<PAGE>   1



                       SECURITIES AND EXCHANGE COMMISSION




                            WASHINGTON, D.C.  20549

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

                                  FORM 10-KSB

               (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                    For the fiscal year ended July 31, 1996
                                              -------------
             ( ) 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                                   (I.R.S. Employer
of incorporation or organization)                            dentification 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)
<PAGE>   2





     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: $1,712,248

     State the aggregate market value of the voting stock held by 
non-affiliates of the registrant on October 31, 1996, computed by reference to
the price at which the stock was sold on that date: $3,109,932.

                      APPLICABLE ONLY TO CORPORATE ISSUERS

     The number of shares outstanding of the registrant's Common Stock, par
value $.01 per share (the "Common Stock"), as of October 31, 1996, was
12,439,729.

     Transitional Small Business Disclosure Format:
                                                             Yes       No  X
                                                                -----    -----

<PAGE>   3

                                     PART I

                           Forward-Looking Statements

     This Report contains, in addition to historical information, 
forward-looking statements regarding Non-Invasive Monitoring Systems, Inc. (the
"Company"), which represent the Company's expectations or beliefs including,
but not limited to, statements concerning industry performance, the Company's
operations, performance, financial condition, business strategies, margins and
sales information.  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.
The statements by their nature involve substantial risks and uncertainties,
certain of which are beyond the Company's control, and actual results may
differ materially depending on a variety of important factors, including those
described in this Report and the Company's other filings with the Securities
and Exchange Commission.

ITEM 1.  BUSINESS.

     A.  General Development of Business.
            

     The Company is engaged in developing and marketing of computer assisted, 
non-invasive monitoring devices and related software designed to detect 
abnormal respiratory, cardiac, and other medical conditions from sensors placed
on the body's surface.  Nims' principal products are the following:

-    Respitrace PT - a breathing recorder originally developed to monitor
infants prone to Sudden Infant Death Syndrome ("SIDS") pursuant to an agreement
with the Steering Committee of the Collaborative Home Infant Monitoring
Evaluation ("CHIME") study supported by the National Institutes of Health (the
"NIH"), in which Nims is a participant;

-    RespiEvents - a software package used in conjunction with the Respitrace 
PT to detect apnea (cessation of breathing), slowing of heartbeat, diminution 
of blood oxygen, and other adverse indices;

-    Respitrace Plus - a small portable respiratory and cardiac monitor;

-    RespiCardio Central - a device which allows the simultaneous monitoring of
the respiratory and cardiac function from a central station monitor to which 
up to eight individual Respitrace Plus units can be connected;





                                       3
<PAGE>   4


-    RespiTrends - a personal computer-based software program used in
conjunction with Respitrace Plus for patient trend data display, analysis,
storage and hard copy report; and

-    Respibands Plus - disposable patented non-invasive respiratory transducers
worn around the torso.

     The Company's products are distributed exclusively by SensorMedics 
Corporation ("SMC"), a subsidiary of Thermo Electron Corp., pursuant to a
distribution agreement (the "SMC Agreement"), which was scheduled to expire in
August 1997.  SMC produces instruments for pulmonary function testing,
metabolic measurements, sleep diagnostics and like support and has over 30
years experience in the medical device industry.  SMC distributes through 35
direct representatives in the United States, the United Kingdom, the Benelux
countries, France, and Germany and uses 50 dealers in other countries.

     In recent years, the increasing financial cost of domestic and foreign
regulatory compliance in the manufacturer and marketing of medical devices has
adversely affected Nims' ability, particularly in light of its limited capital
resources, to manufacture and market new products targeted to adult and infant
critical care.  Accordingly, in October 1996, Nims and SMC agreed in principle
to amend the terms of the SMC Agreement to provide for the granting by Nims to
SMC of the exclusive rights to manufacture Respibands and non-exclusive rights
to manufacture Nims' Respitrace Plus and Respitrace PT.  In exchange for such
rights, Nims will receive certain fixed payments from SMC, as well as ongoing
royalties.  Nims will also develop a new sleep diagnostic device to be
manufactured and marketed exclusively by SMC.  As SMC will be responsible for
regulatory compliance, the Company believes that by granting manufacturing
rights to SMC, it will allow Nims to focus its efforts on research and
development which, in the opinion of management, has always been the Company's
strength.  Nims plans to undertake research and development efforts to improve
existing products and develop new products and to license to third parties the
rights to manufacture such products and market them to the medical community.
The agreement in principle is subject to the negotiation and execution of
definitive documentation.

     The Company has operated under significant capital constraints in
recent years and has downsized its operations.  Nims management believes that
the SMC Agreement will provide it with sufficent funding to operate as a
research and product development company through fiscal 1997.  If revenues
generated from the SMC Agreement as amended do not reach levels sufficient to
fund working capital requirements after fiscal 1997, the Company may require
further financing to continue operations beyond the end of fiscal 1997 and in
any event may require additional capital to expand research and development
efforts beyond presently contemplated levels.  Failure to secure necessary
financing might result in the further reduction





                                       4
<PAGE>   5

and curtailment of operations.

     The term the "Company" refers to both the Company and its
subsidiaries, unless the context requires otherwise.  The Company's executive
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.

            

     Products and Services
                             

     Since 1978, the Company has sought to fill what it believes to be the
need for non-invasive respiratory monitoring devices by developing,
manufacturing and marketing computer assisted, non-invasive monitoring devices
designed to detect abnormal respiratory and related pulmonary events from
sensors placed on the body's surface, the Company's products, which are
intended to improve patient care while achieving reduced operating costs, are
designed for use in environments where prompt detection of breathing
difficulties will function as an alert to the possible onset of catastrophic
illness, thereby permitting rapid response and treatment or where the
collection of ongoing data regarding pulmonary function assists in patient
evaluation and diagnosis.  Uses of such devices include monitoring of patients
in adult and neonatal critical care units, diagnosis of respiratory-related
sleep disorders, monitoring of patient status during and after in-patient and
out-patient surgical procedures, particularly where adverse reaction to
anesthesia is a possibility, collection of data from patients whose breathing
is being mechanically assisted and monitoring of infants prone to Sudden Infant
Death Syndrome, an often fatal condition marked by sudden cessation of
breathing.  The Company's products are intended to be user-friendly and
operated without extensive training and are price justified to be in line with
health care cost containment policies.


     Current Products

     --      RESPITRACE PT, commercially introduced in April 1996, was
     originally designed by the Company as a apnea monitor system developed in
     connection with the CHIME Study proposal described in "General Development
     of Business" above.  The Company received U.S. Food and Drug Administration
     ("FDA") permission to market the Respitrace PT as a diagnostic package for
     sleep disorders in adults, children and babies in February 1996.





                                       5
<PAGE>   6


     --      RESPIEVENTS, commercially introduced in April 1996, also known
     as the Event Display Program ("EDP"), is a software program for a personal
     computer ("PC") designed to be used in conjunction with Respitrace Plus. 
     It enables the PC to receive digital information from the Respitrace Plus
     Digital Interface (RS232 output) and display real-time Respitrace Plus
     waveforms on the computer screen. RespiEvents allows storage of Respitrace
     Plus information on the hard drive of the PC for subsequent display of full
     fidelity waveforms and derived numerical values and indices.  EDP includes
     tools to manipulate the vertical and horizontal gain displays of waveform
     information stored on the PC.  EDP also includes a capability to 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., Lotus 123,
     Quattro Pro, Paradox), databases (e.g., FoxPro, Paradox), and statistical
     packages (e.g., SigmaPlot, Statistica) so that sophisticated numerical and
     statistical analysis and plots can be carried out.

