of the Board and Director      |  | November 9, 2005
|MARVIN A. SACKNER      |  |                                        
|                       |  |                                        
|/S/ Gary W. Macleod    |  | Director, Chief Executive Officer       |  | November 9, 2005
|GARY W. MACLEOD        |  |                                        
|                       |  |                                        
|/S/ Taffy Gould        |  | Vice Chairman of the Board and Director |  | November 9, 2005
|TAFFY GOULD            |  |                                        
|                       |  |                                        
|/S/ Mortin J. Robinson |  | Secretary and Director                  |  | November 9, 2005
|MORTON J. ROBINSON     |  |                                        
|                       |  |                                        
|/S/ Gerard Kaiser      |  | Director                                |  | November 9, 2005
|GERARD KAISER          |  |                                         | 
|                       |  |                                        
|/s/ John G. Clawson    |  | Director                                |  | November 9, 2005
|JOHN G. CLAWSON        |  |                                         | 
|                       |  |                                        
|/s/ Leila Kight        |  | Director                                |  | November 9, 2005
|LEILA KIGHT            |  |                                         | 



23



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##### Table of Contents

NON-INVASIVE MONITORING SYSTEMS, INC.



FINANCIAL STATEMENTS



For the years ended
July 31, 2005 and 2004



INDEX TO FINANCIAL STATEMENTS



|                                                        |  |       
|------------------------------------------------------- |  | ------
|                                                        |  | Page  
|Report of Independent Registered Public Accounting Firm |  | F-1   
|Balance Sheets                                          |  | F-2   
|Statements of Operations                                |  | F-3   
|Statement of Changes in Shareholders Equity            |  | F-4   
|Statements of Cash Flows                                |  | F-5   
|Notes to the Financial Statements                       |  | F-6-14



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors

Non-Invasive Monitoring Systems, Inc.



We have audited the
accompanying balance sheet of Non-Invasive monitoring Systems, Inc. (the Company) as of July 31, 2005, and the related statements of operations, changes in shareholders deficiency and cash flows for the years ended
July 31, 2005 and 2004. 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 audits 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. 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, 2005, and the results of its operations and its cash
flows for the years ended July 31, 2005 and 2004 in conformity with accounting principles generally accepted in the United States of America.



The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1,
the Companys need to seek new sources or methods of financing or revenue to pursue its business strategy, raise substantial doubt about the Companys ability to continue as a going concern. Managements plans as to these matters are
also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



/s/ Jewett, Schwartz, & Associates



Jewett, Schwartz, & Associates

October 19, 2005

Hollywood, FL



F-1



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##### Table of Contents

NON-INVASIVE MONITORING SYSTEMS, INC.



