<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                             -----------------------

                                 FORM 10-KSB/A
                               (Amendment No.1)

                (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended July 31, 2001
              ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                    For the transition period from _________

                             Commission file number
                                     0-13176

                      NON-INVASIVE MONITORING SYSTEMS, INC.
             (Exact name of Registrant as specified in its charter)

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

                  1840 West Avenue, Miami Beach, Florida 33139
               (Address of principal executive offices) (Zip Code)

                                 (305) 534-3694
                        (Registrant's telephone number:)

                             -----------------------

           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE
                                (Title of Class)

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                                (Title of Class)

Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.

Yes   X    No
    ------    -----

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ ].

     State issuer's revenues for the most recent fiscal year: $1,159,626.

     State the aggregate market value of the voting stock held by non-affiliates
of the registrant on November 6, 2001, computed by reference to the price at
which the stock was sold on that date: $3,032,198. [TO BE ADJUSTED ON THE FILING
DATE]

                      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 November 13, 2001, was
22,014,726.

     Transitional Small Business Disclosure Format:

     Yes       No  X
         ----     ----
<PAGE>

                     NON-INVASIVE MONITORING SYSTEMS, INC.
                              Report on Form 10-KSB
                     For the Fiscal Year Ended July 31, 2001

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                     PART I                                           PAGE
<S>           <C>                                                                     <C>
Item 1.       Description of Business.............................................      1
Item 2.       Description of Property.............................................     11
Item 3.       Legal Proceedings...................................................     11
Item 4.       Submission of Matters to Vote of Security Holders...................     11

                                     PART II

Item 5.       Market for Common Equity and Related Stockholder Matters............     12
Item 6.       Management's Discussion and Analysis................................     12
Item 7.       Financial Statements................................................     15
Item 8.       Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure............................................     15

                                    PART III

Item 9.       Directors, Executive Officers, Promoters and Control Persons........     16
Item 10.      Executive Compensation..............................................     18
Item 11.      Security Ownership of Certain Beneficial Owners And Management......     18
Item 12.      Certain Relationships and Related Transactions......................     20

                                     PART IV

Item 13.      Exhibits and Reports on Form 8-K....................................     21

Signatures........................................................................     22
</TABLE>
<PAGE>

Forward-Looking Statements

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

                                    PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         A.  General Development of Business.
             --------------------------------

         The Company is engaged in research and development of computer
assisted, non-invasive 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 devices provide diagnostic
information regarding cardiorespiratory and sleep disorders in infants, children
and adults; in addition, alarms are sounded for adverse cardiac and respiratory
events in critically ill patients. The Company, pursuant to a Research and
Consulting Agreement by and between LifeShirt.com, Inc. (now named VivoMetrics,
Inc.), a California corporation ("Vivometrics"), and the Company dated November
15, 2000, (the "R&D Agreement"), has also undertaken development of the
LifeShirt system, a product that incorporates an array of the Company's patented
sensor technology into a wearable garment designed to transmit physical and
emotional signs of health and disease over the Internet. In addition, NIMS has
licensed the LifeShirt system to Vivometrics pursuant to a License Agreement
dated November 2, 1999 between Vivometrics and the Company (the "License
Agreement"). Pursuant to the terms and conditions of the License Agreement,
VivoMetrics will manufacture, market and sell the LifeShirt system. On August
14, 2000, the Company entered into a one-year agreement with VivoMetrics to
continue development of the LifeShirt system (the "Development Agreement"). The
Company also agreed to assign its patents relating to the LifeShirt system to
VivoMetrics with VivoMetrics licensing to the Company the rights to the sale of
products in bedside systems except for ambulatory monitoring. Following the
expiration of the Development Agreement, the Company entered into a month by
month agreement with VivoMetrics for continuing research and development on the
LifeShirt system in a separate agreement dated November 1, 2001.

                                       1
<PAGE>

         The Company has been investigating and developing a non-invasive,
therapeutic, cardiorespiratory motion platform based upon periodic acceleration.
This technology and its applications, "Reciprocating Movement Platform for
Shifting Subject to and fro in Headwards-Footwards Direction," were awarded US
Patent 6,155,976 on December 5, 2000. NIMS also has submitted a patent
application on further applications of the motion platform. This device helps to
soothe babies to sleep in the same way as a mother soothes her baby by pushing
her baby carriage back and forth, allows non-invasive ventilation without
requiring delivery of gas volume from a mechanical ventilator at the airway,
achieves cardiopulmonary resuscitation without imposing external pressures on
the chest and/or abdomen, and promotes the body's release of nitric oxide, a
substance that the Company believes is the most powerful endogenous vasodilator
mediator in the body as well as other beneficial mediators such as prostacyclin
and tissue plasminogen activator from the lining layer of blood vessels. Release
of nitric oxide into the circulation is likely a major reason in enhancing the
beneficial effects of exercise and prevention of coronary artery disease. On
March 11th, 2001, the Company licensed its motion platform technology to
Hill-Rom, a subsidiary of Hillenbrand Industries, Inc. for development and
potential incorporation into its wide product offering. NIMS will receive
royalties from Hill-Rom should this technology be commercialized. NIMS retained
the sole right to develop this technology for doctor's offices, medical clinics,
ambulances, military field use, and the home.

         Three papers on topics related to the benefits and effects of such
periodic acceleration in animal experiments have been published in peer reviewed
scientific journals. Dr Jose Adams and his group at the Mount Sinai Medical
Center in Miami Beach published two papers on Non Invasive Motion Ventilation
using the Company's motion platform in the December 2000 issue of the Journal of
Applied Physiology. Subsequently, Dr. Jose Adams and his group published a paper
in the October 2001 issue of Critical Care Medicine on the beneficial effects of
periodic acceleration in producing large increases of blood flow to vital
organs, particularly the heart and brain.

         In 1999-2000, the Company fabricated two adult prototype motion
platform devices and tests indicated that application in adults was feasible and
well tolerated. Further, non-invasive display of the thumb digital arterial
pulse suggested that nitric oxide was released during periodic acceleration in
humans.

         In September 2001, Hill-Rom delivered a third prototype of the motion
platform to the Company in accordance with the Company's design. From August
2001 to the present, the Company has been engaged in designing a computer
control system for the motion platform as well as designing a modular break down
into components of reasonable weight such that the motion platform can readily
be transported and assembled by salespersons. The Company plans to apply this
year for an Investigational Device Exemption (IDE) from the FDA prior to
initiating clinical trials of the Motion Platform.

         In August 21st, 2001 the Company was notified by FDA that its Windows
based RespiEvents software received 510(k) approval for marketing.

                                       2
<PAGE>

         NIMS' principal products in commerce are:

         RESPITRACE 200 and 204 are small stand alone devices that produce
breath waveforms with respiratory inductive plethysmography; these are used for
diagnostic polysomnography.

         RESPIEVENTS is a PC based software package used in conjunction with the
Respitrace PT, Respitrace Plus and Respitrace 200/204 Data Acquisition System to
detect apnea (cessation of breathing), slowing of heartbeat, diminution of blood
oxygen, and other adverse breathing and cardiac events.

         RESPIPANEL is a personal computer-based software program used in
conjunction with Respitrace 200/204 for PC interaction. RespiPanel allows the
operator to display breath waveforms, calibrate the waveforms to absolute volume
units and switch between AC and DC modes of operation.

         RESPITRACE PLUS is a small portable cardiorespiratory monitor used to
detect and alert the patient of adverse cardiac and respiratory conditions or
diagnostic polysomnography. The Respitrace Plus is manufactured and marketed
non-exclusively by SMC under the arrangement described below.

         RESPITRACE PT is a breathing recorder originally developed to monitor
infants prone to Sudden Infant Death Syndrome. The Respitrace PT is manufactured
and marketed as SomnoStar PT by SMC under the arrangement described below.

         RESPITRENDS is a personal computer-based software program used in
conjunction with Respitrace Plus for patient minute-by-minute trends of patient
data, display, analysis, storage and hard copy report.

         RESPIBANDS PLUS are patented, disposable non-invasive Respitrace
transducers worn around the torso manufactured by SMC under the arrangement
described below.

         In, March 1999, Marvin Sackner, Chairman of the Board of Directors,
agreed to loan the Company certain funds to continue funding operations, at a
rate of 12% per annum in return for an option to purchase 1,000,000 shares of
the Common Stock at an exercise price of 14.5 cents per share. As of November
13, 2001, the principal and interest outstanding on this loan was zero.

