**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-KSB**







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


**SECURITIES
      EXCHANGE ACT OF 1934**




**For
      the Fiscal Year Ended July 31, 2008**




**Commission
      File Number: 000-13176**







**NON-INVASIVE
      MONITORING SYSTEMS, INC.**


**(Name
      of small business issuer as specified in its charter)**







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




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


**(Address
      of principal executive offices) (Zip Code)**




**(305)
      861-0075**


**(** **Company’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 par value**




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. མ




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 10-KSB. Yes  ̈ No x




State
      issuer’s revenues for its most recent fiscal year: **$302,000**




The
      aggregate market value of the registrant’s common stock held by non-affiliates
      of the registrant held as of October 20, 2008, was approximately **$27,216,000**




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 October 20, 2008, was **68,039,065** .




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




Transitional
      Small Business Disclosure
      Format:    Yes  ̈ No x








**NON-INVASIVE
      MONITORING SYSTEMS, INC.**


**Report
      on Form 10-KSB**


**For
      the Fiscal Year Ended July 31, 2008**




**TABLE
      OF CONTENTS**




PagePART
                I.Item
                1.
            Description
                of Business.
            
            3Item
                2.
            Description
                of Property.
            
            10Item
                3.
            Legal
                Proceedings.
            
            10Item
                4.
            Submission
                of Matters to a Vote of Security Holders.
            
            10PART
                II.Item
                5.
            Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity Securities.
            
            11Item
                6.
            Management’s
                Discussion and Analysis.
            
            11Item
                7.
            Financial
                Statements.
            
            15Item
                8.
            Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure.
            
            15Item
                8A(T).
            Controls
                and Procedures.
            
            15Item
                8B.
            Other
                Information.
            
            16PART
                III.Item
                9.
            Directors,
                Executive Officers, Promoters and Control Persons and Corporate
                Governance; Compliance with Section 16(a) of the Exchange
                Act.
            
            17Item 10.
            Executive
                Compensation.
            
            19Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters.
            
            21Item
                12.
            Certain
                Relationships and Related Transactions and Director
                Independence.
            
            23Item
                13.
            Exhibits.
            
            25Item
                14.
            Principal
                Accountant Fees and Services.
            
            26Signatures.
            
            27





**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; approval by the Food and
      Drug Administration of the Exer-Rest ® and
      the
      Somno-Ease TM motion
      platforms; dependence on future sales of the Exer-Rest ® and
      Somno-Ease TM motion
      platforms; 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.


2




**PART
      I**




**ITEM 1.**
            **DESCRIPTION
                OF BUSINESS**




**A.
      General Development of Business.**




Introduction




Non-Invasive
      Monitoring Systems, Inc. (the “Company” or “NIMS”) was incorporated in Florida
      on July 16, 1980. The Company’s offices are located at 4400 Biscayne Boulevard,
      Suite 680, Miami, Florida, 33137 and its telephone number is
      (305) 861-0075. The Company’s primary business is the research,
      development, manufacturing and marketing of a line of motorized, non-invasive,
      whole body, periodic acceleration platforms. These platforms are the home,
      wellness center and clinic version of the Company’s original acceleration
      platform, the AT-101. In addition, the Company has developed computer assisted,
      non-invasive diagnostic monitoring devices and related software designed to
      detect abnormal respiratory, cardiac, and other medical conditions from sensors
      placed externally on the body’s surface. These diagnostic devices were sold in
      1999 to the SensorMedics Division of ViaSys (which is now a unit of Cardinal
      Health, Inc. (“SensorMedics”)), and to privately held VivoMetrics, Inc.
      (“VivoMetrics”), both of which currently pay royalties to NIMS on sales of these
      products.




Business




Prior
      to
      2002, our primary business was the development of computer assisted,
      non-invasive diagnostic monitoring devices and related software designed to
      detect abnormal respiratory, cardiac, and other medical conditions from sensors
      placed externally on the body’s surface. We assigned our patents for these
      ambulatory monitoring devices to SensorMedics for cash and royalties on sales.
      We also assigned the patents to VivoMetrics, then a related party, for an equity
      ownership interest in VivoMetrics (now carried at zero value for financial
      reporting purposes) and royalties on sales and leasing of VivoMetrics’
LifeShirt ® systems.
      In April 2002, VivoMetrics received FDA clearance to market the
      LifeShirt ® system.
      We continue to receive royalties from both SensorMedics and VivoMetrics, however
      there can be no assurance as to the amount of royalty revenue that will be
      derived from these patent assignments.




In
      2002,
      we began restructuring our operations and business strategy to focus on the
      research, development, manufacturing, marketing, and sales of non-invasive,
      motorized, whole body periodic acceleration platforms. These therapeutic
      acceleration platforms are intended for use in the home, wellness centers and
      clinics as an aid to improve circulation and joint mobility, relieve minor
      aches
      and pains, relieve troubled sleep and as a mechanical feedback device for slow
      rhythmic breathing exercise for stress management. The Company’s first such
      platform, the AT-101, was initially registered with the United States Food
      and
      Drug Administration (the “FDA”) as a Class 1 (exempt) powered exercise device
      and was sold to physicians and their patients. In January 2005, the FDA
      disagreed with our device classification, and requested that we cease commercial
      sales and marketing efforts for the AT-101 until we received a Class
      1Therapeutic Vibrator approval from the FDA. Accordingly, the Company ceased
      its
      sales and marketing efforts thereafter. Revenue has continued to be received
      from royalties on sales of diagnostic monitoring hardware and software by the
      SensorMedics and VivoMetrics companies and small research contracts.
      Additionally, the Company has received revenues from sales of parts and units
      sold for research purposes.




In
      January 2005 we began development of a less costly and more efficient second
      generation version of the AT-101, the Exer-Rest ® (now
      designated the Exer-Rest ® AT).
      Until we receive FDA approval for the sale of our therapeutic acceleration
      platforms in the United States, we will be marketing and selling these improved
      platforms in the United Kingdom, Canada, Europe, India, and Latin America.
      In
      January 2008, we received ISO 13485 certification for Canada, the United Kingdom
      and Europe from SGS United Kingdom Ltd., the world’s leading verification and
      certification body. ISO 13485 certification is recognized and accepted worldwide
      as a sign of design and manufacturing quality for medical devices. In addition
      to our ISO certification, NIMS’ Exer-Rest ® AT
      acceleration therapeutic platform (Class IIa) was awarded CE0120 certification,
      which requires several safety related conformity tests including clinical
      assessment for safety and effectiveness. The CE0120 marking is often referred
      to
      as a “passport” that allows manufacturers from anywhere in the world to sell
      their goods throughout the European market as well as in many other
      countries.




3




The
      Company entered into a Product and Development and Supply Agreement with Sing
      Lin Technology Co., Ltd. (“Sing Lin”) of Taichung, Taiwan on September 4, 2007.
      Under this agreement, Sing Lin will manufacture new third generation versions
      of
      our patented Exer-Rest ® motorized platforms (designated the Exer-Rest ® SL and
      the Exer-Rest ® TL). We
      have determined that it is in the best interest of NIMS and its shareholders
      to
      focus the Company’s time and resources on developing and marketing the
      Exer-Rest ® line of
      acceleration therapeutic platforms. These devices will be marketed and sold
      by
      NIMS promoting their acceleration therapeutics technology, in the UK, Europe,
      India and Latin America. They will be sold by Sing Lin in the Far East upon
      completion of testing and obtaining proper registration.




The
      development of the Exer-Rest ® has
      necessitated additional expenditures and commitments of capital, and we
      anticipate experiencing losses through the end of the 2009 fiscal year as we
      commence sales in Canada, the UK, Europe, India and Latin America. We plan
      to
      raise additional capital to fulfill our business plan, but no commitment to
      raise such additional capital exists or can be assured. If we are unsuccessful
      in our efforts to raise capital, we will not be able to continue operations.
      We
      expect to begin actively marketing and selling the Exer-Rest ® overseas
      beginning in the first fiscal quarter of 2009. The Exer-Rest ® is
      currently not approved for sale in the United States, however the Company is
      seeking such FDA approval. The Exer-Rest ® will
      only be marketed and sold commercially in the U.S. as a medical device when
      and
      if FDA approval is obtained. We filed a 510(k) application with the FDA in
      October 2008 for approval to market the Exer-Rest ® in the
      United States. The 510(k) application included clinical trial and
      investigational data to support the intended use of the Exer-Rest ® as an
      aid to improve circulation and provide temporary relief of aches and pains.
      The
      FDA is expected to provide a preliminary response to our application within
      90
      days, however there can be no assurance that the FDA will respond in that
      timeframe. Although we believe that our application satisfies all of the FDA’s
      requirements to grant approval to market the Exer-Rest ® in
      the
      United States, there can be no assurance that such approval will be granted.




**B.
      Financial Information about Industry Segments.**




Not
      applicable.




**C.
      Narrative Description of Business.**




Introduction




We
      are
      primarily engaged in the development, manufacture and marketing of non-invasive,
      whole body, periodic acceleration therapeutic platforms. An acceleration
      platform is a motorized platform that moves a subject repetitively from head
      to
      foot 140 times per minute over a distance of 0.65” (1.65cm). Our acceleration
      therapeutic platforms are the inventions of Marvin A. Sackner, M.D., our Chief
      Executive Officer and Chairman of the Board of Directors. Dr. Sackner holds
      32
      United States patents and 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 was awarded an Honorary M.D. from
      the University of Zurich, and is Voluntary Professor of Medicine at the
      University of Miami at Mount Sinai and Emeritus Director of Medical Services
      at
      Mount Sinai Medical Center.




Twenty-six
      peer reviewed scientific publications attest to the benefits of whole body
      periodic acceleration in animal and human research investigations. The
      application of this technology causes release of beneficial substances from
      the
      inner lining of blood vessels to the same extent as moderate to strenuous
      exercise. Thus, the usual 45 minute treatment with whole body periodic
      acceleration is equivalent to 45 minutes of moderate to strenuous exercise
      with
      regard to the release of beneficial substances into the bloodstream. Nitric
      oxide is the most important of such beneficial substances. These findings are
      not being claimed as an intended use of the device for marketing purposes,
      but
      demonstrate a potential mechanism for its benefits.




Current
      Products




AT-101
      Therapeutic Vibrator and the Exer-Rest ® :




The
      AT-101 therapeutic vibrator is a comfortable gurney styled device that moves
      a
      platform repetitively in a head-to-foot motion, similar to the movement used
      to
      comfort a child in a baby carriage but at a much more rapid pace. Sales of
      the
      AT-101 commenced in October 2002 in Japan and in February 2003 in the United
      States. QTM Incorporated (“QTM”), an FDA registered manufacturer (Oldsmar, FL)
      manufactured the device, which was built in accordance with ISO and FDA Good
      Manufacturing Practices. As discussed above, we stopped selling the AT-101
      in
      the United States in January 2005, but continued selling overseas as we began
      development of the Exer-Rest ® .
      We
      ceased manufacturing the AT-101 in January 2005.




4




The
      Exer-Rest ® AT
      therapeutic vibrator is based upon the design and concept of the AT-101
      therapeutic vibrator, but has the dimensions and appearance of a commercial
      extra long twin bed. The Exer-Rest ® AT,
      which is also manufactured by QTM, weighs about half as much as the AT-101,
      has
      a much more efficient and less costly drive mechanism, has a much lower selling
      price than the AT-101, and is designed such that the user can utilize and
      operate it without assistance. The wired hand held controller provides digital
      values of speed, travel and time rather than analog values of speed and
      arbitrary force values as in the AT-101. Sales of the Exer-Rest ® AT began
      overseas in October 2007.




The
      Exer-Rest ® SL and
      Exer-Rest ® TL,
      which are being manufactured by Sing Lin, further advance the acceleration
      therapeutic platform technology. The SL and TL models combine improved drive
      technology for quieter operation, a more comfortable “memory-foam” mattress,
      more convenient operation with a multi-function wireless remote and a more
      streamlined look to improve the whole body, periodic acceleration experience.
      The first Exer-Rest ® SL and
      Exer-Rest ® TL
      platforms are expected to be delivered in October 2008.




The
      Somno-Ease TM ,
      a
      variation of the Exer-Rest ® currently in development, is designed to aid patients with sleep disorders
      as
      well as provide feedback for slow rhythmic breathing exercises for the relief
      of
      stress associated with daily living. The Somno-EaseTM will have a similar
      appearance to the Exer-Rest ® SL and
      TL models, but produces slower motion over a greater travel distance than
      Exer-Rest ® and is
      based upon the notion of “rocking” the adult to sleep analogous to rocking a
      baby to sleep. The Exer-Rest ® Plus,
      which is also in development, will combine the features of both the
      Exer-Rest ® and
      Somno-Ease TM .




LifeShirt ® :




The
      LifeShirt ® is a
      Wearable Physiological Computer (US Patents 6,551,252 [issued April 22, 2003],
      6,413,225 [issued July 2, 2002], 6,047,203 [issued April 4, 2000])
      that incorporates four inductive plethysmographic transducers,
      electrocardiographic electrodes, and a two posture sensor into a low turtle
      neck
      sleeveless garment. Pulse oximetry is an optional add-on. These transducers
      are
      connected to a miniaturized, battery powered, electronic module. This module
      interfaces with the compact flash memory of a Personal Digital Assistant (“PDA”)
      for collection of raw waveforms and digital data. Such data are then transmitted
      from the flash memory to a Data Collection Center that transforms the data
      into
      minute-by-minute median trends of over 30 physical and emotional signs of health
      and disease. In addition, the monitored patient can enter symptoms with
      intensity, mood, and medication diary into the PDA for integration with the
      physiologic information collected with the LifeShirt ® garment.
      Data from flash memory can be mailed to 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 product the Company must comply with
      regulatory requirements and procedures in various foreign countries. The CE
      mark
      is required for marketing in the European Community and the Company obtained
      the
      CE mark for the Exer-Rest ® in
      January 2008.




Patents
      and Trademarks




The
      Company currently holds four United States patents with respect to both overall
      design and specific features of its present and proposed products and has
      submitted applications with respect to an additional United States and 4 foreign
      patents. The Company previously 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
      patents along with their expiration dates (20 years from filing date) are listed
      below:




5




**US
                Patent**
            
            **Inventors**
            
            **Title**
            
            **Expiration
                Date**7,404,221
            
            Sackner,
                Marvin A.
            
            Reciprocating
                movement
              platform
                for the external addition of
              pulses
                to the fluid channels of a
              subject
            
            August
                4, 20247,111,346
            
            Inman,
                D. Michael;
              Sackner,
                Marvin A.
            
            Reciprocating
                movement
              platform
                for the addition of
              pulses
                of the fluid channels of a
              subject
            
            May
                15, 20237,090,648
            
            Sackner,
                Marvin A.;
              Inman,
                D. Michael
            
            External
                addition of pulses to
              fluid
                channels of body to release
              or
                suppress endothelial mediators
              and
                to determine effectiveness of
              such
                intervention
            
            September
                28, 20216,155,976
            
            Sackner,
                Marvin A.;
              Inman,
                D. Michael;
              Meichner,
                William J.
            
            Reciprocating
                movement
              platform
                for shifting subject to
              and
                fro in headwards-footwards
              direction
            
            May
                24, 2019




With
      respect to its present and proposed product line, the Company has 17 trademarks
      and trade names which are registered in the United States and in several foreign
      countries, including the Company’s principal trademark, Exer-Rest ® .




Competition




The
      Company competes with several entities that market, sell or distribute
      therapeutic vibratory devices that are registered with FDA as powered exercise
      devices, or therapeutic vibrators. These include Power Plate of North America,
      Vibraflex, CERAGEM International, Inc **.** all
      of
      which are larger, have longer operating histories and have financial and
      personnel resources far greater than those of the Company. Management believes,
      however, that it effectively competes with such concerns on the basis of
      uniqueness of its product.




Employees




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




**D.
      Risk Factors**




Our
      future operating results may vary substantially from anticipated results due
      to
      a number of factors, many of which are beyond our control. The following
      discussion highlights some of these factors and the possible impact of these
      factors on future results of operations. If any of the following factors
      actually occur, our business, financial condition or results of operations
      could
      be materially harmed. In that case, the value of our common stock could decline
      substantially.




6





**Risks
      Relating to Our Business.**





**Our
      financial statements indicate that we may be unable to continue as a going
      concern. W** **e
      have a history of operating losses and we do not expect to become profitable
      in
      the near future:**




Our
      consolidated financial statements for the years ended July 31, 2008 and 2007
      were prepared on a “going concern” basis; however substantial doubt exists about
      our ability to continue as a going concern as a result of recurring losses
      and
      an accumulated deficit. We are not profitable and have been incurring material
      losses. Our net losses for our fiscal years ended July 31, 2008, 2007 and 2006
      were $1.8 million, $1.4 million and $613,000, respectively. As of July 31,
      2008,
      we had an accumulated deficit of $18.0 million. Our revenues during 2005 until
      today were primarily derived from royalties on sales of diagnostic monitoring
      hardware and software licensed to third parties and from sales of parts and
      services related to acceleration therapeutics platforms used for research
      purposes. We have not as yet received approval from the Food and Drug
      Administration (the “FDA”) to sell our therapeutic acceleration platform, the
      Exer-Rest ® ,
      in the
      United States and our ability to market our products in other countries may
      be
      subject to regulatory clearances and approvals in such jurisdictions. There
      can
      be no assurance that we will obtain clearance for marketing our products by
      the
      FDA or by the applicable regulatory authorities in all jurisdictions where
      we
      may want to market our products. In addition, even if we obtain the applicable
      regulatory clearance, there can be no assurance that our products will achieve
      market acceptance. Market acceptance of our products may depend upon: the timing
      of market introduction of competitive products; the safety and efficacy of
      our
      products; and the potential advantage or disadvantages of alternative
      treatments. If our products fail to achieve market acceptance, we may not be
      able to generate significant revenues or be profitable. Even if we achieve
      profitability in the future, we may not be able to sustain profitability in
      subsequent periods.





**The
      regulatory approval process is expensive, time consuming and uncertain and
      may
      prevent us from obtaining approvals for the commercialization of some or all
      of
      our products:**




The
      research, testing, manufacturing, labeling, approval, selling, marketing and
      distribution of medical devices are subject to extensive regulation by the
      FDA
      and other non-U.S. regulatory authorities, which regulations differ from country
      to country. We are not permitted to market, our principal product, the
      Exer-Rest ® ,
      in the
      United States until we receive a clearance or approval from the FDA. The FDA
      will not grant such approval until we submit the results of a clinical trial
      that are satisfactory to the FDA. If the trial results we submitted to the
      FDA
      are not deemed satisfactory, we may have to launch new trials which will require
      significant additional expenditures and further delay the launch of
      Exer-Rest ® sales in
      the United States. There is no assurance as to (i) when the FDA will clear
      or
      approve the Exer-Rest ® for
      marketing in the United States, (ii) the additional steps we may need to
      undertake to obtain such clearance or approval or the costs we may need to
      incur
      in connection therewith, or (iii) whether the FDA will ever grant such clearance
      or approval.





