<PAGE>

                       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, 2002
              (_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                    For the transition period from _________

                             Commission file number
                                     0-13176

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

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

    1666 Kennedy Causeway Avenue, Suite 400, North Bay Village Florida 33141
               (Address of principal executive offices) (Zip Code)

                                 (305) 861-0075
                        (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)

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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: $333,498.

     State the aggregate market value of the voting stock held by non-affiliates
of the registrant on October 25, 2002, computed by reference to the price at
which the stock was sold on that date: $2,151,798.

                      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 29, 2002, was
29,823,059.

     Transitional Small Business Disclosure Format:

     Yes ___ No  X
                ---

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                      NON-INVASIVE MONITORING SYSTEMS, INC.
                              Report on Form 10-KSB
                     For the Fiscal Year Ended July 31, 2002

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                 PAGE
<S>                                                                              <C>
                                     PART I

Item 1.   Description of Business ..............................................    1
Item 2.   Description of Property ..............................................   10
Item 3.   Legal Proceedings ....................................................   10
Item 4.   Submission of Matters to Vote of Security Holders ....................   10

                                     PART II

Item 5.   Market for Common Equity and Related Stockholder Matters .............   11
Item 6.   Management's Discussion and Analysis .................................   12
Item 7.   Financial Statements .................................................   17
Item 8.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure .............................................   17

                                    PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons .........   18
Item 10.  Executive Compensation ...............................................   20
Item 11.  Security Ownership of Certain Beneficial Owners And Management .......   21
Item 12.  Certain Relationships and Related Transactions .......................   23

                                     PART IV

Item 13.  Exhibits and Reports on Form 8-K .....................................   24

Signatures .....................................................................   25
</TABLE>

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Forward-Looking Statements

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

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

     A.  General Development of Business.

Introduction

Non-Invasive Monitoring Systems, Inc. (the "Company" or "NIMS") is engaged in
the research, development, manufacturing and marketing of a non-invasive,
therapeutic, periodic acceleration, cardiorespiratory device, which has been
designated as the motion platform. In addition, the Company has developed
computer assisted, non-invasive monitoring devices and related software designed
to detect abnormal respiratory, cardiac, and other medical conditions from
sensors placed externally on the body's surface. These devices provide
diagnostic information regarding cardiorespiratory and sleep disorders in
infants, children and adults; in addition, alarms are sounded for adverse
cardiac and respiratory events in critically ill patients.

Business Strategy

During 2001 and 2002, the Company restructured its operations and revised its
business strategy to transform the Company from a research and development
company into a company that will manufacture and market its own innovative
health care devices on a worldwide basis.

The annual revenue is primarily derived from sales of NIMS's Respitrace products
for pulmonary evaluations. In the opinion of management, these products are
considered worldwide to be the "gold standard" for monitoring and evaluating
breathing and detecting obstructive or central

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apneas, and they form the basis of the Company's excellent reputation in the
medical field. Although the Company will continue to market these devices, no
major time or revenues of any kind will be expended on them.

NIMS assigned its patents for its best-known innovation - an ambulatory
monitoring shirt (the computerized LifeShirt(TM) system) developed by NIMS'
Chairman, Marvin A Sackner, M.D. - to VivoMetrics, Inc., a health care
information company based in Ventura, California. In return for these patent
rights, NIMS was given equity ownership in VivoMetrics, Inc. and will be paid
royalties on sales and leasing of LifeShirt(TM) systems. In April, 2002,
VivoMetrics, Inc. received FDA clearance allowing VivoMetrics, Inc. to market
the LifeShirt(TM) System. There can be no assurances as to when the
LifeShirt(TM) system will be marketed or the amount of revenues that will be
derived from the marketing of the LifeShirt(TM) system.

This annual financial report strongly reflects this ongoing transition to a
manufacturing and marketing company and the consequences of this transition on
the Company's business, financial condition and operating results. The Company
anticipates experiencing losses at least through the next two to three fiscal
quarters as it completes this transition and develops a worldwide market for its
newest product, the AT101 motion platform. The revised business plan anticipates
that, beginning with the AT101 motion platform, NIMS will control production and
marketing of its products through its new division, "Acceleration Therapeutics".

Private Placement

A private placement was completed in the third quarter of this fiscal year to
finance the Company's initial manufacture and international marketing of the
AT101 motion platform through NIMS' Acceleration Therapeutics division.

This successful private placement, which began in late December, 2001 and closed
March 8, 2002, raised approximately $1.3 million on the sale of approximately
seven and one half million new common shares in the Company plus options to
purchase additional common shares of the Company. NIMS directors, officers and
employees participated in the private placement with significant investments. As
part of that offering, the Company issued 375,000 shares of Common Stock to
extinguish a $75,000 loan payable to a shareholder and issued 250,000 shares of
Common Stock to the Chief Executive Officer in lieu of compensation.

New Members of the Board of Directors

On May 29, 2002, at the annual meeting of the shareholders of the Company,
Marvin A. Sackner, M.D., Allan F. Brack, Morton J. Robinson, M.D., Gerard
Kaiser, M.D., Taffy Gould, and Andrew M. Smulian were reelected to the Board of
Directors. In addition, the shareholders elected John G. Clawson and Leila Kight
as members of the Board of Directors.

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From 1975 to 1993, Mr. Clawson served as Chief Executive Officer of Hill Rom,
Inc. Hill-Rom, Inc. is the world's leading manufacturer of patient care systems
and the leading provider of specialized rental therapy products designed to
assist in managing the complications of patient immobility. From 1994 to the
date hereof, Mr. Clawson serves as the Chairman of the Board of Endocyte, Inc.,
a Delaware biotechnology company focused on vitamin-based drug targeting and
delivery systems. He is managing partner of Clawson Associates, an investment
trust, and a member of the Board of Directors of Medassist, MagicTilt and Miss
Eaton. He holds an MBA from Harvard Business School.

Leila Kight was founder of Washington Researchers, Ltd. in 1974 and served as
its President from 1980 to 1999. Washington Researchers, Ltd. was an innovator
in competitive intelligence methodology. Ms. Kight also was founder and first
President of the 3,000-member Society of Competitive Intelligence Professionals.
An internationally recognized expert, author and speaker, she has addressed top
business leaders and government dignitaries, has written 10 books, and authored
many professional articles. Now semi-retired, Ms. Kight is working on
independent writing projects and is involved with a variety of community-based
organizations. She holds MA and MBA degrees from George Washington University.

NIMS' principal products in commerce are:

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

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

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

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

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

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

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

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

         The term the "Company" and "NIMS" refers to both the Company and its
subsidiaries, unless the context requires otherwise. The Company's offices are
located at 1666 Kennedy Causeway Avenue, Suite 400, North Bay Village Florida
33141 and its telephone number is (305) 861-0075.

         B.    Financial Information About Industry Segments.

         Not applicable.

         C.    Narrative Description of Business.

         Introduction

The Company is engaged in the research, development, manufacturing and marketing
of a non-invasive, therapeutic, periodic acceleration, cardiorespiratory device,
which has been designated as the motion platform. In addition, the Company has
developed computer assisted, non-invasive monitoring devices and related
software designed to detect abnormal respiratory, cardiac, and other medical
conditions from sensors placed externally on the body's surface. These devices
provide diagnostic information regarding cardiorespiratory and sleep disorders
in infants, children and adults; in addition, alarms are sounded for adverse
cardiac and respiratory events in critically ill patients.