       RespiEvents transforms the PC into a versatile polygraph recorder for
     Respitrace Plus information and can be used in any situation where such a
     recorder might be employed.  One application is polysomnography in which
     apneic/hypopneic events may be 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.  EDP
     permits documentation of unusual patterns of breathing and
     electrocardiographic waveforms, which is 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 received FDA permission to market RespiEvents as a
     diagnostic package for sleep disorders in adults, children and babies in
     February 1996.


     --      RESPITRACE PLUS, 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





                                       6
<PAGE>   7

     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.  The
     Company originally received FDA permission to market Respitrace Plus in
     October 1989.  However, as a result of data collected in field testing, the
     Company elected to redesign the Respitrace Plus to improve electrical
     circuitry, patient sensor interface and graphic display.

     --      RESPICARDIO CENTRAL, introduced in April 1991, is a system for
     monitoring the respiratory and cardiac ("ECG") functions of up to eight
     patients simultaneously from a central station monitor, to which individual
     Respitrace Plus bedside units are connected.  The monitor receives a
     continuous stream of data from bedside Respitrace Plus monitoring units
     linked to the central monitor by interconnecting cables or telemetry. 
     RespiCardio Central permits detection and classification of
     cardiorespiratory rhythm disturbances and abnormal cardiac beats.  The
     system operates with a laser printer, and/or an optional integral
     thermal-paper ECG/Respiration Strip-chart recorder to produce hard copy
     documentation for later analysis and patient diagnosis.RespiCardio Central
     displays real-time ECG, heart rate, arrhythmia diagnoses, breath waveforms,
     breath rate, labored breathing index, percent tidal volume, and percent
     oxygen saturation in clear, precise graphics.  RespiCardio Central's
     monitor provides alarms for high or low heart rate; cardiac arrhythmias;
     high, low, labored or zero breathing; and system function.  These audio and
     visual alarms can be programmed to meet the requirements of individual
     patients.

     --      RESPITRENDS, introduced in July 1992, is a medical data storage
     software program which permits real-time reception and storage of
     Respitrace Plus 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.  All Respitrace Plus data,
     including heart, breath, and system values, conditions, and alarms during a
     24-hour period or less may be loaded into a personal computer using the
     RespiTrends software.  Time periods from 15 minutes to the full 24 hours
     for each value, condition and alarm may then be viewed, analyzed, and/or
     printed.  RespiTrends software is user friendly with an intuitive graphical
     interface.  Learning time is





                                       7
<PAGE>   8

     minimal and no special knowledge of medical procedures is required to
     load or print RespiTrends data.  Statistical reports and comparison of
     patient status with normative standards can be viewed and/or printed.
     RespiTrends is offered in conjunction with the Respitrace Plus system.

     --      RESPI-ECG SIMULATOR, introduced in January 1994, is an all
     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.

     --      RESPITRACE BASIC SYSTEM, was introduced in 1979 as the Company's
     initial product. By placing one Respiband over the thorax and the other
     over the abdomen, changes in the capacity of the thoracic and abdominal
     cavities during pulmonary functions are measured and graphically displayed
     on a recording device.  The Company does not currently manufacture or
     market the Respitrace Basic System directly, but rather has licensed the
     rights for its manufacture and marketing in the United States, Canada and
     Japan to a concern owned by a former principal shareholder and executive
     officer of Nims/FLA and has licensed the rights for its manufacturing and
     marketing in the entire world except the United States, Canada and Japan to
     a second concern owned by another former principal shareholder and
     executive officer of Nims/FLA.  Such licenses, which are exclusive, run in
     perpetuity and for 20 years, respectively, and provide for royalty payments
     of 25% and 20% of net sales (as defined), respectively.  Such entities are
     also licensed to sell certain other Nims products on a non-exclusive basis
     in such territories.  Pursuant to these license agreements, the Company
     earned royalties of approximately $10,000 and $21,000 during each of the
     years ended July 31, 1996 and 1995 respectively.

     --      DISPOSABLE AND ACCESSORIES Nims also markets disposable and
     accessory items utilized with its products, including the Respiband Plus.

     Respitrace Plus has been tested and reviewed by Underwriter's
Laboratories ("UL") and approval has been granted to apply the UL mark, which
certifies that the product has met UL Standard 544, Safety in Medical and
Dental Equipment.  Components purchased for





                                       8
<PAGE>   9

the Respicardio Central also carry the UL 544 mark.

     In May 1996, the Company received verification from Underwriters
Laboratories, Inc. that the Respitrace PT and Respitrace Plus comply with the
emissions and immunity requirements of the Electromagnetic Compatibility
("EMC") Directive (89/336/EEC) issued by the European Community ("EC")
requiring all electrical and electronic equipment to demonstrate compliance
prior to export to the European marketplace.  The Company believes this
compliance will enhance product acceptance in Europe while providing a positive
step towards gaining the CE Mark on these products.


     CHIME STUDY

     Since 1993, Nims has participated in a study of high risk infants subject 
to apnea and SIDS, conducted by CHIME and supported by NIH.  Nims has supplied 
250 Respitrace PT monitors for the CHIME study and the Company has continued 
its participation in the CHIME Study during fiscal ended July 31, 1996 by 
providing technical assistance and serving as a non-voting member of the CHIME 
Steering Committee.

     Products Under Development
                                  

The Company has undertaken development of several new products, as follows:

     --      RESPITRACE PT16 is a modification of the Nims Respitrace PT that
     allows recording of 16 additional analog channels and display in
     RespiEvents.  Versions of this device are currently under clinical testing.

     --      HEART RATE VARIABILITY is a component of RespiEvents that measures 
     which has not received 510(k) clearance for marketing this product, heart
     rate and respiratory variability in the time domain.  Nims, will attempt to
     license this software to other companies for marketing once 510(k)
     clearance is obtained.

     --      INSPIRATORY ACCELERATION is software package that is under
     development as a new measure of central respiratory drive and a patent has
     been applied for on this measure.

     --      EEG PERIOD-AMPLITUDE ANALYSIS is a software package currently under
     development that analyzes sleep and wake electroencephalogram in the time
     domain by period-amplitude analysis.  It aids the clinician in
     distinguishing among wake sleep stages.  Nims will attempt to license this
     software to other companies.

     --      ARTERIAL OXYGEN SATURATION ARTIFACT DETECTOR is a
            





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<PAGE>   10

     software algorithm that distinguish motion artifacts on the pulse oximeter
     that cause erroneous values of arterial oxygen saturation from this 
     device.  A patent has been allowed and the software is a component of
     RespiEvents that has received 510(k) clearance for marketing by the FDA. 
     Nims will attempt to license this software to other companies as a
     stand-alone program.

     --      RESPICVP is a non-invasive method for estimation of central
     venous pressure.  Its accuracy has been validated against invasive central
     venous catheter measurements.  A scientific paper providing details of this
     measurement has been published in Chest 100:371, 1991. The Company is
     currently planning refinements to take this technique from the research to
     the clinical stage in conjunction with the Respicardiograph more fully
     described below.

