| [X] | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|-----|--------------------------------------------------------------------------------|

| [   ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|----------------------|------------------------------------------------------------------------------------|

| Delaware                                 | 11-2871434          |
|------------------------------------------|---------------------|
| (State or other jurisdiction of          | (IRS Employer       |
| incorporation or organization)           | Identification No.) |
|                                     |                |
| 180 Linden Avenue, Westbury, New York    | 11590               |
| (Address of Principal Executive Offices) | (Zip Code)          |

| Large Accelerated Filer [  ] | Accelerated Filer  [  ] | Non-Accelerated Filer  [   ] | Smaller Reporting Company [ X ] |
|----------------------------------------|---------------------------------------------|-------------------------------------------------------|---------------------------------|

----

| ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                   | 1  |
|----------------------------------------------------------------------------------------------------------|----|
| ITEM 11 - EXECUTIVE COMPENSATION                                                                         | 4  |
| ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 6  |
| ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE                       | 9  |
| ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES                                                         | 11 |

| INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                 |  F-1  |
|------------------------------------------------------------|-----------------|
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    | F-2             |
| CONSOLIDATED BALANCE SHEETS                                | F-3             |
| CONSOLIDATED STATEMENTS OF OPERATIONS                      | F-4             |
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY | F-5             |
| CONSOLIDATED STATEMENTS OF CASH FLOWS                      | F-6             |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 | F-7             |

----

|   | ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
|--------|------------------------------------------------------------------------|

| Name of Director      | Age | Principal Occupation                                        | Director Since |
|-----------------------|-----|-------------------------------------------------------------|----------------|
| Simon Srybnik (3)(4)  | 94  | Chairman of the Board and Director                          | June, 2007     |
| Derek Enlander (1)(2) | 62  | Director                                                    | July, 2007     |
| Jun Ma                | 47  | President and Chief  Executive  Officer | June, 2007     |
| Behnam Movaseghi (2)  | 57  | Director                                                    | July, 2007     |
| William Dempsey (2)   | 56  | Director                                                    | June, 2010     |
| Peter C. Castle (1)   | 42  | Director                                                    | August, 2010   |

| (1)   | Member of the Audit Committee |
|-----------------|-------------------------------|

| (2)   | Member of Compensation Committee |
|-----------------|----------------------------------|

| (3) | Member of the Corporate Governance Committee |
|-----|----------------------------------------------|

| (4) | Ex-officio member of all committees |
|-----|-------------------------------------|

----

----

| ·   | 7 meetings of the Board of Directors |
|--------------------|--------------------------------------|

| ·   | 4 meetings of the Audit Committee |
|--------------------|-----------------------------------|

| ·   | 1 meeting of the Compensation Committee |
|--------------------|-----------------------------------------|
|               |                                    |

| Name of Officer    |   | Age |   | Position held with the Company                     |
|--------------------|--------|-----|--------|----------------------------------------------------|
| Jun Ma, PhD        |   | 47  |   | President, Chief Executive Officer and Director    |
| Jonathan Newton    |   | 49  |   | Chief Financial Officer                            |
| John C.K. Hui, PhD |   | 64  |   | Senior Vice-President and Chief Technology Officer |