         On August 14, 2000, the Company entered into several agreements with
VivoMetrics, a start-up company that received equity funding of $7.5 million
from third parties with rights to increase this funding from third parties by an
additional $7.5 million, based upon milestones to be met by VivoMetrics. These
agreements included the R&D Agreement, a License Agreement, an Agreement
Regarding Assignment of Patents and Related Intellectual Property, an Invention
Assignment, and a Software Assignment. The License Agreement provides that
VivoMetrics will license the Company's technology and software, which is
incorporated into a wearable garment system termed a "LifeShirt". As
consideration for the above agreement, the Company received an equity position
in VivoMetrics as well as royalties based upon the revenues of the LifeShirt
system. Following the expiration of a one year research and development
agreement with Vivometrics, the Company entered into a month by month agreement
with VivoMetrics for

                                       3
<PAGE>

continuing research and development on the LifeShirt system in a separate
agreement dated November 1, 2001.

         In March 2001, the Company engaged the Pinnacle Partners, an investor
relations firm, to promote the Company and to assist in identifying an
investment banker to raise additional capital. In May 2001, Dr. Marvin Sackner
voluntarily resigned as CEO and the Board of Directors appointed Allan F. Brack
as President/CEO. Mr. Brack is an executive with expertise in sales, marketing
and distribution of durable, cardiorespiratory medical devices. Dr. Sackner
retained his Chairmanship of the Board of Directors. On October 31, 2001, the
Company suspended its relationship with Pinnacle Partners.

         The Company requires additional capital to remain in business and
commercialize the motion platform. Management of the Company will continue to
seek sources of funding. Failure to secure necessary financing will result in
reduction and curtailment of operations.

         The term the "Company" and "NIMS" refers to both the Company and its
subsidiaries, unless the context requires otherwise. The Company's offices are
located at 1840 West Avenue, Miami Beach, Florida 33139 and its telephone number
is (305) 534-3694.

         B.   Financial Information About Industry Segments.
              ---------------------------------------------

         Not applicable.

         C.   Narrative Description of Business.
              ---------------------------------

         Introduction

         The Company is engaged in the research and development of computer
assisted, non-invasive monitoring devices designed to detect abnormal
respiratory and related pulmonary events from sensors placed on the body's
surface. These devices provide diagnostic information regarding
cardiorespiratory and sleep disorders in infants, children and adults; in
addition, alarms are sounded for adverse cardiac and respiratory events in
critically ill patients.

         The Company has developed the LifeShirt system, a product that
incorporates an array of the Company's patented sensor technology into an
ambulatory, wearable garment designed to continuously gather over 30 physical
and emotional signs of health and disease on behalf of VivoMetrics, Inc. The
Company has been developing a non-invasive, therapeutic, cardiorespiratory
device based upon periodic acceleration. This device helps to soothe babies to
sleep in the same way as a mother soothes her baby by pushing her baby carriage
back and forth, allows non-invasive ventilation without requiring delivery of
gas volume from a mechanical ventilator at the airway, achieves cardiopulmonary
resuscitation without imposing external pressures on the chest and/or abdomen,
and promotes the body's release of nitric oxide, a substance that the Company
believes is the most powerful endogenous vasodilator mediator in the body as
well as other beneficial mediators such as prostacyclin and tissue plasminogen
activator. The Company plans to submit the motion platform to FDA for
Investigational Device Exemption (IDE) prior to beginning clinical trials of
this technology.

                                       4
<PAGE>

Current Products
----------------

         Respitrace 200/204 Data Acquisition System Series - commercially
introduced in April 1998, are small stand-alone devices that produce breath
waveforms from respiratory inductive plethysmographic transducers placed around
the patients' rib cage and abdomen. These devices also provide waveforms that
depict respiratory efforts. The Respitrace 200 series devices are indicated in
diagnostic polysomnography and, to the knowledge of the Company's management,
are the lowest priced Respitrace based devices ever marketed. They offer digital
sampling rates that are four times faster than all other marketed Respitrace
products for better display of breath waveforms. Multiplexing is used for the
first time in a Respitrace product to minimize electrical cross talk between the
rib cage and abdominal signals and hence provide a signal with a higher level of
signal/noise ratio. The Waveforms output may be viewed with a polygraph
interface, or a personal computer with RespiPanel or RespiEvents software.

         Respitrace Plus - commercially introduced in April 1991, is a small,
portable, non-invasive, stand-alone patient monitoring unit designed to
continuously monitor heart and breathing abnormalities in a variety of
environments inside and outside a hospital at an economically viable selling
price. It can also be used as a portable battery-powered device during
transportation of patients in ambulances and within a hospital from patient
rooms to diagnostic areas. The system furnishes digital and analog displays of
the electrocardiograph and breath waveforms and interfaces with computer and
video display equipment.

         RespiEvents - which was commercially introduced in April 1996, is a
software program for a personal computer ("PC") designed to be used in
conjunction with Respitrace Plus and Respitrace PT. It enables the PC to receive
digital information from the Respitrace Plus Digital Interface (RS232 output)
and display real-time Respitrace waveforms on the computer screen. RespiEvents
allows storage of Respitrace information on the hard drive of the PC for
subsequent display of full fidelity waveforms and derived numerical values and
indices. It includes tools to manipulate the vertical and horizontal gain
displays of waveform information stored on the PC. It can convert the numerical
values of the data files into ASCII format enabling them to be imported into
other programs such as spread sheets (e.g., Excel, Lotus 123, Quattro Pro,
Paradox), databases (e.g., FoxPro, Paradox), and statistical packages (e.g.,
SigmaPlot, Statistica) so that sophisticated analysis and plots can be carried
out. RespiEvents transforms the PC into a polygraph recorder for Respitrace Plus
generated waveforms and can be used in any situation where such a device might
be employed. One application is polysomnography in which apneic/hypopneic events
may be diagnosed and classified and sleep stages characterized according to
breath waveform patterns. Another is to monitor breath by breath changes in
ventilation and breathing pattern during exercise. RespiEvents permits analyses
of unusual patterns of breathing and electrocardiographic waveforms that are
particularly useful in documentation of such occurrences in critically ill
pulmonary, cardiac, and neurologic patients.

         The Company, based on current market information, believes that the
features presented by RespiEvents are of particular importance to clinicians
treating not only adult patients with cardiorespiratory and sleep disorders but
also in the monitoring of infants both in hospital and at home. The Company has
retained exclusive rights to RespiEvents. Such software is sold to customers
directly by the Company and also to SensorMedics Corporation ("SMC") according
to the pricing set forth in the SMC agreement with the Company (the "SMC
Agreement").

                                       5
<PAGE>

         RespiEvents 5.2 - RespiEvents 4.x version was a MS DOS software program
introduced to commerce in 1996 that analyzed Respitrace breath waveforms and
Electrocardiographic signals. This was converted to a MS Windows 95/98 platform
and is called RespiEvents 5.2. It provides on-line video display of 1) breath,
electrocardiographic, pulse oximeter, and other physiological waveforms, 2)
minute by minute trends of selected variables, 3) tidal flow-volume and
Konno-Mead loops and 4) numerical values of processed information. In the prior
DOS version of the program, trends and loop displays were available only in
off-line mode. The Windows 95/98 RespiEvents software speeds up clinical
decision making abilities through presentation of relevant on-line information
about breathing and cardiac activities while still retaining the report
capabilities of off-line analysis. RespiEvents 5.4, an upgrade of RespiEvents
5.2, has much more features than RespiEvents 5.2 and also will be utilized as
the basis for the data collection and analysis software in the LifeShirt system
(called VivoLogics in the LifeShirt system). The Company intends to submit a
510(k) application to FDA during fiscal 2002.

         Respitrace PT - commercially introduced in April 1996, is manufactured
and marketed by SMC under the name SomnoStar PT. The Respitrace PT is a
diagnostic sleep recorder for detecting sleep disorders in adults, children and
babies.

         RespiTrends - commercially introduced in July 1992 was a PC based MS
DOS software program for use with Respitrace Plus. In September 1998, a new MS
Windows 95 version of the software was released. RespiTrends is a medical data
storage software program that permits real-time reception and storage of cardiac
and respiratory information for display on the screen of the device. It also
generates a variety of reports and trend-plots of patient status. The software
program also allows the user to down load RespiTrends from Respitrace Plus to a
personal computer for further analysis and report generation. The new
RespiTrends software offers enhanced graphics and on line help. Respitrends
v1.6c software does not impact on the safety and effectiveness of the Respitrace
Plus. Incorrect dates and birth date computations will appear on screens and
reports. RespiTrends is sold to SMC by NIMS.