     --      RESPICARDIOGRAPH is a system which is designed to monitor and      
     record cardiac signals by placing Respibands around different locations on
     the chest.  This technology depicts left and right ventricular volume
     curves of the heart and serves as a continuous non-invasive monitor of the
     mechanical function of the heart.  By providing a recording of changes in
     blood pumped from the heart, it measures changes in cardiac output.  In
     addition, analysis of various points on 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.  Two scientific papers have already been published on this
     technology (Chest 99:613, 1991; and 99:896, 1991).  The Company believes
     that the Respicardiograph will serve as a low cost, less labor-intensive
     technology for certain aspects of Doppler-Echo technology, a low cost, less
     labor-intensive, more easily interpretable technologic, alternative to the
     echocardiogram for detection of regional myocardial dysfunction due to
     coronary artery disease, and as a safe low-cost alternative to invasive
     Swan-Ganz catheter technology for monitoring the status of the pulmonary
     circulation and heart in critically ill patients, and several papers have
     been presented at national meetings.

       The Company has developed prototype models of the Respicardiograph
     system and has continued with refinements to hardware and software which
     are undergoing testing.  Such hardware will allow collection from up to
     five Respiband Plus transducers simultaneously and eliminate electrical
     interferences when several Respiband Plus transducers are placed upon the
     body.





                                       10
<PAGE>   11

     During the fiscal year ended July 31, 1996, the Company's product 
development activities were limited by working capital constraints. 
Accordingly the Company focused its efforts on lower cost clinically relevant
products that would have the potential to generate sales in the short term.

     Mount Sinai Medical Center of Greater Miami ("Mount Sinai") has assisted 
and continues to assist the Company in its development efforts with respect to 
such products.  In consideration therefore, the Company entered into an 
agreement with Mount Sinai, pursuant to which the Company agreed to pay 
royalties to such institution based on a percentage of net sales for each of
the calendar years 1986 through 1995.  Such agreement required the payment of
minimum royalties of $50,000 for each calendar year except 1986, where the
minimum was $25,000 and provides for maximum royalties of $150,000 during each
remaining year of the term of the agreement.  For the years 1989 through 1995,
royalties can increase based on a percentage of sales (on an annual sliding
scale ranging from 1/4% to 1/2%).  Royalties accrued to Mount Sinai by the
Company aggregated approximately $50,000 for each of the two years in the
period ended July 31, 1996.  The agreement concluded in December 1995 and Nims
has no further financial obligation to Mount Sinai Medical Center.

     Manufacturing and Sources of Supply
                                        
     The Company's products are assembled utilizing a variety of off-the-shelf 
components available from a variety of sources, as well as custom components, 
such as printed circuit boards and software fabricated to specifications.  
In recent years the Company has subcontracted various manufacturing functions 
to third parties in order to reduce costs.  As discussed in the "General 
Development of Business" above, in October 1996, the Company determined to 
focus its efforts on research and development and to license third parties to 
manufacture and market its products.  The Company has reached agreement in 
principle with SMC in this regard.

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

     The Company's products are distributed by SMC pursuant to the SMC
Agreement, which was scheduled to expire in August 1997.  SMC produces
instruments for pulmonary function testing, metabolic measurements, sleep
diagnostics and like support and has over 30 years experience in the medical
device industry.  SMC distributes





                                       11
<PAGE>   12

through 35 direct representatives in the United States, the United Kingdom, the
Benelux countries, France, and Germany and uses 50 dealers in other countries.

     As described in "General Development of Business" above, in October 1996, 
Nims and SMC agreed in principle to amend the terms of the SMC Agreement to 
provide for the granting by Nims to SMC of the exclusive rights to manufacture 
Respibands and non-exclusive rights to manufacture Nims' other products.  In 
exchange for such rights, Nims will receive certain fixed payments from SMC, 
as well as ongoing royalties.  Nims will also develop a new sleep disorder 
diagnostic device to be manufactured and marketed exclusively by SMC.  The 
Company believes that by granting manufacturing rights to SMC, it will allow 
Nims to focus its efforts on research and development which, in the opinion of 
management, has always been the Company's strength.  Nims plans to undertake 
research and development efforts to improve existing products and develop new 
products and to license to third parties the rights to manufacture such 
products and market them to the medical community.  This agreement in principle
is subject to the negotiation and execution of definitive documentation.

     Government Regulation

     Manufacturers of medical devices are subject to extensive regulation
by various federal and state government entities relating to nearly every
aspect of the development, manufacture and commercialization of such products.
The U.S. Food and Drug Administration (the "FDA") is the principal regulatory
authority over medical devices in the United States.  In addition, 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.

     In recent years, the increasing financial cost of domestic and foreign
regulatory compliance in the manufacturer and marketing of medical devices has
adversely affected Nims' ability, particularly in light of its limited capital
resources, to manufacture and market new products targeted to adult and infant
critical care.  Accordingly, in October 1996, Nims and SMC agreed in principle
to amend the terms of the SMC Agreement to provide for the granting by Nims to
SMC of the exclusive rights to manufacture Respibands and non-exclusive rights
to manufacture Nims' other products.  Pursuant hereto, SMC will be responsible
for regulatory compliance for the manufacture and marketing of Nims' products.

     Patents and Trademarks
     
     The Company currently holds 15 United States and 6 foreign patents with 
respect to both overall design and specific features





                                       12
<PAGE>   13

of its present and proposed products and has submitted applications with
respect to an additional two United States and three foreign patents.  No
assurance can be given as to the scope of protection afforded by any patent
issued, whether patents will be issued with respect to any pending or future
patent application, that patents issued will not be designed around, infringed
or successfully challenged by others, that the Company will have sufficient
resources to enforce any proprietary protection afforded by its patents or that
the Company's technology will not infringe on patents held by others.  The
Company believes that in the event its patent protection is materially
impaired, a material adverse effect on its present and proposed business could
result.  The expiration dates of the patents are as follows:

<TABLE>
<CAPTION>
                             Number of Patents              Expiration
                          Domestic         Foreign             Date
                          --------         -------             ----
                            <S>              <C>               <C>
                             3                                 1999
                             1                                 2000
                             1                                 2001
                             2               2                 2004
                             2                                 2005
                             1               1                 2006
                             1               2                 2007
                             2                                 2008
                             2               1                 2011
                            --               -                             
                            15               6
</TABLE>

     With respect to its present and proposed product line the Company has
12 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 which manufacture and market 
non-invasive respiratory monitoring devices, including Healthdyne 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 based upon; 1) rapid prototype of products under development, 2) 
shortened time to market, prior regulatory approval record, 3) aggressive 
pricing policies, 4) clinical relevance of information provided to health care 
givers and 5) health care cost reductions afforded purchasers of the Company's 
products.





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<PAGE>   14


     Employees                 

     The Company currently employs approximately 15 employees on a full-time 
basis including its executive officers.  Five are engaged in general and 
administrative duties, Five in research and development, and five in product 
assembly.  The Company believes that its employee relations are good.

     D. Financial Information About Foreign and Domestic Operations and
        Export Sales.

     Sales to foreign distributors of the Company's products aggregated
approximately $136 and $21,000 (approximately 0% and 2% of sales) during the
years ended July 31, 1996 and 1995 respectively.

ITEM 2.  PROPERTIES.