BALANCE SHEETS



|                                                                                                                                      |  |               |             |   |               |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ------------- | - | ----------- | -
|                                                                                                                                      |  | July 31, 2005 |             |   | July 31, 2004 |  
|ASSETS                                                                                                                                |  |               |             |   |               |   |             |  
|                                                                                                                                      |  |              
|Current assets                                                                                                                        |  |               |             |   |               |   |             |  
|Cash                                                                                                                                  |  | $             | 1,742       |   |               | $ | 133,671     |  
|Accounts and royalties receivable                                                                                                     |  |               | 52,047      |   |               |   | 97,736      |  
|Inventories, net                                                                                                                      |  |               | 36,715      |   |               |   | 20,635      |  
|Prepaid expenses, deposits and other current assets                                                                                   |  |               | 10,988      |   |               |   | 57,043      |  
|                                                                                                                                      |  |               |             |   |               |   |             |  
|Total current assets                                                                                                                  |  |               | 101,492     |   |               |   | 309,085     |  
|                                                                                                                                      |  |              
|Furniture and equipment, net                                                                                                          |  |               | 16,709      |   |               |   | 33,553      |  
|                                                                                                                                      |  |              
|Patents, net                                                                                                                          |  |               | 15,253      |   |               |   | 112,046     |  
|                                                                                                                                      |  |               |             |   |               |   |             |  
|Total assets                                                                                                                          |  | $             | 133,454     |   |               | $ | 454,684     |  
|                                                                                                                                      |  |               |             |   |               |   |             |  
|LIABILITIES AND SHAREHOLDERS DEFICIENCY                                                                                              |  |               |             |   |               |   |             |  
|                                                                                                                                      |  |              
|Current liabilities                                                                                                                   |  |               |             |   |               |   |             |  
|Accounts payable and accrued expenses                                                                                                 |  | $             | 128,717     |   |               | $ | 98,924      |  
|Notes payable - Gibraltar                                                                                                             |  |               | 122,544     |   |               |   |            |  
|Notes payable - related party                                                                                                         |  |               | 165,000     |   |               |   | 165,000     |  
|Advance on financing                                                                                                                  |  |               | 100,000     |   |               |   |            |  
|Deferred research and consulting revenue                                                                                              |  |               | 5,000       |   |               |   | 25,000      |  
|                                                                                                                                      |  |               |             |   |               |   |             |  
|Total current liabilities                                                                                                             |  |               | 521,261     |   |               |   | 288,924     |  
|                                                                                                                                      |  |              
|Note payable                                                                                                                          |  |               | 543,114     |   |               |   | 700,000     |  
|                                                                                                                                      |  |               |             |   |               |   |             |  
|Total Liabilities                                                                                                                     |  |               | 1,064,375   |   |               |   | 988,924     |  
|                                                                                                                                      |  |               |             |   |               |   |             |  
|Shareholders deficiency                                                                                                              |  |               |             |   |               |   |             |  
|Preferred Series B, 100 shares issued and outstanding                                                                                 |  |               | 100         |   |               |   | 100         |  
|Preferred Series C, 62,048 shares issued and outstanding                                                                              |  |               | 62,048      |   |               |   | 62,048      |  
|Common stock, $.01 par value; 100,000,000 shares authorized; 31,221,971 shares issued and outstanding; and additional paid-in
capital |  |               | 13,234,175  |   |               |   | 13,234,175  |  
|Accumulated deficit                                                                                                                   |  |               | (14,227,244 | ) |               |   | (13,830,563 | )
|                                                                                                                                      |  |               |             |   |               |   |             |  
|Total shareholders deficiency                                                                                                        |  |               | (930,921    | ) |               |   | (534,240    | )
|                                                                                                                                      |  |               |             |   |               |   |             |  
|Total liabilities and shareholders deficiency                                                                                        |  | $             | 133,454     |   |               | $ | 454,684     |  
|                                                                                                                                      |  |               |             |   |               |   |             |  



The
accompanying notes are an integral part of these financial statements



F-2



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##### Table of Contents

NON-INVASIVE MONITORING SYSTEMS, INC.



STATEMENTS OF OPERATIONS



Years Ended
July 31, 2005 and 2004



|                                                                         |  |      |            |   |      |   |           
|------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ----------
|                                                                         |  | 2005 |            |   | 2004
|Revenues                                                                 |  |      |            |   |      |   |           
|                                                                         |  |     
|Product sales                                                            |  | $    | 269,955    |   |      | $ | 446,240   
|Royalties                                                                |  |      | 171,382    |   |      |   | 327,280   
|Research and consulting                                                  |  |      | 20,338     |   |      |   | 77,994    
|                                                                         |  |      |            |   |      |   |           
|Total revenue                                                            |  |      | 461,675    |   |      |   | 851,514   
|                                                                         |  |      |            |   |      |   |           
|Operating expenses                                                       |  |      |            |   |      |   |           
|                                                                         |  |     
|Cost of goods sold                                                       |  |      | 133,503    |   |      |   | 168,228   
|Selling, general and administrative                                      |  |      | 403,602    |   |      |   | 404,852   
|Research and development                                                 |  |      | 182,561    |   |      |   | 252,244   
|Allowance for inventory obsolesence                                      |  |      | 36,715     |   |      |   |          
|Impairment loss on patents                                               |  |      | 101,975    |   |      |   |          
|                                                                         |  |      |            |   |      |   |           
|Total operating expenses                                                 |  |      | 858,356    |   |      |   | 825,324   
|                                                                         |  |      |            |   |      |   |           
|Net profit (loss)                                                        |  |      | (396,681   | ) |      |   | 26,190    
|                                                                         |  |      |            |   |      |   |           
|Weighted average number of common shares outstanding - basic and diluted |  |      | 31,221,971 |   |      |   | 30,734,008
|                                                                         |  |      |            |   |      |   |           
|Basic and diluted loss per common share                                  |  | $    | (0.013     | ) |      | $ | 0.001     
|                                                                         |  |      |            |   |      |   |           



The
accompanying notes are an integral part of these financial statements



F-3



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##### Table of Contents

NON-INVASIVE MONITORING SYSTEMS, INC.



STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY



|                                 |  |                 |     |                                            |   |                    |  |            |       |   |            |  |   |             |   |  |   |          |  
|-------------------------------- |  | --------------- | --- | ------------------------------------------ | - | ------------------ |  | ---------- | ----- | - | ---------- |  | - | ----------- | - |  | - | -------- | -
|                                 |  | Preferred Stock |     | Common Stock andAdditional Paid-in Capital |   | AccumulatedDeficit |  |            | Total |  
|                                 |  | Series B        |     | Series C                                   |   | Shares             |  | Amount     |       |  
|Balance at July 31, 2003         |  | $               | 100 |                                            | $ | 62,048             |  | 30,466,416 |       | $ | 13,160,175 |  | $ | (13,856,753 | ) |  | $ | (634,430 | )
|Common stock issed for cash      |  |                 |    |                                            |   |                   |  | 55,555     |       |   | 15,000     |  |   |            |   |  |   | 15,000   |  
|Common stock issued for services |  |                 |     |                                            |   |                    |  | 700,000    |       |   | 59,000     |  |   |             |   |  |   | 59,000   |  
|Net Income                       |  |                 |    |                                            |   |                   |  |           |       |   |           |  |   | 26,190      |   |  |   | 26,190   |  
|                                 |  |                 |     |                                            |   |                    |  |            |       |   |            |  |   |             |   |  |   |          |  
|Balance at July 31, 2004         |  |                 | 100 |                                            |   | 62,048             |  | 31,221,971 |       |   | 13,234,175 |  |   | (13,830,563 | ) |  |   | (534,240 | )
|Net loss                         |  |                 |    |                                            |   |                   |  |           |       |   |           |  |   | (396,681    | ) |  |   | (396,681 | )
|                                 |  |                 |     |                                            |   |                    |  |            |       |   |            |  |   |             |   |  |   |          |  
|Balance at July 31, 2005         |  | $               | 100 |                                            | $ | 62,048             |  | 31,221,971 |       | $ | 13,234,175 |  | $ | (14,227,244 | ) |  | $ | (930,921 | )
|                                 |  |                 |     |                                            |   |                    |  |            |       |   |            |  |   |             |   |  |   |          |  



The
accompanying notes are an integral part of these financial statements



F-4



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##### Table of Contents

NON-INVASIVE MONITORING SYSTEMS, INC.