         Respi-Ecg Simulator - commercially introduced in January 1994, is an
electronic simulator capable of simulating breathing for the rib cage and
abdomen channels as inputs to all Respitrace monitors. Additionally, it also has
a channel for simulating ECG and heart rate for monitors. The breathing part of
the simulator is theoretically correct to produce an exact calibration of
breathing waveforms and can produce an apnea at the touch of a button. The ECG
section of the simulator is capable of producing two heart rates, allowing a
functional check of Bradycardia alarms on monitor heart channels.

         Disposable and Accessories - The Company has also developed disposable
and accessory items utilized with its products including the Respiband Plus.

Products Under Development
--------------------------

         The Company has continued to develop upgrades to its RespiEvents
software for the following products listed below and plans to apply to the FDA
for approval to market them through the 510(k) mechanism.

                                       6
<PAGE>

         Respi-Neckband - The hardware component of this device, which involves
wearing a Respitrace transducer band around the neck has already been 510(k)
approved for marketing of respiratory efforts detection. This technology
provides carotid arterial pulses and jugular venous pulses with appropriate
digital filtering and or electrocardiographic triggered ensemble averaging. One
scientific peer-reviewed paper has been published on using this technology to
obtain systolic time intervals at rest and exercise, a non-invasive measure for
assessing mechanical function of the heart. Another scientific peer reviewed
paper has been published on non-invasive determination of central venous
pressure, a measure that reflects fluid loading of the cardiovascular system.
Its accuracy has been validated against invasive central venous catheter
measurements. The Company plans an upgrade to RespiEvents 5.4 to market this
software and also incorporate it into the LifeShirt system that is described
below.

         RespiCardiograph (Thoracocardiograph) - is a system that is designed to
monitor and record cardiac signals by placing a Respiband around the lower
chest. This technology displays left ventricular cardiac volume curves and
serves as a continuous, non-invasive monitor of the mechanical function of the
heart. By providing recording of changes in blood pumped from the heart, it
measures changes in cardiac output. In addition, analysis of various points of
the ventricular volume curve, provide assessment of systolic (contraction) and
diastolic (relaxation) properties of the heart. The RespiCardiograph also
provides data on regional cardiac motion, which is a key factor in early
detection of acute heart attacks. Six scientific peer-reviewed papers have been
published on this technology. Its accuracy has been validated against invasive
thermodilution cardiac output measurements, automated border edge detection
echocardiography, and Doppler measurements of transmitral blood flows. The
RespiCardiograph is a low cost, much less labor-intensive substitute for certain
aspects of Doppler-Echo technology and a low cost, safe alternative to invasive
Swan-Ganz catheter technology for monitoring the status of the pulmonary
circulation and heart in critically ill patients. Software to accomplish the
analysis has been completed and delivered to VivoMetrics for incorporation into
the LifeShirt system. The Company plans to upgrade to RespiEvents 5.4 to market
this software once VivoMetrics has received FDA approval to market this
technology into the LifeShirt system.

         Respi-HemithoracicBands - consists of two Respitrace bands, one placed
over the right and the other over the left sides of the chest. Differences in
volume expansion and lag of one side to the other help in deciding whether
pleural effusions, pneumothorax or atelectasis might be present. One paper on
this technology has been presented to a National Medical Meeting. The Company
plans an upgrade to RespiEvents 5.4 to market this software and also to
incorporate it into the LifeShirt system that is described below.

         LifeShirt - is a Wearable Physiological Computer (patent,
PhysiologicSigns Feedback System, issued April 4, 2000) that incorporates four
inductive plethysmographic transducers, electrocardiographic electrodes, and a
two posture sensor into a low turtle neck sleeveless garment. Pulse oximetry is
an optional add-on. These transducers are connected to a miniaturized, battery
powered, electronic module that has been fabricated. This in turn interfaces
with a Personal Digital Assistant ("PDA") with compact flash memory for
collection of raw waveforms and digital data from the electronic module. Such
data are transmitted from flash memory to a Data Collection Center that checks
for quality control from full disclosure, transforms data into minute-by-minute
median trends of over 30 physical and emotional signs of

                                       7
<PAGE>

health and disease. In addition, the monitored patient can enter symptoms with
intensity, mood, and medication diary into the PDA for integration with the
physiologic information collected with the LifeShirt garment. Data from flash
memory can be mailed to the VivoMetrics' 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.

         Non-Invasive Therapeutic Motion Platform - Three papers on topics
related to the benefits and effects of periodic acceleration achieved with the
motion platform in animal experiments have been published in peer reviewed
scientific journals. Dr Jose Adams and his group at the Mount Sinai Medical
Center in Miami Beach published two papers on Non Invasive Motion Ventilation
using the Company's motion platform in the December 2000 issue of the Journal of
Applied Physiology. Subsequently, Dr. Jose Adams and his group published a paper
in the October 2001 issue of Critical Care Medicine on the beneficial effects of
periodic acceleration in producing large increases of blood flow to vital
organs, particularly the heart and brain. In 2000, the Company fabricated two
adult prototype motion platform devices and tests indicated that application in
adults was feasible and well tolerated. Further, non-invasive display of the
thumb digital arterial pulse suggested that nitric oxide is released during
periodic acceleration in humans. In September 2001,Hill-Rom delivered a third
prototype to the Company according to the Company's design. From August 2001 to
the present, the Company has been engaged in designing computer control of the
motion platform as well as modular break down into components of reasonable
weight such that it can readily be demonstrated by salespersons. The Company
plans to apply for an Investigational Device Exemption (IDE) from FDA prior to
initiating clinical trials of the Motion Platform. The motion platform, through
periodic acceleration, also appears to release nitric oxide and other beneficial
mediators such as prostacyclin and tissue plasminogen activator (tPA) from the
vascular lining cells. The motion platform is the first device invented that can
accomplish the release of these natural substances. Nitric oxide is believed to
be the most important mediator of vasodilatation on the body. As such, it has
favorable actions in chronic heart failure, high blood pressure, pulmonary
hypertension, coronary artery disease, stroke, wound healing, and prevention of
arteriosclerosis among others. Prostacyclin also is a vasodilator and might be
more effective in reducing pulmonary arterial pressures than nitric oxide.
Finally, tissue plasminogen activator has a role in prevention of clot
formation. A patent application on such actions, as well as others, is pending.

         During the fiscal year ended July 31, 2001, the Company's principal
product development activities were focused on the LifeShirt system, RespiEvents
5.4 and the therapeutic motion platform.

Manufacturing
-------------

         As described in "General Development of Business" above, in December
1996, the Company granted SMC the exclusive rights to manufacture Respiband Plus
and non-exclusive rights to manufacture certain other products. To reduce the
manufacturing costs for new products, the Company has chosen to outsource the
manufacture of the Respitrace 200 and Respitrace 204. The Company's products are
assembled utilizing an assortment of off-the-shelf components available from a
variety of sources, in addition to custom components such as

                                       8
<PAGE>

printed circuit boards and software fabricated to Company's specifications. The
Company provides the manufacturer a request for materials for parts procurement
by the manufacturer to the Company's specifications. This includes PC boards and
cable assemblies. The device is manufactured and the final testing of the
product is completed at the Company. The Company then packages and ships the
completed products. The Company intends to continue to outsource some of the
manufacturing of its products.

Marketing and Sales
-------------------

         The Company's products are designed for hospitals and other health care
facilities such as outpatient surgical units, sleep disorder centers, nursing
homes, skilled nursing facilities, research facilities and governmental agencies
as well as to health care professionals such as pulmonary and critical care
physicians, neonatologists, anesthesiologists, respiratory therapists, hospital
administrators and directors of home health care agencies.

         Pursuant to the SMC Agreement, the Company granted SMC the exclusive
rights to manufacture the Company's Respiband Plus and non-exclusive rights to
manufacture the Company's Respitrace Plus and Respitrace PT. SMC produces
instruments for pulmonary function testing, metabolic measurements, sleep
diagnostics and similar support and has over 30 years experience in the medical
device industry. SMC distributes its products through 35 direct representatives
in the United States, the United Kingdom, the Benelux countries, France, and
Germany and uses 50 dealers in other countries.

         Since introducing the Respitrace 200 and 204 Data Acquisition Systems
above, the Company has been selling these systems directly through
advertisements in peer reviewed medical trade journals, the Internet, trade show
leads, and its existing customer base.

         Respitrends and RespiEvents 5.2 are marketed to SMC and the Company's
existing Respitrace Plus customer base. RespiEvents 5.2 is marketed by the
Company to Respitrace 200 and 204 customers.