**Even
      if we obtain regulatory clearances or approvals for our products, the terms
      of
      clearances or approvals and ongoing regulation of our products may limit how
      we
      manufacture and market our products, which could materially impair our ability
      to generate anticipated revenues:**




Once
      regulatory clearance or approval has been granted, the cleared or approved
      product and its manufacturer are subject to continual review. Any cleared or
      approved product may only be promoted for its indicated uses. Accordingly,
      it is
      possible that our products may be cleared or approved for fewer or more limited
      uses than we request or that clearance or approval may be granted contingent
      on
      the performance of costly post-marketing clinical trials. In addition, if the
      FDA or other non-U.S. regulatory authorities clear or approve our products,
      the
      labeling, packaging, adverse event reporting, storage, advertising and promotion
      for the product will be subject to extensive regulatory requirements. It is
      possible that the FDA or other non-U.S. regulatory authorities may not approve
      the labeling claims necessary or desirable for the successful commercialization
      of our products. Further, regulatory agencies must approve our manufacturing
      facilities before they can be used to manufacture our products, and these
      facilities are subject to ongoing regulatory inspection. If we fail to comply
      with the regulatory requirements of the FDA and other non-U.S. regulatory
      authorities, or if previously unknown problems with our products, manufacturers
      or manufacturing processes are discovered, we could be subject to administrative
      or judicially imposed sanctions.




In
      addition, the FDA and other non-U.S. regulatory authorities may change their
      policies and additional regulations may be enacted that could prevent or delay
      regulatory clearance or approval of our products. We cannot predict the
      likelihood, nature or extent of government regulation that may arise from future
      legislation or administrative action, either in the United States or abroad.
      If
      we are not able to maintain regulatory compliance, we would likely not be
      permitted to market our products and we may not achieve or sustain
      profitability.




7




**We
      rely on third parties to manufacture and supply our products:**




We
      do not
      own or operate manufacturing facilities for clinical or commercial production
      of
      our products, other than a prototype lab. We have no experience in medical
      device manufacturing, and we lack the resources and the capability to
      manufacture any of our products on a commercial scale. We entered into a Product
      and Development and Supply Agreement with Sing Lin Technology Co. Ltd. (“Sing
      Lin”) to, among other things, manufacture all of our acceleration therapeutic
      platforms. However, Sing Lin has not yet fully commenced commercial
      manufacturing. If Sing Lin is unable to produce our products in the amounts
      that
      we require, we may not be able to establish a contract and obtain a sufficient
      alternative supply from another supplier on a timely basis and in the quantities
      we require. We expect to depend on QTM, Sing Lin and other third-party contract
      manufacturers for the foreseeable future.




Our
      ability to replace an existing manufacturer may be difficult because the number
      of potential manufacturers is limited and the FDA must approve any replacement
      manufacturer before it can begin manufacturing our product. It may be difficult
      or impossible for us to identify and engage a replacement manufacturer on
      acceptable terms in a timely manner, or at all.





**Our
      competitors may develop and market products that are more effective, safer
      or
      less expensive than our products, negatively impacting our commercial
      opportunities:**




The
      life
      sciences industry is highly competitive, and we face significant competition
      from many medical device companies that are researching and marketing products
      designed to address the same ailments we are endeavoring to address. The medical
      devices that we have developed or are developing will compete with other medical
      devices that currently exist or are being developed. Products we may develop
      in
      the future are also likely to face competition from other medical devices and
      therapies. Many of our competitors have significantly greater financial,
      manufacturing, marketing and product development resources than we do. If our
      competitors market products that are more effective, safer, easier to use or
      less expensive than our products, or that reach the market sooner than our
      products, we may not achieve commercial success. In addition, the medical device
      industry is characterized by rapid technological change. It may be difficult
      for
      us to stay abreast of the rapid changes in each technology. If we fail to stay
      at the forefront of technological change, we may be unable to compete
      effectively. Technological advances or products developed by our competitors
      may
      render our technologies or products obsolete or less competitive.





**If
      we are unable to obtain and enforce patent protection for our products, our
      business could be materially harmed:**




We
      currently hold four United States patents with respect to overall design and
      specific features of our present and proposed products and have submitted
      applications with respect to four foreign patents. The issuance of a patent
      does
      not guarantee that it is valid or enforceable. Any patents we have obtained,
      or
      obtain in the future, may be challenged, invalidated, unenforceable or
      circumvented. Moreover, the United States Patent and Trademark Office (the
      “USPTO”) may commence interference proceedings involving our patents or patent
      applications. Any challenge to, finding of unenforceability or invalidation
      or
      circumvention of, our patents or patent applications would be costly, would
      require significant time and attention of our management and could have a
      material adverse effect on our business.




Our
      pending patent applications may not result in issued patents. The patent
      position of medical device companies, including ours, is generally uncertain
      and
      involves complex legal and factual considerations. The standards that the USPTO
      and its foreign counterparts use to grant patents are not always applied
      predictably or uniformly and can change. There is also no uniform, worldwide
      policy regarding the subject matter and scope of claims granted or allowable
      in
      medical device patents. Accordingly, we do not know the degree of future
      protection for our proprietary rights or the breadth of claims that will be
      allowed in any patents issued to us or to others.





**If
      we are unable to protect the confidentiality of our proprietary information
      and
      know-how, the value of our technology and products could be adversely affected:**




In
      addition to patent protection, we also rely on other proprietary rights,
      including protection of trade secrets, know-how and confidential and proprietary
      information. Adequate remedies may not exist in the event of unauthorized use
      or
      disclosure of our confidential information. The disclosure of our trade secrets
      would impair our competitive position and may materially harm our business,
      financial condition and results of operations. To the extent that our employees,
      consultants or contractors use technology or know-how owned by third parties
      in
      their work for us, disputes may arise between us and those third parties as
      to
      the rights in related inventions.




8




**Our
      commercial success depends significantly on our ability to operate without
      infringing the patents and other proprietary rights of third parties:**




Other
      entities may have or obtain patents or proprietary rights that could limit
      our
      ability to manufacture, use, sell, offer for sale or import products or impair
      our competitive position. In addition, to the extent that a third party develops
      new technology that covers our products, we may be required to obtain licenses
      to that technology, which licenses may not be available or may not be available
      on commercially reasonable terms, if at all. Our failure to obtain a license
      to
      any technology that we require may materially harm our business, financial
      condition and results of operations.





**If
      we become involved in patent litigation or other proceedings related to a
      determination of rights, we could incur substantial costs and expenses,
      substantial liability for damages or be required to stop our product development
      and commercialization efforts:**




Third
      parties may sue us for infringing their patent rights. Likewise, we may need
      to
      resort to litigation to enforce a patent issued or licensed to us or to
      determine the scope and validity of proprietary rights of others. In addition,
      a
      third party may claim that we have improperly obtained or used its confidential
      or proprietary information. The cost to us of any litigation or other proceeding
      relating to intellectual property rights, even if resolved in our favor, could
      be substantial, and the litigation would divert our management’s efforts. Some
      of our competitors may be able to sustain the costs of complex patent litigation
      more effectively than we can because they have substantially greater resources.





**We
      require additional funding, which may not be available to us on acceptable
      terms, or at all. In addition, we plan to amend our Articles of Incorporation
      to
      increase our number of authorized shares of Common Stock:**




We
      need
      to raise additional capital in order for us to continue our operations as
      currently contemplated. Until we can generate a sufficient amount of product
      revenue to finance our cash requirements, which we may never do, we will need
      to
      finance future cash needs primarily through public or private equity offerings,
      debt financings or strategic collaborations. We do not know whether additional
      funding will be available on acceptable terms, or at all. In order to raise
      additional capital we may need to amend our Articles of Incorporation to
      increase our number of authorized shares of Common Stock; this will require
      shareholder approval. We anticipate that shareholder approval of such an
      amendment will be obtained; however, there can be no absolute assurance that
      will be the case. If we are not able to secure additional funding when needed,
      we may have to delay, reduce the scope of or eliminate our clinical trials,
      research and development programs and operations. To the extent that we raise
      additional funds by issuing equity securities, our stockholders may experience
      significant dilution, and debt financing, if available, may involve restrictive
      covenants. To the extent that we raise additional funds through collaboration
      and licensing arrangements, it may be necessary to relinquish some rights to
      our
      product candidates or grant licenses on terms that may not be favorable to
      us.





**Risks
      Relating to Our Stock.**





**We
      do not anticipate paying dividends on our Common Stock in the foreseeable
      future:**




We
      have
      not declared and paid cash dividends on our common stock in the past and we
      do
      not anticipate paying any cash dividends in the foreseeable future. We intend
      to
      retain all of our earnings for the foreseeable future to finance the operation
      and expansion of our business. As a result, you may only receive a return on
      your investment in our common stock if the market price of our common stock
      increases.





**Because
      our Common Stock is a “penny stock,” it may be more difficult for investors to
      sell shares of our Common Stock, and the market price of our Common Stock may
      be
      adversely affected:**




Our
      Common Stock is a “penny stock” since, among other things, the stock price is
      below $5.00 per share, it is not listed on a national securities exchange or
      approved for quotation on the Nasdaq Stock Market or any other national stock
      exchange and it has not met certain net tangible asset or average revenue
      requirements. Broker-dealers who sell penny stocks must provide purchasers
      of
      these stocks with a standardized risk-disclosure document prepared by the
      Securities and Exchange Commission (“SEC”). This document provides information
      about penny stocks and the nature and level of risks involved in investing
      in
      the penny-stock market. A broker must also give a purchaser, orally or in
      writing, bid and offer quotations and information regarding broker and
      salesperson compensation, make a written determination that the penny stock
      is a
      suitable investment for the purchaser and obtain the purchaser’s written
      agreement to the purchase. Broker-dealers must also provide customers that
      hold
      penny stock in their accounts with such broker-dealer a monthly statement
      containing price and market information relating to the penny stock. If a penny
      stock is sold to an investor in violation of the penny stock rules, the investor
      may be able to cancel its purchase and get its money back.




9




If
      applicable, the penny stock rules may make it difficult for investors to sell
      their shares of our Common Stock. Because of the rules and restrictions
      applicable to a penny stock, there is less trading in penny stocks and the
      market price of our Common Stock may be adversely affected. Also, many brokers
      choose not to participate in penny stock transactions. Accordingly, investors
      may not always be able to resell their shares of our Common Stock publicly
      at
      times and prices acceptable to them.





**Our
      stock price has been volatile and there may not be an active, liquid trading
      market for our Common Stock:**




Our
      stock
      price has experienced significant price and volume fluctuations and may continue
      to experience volatility in the future. Factors that have a significant impact
      on the price of our common stock, in addition to the other issues described
      in
      this report, include results of or delays in our pre-clinical and clinical
      studies, announcements of technological innovations or new commercial products
      by us or others, developments in patents and other proprietary rights by us
      or
      others, future sales of our common stock by existing stockholders, regulatory
      developments or changes in regulatory guidance, the departure of our officers,
      directors or key employees, and period-to-period fluctuations in our financial
      results. Also, you may not be able to sell your shares at the best market price
      if trading in our stock in not active or if the volume is low. There is no
      guarantee that an active trading market for our common stock will be maintained
      on the OTC Bulletin Board Market.





**Our
      quarterly results of operations will fluctuate, and these fluctuations could
      cause our stock price to decline:**




Our
      quarterly operating results are likely to fluctuate in the future. These
      fluctuations could cause our stock price to decline. The nature of our business
      involves variable factors, such as the timing of the research, development
      and
      regulatory submissions of our devices that could cause our operating results
      to
      fluctuate. As a result, in some future quarters our clinical, financial or
      operating results may not meet the expectations of securities analysts and
      investors which could result in a decline in the price of our
      stock.




**ITEM 2.**
            **DESCRIPTION
                OF PROPERTY.**




The
      Company currently leases two office spaces. The first is for approximately
      1,200
      square feet located at 4400 Biscayne Boulevard, Miami, Florida, and is leased
      from a company controlled by a holder of more than 10% of the Company’s Common
      Stock under a five-year lease. The second is located at 5204 Paylor Lane,
      Sarasota, Florida, has been vacated and is subject to a lease which expires
      November 15, 2008.




The
      total
      rent expense for both the Miami and Sarasota offices was $82,000 for the fiscal
      year ended July 31, 2008.




**ITEM 3.**
            **LEGAL
                PROCEEDINGS.**




None.




**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, 2008.




10


**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 high and low bid
      prices for the Company’s common stock in the over-the-counter market as reported
      by the OTC Bulletin Board under the symbol NIMU.OB. The bid prices represent
      inter-dealer transactions, without adjustments for retail mark-ups, mark-downs
      or commissions and may not necessarily represent actual transactions.




**Quarter
                Ended**
            
            **High**
            
            **Low**October 31,
                2006
            
            $
            0.75
            
            $
            0.52January 31,
                2007
            
            $
            0.70
            
            $
            0.48April
                30, 2007
            
            $
            1.93
            
            $
            0.63July 31,
                2007
            
            $
            1.80
            
            $
            1.01October 31,
                2007
            
            $
            1.06
            
            $
            0.75January 31,
                2008
            
            $
            0.81
            
            $
            0.43April
                30, 2008
            
            $
            0.64
            
            $
            0.41July 31,
                2008
            
            $
            0.57
            
            $
            0.36




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,
      2008, we had 1,606 shareholders of record based on information provided by
      our
      transfer agent, American Stock Transfer & Trust Company. We believe
      that the actual number of beneficial shareholders is considerably
      higher.





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




Cautionary
      Statement Regarding Forward-looking Statements




This
      discussion 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.




Critical
      Accounting Policies




The
      Company’s financial statements included in Item 7 of this annual report
      contains a summary of significant accounting policies and methods used in the
      preparation of financial statements. However, in the opinion of management,
      because of the relative magnitude of certain assets and liabilities, accounting
      methods and estimates related to those assets and liabilities are critical
      to
      the preparation of the Company’s financial statements. In many other cases,
      however, the Company must use an accounting policy or method because it is
      the
      only policy or method permitted under accounting principles generally accepted
      in the United States of America. The following are critical accounting estimates
      and methods used by the Company:




***Royalties
      Receivable*** **.** Management estimates future collectability of royalties based on an account’s
      aging, payment history and financial condition. The Company does not normally
      require collateral from its licensees.




***Income
      Taxes.*** The
      Company provides for income taxes in accordance with Statements of Financial
      Accounting Standards No. 109 Accounting for Income Taxes (“SFAS
      No. 109”), and effective August 1, 2007, FIN 48 and related
      interpretations, using an asset and liability based approach. Deferred income
      tax assets and liabilities are recorded to reflect the tax consequences in
      future years of temporary differences between the carrying amounts of assets
      and
      liabilities for financial statement and income tax purposes.




11




The
      Company has substantial net operating loss carry forwards available to offset
      future taxable income for federal and state income tax purposes. The Company’s
      ability to utilize its net operating losses may be limited due to changes in
      the
      Company’s ownership as defined by Section 382 of the Internal Revenue Code
      and similar state provisions.




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 if 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.




***Stock-Based
      Compensation.*** The
      Company determines stock based compensation based on the estimated fair values
      of stock options as determined on their grant dates using the Black-Scholes
      option pricing method. In determining the estimated fair value of stock options
      issued, the Company makes assumptions of expected volatility, risk free interest
      rates, expected option terms and dividend yields.




**Results
      of Operations**




In
      January 2005, we began developing the Exer-Rest ® line of
      acceleration therapeutic platforms, which were designed to be more efficient
      and
      less expensive than the AT-101. The Exer-Rest ® AT
      platform was first available for delivery to certain locations outside of the
      United States in October 2007. Prior to the first export sales of the
      Exer-Rest ® AT, we
      continued to sell the AT-101 in certain locations outside of the United States.
      In anticipation of the launch of the Exer-Rest line, in July 2006 we wrote
      down
      as obsolete our existing inventory of AT-101 platforms and parts to zero value.
      The newest Exer-Rest ® SL and
      TL platforms, which have been developed under our agreement with Sing Lin,
      became available for sale in the first quarter of our 2009 fiscal year. We
      expect to increase our international sales activity with aggressive marketing
      and promotional pricing beginning in the first quarter of fiscal 2009.




The
      Exer-Rest ® line is
      not currently approved for sale in the United States. The Company has submitted
      a 510(k) application to the FDA for approval to market the Exer-Rest ® platforms in the United States for their intended use to improve circulation
      and
      for temporary relief of aches and pains. There can be no assurance that the
      FDA
      will grant such approval.




**Year
      Ended July 31, 2008 Compared to Year Ended July 31, 2007**




**Gross
      revenues.** Gross
      revenues decreased from $310,000 for the year ended July 31, 2007 to $302,000
      for the year ended July 31, 2008, a decrease of $8,000, primarily as a result
      of
      a $9,000 decrease in royalty income. Four Exer-Rest ® AT
      units
      were sold for a total of $41,000 during the year ended July 31, 2008, as
      compared to two AT-101 units sold during the 2007 fiscal year for the same
      total
      revenue.




**Cost
      of sales.** Cost
      of
      sales increased from $10,000 for the year ended July 31, 2007 to $19,000 for
      the
      year ended July 31, 2008, an increase of $9,000. The increase was primarily
      due
      to the increased number of units sold during the year.




**Selling,
      general and administrative expenses.** Selling,
      general and administrative expenses increased from $1,390,000 for the year
      ended
      July 31, 2007 to $1,953,000 for the year ended July 31, 2008. This increase
      of
      $563,000 was primarily as a result of increased legal and audit fees associated
      with our public company filings, $126,000 severance paid to our former Chief
      Executive Officer and increased compensation expense related to the addition
      of
      sales and finance personnel. Selling, general and administrative expense
      includes stock based compensation expense, which totaled $314,000 for 2008,
      as
      compared to $388,000 for 2007. For 2007, $296,000 of stock compensation expense
      related to the fair value of bonus shares given to directors and guarantors
      of
      the then outstanding bank debt of the Company, in connection with the October
      2006 equity funding described below.




12




**Research
      and development costs.** Research
      and development costs decreased from $282,000 for the year ended July 31, 2007
      to $178,000 for the year ended July 31, 2008. This decrease of $104,000 was
      primarily as a result of the winding down of development on the
      Exer-Rest ® and
      related products as we focused on building the tooling and inventory in advance
      of sales.