Current Products

Non-Invasive Therapeutic Motion Platform: AT101 motion platform (a passive
exercise device)

The AT101 motion platform has been under development for four years and the
market-ready version of the device is currently being manufactured by QTM
Incorporated, an FDA-approved manufacturer in Tampa. The devices are being built
in accordance with ISO and FDA Good Manufacturing Practices.

The Company is currently in negotiations with a number of foreign stocking
distributors for exclusive sales rights to the AT101 motion platform in their
respective geographical areas, including Japan, Korea and India. Further
discussions are being held with leading universities in Europe, Asia and North
America for the purpose of performing studies for specific disease states.
Management expects these studies to further validate the benefits of the AT101
motion platform passive exercise device. The Company expects these studies to
begin in the fall of 2002 and be

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expanded as new conditions arise in which the AT101 motion platform could offer
patient improvement, generally in those areas where exercise would be
beneficial.

The AT101 motion platform is another exciting invention by Marvin A. Sackner,
M.D., Professor of Medicine at the University of Miami at Mt. Sinai and Emeritus
Director of Medical Services at Mt. Sinai Medical Center. Dr. Sackner is a past
President of the American Thoracic Society, past Chairman of the Pulmonary
Disease Subspecialty Board and a past Member of the American Board of Internal
Medicine.

The AT101 motion platform is a comfortable gurney styled device that moves in a
back-and-forth motion similar to the movement used to comfort a child in a baby
carriage but at a much more rapid pace. Two recent clinical studies on animals
found the AT101 motion platform dramatically increases blood flow to the heart
and brain. In one study, the device simulated blood-flow benefits similar to
open-heart massage and preserved brain and cardiac blood flow during an
18-minute period of induced cardiac arrest. A second study reported that the
AT101 motion platform increased blood flow to the heart an average of 82 percent
and blood flow to the brain an average of 180 percent.

AT101 passive exercise motion platform has been listed with the FDA as a "Class
1" exempt device and can be marketed worldwide as an aid to improving the
circulation and joint mobility.

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

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

         RespiEvents - which was commercially introduced in April 1996, is a
software program for a personal computer ("PC") designed to be used in
conjunction with Respitrace Plus and Respitrace PT. It enables the PC to receive
digital information from the Respitrace Plus Digital Interface (RS232 output)
and display real-time Respitrace waveforms on the computer screen. RespiEvents
allows storage of Respitrace information on the hard drive of the PC for
subsequent display of full fidelity waveforms and derived numerical values and
indices. It includes tools to

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manipulate the vertical and horizontal gain displays of waveform information
stored on the PC. It can convert the numerical values of the data files into
ASCII format enabling them to be imported into other programs such as spread
sheets (e.g., Excel, Lotus 123, Quattro Pro, Paradox), databases (e.g., FoxPro,
Paradox), and statistical packages (e.g., SigmaPlot, Statistica) so that
sophisticated analysis and plots can be carried out. RespiEvents transforms the
PC into a polygraph recorder for Respitrace Plus generated waveforms and can be
used in any situation where such a device might be employed. One application is
polysomnography in which apneic/hypopneic events may be diagnosed and classified
and sleep stages characterized according to breath waveform patterns. Another is
to monitor breath by breath changes in ventilation and breathing pattern during
exercise. RespiEvents permits analyses of unusual patterns of breathing and
electrocardiographic waveforms that are particularly useful in documentation of
such occurrences in critically ill pulmonary, cardiac, and neurologic patients.

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

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

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

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

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safety and effectiveness of the Respitrace Plus. Incorrect dates and birth date
computations will appear on screens and reports. RespiTrends is sold to SMC by
NIMS.

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

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

Products Under Development

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

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

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

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Inc. for incorporation into the LifeShirt system. The Company plans to upgrade
to RespiEvents 5.4 to market this software once VivoMetrics, Inc. has received
FDA approval to market this technology into the LifeShirt system.

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

      LifeShirt - is a Wearable Physiological Computer (patent, PhysiologicSigns
Feedback System, issued April 4, 2000) that incorporates four inductive
plethysmographic transducers, electrocardiographic electrodes, and a two posture
sensor into a low turtle neck sleeveless garment. Pulse oximetry is an optional
add-on. These transducers are connected to a miniaturized, battery powered,
electronic module that has been fabricated. This in turn interfaces with a
Personal Digital Assistant ("PDA") with compact flash memory for collection of
raw waveforms and digital data from the electronic module. Such data are
transmitted from flash memory to a Data Collection Center that checks for
quality control from full disclosure, transforms data into minute-by-minute
median trends of over 30 physical and emotional signs of health and disease. In
addition, the monitored patient can enter symptoms with intensity, mood, and
medication diary into the PDA for integration with the physiologic information
collected with the LifeShirt garment. Data from flash memory can be mailed to
the VivoMetrics, Inc.'s Data Collection Center for quality control, generation
of reports, and database storage. Vital and physiological signs can be obtained
non-invasively, continuously, cheaply, and reliably with the comfortably worn
LifeShirt garment system while at rest, during exercise, at work, and during
sleep.

      During the fiscal year ended July 31, 2002, the Company's principal
product development activities were focused on the AT101 motion platform.

Marketing and Sales

Since April, 2002, Richard Buckley, the Executive Vice President of the Company,
has been responsible for the worldwide marketing of the Company's products,
overseeing all marketing staff and international marketing representatives. Mr.
Buckley was previously engaged, for a period of 14 years, by Medlog GmbH as a
regional manager for in Asia, distributing a variety of medical products
throughout the world and representing numerous medical companies form the United
States and Europe. Mr. Buckley holds a Business Administration degree from
Rollins College in Winter Park, Florida.

John Teeder, an experienced international medical-equipment marketing expert,
has been named Director of European and Mid-East Operations.

The AT101 has been purchased for a Malaysian hospital and that it has named a
Southeast Asian regional manager and Malaysian distributor. The AT101 will be
installed and used to treat patients in the Adventist Hospital in Penang,
Malaysia. Tay Chong Boon, owner of High Region

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Ltd., Penang, Malaysia, has been appointed regional manager for Southeast Asia
and sole distributor for Malaysia. NIMS has contracted with an established
distributor in India (Moolaa Technologies Private Limited, of The Erkadi Group
of Companies) and that the Indian firm has already ordered its first three
AT101s. Toyo Medic Co., Ltd., of Tokyo, will be NIMS's exclusive agent in Japan
and that Toyo Medic Co., Ltd. has already ordered three new AT101
passive-exercise devices.

Regulatory Compliance

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

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

Patents and Trademarks

The Company currently holds 4 United States and 1 foreign patents with respect
to both overall design and specific features of its present and proposed
products and has submitted applications with respect to an additional 2 United
States and 4 (international) foreign patents. The Company transferred 14 U.S.
patents to VivoMetrics, Inc. No assurance can be given as to the scope of
protection afforded by any patent issued, whether patents will be issued with
respect to any pending or future patent application, that patents issued will
not be designed around, infringed or successfully challenged by others, that the
Company will have sufficient resources to enforce any proprietary protection
afforded by its patents or that the Company's technology will not infringe on
patents held by others. The Company believes that in the event its patent
protection is materially impaired, a material adverse effect on its present and
proposed business could result. The expiration dates of the patents are as
follows:

                                    Number of Patents           Expiration Date

                            Domestic                Foreign
                            --------                -------
                                                        1              2004
                                1                                      2006
                                1                                      2011
                                1                                      2013
                                1                                      2018
                                1                                      2019
         Total                  5                       1

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

Competition

The Company competes with several concerns that market non-invasive respiratory
monitoring devices, including Respironics Corporation, Hewlett Packard, and
Spacelabs, all of which are larger, have longer operating histories and have
financial and personnel resources far greater than those of the Company.
Management believes, however, that it effectively competes with such concerns on
the basis of uniqueness and quality.