     The Company occupies approximately 6,000 square feet at 1840 West Avenue, 
Miami Beach, Florida, which house its executive offices, assembly and research 
facilities.  Such space is leased on a month-to-month basis from a 
non-affiliated party at an annual rental of approximately $31,000.  The Company
believes that its facilities are adequate for the Company's production, 
research and administrative needs in the near future.

ITEM 3.  LEGAL PROCEEDINGS.

     There are no material legal proceedings which 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





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<PAGE>   15


                                    PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS.

     A. Market Information.
            
     Until October 11, 1994, the Company's Common Stock was quoted on the
NASDAQ Small-Cap market under the symbol NIMU.  Effective October 12, 1994, the
Common Stock was delisted from NASDAQ for failure to meet minimum bid price
criteria.  The Common Stock is currently traded in the over-the-counter market
and is listed on the OTC Bulletin Board.

     The high and low bid prices for the Common Stock, as reported by NASDAQ 
from August 1, 1994 through October 12, 1994 and as reported thereafter by the 
National Quotation Bureau Incorporated for each quarter during the last two 
fiscal years were as follows:

<TABLE>
<CAPTION>
     Quarter Ended              High           Low
     -------------             -----           ---
     <S>                     <C>            <C>
     October 31, 1994        $ 0.938        $ 0.250
     January 31, 1995          0.375          0.281
     April 30, 1995            0.375          0.188
     July 31, 1995             0.250          0.172
     October 31, 1995          0.219          0.156
     January 31, 1996          0.203          0.125
     April 30, 1996            0.719          0.125
     July 31, 1996             0.656          0.250
</TABLE>

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

     B. Holders
            
     At October 31, 1996 there were approximately 2,060 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 does not contemplate doing so in the near
future.  Any decision as to future payment of dividends depends on the factors
as the Board of Directors deems relevant.





                                       15
<PAGE>   16



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


     Results of Operations.

         Fiscal 1996 Compared to Fiscal 1995

     The Company's net loss for fiscal 1996 was approximately $394,000 as
compared to net income of approximately $11,000 for fiscal 1995.  For fiscal
1996, net sales were approximately $1,712,000 as compared to approximately
$1,632,000 in fiscal 1995.  This increase in sales of approximately $80,000 is
a result of increased sales to SMC pursuant to the SMC Agreement.  Sales in
fiscal 1995 included sales to the CHIME Study, which did not recur in fiscal
1996.  Sales continued to be negatively impacted due to extended vendor
delivery schedules and delays in new product approvals by the FDA.  During
fiscal 1996, the Company principally sold its products through SMC pursuant to
the SMC Agreement.  Under the terms of the agreement, the Company granted SMC
exclusive world-wide distribution rights (as defined) for certain products.  In
return, SMC must purchase minimum quantities of the Company's products to
maintain these exclusive distribution rights.  Pursuant to the marketing
agreement, SMC purchases at a discount of 30% to 50% of the Company's published
list price.

     Cost of goods sold expressed as a percentage of net sales was 
approximately 57% for fiscal 1996 compared to 44% in fiscal 1995.  The increase
is due to increased sales of Respitrace PT units and decreased sales of
Respitrace Plus units to SMC; gross margins are higher for the Respitrace Plus
as compared to the Respitrace PT on  units sold to SMC per the SMC Agreement.
As described in "Item 1 Business", the Company and SMC have agreed in principal
to amend the SMC Agreement to grant SMC certain manufacturing rights for the
Company's products.  Such agreement will largely eliminate cost of goods sold
and should result in expense reductions in future periods.

     During fiscal 1996, the Company wrote-down approximately $272,000 of
inventory based on a valuation of net realizable value.  Net operating loss
carryforward for the Company as of July 31, 1996 was approximately $8,797,000.

     Operating expenses were approximately $813,000 for fiscal 1996 compared to
$830,000 in fiscal 1995.  Selling and distribution expenses were approximately 
$114,000 lower in fiscal 1996 as compared to fiscal 1995 due to the SMC 
Agreement, pursuant to above, the Company is not incurring any significant 
selling and distribution expense.  General and administrative expenses were 
approximately $104,000 higher in fiscal 1996 as compared to fiscal





                                       16
<PAGE>   17

1995 due to increased expenses  associated with securing FDA 510(k) permission
to market the Respitrace PT and RespiEvents - EDP, which was granted in
February 1996 and compensation paid in 1996 to the Chief Executive Officer (in
fiscal 1995 he waived all of his compensation due to the Company's cash
constraints).  Research and development expenses were approximately $8,000
lower in fiscal 1996 as compared to fiscal 1995.  In addition, interest expense
decreased approximately $17,000 due to no outstanding debt during fiscal 1996
as compared to fiscal 1995.


       Liquidity and Capital Resources

     As of July 31, 1996, Nims primary source of working capital is revenues 
from operations.

     Working capital at July 31, 1996 was $490,000 as compared to $743,000
at July 31, 1995.  During the fiscal year ended July 31, 1996, the Company
continued to incur operating losses along with negative cash flows.  The
Company continued to limit research and development activities to projects
which have the potential for generating revenues in the short term.

     Cash provided by operating activities during fiscal 1996 was approximately
$36,000 compared to cash used in operating activities of $50,000 during fiscal 
1995. The increase in cash provided by operating activities of approximately 
$86,000 in fiscal 1996 as compared to fiscal 1995 is primarily attributable to 
an increase in operating assets (net of liabilities) of $19,000 in fiscal 1996 
as compared to $256,000 in fiscal 1995.  This was offset in part by an increase
in the Company's loss (net of non-cash charges) of $151,000.

     Cash used in investing activities in fiscal 1996 and 1995 was 
approximately $36,000 and $92,000, respectively.  Investing activities consist
primarily of plant and equipment costs and costs for patents and software
production.

     Cash provided by financing activities was approximately $0 in fiscal 1996 
and $35,000 in fiscal 1995.

     The report of independent auditors on financial statements at and for
the two years ended July 31, 1996, contains an explanatory paragraph rasing
substantial doubt of the Company's ability to continue as a going concern.
Note #2 to the consolidated financial statements describes the conditions which
raise this doubt and management's plans.  Management believes that revenues
resulting from the amended SMC Agreement will generate sufficient cash flow to
meet working capital needs and continue operations for the fiscal year ending
July 31, 1997.  If revenues generated from the SMC Agreement, as amended, do
not reach levels sufficient to fund working capital requirements the Company
may require further financing to continue operations during fiscal year ending
July 31,





                                       17
<PAGE>   18

1997 and in any event may require additional capital to fund its research and
development efforts thereafter.  Failure to secure necessary financing might
result in the further reduction and curtailment of operations.



ITEM 7.  FINANCIAL STATEMENTS

     The response to this item is submitted in a separate section of this
report, beginning at page F-1.


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

     There have been no changes in accountants during the 24 months prior
to July 31, 1996.