**Total
      operating expenses.** Total
      operating expenses increased from $1,682,000 for the year ended July 31, 2007
      to
      $2,150,000 for the year ended July 31, 2008. This increase of $468,000 is
      primarily attributable to the increased general and administrative expenses
      described above.




**Liquidity
      and Capital Resources**




Our
      operations have been primarily financed through private sales of our equity
      securities. At July 31, 2008, we had cash of $86,000 and working capital of
      $494,000. These funds will not be sufficient for our operating needs, and the
      Company will need to obtain additional debt or equity financing to continue
      its
      business activities during fiscal 2009. No assurance can be given that such
      additional financing will be available on acceptable terms or at
      all.




Net
      cash
      used in operating activities increased to $2,232,000 for the year ended July
      31,
      2008 from $948,000 for the year ended July 31, 2007. This increase of $1,284,000
      was principally due to an increase in inventory and advances to Sing Lin as
      we
      prepare to commence sales of the full line of Exer-Rest ® platforms, and the increase in operating expenses described above.




Net
      cash
      provided by investing activities was $86,000 for the year ended July 31, 2008,
      due primarily to the redemption of $400,000 in certificates of deposit held
      as
      collateral for bank notes, offset by cash payments of $300,000 for
      Exer-Rest ® tooling
      and the $25,000 purchase of five Exer-Rest ® AT
      units
      to be used for demonstration purposes. Investing activities in 2007 used
      $419,000, primarily due to the initial purchase of the $400,000 of certificates
      of deposit described above.




Net
      cash
      provided by financing activities decreased to $1,076,000 for the year ended
      July
      31, 2008 from $2,119,000 for the year ended July 31, 2007. The decrease of
      $1,043,000 was principally due to the difference between the $1.5 million raised
      by the April 2008 Series D Preferred Stock Offering described below and the
      $2.2
      million raised by the October 2006 Equity Financing described below. Cash flows
      from financing activities were also lower in 2008 due to the repayment of the
      $500,000 of bank notes secured by the certificates of deposit described above.





**October
      2006 Equity Financing.** In
      October 2006, the Company accepted $2.2 million for the exercise of outstanding
      options and warrants held by Board members and private investors. As a result
      of
      the exercise, 14,691,005 shares of the Company’s common stock, $0.01 par value
      (“Common Stock”) were issued to the exercising optionholders and warrantholders.
      The options and warrants were exercised pursuant to an offer (the “Offer”) by
      the Company to certain optionholders and warrantholders to grant exercising
      optionholders and warrantholders upon exercise an additional number of shares
      of
      Common Stock equal to 20% of the shares received upon exercise (“Bonus Shares”).
      Pursuant to the Offer, options to purchase 3,067,504 shares of Common Stock
      and
      warrants to purchase 9,175,000 shares of Common Stock were exercised. An
      additional 613,501 Bonus Shares were issued to exercising optionholders and
      an
      additional 1,835,000 Bonus Shares were issued to exercising warrantholders.
      Directors (including a director holding more than 10% of the outstanding Common
      Stock (a “10% Holder”) exercised in the aggregate, options to purchase 2,189,164
      shares of Common Stock and received 437,833 Bonus Shares for payment of
      $592,084. A 10% Holder exercised warrants to purchase 3,250,000 shares of Common
      Stock and received 650,000 Bonus Shares for payment of $487,500. Warrants to
      purchase 125,000 shares that may be deemed to be beneficially owned by an
      officer of the Company were exercised for payment of $18,750 and 25,000 Bonus
      Shares were issued on account of such exercise. (See Notes 6 and 7 to the
      accompanying financial statements.)




13




**April
      2008 Series D Preferred Stock Offering.** On April
      7, 2008, we completed the sale of an aggregate of 1,000 shares of a new series
      of our Preferred Stock, par value $1.00 per share (the “Preferred Stock”),
      designated as Series D Convertible Preferred Stock (the “Series D Preferred
      Stock”), to certain private investors (collectively, the “Investors”) pursuant
      to a Stock Purchase Agreement entered into on April 3, 2008 (the “Stock Purchase
      Agreement”). The Investors include Marvin Sackner, a director and executive
      officer of the Company who also holds more than 10% of the outstanding Common
      Stock; Steven Mrha, an executive officer of the Company, and Frost Gamma
      Investments Trust (“Frost Gamma”), a holder of more than 10% of the outstanding
      Common Stock (collectively, the “Related Party Investors”). The aggregate
      purchase price for the Series D Preferred Stock was $1,500,000, of which
      $795,000 was paid by the Related Party Investors. Each holder of a share of
      the
      Series D Preferred Stock has the right, at any time, to convert such share
      of
      Series D Preferred Stock into shares of the Company’s common stock at an initial
      rate of 5,000 shares of common stock per share of Series D Preferred Stock.
      The
      Series D Preferred Stock was issued at $1,500 per share, which is equivalent
      to
      $0.30 per share of Common Stock on an “as-converted” basis. The April 7, 2008
      closing price of the Common Stock on the over-the-counter bulletin board was
      $0.53 per share, resulting in a $1,150 intrinsic value per share of Series
      D
      Preferred Stock on the issue date. The $1,150,000 aggregate intrinsic value
      of
      the Series D Preferred Stock on the issue date was deemed a dividend paid to
      the
      Investors on the closing date, and as an increase in loss attributable to common
      shareholders in the accompanying financial statements for the year ended July
      31, 2008. (See Notes 6 and 7 to the accompanying financial
      statements.)




Royalties
      from VivoMetrics and SensorMedics were $256,000 and $265,000 in 2008 and 2007
      respectively. There can be no assurances that the Company will receive similar
      royalties in 2009.




Under
      the
      Agreement with Sing Lin, NIMS is committed to purchase the tooling required
      to
      manufacture the acceleration therapeutic platforms. The estimated total cost
      of
      the tooling is $475,000, which amount may change subject to our prior approval.
      Through July 31, 2008, we have paid $300,000 toward the tooling cost, and we
      must pay the balance of the final tooling cost upon acceptance of the first
      units produced using the tooling, which acceptance occurred during the first
      quarter of our 2009 fiscal year. In addition to the $300,000 paid to Sing Lin,
      the Company recorded $142,000 of construction in progress for work completed
      on
      the tooling through July 31, 2008. These amounts have been and will be applied
      toward tooling costs, and are included in furniture and equipment, net. The
      Company has also committed to purchase approximately $2.2 million of
      Exer-Rest ® and
      Somno-Ease TM units
      within one year of acceptance of the final product and an additional $3.5
      million and $7.5 million of products in the second and third years following
      acceptance of the final product, respectively. Under the Agreement, the Company
      must pay a portion of the product purchase price at the time production orders
      are placed, with the balance due upon delivery. Through July 31, 2008, we have
      paid Sing Lin $659,000 in connection with orders placed through that date,
      and
      we will be required to make additional payments totaling approximately
      $439,000 upon taking delivery of the units currently in production. We
      expect such deliveries to occur periodically throughout the 2009 fiscal year,
      beginning in the first quarter.




At
      July
      31, 2008, we had available net operating loss carryforwards of approximately
      $10.6 million which expire in various years through 2028. The net operating
      loss
      carryforwards may be subject to limitation due to change of ownership provisions
      under Section 382 of the Internal Revenue Code and similar state
      provisions.




On
      August
      28, 2008 we entered into a Note and Security Agreement (the “Agreement”) with
      four persons (the “Lenders”), pursuant to which the Lenders granted us a
      revolving credit line (the “Revolver”) in the aggregate amount of $300,000,
      secured by all of the Company’s personal property. The Lenders include a holder
      of more than 10% of the outstanding Common Stock and a director and executive
      officer of the Company who also holds more than 10% of the outstanding Common
      Stock. We may borrow and reborrow from time to time under the Revolver until
      October 31, 2008 (the “Maturity Date”). The interest rate payable by us on
      amounts outstanding under the Revolver is 11% per annum, and increases to 16%
      after the Maturity Date or after an Event of Default. All amounts owing under
      the Revolver must be repaid by the Maturity Date, and amounts outstanding are
      prepayable at any time. On August 29, 2008 we drew down $300,000 under the
      Revolver.




As
      of
      September 30, 2008, we had cash and cash equivalents of approximately $125,000,
      including amounts raised in the Revolver loan financing described above, which
      matures on October 31, 2008. We estimate that our current cash reserves will
      be
      sufficient to fund our operations for only the next two months. If we are unable
      to refinance the Revolver and/or generate significant revenues from sales of
      Exer-Rest ® platforms, we will have insufficient funds to continue operations without
      raising additional capital. As of September 30, 2008, we had open orders for
      the
      overseas delivery of 13 Exer-Rest ® platforms and the U.S. delivery of 11 units for research purposes. The aggregate
      purchase price for these 24 units is approximately $200,000, however there
      can
      be no assurance that our customers will take delivery of the ordered units,
      or
      that payment for delivered units will be collected in a timely
      manner.





14




**ITEM 7.**
            **FINANCIAL
                STATEMENTS.**




The
      financial statements required by this Item, the accompanying notes thereto
      and
      the report 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(T).**
            **CONTROLS
                AND PROCEDURES.**





**Disclosure
      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 our disclosure controls and procedures, as
      defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of
      1934
      as of the end of the period covered by this report. Based on that evaluation,
      our Chief Executive Officer and Chief Financial Officer have concluded that
      our
      disclosure controls and procedures as of July 31, 2008 were effective to ensure
      that information required to be disclosed by us in 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.




**Management’s
      Report on Internal Control over Financial Reporting**




Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting. Internal control over financial reporting is a process
      designed to provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external purposes
      in
      accordance with generally accepted accounting principles. Internal control
      over
      financial reporting includes those policies and procedures that:
      (i) pertain to the maintenance of records that in reasonable detail
      accurately and fairly reflect the transactions and dispositions of the assets
      of
      the Company; (ii) provide reasonable assurance that transactions are
      recorded as necessary to permit preparation of financial statements in
      accordance with generally accepted accounting principles, and that receipts
      and
      expenditures of the Company are being made only in accordance with
      authorizations of management and directors of the Company; and
      (iii) provide reasonable assurance regarding prevention or timely detection
      of unauthorized acquisition, use, or disposition of the Company’s assets that
      could have a material effect on the financial statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




For
      the
      period ended July 31, 2008, pursuant to Section 404 of the
      Sarbanes-Oxley Act of 2002, management (with the participation of our principal
      executive officer and principal financial officer) conducted an evaluation
      of
      the effectiveness of our internal control over financial reporting based on
      the
      framework established in Internal Control—Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
      on this evaluation, management concluded that, as of July 31, 2008, our
      internal controls over financial reporting were effective as of July 31,
      2008.




This
      annual report does not include an attestation report of our independent
      registered public accounting firm, Eisner LLP, regarding internal control over
      financial reporting. Management’s report was not subject to attestation by our
      registered public accounting firm pursuant to temporary rules of the Securities
      and Exchange Commission that permit us to provide only management’s report in
      this annual report.




15




**Changes
      in Internal Controls over Financial Reporting**




As
      reported in our Quarterly Report on Form 10-QSB for the period ended April
      30,
      2008, we had concluded that our system of controls was not operating effectively
      as of that date primarily because we did not maintain a sufficient complement
      of
      personnel with the appropriate level of knowledge, experience and training
      in
      the application of accounting principles generally accepted in the U.S. (“GAAP”)
      and in internal control over financial reporting commensurate with our financial
      reporting obligations under the Exchange Act. We further concluded that we
      had
      not maintained effective controls over the presentation of our financial
      statements and related disclosures in preparing our financial statements,
      because certain required information was either omitted or reported incorrectly,
      including the tracking and reporting of stock options and share-based
      compensation expense. Prior to the filing of our Quarterly Report on Form 10-QSB
      for the period ended April 30, 2008, we adopted more stringent procedures and
      controls to assure that options and related expense will be properly reported
      in
      the future. In addition we have implemented certain more stringent review of
      our
      quarterly and annual reports to assure compliance with disclosure requirements,
      including the use of outside professionals to assist us with compliance. We
      have
      also appointed a new Chief Financial Officer and added other personnel with
      the
      appropriate knowledge of GAAP and the financial reporting requirements of the
      Exchange Act and the ability to institute appropriate accounting and financial
      statement review procedures. Although no system of controls can provide absolute
      assurance that all control issues, if any, have been detected, as a result
      of
      the changes set forth above, we now believe that our system of internal controls
      over financial reporting is operating effectively.




Other
      than as described above, there were no changes in the Company's internal control
      over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under
      the
      Exchange Act) that occurred during the Company’s fourth quarter ended July 31,
      2008 that have materially affected, or are reasonably likely to materially
      affect, the Company's internal control over financial reporting.




**ITEM 8B.**
            **OTHER
                INFORMATION.**




None.




16





**PART
      III**





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




The
      following table sets forth the name, age, and position of each of our current
      executive officers and directors. Gary Macleod, who served as Director and
      CEO
      during part of the fiscal year ended July 31, 2008, and Gary Wetstein, who
      served as Chief Financial Officer during part of the fiscal year ended July
      31,
      2008, are not included in the table.




**Name**
            
            **Age**
            
            **Position**Marvin
                A. Sackner, M.D.
            
            76
            
            Chairman
                of the Board and Chief Executive OfficerTaffy
                Gould
            
            66
            
            Director
                and Vice Chairman of the BoardMorton
                J. Robinson, M.D.
            
            76
            
            Director
                and SecretaryJohn
                G. Clawson
            
            80
            
            DirectorGerard
                Kaiser, M.D.
            
            75
            
            DirectorLeila
                Kight
            
            61
            
            DirectorSteven
                B. Mrha
            
            43
            
            Chief
                Operating OfficerAdam
                S. Jackson
            
            46
            
            Chief
                Financial Officer




Our
      Articles of Incorporation provide that we are permitted up to eight directors
      consisting of two directors in Class One, two directors in Class Two, and four
      directors in Class Three. Gerard Kaiser, M.D. was elected as a Class One
      Director in 2002 to serve initially for two years and for periods of six years
      thereafter. Leila Kight and John G. Clawson were elected in 2002 as Class Two
      Directors to serve initially for four years and for periods of six years
      thereafter. Marvin A. Sackner, M.D., Taffy Gould, and Morton J. Robinson, M.D.
      were elected as Class Three Directors in 2002 to serve initially for six years
      and for periods of six years thereafter. As we have not held an election for
      Directors since the expiration of the initial staggered terms described above,
      all of our Directors currently hold their offices until the next annual meeting
      of the Company’s shareholders or until their successors have been duly elected
      and qualified or until their earlier resignation, removal from office or death.
      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 our Chairman of the Board, Chief Executive Officer
      and Director in November 1989 and has remained as Chairman of the Board and
      Director to the present time. He initially resigned as CEO in 2002, but has
      remained an employee through the date hereof. In connection with the December
      2007 resignation of Gary Macleod, Dr. Sackner reassumed the CEO position, and
      remains in that capacity. Dr. Sackner co-founded Respitrace Corporation, a
      predecessor to the Company, in 1977 and was the Chairman of its Board from
      1981
      until October 1989. From 1974 until October 1991, Dr. Sackner was the Director
      of Medical Services at Mount Sinai in Miami Beach, Florida. From 1973-1996,
      he
      served as Professor of Medicine, University of Miami at Mount Sinai. Since
      2004,
      he has been Voluntary Professor of Medicine, Leonard Miller Medical School
      of
      University of Miami. From 1979 to 1980, Dr. Sackner was the President of the
      American Thoracic Society. Dr. Sackner was the Chairman of the Pulmonary Disease
      Subspecialty Examining Board of the American Board of Internal Medicine from
      1977 to 1980. Town & Country Magazine selected him as one of the Best
      Doctors in America in 1979, 1984, and 1989. Good Housekeeping Magazine in 1991
      selected him as one of the Best 400 Doctors in America. In 2007, he was awarded
      an Honorary Doctorate Degree for "outstanding work in the entire field of
      pulmonology and sleep disorders," by the University of Zurich (Switzerland).
      He
      holds 32 United States Patents. He has written 221 scientific papers and four
      books. He founded the Sackner Archive of Concrete and Visual Poetry with his
      wife Ruth, and they have been recognized in 1990, 1991, 1992, 2002, and 2007
      as
      one of the top 100 American collectors by Art & Antiques magazine and in
      2007 by Lifestyles magazine.




TAFFY
      GOULD was elected a Director of the Company in December, 2000 and Vice Chairman
      of the Board of Directors in April 2002. Since 1977 she has been the President
      of Housing Engineers of Florida, Inc., a Florida real estate management company.
      From December 2000 to present she has also been the 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 around the world. Additionally, she has served since December
      2002 as the managing member of e-Medical Education, LLC, a company founded
      in
      2002 that creates and delivers online medical education and administers the
      Oceania University of Medicine.


17




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. From 1987 until
      December 2004, Dr. Robinson served as Director and Chairman of the Department
      of
      Pathology and Laboratory Medicine at Mount Sinai Medical Center, Miami Beach.
      Dr. Robinson has served as Chairman Emeritus of that department since January
      2005.




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 has served as the Chairman of the Boards of Endocyte, Inc.,
      a privately held biotechnology company, Magic Tilt, Inc. a boat trailer
      manufacturing company and Miss Eaton, Inc. a furniture
      manufacturer.




GERARD
      KAISER, M.D. was elected a Director of the Company in November 1989. Since
      1971,
      he has been affiliated with the University of Miami School of Medicine. Dr.
      Kaiser has served as Executive Vice President, Chief Medical Officer of the
      Jackson Health System Public Health Trust in Miami, Florida since 1989.




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




STEVEN
      B.
      MRHA was appointed Chief Operating Officer effective January 14, 2008. From
      2005
      to 2008, Mr. Mrha held the position of Vice President, Sales & Marketing for
      IVX Animal Health (“IVX”), a subsidiary of Teva Pharmaceuticals, Inc. From 1999
      to 2005, Mr. Mrha held the same position with DVM Pharmaceuticals (“DVM”) until
      the 2005 merger of DVM and Phoenix Scientific which created IVX. From 1991
      to
      1999, Mr. Mrha held numerous positions at DVM, including Territory Manager,
      Regional Manager, Director of Corporate Training and Director of Marketing.