Employees

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

ITEM 2.  DESCRIPTION OF PROPERTY.

The Company occupies approximately 9455 square feet at 1666 Kennedy Causeway
Avenue, Suite 400, North Bay Village, Florida, which house its executive offices
and product development facilities. Such space is leased on a five years
contract from a non-affiliated party at an annual rental in 2002 of
approximately $59,800. The Company believes that its facilities are adequate for
the Company's needs in the near future.

ITEM 3.  LEGAL PROCEEDINGS.

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

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

      None.

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                                     PART II

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

     A.      Market Information.

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

     Quarter Ended                       High                       Low

     October 30, 2001                   $0.531                     $0.406
     January 30, 2001                   $0.25                      $0.188
     April 30, 2001                     $0.25                      $0.170
     July 31, 2001                      $0.75                      $0.51
     October 30, 2002                   $0.30                      $0.21
     January 30, 2002                   $0.18                      $0.18
     April 30, 2002                     $0.45                      $0.43
     July 31, 2002                      $0.30                      $0.27

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

     B.      Holders

     As of October 29, 2002 there were approximately 1,554 holders of record of
the Common Stock.

     C.      Dividends.

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

                                       11

<PAGE>

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

     This Management's Discussion and Analysis should be read in conjunction
with the Company's Consolidated Financial Statements, including the notes
thereto. This report contains certain forward looking information which involves
risks and uncertainties. The actual could differ from the results anticipated
herein.

Results of Operations.

YEAR ENDED JULY 31, 2002 COMPARED TO YEAR ENDED JULY 31, 2001.

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

         Gross Revenues. Gross revenues decreased from $1,159,626 for the year
ended July 31, 2001 to $333,498 for the year ended July 31, 2002, a decrease of
$826,128, primarily due to decrease in revenue arising from the research and
consulting services from the agreement between Vivometrics, Inc. and the
Company.

         Research and Consulting. Revenue from research and consulting decreased
from $896,500 for the year ended July 31, 2001 to $82,112 for the year ended
July 31, 2002, a decrease of $814,388, primarily due to decrease in revenue
arising from the research and consulting services from the agreement between
Vivometrics, Inc. and the Company.

         Product Sales. Product Sales decreased from $210,277 for the year ended
July 31, 2001 to $194,539 for the year ended July 31, 2002, a decrease of
approximately $15,738 primarily due to the static nature of the market for the
Respitrace products.

         Royalties. Royalties increased from $52,849 for the year ended July 31,
2001 to $56,847 for the year ended July 31, 2002, an increase of $3,998
primarily due to an increase of royalties from SensorMetics Corporation and new
royalties from Vivometrics, Inc.

         Cost of Operations. Operating expenses increased from $1,182,068 for
the year ended July 31, 2001 to $1,601,140 for the year ended July 31, 2002, an
increase of $419,072. This increase was due to a $68,927 increase in research
and development costs in fiscal 2002 that included purchase of new computers,
costs associated with development of the AT101 motion platform and an increase
in selling, general and administrative expenses of $360,595 as a result of legal
and related expenses associated with an offering of securities in a private
placement, market efforts, and the contract with a public relations firm.

         Research and Development. Research and development costs increased from
$536,496 for the year ended July 31, 2001 to $605,423 for the year ended July
31, 2002, an increase of approximately $68,927, primarily due to research and
development and consulting for the development of the AT101 motion platform.

                                       12

<PAGE>

         Cost of Goods Sold. Cost of goods sold decreased from $52,015 for the
year ended July 31, 2001 to $41,565 for the year ended July 31, 2002, a decrease
of $10,450, primarily due to decrease of sales revenue and reduction of
production coasts.

         Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses increased from $593,557 for the year ended July 31, 2001
to $853,880 for the year ended July 31, 2002, an increase of $260,323, primarily
due to increased expenses associated with the cost of outside accountants,
commissions to new sales persons, legal and related expenses associated with an
offering of securities in a private placement, marketing efforts associated with
AT101 motion platform and expenses arising from a contract with a public
relations firm.

         Profit (losses) Net loss increased from a loss of $22,442 for the year
ended July 31, 2001 to a loss of $1,267,642 for the year ended July 31, 2002, an
increase of $1,245,200, primarily due to a decrease in gross revenues and an
increase in costs of operation.

Liquidity and Capital Resources. The Company has financed its operations and
other working capital requirements principally from operating cash flow.
Management of the Company estimates that the Company requires a minimum cash
flow of $80,000 per month to maintain operations. The Company predominantly
finances its operations from the sale of Respitrace products. In 2002, the
Company raised additional capital from individual investors through a private
placement offering of the Company's securities in order to finance its
operations. The funds raised through the private placement offering of the
Company's securities and sales of Respitrace products and the AT101 motion
platform to date will be sufficient to satisfy the Company's current cash
requirements until the end of the second quarter of fiscal 2003. Additional
capital will be required after the second quarter of fiscal 2003 for the Company
to continue to satisfy its cash requirements and maintain a business plan
focusing on increasing revenues from the marketing of acceleration therapeutic
products. The Company expects to raise additional capital subsequent to the
second quarter of fiscal 2003. If the Company is unable to raise additional
funds, the Company may be required to reduce its workforce, reduce compensation
levels, reduce dependency on outside consultants, or modify its growth and
business plan.

Current Assets

         Cash. As of July 31, 2002, the Company had $293,715 in cash as compared
to $158,962 as of July 31, 2001, an increase of $134,753. The increase in
working capital was primarily due to the funds raised through an offering of
securities in a private placement.

         Accounts Receivable and Royalties Receivable. As of July 31, 2002, the
Company had $33,734 in accounts receivable and royalties receivable as compared
to $32,432 as of July 31, 2001, an increase of $1,302, primarily due to an
increase of royalties from SensorMetics Corporation and new royalties from
Vivometrics, Inc.

                                       13

<PAGE>

         Inventories. As of July 31, 2002, the Company had $163,473 in
inventories as compared to $30,050 as of July 31, 2001, an increase of $133,423,
primarily due to the increased production of the AT101 motion platform.

         Prepaid expenses and other current assets. As of July 31, 2002, the
Company had $43,607 in prepaid expenses and other current assets as compared to
$59,772 as of July 31, 2001, a decrease of $16,165, primarily due to
amortization of prepaid consulting fees.

         Furniture and equipment. As of July 31, 2002, the Company had $59,511
in furniture and equipment, net of accumulated depreciation of $78,280 as
compared to $36,983 in furniture and equipment, net of accumulated depreciation
of $115,849 as of July 31, 2001, an increase of $22,528, primarily due to the
purchase of computer equipment.

         Patents. As of July 31, 2002, the Company had $161,745 in patents, net
of accumulated amortization of $28,152 as compared to $236,339 net of
accumulated amortization of $148,371 as of July 31, 2001, a decrease of $74,594,
primarily due to a write off of certain patents.

Liabilities

         Current liabilities. Current liabilities decreased from $156,891 for
the year ended July 31, 2001 to $127,030 for the year ended July 31, 2002, a
decrease of approximately $29,861, primarily due to decrease of accounts
payable.