Regulatory Compliance
---------------------

         Medical device manufacturers are subject to extensive federal and state
regulations relating to nearly every aspect of the development, manufacture and
commercialization of such products. The FDA is the principal regulatory
authority over medical devices in the United States. Additionally, in order to
manufacture and market medical devices overseas, which the Company believes is a
significant potential market for its products, the Company must comply with
regulatory requirements and procedures in various foreign countries. The CE mark
is required for marketing in the European Community. The Company obtained ISO
9001 and equivalent FDA Quality Assurance certification from TUV Rheinland in
May 1999. The Company has received re-certifications in 2000 and 2001 by TUV
Rheinland.

         In August, 2001, the Company received 510(k) approval from the FDA to
market the Company's RespiEvents software for Windows 95/98.

                                       9
<PAGE>

Patents and Trademarks
----------------------

         The Company currently holds 4 United States and 1 foreign 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 1 United
States and 3 foreign patents. The Company transferred 14 U.S. patents to
VivoMetrics, Inc. No assurance can be given as to the scope of protection
afforded by any patent issued, whether patents will be issued with respect to
any pending or future patent application, that patents issued will not be
designed around, infringed or successfully challenged by others, that the
Company will have sufficient resources to enforce any proprietary protection
afforded by its patents or that the Company's technology will not infringe on
patents held by others. The Company believes that in the event its patent
protection is materially impaired, a material adverse effect on its present and
proposed business could result. The expiration dates of the patents are as
follows:

                             Number of Patents               Expiration Date

                       Domestic                Foreign
                       --------                -------
                                                   1               2004
                           1                                       2006
                           1                                       2011
                           1                                       2013
                           1                                       2018
           Total           4                       1



         With respect to its present and proposed product line, the Company has
13 trademarks and trade names which are registered in the United States and 13,
which are registered in several foreign countries, including the Company's
principal trademark.

Competition
-----------

         The Company competes with several concerns that market non-invasive
respiratory monitoring devices, including Respironics Corporation, Hewlett
Packard, and Spacelabs, 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 and quality.

Employees
---------

         The Company currently employs six employees on a full-time basis. Two
are engaged in general and administrative duties, three in research and
development, and one in product assembly.

                                       10
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY.

         The Company occupies approximately 2,500 square feet at 1840 West
Avenue, Miami Beach, Florida, which house its executive offices and product
development facilities. Such space is leased on a month-to-month basis from a
non-affiliated party at an annual rental of approximately $30,000. The Company
believes that its facilities are adequate for the Company's needs in the near
future.

ITEM 3.  LEGAL PROCEEDINGS.

         There are no material legal proceedings that are currently pending or,
to the Company's knowledge, contemplated against the Company to which it is a
party.

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

         None.

                                       11
<PAGE>

                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         A.   Market Information.
              ------------------

         The Company's Common Stock is currently traded in the over-the-counter
market and is listed on the OTC Bulletin Board under the symbol NIMU.OB. The
high and low bid prices for the Common Stock, as reported by the OTC Bulletin
Board for each quarter during the last two fiscal years were as follows:

         Quarter Ended                       High                   Low

         October 31, 1999                   $0.109                 $0.109
         January 31, 2000                   $0.984                 $0.500
         April 30, 2000                     $1.469                 $1.125
         July 31, 2000                      $0.906                 $0.781
         October 30, 2001                   $0.531                 $0.406
         January 30, 2001                   $0.25                  $0.188
         April 30, 2001                     $0.25                  $0.170
         July 31, 2001                      $0.75                  $0.51



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

         B.   Holders.
              -------

         As of October 30, 2001 there were approximately 1,554 holders of
record of the Common Stock.

         C.   Dividends.
              ---------

         The Company has not paid any dividends on its capital stock since its
inception and the Board of Directors of the Company does not contemplate doing
so in the near future. Under the symbol NIMU.OB.

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

Results of Operations.
---------------------

Gross Revenues, Costs of Operations and Net Income (loss)
---------------------------------------------------------

         Gross Revenues. Gross revenues increased from $691,733 for the year
ended July 31, 2000 to $1,159,626 for the year ended July 31, 2001, an increase
of $467,893, primarily due to an increase in revenues arising from the Research
and Consulting Agreement with Vivometrics.

                                       12


<PAGE>

         Research and Consulting. Revenue from research and consulting increased
from $397,000 for the year ended July 31, 2000 to $896,500 for the year ended
July 31, 2001, an increase of $499,500, primarily due to an increase in revenues
arising from the Research and Consulting Agreement with Vivometrics.

         Product Sales. Product Sales decreased from $211,292 for the year ended
July 31, 2000 to $210,277 for the year ended July 31, 2001, a decrease of
$1,015, primarily due to the static nature of the market for the Respitrace
products. Management does not anticipate any growth or decline in this market in
fiscal 2002.

         Royalties. Royalties decreased from $83,481 for the year ended July 31,
2000 to approximately $52,849 for the year ended July 31, 2001, a decrease of
$30,632, primarily due to lower than anticipated sales of Respitrace products by
SensorMedics Corporation.

         Cost of Operations. Operating expenses increased from $726,878 for the
year ended July 31, 2000 to $1,182,068 for the year ended July 31, 2001, an
increase of $455,190. This increase was due to an $185,667 increase in Research
and Development costs in fiscal 2001 that included purchase of new computers,
and work associated with development of the motion platform and an increase in
selling, general and administrative expenses of $255,558 as a result of legal
expenses associated with the business plan for the motion platform, and
contracts with a public relations firm and an investment banker.

         Research and Development. Research and Development costs increased from
$350,829 for the year ended July 31, 2000 to $536,496 for the year ended July
31, 2001, an increase of $185,667, primarily due to increased costs associated
with software testing and development of the LifeShirt system.

         Cost of Goods Sold. Cost of Goods Sold increased from $38,050 for the
year ended July 31, 2000 to $52,015 for the year ended July 31, 2001, an
increase of $13,965, primarily due to increased costs arising from standard
price increases associated with the ordinary course of business.

         Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses increased from $337,999 for the year ended July 31, 2000
to $593,557 for the year ended July 31, 2001, an increase of $255,558, primarily
due to increased expenses associated with the cost of outside accountants,
commissions to new sales persons, legal expenses associated with the business
plan for the acceleration therapeutic products and the negotiation of contacts
with Vivometrics and Hill-Rom, and expenses arising from contracts with a public
relations firm and an investment banker.

         Profit (losses). Net loss decreased from a loss of $35,105 for the year
ended July 31, 2000 to a loss of $22,442 for the year ended July 31, 2001,
primarily due to increased selling, general and administrative expenses.

Liquidity and Capital Resources. The Company has financed its operations and
-------------------------------
other working capital requirements principally from operating cash flow.
Management of the Company estimates that the Company requires a minimum cash
flow of $80,000 per month to maintain operations. The Company predominantly
finances its operations from the sale of Respitrace products. In addition, the
Company is currently raising additional capital from individual investors
through a private placement offering of the Company's securities in order to
finance its operations. Although the private placement offering of securities by
the Company has not closed, the funds raised to date will be sufficient to
satisfy the Company's current cash requirements until the end of the first
quarter of 2002. Additional capital will be required after the first quarter of
2002 for the Company to continue to satisfy its cash requirements and maintain a
business plan focusing on increasing revenues from the marketing of acceleration
therapeutic products. The Company expects to raise additional capital subsequent
to the first quarter of 2002. If the Company is unable to raise additional
funds, the Company may be required to reduce its workforce, reduce compensation
levels, reduce dependency on outside consultants, or modify its growth and
business plan.

                                      13


<PAGE>

         Cash provided by operating activities. Cash provided by operating
activities increased from $77,610 for the year ended July 31, 2000 to $145,335
for the year ended July 31, 2001, an increase of $67,725. The increase in cash
provided by operating activities is primarily attributable to an increase in the
Company's Depreciation and Amortization of $120,106 during the year ended July
31, 2001 compared to $30,280 during the year ended July 31, 2000.

         Cash used in investing activities. Cash used in investing activities
decreased from $75,567 for the year ended July 31, 2000 to $37,114 for the year
ended July 31, 2001, an decrease of $38,453. Investing activities consist
primarily
                                       14
<PAGE>

of costs for patents, software production and purchase/sale of short-term
investments and purchase of furniture and equipment.

         Cash provided by financing activities. Cash provided by financing
activities increased from $ 22,480 for the year ended July 31, 2000 to $23,020
for the year ended July 31, 2001, an increase of $540. due to proceeds from
exercise of options by a shareholder in 2001.