STATEMENTS OF CASH FLOWS



Years Ended
July 31, 2005 and 2004



|                                                                         |  |      |          |   |      |   |         |  
|------------------------------------------------------------------------ |  | ---- | -------- | - | ---- | - | ------- | -
|                                                                         |  | 2005 |          |   | 2004 |  
|Operating activities                                                     |  |      |          |   |      |   |         |  
|Net income (loss)                                                        |  | $    | (396,681 | ) |      | $ | 26,190  |  
|Adjustments to reconcile net loss to net cash from operating activities: |  |      |          |   |      |   |         |  
|Depreciation and amortization                                            |  |      | 13,496   |   |      |   | 23,596  |  
|Write-off of Fixed Assets                                                |  |      | 6,709    |   |      |   | 3,937   |  
|Common stock issued for services                                         |  |      |         |   |      |   | 59,000  |  
|Provision for inventory obsolesence                                      |  |      | 36,715   |   |      |   |        |  
|Impairment loss on patents                                               |  |      | 101,975  |   |      |   |        |  
|Changes in operating assets and liabilities:                             |  |      |          |   |      |   |         |  
|Accounts and royalties receivable                                        |  |      | 45,689   |   |      |   | (46,979 | )
|Inventories                                                              |  |      | (52,795  | ) |      |   | 110,944 |  
|Prepaid expenses and other assets                                        |  |      | 46,055   |   |      |   | (31,397 | )
|Accounts payable and accrued expenses                                    |  |      | 29,793   |   |      |   | (83,376 | )
|Deferred research and consulting revenues                                |  |      | (20,000  | ) |      |   | 4,704   |  
|                                                                         |  |      |          |   |      |   |         |  
|Net cash provided by (used in) operating activities                      |  |      | (189,044 | ) |      |   | 66,619  |  
|                                                                         |  |      |          |   |      |   |         |  
|Investing activities                                                     |  |      |          |   |      |   |         |  
|Purchase of furniture, software an equipment                             |  |      | (3,361   | ) |      |   |        |  
|Patent costs incurred                                                    |  |      | (5,182   | ) |      |   | (15,345 | )
|                                                                         |  |      |          |   |      |   |         |  
|Net cash used in investing activities                                    |  |      | (8,543   | ) |      |   | (15,345 | )
|                                                                         |  |      |          |   |      |   |         |  
|Financing activities                                                     |  |      |          |   |      |   |         |  
|Net proceeds from issuance of common stock                               |  |      |         |   |      |   | 15,000  |  
|Proceeds from loan from shareholder                                      |  |      | 100,000  |   |      |   | 65,000  |  
|Repayments for loan to shareholder                                       |  |      |          |   |      |   | (2,500  | )
|Proceeds (repayments) of Line of Credit                                  |  |      | (34,342  | ) |      |   | 2,525   |  
|                                                                         |  |      |          |   |      |   |         |  
|Net cash provided by financing activities                                |  |      | 65,658   |   |      |   | 80,025  |  
|                                                                         |  |      |          |   |      |   |         |  
|Net Increase (Decrease) in cash                                          |  |      | (131,929 | ) |      |   | 131,299 |  
|                                                                         |  |     
|Cash, beginning of period                                                |  |      | 133,671  |   |      |   | 2,372   |  
|                                                                         |  |      |          |   |      |   |         |  
|Cash, end of period                                                      |  | $    | 1,742    |   |      | $ | 133,671 |  
|                                                                         |  |      |          |   |      |   |         |  
|Supplemental disclosure                                                  |  |      |          |   |      |   |         |  
|Cash paid for Taxes                                                      |  | $    | 1,092    |   |      | $ |        |  
|                                                                         |  |      |          |   |      |   |         |  
|Cash paid for Interest                                                   |  | $    | 41,276   |   |      | $ |        |  
|                                                                         |  |      |          |   |      |   |         |  



The
accompanying notes are an integral part of these financial statements



F-5



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##### Table of Contents

NON-INVASIVE MONITORING SYSTEMS, INC.



NOTES TO FINANCIAL STATEMENTS



For the Years
Ended July 31, 2005 and 2004



|1. | ORGANIZATION AND GOING CONCERN
|-- | ------------------------------



Organization. Non-Invasive Monitoring Systems, Inc. (the Company), a Florida corporation, manufactured computer-aided continuous
monitoring devices to detect abnormal respiratory and cardiac events using sensors placed on the bodys surface that has been sold to SensorMedics Division of ViaSys for cash and royalties and to VivoMetrics for royalties and an equity stake in
VivoMetrics. It has shifted its business to marketing and sales of a motion platform, therapeutic vibrator device designated the AT-101. The Company also performs consultative research of diagnostic monitoring devices.



Going Concern.These financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has operating and liquidity concerns, has an accumulated deficit of $14,227,244 and a shareholders deficiency of $930,921 at July 31, 2005, current liabilities
exceeded current assets by $419,769 at July 31, 2005 and incurred a net loss of $396,681 and net cash of $192,405 was used in operations during fiscal year 2005. These conditions raise substantial doubt about the Companys ability to
continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.



Managements plans as to
these matters are for the Company to seek new sources or methods of funding operations or revenue from the sale of its products, royalties and research and consulting services to pursue its business strategy. Management also plans to obtain
additional capital through the sale of the Companys securities. Additionally, the Company has made an application with the FDA for approval of its product. The Company also obtained financing further discussed in note 13 to the financial
statements. However, at this time there can be no assurance that the Company will be able to successfully implement its plans or if such plans are successfully implemented that the Company will obtain the necessary capital or revenue to continue
funding operations. These factors, among others, create an uncertainty about the Companys ability to continue as a going concern.



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



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



Inventories. Inventories are stated at lower of cost or market using the first-in, first-out method and consist primarily of components.