         Accounts payable and accrued expenses. Accounts payable and accrued
expenses decreased from $131,891 for the year ended July 31, 2001 to $102,397
for the year ended July 31, 2002, a decrease of approximately $29,494, primarily
due to decrease of accounts payable.

         Deferred research and consulting revenue. Deferred research and
consulting revenue decreased from $25,000 for the year ended July 31, 2001 to
$24,633 for the year ended July 31, 2002, a decrease of $367.

         Cash provided by operating activities. Cash provided by operating
activities decreased from $145,335 for the year ended July 31, 2001 to cash used
in operating expenses of ($1,194,191) for the year ended July 31, 2002, a
decrease of $1,339,526. The decrease in cash provided by operating activities is
primarily attributable to an increase in the inventory of $133,423, an increase
in the cost of operation of $419,072, and a decrease of gross revenue of
$826,128.

         Cash used in investing activities. Cash used in investing activities
increased from $37,114 for the year ended July 31, 2001 to $76,056 for the year
ended July 31, 2002, an increase of $38,942. Investing activities consist
primarily of the costs for patents and purchase of furniture and equipment.

         Cash provided by financing activities. Cash provided by financing
activities increased from $23,020 for the year ended July 31, 2001 to $1,405,000
for the year ended July 31, 2002, an

                                       14

<PAGE>

increase of $1,381,980 primarily due to the funds raised in a private placement
offering of the Company's securities.

         The reports of independent auditors on financial statements at and for
the year ended July 31, 2002, contain an explanatory paragraph raising
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. As previously noted, revenues generated from
Respitrace products were insufficient to fund operations during fiscal 2002. If
revenues generated from Respitrace products, from AT101 motion platform or other
sales do not reach levels sufficient to fund working capital requirements during
fiscal 2003, the Company will require further financing to continue operations
during fiscal 2003 and in any event may require additional capital to fund
marketing efforts beyond presently contemplated levels. Failure to secure
necessary financing might result in the further reduction and curtailment of
operations.

YEAR ENDED JULY 31, 2001 COMPARED TO YEAR ENDED JULY 31, 2000.

Results of Operations.

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

         Gross Revenues. Gross revenues increased from approximately $691,733
for the year ended July 31, 2000 to approximately $1,160,000 for the year ended
July 31, 2001, an increase of approximately $468,267.

         Research and Consulting. Revenue from research and consulting increased
from approximately $397,000 for the year ended July 31, 2000 to approximately
$896,500 for the year ended July 31, 2001, an increase of approximately
$499,500.

         Product Sales. Product Sales decreased from approximately $211,000 for
the year ended July 31, 2000 to approximately $210,000 for the year ended July
31, 2001, an decrease of approximately $1,000.

         Royalties. Royalties decreased from approximately $83,500 for the year
ended July 31, 2000 to approximately $53,000 for the year ended July 31, 2001,
an decrease of approximately $30,500.

         Cost of Operations. Operating expenses increased from approximately
$727,000 for the year ended July 31, 2000 to approximately $1,182,000 for the
year ended July 31, 2001, an increase of approximately $455,000. This increase
was due to an approximately $186,000 increase in Research and Development costs
in fiscal 2001 that included purchase of new computers, and work associated with
development of the motion platform and an increase in selling, general and
administrative expenses of approximately $256,000 as a result of legal expenses
associated with the business plan for the motion platform, and contracts with a
public relations firm and an investment banker.

                                       15

<PAGE>

         Research and Development. Research and Development costs increased from
approximately $351,000 for the year ended July 31, 2000 to approximately
$537,000 for the year ended July 31, 2001, an increase of approximately
$186,000.

         Cost of Goods Sold. Cost of Goods Sold increased from approximately
$38,000 for the year ended July 31, 2000 to approximately $52,000 for the year
ended July 31, 2001, an increase of approximately $14,000.

         Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses increased from approximately $338,000 for the year ended
July 31, 2000 to approximately $594,000 for the year ended July 31, 2001, an
increase of approximately $256,000.

         Profit (losses) Net loss decreased from a loss of approximately $35,000
for the year ended July 31, 2000 to a loss of approximately $22,000 for the year
ended July 31, 2001.

Liquidity and Capital Resources. The Company has financed its operations and
other working capital requirements principally from operating cash flow.

Current Assets

         Cash. As of July 31, 2001, the Company had approximately $159,000 in
cash as compared to $3,000 as of July 31, 2000, an increase of $156,000. The
significant increase in working capital for the year ended July 31, 2001 as
compared to July 31, 2000 was primarily due to cash received from the
VivoMetrics Research and Development agreement.

         Accounts Receivable and Royalties Receivable. As of July 31, 2001, the
Company had approximately $159,000 in Accounts Receivable and Royalties
Receivable as compared to $35,000 as of July 31, 2000, an increase of $124,000.

         Inventories. As of July 31, 2001, the Company had approximately $32,000
in Inventories as compared to $38,000 as of July 31, 2000, an decrease of
$6,000.

         Prepaid expenses and other current assets. As of July 31, 2001, the
Company had approximately $30,000 in Prepaid expenses and other current assets
as compared to none as of July 31, 2000.

         Furniture and equipment. As of July 31, 2001, the Company had
approximately $37,000 in Furniture and equipment, net of accumulated
depreciation of $115,849 as compared to $26,000 as of July 31, 2000, an increase
of $11,000.

         Patents. As of July 31, 2001, the Company had approximately $236,000 in
Patents, net of accumulated amortization of $148,371 as compared to $283,000 as
of July 31, 2000, an decrease of $47,000.

                                       16

<PAGE>

Liabilities

     Current liabilities. Current liabilities increased from approximately
$94,000 for the year ended July 31, 2000 to approximately $157,000 for the year
ended July 31, 2001, an increase of approximately $63,000.

     Accounts payable and accrued expenses. Accounts payable and accrued
expenses increased from approximately $65,000 for the year ended July 31, 2000
to approximately $132,000 for the year ended July 31, 2001, an increase of
approximately $67,000.

     Deferred research and consulting revenue. Deferred research and consulting
revenue increased from none for the year ended July 31, 2000 to approximately
$25,000 for the year ended July 31, 2001.

     Cash provided by operating activities. Cash provided by operating
activities increased from approximately $78,000 for the year ended July 31, 2000
to approximately $145,000 for the year ended July 31, 2001, an increase of
approximately $67,000. The increase in cash provided by operating activities is
primarily attributable to an increase in the Company's Depreciation and
Amortization of approximately $120,000 during the year ended July 31, 2001
compared to approximately $30,000 during the year ended July 31, 2000.

     Cash used in investing activities. Cash used in investing activities
decreased from approximately $76,000 for the year ended July 31, 2000 to
approximately $37,000 for the year ended July 31, 2001, an decrease of
approximately $39,000. Investing activities consist primarily of costs for
patents, software production and purchase/sale of short-term investments and
purchase of furniture and equipment.

     Cash provided by financing activities. Cash provided by financing
activities increased from approximately $22,500 for the year ended July 31, 2000
to approximately $23,000 for the year ended July 31, 2001, an increase of
approximately $500. due to proceeds from exercise of options by a shareholder in
2001.

ITEM 8.  FINANCIAL STATEMENTS.

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

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

     None.