ADAM
      S.
      JACKSON was appointed Chief Financial Officer on May 12, 2008. From 2006 to
      2008, Mr. Jackson served as Senior Vice President, Finance for Levitt
      Corporation (“Levitt”), a New York Stock Exchange-traded real estate development
      company (now Woodbridge Holdings Corp.). From 2003 to 2006, Mr. Jackson served
      as Levitt’s Senior Vice President, Controller. From 2001 to 2003, Mr. Jackson
      served as Chief Financial Officer of Romika-USA, Inc., a privately-held consumer
      goods manufacturing and distribution company. Mr. Jackson also currently serves
      as the Chief Financial Officer of SafeStitch Medical, Inc., a publicly-held
      developmental-stage medical device company, a position he has held since March
      24, 2008.




We
      have
      an Executive Committee consisting of Dr. Sackner, Dr. Robinson and Ms. Gould.
      The Executive Committee acts as the Audit and Legal Committee as well as the
      Compensation and 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 our Audit and
      Legal
      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 our operating results and to review
      our internal control procedures. The Board of Directors has determined that
      we
      do not have an audit committee financial expert on our Executive Committee
      as
      defined by the Securities Exchange Commission in Item 407 of Regulation S-B.
      The
      Board believes a financial expert is not necessary at this time because of
      the
      limited scope of the Company’s operations. As the Company’s organizational
      structure and commercial and financial operations become more complex, the
      Board
      will reconsider whether to have a financial expert on the Executive Committee
      or
      the Audit Committee, at such time as one is formed.




**Involvement
      in Certain Legal Proceedings**




To
      the
      best of our knowledge, during the past five years, none of the following
      occurred with respect to any of our directors, executive officers or control
      persons: (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.


18


**Section
      16(a) Beneficial Ownership Reporting Compliance**




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




Section
      16(a) requires the Section16(a) Filers 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). Except as otherwise set forth herein,
      based
      solely on review of the copies of such forms furnished to us, written
      representations that no reports were required, or with respect to transactions
      known to the Company occurring in such fiscal year, the following persons filed
      late or did not file the required Forms: Morton Robinson filed a Form 4
      reporting late the grant of an option. Leila Kight filed a Form 4 reporting
      late
      the exercise of an option, and Taffy Gould did not file a Form 4 on two separate
      occasions to report the exercise of options. Ms. Gould filed a Form 5 in lieu
      of
      the missed Form 4 filings.




**Code
      of Ethics**




We
      have
      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 incorporated
      in
      Exhibit 14.1 to this Annual Report on Form 10-KSB for July 31, 2008.





**ITEM 10.**
            **EXECUTIVE
                COMPENSATION.**




**Executive
      Compensation**




The
      following tables set forth certain summary information concerning the
      compensation paid or accrued during our fiscal years ended July 31, 2008 and
      2007 to our principal executive officer and other employees who received
      compensation in excess of $100,000 during each such period:




**SUMMARY
      COMPENSATION TABLE**


**Name
                  and Principal**
                **Position**
                **(a)**
              
              **Year**
                **(b)**
              
              **Salary ($)**
                **(c)**
              
              **Bonus ($)**
                **(d)**
              
              **Option**
                **Awards ($)**
                **(f)(1)**
              
              **All Other**
                **Compensation**
                **($)**
                **(i)**
              
              **Total**
                **($)**
                **(j)**Marvin Sackner – CEO
              
              
              2008
              
              $
              54,400
              
              
              –
              
              $
              20,339
              
              
              –
              
              $
              74,739(since
                  December 17, 2007)
              
              
              2007
              
              $
              52,000
              
              
              –
              
              
              –
              
              $
              148,750
              (2)
              $
              200,750Gary
                  Macleod – CEO
              
              
              2008
              
              $
              68,815
              
              
              –
              
              $
              60,540
              
              $
              126,000
              (3)
              $
              255,355(until
                  December 17, 2007)
              
              
              2007
              
              $
              117,692
              
              
              –
              
              $
              92,024
              
              
              –
              (4)
              $
              209,716Steven
                  Mrha – COO
              
              
              2008
              
              $
              141,635
              
              
              –
              
              $
              71,148
              
              $
              114,367
              (5)
              $
              327,150(since
                  January 14, 2008)
              
              
              2007
              
              
              –
              
              
              –
              
              
              –
              
              
              –
              
              
              –Gary
                  Wetstein – CFO
              
              
              2008
              
              $
              99,923
              
              
              –
              
              $
              105,972
              
              
              –
              
              $
              205,895(until
                  May 9, 2008)
              
              
              2007
              
              $
              33,154
              
              
              –
              
              
              –
              
              
              –
              
              $
              33,154




(1)
            Represents
                the amount expensed for the vesting of options as reported on our
                financial statements.




(2)
            Represents
                compensation expense recorded for issuance of 212,500 bonus shares,
                including bonus shares issued for exercise of options acquired upon
                investment, but excludes 10,666 bonus shares upon exercise of options
                issued for loan guarantees.


19




(3)
            Represents
                severance expense paid in December 2007 upon Mr. Macleod’s termination as
                CEO.




(4)
            Does
                not include bonus shares issued to Mr. Macleod’s spouse upon warrant
                exercise in fiscal year 2007.




(5)
            Represents
                relocation expenses reimbursed to or paid on behalf of Mr.
                Mrha.




During
      the fiscal year ended July 31, 2008, we granted a total of 908,500 stock
      options. Marvin Sackner was granted 35,000 options, representing 3.9% of the
      total options granted, Steven Mrha was granted 225,000 options, or 24.8% of
      the
      total, Gary Macleod was granted 25,000 options, representing 2.8% of the total
      options granted and Gary Wetstein was granted 400,000 options, representing
      44.0% of the total options granted. No stock options were granted to the named
      executive officers during the fiscal year ended July 31, 2007.




The
      following table sets forth the outstanding equity awards at July 31, 2008 to
      our
      named executive officers.





**OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END**


**Option
                  Awards****Name**
              
              **Number of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options (#)**
                **Exercisable**
              
              **Number of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options (#)**
                **Unexercisable**
              
              **Option**
                **Exercise**
                **Price**
                ($)
              
              **Option Expiration Date**(a)
              
              (b)
              
              (c)
              
              (e)
              
              (f)Marvin
                  Sackner, CEO
              
              
              35,000
              
              
              –
              
              $
              0.88
              
              
              October
                  16, 2012Gary
                  Macleod, CEO
              
              
              –
              
              
              –
              
              
              –Steven
                  Mrha, COO
              
              
              125,000
              
              
              100,000
              
              $
              0.67
              
              
              January
                  13, 2013Gary
                  Wetstein, CFO
              
              
              160,000
              
              
              240,000
              
              $
              0.88
              
              
              October
                  16, 2012




**Employment
      Agreement, Termination Benefits and Separation Agreement.**




Gary
      Macleod is our former director and chief executive officer *.* He
      was a
      party with us to an employment agreement dated November 11, 2005 (the
“Employment Agreement”) for a three year term. Pursuant to the Employment
      Agreement, his salary was initially $90,000 and he was entitled to a salary
      increase of 40% of the salary then in effect upon each round of third party
      financing that exceeded $1,000,000. He was eligible to receive an annual bonus
      of a minimum of 25% of base salary at the discretion of the Board upon
      achievement of goals determined by the Board. He did not receive a bonus for
      fiscal 2007. He was eligible for benefits provided by us to peer executives
      and
      for additional payments for life insurance and disability insurance. Upon
      commencement of employment he received options to purchase 1,500,000 shares
      of
      stock at an exercise price of $0.30 vesting as to 25% of the underlying shares
      on the first anniversary of grant and in 36 equal monthly installments
      thereafter as long as he was employed by us. Such options had a cashless
      exercise feature and expired five years after issuance. He has agreed that
      for
      one year after employment not to participate in a business which provides
      products or services directly competitive with us. If Mr. Macleod was terminated
      by us without cause (as defined) or terminated his employment for Good Reason
      he
      was entitled to a lump sum payment of one year’s salary and pro-rata portion of
      bonus; pay for continued company health benefits to which he may have been
      previously entitled, for himself and dependents for 12 months and any unvested
      stock options vested in full. To the extent these payments are subject to excise
      tax as “parachute payments” we must also pay a gross up sufficient to compensate
      the executive for payment of this tax.




On
      December 17, 2007 Mr. Macleod was relieved of his duties as our Chief Executive
      Officer. As provided for in his Employment Agreement, Mr. Macleod was entitled
      to one year’s severance, which severance of $126,000 was paid in December 2007.
      On January 24, 2008, Mr. Macleod provided the Company with a notice of cashless
      exercise with respect to options to purchase 1,500,000 shares of common stock
      issued to him on November 11, 2005, which vested in full upon his termination
      as
      Chief Executive Officer in December 2007. Pursuant to a related separation
      agreement dated February 29, 2008 (the “Separation Agreement”), Mr. Macleod
      received only 550,000 shares for such cashless exercise, instead of the 749,165
      shares to which he would otherwise have been entitled. He also forfeited options
      to purchase 25,000 shares of our common stock awarded in October, 2007. Mr.
      Macleod also agreed to repurchase, for approximately $12,000, furniture and
      equipment previously sold to the Company at that price. The Separation Agreement
      also contained mutual releases and provided that Mr. Macleod would resign as
      a
      Director of the Company, which he did on February 29, 2008.


20




The
      Company has no other employment agreements.




**Compensation
      of Directors**




The
      following table sets forth director compensation for the fiscal year ended
      July
      31, 2008.




**DIRECTOR
      COMPENSATION (1)(2)**




Name
            
            Fees Earned or Paid in Cash
              ($)
            
            Option Awards
              ($)
            
            Total
              ($)(a)
            
            (b)
            
            (d)
            
            (h)Taffy
                Gould
            
            
            –
            
            $
            8,717
            
            $
            8,717Gerard
                Kaiser, MD
            
            
            –
            
            $
            5,811
            
            $
            5,811Morton
                J. Robinson MD
            
            
            –
            
            $
            7,264
            
            $
            7,264Leila
                Kight
            
            
            –
            
            $
            5,811
            
            $
            5,811John
                Clawson
            
            
            –
            
            $
            5,811
            
            $
            5,811




(1)
            Compensation
                of Gary Macleod and Marvin Sackner is reported in the Summary Compensation
                table.




(2)
            At
                July 31, 2008, Taffy Gould, Gerard Kaiser, Morton Robinson, Leila
                Kight
                and John Clawson, held options for 200,000, 75,000, 12,500, 94,999
                and
                80,000 shares, respectively, issued to them for services to us, except
                that in the case of Ms. Kight the total includes 39,999 options for
                guaranteeing our loans.





**ITEM 11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS.**




**Security
      Ownership of Certain Beneficial Owners**




The
      following table sets forth certain information regarding beneficial ownership
      of
      the common stock as of October 1, 2008, by (i) each person who is known by
      the
      Company to beneficially own more than 5% of the Company’s Common Stock, (ii)
      each director of the Company, (iii) each Chief Executive Officer who served
      during the last fiscal year, (iv) the other current and former executive
      officers who earned in excess of $100,000 for all services in all capacities
      during the fiscal (collectively, with the Chief Executive Officers, the “Named
      Executive Officers”) and (iv) all directors and Named 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.




**Common Stock**
            
            **Series C Convertible**
              **Preferred Stock**
            
            **Series D Convertible**
              **Preferred Stock****Names and Addresses of Directors,**
              **Officers and 5% Beneficial Holders (1)(2)**
            
            **No. of Shares**
              **Beneficially**
              **Owned**
            
            **Percent**
              **of Class**
              **(3)**
            
            **No. of Shares**
              **Beneficially**
              **Owned**
            
            **Percent**
              **of Class**
              **(4)**
            
            **No. of Shares**
              **Beneficially**
              **Owned**
            
            **Percent**
              **of Class**
              **(5)**Marvin
                A. Sackner, M.D., CEO and Director (6)
            
            
            14,035,509
            
            
            20.3
            %
            
            36,856
            
            
            59.4
            %
            
            50
            
            
            5.0
            %John
                G. Clawson, Director (7)
            
            
            405,000
            
            
            *
            
            
            -
            
            
            *
            
            
            -
            
            
            *Taffy
                Gould, Director (8)
            
            
            1,491,998
            
            
            2.2
            %
            
            -
            
            
            *
            
            
            -
            
            
            *Gerard
                Kaiser, M.D., Director (9)
            
            
            333,541
            
            
            *
            
            
            75
            
            
            *
            
            
            -
            
            
            *Leila
                Kight, Director (10)
            
            
            1,108,332
            
            
            1.6
            %
            
            -
            
            
            *
            
            
            -
            
            
            *Morton
                Robinson, M.D., Director (11)
            
            
            1,032,820
            
            
            1.5
            %
            
            1,073
            
            
            1.7
            %
            
            -
            
            
            *Steven
                B. Mrha, COO (12)
            
            
            375,000
            
            
            *
            
            
            -
            
            
            *
            
            
            50
            
            
            5.0
            %Gary
                Macleod, Former CEO and Director (13)
            
            
            550,000
            
            
            *
            
            
            -
            
            
            *
            
            
            -
            
            
            *Gary
                Wetstein, Former CFO (14)
            
            
            200,000
            
            
            *
            
            
            -
            
            
            *
            
            
            -
            
            
            *All
                Directors and Executive Officers as a group (9 Persons)
                (15)
            
            
            19,532,200
            
            
            27.8
            %
            
            38,004
            
            
            61.2
            %
            
            100
            
            
            10.0
            %Frost
                Gamma Investments Trust (16)
            
            
            13,563,125
            
            
            19.3
            %
            
            525
            
            
            *
            
            
            430
            
            
            43.0
            %Jane
                H. Hsiao, Ph.D. (17)
            
            
            4,550,000
            
            
            6.5
            %
            
            -
            
            
            *
            
            
            430
            
            
            43.0
            %


21





*
            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 Ocober 1, 2008 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)
            The
                mailing address of each 5% beneficial holder and current Named Executive
                Officer listed is 4400 Biscayne Blvd., Miami, Florida
                33137.(3)
            Based
                on 68,039,065 shares of Common Stock issued and outstanding as of
                July 31,
                2008.(4)
            Based
                on 62,048 shares of Series C Convertible Preferred Stock issued and
                outstanding as of July 31, 2008. Each share of Series C convertible
                Preferred Stock converts into 25 shares of Common Stock upon payment
                of a
                $4.20 per share of common stock conversion premium.(5)
            Based
                on 1,000 shares of Series D Convertible Preferred Stock issued and
                outstanding as of July 31, 2008. Each share of Series D convertible
                Preferred Stock converts into 5,000 shares of Common Stock.(6)
            Common
                Stock holdings include options to purchase 35,000 shares of Common
                Stock,
                324,096 shares of Common Stock held by Dr. Sackner’s spouse, 895,774
                shares of Common Stock which may be acquired upon conversion of 35,831
                shares of Series C Convertible Preferred Stock, 250,000 shares of
                Common
                Stock which may be acquired upon conversion of 50 shares of Series
                D
                Convertible Preferred Stock and 25,625 shares of Common Stock which
                may be
                acquired by Dr. Sackner’s spouse upon conversion of 1,025 shares of Series
                C Convertible Preferred Stock. Preferred Stock holdings include 1,025
                shares of Series C Convertible Preferred Stock held by Dr. Sackner’s
                spouse.(7)
            Includes
                options to purchase 80,000 Shares of Common Stock and 250,000 shares
                of
                Common Stock held in a trust established by Mr. Clawson for his children,
                of which he is neither the trustee nor a beneficiary.(8)
            Includes
                options to purchase 200,000 shares of Common Stock. Includes securities
                held by the Taffy Gould Revocable Trust of which Ms. Gould is trustee,
                sole beneficiary and over which she has power to revoke. Does not
                include
                shares of Common Stock and options to purchase Common Stock held
                by family
                members.(9)
            Includes
                options to purchase 75,000 shares of Common Stock, shares of Common
                Stock
                held by Dr. Kaiser’s spouse, and 1,875 shares of Common Stock which
                may be acquired upon conversion of Series C Convertible Preferred
                Stock.(10)
            Includes
                options to purchase 94,999 shares of Common Stock and securities
                held by
                Ms. Kight’s spouse.(11)
            Includes
                options to purchase 12,500 shares of Common Stock, 186,159 shares
                held
                jointly with Dr. Robinson’s spouse and 26,250 shares owned by Dr.
                Robinson’s spouse. Includes 26,829 shares of Common Stock which may be
                acquired upon conversion of Series C Convertible Preferred Stock.(12)
            Common
                Stock holdings include options to purchase 125,000 shares of Common
                Stock,
                and 250,000 shares of Common Stock which may be acquired upon conversion
                of 50 shares of Series D Convertible Preferred Stock.(13)
            Mr.
                Macleod was terminated as CEO on December 17, 2007 and resigned as
                a
                Director on February 29, 2008. Does not include 400,000 shares held
                by Mr.
                Macleod’s spouse, which are believed to have been sold. Holdings are based
                on Company and Transfer Agent records as of the date hereof. It is
                possible that these positions have changed since Mr. Macleod’s separation
                from the Company.(14)
            Common
                Stock holdings include options to purchase 200,000 shares of Common
                Stock.
                Mr. Wetstein resigned as CFO on May 9, 2008. Holdings are based on
                Company
                and Transfer Agent records as of the date hereof. It is possible
                that Mr.
                Wetstein’s acquired shares since his separation from the Company which are
                not reported here.(15)
            Common
                Stock holdings include options to purchase 809,166 shares of Common
                Stock,
                950,103 shares of Common Stock which may be acquired upon conversion
                of
                38,004 Series C Convertible Preferred Stock and 500,000 shares of
                Common
                Stock which may be acquired upon conversion of 100 shares of Series
                D
                Convertible Preferred Stock. Includes holdings of Gary Macleod and
                Gary
                Wetstein, who are no longer with the Company.(16)
            Phillip
                Frost, M.D. is trustee and beneficiary of Frost Gamma Investments
                Trust.
                Common Stock holdings include 13,125 shares of Common Stock that
                may be
                acquired upon conversion of 525 shares of Series C Convertible Preferred
                Stock, and 2,150,000 shares of Common Stock that may be acquired
                upon
                conversion of 430 shares of Series D Convertible Preferred
                Stock.(17)
            Common
                Stock holdings include 2,150,000 shares of Common Stock that may
                be
                acquired upon conversion of 430 shares of Series D Convertible Preferred
                Stock held by the Chin Hsiung Hsiao Family Trust A, of which Dr.
                Hsiao is
                trustee and beneficiary. All Preferred Stock holdings are held by
                the Chin
                Hsiung Hsiao Family Trust A.