F-6



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##### Table of Contents

NON-INVASIVE MONITORING SYSTEMS, INC.



NOTES TO FINANCIAL STATEMENTS



For the Years Ended July 31, 2005 and 2004



Furniture and Equipment. Furniture and equipment are stated at
cost and depreciated using the straight-line method, over the 5-year estimated useful lives of the assets.



Goodwill and Indefinite-Lived Purchased Intangible AssetsIn accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, goodwill acquired in business combinations is assigned to reporting units that are expected to benefit from the synergies of the combination as of the acquisition date. The Company assesses goodwill and indefinite-lived intangible
assets for impairment annually at the beginning of the fourth quarter, or more frequently if events and circumstances indicate impairment may have occurred in accordance with SFAS No. 142. If the carrying value of a reporting units
goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference. SFAS No. 142 also requires that the fair value of indefinite-lived purchased intangible assets be estimated and compared to the carrying
value. The Company recognizes an impairment loss when the estimated fair value of the indefinite-lived purchased intangible assets is less than the carrying value.



The Company reviews its long-lived assets that consist of patents for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. In performing the review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected
future cash flows is less than the carrying amount of the assets, an impairment loss is recognized as the difference between the sum of the estimated future cash flows and the carrying amount of the asset. Management reviewed its long-lived assets
and determined that a reduction of $101,975 and $0 should be recorded as an impairment of the carrying amount of AT101 patents as of July 31, 2005 and 2004, respectively.



Income Taxes.The Company provides for income taxes in accordance with Statements of Financial Accounting
Standards (SFAS) No. 109 using an asset and liability based approach. Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences of revenue and expense items for
financial statement and income tax purposes.



As of
July 31, 2004 the Company had a net operating loss carryforward available to offset future taxable income for federal and state income tax purposes.



SFAS No. 109 requires the Company to recognize income tax benefits for loss carryforwards that have not previously been recorded. 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 that future deductibility is uncertain. For financial statement purposes,
the deferred tax asset for loss carryforwards has been fully offset by a valuation allowance since it is uncertain whether any future benefit will be realized.



Revenue Recognition. The Company recognizes revenues in accordance with the guidance in the Securities and Exchange Commission Staff
Accounting Bulletin 104. Revenue is recognized when persuasive evidence of an arrangement exists and when collection of the fixed or determinable



F-7



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##### Table of Contents

NON-INVASIVE MONITORING SYSTEMS, INC.



NOTES TO FINANCIAL STATEMENTS



For the Years Ended July 31, 2005 and 2004



selling price is reasonable assured. The Company recognizes product sales
revenue when products are shipped and royalties as they are earned. Research and consulting revenue is recognized over the term of the respective agreements.



Advertising Costs.The Company expenses all costs of advertising as incurred. There were no advertising costs included in general and
administrative expenses for the year ended July 31, 2005.



Research and Development Costs. Research and development costs and are expensed as incurred.



Warranties. The Companys warranties are one-year on all products sold and are accrued based on managements judgment and the
history of warranty costs incurred. Warranty costs incurred during the fiscal year ended July 31, 2005 and 2004 were $678 and $0, respectively.



Earnings (Loss) Per Share. Basic net income (loss) per common share is computed using the weighted average number of common shares
outstanding during the periods. Diluted net income (loss) per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the year.



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, 2004. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values.
These financial instruments include royalties receivable, accounts payable and accrued expenses. Fair values were assumed to approximate carrying values for royalties receivable, accounts payable and accrued expenses because they are short term in
nature and their carrying amounts approximate fair values or they are payable on demand.



Recent Accounting Pronouncements. The Financial Accounting Standards Board has recently issued several new accounting pronouncements which may apply to the Company.



Other-Than-Temporary Impairment of Investments



In March 2004, the EITF of the FASB reached a consensus on Issue
No. 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (EITF 03-01). EITF 03-01 addresses the meaning of other-than-temporary impairment and its application to debt and
equity securities within the scope of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115) and equity securities that are not subject to the scope of SFAS 115 and not accounted
for under the equity method of accounting. As of December 31, 2004, the Company determined that EITF 03-01 had no impact on its consolidated financial statements.



F-8



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##### Table of Contents

NON-INVASIVE MONITORING SYSTEMS, INC.