                                       17

<PAGE>

                                    PART III

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

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

<TABLE>
<CAPTION>
              Name                           Age                             Position
     <S>                                      <C>          <C>
     Marvin A. Sackner, M.D.                  70           Chairman of the Board,

     Allan F. Brack                           58           Chief Executive Officer and Director

     Taffy Gould                              60           Director and Vice Chairman of the Board

     Morton J. Robinson, M.D.                 70           Secretary and Director

     Gerard Kaiser, M.D.                      70           Director

     Andrew M. Smulian                        56           Director

     Leila Kight                              55           Director
     John G. Clawson                          74           Director
</TABLE>

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

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

                                       18

<PAGE>

     TAFFY GOULD was elected a Director of the Company in December, 2000 and
Vice Chairman of the Board of Directors in April, 2002. From 1977 to December,
2000, she was the President of Housing Engineers of Florida, Inc., a Florida
real estate management company. In December, 2000, she founded and is a managing
member of GlobalTechnologyAgents.com, LLC, a Florida limited liability company
which advises technology companies and end-users in the business, academic, and
medical spheres, worldwide.

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

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

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

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

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

            Directors of the Company hold their offices until the next annual
meeting of the Company's shareholders until their successors have been duly
elected and qualified or until their earlier resignation, removal of office or
death. The Company has an Executive Committee consisting of Marvin A. Sackner,
Allan F. Brack, Morton J. Robinson, M.D and Taffy Gould, with such Committee
acting as Audit and Legal Committee as well as Compensation and a Stock Option
Review Committee. There are no other committees of the Board of Directors. The
Board of Directors met four times in fiscal 2002.

            One of the principal functions of the Executive Committee acting as
the Company's Audit Committee is to recommend the annual appointment of the
Company's independent auditors, to consult and review with the Company's
auditors concerning the scope of the audit and the results of their examination,
to review and approve any material accounting policy changes affecting the
Company's operating results and to review the Company's internal control
procedures. The Executive Committee, acting as the Compensation and Stock Option
Review Committee, reviews and recommends compensation and benefits for the
executives and key

                                       19

<PAGE>

employees of the Company as well as administer and interpret the Company's Stock
Option Plan and are authorized to grant options pursuant to the terms of such
plans.

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

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Directors, executives officers and holders of more than ten
percent of the Company's Common Stock, to file reports of ownership and changes
in ownership with the Securities and Exchange Commission and NASDAQ. Such
persons are required to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on its review of the copies of such forms received
by it, or oral or written representations from certain reporting persons that no
Forms 5 were required for those persons or that such Form 5's would be filed,
the Company believes that, during fiscal 2002, 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, 2000, 2001, and 2002, the cash and certain other compensation paid by
the Company to the Company's Chief Executive Officer ("CEO"). No other current
executive officer had an annual salary and bonus in excess of $100,000 during
either of such fiscal years:

<TABLE>
<CAPTION>
                                                              Annual                     Long-Term
                                                           Compensation                 Compensation
  Name and Principal Position                 Year          Salary ($)              Securities Underlying
                                                                                           Options
  <S>                                         <C>          <C>                      <C>
  Allan F. Brack                              2000           $   0.00                       ------
  Chief Executive Officer                     2001           $135,000                  400,000 shares*
  (commencing  May, 2001)                     2002           $135,000                  125,000 shares
</TABLE>

     *Options awarded pursuant an employment agreement, dated May 11, 2001.
The pricing of the Option shall be an exercise price per share equal to $.50
with 100,000 Options vesting as of May 11, 2002, 100,000 Options vesting as of
May 11, 2003, 100,000 Options vesting as of May 11, 2004 and the final 100,000
Options vesting as May 11, 2005.

EMPLOYMENT AGREEMENTS

     On April 19, 2002, the Executive Committee approved a six year employment
agreement for Marvin A. Sackner which provides for an annual salary of $99,000
with a severance package consisting of the remainder of his base salary and
Common Stock, such severance to be paid upon specific change of circumstances
including a change of control of the Company, removal of Marvin A. Sackner from
the Board of Directors or removal of Marvin A. Sackner as Medical director.

                                       20

<PAGE>

      On May 11, 2001, the Company entered into an employment agreement with
Allan F. Brack. This employment agreement is for a term of two years with
automatic one year extensions, provides an annual salary of $135,000, 400,000
options to purchase shares of the Company at $0.50 per share, 100,000 options
vesting on each anniversary of the employment agreement and a bonus to be
determined by the Board of Directors.

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

      The following table sets forth certain information regarding NIMS'
Common Stock, Series C Convertible Preferred Stock and NIMS' voting securities
beneficially owned on October 29, 2002, by (i) each person who is known by NIMS
to own beneficially or exercise voting or dispositive control over 5% or more of
NIMS' Common Stock, (ii) each of NIMS' Directors and (iii) all executive
officers and Directors as a group:

<TABLE>
<CAPTION>
Name and Address      No. of Shares    Percentage      No. of Shares  Percentage  No. of Shares     Percentage of
Identify of Group     of Common        of Beneficial   of Series C of Class       of Voting         Beneficial
                      Stock            Ownership       Convertible (3)            Securities        Ownership
                      Beneficially     (2)             Preferred                  Beneficially
                       Owned (1)                       Stock                      Owned (1)(4)
                                                       Beneficially
                                                       Owned (1)
<S>                   <C>              <C>             <C>            <C>         <C>               <C>
Marvin A.
Sackner, M.D.         12,508,204(5)            35.8%       36,855.92       59.4%  12,545,059.92(5)          35.8%
1666 Kennedy
Causeway Avenue,
Suite 400, North
Bay Village
Florida 33141

Allan F. Brack
1666 Kennedy             615,000(6)             1.8%             -0-         -0-       615,000 (6)           1.8%
Causeway Avenue,
Suite 400, North
Bay Village
Florida 33141

Taffy Gould
1666 Kennedy             850,000(7)             2.4%             -0-         -0-        850,000(7)           2.4%
Causeway Avenue,
Suite 400, North
Bay Village
Florida 33141

Morton J.
Robinson, M.D.
1666 Kennedy             681,991(8)             1.9%        1,073.19        1.7%     683,064.19(8)           1.9%
Causeway Avenue,
Suite 400, North
Bay Village
Florida 33141

Gerard Kaiser,
M.D.
1666 Kennedy             211,541(9)                *           75,00           *        211,616(9)              *
Causeway Avenue,
Suite 400, North
Bay Village
Florida 33141
</TABLE>

                                       21

<PAGE>

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

Andrew M. Smulian
1666 Kennedy            415,500(10)             1.2%             -0-         -0-       415,500(10)           1.2%
Causeway Avenue,
Suite 400, North
Bay Village
Florida 33141

Leila Kight
1666 Kennedy          1,515,000(11)             4.3%             -0-         -0-     1,515,000(11)           4.3%
Causeway Avenue,
Suite 400, North
Bay Village
Florida 33141

John G. Clawson
1666 Kennedy            390,000(12)             1.1%             -0-         -0-       390,000(12)           1.1%
Causeway Avenue,
Suite 400, North
Bay Village
Florida 33141

All executive
officers and            17,187,236             49.1%       38,004.11       61.2%    17,225,240.11           49.1%
directors as a
group (8persons)
</TABLE>