         The reports of independent auditors on financial statements at and for
the two years ended July 31, 2000, contain an explanatory paragraph raising
substantial doubt of the Company's ability to continue as a going concern. Note
3 to the consolidated financial statements describes the conditions which raise
this doubt and management's plans. As previously noted, revenues generated from
the SMC Agreement were insufficient to fund operations during fiscal 2001. If
revenues generated from the SMC Agreement or other sales do not reach levels
sufficient to fund working capital requirements during fiscal 2002, the Company
will require further financing to continue operations during fiscal 2002 and in
any event may require additional capital to fund research and development
efforts beyond presently contemplated levels. Failure to secure necessary
financing might result in the further reduction and curtailment of operations.

ITEM 7.  FINANCIAL STATEMENTS.

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

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

         None.

                                       15
<PAGE>

                                    PART III

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

         The current directors and executive officers of the Company are as
follows:

                   Name              Age         Position

         Marvin A. Sackner, M.D.     69     Chairman of the Board

         Allan F. Brack              57     Chief Executive Officer and Director

         Morton J., Robinson, M.D.   69     Secretary and Director

         Gerard Kaiser, M.D.         69     Director

         Stanley C. Sackner, D.O.    65     Director

         Andrew M. Smulian                  Director

         Taffy Gould                        Director



         MARVIN A. SACKNER, M.D., was elected as Chairman of the Board, Chief
Executive Officer and Director with the Company in November 1989. Dr. Sackner
resigned as Chief Executive Officer in May 2001 when Allan F. Brack was
appointed as the Chief Executive Officer. Dr. Sackner co-founded predecessor to
the Company in 1977 and was the Chairman of the Board from 1981 until October
1989. From 1974 until October 1991, Dr. Sackner was the Director of Medical
Services at Mount Sinai in Miami Beach, Florida. From 1973 to 1986, Dr. Sackner
was the President of the American Thoracic Society. Dr. Sackner was the Chairman
of the Pulmonary Disease Subspecialty Examining Board of the American Board of
Internal Medicine from 1977 to 1980. He also currently serves as Medical
Director of VivoMetrics, Inc.

         ALLAN F. BRACK was elected a Director of the Company in May 2001 and
serves as the Company's Chief Executive Officer. Currently and for over five
years, Mr. Brack has been a member of the Board of Directors of Medical Insight
Ltd., a medical distribution management company based in Singapore, Global
Software Solutions Inc, a Florida software outsourcing company, General Sensors
Inc, a software and hardware contract outsourcing company, and Bangalore
Software (PTY) Ltd., software development company. From 1995 to 1996, Mr. Brack
was a member of the Board of Directors of Swemac AB, a Linkopping, Sweden,
manufacturer of orthopedic implants.

         MORTON J. ROBINSON, M.D. was elected a Director of the Company in
November 1989. Dr. Robinson was appointed Secretary of the Board in August 2001.
Dr. Robinson is

                                       16
<PAGE>

Director of the Department of Pathology and Laboratory Medicine at Mount Sinai
Medical Center, Miami Beach.

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

         STANLEY C. SACKNER, D.O. was elected a Director of the Company in
November 1989. Dr. Sackner is on honorary staff of the Department of
Anesthesiology at Memorial Hospital in Union, New Jersey. Dr. Stanley C. Sackner
is Marvin A. Sackner's brother.

         ANDREW M. SMULIAN was elected as a Director of the Company in December,
2000. He is a Shareholder in Akerman, Senterfitt & Eidson, P.A. and practices
real estate and banking and finance law.

         TAFFY GOULD was elected a Director of the Company in December, 2000.
From 1977 to December, 2000, she was the President of Housing Engineers of
Florida, Inc., a Florida real estate management company. In December, 2000, she
founded and is a managing member of GlobalTechnologyAgents.com, LLC, a Florida
limited liability company which advises technology companies and end-users in
the business, academic, and medical spheres, worldwide.

         Directors of the Company hold their offices until the next annual
meeting of the Company's shareholders until their successors have been duly
elected and qualified or until their earlier resignation, removal of office or
death. Other than an Audit and Legal Committee consisting of Edward Shapiro,
Gerard Kaiser and Ruth Sackner and a Compensation and Stock Option Review
Committee consisting of Marvin A. Sackner and Morton J. Robinson, there are no
committees of the Board of Directors. The Board of Directors met 4 times in
fiscal 2001, one time by written consent. The Committees did not meet in fiscal
2001.

         Officers of the Company serve at the pleasure of the Board of Directors
and until the first meeting of the Board of Directors following the next annual
meeting of the Company's shareholders and until their successors have been
chosen and qualified.

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's Directors, executives officers and holders of more than
ten percent of the Company's Common Stock, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and NASDAQ.
Such persons are required to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it, or oral or written representations from certain reporting
persons that no Forms 5 were required for those persons, the Company believes
that, during fiscal 2000, all filing requirements applicable to its directors,
executive officers and greater than 10% beneficial owners were complied with.

                                       17
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION.

         A.   Summary Compensation Table.
              --------------------------

         The following compensation table sets forth, for the fiscal years
ending July 31, 1999, 2000, and 2001, the cash and certain other compensation
paid by the Company to the Company's Chief Executive Officer ("CEO"). No other
current executive officer had an annual salary and bonus in excess of $100,000
during either of such fiscal years:

                                                      Annual Compensation
  Name and Principal Position            Year              Salary ($)

  Marvin A. Sackner                      1999               $85,000
  Chairman of the Board, and             2000               $95,000
  Chief Executive Officer                2001               $95,000


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

         The following table sets forth certain information regarding NIMS'
Common Stock, Series C Convertible Preferred Stock and NIMS' voting securities
beneficially owned on November 13, 2001, by (i) each person who is known by NIMS
to own beneficially or exercise voting or dispositive control over 5% or more of
NIMS' Common Stock, (ii) each of NIMS' Directors and (iii) all executive
officers and Directors as a group:

<TABLE>
<CAPTION>

Name and Address        No. of           Percentage       No. of          Percentage       No. of           Percentage
Identify of Group       Shares of        of               Shares of       of Class(3)      Shares of        of
                        Common           Beneficial       Series C                         Voting           Beneficial
                        Stock            Ownership(2)     Convertible                      Securities       Ownership(4)
                        Beneficially                      Preferred                        Beneficially
                        Owned(1)                          Stock                            Owned(1)
                                                          Beneficially
                                                          Owned(1)

<S>                     <C>              <C>              <C>             <C>              <C>               <C>
Marvin A.               11,393,945(5)     52.9%            36,855.92           59.4%        11,430,800.92         53%
Sackner, M.D.
1840 West Avenue,
Miami Beach, FL
33139

Allan F. Brack                   *           *                     *              *                     *          *
1840 West Avenue,
Miami Beach, FL
33139

Morton J.                  409,491(7)      1.9%             1,073.19(3)         1.7%           410,564.19(7)     1.9%
Robinson, M.D.
1840 West Avenue,
Miami Beach, FL
33139

Gerard Kaiser,              46,541(9)        *                 75.00(6)           *                46,616(9)       *
M.D.
1840 West Avenue,
Miami Beach, FL
33139
</TABLE>

                                       18
<PAGE>

<TABLE>
<CAPTION>

<S>                     <C>              <C>              <C>             <C>              <C>               <C>
Name and Address        No. of           Percentage       No. of          Percentage       No. of           Percentage
Identify of Group       Shares of        of               Shares of       of Class(3)      Shares of        of
                        Common           Beneficial       Series C                         Voting           Beneficial
                        Stock            Ownership(2)     Convertible                      Securities       Ownership(4)
                        Beneficially                      Preferred                        Beneficially
                        Owned(1)                          Stock                            Owned(1)
                                                          Beneficially
                                                          Owned(1)

Stanley C.                 239,989(6)       1.1%             1,198.19(4)         1.9%            241,187.19(6)      1.1%
Sackner, D.O.
1840 West Avenue,
Miami Beach, FL
33139

Andrew M. Smulian                *            *                     *              *                      *           *
1840 West Avenue,
Miami Beach, FL
33139

Taffy Gould                      *            *                     *              *                      *           *
1840 West Avenue,
Miami Beach, FL
33139

All executive           12,116,216         56.3%            39,727.30             64%          12,155,943.3        56.3%
  officers and
  directors as a
  group (7 persons)
</TABLE>