NOTES TO FINANCIAL STATEMENTS



For the Years Ended July 31, 2005 and 2004



Contingently Convertible Instruments



In September 2004, the EITF reached a consensus on Issue
No. 04-08, The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share (EITF 04-08), which is effective for reporting periods ending after December 15, 2004. EITF 04-08 requires companies
to include shares issuable under convertible instruments in diluted earnings per share computations (if dilutive) regardless of whether the market price trigger (or other contingent feature) has been met. In addition, prior period earnings per share
amounts presented for comparative purposes must be restated. EITF 04-08 did not impact earnings per share.



Inventory Pricing



In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS)
No. 151, Inventory Costs. The new statement amends Accounting Research Bulletin (APB) No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material. This statement requires that those items be recognized as current-period charges and requires that allocation of fixed production overheads to the cost of conversion be based on the normal capacity of
the production facilities. This statement is effective for fiscal years beginning after June 15, 2005. The Company does not expect adoption of this statement to have a material impact on its financial condition or results of operations.



Share-Based Payment



In December 2004, the FASB issued a revision of SFAS 123 (SFAS
123(R)) that will require compensation costs related to share-based payment transactions to be recognized in the statement of operations. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair
value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. SFAS
123(R) replaces SFAS 123 and is effective as of the first interim period beginning after June 15, 2005. Based on the number of shares and awards outstanding as of December 31, 2004 (and without giving effect to any awards which may be
granted in 2005), we expect that the adoption of SFAS 123(R) will have no material impact to the financial statements.



|3. | ROYALTIES RECEIVABLE
|-- | --------------------



In August 2000, the Company entered into license and research and consulting agreements with VivoMetrics, Inc. (VivoMetrics). In accordance
with the terms of these agreements the Company assigned certain patents and software, as well as a non-exclusive, worldwide license under these items, to VivoMetrics in consideration for royalty fees of 3% of sales.



F-9



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##### Table of Contents

NON-INVASIVE MONITORING SYSTEMS, INC.



NOTES TO FINANCIAL STATEMENTS



For the Years Ended July 31, 2005 and 2004



|4. | FURNITURE AND EQUIPMENT, NET
|-- | ----------------------------



Furniture and equipment, net of accumulated depreciation consist of the following at July 31, 2004:



|                                |  |       |  |   |       
|------------------------------- |  | ----- |  | - | ------
|Computer equipment and software |  | 5 yrs |  |   | 78,002
|Product demonstration equipment |  | 5 yrs |  |   | 12,659
|                                |  |       |  |   |       
|                                |  |       |  |   | 90,661
|Less: accumulated depreciation  |  |       |  |   | 73,952
|                                |  |       |  |   |       
|                                |  |       |  | $ | 16,709
|                                |  |       |  |   |       



Depreciation expense
was $13,496 and $17,148 during the fiscal year ended July 31, 2005 and 2004, respectively.



|5. | PATENTS, NET
|-- | ------------



Patents, net of accumulated amortization consist of the following at July 31, 2005:



|                               |  |   |          |  
|------------------------------ |  | - | -------- | -
|Patents                        |  | $ | 52,530   |  
|Pending patents                |  |   | 89,744   |  
|Other patent costs             |  |   | 20,519   |  
|                               |  |   |          |  
|                               |  |   | 162,793  |  
|Less: accumulated amortization |  |   | (147,540 | )
|                               |  |   |          |  
|                               |  | $ | 15,253   |  
|                               |  |   |          |  



Amortization expense
was $101,975 and $6,875 during the fiscal year ended July 31, 2005 and 2004, respectively.



|6. | NOTES PAYABLE  RELATED PARTY
|-- | -----------------------------



As of July 31, 2004, the total Notes payable to an officer and shareholder of the Company was $165,000. The Notes are payable upon demand in cash or
common stock or preferred stock of the Company and in the event of default the notes become immediately due and payable in cash with interest accruing at 1.5% per month on any unpaid balance. The Notes bear no interest and are due and payable
in full upon demand at the discretion of the officer and shareholder of the Company.



|7. | NOTE PAYABLE
|-- | ------------



On February 27, 2004 the Company converted its revolving line of credit to a Promissory Note in the amount of $700,000 payable to a new bank. The
Company pledged all corporate assets excluding fixtures as collateral. The Promissory Note requires the Company to make twelve (12) payments of interest beginning March 27, 2004 and on the 27thday of each month thereafter;



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NON-INVASIVE MONITORING SYSTEMS, INC.