22


**Securities
      Authorized for Issuance under Equity Compensation Plans**




The
      following table includes information as of July 31, 2008 relating to our
      2000 Stock Option Plan and for stock equity compensation plans not approved
      by
      our security holders. The table provides the number of securities to be issued
      upon the exercise of outstanding options under such plans, the weighted-average
      exercise price of outstanding options and the number of securities remaining
      available for future issuance under such equity compensation plans:




**Equity
      Compensation Plan Information**




**Plan
                Category**
            
            **Number of Securities**
              **to be Issued Upon**
              **Exercise of**
              **Outstanding Options,**
              **Warrants and Rights**
            
            **Weighted-Average**
              **Exercise Price of**
              **Outstanding**
              **Options, Warrants**
              **and Rights**
            
            **Number of Securities**
              **Remaining Available for**
              **Future Issuance Under Equity**
              **Compensation Plans**
              **(Excluding Securities**
              **Reflected in Column (a))****(a)**
            
            
            
            **(b)**
            
            **(c)**Stock
                Option Equity Compensation Plans Approved by Security
                Holders
            
            
            911,000
            
            
            
            $
            0.545
            
            
            1,029,000Stock
                Option Equity Compensation Plans Not Approved by Security
                Holders
            
            
            1,163,330
            
            
            
            $
            0.631
            
            
            N/A**Total**
            
            
            2,074,330
            
            
            
            $
            0.593
            
            
            1,029,000




See
      Note
      4 to our Financial Statements for a description of the 2000 Stock Option Plan.
      We have in the past issued options outside of the 2000 Stock Option Plan. These
      options generally provide for transfer and cashless exercise. Options issued
      for
      services as director or employee may vest immediately or over time and generally
      expire anywhere from five to ten years after issuance.




**ITEM 12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.**




Applying
      Nasdaq independence standards, we believe that all of our directors that served
      during the fiscal year ended July 31, 2008, and that currently serve except
      Marvin Sackner and Gary Macleod are independent and would meet the Nasdaq audit
      committee independence standards.




Dr.
      Sackner, a 10% holder of our common stock, Chairman of the Board and Chief
      Executive Officer, previously sub-leased to us office space in North Bay
      Village, Florida. Under an arrangement with us, we reimbursed Dr. Sackner for
      the cost of the space on a month to month basis. The office was vacated in
      November 2007, and the amount reimbursed under the sub-lease arrangement was
      $5,000 and $20,000 for the years ended July 31, 2008 and 2007 respectively.




The
      Company signed a five year lease for office space in Miami, Florida with a
      company owned by Frost Gamma Investments Trust (“Frost Gamma”), a 10% holder of
      our Common Stock. The rental payments under this office lease, which commenced
      January 1, 2008, are approximately $4,000 per month for the first year and
      escalate 4.5% annually over the life of the lease. The Company recorded $18,000
      of rent expense related to the Miami lease in the fiscal year ended July 31,
      2008.




Adam
      Jackson, our Chief Financial Officer, also serves as the Chief Financial Officer
      and supervises the accounting staff of SafeStitch Medical, Inc. (“SafeStitch”),
      a publicly-traded company whose largest beneficial shareholder is Frost Gamma.
      Under a board-approved cost sharing arrangement, the total salaries of the
      accounting staffs of NIMS and SafeStitch since March 2008 are shared equally.
      We
      have recorded General and Administrative expense for the year ended July 31,
      2008 of $12,000, to account for the equalization of costs under this
      arrangement. No accounts payable to SafeStitch were outstanding as of July
      31,
      2008.




Pursuant
      to an Agreement Regarding Assignment of Patents and Related Intellectual
      Property dated August 14, 2000, we assigned all of our rights title and interest
      in certain patents and intellectual property, as well as a non-exclusive,
      worldwide license under these items to VivoMetrics for a royalty of 3% of
      VivoMetrics’ gross revenues from sales of certain products for so long as
      VivoMetrics sells such products. Pursuant to a related license agreement with
      VivoMetrics, VivoMetrics granted us the non-exclusive, worldwide right and
      license to use certain patents and software. We hold an approximately 2%
      undiluted interest in VivoMetrics, and Dr. Sackner’s son-in-law served as the
      Chief Operating Officer of VivoMetrics until November 2007. Dr. Sackner
      served as a member of the Scientific Advisory Board of VivoMetrics until 2004,
      and is currently a less than 1% shareholder of VivoMetrics. We recorded $72,000
      and $124,000 of royalties from VivoMetrics in fiscal 2008 and 2007,
      respectively.


23




In
      fiscal
      2007, Gary Macleod, our Chief Executive Officer, sold to us office furniture
      and
      equipment valued at $12,000. In fiscal 2008, pursuant to the terms of the
      separation agreement described below, we sold the office furniture and equipment
      back to Mr. Macleod for the $12,000 original purchase price.




Directors
      Marvin Sackner, Taffy Gould, Morton Robinson and Leila Kight were among the
      guarantors of a loan from Gibraltar Bank to us. Taffy Gould’s sister and
      son-in-law also guaranteed said loan. For such guarantee each of the guarantors
      received options to purchase 13,333 shares for each of 2003, 2004, 2005 and
      2006
      (total of 53,332 each) at an exercise price of $0.15. ****




In
      the
      fiscal year ended July 31, 2007, pursuant to the Offer described above, several
      directors exercised options and warrants and received Bonus Shares. The Bonus
      Shares were valued at $0.70. Pursuant to the Offer, Directors Marvin
      Sackner, Taffy Gould, Morton Robinson, Gerard Kaiser and John Clawson exercised
      options to purchase 1,115,832, 450,000, 340,832, 95,000 and 62,500 shares and
      received 223,166, 90,000, 68,166, 19,000 and 12,500 Bonus Shares respectively.
      Aggregate consideration paid by Marvin Sackner, Taffy Gould, Morton Robinson,
      Gerard Kaiser and John Clawson for such exercise was $255,500, $155,834,
      $103,500, $33,500 and $25,000, respectively. Dr. Sackner’s consideration
      included cancellation of notes in the aggregate principal amounts of $165,000.
      Also pursuant to the Offer, Dr. Sackner’s wife exercised options to purchase
      62,500 shares and received 12,500 Bonus Shares, Dr. Sackner’s brother exercised
      options to purchase 50,000 shares and received 10,000 Bonus Shares, Taffy
      Gould’s mother exercised options to purchase 125,000 shares and received 25,000
      Bonus Shares, Taffy Gould’s sister exercised options to purchase 26,670 shares
      and received 5,334 Bonus Shares, Taffy Gould’s son exercised options to purchase
      62,500 shares and received 12,500 Bonus Shares, and John Clawson’s son exercised
      options to purchase 62,500 shares and received 12,500 Bonus Shares. Also as
      part
      of the Offer, Gary Macleod’s spouse exercised warrants to purchase 125,000
      shares and received 25,000 Bonus Shares, and Frost Gamma exercised warrants
      to
      purchase 3,250,000 shares and received 650,000 Bonus Shares. Mrs. Macleod and
      the Frost Gamma acquired the warrants, which were exercised at a price of $0.15
      per share, in August 2005 in connection with the purchase of 250,000 and
      7,500,000 shares of common stock, respectively, for aggregate consideration
      of
      $12,500 and $350,000, respectively. Frost Gamma’s consideration consisted of the
      conversion of two promissory notes and cash from its working capital.




On
      December 17, 2007 Gary Macleod was relieved of his duties as our Chief Executive
      Officer. As provided for in his Employment Agreement, Mr. Macleod was entitled
      to one year’s severance, which severance of $126,000 was paid in December 2007.
      On January 24, 2008, Mr. Macleod provided the Company with a notice of cashless
      exercise with respect to options to purchase 1,500,000 shares of common stock
      issued to him on November 11, 2005, which vested in full upon his termination
      as
      Chief Executive Officer in December 2007. Pursuant to the Separation Agreement,
      Mr. Macleod received only 550,000 shares for such cashless exercise, instead
      of
      the 749,165 shares to which he would otherwise have been entitled. He also
      forfeited options to purchase 25,000 shares of our common stock awarded in
      October, 2007. Mr. Macleod also agreed to repurchase, for approximately $12,000,
      furniture and equipment previously sold to the Company at that price.




On
      April
      7, 2008, we completed the sale of an aggregate of 1,000 shares of Series D
      Preferred Stock to certain private Investors pursuant to the Stock Purchase
      Agreement described above. The Investors include Dr. Sackner, who purchased
      50
      shares for an aggregate purchase price of $75,000, Frost Gamma, who purchased
      430 shares at an aggregate purchase price of $645,000, and Steven B. Mrha,
      our
      Chief Operating Officer, who purchased 50 shares for an aggregate purchase
      price
      of $75,000. Each holder of a share of the Series D Preferred Stock has the
      right, at any time, to convert such share of Series D Preferred Stock into
      shares of the Company’s common stock at an initial rate of 5,000 shares of
      common stock per share of Series D Preferred Stock. The Series D Preferred
      Stock
      was issued at $1,500 per share, which is equivalent to $0.30 per share of Common
      Stock on an “as-converted” basis. The April 7, 2008 closing price of the Common
      Stock on the over-the-counter bulletin board was $0.53 per share, resulting
      in a
      $1,150 intrinsic value per share of Series D Preferred Stock on the issue date,
      which was deemed a dividend paid to the Investors on the closing date. (See
      Note
      7 to the accompanying financial statements.)




On
      August
      28, 2008 we entered into the Note and Security Agreement described above with
      four Lenders, pursuant to which the Lenders granted us a revolving credit line
      in the aggregate amount of $300,000, secured by all of the Company’s personal
      property. The Lenders include Dr. Sackner (committing to lend $25,000), and
      Frost Gamma (committing to lend $200,000). We may borrow and reborrow from
      time
      to time under the Revolver until October 31, 2008. The interest rate payable
      by
      us on amounts outstanding under the Revolver is 11% per annum, and increases
      to
      16% after the Maturity Date or after an Event of Default.


24





**ITEM 13.**
            **EXHIBITS.**





**Exhibit**
              **No.**
            
            **Description
                of Exhibits**3.1
            
            Articles
                of Incorporation, as amended (Incorporated by Reference from Exhibit
                3.1
                to Form 8-K filed on April 8, 2008)3.2
            
            By-Laws
                (Incorporated by reference from Exhibit 3(b) to the Company’s Registration
                Statement on Form S-1 Filed May 15, 1999 (File
                No. 33-14451))10.1
            
            License
                Agreement dated as of May 22, 1996 between the Company and SensorMedics
                Corporation (Incorporated by reference from Exhibit 10.1 to Form
                10-KSB/A
                filed on April 22, 2008)10.2
            
            Letter
                of Agreement dated April 21, 1999 between the Company and SensorMedics
                Corporation (Incorporated by reference from Exhibit 10.2 to Form
                10-KSB/A
                filed on April 22, 2008)10.3
            
            Agreement
                Regarding Assignment of Patents and Intellectual Property dated August
                14,
                2000 between the Company and LifeShirt.com, Inc. (Incorporated by
                reference from Exhibit 10.3 to Form 10-KSB/A filed on April 22,
                2008)10.4
            
            Amendment
                to Agreement Regarding Assignment of Patents and Intellectual Property
                dated December 23, 2000 between the Company and LifeShirt.com, Inc.
                (Incorporated by reference from Exhibit 10.4 to Form 10-KSB/A filed
                on
                April 22, 2008)10.5
            
            Form
                of Stock Purchase Agreement dated as of August 1, 2005 between the
                Company
                and various Investors (Incorporated by reference from Exhibit 4.1
                to Form
                8-K filed on August 18, 2005)10.6
            
            Preferred
                Stock Purchase Agreement dated as of April 3, 2008 between the Company
                and
                the Investors named therein (Incorporated by reference from Exhibit
                10.1
                to Form 8-K filed on April 8, 2008)10.7
            
            Product
                Development and Supply Agreement executed September 4, 2007 between
                Sing
                Lin Technologies Ltd and the Company (Incorporated by reference from
                Exhibit 10.1 to Form 10-QSB/A filed on April 22, 2008) (Confidentiality
                Treatment has been granted for portions of this
                Exhibit)10.8
            
            Note
                and Security Agreement dated as of August 28, 2008 between the Company
                and
                various lenders (incorporated by reference from Exhibit 10.1 to the
                Form
                8-K filed September 12, 2008)10.9
            
            Offer
                Letter from the Company to Steven B. Mrha dated December 21, 2007
                and
                executed on December 22, 2007 detailing the terms of employment of
                Mr.
                Mrha (incorporated by reference from Exhibit 10.1 to the Form 8-K
                filed on
                December 27, 2007)10.10
            
            Offer
                Letter from the Company to Adam S. Jackson dated March 11, 2008
                (incorporated by reference from Exhibit 10.1 to the Form 8-K filed
                on May
                15, 2008)10.11
            
            Offer
                Letter from SafeStitch Medical, Inc. to Adam S. Jackson, dated March
                11,
                2008 (incorporated by reference to the Current Report on Form 8-K
                filed by
                SafeStitch Medical, Inc. on April 4, 2008)10.12
            
            2000
                Stock Option Plan (Incorporated by reference to the Company’s Information
                Statement on Schedule 14C filed April 5, 2001)(SEC Accession
                No**.**0000950170-01-000484)10.13
            
            Separation
                and Release Agreement delivered February 29, 2008 between the Company
                and
                Gary Macleod (incorporated by reference from Exhibit 10.1 to the
                Form 8-K
                filed on March 4, 2008)10.14
            
            Employment
                Agreement dated November 10, 2005 between the Registrant and Gary
                Macleod
                (Incorporated by reference from Exhibit 10.2 to Form 8-K filed on
                March 4,
                2008).14.1
            
            Code
                of Ethics (Incorporated by reference from Exhibit 14.1 to Form 10-KSB
                filed on November 9, 2005)21
            *
            Subsidiaries
                of the Company31.1
            *
            Certification
                of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14
                and
                15d-14 of the Securities Exchange Act of 1934.31.2
            *
            Certification
                of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14
                and
                15d-14 of the Securities Exchange Act of 1934.32.1
            *
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                200232.2
            *
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





*
      Filed
      Herewith


25





**ITEM 14:**
            **PRINCIPAL
                ACCOUNTANT FEES AND SERVICES**




**Year
      ended July 31, 2008**




***Audit
      Fees:*** The
      aggregate fees, including expenses, expected to be billed by the Company’s
      principal accountants for professional services rendered in connection with
      the
      audit of our financial statements included in our Annual Report on Form 10-KSB
      and for the review of our financial information included in our Quarterly
      Reports on Form 10-QSB, as amended, or services that are normally provided
      by
      the accountant in connection with statutory and regulatory filings, for the
      fiscal year ended July 31, 2008 amount to $130,000.




***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, 2008
      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, 2008 was
      $0.00.




**Year
      ended July 31, 2007**




***Audit
      Fees:*** The
      aggregate fees, including expenses, billed by the Company’s principal
      accountants for professional services rendered in connection with the audit
      of
      our financial statements included in our Annual Report on Form 10-KSB and for
      the review of our financial information included in our Quarterly Reports on
      Form 10-QSB, or services that are normally provided by the accountant in
      connection with statutory and regulatory filings during the fiscal year ended
      July 31, 2007 were $151,000. These fees include the audit fees incurred in
      the
      fiscal year ended July 31, 2008 for amendments to the filings for the fiscal
      year ended July 31, 2007. ****




***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, 2007
      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, 2007 was
      $0.00.




**AUDITOR
      INDEPENDENCE**




Our
      Board
      of Directors considers that the work performed for us in the year ended July
      31,
      2008 by Eisner LLP is compatible with maintaining Eisner LLP’s independence.


26


**SIGNATURES**




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


NON-INVASIVE
                  MONITORING SYSTEMS, INC.Dated:
                  October 28, 2008
              By:
              /s/
                  Marvin SacknerMarvin
                  SacknerChief
                  Executive OfficerDated:
                  October 28, 2008
              By:
              /s/
                  Adam S. JacksonAdam
                  S. JacksonChief
                  Financial Officer




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





/s/
                Marvin A. Sackner
            Chairman
                of the Board, Director and Chief Executive
            October
                28, 2008MARVIN
                A. SACKNER, M.D.
            Officer
                (Principal Executive Officer)/s/
                Taffy Gould
            Vice
                Chairman of the Board and Director
            October
                28, 2008TAFFY
                GOULD/s/
                Morton J. Robinson
            Secretary
                and Director
            October
                28, 2008MORTON
                J. ROBINSON, M.D./s/
                Gerard Kaiser
            Director
            October
                28, 2008GERARD
                KAISER, M.D./s/
                John G. Clawson
            Director
            October
                28, 2008JOHN
                G. CLAWSON/s/
                Leila Kight
            Director
            October
                28, 2008LEILA
                KIGHT


27


NON-INVASIVE
      MONITORING SYSTEMS, INC.


JULY
      31,
      2008




INDEX
      TO
      FINANCIAL STATEMENTS





Report
                of Independent Registered Public Accounting Firm
            F-2Balance
                Sheet at July 31, 2008
            F-3Statements
                of Operations for the Years Ended July 31, 2008 and 2007
            F-4Statements
                of Changes in Shareholders' Equity for the Years Ended July 31, 2008
                and
                2007
            F-5Statements
                of Cash Flows for the Years Ended July 31, 2008 and 2007
            F-6Notes
                to Financial Statements
            F-7Exhibit
                index


F-1


REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Board
      of
      Directors and Stockholders


Non-Invasive
      Monitoring Systems, Inc.




We
      have
      audited the accompanying balance sheet of Non-Invasive Monitoring Systems,
      Inc.
      as of July 31, 2008 and the related statements of operations, changes in
      shareholders’ equity and cash flows for each of the years in the two year period
      ended July 31, 2008. 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 audits.




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. We were not engaged to perform
      an
      audit of the Company’s internal control over financial reporting. Our audits
      include consideration of internal control over financial reporting as a basis
      for designing audit procedures that are appropriate in the circumstances, but
      not for the purpose of expressing an opinion on the effectiveness of the
      Company’s internal control over financial reporting. Accordingly, we express no
      such opinion. An audit includes examining, on a test basis, evidence supporting
      the amounts and disclosures in the financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our opinion.




In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Non-Invasive Monitoring Systems,
      Inc. as of July 31, 2008 and the results of its operations and its cash flows
      for each of the years in the two year period ended July 31, 2008 in conformity
      with accounting principles generally accepted in the United States of America.




The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in the Note 1 to the financial
      statements, the Company has experienced recurring net losses, cash outflows
      from
      operating activities and has an accumulated deficit and substantial purchase
      commitments that raise substantial doubt about its ability to continue as a
      going concern. Management’s plans in regard to these matters are also described
      in Note 1. The financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.