--------------------------- * Less than 1%
(1)  A person is deemed to be the beneficial owner of securities that can be
     acquired by such person within 60 days from the date hereof upon exercise
     of option and warrants. Each beneficial owner's percentage ownership is
     determined by assuming that option and warrants that are held by such
     person (but not those held by any other person) and that are exercisable
     within 60 days from the date hereof have been exercised.
(2)  Based on 34,984,725 shares of Common Stock, consisting of 29,823,059 shares
     of Common Stock issued and outstanding as of July 31, 2002 and 5,161,666
     shares of Common Stock that can be acquired within 60 days from the date
     hereof upon exercise of options to the holder.
(3)  Based on 62,048 Series C Convertible Preferred Stock issued and
     outstanding, as of July 31, 2002.
(4)  Based on 35,046,773 shares consisting of shares of Common Stock, consisting
     of 29,823,059 shares of Common Stock issued and outstanding as of July 31,
     2002, 62,048 Series C Convertible Preferred Stock and 100 shares of Series
     B Preferred Stock issued and outstanding as of July 31, 2002 and 5,161,666
     shares of Common Stock that can be acquired within 60 days from the date
     hereof upon exercise of options to the holder. Holders of Series C
     Preferred Stock are entitled to vote together with the holders of shares of
     Common Stock and Series B Preferred Stock on a share-for-share basis as a
     single class, on all matters except as otherwise required by law

                                       22

<PAGE>

(5)  Includes securities held by Dr. Marvin A. Sackner and Ruth Sackner, his
     spouse and includes options to purchase 887,000 shares of Common Stock.

(6)  Includes options to purchase 350,000 shares of Common Stock. Does not
     include options to purchase 300,000 shares of Common Stock that have not
     vested.

(7)  Includes options to purchase 350,000 shares of Common Stock. Does not
     include shares of Common Stock and options to purchase Common Stock held by
     family members.

(8)  Includes securities held jointly by Dr. Robinson and his spouse and by a
     pension plan established in connection with Dr. Robinson's medical practice
     and includes options to purchase 197,500 shares of Common Stock. Does not
     include securities held by trust established for the benefit of Dr.
     Robinson's children, in which securities he disclaims beneficial ownership.

(9)  Includes shares of Common Stock held by Dr. Kaiser's spouse and includes
     options to purchase 115,000 shares of Common Stock.

(10) Includes securities held by Andrew Smulian or Rona Marks Smulian, his
     spouse and includes options to purchase 155,000 shares of Common Stock.

(11) Includes securities held by Leila Kight and John Ballou and includes
     options to purchase 515,000 shares of Common Stock.

(12) Includes options to purchase 140,000 shares of Common Stock.

(13) Includes options to purchase 2,709,500 shares of Common Stock.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      The Company has approximately a 9% interest in LifeShirt.com, Inc. (now
known as VivoMetrics, Inc.), a related entity. Dr. Sackner's son-in-law is the
Chief Operating Officer and a founder of VivoMetrics, Inc. Dr. Sackner currently
serves as Medical Director and member of the Board of Directors of VivoMetrics,
Inc. The Company is a party to a month by month agreement with VivoMetrics, Inc.
for continuing research and development on the LifeShirt system.

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

      In March 2002, the Company issued 375,000 shares of Common Stock to
extinguish a $75,000 loan payable to Dr. Marvin Sackner shareholder and issued
250,000 shares of Common Stock to the Chief Executive Officer in lieu of
compensation. The shares were valued using the market value on the date of
issuance and the Company recorded expense of $93,750 during the

                                       23

<PAGE>

quarter ended April 30, 2002. Options to purchase 312,500 shares of the
Company's common stock were also issued as part of these transactions. These
options are exercisable at $0.40 per share and expire in March 2007. The fair
value of the options on the grant date was $78,125 calculated using the
Black-Scholes Option Pricing Model.

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

      (a). Exhibits

Exhibit No.           Description of Exhibits
-----------           -----------------------
       3(a)           Articles of Incorporation, as amended (1)

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

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

      10(c)           Revised SMC Agreement (4)

      21              Subsidiaries of the Company (2)

      23              Consent of Independent Auditors(5)

    99.1              Certification Pursuant to 18 U.S.C Section 1350, as
                      Adopted Pursuant to Section 302 and 906 of the Sarbanes-
                      Oxley Act of 2002. (5)

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

(b) Reports on Form 8-K

         None.

                                       24

<PAGE>

                                   SIGNATURES

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

                      NON-INVASIVE MONITORING SYSTEMS, INC.


Dated: October 29, 2002                            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 Board  and Director          October 29, 2002
MARVIN A. SACKNER

/S/ Allan F. Brack            Chief Executive Officer and Director         October 29, 2002
ALLAN F. BRACK

/S/ Taffy Gould               Vice Chairman of the Board and Director      October 29, 2002
TAFFY GOULD

/S/ Mortin J. Robinson
MORTON J. ROBINSON            Secretary and Director                       October 29, 2002

/S/ Gerard Kaiser
GERARD KAISER                 Director                                     October 29, 2002

/s/ Andrew M. Smulian
ANDREW M. SMULIAN             Director                                     October 29, 2002

/s/ John G. Clawson
JOHN G. CLAWSON               Director                                     October 29, 2002

/s/ Leila Kight
LEILA KIGHT                   Director                                     October 29, 2002
</TABLE>

                                       25

<PAGE>

                      Non-Invasive Monitoring Systems, Inc.

                               Form 10-KSB-Item 13
                          Index to Financial Statements


                                    Contents

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

     Balance Sheet - July 31, 2002

     Statements of Operations - Years Ended July 31, 2002 and 2001

     Statements of Shareholders' Equity - Years Ended July 31, 2002 and 2001

     Statements of Cash Flows - Years Ended July 31, 2002 and 2001

     Notes to Financial Statements

                                       F-1

<PAGE>

 [LETTERHEAD OF GERSON, PRESTON, ROBINSON & COMPANY, P.A. CERTIFIED PUBLIC
                                  ACCOUNTANTS]


Board of Directors
Non-Invasive Monitoring Systems, Inc.

                          INDEPENDENT AUDITORS' REPORT

We have audited the accompanying balance sheet of Non-Invasive Monitoring
Systems, Inc. as of July 31, 2002 and the related statements of operations,
shareholders' equity and cash flows for the years ended July 31, 2002 and 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Non-Invasive Monitoring
Systems, Inc. at July 31, 2002 and the results of their operations and their
cash flows for each of the two years in the period ended July 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying financial statements referred to above have been prepared
assuming that Non-Invasive Monitoring Systems, Inc. will continue as a going
concern. As more fully described in Note 2, the Company's need to seek new
sources or methods of financing or revenue to pursue its business strategy,
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans as to these matters are also described in Note 2.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

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

October 23, 2002           CERTIFIED PUBLIC ACCOUNTANTS
Miami Beach, Florida

                                       F-2

<PAGE>

                      NON-INVASIVE MONITORING SYSTEMS, INC.
                                              BALANCE SHEET
                                           At July 31, 2002

<TABLE>
<CAPTION>
                                     ASSETS
<S>                                                                                             <C>
                                                             Current assets
                                                                       Cash                    $    293,715
                                          Accounts and royalties receivable                          33,734
                                                                Inventories                         163,473
                                  Prepaid expenses and other current assets                          43,607
-----------------------------------------------------------------------------------------------------------

                                                       Total current assets                         534,529

        Furniture and equipment, net of accumulated depreciation of $78,280                          59,511

                        Patents, net of accumulated amortization of $28,152                         161,745
-----------------------------------------------------------------------------------------------
                                                                                               ------------
                                                               Total assets                    $    755,785
-----------------------------------------------------------------------------------------------------------

                      LIABILITIES AND SHAREHOLDERS' EQUITY

                                                        Current liabilities
                                      Accounts payable and accrued expenses                    $    102,397
                                   Deferred research and consulting revenue                          24,633
-----------------------------------------------------------------------------------------------------------

                                                  Total current liabilities                         127,030
-----------------------------------------------------------------------------------------------------------

                                                       Shareholders' equity
                 Preferred stock, $1 par value; 1,000,000 shares authorized                          62,148
               Common stock, $.01 par value; 100,000,000 shares authorized;
                   29,489,726 shares issued and outstanding; and additional
                                                            paid-in capital                      12,867,175
                                                        Accumulated deficit                     (12,300,568)
-----------------------------------------------------------------------------------------------------------

                                                 Total shareholders' equity                         628,755
-----------------------------------------------------------------------------------------------------------

                                 Total liabilities and shareholders' equity                    $    755,785
===========================================================================================================
</TABLE>

                             See accompanying notes.