                                       18
<PAGE>   19

                                    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:

<TABLE>
<CAPTION>
             Name                      Age                Position
             ----                      ---                --------
     <S>                               <C>     <C>
     Marvin A. Sackner, M.D.           64      Chairman of the Board, Chief Executive Officer and Director
     
     Richard L. Dougherty              51      President, Chief Operating Officer and Director

     Herman L. Watson                  49      Vice President Research and Development and Director
     
     Ruth Sackner                      60      Secretary and Director

     Gerard Kaiser, M.D.               64      Director

     Morton J. Robinson, M.D.          64      Director

     Stanley C. Sackner, D.O.          60      Director

     Edward Shapiro                    82      Director
</TABLE>


     MARVIN A. SACKNER, M.D. was elected to his positions with the Company
in November 1989, upon the Company's acquisition by merger (the "Merger") of
all of the capital stock of Non-Invasive Monitoring Systems, Inc, a privately
held Florida corporation ("Nims/Fla").  Dr. Sackner co-founded Nims/FLA in 1977
and was the Chairman of the Board from 1981 until October 1989 and Chief
Executive Officer from 1985 until the Merger.  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 consultant to Key
Pharmaceutical, Inc. and has been a consultant to the Sherwood Medical Division
of American Home Products and Schering-Plough Corporation since 1986.  Dr.
Sackner was the President of the American Thoracic Society from 1979 to 1980
and was the Chairman of the Pulmonary Disease Subspecialty Examining Board of
the American Board of Internal Medicine from 1977 to 1980.





                                       19
<PAGE>   20


     RICHARD L. DOUGHERTY was elected to his positions with the Company in
November 1989, upon the consummation of the  Merger.  From 1985 until the
Merger, Mr. Dougherty was the President and Chief Operating Officer of
Nims/FLA.  From 1981 to 1985 Mr. Dougherty was the Assistant Director of Mount
Sinai and prior thereto worked in various other capacities at Mount Sinai.

     HERMAN L. WATSON was elected to his positions with the Company in
November 1989, upon the consummation of the Merger.  Mr. Watson co-founded
Nims/FLA in 1977.  From 1977 until the Merger Mr. Watson was a Director of
Nims/FLA and from 1985 until the Merger he has been its Vice President of
Research and Development.  In October 1996 Mr. Watson was named Senior Research
Scientist at Nims.

     RUTH SACKNER was elected a Director of the Company in November 1989
upon completion of the Merger.  Mrs.  Sackner was a Director of Nims/FLA from
1986 until the Merger.  Mrs. Sackner is an Overseer of the Library Committee at
the University of Pennsylvania.

     GERARD KAISER, M.D. was elected a Director of the Company in November
1989 upon completion of the Merger.  From 1988 until the Merger, Dr. Kaiser was
a Director of Nims/FLA.  Since 1971, he has been at the University of Miami
School of Medicine and presently serves as Deputy Dean for Clinical Affairs and
Daughtry Professor of Cardiothoracic Surgery.  He also serves as Senior Vice
President for Medical Affairs at Jackson Memorial Hospital.

     MORTON J. ROBINSON, M.D. was elected a Director of the Company in
November 1989 upon completion of the Merger.  Dr. Robinson was a Director of
Nims/FLA from 1986 until the Merger.  For at least the past 5 years, Dr.
Robinson has been a Director of the Department of Pathology and Laboratory
Medicine at Mount Sinai.

     STANLEY C. SACKNER, D.O. was elected a Director of the Company in
November 1989 upon completion of the Merger.  Dr. Sackner was a Director of
Nims/FLA from 1986 until the Merger.  Dr. Sackner is on staff of Department
Anesthesiology at Memorial Hospital in Union, New Jersey.

     EDWARD SHAPIRO was elected a Director of the Company in November 1989
upon completion of the Merger.  Mr.  Shapiro was a Director of Nims/FLA from
1987 until the Merger.  From 1969 to the present, Mr. Shapiro has been a
private real estate investor.  From 1950 until 1981, he was a Director and
President of several divisions of Maryland Cup Corporation.  From 1979 until
1982, Mr. Shapiro was the Chairman of the Board of Directors of Mount Sinai.

     Ruth Sackner and Dr. Stanley C. Sackner are Marvin A. Sackner's spouse
and brother, respectively.

     Directors of the Company hold their offices until the next annual
meeting of the Company's shareholders until their successors





                                       20
<PAGE>   21

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.

     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 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 the year
ended July 31, 1996, all filing requirements applicable to its directors,
executive officers and greater than 10% beneficial owners were complied with.


ITEM 10.  EXECUTIVE COMPENSATION

     A.   Summary Compensation Table
            
     The following compensation table sets forth, for the fiscal years
ending July 31, 1996 and 1995, 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
any such years:
                                                                    
<TABLE>
<CAPTION>
                                                            Other Annual
                                                   Salary   Compensation
Name and Principal Position       Year             ($) (1)      ($)
---------------------------       ----             -------      ---
<S>                               <C>              <C>          <C>     
Marvin A. Sackner
Chairman of the Board, and
Chief Executive Officer           1996             $48,077      --
                                  1995               -0-        --
--------------                                                                         
</TABLE>
(1)  Due to the Company's financial constraints and in order to assist the
Company in conserving cash flow Dr. Sackner waived all the compensation due to
him in fiscal 1995.





                                       21
<PAGE>   22

<TABLE>
     <S>     <C> 
     B.      Employment Agreements     

               None.

     C.      Other Compensation
     
               None.

     D.      Compensation of Directors
     
               None.

     E.      Termination of Employment and Change of Control Arrangement.
             

               None.
</TABLE>

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





                                       22
<PAGE>   23


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                             PRINCIPAL SHAREHOLDERS


The following table sets forth certain information regarding NIMS' Common
Stock, Series C Convertible Preferred Stock and NIMS' voting securities
beneficially owned on October 11, 1994 and giving effect to the Exchange Offer,
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>
                                                                                                    
                                                                No. of Shares of Series              No. of Shares 
                             No of Shares of                    C Convertible                        of Voting         Percentage 
Name and Address             Common Stock       Percentage of   Preferred Stock         Percentage   Securities        of
or Identity of Group         Beneficially       Beneficial      Beneficially            of Class     Beneficially      Beneficial
                             Owned (1)          Ownership       Owned                                Owned (1)         Ownership 
---------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                 <C>             <C>                 <C>            <C>                   <C>
Marvin A. Sackner, M.D.      3,408,779 (2)       27.4%           36,855.92 (2)       59.4%          3,445,634.9  (2)      27.6%
27.6% 1840 West Avenue
Miami Beach,Florida 33139

Richard L. Dougherty           108,659 (3)        *               2,023.19 (3)        3.3%            110,682.19 (3)        *
1840 West Avenue
Miami Beach, Florida 33139

Herman L. Watson               358,791 (4)        2.9%            3,475.81 (4)        5.6%            362,266.81 (4)       2.9%
1840 West Avenue
Miami Beach, Florida 33139

Morton J. Robinson, M.D.        76,159 (5)         *              1,073.19 (5)        1.7%             77,232.19 (5)        *
1840 West Avenue
Miami Beach, Florida 33139

Ruth Sackner                 3,408,779 (2)       27.4%           36,855.92 (2)       59.4%           3,445,634.9 (2)      27.6% 
1840 West Avenue
Miami Beach, Florida 33139

Stanley C. Sackner, D.O.       249,909 (6)        2.0%            1,198.19 (6)        1.9%            251,107.19 (6)       2.0%
1840 West Avenue
Miami Beach, Florida 33139

Edward Shapiro                  26,250 (7)         *                525.00 (7)          *              26,775.00 (7)        *
1840 West Avenue
Miami Beach,Florida 33139