As
      discussed in Note 4, effective August 1, 2006, the Company adopted Statement
      of
      Financial Accounting Standards No. 123(R) “Share-Based Payment.”





/s/
                Eisner, LLPEisner,
                LLPNew
                York, New YorkOctober
                28, 2008


F-2


**NON-INVASIVE
      MONITORING SYSTEMS, INC.**


**BALANCE
      SHEET**


**July
      31, 2008**


**(Dollars
      in Thousands, except per share amounts)**





**ASSETS****Current
                assets**Cash
            
            $
            86Royalties
                receivable
            
            
            43Inventories
            
            
            173Advances
                to contract manufacturer
            
            
            659Prepaid
                expenses, deposits, and other current assets
            
            
            28Total
                current assets
            
            
            989**Furniture
                and equipment, net**
            
            
            470**Total
                assets**
            
            **$**
            **1,
                459****LIABILITIES
                AND SHAREHOLDERS' EQUITY****Current
                liabilities**Notes
                payable
            
            $
            19Accounts
                payable and accrued expenses
            
            
            474Deferred
                warranty income
            
            
            2Total
                current liabilities
            
            
            495**Total
                liabilities**
            
            **$**
            **495**Commitments
                and Contingencies (Note 10)**Shareholders'
                equity**Series
                B Preferred Stock, par value $1.00 per share;100
                shares authorized, issued and outstanding; liquidation preference
                $10
            
            
            –Series
                C Convertible Preferred Stock, par value $1.00 per share;62,048
                shares authorized, issued and outstanding; liquidation preference
                $62
            
            
            62Series
                D Convertible Preferred Stock, par value $1.00 per share;1,000
                shares authorized, issued and outstanding; liquidation preference
                $1,500
            
            
            1Common
                Stock, par value $0 .01 per share; 100,000,000 shares
                authorized;68,039,065
                shares issued and outstanding
            
            
            680Additional
                paid in capital
            
            
            18,256Accumulated
                deficit
            
            
            (18,035
            )**Total
                shareholders' equity**
            
            
            **964****Total
                liabilities and shareholders' equity**
            
            **$**
            **1,459**





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


F-3


**NON-INVASIVE
      MONITORING SYSTEMS, INC.**


**STATEMENTS
      OF OPERATIONS**


**Years
      ended July 31, 2008 and 2007**


**(Dollars
      in Thousands, except per share data)**




**2008**
            
            **2007****Revenues**Product
                sales, net
            
            $
            41
            
            $
            41Royalties
            
            
            256
            
            
            265Research,
                consulting and warranty
            
            
            5
            
            
            4Total
                Revenues
            
            
            302
            
            
            310**Operating
                Expenses**Cost
                of sales
            
            
            19
            
            
            10Selling,
                general and administrative
            
            
            1,953
            
            
            1,390Research
                and development
            
            
            178
            
            
            282Total
                Operating Expenses
            
            
            2,150
            
            
            1,682**Operating
                Loss**
            
            
            **(1,848**
            **)**
            
            **(1,372**
            **)****Interest
                Income (Expense), Net**
            
            
            12
            
            
            13**Net
                Loss**
            
            **$**
            **(1,836**
            **)**
            **$**
            **(1,359**
            **)**Deemed
                dividend on Series D Preferred Stock
            
            
            1,150
            
            
            –**Net
                loss attributable to common shareholders**
            
            **$**
            **(2,986**
            **)**
            **$**
            **(1,359**
            **)**Weighted
                average number of common shares outstanding - Basic and
                diluted
            
            
            67,673,063
            
            
            64,019,451Basic
                and diluted loss per common share
            
            $
            (0.04
            )
            $
            (0.02
            )





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


F-4




**NON-INVASIVE
      MONITORING SYSTEMS, INC.**


**STATEMENTS
      OF CHANGES IN SHAREHOLDERS’ EQUITY**


**Years
      ended July 31, 2008 and 2007**


**(Dollars
      in Thousands)**





Preferred Stock
            
            
            
            AdditionalSeries B
            
            Series C
            
            Series D
            
            Common Stock
            
            Paid-in-
            
            AccumulatedShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Deficit
            
            Total**Balance
                at July 31, 2006**
            
            
            100
            
            $
            0
            
            
            62,048
            
            $
            62
            
            
            0
            
            $
            0
            
            
            52,315,721
            
            $
            523
            
            $
            13,771
            
            $
            (14,840
            )
            $
            (484
            )Common
                stock issued for cash, converted stock holder loan and cashless options
                exercised
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            14,554,512
            
            
            146
            
            
            2,219
            
            
            0
            
            $
            2,365Fair
                market value for Bonus Shares issued to directors and
                guarantors
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            423,501
            
            
            4
            
            
            292
            
            
            0
            
            $
            296Stock
                based compensation
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            92
            
            
            0
            
            $
            92**Net
                loss**
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            0
            
            
            (1,359
            )
            $
            (1,359
            )**Balance
                at July 31, 2007**
            
            
            100
            
            $
            0
            
            
            62,048
            
            $
            62
            
            
            0
            
            $
            0
            
            
            67,293,734
            
            $
            673
            
            $
            16,374
            
            $
            (16,199
            )
            $
            910Issuance
                of series D Preferred Stock
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            1,000
            
            $
            1
            
            
            –
            
            
            0
            
            
            1,489
            
            
            0
            
            $
            1,490Common
                stock issued for cash.
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            195,331
            
            
            2
            
            
            84
            
            
            0
            
            $
            86Common
                stock issued for cashless options exercised
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            550,000
            
            
            5
            
            
            (5
            )
            
            0
            
            $
            –Fair
                value of beneficial conversion feature of Series D Preferred
                Stock
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            1,150
            
            
            0
            
            $
            1,150Deemed
                dividend to Series D Preferred Stockholders, charged to additional
                paid-in-capital in the absence of retained earnings
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            (1,150
            )
            
            0
            
            $
            (1,150
            )Stock
                based compensation
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            314
            
            
            0
            
            $
            314**Net
                loss**
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            –
            
            
            0
            
            
            0
            
            
            (1,836
            )
            $
            (1,836
            )**Balance
                at July 31, 2008**
            
            
            **100**
            
            **$**
            **0**
            
            
            **62,048**
            
            **$**
            **62**
            
            
            **1,000**
            
            **$**
            **1**
            
            
            **68,039,065**
            
            **$**
            **680**
            
            **$**
            **18,256**
            
            $
            (18,035
            )
            **$**
            **964**





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




F-5





**NON-INVASIVE
      MONITORING SYSTEMS, INC.**


**STATEMENTS
      OF CASH FLOWS**


**Years
      ended July 31, 2008 and 2007**


**(Dollars
      in Thousands)**





**2008**
            
            **2007****Operating
                Activities**Net
                loss
            
            $
            (1,836
            )
            $
            (1,359
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Deferred
                warranty income
            
            
            (4
            )
            
            (4
            )Depreciation
                and amortization
            
            
            6
            
            
            19Stock
                based compensation expense
            
            
            314
            
            
            92Fair
                value of bonus shares issued to directors and bank debt
                guarantors
            
            
            –
            
            
            296Changes
                in operating assets and liabilitiesAccounts
                and royalties receivable
            
            
            5
            
            
            (25
            )Inventories
            
            
            (173
            )
            
            10Advances
                to contract manufacturer
            
            
            (659
            )
            
            –Prepaid
                expenses and other assets
            
            
            1
            
            
            13Accounts
                payable and accrued expenses
            
            
            114
            
            
            10**Net
                cash used in operating activities**
            
            
            **(2,232**
            **)**
            
            **(948**
            **)****Investing
                Activities**Fixed
                asset purchases
            
            
            (314
            )
            
            (19
            )Certificates
                of deposit redeemed (purchased)
            
            
            400
            
            
            (400
            )**Net
                cash provided by (used in) investing activities**
            
            
            **86**
            
            
            **(419**
            **)****Financing
                activities**Net
                proceeds from issuance of common stock and exercise of options and
                warrants
            
            
            86
            
            
            2,200Net
                proceeds from issuance of preferred stock
            
            
            1,490
            
            
            –Net
                proceeds from bank loan
            
            
            –
            
            
            500Repayments
                of bank notes payable
            
            
            (500
            )
            
            (581
            )**Net
                cash provided by financing activities**
            
            
            **1,076**
            
            
            **2,119****Net
                (decrease) increase in cash**
            
            
            **(1,070**
            **)**
            
            **752**Cash,
                beginning of year
            
            
            1,156
            
            
            404Cash,
                end of year
            
            $
            86
            
            $
            1,156Supplemental
                disclosureCash
                paid for income taxes
            
            $
            –
            
            $
            –Cash
                paid for interest
            
            $
            23
            
            $
            64Supplemental
                schedule of non-cash financing activitiesNotes
                converted to common stock or used in option exercises
            
            $
            –
            
            $
            165Insurance
                premiums financed by notes payable
            
            $
            32
            
            $
            39Accrual
                for tooling development in progress
            
            $
            142
            
            $
            –




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




F-6




**NON-INVASIVE
      MONITORING SYSTEMS, INC.**


NOTES
        TO
        CONDENSED FINANCIAL STATEMENTS July
        31,
        2008
  **1.**  **ORGANIZATION
        AND BUSINESS**




***Organization.*** Non-Invasive
      Monitoring Systems, Inc. (the “Company” or "NIMS”), a Florida corporation, began
      business as a medical diagnostic monitoring company to develop computer-aided
      continuous monitoring devices to detect abnormal respiratory and cardiac events
      using sensors on the body’s surface. It has ceased to operate in this market and
      has licensed the rights to its technology to the SensorMedics division of ViaSys
      Healthcare Inc. (which is now a unit of Cardinal Health, Inc. (“SensorMedics”)),
      and to VivoMetrics, Inc. (“VivoMetrics”). The Company is now focused on
      developing and marketing therapeutic devices based upon unique, patented whole
      body, periodic acceleration technology. The Company has begun to market and
      sell
      its Exer-Rest ® line of
      acceleration therapeutic platforms overseas.




The
      Exer-Rest ® line is
      not currently approved for sale in the United States. The Company is seeking
      FDA
      approval to market the Exer-Rest ® platforms in the United States for their intended use to improve circulation
      and
      for temporary relief of aches and pains.




***Business.***




The
      Company receives revenue from royalties on sales of diagnostic monitoring
      hardware and software by SensorMedics and VivoMetrics. Additionally, the Company
      receives revenues from sales of parts and service and from sales of acceleration
      therapeutics platforms used for research purposes.




During
      the calendar years 2005 to 2007, the Company designed, developed and
      manufactured the first Exer-Rest ® platform
      (now the Exer-Rest ® AT), a
      second
      generation acceleration therapeutics platform, and updated its operations to
      promote the Exer-Rest ® AT overseas
      as an aid to improve circulation and joint mobility, and to relieve minor aches
      and pains. In the year ended July 31, 2008, the Company sold four Exer-Rest ® AT units
      overseas.




The
      Company has committed to third generation Exer-Rest ® acceleration
      therapeutic platforms (designated the Exer-Rest ® SL
      and
      the Exer-Rest ® TL)
      that
      will be manufactured by Sing Lin Technologies Co. Ltd. (“Sing Lin”) based in
      Taichung, Taiwan (see Note 10). Sing Lin will also have distribution rights
      to
      the Company’s acceleration therapeutics platforms in the Far East. The Company
      has also engaged Sing Lin to build the Somno-Ease TM platform, a variation of the Exer-Rest ® that is
      designed to aid patients with sleep disorders as well as provide feedback for
      slow rhythmic breathing exercises for the relief of stress associated with
      daily
      living. This device is in its initial testing and is intended to be marketed
      and
      sold in the United States and overseas upon completion of the respective
      approval processes. The Company is also developing a further product line
      extension called Exer-Rest ® Plus, a
      device that combines the features of the Exer-Rest ® and
      Somno-Ease TM for
      future marketing in the United States.




The
      Company’s financial statements have been prepared and presented on a basis
      assuming it will continue as a going concern. As reflected in the accompanying
      financial statements the Company had net losses in the amount of $1.8 million
      and $1.4 million for the years ended July 31, 2008 and 2007, respectively,
      and
      has experienced cash outflows from operating activities. The Company also has
      an
      accumulated deficit of $18.0 million as of July 31, 2008, and has substantial
      purchase commitments at July 31, 2008 (see note 10). These matters raise
      substantial doubt about the Company’s ability to continue as a going concern.




Although
      the Company raised approximately $1.5 million from the sale of its Series D
      Preferred Stock in April 2008 (see Note 7), the Company will need to generate
      additional funds during calendar year 2008. Absent any significant revenues
      from
      product sales, additional debt or equity financing will be required for the
      Company to continue its business activities, which are currently focused on
      the
      development, marketing and production of the Exer-Rest ® .
      It is
      management’s intention to obtain any additional capital needed to continue its
      business activities through new debt or equity financing, but there can be
      no
      assurance that it will be successful in this regard. The accompanying financial
      statements do not include any adjustments that might be necessary from the
      outcome of this uncertainty.





F-7


**NON-INVASIVE
        MONITORING SYSTEMS, INC.**
 NOTES
          TO
          CONDENSED FINANCIAL STATEMENTS July
          31,
          2008


**2.**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**




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




***Inventories.*** Inventories
      are stated at lower of cost or market using the first-in, first-out method.
      Inventories at July 31, 2008 primarily consist of completed
      Exer-Rest ® AT units
      and purchased sub-assemblies held at and to be used by the Company’s US-based
      contract manufacturer in production of the Exer-Rest ® AT.




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




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




***Income
      Taxes.*** The
      Company provides for income taxes in accordance with Statement of Financial
      Accounting Standards No. 109, *“Accounting
      for Income Taxes”* (“SFAS
      No. 109”) using an asset and liability based approach. Deferred income tax
      assets and liabilities are recorded to reflect the tax consequences in future
      years of temporary differences between the carrying amounts of assets and
      liabilities for financial statement and income tax purposes. SFAS No. 109
      provides that the Company recognize income tax benefits for loss carryforwards.
      The tax benefits recognized must be reduced by a valuation allowance if it
      is
      more likely than not that loss carryforwards will expire before the Company
      is
      able to realize their benefit, or if future deductibility is uncertain. For
      financial statement purposes, the deferred tax asset for loss carryforwards
      has
      been fully offset by a valuation allowance since it is uncertain whether any
      future benefit will be realized.




Effective
      August 1, 2007, the Company adopted the provisions of the Financial Accounting
      Standards Board (“FASB”) Interpretation No. 48, *“Accounting
      for Uncertainty in Income Taxes, an interpretation of FASB Statement
      No.109”* (“FIN
      48”). FIN 48 clarifies the accounting for uncertainties in income taxes
      recognized in a company’s financial statements in accordance with SFAS No. 109
      and prescribes a recognition threshold and measurement attribute for financial
      disclosure of tax positions taken or expected to be taken on a tax return.
      In
      addition, FIN 48 provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods, disclosure and transition. The
      adoption of FIN 48 did not  impact
      the Company’s financial position, results of operations or cash flows for the
      year ended July 31, 2008.




The
      Company files its tax returns as prescribed by the laws of the jurisdictions
      in
      which it operates. Tax years ranging from 2004 to 2007 remain open to
      examination by various taxing jurisdictions as the statute of limitations has
      not expired. It is the Company’s policy to include income tax interest and
      penalty expense in its tax provision.




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




***Advertising
      Costs.*** The
      Company expenses all costs of advertising as incurred. There were no material
      advertising costs included in general and administrative expenses during the
      years ended July 31, 2008 and 2007.




***Research
      and Development Costs.*** Research
      and development costs are expensed as incurred, and primarily consist of
      payments to third parties for research and development of the Exer-Rest ® device
      and regulatory testing costs to obtain FDA approval.




F-8


**NON-INVASIVE
        MONITORING SYSTEMS, INC.**
 NOTES
          TO
          CONDENSED FINANCIAL STATEMENTS July
          31,
          2008


***Warranties.*** The
      Company’s warranties are one-year on all products sold and are accrued based on
      management’s estimates and the history of warranty costs incurred. There were no
      significant warranty costs incurred during the years ended July 31, 2008 and
      2007. At July 31, 2008, the Company had warranty reserves of approximately
      $12,000.




***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, 2008. The
      respective carrying value of certain on-balance-sheet financial instruments
      such
      as royalties receivable, accounts payable, accrued expenses and notes payable
      approximate fair values because they are short term in nature or they bear
      current market interest rates.




**3.**  **INVENTORIES**




The
      Company’s inventory consists of the following at July 31, 2008 (in
      thousands):




Work-in-progress,
                including sub-assemblies
            
            $
            66Finished
                goods
            
            
            107Total
                inventories
            
            $
            173





**4.**  **STOCK
      BASED COMPENSATION**




Effective
      August 1, 2006, the Company adopted Statement of Financial Accounting Standards
      No. 123 (Revised 2004), *“Share-Based
      Payment”* (“SFAS
      No. 123R”) which requires a public entity to measure the cost of employee,
      officer and director services received in exchange for an award of equity
      instruments based on the grant-date fair value of the award. Compensation
      cost is recognized over the period that
      an
      employee provides service in exchange for the award. SFAS
      No.
      123R supersedes the Company's previous accounting under FAS No. 123, *“Accounting
      for Stock-Based Compensation”* (“SFAS
      No. 123”), which permitted the Company to account for such compensation under
      Accounting Principles Board Opinion No. 25, *“Accounting
      for Stock Issued to Employees”* (“APB
      No. 25”). Pursuant to APB No. 25 and related interpretations, no compensation
      cost had been recognized in connection with the issuance of stock options,
      as
      all options granted under the Company's stock option plan had an exercise price
      equal to or greater than the market value of the underlying common stock on
      the
      date of the grant.




The
      Company adopted SFAS No. 123R using the modified prospective transition method,
      which requires that compensation cost be recorded as earned for all unvested
      stock options outstanding at August 1, 2006 based upon the grant date fair
      value
      estimated in accordance with the original provisions of SFAS No. 123 and for
      compensation cost for all share-based payments granted or modified subsequent
      to
      the adoption, based on fair value estimated in accordance with the provisions
      of
      SFAS No.123R. The Company's financial statements for the year ended July 31,
      2007 reflect the impact of the adoption of SFAS No. 123R. The Company recorded
      share-based compensation of $314,000 and $92,000 for the years ended July 31,
      2008 and 2007, respectively, which is included in the Company’s selling, general
      and administrative expenses.