---------------------------
*    Less than 1%
(1)  A person is deemed to be the beneficial owner of securities that can be
     acquired by such person within 60 days from the date hereof upon exercise
     of option and warrants. Each beneficial owner's percentage ownership is
     determined by assuming that option and warrants that are held by such
     person (but not those held by any other person) and that are exercisable
     within 60 days from the date hereof have been exercised.
(2)  Based on 21,514,726 shares of Common Stock issued and outstanding as of
     October 30, 2000.
(3)  Based on 62,048 Series C Convertible Preferred Stock issued and
     outstanding, as of October 30, 2000.
(4)  Based on 21,576,874 shares consisting of 21,514,726 shares of Common Stock,
     62,048 Series C Convertible Preferred Stock and 100 shares of Series B
     Preferred Stock issued and outstanding. Holders of Series C Preferred Stock
     are entitled to vote together with the holders of shares of Common Stock
     and Series B Preferred Stock on a share-for-share basis as a single class,
     on all matters except as otherwise required by law.
(5)  Represents securities held by Dr. Marvin A. Sackner and Ruth Sackner, his
     spouse and includes options to purchase 250,000 shares of Common Stock.
(6)  Includes securities held jointly by Dr. Robinson and his spouse and by a
     pension plan established in connection with Dr. Robinson's medical practice
     and includes options to purchase 50,000 shares of Common Stock. Does not
     include securities held by trust established for the benefit of Dr.
     Robinson's children, in which securities he disclaims beneficial ownership.
(7)  Includes shares of Common Stock held by a pension plan established in
     connection with Dr. Stanley Sackner's medical practice and securities held
     jointly by Dr. Sackner and his spouse and includes options to purchase
     50,000 shares of Common Stock.

                                       19
<PAGE>

(8)  Includes securities held jointly by Mr. Shapiro and his spouse and includes
     options to purchase 35,000 shares of Common Stock.
(9)  Includes shares of Common Stock held by Dr. Kaiser's spouse and includes
     options to purchase 50,000 shares of Common Stock.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         In, March 1999, Marvin Sackner, then CEO and Chairman of the Board of
Directors, agreed to loan the Company certain funds to continue funding
operations, at a rate of 12% per annum in return for an option to purchase
1,000,000 shares of the Common Stock at an exercise price of 14.5 cents per
share. As of July 31, 2001, the principal and interest outstanding on this loan
has been repaid.

         At July 31, 2000, the Company had a 21.4% interest in LifeShirt.com,
Inc. (now known as VivoMetrics, Inc.), a related entity in the development
state. Dr. Sackner's son-in-law is the Chief Operating Officer and a founder of
VivoMetrics, Inc.

         On October 28, 1999, the Company entered into a license agreement and a
research and consulting agreement with LifeShirt. Under the license agreement,
the Company granted LifeShirt the exclusive world-wide right and license to
certain technology in exchange for 23.5% of the founders' share of LifeShirt and
a royalty equal to 3% of LifeShirt's gross revenues from sales with a minimum
royalty of $250,000 in the second year. The Company retained the right to market
and sell the LifeShirt system and its components to hospitals. Subsequent to the
initial investment, the Company's percentage investment has been diluted to
approximately 9%. The Research and Development Agreement for a one-year period
beginning August 11, 2000. The total sum provided to the Company over the
one-year agreement was $900,000. Following the expiration this agreement, the
Company entered into a month by month agreement with VivoMetrics for continuing
research and development on the LifeShirt system in a separate agreement dated
November 1, 2001.

         The Company retains title and interest in and to any and all derivative
patents related to the products incorporated within the LifeShirt System in
exchange for a royalty 5% of the Company's sales of certain products and
services.

         The agreement is for a period of 10 years.

         Under the current agreements with Vivometrics, Vivometrics grants to
the Company the non-exclusive, worldwide right and license to use of patents and
software for a period of ten years. If VivoMetrics fails to earn gross revenues
of $200,000 from the commercial sale of certain products and/or services to
hospitals following the 2002 calendar year, the Company has the right to sell
certain products to hospitals for the following three years in exchange for a
royalty of 5% of the gross revenues the Company earns on these sales. In
addition, the Company assigned all of its rights, title and interest in certain
patents and intellectual property as well as a non-exclusive, worldwide license
under these items to Vivometrics in consideration for a royalty of 3% of
Vivometrics' gross revenues from sales of certain products. The minimum royalty
in the second year is $250,000.

                                       20
<PAGE>

          In March, 2001, the Company licensed its motion platform technology to
Hill-Rom, a subsidiary of Hillenbrand Industries, Inc. for development and
potential incorporation into its wide product offering. NIMS will receive
royalties from Hill-Rom should this technology be commercialized. NIMS retained
the sole right to develop this technology for doctor's offices, medical clinics,
ambulances, military field use, and the home.

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

         (a)  Exhibits

Exhibit No.         Description of Exhibits
-----------         -----------------------

      3(a)          Articles of Incorporation, as amended (1)

       (b)          By-Laws, as amended (2)

      4(a)          Form of Certificate evidencing shares of Common Stock (3)

     10(c)          Revised SMC Agreement (4)

     21             Subsidiaries of the Company (2)

     23             Consent of Independent Auditors(5)


  (1)    Included as an Exhibit to the Company's Registration Statement on Form
         S-1 (File No. 33-14451), including all pre and post effective
         Amendments thereto, and incorporated herein by reference, except for
         Articles of Amendment and a Certificate of Designation, Rights,
         Preferences and Limitations of Series C Convertible Preferred Stock,
         which are included as Exhibits to the Company's Annual Report on Form
         10-KSB for the year ended July 31, 1989 and are incorporated herein by
         reference.
  (2)    Included as an Exhibit to the Company's Registration Statement on Form
         S-1 (File No. 33-14451) including all pre and post effective Amendments
         thereto, and incorporated herein by reference.
  (3)    Included as an Exhibit to the Company's Annual Report on Form 10-K for
         the year ended July 31, 1990 and incorporated herein by reference.
  (4)    Included as an Exhibit to the Company's Annual Report on Form 10-K for
         the year ended July 31, 1996 and incorporated herein by reference.
  (5)    Filed herewith.

         (b)  Reports on Form 8-K

         On July 11, 2001, Non-Invasive Monitoring Systems, Inc. (the "Company"
or "Nims") announced the appointment of Allan F. Brack and Dean Kamen to its
Board of Directors.

                                       21
<PAGE>

                                   SIGNATURES

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

                       NON-INVASIVE MONITORING SYSTEMS, INC.


Dated: January 14, 2002                             /S/ Marvin A. Sackner
                                                    -------------------------
                                                    By: Marvin A. Sackner,
                                                        Chairman of the Board

-----------------------------------------------------------------------------

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

      Signatures                              Title                                 Date
<S>                               <C>                                          <C>

/S/ Marvin A. Sackner             Chairman of the Board, and Director
MARVIN A. SACKNER                 (Principal Executive, Financial and
                                  Accounting Officer)                          January 14, 2002

/S/ Allan F. Brack                Director                                     January 14, 2002
ALLAN F. BRACK

/S/ Mortin J. Robinson            Director                                     January 14, 2002
MORTON J. ROBINSON

/S/ Stanley C. Sackner            Director                                     January 14, 2002
STANLEY C. SACKNER

/S/ Gerard Kaiser                 Director                                     Janaury 14, 2002
GERARD KAISER

/S/ Taffy Gould                   Director                                     January 14, 2002
TAFFY GOULD

/S/ Andrew M. Smulian             Director                                     January 14, 2002
ANDREW M. SMULIAN
</TABLE>

                                       22
<PAGE>

                      Non-Invasive Monitoring Systems, Inc.

                               Form 10-KSB-Item 13
                          Index to Financial Statements

                                    Contents

The following financial statements of Non-Invasive Monitoring Systems, Inc. are
included in item 7:


         Balance Sheet - July 31, 2001

         Statements of Operations - Years Ended July 31, 2001 and 2000

         Statements of Shareholders' Equity - Years Ended July 31, 2001 and 2000

         Statements of Cash Flows - Years Ended July 31, 2001 and 2000

         Notes to Financial Statements

                                      F-1
<PAGE>

            [Gerson, Preston, Robinson & Company, P.A. Letterhead]



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Non-Invasive Monitoring Systems, Inc.