----

|   | ITEM 11 - EXECUTIVE COMPENSATION |
|--------|----------------------------------|

| Name and Principal Position                        | Year   |   | Salary |    |   | Bonus  |   |   | Stock Awards ($) |   |   | Option Awards ($) (2) |   |   | Non-Equity Incentive Plan Compensation ($) |   |   | Nonqualified Deferred Compensation Earnings ($) |   |   | All Other Compensation ($) (1) |   |   | Total ($) |   |
|----------------------------------------------------|--------|--------|--------|---------|--------|--------|--------|--------|------------------|--------|--------|-----------------------|--------|--------|--------------------------------------------|--------|--------|------------------------------------------------------|--------|--------|--------------------------------|--------|--------|-----------|--------|
| Jun Ma, PhD                                        | 2010   |   | $      | 148,471 |   |   |   | -      |             |   | $      | 25,000                |   |   | $                                          | 20,000 |   |                                                 |   | -      |                           |   |   | -         |   |   | $ | 1,195 |   |   | $ | 194,666 |   |
| Chief Executive Officer (3)                        | 2009   |   | $      | 97,817  |   |   |   | -      |             |   | $      | 10,000                |   |   |                                       | -      |   |                                                 |   | -      |                           |   |   | -         |   |   | $ | 583 |   |   | $ | 108,400 |   |
| John C. K. Hui                                     | 2010   |   | $      | 157,151 |   |   |   | -      |             |   | $      | 20,000                |   |   |                                       | -      |   |                                                 |   | -      |                           |   |   | -         |   |   | $ | 22,286 |   |   | $ | 199,437 |   |
| Senior Vice President and Chief Technology Officer | 2009   |   | $      | 178,525 |   |   |   | -      |             |   |   | -                     |   |   |                                       | -      |   |                                                 |   | -      |                           |   |   | -         |   |   | $ | 19,049 |   |   | $ | 197,574 |   |
| (Chief Executive Officer) (4)                      |   |   |   |    |   |   |   |   |             |   |   |                  |   |   |                                       |   |   |                                                 |   |   |                           |   |   |      |   |   |   |   |   |   |   |   |   |
| Tarachand Singh                                    | 2010   |   | $      | 120,000 |   |   |   | -      |             |   |   | -                     |   |   |                                       | -      |   |                                                 |   | -      |                           |   |   | -         |   |   | $ | 11,368 |   |   | $ | 131,368 |   |
| (Chief Financial Officer) (5)                      | 2009   |   | $      | 26,630  |   |   |   | -      |             |   | $      | 4,000                 |   |   |                                       | -      |   |                                                 |   | -      |                           |   |   | -         |   |   | $ | 2,858 |   |   | $ | 33,488 |   |
| Tricia Efstathiou                                  | 2009   |   | $      | 78,953  |   |   |   | -      |             |   |   | -                     |   |   |                                       | -      |   |                                                 |   | -      |                           |   |   | -         |   |   | $ | 8,405 |   |   | $ | 87,358 |   |
| (Chief Financial Officer) (6)                      |   |   |   |    |   |   |   |   |             |   |   |                  |   |   |                                       |   |   |                                                 |   |   |                           |   |   |      |   |   |   |   |   |   |   |   |   |

| (1)   | Represents premiums paid on medical, dental, life and disability group benefit plans, as well as amounts matched in the Company’s 401(k) Plan. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Option awards are valued at the fair market value times the number of shares (which represent the fair market value of the underlying common stock at the time of the respective grants). |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Dr. Ma has served as President and Chief Executive Officer since October 16, 2008; Dr. Ma received common stock valued at $5,000 for service as a director prior to being named President and Chief Executive Officer. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | Dr. Hui was President and Chief Executive Officer from April 30, 2007 to October 15, 2008. |
|-----------------|--------------------------------------------------------------------------------------------|

| (5)   | Mr. Singh was Chief Financial Officer from March 11, 2009 to August 26, 2010. |
|-----------------|-------------------------------------------------------------------------------|

| (6)   | Ms. Efstathiou was Chief Financial Officer from September 20, 2006 to November 5, 2008. |
|-----------------|-----------------------------------------------------------------------------------------|

|              | Fiscal Year | Matching Contribution to 401K Plan                                                                                                                      | Supplemental Life Insurance                                                                                      | Medical Insurance Benefits                                                                                                            | Other Personal Including Personal Use of Auto                                                                                                                                                                                               | Total                                                                  |
|-------------------|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------|
| Jun Ma            | 2010        |                          - |  $              1,195                 |                       - |                                        - |  $       1,195                 |
|              | 2009        |                          - |  $                 583 |                       - |                                        - |  $          583 |
| John C. K. Hui    | 2010        |  $                   886                            |  $              1,228                 |  $           20,172                                                       |                                        - |  $     22,286                            |
|              | 2009        |  $                1,038                                            |  $              1,156                 |  $           16,855                                                       |                                        - |  $     19,049                            |
| Tarachand Singh   | 2010        |  $                   960                            |  $              1,103                 |  $             9,305                                            |                                        - |  $     11,368                            |
|              | 2009        |  $                   475                            |  $                 216 |  $             2,167                                            |                                        - |  $       2,858                 |
| Tricia Efstathiou | 2009        |  $                   474                            |  $                 514 |  $             7,417                                            |                                        - |  $       8,405                 |
|              |        |                                                                                                                                                    |                                                                                                             |                                                                                                                                  |                                                                                                                                                                                                                                        |                                                                   |