                                      F-3

<PAGE>

        NON-INVASIVE MONITORING SYSTEMS, INC.
                     STATEMENTS OF OPERATIONS
           Years Ended July 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                           2 0 0 2                   2 0 0 1
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                     <C>
                                                                             Revenue
                                                                       Product sales         $   194,539               $   210,277
                                                             Research and consulting              82,112                   896,500
                                                                           Royalties              56,847                    52,849
-----------------------------------------------------------------------------------------------------------------------------------

                                                                       Total revenue             333,498                 1,159,626
-----------------------------------------------------------------------------------------------------------------------------------

                                                                  Operating expenses
                                                                  Cost of goods sold              41,565                    52,015
                                                 Selling, general and administrative             853,880                   593,557
                                                            Research and development             605,423                   536,496
                                                                Write-off of patents             100,272                         -
-----------------------------------------------------------------------------------------------------------------------------------
                                                            Total operating expenses           1,601,140                 1,182,068
-------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------------
                                                                            Net loss         $(1,267,642)              $   (22,442)
===================================================================================================================================

Weighted average number of common shares outstanding                                          25,354,931                21,658,562
===================================================================================================================================

Basic and diluted loss per common share                                                      $    (0.050)              $    (0.001)
===================================================================================================================================

</TABLE>

                             See accompanying notes.

                                       F-4

<PAGE>

                      NON-INVASIVE MONITORING
                                SYSTEMS, INC.
                                STATEMENTS OF
                         SHAREHOLDERS' EQUITY
           Years Ended July 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                          Common Stock
                                                                              and
                                                 Preferred                 Additional                    Accumulated
                                                   Stock                Paid-in Capital
                                                  Series B   Series C        Shares          Amount         Deficit        Total
   <S>                                                <C>     <C>            <C>           <C>           <C>            <C>
                      Balance at July 31, 2000        $100    $62,048        21,514,726    $11,212,025   $(11,010,484)  $   263,689

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

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

                                      Net loss           -          -                 -              -        (22,442)      (22,442)
-----------------------------------------------------------------------------------------------------------------------------------
                      Balance at July 31, 2001         100     62,048        22,014,726     11,368,425    (11,032,926)      397,647

                   Common stock issed for cash           -          -         6,850,000      1,330,000              -     1,330,000

      Common stock issued to extinguish a loan
                      payable to a shareholder           -          -           375,000         75,000              -        75,000

              Common stock issued for services           -          -           250,000         93,750              -        93,750

                                      Net loss           -          -                 -              -     (1,267,642)   (1,267,642)
-----------------------------------------------------------------------------------------------------------------------------------
                      Balance at July 31, 2002        $100    $62,048        29,489,726    $12,867,175   $(12,300,568)  $   628,755
</TABLE>

See accompanying notes.

                                      F-5

<PAGE>

                                           NON-INVASIVE MONITORING SYSTEMS, INC.
                                                        STATEMENTS OF CASH FLOWS
                                              Years Ended July 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                2 0 0 2           2 0 0 1
------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                <C>
Operating activities
 Net loss                                                                    $(1,267,642)       $  (22,442)
 Adjustments to reconcile net loss to net cash from
  operating activities:
   Depreciation and amortization                                                  72,689           120,106
   Common stock issued for services and debt extinguishment                       93,750                 -
   Write-off of patents                                                          100,272                 -
   Options issued for services                                                         -            83,900
 Changes in operating assets and liabilities:
  Accounts and royalties receivable                                               (1,302)            4,205
  Inventories                                                                   (133,423)          (11,599)
  Prepaid expenses and other assets                                              (28,674)          (57,472)
  Accounts payable and accrued expenses                                          (29,494)            3,637
  Deferred research and consulting revenues                                         (367)           25,000
------------------------------------------------------------------------------------------------------------

   Net cash (used in) provided by operating activities                        (1,194,191)          145,335
------------------------------------------------------------------------------------------------------------

Investing activities
 Purchase of furniture and equipment                                             (38,823)          (37,114)
 Patent costs incurred                                                           (37,233)                -
------------------------------------------------------------------------------------------------------------

   Net cash (used in) investing activities                                       (76,056)          (37,114)
------------------------------------------------------------------------------------------------------------

Financing activities
 Net proceeds from issuance of common stock                                    1,330,000                 -
 Proceeds from (repayment of) loan from shareholder                               75,000           (49,480)
 Proceeds from exercise of stock options                                               -            72,500
------------------------------------------------------------------------------------------------------------

   Net cash provided by financing activities                                   1,405,000            23,020
------------------------------------------------------------------------------------------------------------

Net increase in cash                                                             134,753           131,241
Cash, beginning of year                                                          158,962            27,721
------------------------------------------------------------------------------------------------------------

Cash, end of year                                                            $   293,715        $  158,962
============================================================================================================
</TABLE>

Supplemental disclosure of non-cash investing and financing activities:

In March 2002, the Company issued 375,000 shares of common stock to extinguish a
loan payable to a shareholder in the amount of $75,000.

See accompanying notes.

                                      F-6

<PAGE>

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

1.   ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

     Patents. Costs incurred in applying for patents are capitalized and
     amortized using the straight-line method over the lives of the patents. As
     of July 31, 2002, there have been no costs incurred in defending patents
     and the Company does not anticipate incurring such costs in fiscal 2003.

     Long-Lived Assets. The Company reviews its long-lived assets for impairment
     whenever events or changes in circumstances indicate that the carrying
     amount may not be recoverable. In performing the review for recoverability,
     the Company estimates the future cash flows expected to result from the use
     of the asset and its eventual disposition. If the sum of the expected
     future cash flows is less than the carrying amount of the assets, an
     impairment loss is recognized as the difference between the sum of the
     estimated future cash flows and the carrying amount of the asset.
     Management reviewed its non-current assets and determined that a reduction
     of $100,272 should be recorded due to the write-off of these non-current
     assets.

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

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

                                       F-7

<PAGE>

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

1.   ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

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

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

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

     Reclassifications. Certain amounts in the 2001 financial statements have
     been reclassified to conform with the 2002 presentation.

2.   GOING CONCERN - UNCERTAINTY

     VivoMetrics, Inc. ("VivoMetrics") has not begun to mass-produce the
     LifeShirt System (see Note 3), has not yet commenced significant marketing
     efforts for the product and has not generated significant revenues.

     The therapeutic motion platform device has been under development for four
     years and the market-ready version of the device is currently being
     manufactured by an FDA-listed manufacturer.