We have audited the accompanying balance sheet of Non-Invasive Monitoring
Systems, Inc. as of July 31, 2001 and the related statements of operations,
shareholders' equity and cash flows for the years ended July 31, 2001 and 2000.
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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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. at July 31, 2001 and the results of their operations and their
cash flows for each of the two years in the period ended July 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying financial statements referred to above have been prepared
assuming that Non-Invasive Monitoring Systems, Inc. will continue as a going
concern. As more fully described in Note 3, the Company's need to seek new
sources or methods of financing or revenue raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans as to these
matters are also described in Note 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

                                       /s/ Gerson, Preston, Robinson & Co., P.A.
                                       CERTIFIED PUBLIC ACCOUNTANTS


Miami Beach, Florida
November 9, 2001

                                      F-2
<PAGE>

                                           NON-INVASIVE MONITORING SYSTEMS, INC.
                                                                   BALANCE SHEET
                                                                At July 31, 2001

================================================================================


                                    ASSETS
Current assets
  Cash                                                             $     158,962
  Accounts and royalties receivable                                       32,432
  Inventories                                                             30,050
  Prepaid expenses and other current assets                               59,772
                                                                   -------------
     Total current assets                                                281,216

Furniture and equipment, net of accumulated depreciation
  of $115,849                                                             36,983
Patents, net of accumulated amortization of $148,371                     236,339
                                                                   -------------
     Total assets                                                  $     554,538
                                                                   =============
                     LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
  Accounts payable and accrued expenses                            $     131,891
  Deferred research and consulting revenue                                25,000
                                                                   -------------
     Total current liabilities                                           156,891
                                                                   -------------
Shareholders' equity
  Preferred stock, $1 par value; 1,000,000 shares authorized:
    Series B - 100 shares issued and outstanding                            100
    Series C - 62,048 shares issued and outstanding                      62,048
  Common stock, $.01 par value; 100,000,000 shares authorized;
    22,014,726 shares issued and outstanding                            220,148
  Additional paid-in capital                                         11,148,277
  Accumulated deficit                                               (11,032,926)
                                                                   ------------
     Total shareholders' equity                                         397,647
                                                                   ------------
     Total liabilities and shareholders' equity                    $    554,538
                                                                   ============



See accompanying notes.

                                      F-3
<PAGE>

                                           NON-INVASIVE MONITORING SYSTEMS, INC.
                                                        STATEMENTS OF OPERATIONS
                                              Years Ended July 31, 2001 and 2000

================================================================================


                                                          2001         2000
                                                      -----------   -----------
Revenue
  Research and consulting                             $   896,500   $   397,000
  Product sales                                           210,277       211,292
  Royalties                                                52,849        83,481
                                                      -----------   -----------
     Total revenues                                     1,159,626       691,773
                                                      -----------   -----------
Operating expenses
  Research and development                                536,496       350,829
  Cost of goods sold                                       52,015        38,050
  Selling, general and administrative                     593,557       337,999
                                                      -----------   -----------
     Total costs and expenses                           1,182,068       726,878
                                                      -----------   -----------
Net loss                                              $   (22,442)  $   (35,105)
                                                      ===========   ===========


Weighted average number of common shares
  outstanding                                          21,658,562    21,514,726
                                                      ===========   ===========
Basic and diluted loss per common share               $    (0.001)  $    (0.002)
                                                      ===========   ===========




See accompanying notes.

                                      F-4
<PAGE>

<TABLE>
<CAPTION>

                                                                                               NON-INVASIVE MONITORING SYSTEMS, INC.
                                                                                                  STATEMENTS OF SHAREHOLDERS' EQUITY
                                                                                                  Years Ended July 31, 2001 and 2000

====================================================================================================================================



                                         Preferred Stock                                 Additional
                                      --------------------             Common              Paid-in       Accumulated
                                      Series B    Series C              Stock              Capital         Deficit         Total
                                      --------    --------             --------         ------------   -------------     --------
<S>                                   <C>         <C>                  <C>              <C>            <C>               <C>
Balance at July 31, 1999                 $100      $62,048             $215,148          $10,996,877    $(10,975,379)    $298,794
Net loss                                    -            -                    -                    -         (35,105)     (35,105)
                                         ----      -------             --------          -----------    ------------     --------
Balance at July 31, 2000                  100       62,048              215,148           10,996,877     (11,010,484)     263,689

Exercise of stock options to
   a shareholder/employee at
   $0.145 per share                         -            -                5,000               67,500               -       72,500

Options issued for services                 -            -                    -               83,900               -       83,900

Net loss                                    -            -                    -                    -         (22,442)     (22,442)
                                         ----      -------             --------          -----------    ------------     --------
Balance at July 31, 2001                 $100      $62,048             $220,148          $11,148,277    $(11,032,926)    $397,647
                                         ====      =======             ========          ===========    ============     ========

</TABLE>


See accompanying notes.

                                      F-5
<PAGE>

<TABLE>
<CAPTION>

                                                                                               NON-INVASIVE MONITORING SYSTEMS, INC.
                                                                                                            STATEMENTS OF CASH FLOWS
                                                                                                  Years Ended July 31, 2001 and 2000

====================================================================================================================================


                                                                                               2001                   2000
                                                                                             --------               --------
<S>                                                                                         <C>                     <C>
Operating activities
  Net loss                                                                                   $(22,442)              $(35,105)
  Adjustments to reconcile net loss to net cash from
    operating activities:
      Depreciation and amortization                                                           120,106                 30,280
      Options issued for services                                                              83,900                      -
      Bad debt expense                                                                              -                 12,692
  Changes in operating assets and liabilities:
    Decrease (increase) in accounts and royalties receivable                                    4,205                (13,693)
    (Increase) decrease in inventories                                                        (11,599)                19,214
    (Increase) decrease in prepaid expenses and other assets                                  (57,472)                 3,097
    Increase in accounts payable and accrued expenses                                           3,637                 61,125
    Increase in deferred research and consulting revenues                                      25,000                      -
                                                                                             --------               --------
       Net cash provided by operating activities                                              145,335                 77,610
                                                                                             --------               --------
Investing activities
  Purchase of furniture and equipment                                                         (37,114)                     -
  Patent costs                                                                                      -                (75,567)
                                                                                             --------               --------
       Net cash used in investing activities                                                  (37,114)               (75,567)
                                                                                             --------               --------
Financing activities
  Proceeds of loan from shareholder                                                             2,500                 22,480
  Proceeds of exercise of stock options                                                        72,500                      -
  Repayment of loans from shareholder                                                         (51,980)                     -
                                                                                             --------               --------
       Net cash provided by financing activities                                               23,020                 22,480
                                                                                             --------               --------
Net increase in cash                                                                          131,241                 24,523

Cash, beginning of year                                                                        27,721                  3,198
                                                                                             --------               --------
Cash, end of year                                                                            $158,962               $ 27,721
                                                                                             ========               ========

</TABLE>

See accompanying notes.

                                      F-6
<PAGE>

                                           NON-INVASIVE MONITORING SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

1.       ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

         Organization. The Company primarily performs research and development
         of therapeutic medical and monitoring devices. The resultant technology
         is licensed to others. The Company also manufactures computer-aided
         continuous monitoring devices to detect abnormal respiratory and
         cardiac events using sensors placed on the body's surface.

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

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

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

         Patents. Costs incurred in applying for patents are capitalized and
         amortized using the straight-line method over the lives of the patents.
         As of July 31, 2001, there have been no costs incurred in defending
         patents and the Company does not anticipate incurring such costs in
         fiscal 2002.

         Long-Lived Assets. The Company reviews its long-lived assets for
         impairment whenever events or changes in circumstances indicate that
         the carrying amount may not be recoverable. In performing the review
         for recoverability, the Company estimates the future cash flows
         expected to result from the use of the asset and its eventual
         disposition. If the sum of the expected future cash flows is less than
         the carrying amount of the assets, an impairment loss is the difference
         between the sum of the estimated future cash flows and the carrying
         amount of the asset. Management believes that there is no impairment as
         of July 31, 2001.

         Fair Value of Financial Instruments.  The carrying amount of cash,
         accounts receivable, accounts payable and accrued expenses approximate
         fair value because of their short duration.

         Revenue Recognition. The Company recognizes product sales revenuve when
         products are shipped and royalties as they are earned. Research and
         consulting revenue is recognized over the term of the agreements.

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

         Warranties.  Although the Company warrants its products for one year,
         in the opinion of management, warranty costs are not material.

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

         Reclassifications.  Certain amounts in the 2000 financial statements
         have been reclassified to conform with the 2001 presentation.

                                      F-7


<PAGE>

                                           NON-INVASIVE MONITORING SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

2.       INVESTMENT IN AND TRANSACTIONS WITH AFFILIATES

         On October 28, 1999, the Company entered into a license agreement and a
         research and consulting agreement with VivoMetrics, Inc.
         ("VivoMetrics"), previously known as Lifeshirt.com, Inc. Under the
         license agreement, the Company granted VivoMetrics the exclusive
         worldwide right and license to certain technology in exchange for 23.5%
         of the founders' share of VivoMetrics and a royalty equal to 3% of
         VivoMetrics' gross revenues from sales with a minimum royalty of
         $250,000 in the second year. No value was assigned to the 23.5%
         investment. Accordingly, the Company's share of the losses of
         VivoMetrics have not been recorded, since to do so, would reduce the
         Company's investment below $0. The Company retained the right to market
         and sell the LifeShirt System and its components to hospitals.
         Subsequent to the initial investment, the Company's percentage
         investment has been diluted to less than 10%; therefore, no financial
         information for this affiliate is disclosed.