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




F-9


**NON-INVASIVE
        MONITORING SYSTEMS, INC.**
 NOTES
          TO
          CONDENSED FINANCIAL STATEMENTS July
          31,
          2008


A
      summary
      of the Company’s stock option activity for the two years ended July 31, 2008 is
      as follows:





**Shares**
            
            **WeightedAverageExercisePrice**
            
            **Weightedaverageremaining
                contractualterm(years)**
            
            **AggregateIntrinsic Value**Options
                outstanding, July 31, 2006
            
            
            7,503,659
            
            
            0.390Options
                granted
            
            
            –
            
            
            –Options
                exercised
            
            
            (3,217,504
            )
            
            0.399Options
                forfeited
            
            
            (1,399,994
            )
            
            0.400**Options
                outstanding, July 31, 2007**
            
            
            **2,886,161**
            
            **$**
            **0.376**Options
                granted *
            
            
            908,500
            
            $
            0.774Options
                exercised
            
            
            (1,296,557
            )
            $
            0.321Options
                forfeited
            
            
            (423,774
            )
            $
            0.334**Options
                outstanding, July 31, 2008**
            
            
            **2,074,330**
            
            **$**
            **0.593**
            
            
            **3.81**
            
            **$**
            **98,416****Options
                expected to vest, July 31, 2008**
            
            
            **2,066,037**
            
            **$**
            **0.594**
            
            
            **3.80**
            
            **$**
            **98,416****Options
                exercisable, July 31, 2008**
            
            
            **1,598,330**
            
            **$**
            **0.552**
            
            
            **3.48**
            
            **$**
            **98,416**





*
      361,000
      options were issued from the Company's 2000 Stock Option Plan.




The
      Company estimates the fair value of stock options using a Black-Scholes
      valuation model, consistent with provisions of SFAS No.123R, Securities and
      Exchange Commission (SEC) Staff Accounting Bulletin No. 107 (“SAB No. 107”) and
      the Company's prior period pro forma disclosures of net loss, including the
      fair
      value of stock-based compensation. Key input assumptions used to estimate the
      fair value of stock options include the expected term until exercise of the
      option, expected volatility of the Company's stock, the risk free interest
      rate,
      option forfeiture rates, and dividends, if any. The expected term of recent
      stock option awards granted is generally based upon the “simplified” method for
“plain vanilla” options described in SAB No. 107, as amended by SEC Staff
      Accounting Bulletin No. 110. The expected volatility is derived from historical
      volatility of the Company's stock on the U.S. over-the-counter bulletin board
      for a period that matches the expected term of the option. The risk-free
      interest rate is the yield from a Treasury bond or note corresponding to the
      expected term of the option. The Company has not paid cash dividends and does
      not expect to pay cash dividends in the future. Forfeiture rates are based
      on
      management’s estimates. No stock options were granted during fiscal year 2007.
      The fair value of each option granted during the year ended July 31, 2008 was
      estimated using the following assumptions:




2008Expected
                volatility
            
            
            77.00%
                – 116.96%Expected
                dividend yield
            
            
            0.00%Risk-free
                interest rate
            
            
            2.45%
                – 4.23%Expected
                life
            
            
            3.0
                – 5.5 yearsForfeiture
                rate
            
            
            0.00%
                – 2.50%




Compensation
      costs for stock options with graded vesting are recognized over the vesting
      period. As of July 31, 2008, there was $199,000 of unrecognized costs related
      to
      outstanding stock options issued during the year ended July 31, 2008 which
      had
      an aggregate grant date fair value of $470,000. These costs are expected to
      be
      recognized over a weighted average period of 1.47 years. A summary of the status
      of the Company’s non-vested options and changes during the year ended July 31,
      2008 is presented below.




F-10


**NON-INVASIVE
          MONITORING SYSTEMS, INC.**
 NOTES
            TO
            CONDENSED FINANCIAL STATEMENTS July
            31,
            2008


**Stock Options**
            
            **Weighted Average
                Grant Date Fair Value**Non-vested
                at July 31, 2007
            
            
            500,000Options
                granted
            
            
            908,500Options
                vested
            
            
            (932,500
            )Non-vested
                at July 31, 2008
            
            
            476,000
            
            $
            0.500




There
      were 908,500 options granted during the year ended July 31, 2008, and no options
      were granted during the year ended July 31, 2007. All options were granted
      with
      exercise prices equal to the market price on the date of grant. The total
      intrinsic value of stock options exercised during the years ended July 31,
      2008
      and 2007 were $406,000 and $1,587,000, respectively.




The
      following table sets forth the range of exercise prices, number of shares,
      weighted average exercise price, and remaining contractual lives by groups
      of
      similar price as of July 31, 2008:





**Options Outstanding**
            
            
            
            **Options Exercisable****Weighted**
            
            **Weighted****Number of**
            
            **Average**
            
            **Average**
            
            **Number of**
            
            **Weighted****Range
                of**
            
            **Underlying**
            
            **Exercise**
            
            **Contractual**
            
            **Underlying**
            
            **Average****Exercise
                Prices**
            
            **Shares**
            
            **Price**
            
            **Life (years)**
            
            **Shares**
            
            **Price**15¢
                - 30¢
            
            
            293,330
            
            $
            0.177
            
            
            3.825
            
            
            293,330
            
            $
            0.17731¢
                - 60¢
            
            
            823,500
            
            $
            0.499
            
            
            3.370
            
            
            687,500
            
            $
            0.49561¢
                - 90¢
            
            
            957,500
            
            $
            0.802
            
            
            4.187
            
            
            617,500
            
            $
            0.793Total
            
            
            2,074,330
            
            $
            0.593
            
            
            3.811
            
            
            1,598,330
            
            $
            0.552




On
      January 24, 2008, Gary Macleod, the Company’s former Chief Executive Officer and
      Director, provided the Company with a notice of cashless exercise with respect
      to options to purchase 1,500,000 shares of common stock issued to him on
      November 11, 2005, which vested in full upon his termination as Chief Executive
      Officer in December 2007. On February 29, 2008, the Company entered into a
      Separation and Release Agreement with Mr. Macleod (the “Separation Agreement”)
      in connection with his resignation as a Director. Pursuant to the Separation
      Agreement, which also addressed severance pay benefits, Mr. Macleod received
      only 550,000 shares for such cashless exercise, instead of 749,165 shares to
      which he would otherwise have been entitled. In addition to the exercise of
      1,101,226 options underlying the cashless exercise, Mr. Macleod forfeited the
      remaining 398,774 options granted in November 2005 and also forfeited options
      to
      purchase 25,000 shares of the Company’s common stock awarded in October 2007.




**Warrants**




The
      Company has 325,000 warrants outstanding at July 31, 2008. The warrants have
      an
      expiration date of August 17, 2009 and are exercisable at $0.15.





**Preferred
      Stock**




The
      Company has three classes of Preferred Stock. Holders of Series B Preferred
      Stock, Series C Preferred Stock and Series D Preferred Stock are entitled to
      vote with the holders of common stock as a single class on all matters.




Series
      B
      Preferred Stock is not redeemable by the Company, and has a liquidation value
      of
      $100 per share, plus declared and unpaid dividends, if any. Dividends are non
      cumulative, and are at the rate of $10 per share, if declared.




F-11


**NON-INVASIVE
        MONITORING SYSTEMS, INC.**
 NOTES
          TO
          CONDENSED FINANCIAL STATEMENTS July
          31,
          2008


Series
      C
      Preferred Stock is redeemable by the Company at a price of $0.10 per share
      upon
      30 days prior written notice. This series has a liquidation value of $1.00
      per
      share, plus declared and unpaid dividends, if any. Dividends are non-cumulative,
      and are at the rate of $0.10 per share, if declared. Each share of Series C
      Preferred Stock is convertible into 25 shares of the Company’s common stock upon
      payment of a conversion premium of $4.20 per share of common stock. The
      conversion rate and the conversion premium are subject to adjustments in the
      event of stock splits, stock dividends, reverse stock splits and other events,
      as defined.




Series
      D
      Preferred Stock is not redeemable by the Company. This series has a liquidation
      value of $1,500 per share, plus declared and unpaid dividends, if any. Each
      share of Series D Preferred Stock is convertible into 5,000 shares of the
      Company’s common stock. The conversion rate is subject to adjustments in the
      event of stock splits, stock dividends, reverse stock splits and other events,
      as defined.




No
      preferred stock dividends have been declared as of July 31, 2008.




**Common
      Shares Reserved**




The
      following is a summary of the Company’s reserved Common Stock shares as of July
      31, 2008.





Options
                issued and outstanding
            
            
            2,074,330Options
                available under the 2000 Stock Plan
            
            
            1,029,000Warrants
            
            
            325,000Conversion
                of Series C Preferred Shares
            
            
            1,551,200Conversion
                of Series D Preferred Shares
            
            
            5,000,000Total
                shares of Common Stock reserved
            
            
            9,979,530




**5.**  **ROYALTIES**




The
      Company is a party to two licensing agreements and receives royalty income
      from
      the sale of its diagnostic monitoring hardware and software from SensorMedics
      and VivoMetrics (see Note 9).




Royalty
      income from these licenses amounted to $256,000 and $265,000 for the years
      ended
      July 31, 2008 and 2006, respectively. Royalties from SensorMedics amounted
      to
      $184,000 for the year ended July 31, 2008 and $141,000 in 2007. Royalties from
      VivoMetrics amounted to $72,000 year ended July 31, 2008 and $124,000 in 2007.
      Royalties receivable at July 31, 2008 were $43,000.





**6.**  **NOTES
      PAYABLE**




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




The
      notes
      totaling $165,000 plus cash of $10,000 were used by the Chairman in exercising
      his options to purchase 562,500 common shares plus 112,500 bonus common shares
      in the October 2006 Equity Financing (see Note 7).




The
      Company refinanced its existing bank debt with a new bank in February 2007
      by
      securing a $500,000 line of credit, which was set to expire in March, 2008.
      The
      debt was initially collateralized by certificates of deposit in the amount
      of
      $400,000 (which were classified as restricted cash), and bore interest at one
      percent per annum below prime rate. The Company retired $320,000 of the
      outstanding debt in March 2008 by redeeming certificates of deposit totaling
      $320,000. The remaining $180,000 note payable was extended to May 2008, bore
      interest at a rate of 6.50%, and was collateralized by the remaining $80,000
      certificate of deposit in restricted cash. The Company retired this $180,000
      balance in April 2008 with $100,000 cash and the proceeds from the redemption
      of
      the final $80,000 certificate of deposit in restricted cash.




F-12


**NON-INVASIVE
        MONITORING SYSTEMS, INC.**
 NOTES
          TO
          CONDENSED FINANCIAL STATEMENTS July
          31,
          2008


The
      $19,000 notes payable balance at July 31, 2008 relates to the third-party
      financing of certain of the Company’s insurance policies. The notes are
      self-amortizing installment loans which mature at various dates from December
      2008 to February 2009. The annual interest rates on the notes range from 10.63%
      to 12.52%




**7.**  **SHAREHOLDERS'
      EQUITY**




During
      the year ended July 31, 2008, the Company received $86,000, from existing
      optionholders for the exercise of options to purchase 195,331 shares of Common
      Stock, and issued 550,000 shares of Common Stock to Mr. Macleod pursuant to
      the
      cashless exercise described in Note 3, above. In addition to the warrant and
      option exercises pursuant to the offer described below, during the year ended
      July 31, 2007, the Company received $25,000 from an exercising optionholder
      for
      the exercise of options to purchase 62,500 shares of Common Stock.




**October
      2006 Equity Financing**




In
      October 2006, the Company accepted $2.2 million for the exercise of outstanding
      options and warrants held by Board members and private investors. As a result
      of
      the exercise, 14,691,005 shares of the Company’s common stock, $0.01 par value
      (“Common Stock”) were issued to the exercising option holders and warrant
      holders.




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




Options
      to purchase 3,067,504 shares of Common Stock were exercised at exercise prices
      ranging from $0.145 to $0.50 and warrants to purchase 9,175,000 shares of Common
      Stock were exercised at an exercise price of $0.15. An additional 613,501 Bonus
      Shares were issued to exercising option holders and an additional 1,835,000
      Bonus Shares were issued to exercising warrant holders.




The
      exercised warrants were issued pursuant to Stock Purchase Agreements dated
      August 1, 2005 between the Company and various private investors. The
      exercised options were issued to directors and others in connection with, among
      other things, a private placement in 2002, options to Directors in lieu of
      salary and certain guarantees of the Company’s debt. The Company recorded
      $296,000 of compensation and interest expense for the year ended July 31, 2007
      for the fair value of bonus shares issued to directors and guarantors of the
      Company’s indebtedness.




**April
      2008 Series D Preferred Stock Offering**




On
      April
      7, 2008, the Company completed the sale of an aggregate of 1,000 shares of
      a new
      series of its Preferred Stock, par value $1.00 per share (the “Preferred
      Stock”), designated as Series D Convertible Preferred Stock (the “Series D
      Preferred Stock”), to certain private investors (collectively, the “Investors”)
      pursuant to a Stock Purchase Agreement entered into on April 3, 2008 (the “Stock
      Purchase Agreement”). The Investors include an executive officer of the Company,
      a holder of more than 10% of the outstanding Common Stock and a director and
      executive officer of the Company who also holds more than 10% of the outstanding
      Common Stock (collectively, the “Related Party Investors”). The aggregate
      purchase price for the Series D Preferred Stock was $1,500,000, of which
      $795,000 was paid by the Related Party Investors.




The
      Series D Preferred Stock has no preference with respect to dividends to the
      Company’s common stock, and is entitled to receive dividends when, as and if
      declared by the Company’s Board of Directors, together with the holders of the
      common stock, ratably on an “as-converted” basis. Each holder of a share of the
      Series D Preferred Stock has the right, at any time, to convert such share
      of
      Series D Preferred Stock into shares of the Company’s common stock at an initial
      rate of 5,000 shares of common stock per share of Series D Preferred Stock.
      The
      holders of the Series D Preferred Stock are entitled to vote, together with
      the
      holders of the Common Stock and holders of any other series of Preferred Stock
      or other class of the Company’s capital stock which are granted such voting
      rights as a single class on all matters, except as otherwise provided by law.
      In
      the event of any liquidation, dissolution or winding up of the affairs of the
      Company, either voluntarily or involuntarily, the holders of the Series D
      Preferred Stock will be entitled to a liquidation preference of $1,500 per
      share
      of Series D Preferred Stock prior to any distribution to the holders of the
      Common Stock. The Series D Preferred Stock ranks (1) *pari
      passu* in
      respect of the preferences as to dividends, distributions and payments upon
      the
      liquidation, dissolution or winding up of the Company to all shares of Series
      C
      Preferred Stock, par value $1.00 per share, of the Company and (2) senior in
      respect of the preferences as to dividends, distributions and payments upon
      the
      liquidation, dissolution or winding up of the Company to all shares of Common
      Stock. The Series D Preferred Stock is not redeemable.




F-13


**NON-INVASIVE
        MONITORING SYSTEMS, INC.**
 NOTES
          TO
          CONDENSED FINANCIAL STATEMENTS July
          31,
          2008


The
      Series D Preferred Stock was issued at $1,500 per share, which is equivalent
      to
      $0.30 per share of Common Stock on an “as-converted” basis. The April 7, 2008
      closing price of the Common Stock on the over-the-counter bulletin board was
      $0.53 per share, resulting in a $1,150 intrinsic value per share of Series
      D
      Preferred Stock on the issue date. In accordance with the guidance in FASB
      Emerging Issues Task Force Issue Nos. 98-5, “ *Accounting
      for Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratio,”* and
      00-27, *“Application
      of Issue No. 98-5 to Certain Convertible Instruments,”* the
      $1,150,000 aggregate intrinsic value of the Series D Preferred Stock on the
      issue date is deemed a discount on the issuance of the shares and was recorded
      as an increase to additional paid in capital in the balance sheet. Because
      the
      Series D Preferred Stock was immediately convertible to Common Stock, the
      $1,150,000 intrinsic value was deemed a dividend paid to the Investors on the
      closing date. In the absence of retained earnings, the dividend was recorded
      as
      reduction of additional paid in capital, and as an increase in loss attributable
      to common shareholders in the accompanying financial statements.




**8.**  **BASIC
      AND DILUTED LOSS PER SHARE**




Basic
      net
      loss per common share is computed by dividing net loss attributable to common
      shares by the weighted average number of common shares outstanding during the
      period. Diluted net loss per common share is computed giving effect to all
      dilutive potential common shares that were outstanding during the period.
      Diluted potential common shares consist of incremental shares issuable upon
      exercise of stock options and warrants and conversion of preferred stock. In
      computing diluted net loss per share for the years ended July 31, 2008 and
      2007,
      no dilution adjustment has been made to the weighted average outstanding common
      shares because the assumed exercise of outstanding options and warrants and
      the
      conversion of preferred stock would be anti-dilutive.




Potential
      common shares not included in calculating diluted net loss per share are as
      follows:




**July 31, 2008**
            
            **July 31, 2007**Stock
                options
            
            
            2,074,330
            
            
            2,886,161Stock
                warrants
            
            
            325,000
            
            
            325,000Series
                C Preferred Stock
            
            
            1,551,200
            
            
            1,551,200Series
                D Preferred Stock
            
            
            5,000,000
            
            
            –**Total**
            
            
            **8,950,530**
            
            
            **4,762,361**





**9.**  **RELATED
      PARTY TRANSACTIONS**




Dr.
      Marvin A. Sackner, the Company’s Chairman of the Board, formerly leased office
      space to the Company on a month to month basis in North Bay Village, Florida
      under an arrangement with the Company which was discontinued effective October
      31, 2007. The Company reimbursed Dr. Sackner for the cost of the space monthly.
      The amounts paid to Dr. Sackner by the Company for the years ended July 31,
      2008
      and 2007 were $5,000 and $20,000, respectively.




The
      Company signed a five year lease for office space in Miami, Florida with a
      company owned by one of the Company’s 10% shareholders. The rental payments
      under the Miami office lease, which commenced January 1, 2008, are approximately
      $4,000 per month for the first year and escalate 4.5% annually over the life
      of
      the lease. The Company recorded $28,000 of rent expense related to the Miami
      lease in the year ended July 31, 2008.




Adam
      Jackson, the Company’s Chief Financial Officer, also serves as the Chief
      Financial Officer and supervises the accounting staff of SafeStitch Medical,
      Inc. (“SafeStitch”), a publicly-traded company whose largest beneficial
      shareholder is also a 10% shareholder of NIMS. Under a board-approved cost
      sharing arrangement, the total salaries of the accounting staffs of NIMS and
      SafeStitch since March 2008 are shared equally. The Company has recorded General
      and Administrative expense for the year ended July 31, 2008 of $12,000, to
      account for the equalization of costs under this arrangement. There were no
      accounts payable to SafeStitch outstanding at July 31, 2008.