Gerard Kaiser, M.D.              4,875 (8)         *                 75.00 (8)          *               4,950.00 (8)        *
1840 West Avenue
Miami Beach, Florida 33139

All executive officers and   4,233,422 (2)-(8)  34.0%            45,226.30 (2)-(8)   72.9%          4,278,582.30 (2)-(8)  34.2% 
Directors as a group
(8 persons)
</TABLE>

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





                                       23
<PAGE>   24

* Less than 1%


<TABLE>
<CAPTION>
ITEM 11.     CONTINUED
----------------------
<S>      <C>
(1)      Does not include shares of Common Stock issuable upon conversion of 
         Series C Convertible Preferred Stock. Each share of Series C
         Convertible Preferred Stock is convertible, at the option of the 
         holder thereof, at any time, in whole or in part, into 25 shares of 
         Common Stock upon payment of a conversion premium of $4.20 per share of
         Common Stock. Holders of Series C Convertible Preferred Stock are 
         entitled to vote together with the holders of shares of Common Stock 
         and Series B Convertible Preferred Stock, on a share-for-share basis 
         as a single class, on all matters except as otherwise required by law.

(2)      Represents securities held by Dr. Marvin A. Sackner and Ruth Sackner, 
         his spouse.

(3)      Includes securities held individually by Mr. Dougherty's spouse, 
         securities held jointly with his spouse and securities held in trust 
         for Mr. Dougherty's minor children.

(4)      Includes 5,000 shares of Common Stock held by Mr. Watson's spouse.

(5)      Includes securities held jointly by Dr. Robinson and his spouse and by
         a pension plan established in connection with Dr. Robinson's medical 
         practice. Does not include securities held by trust established for 
         the benefit of Dr. Robinson's  children, in which securities he
         disclaims beneficial ownership.

(6)      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.

(7)      Includes securities held jointly by Mr. Shapiro and his spouse.

(8)      Includes 2,000 shares of Common Stock held by Dr. Kaiser's spouse.
</TABLE>





                                       24
<PAGE>   25





ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

          None.





                                       25
<PAGE>   26

                                    PART IV

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

          (a). Exhibits

<TABLE>
<CAPTION>
               Exhibit No.                         Description of Exhibits
               -----------                         -----------------------
                <S>                           <C>                      
                    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   (a)                      -  Royalty Agreement dated  September 16, 1986 between Non-
                                                 Invasive Monitoring Systems, Inc. and Mount Sinai Medical
                                                 Center of Greater Miami, Inc. (4)

                     (b)                      -  Subsidiaries of the Company (2)

                     (c)                      -  Revised SMC Agreement (5)
         --------------                          
</TABLE>

         (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-K 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





                                       26
<PAGE>   27

         Registration Statement on Form S-4 (File No. 33-28388) and
         incorporated herein by reference.

         (5)  Included as an Exhibit to the Company's Annual Report on Form
         10-K for the year ended July 31, 1995 and incorporated here by
         reference.

                 (b).  Reports on Form 8-K

         None.





                                       27
<PAGE>   28


                                   SIGNATURES


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

                                           NON-INVASIVE MONITORING 
                                           SYSTEMS, INC.



Dated: November 12, 1996                   By: /s/ Marvin A. Sackner 
                                               ----------------------
                                               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          November 12, 1996
       -----------------------    Board, Chief                  
       MARVIN A. SACKNER          Executive Officer and 
                                  Director
       
       /s/Richard L.Dougherty     President, Chief         November 12, 1996
       -----------------------    Operating Officer             
       RICHARD L. DOUGHERTY       and Director

       /s/ Herman L. Watson       Vice President of        November 12, 1996
       -----------------------    Research and     
       HERMAN L. WATSON           Development and 
                                  Director

       /s/ Morton J. Robinson     Director                 November 12, 1996
       -----------------------                             
       MORTON J. ROBINSON
       
       /s/ Ruth Sackner           Director and             November 12, 1996
       -----------------------    Secretary                      
       RUTH SACKNER

       /s/ Stanley C. Sackner     Director                 November 12, 1996
       -----------------------                             
       STANLEY C. SACKNER


</TABLE>





                                       28
<PAGE>   29

<TABLE>
       <S>                        <C>                      <C>
       /s/ Edward Shapiro         Director                 November 12, 1996
       ------------------                                  
       EDWARD SHAPIRO


       /s/ Gerard Kaiser          Director                 November 12, 1996
       -----------------                                   
       GERARD KAISER


</TABLE>





                                       29

<PAGE>   30


             Non-Invasive Monitoring Systems, Inc. and Subsidiaries

                              Form 10-KSB-Item 13
                         Index to Financial Statements




                                    CONTENTS


The following consolidated financial statements of Non-Invasive Monitoring
Systems, Inc.  and subsidiaries are included in Item 7:

Consolidated Balance Sheet - July 31, 1996

Consolidated Statements of Operations and Accumulated Deficit-Years ended July
31, 1996 and 1995

Consolidated Statements of Stockholders' Equity--Years ended July 31, 1996 and
1995

Consolidated Statements of Cash Flows--Years ended July 31, 1996 and 1995

Notes to Consolidated Financial Statements--July 31, 1996



                               F-1
<PAGE>   31





               Report of Independent Certified Public Accountants

The Board of Directors and Shareholders
Non-Invasive Monitoring Systems, Inc.

We have audited the consolidated financial statements of Non-Invasive
Monitoring Systems, Inc. and subsidiaries listed in the accompanying index to
financial statements (Item 13). 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 generally accepted auditing
standards. 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 listed in the accompanying index to
financial statements (Item 13) present fairly, in all material respects, the
consolidated financial position of Non-Invasive Monitoring Systems, Inc. and
subsidiaries at July 31, 1996, and the consolidated results of their operations
and their cash flows for each of the two years in the period ended July 31,
1996, in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that Non-Invasive Monitoring Systems, Inc. and subsidiaries will continue as a
going concern. As more fully described in Note 2, the Company continues to
incur operating losses and negative cash flows. These conditions 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 2. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that might result from the outcome of
this uncertainty.



                                        /s/ Ernst & Young LLP


Miami, Florida
October 30, 1996




                                F-2
<PAGE>   32

                Non-Invasive Monitoring Systems, Inc. and Subsidiaries

                            Consolidated Balance Sheet

                                July 31, 1996


<TABLE>
<S>                                                                                      <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                               $  189,092
  Accounts and royalties receivable                                                          632,542
  Inventories                                                                                337,280
  Prepaid expenses and other current assets                                                   16,678
                                                                                          ----------
Total current assets                                                                       1,175,592

Plant and equipment:
Furniture and equipment                                                                      615,191
Leasehold improvements                                                                        15,730
                                                                                          ----------
                                                                                             630,921
Less accumulated depreciation and amortization                                              (570,595)
                                                                                          ----------
                                                                                              60,326


Other assets:
  Deferred software production costs, net of
    accumulated amortization of $447,704                                                      37,606
  Patent costs, net of accumulated amortization
    of $124,885                                                                              241,552
                                                                                          ----------

Total other assets                                                                           279,158
                                                                                          ----------

Total assets                                                                              $1,515,076
                                                                                          ==========
                                                                                                    