NOTES TO FINANCIAL STATEMENTS



For the Years Ended July 31, 2005 and 2004



twenty three (23) payments of principal and interest in the amount of
$10,211 beginning on March 27, 2005 and on the 27thday of each month thereafter; and a final payment of the
entire unpaid balance of principal, earned fees and charges and accrued and unpaid interest, on February 27, 2007. The Promissory Note bears interest at an annual rate of 5.875%. Interest expense was $42,458 during the year ended July 31,
2005.



The following principal payments are due and payable:



|                           |  |                     |        
|-------------------------- |  | ------------------- | -------
|Fiscal Year Ended July 31, |  | PrincipalObligation
|2006                       |  |                     | 84,000 
|2007                       |  |                     | 581,600
|                           |  |                     |        
|                           |  | $                   | 665,600
|                           |  |                     |        



|8. | INCOME TAXES
|-- | ------------



At July 31, 2005, the Company has available net operating loss carry forwards of approximately $13,008,000 which expire in various years through
2024.



Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant component of the Companys deferred income tax asset would result from
the net operating losses and amounted to approximately $5,000,000.



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 $5,000,000 valuation allowance at July 31, 2004 was necessary. The increase in the valuation allowance for the year ended July 31, 2005 is $ 600,000.



|9. | STOCK BASED COMPENSATION
|-- | ------------------------



In March 2001, the Company issued options to acquire 720,000 shares of the Companys common stock to employees and non-employee directors. These
options are exercisable at $0.50 per share with 545,000 shares vested immediately and 175,000 shares vesting over a three-year period commencing March 2002. The options expire in March 2011. The fair value of the options on the grant date was
$158,400 calculated using the Black-Scholes Option Pricing Model.



In May 2001, the Company entered into an executive employment agreement with its new President and Chief Executive Officer. The agreement is for two years and grants the executive options to acquire 400,000 shares of the Companys
common stock. These options are exercisable at $0.50 per share and vest over a four-year period commencing May 2002. The options expire in May 2011. The fair value of the options on the grant date was $108,000 calculated using the Black-Scholes
Option Pricing Model.



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NON-INVASIVE MONITORING SYSTEMS, INC.



NOTES TO FINANCIAL STATEMENTS



For the Years Ended July 31, 2005 and 2004



In March 2002, options to purchase 312,500 shares of the Companys
common stock were issued. These options are exercisable at $0.40 per share, vest immediately and expire in March 2007. The fair value of the options on the grant date was $78,125 calculated using the Black-Scholes Option Pricing Model.



The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for stock-based employee compensation arrangements whereby no compensation cost related to stock options is deducted in determining net income or loss. Had compensation cost
for stock option grants to the Companys employees been determined pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, the Companys net income would have decreased for the year ended July 31,
2001 as presented in the table below. Using the Black-Scholes option pricing model, the Companys pro forma net loss and pro forma net loss per share, with related assumptions, are as follows:



|                         |  |   |            |  
|------------------------ |  | - | ---------- | -
|Pro forma net loss       |  | $ | (6,060     | )
|Pro forma loss per share |  | $ | (0.001     | )
|Risk free interest rate  |  |   | 5.32       | %
|Expected lives           |  |   | 5-10 years |  
|Expected volatility      |  |   | 108        | %



For purposes of these
pro forma disclosures, the estimated fair value of the options granted is amortized over the options vesting period (0 to 5 years).



The following table summarizes the transactions of the Companys stock options for the two-year period ended July 31, 2005:



|                                   |  |                  |   |  |                                |      
|---------------------------------- |  | ---------------- | - |  | ------------------------------ | -----
|                                   |  | Number of Shares |   |  | Weighted AverageExercise Price
|Options outstanding, July 31, 2003 |  | 5,968,000        |   |  | $                              | 0.438
|Options granted                    |  | 645,000          |   |  |                                | 0.200
|Options exercised                  |  |                 |   |  |                                |     
|Options forfeited                  |  |                 |   |  |                                |     
|                                   |  |                  |   |  |                                |      
|Options outstanding, July 31, 2004 |  | 6,613,000        |   |  |                                | 0.415
|Options granted                    |  | 93,331           |   |  |                                | 0.150
|Options exercised                  |  |                 |   |  |                                |     
|Options forfeited                  |  | (582,171         | ) |  |                                | 0.415
|                                   |  |                  |   |  |                                |      
|Options outstanding, July 31, 2005 |  | 6,124,160        |   |  | $                              | 0.411
|                                   |  |                  |   |  |                                |      



Options to purchase
5,775,000 and 5,130,000 shares were exercisable at July 31, 2005 and 2004, respectively.