F-14


**NON-INVASIVE
        MONITORING SYSTEMS, INC.**
 NOTES
          TO
          CONDENSED FINANCIAL STATEMENTS July
          31,
          2008


The
      Company has an approximately 2% undiluted interest in LifeShirt.com, Inc. (now
      known as VivoMetrics, Inc. (“VivoMetrics”)). The Company’s interest in
      VivoMetrics is carried at a zero valuation. VivoMetrics was a related entity
      because Dr. Sackner’s son-in-law was VivoMetrics’ Chief Operating Officer.
      Pursuant to an Agreement Regarding Assignment of Patents and Related
      Intellectual Property dated August 14, 2000, the Company assigned all of its
      rights, title and interest in certain patents and intellectual property as
      well
      as a non-exclusive, worldwide license under these items to VivoMetrics in
      consideration for a royalty of 3% of VivoMetrics’ gross revenues from sales of
      certain products for so long as VivoMetrics sells such products. Royalty income
      under the agreement with VivoMetrics was approximately $72,000 and $124,000
      for
      the years ended July 31, 2008 and 2007, respectively. Pursuant to a related
      license agreement with VivoMetrics, VivoMetrics granted to the Company the
      non-exclusive, worldwide right and license to use certain patents and software.
      Dr. Sackner’s son-in-law resigned as VivoMetrics’ Chief Operating Officer as of
      November 1, 2007.




On
      January 24, 2008, Mr. Macleod provided the Company with a notice of cashless
      exercise with respect to options to purchase 1,500,000 shares of common stock
      issued to him on November 11, 2005, which vested in full upon his termination
      as
      Chief Executive Officer in December 2007. Pursuant to the Separation Agreement
      described in Note 4 above, Mr. Macleod received only 550,000 shares for such
      cashless exercise, instead of the 749,165 shares to which he would otherwise
      have been entitled. He also forfeited options to purchase 25,000 shares of
      our
      common stock awarded in October, 2007. Pursuant to the Separation Agreement
      and
      as provided for in his Employment Agreement dated November 11, 2005, Mr. Macleod
      was entitled to one year’s severance. Such severance of $126,000 was paid in
      connection with his termination as Chief Executive Officer in December 2007.
      Mr.
      Macleod also agreed to repurchase for approximately $12,000, furniture and
      equipment previously sold to the Company at that price. The Separation Agreement
      also contained mutual releases and provided that Mr. Macleod would resign as
      a
      Director of the Company, which he did on February 29, 2008.




**10.**  **COMMITMENTS**




**Leases** .




The
      Company leases office space in Sarasota, Florida at a rate of approximately
      $3,000 per month under a lease which expires in November 2008. The Company
      notified the landlord in April 2008 that it intended to vacate the property,
      and
      actually vacated the property in May 2008. The Company is obligated to continue
      paying rent until the earlier of the lease expiration or the occupancy of the
      office space by a new tenant, and has recorded the remaining lease liability
      of
      $9,000 as of July 31, 2008, with a corresponding charge to rent expense for
      the
      year then ended. The Company signed a five year lease for office space in Miami,
      Florida commencing January 1, 2008. The rental payments under the Miami office
      lease are approximately $4,000 per month for the first year and escalate 4.5%
      annually over the life of the lease. The Company records lease expense for
      the
      Miami office on a straight-line basis at a rate of approximately $53,000 per
      year.




**Product
      Development and Supply Agreement.**




On
      September 4, 2007, the Company executed a Product Development and Supply
      Agreement (the “Agreement”) with Sing Lin Technologies Co. Ltd., a company based
      in Taichung, Taiwan ("Sing Lin"). Pursuant to the Agreement, the Company
      consigned to Sing Lin the development and design of the next generation
      Exer-Rest ® ,
      Somno-EaseTM and Exer-Rest ® Plus
      devices. Sing Lin will also manufacture all of the Company’s acceleration
      therapeutic platforms. These platforms have the appearance and functionality
      of
      either a single or twin bed in standard and extra-long dimensions.




Pursuant
      to the Agreement, Sing Lin will design, develop and manufacture the tooling
      required to manufacture the acceleration therapeutic platforms. The estimated
      total cost of the tooling is $475,000, which amount may change subject to the
      Company’s prior approval. Sing Lin will utilize the tooling in the performance
      of its production obligations under the Agreement. The Company paid Sing Lin
      $150,000 of the tooling cost upon execution of the Agreement and $150,000 upon
      approval by the Company of the product prototype concepts and designs. The
      Company must pay the balance of the final tooling cost upon acceptance of the
      first units produced using the tooling, which acceptance occurred during the
      first quarter of the Company’s 2009 fiscal year. In addition to the $300,000
      paid to Sing Lin, the Company recorded $142,000 of construction in progress
      for
      work completed on the tooling through July 31, 2008. These amounts have been
      and
      will be applied toward tooling costs, and are included in furniture and
      equipment, net.




F-15


**NON-INVASIVE
        MONITORING SYSTEMS, INC.**
 NOTES
          TO
          CONDENSED FINANCIAL STATEMENTS July
          31,
          2008


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




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




The
      Company has committed to purchase approximately $2.2 million of
      Exer-Rest ® and
      Somno-EaseTM units within one year of acceptance of the final product. The
      Company approved the final product prototypes during the first quarter of fiscal
      2009. Additionally, the Company has agreed to purchase $3.5 million and $7.5
      million of Exer-Rest ® ,
      Exer-Rest ® Plus and
      Somno-EaseTM products in the second and third years following acceptance of the
      final product, respectively. These purchase commitment amounts are based upon
      estimated product costs at the time the Agreement was executed, and may change
      subject to the Company’s prior approval. Under the Agreement, the Company must
      pay a portion of the product purchase price at the time production orders are
      placed, with the balance due upon delivery. Through July 31, 2008, the Company
      had paid Sing Lin $659,000 in connection with orders placed through that date.
      This amount is recorded as advances to contract manufacturer in the accompanying
      financial statements.




**11.**  **LONG-LIVED
      ASSETS**




The
      Company’s long-lived assets include furniture and equipment, tooling, patents
      and trademarks and long-term investments.




Furniture
      and equipment, net of accumulated depreciation, consists of the following at
      July 31, 2008 (in thousands):




Furniture
                and fixtures, office equipment and computers
            
            $
            51Tooling
                and equipment
            
            
            442493Less
                accumulated depreciation
            
            
            (23
            )Furniture
                and equipment, net
            
            $
            470




Depreciation
      expense was $6,000 and $6,000 during the fiscal years ended July 31, 2008 and
      2007, respectively. No depreciation expense has been recorded on the tooling
      being developed by Sing Lin because the tooling had not been placed in service
      as of July 31, 2008. The tooling will be depreciated upon activation with an
      estimated useful life of five years. Five Exer-Rest AT demonstration units
      are
      included in furniture and fixtures. These units were placed in service in fiscal
      2008, and approximately $5,000 of depreciation expense relating to these units
      is included in 2008 depreciation expense, based upon a five-year estimated
      useful life.




Patents
      and trademarks have been fully amortized as of July 31, 2008. Amortization
      expense was $0 and $13,000 during the fiscal years ended July 31, 2008 and
      2007,
      respectively.




The
      Company’s long-term investments consist of 940,000 shares (approximately a 2%
      interest) of LifeShirt.com, Inc. (now VivoMetrics, Inc.), a privately-held
      company. These shares were obtained as consideration for the Company’s
      assignment of all of its rights, title and interest in certain patents and
      intellectual property as well as a non-exclusive, worldwide license under these
      items to VivoMetrics. The shares are carried at zero value in the accompanying
      financial statements.





F-16


**NON-INVASIVE
        MONITORING SYSTEMS, INC.**
 NOTES
          TO
          CONDENSED FINANCIAL STATEMENTS July
          31,
          2008


**12.**  **INCOME
      TAXES**




The
      Company provides for income taxes in accordance with Statement of Financial
      Accounting Standards No. 109, *“Accounting
      for Income Taxes”* (“SFAS
      No. 109”) using an asset and liability based approach. Deferred income tax
      assets and liabilities are recorded to reflect the tax consequences in future
      years of temporary differences between the carrying amounts of assets and
      liabilities for financial statement and income tax purposes. SFAS No. 109
      provides that the Company recognize income tax benefits for loss carryforwards.
      The tax benefits recognized must be
      reduced by a valuation allowance if it is more likely than not that loss
      carryforwards will expire before the Company is able to realize their benefit,
      or if future deductibility is uncertain.




Effective
      August 1, 2007, the Company adopted the provisions of the Financial Accounting
      Standards Board (“FASB”) Interpretation No. 48, *“Accounting
      for Uncertainty in Income Taxes, an interpretation of FASB Statement
      No.109”* (“FIN
      48”). FIN 48 clarifies the accounting for uncertainties in income taxes
      recognized in a company’s financial statements in accordance with SFAS No. 109
      and prescribes a recognition threshold and measurement attribute for financial
      disclosure of tax positions taken or expected to be taken on a tax return.
      In
      addition, FIN 48 provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods, disclosure and transition. The
      application of FIN 48 did not impact the Company’s financial position, results
      of operations or cash flows for the year ended July 31, 2008.




The
      Company files its tax returns as prescribed by the laws of the jurisdictions
      in
      which it operates. Tax years ranging from 2005 to 2008 remain open to
      examination by various taxing jurisdictions as the statute of limitations has
      not expired. It is the Company’s policy to include income tax interest and
      penalties expense in its tax provision.




The
      difference between income taxes at the statutory federal income tax rate and
      income taxes reported in the statements of operations are attributable to the
      following:




**July 31, 2008**
            
            **July 31, 2007**Income
                tax benefit at the federal statutory rate
            
            
            34.00
            %
            
            34.00
            %State
                and local income taxes, net of effect of federal taxes
            
            
            3.61
            
            
            3.62Other,
                net
            
            
            (0.14
            )
            
            (0.10
            )(Increase)
                Decrease in valuation allowance
            
            
            (37.47
            )
            
            (37.52
            )Provision
                for income tax
            
            
            0.00
            %
            
            0.00
            %




The
      tax
      effects of temporary differences that give rise to significant portions of
      the
      deferred tax assets at July 31, 2008 consists of the following (in
      thousands):





**2008**Net
                operating loss carryforward
            
            $
            3,975Stock-based
                compensation and other
            
            
            1534,128Less:
                Valuation allowance
            
            
            (4,128
            )Net
                deferred tax asset
            
            $
            –




At
      July
      31, 2008, the Company has available net operating loss carry forwards of
      approximately $10,565,000 which expire in various years through 2028. Total
      net
      operating loss carry forwards includes approximately $1,993,000 generated from
      the exercise of non-statutory stock options. The net operating loss carry
      forwards may be subject to limitation due to change of ownership provisions
      under section 382 of the Internal Revenue Code and similar state provisions.




A
      valuation allowance is required to reduce the deferred tax assets reported
      if,
      based on the weight of the evidence, it is more likely than not that some
      portion or all of the deferred tax assets will not be realized. After
      consideration of all the evidence, both positive and negative, management has
      determined that a full $4,128,000 valuation allowance at July 31, 2008
      ($3,909,000 at July 31, 2007) was necessary. The increases in the valuation
      allowance for the years ended July 31, 2008 and 2007 were $219,000 and $454,000,
      respectively. Of the total increase in the valuation allowance for the years
      ended July 31, 2008 and 2007, approximately $153,000 and $597,000, respectively,
      was attributed to the exercise of non-statutory stock options.




F-17


**NON-INVASIVE
        MONITORING SYSTEMS, INC.**
 NOTES
          TO
          CONDENSED FINANCIAL STATEMENTS July
          31,
          2008


**13.**  **RECENT
      ACCOUNTING PRONOUNCEMENTS**




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




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




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




In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      160, *“Non-Controlling
      Interests in Consolidated Financial Statements – an amendment of ARB No.
      51”* (“SFAS
      No. 160”). This statement requires that noncontrolling or minority interests in
      subsidiaries be presented in the consolidated statement of financial position
      within equity, but separate from the parents’ equity, and that the amount of the
      consolidated net income attributable to the parent and to the noncontrolling
      interest be clearly identified and presented on the face of the consolidated
      statement of income. SFAS No. 160 will be effective for the Company’s fiscal
      year beginning August 1, 2009. Currently, the Company does not anticipate that
      this statement will have a significant impact on its financial
      statements.




In
      June 2007, the FASB ratified Emerging Issues Task Force Issue
      No. 07-3, “ *Accounting
      for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
      Research and Development Activities* ”
(“EITF
      07-3”). EITF 07-3 requires non-refundable advance payments for goods and
      services to be used in future research and development activities to be recorded
      as an asset and the payments to be expensed when the research and development
      activities are performed. EITF 07-3 will be effective for the Company’s fiscal
      year beginning August 1, 2008. Currently, the Company does not anticipate that
      this statement will have a significant impact on its financial
      statements.




In
      December 2007, the FASB ratified the consensus reached on Emerging Issues Task
      Force Issue No. 07-1, “ *Accounting
      for Collaborative Arrangements Related to the Development and Commercialization
      of Intellectual Property* ”
(“EITF
      07-1”).  EITF 07-1 defines collaborative arrangements and establishes
      reporting requirements for transactions between participants in a collaborative
      arrangement and between participants in the arrangement and third parties.
       EITF 07-1 will be effective for the Company’s fiscal year beginning August
      1, 2009.  The Company is currently evaluating the potential impact of this
      standard on the financial statements.




**14.**  **SUBSEQUENT
      EVENTS**




On
      August
      28, 2008 the Company entered into a Note and Security Agreement (the
“Agreement”) with four persons (the “Lenders”), pursuant to which the Lenders
      granted the Company a revolving credit line (the “Revolver”) in the aggregate
      amount of $300,000, secured by all of the Company’s personal property. The
      Lenders include a holder of more than 10% of the outstanding Common Stock and
      a
      director and executive officer of the Company who also holds more than 10%
      of
      the outstanding Common Stock. The Company may borrow and reborrow from time
      to
      time under the Revolver until October 31, 2008 (the “Maturity Date”). The
      interest rate payable on amounts outstanding under the Revolver is 11% per
      annum, and increases to 16% after the Maturity Date or after an Event of
      Default. All amounts owing under the Revolver must be repaid by the Maturity
      Date, and amounts outstanding are prepayable at any time. On August 29, 2008
      the
      Company drew down $300,000 under the Revolver.





F-18




**Exhibit
      Index**




**ExhibitNo.**
            
            **Description
                of Exhibits**3.1
            
            Articles
                of Incorporation, as amended (Incorporated by Reference from Exhibit
                3.1
                to Form 8-K filed on April 8, 2008)3.2
            
            By-Laws
                (Incorporated by reference from Exhibit 3(b) to the Company’s Registration
                Statement on Form S-1 Filed May 15, 1999 (File
                No. 33-14451))10.1
            
            License
                Agreement dated as of May 22, 1996 between the Company and SensorMedics
                Corporation (Incorporated by reference from Exhibit 10.1 to Form
                10-KSB/A
                filed on April 22, 2008)10.2
            
            Letter
                of Agreement dated April 21, 1999 between the Company and SensorMedics
                Corporation (Incorporated by reference from Exhibit 10.2 to Form
                10-KSB/A
                filed on April 22, 2008)10.3
            
            Agreement
                Regarding Assignment of Patents and Intellectual Property dated August
                14,
                2000 between the Company and LifeShirt®.com, Inc. (Incorporated by
                reference from Exhibit 10.3 to Form 10-KSB/A filed on April 22,
                2008)10.4
            
            Amendment
                to Agreement Regarding Assignment of Patents and Intellectual Property
                dated December 23, 2000 between the Company and LifeShirt®.com, Inc.
                (Incorporated by reference from Exhibit 10.4 to Form 10-KSB/A filed
                on
                April 22, 2008)10.5
            
            Form
                of Stock Purchase Agreement dated as of August 1, 2005 between the
                Company
                and various Investors (Incorporated by reference from Exhibit 4.1
                to Form
                8-K filed on August 18, 2005)10.6
            
            Preferred
                Stock Purchase Agreement dated as of April 3, 2008 between the Company
                and
                the Investors named therein (Incorporated by reference from Exhibit
                10.1
                to Form 8-K filed on April 8, 2008)10.7
            
            Product
                Development and Supply Agreement executed September 4, 2007 between
                Sing
                Lin Technologies Ltd and the Company (Incorporated by reference from
                Exhibit 10.1 to Form 10-QSB/A filed on April 22, 2008) (Confidentiality
                Treatment has been granted for portions of this
                Exhibit)10.8
            
            Note
                and Security Agreement dated as of August 28, 2008 between the Company
                and
                various lenders (incorporated by reference from Exhibit 10.1 to the
                Form
                8-K filed on September 12, 2008)10.9
            
            Offer
                Letter from the Company to Steven B. Mrha dated December 21, 2007
                and
                executed on December 22, 2007 detailing the terms of employment of
                Mr.
                Mrha (incorporated by reference from Exhibit 10.1 to the Form 8-K
                filed on
                December 27, 2007)10.10
            
            Offer
                Letter from the Company to Adam S. Jackson dated March 11, 2008
                (incorporated by reference from Exhibit 10.1 to the Form 8-K filed
                on May
                15, 2008)10.11
            
            Offer
                Letter from SafeStitch Medical, Inc. to Adam S. Jackson, dated March
                11,
                2008 (incorporated by reference to the Current Report on Form 8-K
                filed by
                SafeStitch Medical, Inc. on April 4, 2008)10.12
            
            2000
                Stock Option Plan (Incorporated by reference to the Company’s Information
                Statement on Schedule 14C filed on April 5, 2001)(SEC Accession
                No**.**0000950170-01-000484)10.13
            
            Separation
                and Release Agreement delivered February 29, 2008 between the Company
                and
                Gary Macleod (incorporated by reference from Exhibit 10.1 to the
                Form 8-K
                filed on March 4, 2008)10.14
            
            Employment
                Agreement dated November 10, 2005 between the Registrant and Gary
                Macleod
                (Incorporated by reference from Exhibit 10.2 to Form 8-K filed on
                March 4,
                2008).14.1
            
            Code
                of Ethics (Incorporated by reference from Exhibit 14.1 to Form 10-KSB
                filed on November 9, 2005)21
            *
            Subsidiaries
                of the Company31.1
            *
            Certification
                of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14
                and
                15d-14 of the Securities Exchange Act of 1934.31.2
            *
            Certification
                of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14
                and
                15d-14 of the Securities Exchange Act of 1934.32.1
            *
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                200232.2
            *
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002







*
      Filed
      Herewith