----

|                          |   | Option Awards                                                     |    |   |                                                                |   |   |                                                                            |   |   |                  | Stock Awards |                   |   |                                                    |   |       |                                                          |   |   |                                                                                                |   |
|-------------------------------|--------|-------------------------------------------------------------------|---------|--------|---------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------|--------|--------|-----------------------|--------------|------------------------|--------|---------------------------------------------------------|--------|------------|---------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------|--------|
| Name                          |   | Number of Securities Underlying Unexercised Options - Exercisable |    |   | Number of Securities Underlying Unexercised Options - Unexercisable |   |   | Equity Incentive Plan Awards: Number of Underlying Unexercised Unearned Options |   |   | Option Exercise Price |         | Option Expiration Date |   | Number of Shares or Units of Stock That Have Not Vested |   |       | Market Value of Shares or Units of Stock That Have Not Vested |   |   | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested |   |   | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |   |
| Jun Ma, PhD                   |   |                                                              | 150,000 |   |                                                                |   | -      |                                                                            |   |   | -                     |         |                   | $      | 0.12                                                    |   | 7/25/2017  |                                                          |   | -      |                                                                                                |   |   | - |   |   |   | - |   |   |   | - |   |
|                          |   |                                                              | 250,000 |   |                                                                |   | -      |                                                                            |   |   | -                     |         |                   | $      | 0.08                                                    |   | 12/17/2014 |                                                          |   |   |                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |
| John C.K.  Hui, PhD |   |                                                              | 50,000  |   |                                                                |   | -      |                                                                            |   |   | -                     |         |                   | $      | 3.96                                                    |   | 7/11/2011  |                                                          |   | -      |                                                                                                |   |   | - |   |   |   | - |   |   |   | - |   |
|                          |   |                                                              | 50,000  |   |                                                                |   | -      |                                                                            |   |   | -                     |         |                   | $      | 1.11                                                    |   | 7/12/2014  |                                                          |   | -      |                                                                                                |   |   | - |   |   |   | - |   |   |   | - |   |
|                          |   |                                                              | 29,558  |   |                                                                |   | -      |                                                                            |   |   | -                     |         |                   | $      | 0.57                                                    |   | 6/22/2015  |                                                          |   | -      |                                                                                                |   |   | - |   |   |   | - |   |   |   | - |   |
|                          |   |                                                              | 40,000  |   |                                                                |   | -      |                                                                            |   |   | -                     |         |                   | $      | 0.58                                                    |   | 9/20/2015  |                                                          |   | -      |                                                                                                |   |   | - |   |   |   | - |   |   |   | - |   |
|                          |   |                                                              | 200,000 |   |                                                                |   | -      |                                                                            |   |   | -                     |         |                   | $      | 0.22                                                    |   | 4/3/2016   |                                                          |   | -      |                                                                                                |   |   | - |   |   |   | - |   |   |   | - |   |