</TABLE>



                                F-3
<PAGE>   33

                 Non-Invasive Monitoring Systems, Inc. and Subsidiaries

                            Consolidated Balance Sheet

                                  July 31, 1996




<TABLE>
<S>                                                                                     <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Customer deposit                                                                      $     84,000
  Accounts payable                                                                           419,456
  Accrued expenses                                                                           116,439
  Royalties payable to related party                                                          66,103
                                                                                        ------------
Total current liabilities                                                                    685,998

Commitments and contingencies

Shareholders' equity:
  Convertible Preferred Stock, $1.00 par value,
    1,000,000 shares authorized:
  Series B - 100 shares issued and outstanding
    (liquidation preference of $100 per share,
    aggregating $10,000)                                                                         100
    Series C - 62,048 shares issued and outstanding                                           62,048
    Common Stock, $.01 par value, 100,000,000 shares
    authorized, 12,439,729 issued and outstanding                                            124,398
Additional paid-in capital                                                                10,693,126
Accumulated deficit                                                                      (10,050,594)
                                                                                        ------------
Total shareholders' equity                                                                   829,078
                                                                                        ------------
Total liabilities and shareholders' equity                                              $  1,515,076
                                                                                        ============
</TABLE>



See accompanying notes.



                                F-4
<PAGE>   34

                 Non-Invasive Monitoring Systems, Inc. and Subsidiaries

             Consolidated Statements of Operations and Accumulated Deficit


<TABLE>
<CAPTION>
                                                                            YEARS ENDED JULY 31
                                                                               
                                                                           1966             1995
                                                                         ---------------------------
<S>                                                                <C>                <C>
Net sales                                                                $1,712,248       $1,632,247
Less:
  Cost of goods sold                                                        978,695          714,359
  Amortization of software production costs                                  90,000           90,000
   Write-down of inventory                                                  272,033                -
                                                                         ----------       ----------
                                                                          1,340,728          804,359
                                                                         ----------       ----------
                                                                            371,520          827,888

Operating expenses:
  Selling and distribution                                                   35,844          150,157
  General and administrative                                                453,998          349,487
  Research and development                                                  322,780          330,662
                                                                         ----------       ----------
                                                                            812,622          830,306
                                                                         ----------       ----------
Loss from operations                                                       (441,102)          (2,418)

Other (expense) income:
  Interest expense                                                                -          (17,005)
  Interest income                                                             1,356           15,105
  Royalties                                                                  10,384           19,600
  Other--net                                                                 35,222           (4,212)
                                                                       ------------      -----------
                                                                             46,962           13,488
                                                                       ------------      -----------
Net (loss) income                                                          (394,140)          11,070
Accumulated deficit at beginning of period                               (9,656,454)      (9,667,524)
                                                                       ------------      -----------
Accumulated deficit at end of period                                   $(10,050,594)     $(9,656,454)
                                                                       ============      ===========



Average common shares outstanding                                        12,439,729       12,439,729
                                                                       ============      ===========

(Loss) income per common share                                         $     (0.03)   $        0.00
                                                                       ============      ===========                          
</TABLE>



See accompanying notes.
 



                                F-5
<PAGE>   35

                Non-Invasive Monitoring Systems, Inc. and Subsidiaries

                         Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                               YEARS ENDED JULY 31
                                                                           ---------------------------
                                                                           1996              1995
                                                                          ----------------------------
<S>                                                                       <C>            <C>
OPERATING ACTIVITIES
Net  (loss) income                                                        $(394,140)     $      11,070
Adjustments to reconcile net (loss) income to net
  cash used in operating activities:
    Depreciation and amortization                                           168,130            178,949
    Write down of patent costs                                                8,370             16,056
    Write down of inventory                                                 272,033                  -
    Changes in operating assets and liabilities:
      Increase in accounts and royalties
         receivable                                                        (523,790)           (32,585)
      Decrease in inventories                                                14,262             62,446
      Decrease (increase) in prepaid expenses and
         other current assets                                                25,861            (25,361)
      Increase (decrease) in customer deposits                               71,017           (188,647)
      Increase (decrease) in accounts payable and accrued expenses
                                                                            394,017            (71,919)
                                                                           --------          ---------
Net cash provided by (used in) operating activities                          35,760            (49,991)

INVESTING ACTIVITIES
Purchases of plant and equipment                                             (7,121)           (61,405)
Patent costs                                                                (29,316)           (30,923)
                                                                           --------          ---------
Net cash used in investing activities                                       (36,437)           (92,328)

FINANCING ACTIVITIES
Proceeds from sale of restricted certificate of deposit                           -          2,000,000
Payments of bank borrowings                                                       -         (1,965,000)
                                                                           --------         ----------
Net cash provided by financing activities                                         -             35,000
                                                                           --------         ----------
Net decrease in cash and cash
  equivalents                                                                  (677)          (107,319)
Cash and cash equivalents at beginning
  of period                                                                 189,769            297,088
                                                                           --------         ----------
Cash and cash equivalents at end of period                                 $189,092         $  189,769
                                                                           ========         ==========
</TABLE>



See accompanying notes.



                                F-6
<PAGE>   36

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND CONSOLIDATION

The consolidated financial statements include the accounts of Non-Invasive
Monitoring Systems, Inc. (the Company) and its wholly-owned subsidiary,
Non-Invasive Monitoring Systems of Florida, Inc. (NIMS, FL), and Respitrace
Corporation, the wholly-owned subsidiary of NIMS, FL. All significant
intercompany balances have been eliminated in consolidation.  Respitrace
Corporation did not have any operations during the 1996 or 1995 fiscal years.

The Company is engaged in the manufacturing, sale and service of computer-aided
continuous monitoring devices to detect abnormal respiratory and cardiac events
using sensors placed upon the bodyGs surface. The Company holds patents on
these devices. The Company also sells peripheral equipment and disposable
supplies for these devices that are manufactured by other companies. See 
Note 2.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or
market.

PLANT AND EQUIPMENT

Plant and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
three to five years for furniture and equipment, and three years or the lease
term, if shorter, for leasehold improvements.

PATENTS

Costs incurred in applying for and defending patents are capitalized and
amortized on the straight-line method over the estimated useful lives of the
patents.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles 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
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.



                                F-7
<PAGE>   37

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SOFTWARE PRODUCTION COSTS

The Company defers certain software production costs in accordance with
Statement of Financial Accounting Standards No.  86, Accounting for the Costs
of Computer Software to be Sold, Leased, or Otherwise Marketed (FAS 86). The
Company has capitalized no software productions costs in 1996 or 1995.

Amortization of deferred software production costs is provided on a
product-by-product basis at the greater of the amount computed using (a) the
ratio of current gross revenues for a product to the total of current and
anticipated future gross revenues, or (b) the straight-line method over the
remaining estimated economic life of the product.  Generally, an original
estimated economic life of five years is assigned to deferred software
production costs.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value because of their
short duration.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less from the date purchased to be cash equivalents.

INCOME TAXES

The Company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS 109, deferred
income tax assets and liabilities are determined based upon differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.