     The Company needs to seek new sources or methods of financing or revenue to
     pursue its business strategy. The Company plans to continue as a going
     concern by raising additional funds through the sale of the Company's
     securities and revenues from the sales of their products. The Company has
     been adjusting its business plan to focus less on Respitrace products and
     more on revenues arising from acceleration therapeutic products, including
     concentrating on internal research and development and on directly
     marketing the Company's acceleration therapeutic products. The Company
     anticipates that funds raised through the sale of its securities, along
     with revenues derived from the sales of their products will be sufficient
     to meet the Company's working capital requirements. However, at this time
     there can be no assurance that the Company will be able to successfully
     implement its plans, or if such plans are successfully implemented, that
     the Company will achieve its goals. If the Company is unable to raise
     additional funds or is not successful in adjusting its business plan, it
     may be required to reduce its workforce, reduce compensation levels, reduce
     dependency on outside consultations, modify its growth and operating plans,
     and even be forced to terminate operations completely.

                                       F-8

<PAGE>

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

2.   GOING CONCERN - UNCERTAINTY (Con't)

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

3.   INVESTMENT IN AND TRANSACTIONS WITH AFFILIATES

     In August 2000, the Company entered into license and research and
     consulting agreements with VivoMetrics. Under the agreements, the Company
     assigned certain patents and software, as well as a non-exclusive,
     worldwide license under these items, to VivoMetrics in consideration of a
     royalty of 3%. The minimum royalty in the second year of sales is $250,000.
     No significant sales have occurred as of July 31, 2002. In addition,
     VivoMetrics granted the Company the non-exclusive, worldwide right and
     license to use of those patents and software for ten years. If VivoMetrics
     fails to earn gross revenues of $200,000 from the commercial sale of
     certain products and/or services to hospitals following the 2002 calendar
     year, the Company has the right to sell certain products to hospitals for
     the following three years in exchange for a royalty to VivoMetrics of 5%.
     The Company also received founders shares of VivoMetrics' common stock
     which has been diluted to less than a 10% ownership; therefore, no
     financial information for this affiliate is disclosed.

     VivoMetrics paid the Company $900,000, in payments of $75,000 per month for
     twelve months beginning August 11, 2000, in consideration for services
     performed by the Company under the term of the one year research and
     consulting agreement. The Company earned $25,000 and $875,000 under this
     agreement during the years ended July 31, 2002 and 2001, respectively.

     The Company entered into a separate month-by-month agreement, dated
     November 1, 2001, with VivoMetrics, whereby the Company will continue to
     provide research and development support on the LifeShirt System.

                                       F-9

<PAGE>

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

4.   LEASES

     As of July 31, 2002, the Company is obligated under a noncancellable lease
     agreement for its office building. Net future minimum rental payments
     required under the operating lease for this office building as of July 31,
     2002 are as follows:

                    Year Ending July 31,        Amount
         ------------------------------------------------

                            2003              $142,000
                            2004               147,000
                            2005               153,000
                            2006               160,000
                            2007               166,000
         ------------------------------------------------

                                              $768,000
         ================================================

     Rent expense was approximately $60,000 and $38,000 for the years ending
     July 31, 2002 and 2001, respectively.

5.   INCOME TAXES

     At July 31, 2002, the Company has available net operating loss carry
     forwards of approximately $11,108,000, which expire in various years
     through 2022.

     Deferred income taxes reflect the net tax effects of temporary differences
     between the carrying amount of assets and liabilities for financial
     reporting purposes and the amounts used for income tax purposes. The
     significant component of the Company's deferred income tax asset would
     result from the net operating losses and amounted to approximately
     $4,300,000.

     A valuation allowance is required to reduce the deferred tax assets
     reported if, based on the weight of the evidence, it is more likely than
     not that some portion or all of the deferred tax assets will not be
     realized. After consideration of all the evidence, both positive and
     negative, management has determined that a full $4,300,000 valuation
     allowance at July 31, 2002 was necessary. The increase in the valuation
     allowance for the year ended July 31, 2002 is $500,000.

6.   PREFERRED STOCK

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

                                      F-10

<PAGE>

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


     The Series C Preferred Stock has a liquidation preference of $1 per share,
     provides for a noncumulative dividend of $.40 per share, if declared, and
     has 62,048 shares issued and outstanding.

     No preferred stock dividends have been declared.

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

7.   COMMON STOCK

     Year Ending July 31, 2001.

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

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

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

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

                                      F-11

<PAGE>

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


7.   COMMON STOCK (Con't)

     Year Ending July 31, 2002.

     The Company completed a private placement offering consisting of 40 units
     at a price of $50,000 per unit. Each unit consists of 250,000 shares of the
     Company's common stock, par value of $0.01 per share and 5-year options to
     purchase 125,000 shares of the Company's common stock at $0.40 per share.
     The Company raised $1,330,000, net of issuance costs, on the sale of
     6,850,000 shares of common stock and options to purchase 3,425,000 shares
     of common stock.

     The Company issued 375,000 shares of common stock to extinguish a $75,000
     loan payable to a shareholder and 250,000 shares of common stock to the
     Chief Executive Officer in lieu of compensation. The shares were valued
     using the market value on the date of issuance and the Company recorded
     expense of $93,750 during the year ended July 31, 2002.

8.   STOCK BASED COMPENSATION

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

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

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

                                      F-12

<PAGE>

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


8.   STOCK BASED COMPENSATION (Cont'd)

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

               Pro forma net loss                   $   (1,357,864)
               Pro forma loss per share             $       (0.054)
               Risk free interest rate                        6.16%
               Expected lives                           5-10 years
               Expected volatility                     159% to 163%


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

     The following table summarizes the transactions of the Company's stock
     options for the two-year period ended July 31, 2002:

                                                                Weighted Average
                                             Number of Shares    Exercise Price
     ---------------------------------------------------------------------------

     Options outstanding, July 31, 2000                    -      $         -
     Options granted                               2,055,000            0.406
     Options exercised                              (500,000)           0.145
     Options forfeited                                     -                -
     ---------------------------------------------------------------------------

     Options outstanding, July 31, 2001            1,555,000            0.490
     Options granted                               3,737,500            0.400
     Options exercised                                     -                -
     Options forfeited                               (60,000)           0.250
     ---------------------------------------------------------------------------
     Options outstanding, July 31, 2002            5,232,500      $     0.429
     ===========================================================================

     Options to purchase 755,000 and 4,397,500 shares were exercisable at July
     31, 2001 and 2002, respectively.

                                      F-13

<PAGE>

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


9.   RELATED PARTY TRANSACTIONS

     As of July 31, 2002, a shareholder had loaned $2,500 to the Company
     included in accounts payable and accrued expenses. The loan is due on
     demand, and is unsecured with interest at 12%. During the year ended July
     31, 2002, the shareholder loaned the Company an additional $75,000, which
     was repaid through the issuance of 375,000 shares of common stock.

10.  CONCENTRATION OF CREDIT RISK

     Cash balances were in excess of FDIC insurance limits by approximately
     $241,000 at July 31, 2002.

11.  SUBSEQUENT EVENT

     In September 2002, several executives of the Company's exclusive Japanese
     agent purchased 333,333 shares of the Company's common stock at $0.30 per
     share. The investors also received five year options to purchase 250,000
     shares of common stock at $0.50 per share.

                                      F-14

<PAGE>

                                 Exhibit Index

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

    23        Consent of Independent Auditors

    99.1      Certification pursuant to 18 U.S.C. Section 1350 as adopted
              pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002.