----

|               |   | Fees Earned or Paid in Cash |   |   | Stock Awards |   |   | Option Awards |   |   | Non-equity Incentive Plan Compensation |   |   | Nonqualified Deferred Compensation Earnings |   |   | All Other Compensation |   |   | Total  |   |
|--------------------|--------|-----------------------------|--------|--------|--------------|--------|--------|---------------|--------|--------|----------------------------------------|--------|--------|---------------------------------------------|--------|--------|------------------------|--------|--------|--------|--------|
| Name               |   | ($)                         |   |   | ($)          |   |   | ($)(1)        |   |   | ($)                                    |   |   | ($)                                         |   |   | ($)                    |   |   | ($)    |   |
| Abraham E. Cohen   |   |                        | 3,000  |   |         |   | 22,350 |          |   |   | -                                      |   |   |                                        | -      |   |                   |   | -      |   |   |   | - |   |   |   | 25,350 |   |
| Derek Enlander     |   |                        | 4,000  |   |         |   | 29,850 |          |   |   | -                                      |   |   |                                        | -      |   |                   |   | -      |   |   |   | - |   |   |   | 33,850 |   |
| Joseph Giacalone   |   |                        | -      |   |         |   | 12,500 |          |   |   | -                                      |   |   |                                        | -      |   |                   |   | -      |   |   |   | - |   |   |   | 12,500 |   |
| Behnam Movaseghi   |   |                        | 3,000  |   |         |   | 22,350 |          |   |   | 16,000                                 |   |   |                                        | -      |   |                   |   | -      |   |   |   | - |   |   |   | 41,350 |   |
| Photios T. Paulson |   |                        | 8,000  |   |         |   | 28,350 |          |   |   | -                                      |   |   |                                        | -      |   |                   |   | -      |   |   |   | - |   |   |   | 36,350 |   |
| Simon Srybnik      |   |                        | 3,000  |   |         |   | 22,350 |          |   |   | -                                      |   |   |                                        | -      |   |                   |   | -      |   |   |   | - |   |   |   | 25,350 |   |
| Martin Zeiger      |   |                        | 8,000  |   |         |   | 24,350 |          |   |   | -                                      |   |   |                                        | -      |   |                   |   | -      |   |   |   | - |   |   |   | 32,350 |   |

| (1)   | Options valued at $16,000 remain outstanding as of May 31, 2010. |
|-----------------|------------------------------------------------------------------|

|   | ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
|--------|----------------------------------------------------------------------------------------------------------|

----

| Name of Beneficial Owner                                                                                   |   | Common Stock Beneficially Owned (1) |       |   | % of Common Stock (2) |   |
|------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|------------|--------|----------------------------|--------|
| Abraham Cohen**....................................        |   |                                     | 1,801,379  |   |                       |   | 1.63 | % |
| Derek Enlander **.....................................     |   |                                     | 753,284    |   |                       |   | * |   |
| John C. K. Hui, PhD (3) ** .............................                               |   |                                     | 1,492,214  |   |                       |   | 1.35 | % |
| Jun Ma, PhD **........................................ |   |                                     | 1,585,834  |   |                       |   | 1.44 | % |
| Benham Movaseghi **................................                |   |                                     | 848,125    |   |                       |   | * |   |
| Photios Paulson**....................................      |   |                                     | 1,168,284  |   |                       |   | 1.06 | % |
| Tarachand Singh**.....................................     |   |                                     | 200,000    |   |                       |   | * |   |
| Simon Srybnik (4) (5) **.............................                  |   |                                     | 44,177,418 |   |                       |   | 40.06 | % |
| Louis Srybnik (4) (5)..................................        |   |                                     | 43,429,293 |   |                       |   | 39.38 | % |
|                                                                                                       |   |                                     |       |   |                       |   |   |   |
| ** Directors and executive officers as a group (8 persons)                                                 |   |                                     | 52,026,538 |   |                       |   |   47.18 | % |
|                                                                                                       |   |                                     |       |   |                       |   |   |   |
|                                                                                                       |   |                                     |       |   |                       |   |   |   |

| 1.   | No officer or director owns more than one percent of the issued and outstanding common stock of the Company unless otherwise indicated. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------|

----

| Abraham Cohen           |   |   | 245,000   |   |
|-------------------------|--------|--------|-----------|--------|
| Derek Enlander          |   |   | 150,000   |   |
| John C. K. Hui, PhD     |   |   | 369,558   |   |
| Jun Ma                  |   |   | 400,000   |   |
| Behnam Movaseghi        |   |   | 350,000   |   |
| Photios Paulson         |   |   | 565,000   |   |
| Simon Srybnik           |   |   | 4,435,714 |   |
|                    |   |   |      |   |
| Directors and executive |   |
| officers as a group     |   |   | 5,950,272 |   |