                                F-8
<PAGE>   38

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES (CONTINUED)

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. Significant components
of the Company's net deferred income taxes are as follows:

<TABLE>
         <S>                                                                     <C>
         Deferred tax assets:
            Net operating loss carryforwards                                     $ 3,310,000
            Inventory reserve                                                        102,000
            Other                                                                     55,000
                                                                                 -----------
         Total deferred tax assets                                                 3,467,000

         Deferred tax liability:

            Depreciation and amortization                                             60,000
                                                                                 -----------
            Net deferred tax asset                                                 3,407,000
            Valuation allowance for net deferred tax asset                        (3,407,000)
                                                                                 -----------
            Net deferred tax asset                                               $         -
                                                                                 ===========
</TABLE>

SFAS 109 requires a valuation allowance 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 $3,407,000 valuation allowance at July 31, 1996 is necessary
to reduce the deferred tax assets to the amount that will more likely than not
be realized. The change in the valuation allowance for the current year is
$139,000. At July 31, 1996, the Company has available net operating loss carry
forwards of $8,797,000, which will expire between 1999 and 2011.

WARRANTIES

The Company's warranty policy provides for a one year coverage against defects.
In the opinion of management, warranty costs will not be material. Accordingly,
no provision for warranty costs has been recorded.



                                F-9
<PAGE>   39

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

The Company recognizes revenue when products are shipped. If installation is
required as a condition of sale, revenue is recognized when the installation
has been completed.

(LOSS) INCOME PER COMMON SHARE

(Loss) income per Common Share has been calculated based upon the weighted
average number of shares outstanding each year. Although they are deemed Common
Stock equivalents, outstanding options are not considered because they would be
anti-dilutive or have no effect. Conversion of convertible preferred stock has
not been considered in the calculation of loss per common share because the
conversions would be anti-dilutive or would have no effect.

ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS

In fiscal 1997, the Company will adopt the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets. SFAS No. 121 requires impairment losses to be recorded on
long-lived assets when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Based on current circumstances, the Company does
not believe the effect upon adoption will be material.

2. OPERATIONS AND SUBSEQUENT EVENT

During fiscal 1994, the Company established a strategic alliance with
SensorMedics Corp. (SensorMedics) to undertake marketing of the Company's
products. Effective October 1, 1995, the Company entered into an agreement
extending this alliance for an additional two years, through August 31, 1997.
Under the terms of this agreement, the Company granted exclusive worldwide
distribution rights (as defined) for certain products. In return, SensorMedics
had to purchase minimum quantities of the CompanyGs products to maintain these
exclusive distribution rights. Sales to SensorMedics, a major customer of the
Company, (see Note 8) were lower than expected resulting in an operating loss
of $394,000.



                                F-10
<PAGE>   40

2. OPERATIONS AND SUBSEQUENT EVENT (CONTINUED)


During October 1996, in order to generate sufficient cash flows, the Company
agreed in principle to amend the terms of the agreement with SensorMedics
whereby the Company, among other things, will grant SensorMedics nonexclusive
rights to manufacture and distribute the Company's principal monitoring devices
and exclusive rights to manufacture and distribute the Company's disposable
products. In return, the Company will receive certain fixed payments from
SensorMedics as well as ongoing royalties. SensorMedics will also purchase, at
cost,  all usable raw material inventory used in the manufacturing of the
Company's principal monitoring devices, up to $200,000. Management believes
that this agreement in principle will allow the Company to focus its efforts on
research and development activities. The agreement in principle is subject to
the negotiation and execution of definitive documentation. Management believes
that the revenues resulting from this agreement in principle will generate
sufficient cash flows to meet working capital needs and continue operations for
the fiscal year ending July 31, 1997.

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 or classifications of liabilities that might result from
the possible inability of the Company to continue as a going concern.

3. INVENTORIES

Inventories at July 31, 1996 consisted of the following:

<TABLE>
     <S>                                                      <C>
     Raw materials and purchased components                   $ 194,971
     Work-in-process                                             65,000
     Finished goods                                              77,309
                                                               --------
                                                              $ 337,280
                                                              =========
                                                           
</TABLE>



                                F-11
<PAGE>   41

4. RELATED PARTY TRANSACTIONS

The Company is entitled to receive royalties from products sold by certain
former shareholder/ officers that were developed by the Company in prior years
and are now manufactured by independent third parties. In connection with these
agreements, the Company earned royalties of approximately $10,400 and $19,600
during the years ended July 31, 1996 and 1995, respectively.

The Company's Chairman of the Board and Chief Executive Officer holds an
honorary executive medical staff position at a local health care institution
(Mount Sinai Medical Center of Greater Miami) that purchases devices and other
equipment from the Company. Sales to this institution totaled approximately
$32,000 and $58,000 during the years ended July 31, 1996 and 1995,
respectively. Sales to this health care institution were at a discount of 15%
to 50% from the Company's published list prices.

The Company's Chairman of the Board and Chief Executive Officer did not receive
salary compensation during the year ended July 31, 1995. For the year ended
July 31, 1996, he received a salary of $48,077.

5. COMMON STOCK

At July 31, 1996, a total of 1,803,700 shares of the Company's Common Stock
have been reserved under various grants of options and for conversion of the
Series B and Series C Convertible Preferred Stock. Of the total shares
reserved, 2,500 and 1,551,200 shares have been reserved for the conversion of
Series B and Series C Convertible Preferred Stock, respectively. The remaining
shares were reserved for issuance under various grants of options.

6. CONVERTIBLE PREFERRED STOCK

The Series B Convertible 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 Convertible Preferred Stock has a liquidation preference of $1.00
per share, is convertible into 25 shares of Common Stock at a conversion
premium of $4.20 per share of Common Stock, is redeemable at the option of the
Company commencing in 1994 at $.40 per share and provides for a noncumulative
dividend of $.40 per share, if declared.

Holders of the Company's Series B and Series C Convertible Preferred Stock are
entitled to one vote for each share held.



                                F-12
<PAGE>   42

7. STOCK OPTIONS

The Company has a Stock Option Plan (the Plan) for key officers and employees
of the Company. The Company has reserved 250,000 shares of Common Stock under
the Plan, and no options are outstanding as of July 31, 1996. No options have
been granted since the Plan's inception.

8. OTHER INFORMATION

During the year ended July 31, 1996, one customer (SensorMedics) accounted for
89% of total net sales. During the year ended July 31, 1995, two customers
(SensorMedics and National Institutes) accounted for 52% and 27% of total net
sales, respectively.

Accrued expenses at July 31, 1996 consisted of the following:

<TABLE>
        <S>                                                      <C>
        Accrued wages                                            $  74,282
        Accrued professional fees                                   42,157
                                                                 ---------
                                                                 $ 116,439
                                                                 =========
</TABLE>

Interest paid during the year ended July 31, 1995 was approximately $17,000.

In fiscal year 1995, the caption other--net includes expenses of $70,000
relating to the search for a marketing partner and a proposed business
combination that was not consummated. It also includes a benefit of $48,000
resulting from elimination of a prior period accrual that was determined to be
unnecessary.

9. COMMITMENTS AND CONTINGENCIES

                                                                        
In recognition of the ongoing contributions of a health care institution (Note
5) to the Company's research and marketing activities, the Company agreed to
pay minimum royalties of $50,000 per calendar year from 1987 through December
1995. Royalties of $20,833 and $50,000 are included in selling expenses in the
consolidated statements of operations and accumulated deficit for the years
ended July 31, 1996 and 1995, respectively.

10. FOURTH QUARTER ADJUSTMENTS

During the fourth fiscal quarter of the year ended July 31, 1996, the 
Company wrote off certain inventory with a cost of $272,000.



                                F-13