         The Company retains title and interest in and to any and all derivative
         patents related to the products incorporated within the LifeShirt
         System in exchange for a royalty of 5% of the Company's sales of
         certain products and services.

         Under the agreement, VivoMetrics paid the Company as follows: $10,000
         within 10 days of the execution of the agreement and $43,000 per month
         thereafter for the Company to develop the LifeShirt System. The
         payments continued until August 2000 when the agreements were
         terminated.

         In August 2000, the Company entered into new agreements with
         VivoMetrics, which superceded or terminated the existing license and
         research and consulting agreements.

         Under the new agreements, 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. The minimum royalty in the second year is
         $250,000. In addition, VivoMetrics granted the Company the
         non-exclusive, worldwide right and license to use of patents and
         software for a period of ten years. If VivoMetrics fails to earn gross
         revenues of $200,000 from the commercial sale of certain products
         and/or services to hospitals following the 2002 calendar year, the
         Company has the right to sell certain products to hospitals for the
         following three years in exchange for a royalty to VivoMetrics of 5% of
         the gross revenues the Company earns on these sales. VivoMetrics paid
         the Company $900,000, in payments of $75,000 per month for twelve
         months beginning August 11, 2000, in consideration for services to be
         performed by the Company in support of the LifeShirt Systems under the
         terms of the one year research and consulting agreement. The Company
         earned $875,000 under this agreement during the year ended July 31,
         2001. Following the expiration of the research and consulting
         agreement, the Company entered into a separate month by month agreement
         dated November 1, 2001, with VivoMetrics, whereby the Company will
         continue to provide research and development support on the LifeShirt
         System.

                                      F-8
<PAGE>

                                           NON-INVASIVE MONITORING SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

3.       GOING CONCERN - UNCERTAINTY

         Royalties on the LifeShirt System (see note 2) have not begun even
         though a prototype has been developed and submission was made to the
         FDA. VivoMetrics has not begun to mass-produce the product, has not yet
         commenced significant marketing efforts for the product and has not
         generated any revenues. Commercial sales of this product cannot begin
         until it has received FDA approval, which may not occur for several
         months, if ever.

         Royalties on the therapeutic motion platform device have not begun even
         through a prototype has been developed. This device has not been
         submitted to the FDA for approval. Commercial sales of this product
         cannot begin until it has received FDA approval, which may not occur
         for several months, if ever.

         Due to the expiration of the Company's research and consulting
         agreement with VivoMetrics, the Company needs to seek new sources or
         methods of financing or revenue to continue as a going concern. The
         Company is seeking to generate revenues through licensing and research
         and consulting agreements. There can be no assurance that the Company
         will be able to successfully implement its plans, or if such plans are
         successfully implemented, that the Company will achieve its goals.

         The accompanying financial statements have been prepared assuming that
         the Company will continue as a going concern and do not include any
         adjustments to reflect the possible future effects on the
         recoverability and classification of assets, or the amounts and
         classifications of liabilities that might result from the outcome of
         this uncertainty.

         The Company plans to continue as a going concern by raising additional
         funds through a private placement offering of the Company's securities.
         The Company has been adjusting its business plan to focus less on
         Respitrace products and more on revenues arising from acceleration
         therapeutic products, including concentrating on internal research and
         development and on directly marketing the Company's acceleration
         therapeutic products. If the Company is unable to raise additional
         funds or is not successful in adjusting its business plan, it may be
         required to reduce its workforce, reduce compensation levels, reduce
         dependency on outside consultants, modify its growth and operating
         plans, and even be forced to terminate operations completely. The
         Company anticipates that funds raised through its private placement
         offering, along with funds received from the sale of the Company's
         Respitrace products, will maintain the Company as a going concern until
         the Company receives royalties on the LifeShirt system or the Company
         receives royalties and revenues from the sale of the acceleration
         therapeutic products.

4.       INCOME TAXES

         At July 31, 2001, the Company has available net operating loss carry
         forwards of approximately $10,002,000, which expire in various years
         through 2021.

         Deferred income taxes reflect the net tax effects of temporary
         differences between the carrying amount of assets and liabilities for
         financial reporting purposes and the amounts used for income tax
         purposes. The significant component of the Company's deferred income
         tax asset would result from the net operating losses and amounted to
         approximately $3,800,000.

         A valuation allowance is required to reduce the deferred tax assets
         reported if, based on the weight of the evidence, it is more likely
         than not that some portion or all of the deferred tax assets will not
         be realized. After consideration of all the evidence, both positive and
         negative, management has determined that a full $3,800,000 valuation
         allowance at July 31, 2001 was necessary. The increase in the
         valuation allowance for the year ended July 31, 2001 is $3,000.

                                      F-9


<PAGE>

                                           NON-INVASIVE MONITORING SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

5.       PREFERRED STOCK

         The Series B Preferred Stock has a liquidation preference of $100 per
         share and provides for a noncumulative dividend of $10 per share, if
         declared.

         The Series C Preferred Stock has a liquidation preference of $1 per
         share and provides for a noncumulative dividend of $.40 per share, if
         declared.

         No preferred stock dividends have been declared.

         Holders of the Company's Preferred Stock are entitled to one vote for
         each share held.

6.       COMMON STOCK

         In March 2001, the Company issued options to acquire 15,000 shares of
         common stock at $.50 per share, for professional services rendered,
         expiring in March 2011. The fair value of the options on the grant date
         was $3,300 calculated using the Black-Scholes Option Pricing Model and
         is included in selling, general and administrative expense for the year
         ended July 31, 2001.

         In March 2001, the Company issued options to acquire 360,000 shares of
         common stock at $.50 per share, for professional services to be
         rendered under agreements with a 1-year term expiring in March 2011.
         The fair value of the options on the grant date was $79,200 calculated
         using the Black-Scholes Option Pricing Model, of which $36,300 is
         included in selling, general and administrative expense for the year
         ended July 31, 2001 and $46,200 is included in prepaid expenses and
         other assets at July 31, 2001.

         In April 2001, the Company issued options to acquire 60,000 shares of
         common stock at prices ranging from $0.25 to $2 per share, for
         professional services rendered, expiring on September 1, 2001. The fair
         value of the options on the grant date was $1,400 calculated using the
         Black-Scholes Option Pricing Model and is included in selling, general
         and administrative expense for the year ended July 31, 2001.

         In addition, the Company issued options to acquire 500,000 shares of
         common stock at $0.145 per share to a shareholder/employee, in
         consideration of a loan which has since been repaid.

7.       STOCK BASED COMPENSATION

         In March 2001, the Company issued options to acquire 720,000 shares of
         the Company's common stock to employees and non-employee directors.
         These options are exercisable at $0.50 per share with 545,000 shares
         vested immediately and 175,000 shares vesting over a three-year period
         commencing March 2002.

                                      F-10
<PAGE>

                                           NON-INVASIVE MONITORING SYSTEMS, INC.
                                                   NOTES TO FINANCIAL STATEMENTS

================================================================================

7.       STOCK BASED COMPENSATION (Con't)

         The options expire in March 2011. The fair value of the options on the
         grant date was $158,400 calculated using the Black-Scholes Option
         Pricing Model.

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

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

                         Proforma Net Loss               $(153,370)
                         Proforma Loss Per Share         $  (0.007)
                         Risk Free interest rate              6.16%
                         Expected lives                     10 yrs
                         Expected volatility                 162.6%

         For purposes of these pro forma disclosures, the estimated fair value
         of the options granted is amortized over the options' vesting period
         (0 to 4 years).

8.       RELATED PARTY TRANSACTIONS

         As of July 31, 2001, a shareholder had loaned $2,500 to the Company
         included in accounts payable and accrued expenses. The loan is due on
         demand, and is unsecured with interest at 12%. Subsequent to July 31,
         2001, the shareholder loaned the Company an additional $75,000.

9.       CONCENTRATION OF CREDIT RISK

         Cash balances, per bank statements at one bank, are in excess of FDIC
         insurance limits by approximately $168,000 at July 31, 2001.

                                      F-11
<PAGE>

                                 Exhibit Index

Exhibit No.        Exhibit Description
-----------        -------------------

    23             Consent of Independent Auditors