| 2.   | Applicable percentages are based on 110,271,131shares of common stock outstanding as of May 31, 2010, adjusted as required by rules promulgated by the SEC. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | Includes 789,322 shares that are held in a trust for the benefit of Dr. Hui’s child. Dr. Hui and his wife are the trustees of this trust. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.   | Simon Srybnik and his brother Louis Srybnik are the sole directors and the Chairman of the Board and President, respectively of Kerns, which is the record holder of 25,714,286 shares (of which 4,285,714 shares are not issuable until a restricted warrant is exercised). They are the sole shareholders of Kerns, each holding 50% of the shares.  The reporting persons, accordingly, share voting and dispositive powers over the 21,428,572 shares held by Kerns and share dispositive power over the 4,285,714 shares underlying the restricted warrant. As a result, they may be deemed to be the co-beneficial owners of an aggregate of 25,714,286 shares.  Mr. Srybnik also holds sole dispositive power over 150,000 shares underlying the option he was granted upon being appointed to the Board of Directors, as well as 498,125 shares of common stock held by him as of May 31, 2010. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5.   | Simon Srybnik and his brother Louis Srybnik are the sole directors and officers of Living Data Technology Corporation (“Living Data”). They also each own 35% of the outstanding shares of Living Data.  The reporting persons, accordingly, share voting and dispositive powers over the 17,815,007 shares of our common stock owned by Living Data and, as a result, may be deemed to be the co-beneficial owners thereof. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Plan category       |   | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights |      |   | (b) Weighted-average exercise price of outstanding options, warrants and rights |   |   | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |   |
|---------------------|--------|------------------------------------------------------------------------------------------------------|-----------|--------|--------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                |   |                                                                                                 |      |   |                                                                                 |   |   |                                                                                                                                                 |   |
| Equity Compensation |   |                                                                                                 |      |   |                                                                                 |   |   |                                                                                                                                                 |   |
| plans approved by   |   |                                                                                                 |      |   |                                                                                 |   |   |                                                                                                                                                 |   |
| security holders    |   |                                                                                                 | 1,197,306 |   |                                                                                 | $      | 0.34   |                                                                                                                                                 |   |   | 1,285,862 |   |
|                |   |                                                                                                 |      |   |                                                                                 |   |   |                                                                                                                                                 |   |   |   |   |
| Equity Compensation |   |                                                                                                 |      |   |                                                                                 |   |   |                                                                                                                                                 |   |   |   |   |
| plans not approved  |   |                                                                                                 |      |   |                                                                                 |   |   |                                                                                                                                                 |   |   |   |   |
| by security holders |   |                                                                                                 | 8,306,722 |   |                                                                                 | $      | 0.42   |                                                                                                                                                 |   |   | - |   |
|                |   |                                                                                                 |      |   |                                                                                 |   |   |                                                                                                                                                 |   |   |   |   |
| Total               |   |                                                                                                 | 9,504,028 |   |                                                                                 |   |   |                                                                                                                                                 |   |   | 1,285,862 |   |
|                |   |                                                                                                 |      |   |                                                                                 |   |   |                                                                                                                                                 |   |   |   |   |

|   | ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
|--------|------------------------------------------------------------------------------------|

----

| Related Party   |   | Principal of Note Payable |    |   | Interest Payable on Note as of May 31, 2010 |   |
|-----------------|--------|---------------------------|---------|--------|---------------------------------------------|--------|
| Abraham Cohen   |   |                      | 250,000 |   |                                        |   | 1,370 |   |
| William Dempsey |   |                      | 500,000 |   |                                        |   | 1,952 |   |
| Simon Srybnik   |   |                      | 500,000 |   |                                        |   | 1,952 |   |