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##### Table of Contents

NON-INVASIVE MONITORING SYSTEMS, INC.



NOTES TO FINANCIAL STATEMENTS



For the Years Ended July 31, 2005 and 2004



|10. | PREFERRED STOCK
|--- | ---------------



Series B Preferred Stock has a liquidation preference of $100 per share, provides for a non-cumulative dividend of $10 per share, if declared, and has 100
shares issued and outstanding.



Series C Preferred Stock has a
liquidation preference of $1 per share, provides for a non-cumulative dividend of $0.40 per share, if declared, and has 62,048 shares issued and outstanding.



Holders of the Companys Preferred Stock are entitled to one vote for each share held. No preferred stock dividends have been declared as of
July 31, 2005.



|11. | RELATED PARTY TRANSACTIONS
|--- | --------------------------



In August 2000, the Company entered into license and research and consulting agreements with VivoMetrics. The Company also received founders common
stock of VivoMetrics which has subsequently been diluted to approximately 3% ownership interest in VivoMetrics. The Company consults on patents pending transferred from the Company to VivoMetrics and on technologic issues for which it receives
financial compensation on a project by project basis. The prior CEO of the Company was also a member of the Board of Directors and also a member of the Scientific Advisory Board of VivoMetrics.



During fiscal year 2004 the Company issued a Note payable to an officer and
shareholder of the Company in the amount of $65,000. Total Notes payable to such officer and shareholder of the Company was $165,000 at July 31, 2005.



On March 1, 2005, the Company its only lease, the Company then entered into an understanding with its then CEO and its major shareholder to sublease
on a month to month basis its corporate office at a rate of approximately $1,600.



|12. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------



Leases.



On June 1, 2004 the Company entered into a Sublease agreement for a portion of its corporate office space provided to Hema Diagnostics Systems, LLC
(HDS). Under the terms of the Sublease HDS agreed to pay the Company rent of $51,348 per annum payable in equal monthly installments of $4,279 through and including April 30, 2007. This sublease agreement was cancelled on
March 1, 2005.



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##### Table of Contents

NON-INVASIVE MONITORING SYSTEMS, INC.



NOTES TO FINANCIAL STATEMENTS



For the Years Ended July 31, 2005 and 2004



There were no future minimum rental payments as of July 31, 2005.



Rent expense was approximately $110,000 and $154,000 for the
years ending July 31, 2005 and 2004, respectively.



|13. | SUBSEQUENT EVENTS
|--- | -----------------



On August 18, 2005, we closed on a financing transaction with a group of private investors (Investors) of $1,000,000. The financing
consisted of the sale of two components: (a) an aggregate of Twenty Million (20,000,000) shares of the Companys common stock; and (b) Warrants registered in the name of each Investor to receive an aggregate of Ten Million
(10,000,000) shares of Common Stock to be issued to the Investors pro rata based upon their investment, with an exercise price of $0.15 (with the right to a cashless exercise) and an expiration date of August 18, 2009. The shares sold in
this financing transaction have five year unlimited piggy-back registration rights and may be registered for resale on a Registration Statement to be filed by the Company if the Investors holding at least 50% of the securities request
such registration.



In March and June of 2005, the Company
received an aggregate of $100,000 as an advance against the financing of August 18th, described above.



Richard Buckley, an individual and past employee of the
company, who was terminated in September 2003, filed suit against the Company for an alleged severance payment.



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##### Table of Contents

Exhibit Index



|            |  |                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                   
|14.1        |  | Code of Ethics                                                                                                                
|            | 
|23          |  | Consent of Independent Auditors                                                                                               
|            | 
|31.1        |  | Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002.
|            | 
|31.2        |  | Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002.
|            | 
|32.1        |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002        
|            | 
|32.2        |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002        



24