----

| ·   | a director who is, or at any time during the past three years was, employed by us; |
|--------------------|------------------------------------------------------------------------------------|

| ·   | a director who accepted or who has a family member who accepted any compensation from us in excess of $120,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than the following: |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | compensation for service on the Board of Directors or any committee thereof; |
|--------------------|------------------------------------------------------------------------------|

| ·   | compensation paid to a family member who is one of our employees (other than an executive officer); or |
|--------------------|--------------------------------------------------------------------------------------------------------|

| ·   | under a tax-qualified retirement plan, or non-discretionary compensation; |
|--------------------|---------------------------------------------------------------------------|

| ·   | a director who is a family member of an individual who is, or at any time during the past three years was, employed by us as an executive officer; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a director who is, or has a family member who is, a partner in, or a controlling stockholder or an executive officer of, any organization to which we made, or from which we received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more, other than the following: |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | payments arising solely from investments in our securities; or |
|--------------------|----------------------------------------------------------------|

| ·   | payments under non-discretionary charitable contribution matching programs; |
|--------------------|-----------------------------------------------------------------------------|

| ·   | a director who is, or has a family member who is, employed as an executive officer of another entity where at any time during the past three years any of our executive officers served on the compensation committee of such other entity; or |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a director who is, or has a family member who is, a current partner of our outside auditor, a current employee of the auditor and personally works on our audit, or was a partner or employee of our outside auditor who worked on our audit at any time during any of the past three years. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|       |   | 2010   |   |   | 2009 (1) |   |
|------------|--------|--------|--------|--------|----------|--------|
| Audit fees |   | $      | 75,000 |   |     | $      | 169,382 |   |
| Tax Fees   |   | $      | 15,000 |   |     | $      | 12,800 |   |
|       |   |   |   |   |     |   |   |   |

----

| (1)   | In fiscal year 2009 Rothstein, Kass & Company, P.C. replaced Rosen, Seymour, Shapss, Martin & Company, LLP (formerly Miller Ellin & Company, LLP) as our independent auditors.  For fiscal year 2009 the fees for audit and tax services provided by Rosen, Seymour, Shapss, Martin & Company were approximately $173,142. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| VASOMEDICAL, INC.                          |
|--------------------------------------------|
| By: /s/ Jun Ma                             |
| Jun Ma                                     |
| President, Chief Executive Officer         |
| and Director (Principal Executive Officer) |

| /s/Jun Ma            | President, Chief Executive Officer and Director       |
|----------------------|-------------------------------------------------------|
| Jun Ma               | (Principal Executive Officer)                         |
|                 |                                                  |
| /s/ Simon Srybnik    | Chairman of the Board                                 |
| Simon Srybnik        |                                                  |
|                 |                                                  |
| /s/ Jonathan Newton  | Chief Financial Officer (Principal Financial Officer) |
| Jonathan Newton      |                                                  |
|                 |                                                  |
| /s/ Derek Enlander   | Director                                              |
| Derek Enlander       |                                                  |
|                 |                                                  |
| /s/ Peter Castle     | Director                                              |
| Peter Castle         |                                                  |
|                 |                                                  |
| /s/ William Dempsey  | Director                                              |
| William Dempsey      |                                                  |
|                 |                                                  |
| /s/ Behnam Movaseghi | Director                                              |
| Behnam Movaseghi     |                                                  |
|                 |                                                  |

----

----

|   | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
|--------|---------------------------------------------------------|

----

|   |   | CONSOLIDATED BALANCE SHEETS |
|--------|--------|-----------------------------|

|                                                                               |   | May 31, 2010 |        |   | May 31, 2009 |   |
|------------------------------------------------------------------------------------|--------|--------------|-------------|--------|--------------|--------|
| ASSETS                                                                             |   |         |        |   |         |   |
| CURRENT ASSETS                                                                     |   |         |        |   |         |   |
| Cash and cash equivalents                                                          |   | $            | 481,679     |   |         | $      | 544,057 |   |
| Short-term investment, at fair value                                               |   |         | 68,850      |   |         |   | 370,523 |   |
| Accounts receivable, net of an allowance for doubtful accounts of                  |   |         |        |   |         |   |   |   |
|      $146,961 at May 31, 2010 and $94,973 at May 31, 2009 |   |         | 440,937     |   |         |   | 659,551 |   |
| Inventories, net                                                                   |   |         | 2,063,769   |   |         |   | 1,479,724 |   |
| Other current assets                                                               |   |         | 124,789     |   |         |   | 175,511 |   |
|  Total current assets                                                         |   |         | 3,180,024   |   |         |   | 3,229,366 |   |
|                                                                               |   |         |        |   |         |   |   |   |
| PROPERTY AND EQUIPMENT, net of accumulated depreciation of                         |   |         |        |   |         |   |   |   |
| $1,612,098 at May 31, 2010 and $1,562,891 at May 31, 2009                          |   |         | 303,038     |   |         |   | 180,409 |   |
| DEFERRED DISTRIBUTOR COSTS, net of accumulated amortization of                     |   |         |        |   |         |   |   |   |
|  $338,818 at May 31, 2010, and $213,234 at May 31, 2009                       |   |         | 250,058     |   |         |   | 375,643 |   |
| OTHER ASSETS                                                                       |   |         | 130,390     |   |         |   | 178,332 |   |
|                                                                               |   | $            | 3,863,510   |   |         | $      | 3,963,750 |   |
|                                                                               |   |         |        |   |         |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                               |   |         |        |   |         |   |   |   |
|                                                                               |   |         |        |   |         |   |   |   |
| CURRENT LIABILITIES                                                                |   |         |        |   |         |   |   |   |
| Accounts payable                                                                   |   | $            | 300,784     |   |         | $      | 142,748 |   |
| Accrued expenses and other liabilites                                              |   |         | 239,032     |   |         |   | 362,025 |   |
| Sales tax payable                                                                  |   |         | 141,884     |   |         |   | 143,693 |   |
| Deferred revenue - current portion                                                 |   |         | 854,403     |   |         |   | 957,258 |   |
| Deferred gain on sale-leaseback of building - current portion                      |   |         | 53,245      |   |         |   | 53,245 |   |
| Accrued professional fees                                                          |   |         | 86,985      |   |         |   | 9,750 |   |
| Trade payable due to related party                                                 |   |         | 240,000     |   |         |   | 260,000 |   |
| Total current liabilities                                                          |   |         | 1,916,333   |   |         |   | 1,928,719 |   |
|                                                                               |   |         |        |   |         |   |   |   |
| LONG-TERM LIABILITIES                                                              |   |         |        |   |         |   |   |   |
| Notes payable                                                                      |   |         | 1,250,000   |   |         |   | - |   |
| Deferred revenue                                                                   |   |         | 172,945     |   |         |   | 330,449 |   |
| Accrued rent expense                                                               |   |         | 17,655      |   |         |   | 16,040 |   |
| Deferred gain on sale-leaseback of building                                        |   |         | 62,121      |   |         |   | 115,365 |   |
| Other long-term liabilities                                                        |   |         | 11,900      |   |         |   | 11,900 |   |
| Total long term liabilities                                                        |   |         | 1,514,621   |   |         |   | 473,754 |   |
|                                                                               |   |         |        |   |         |   |   |   |
| COMMITMENTS & CONTINGENCIES (NOTE P)                                           |   |         |        |   |         |   |   |   |
|                                                                               |   |         |        |   |         |   |   |   |
| STOCKHOLDERS' EQUITY                                                               |   |         |        |   |         |   |   |   |
| Preferred stock, $.01 par value; 1,000,000 shares authorized;                      |   |         |        |   |         |   |   |   |
|  none issued                                                                  |   |         | -           |   |         |   | - |   |
| Common stock, $.001 par value; 250,000,000 shares authorized;                      |   |         |        |   |         |   |   |   |
| 110,271,131 shares at May 31, 2010, and 99,843,004 at                              |   |         |        |   |         |   |   |   |
|  May 31, 2009, issued and outstanding                                         |   |         | 110,271     |   |         |   | 99,843 |   |
| Additional paid-in capital                                                         |   |         | 48,958,737  |   |         |   | 48,281,711 |   |
| Accumulated deficit                                                                |   |         | (48,636,452 | )      |         |   | (46,744,379 | ) |
| Non-controlling interest                                                           |   |         | -           |   |         |   | (75,898 | ) |
| Total stockholders’ equity                                                   |   |         | 432,556     |   |         |   | 1,561,277 |   |
|                                                                               |   | $            | 3,863,510   |   |         | $      | 3,963,750 |   |
|                                                                               |   |         |        |   |         |   |   |   |

----

|   |   | CONSOLIDATED STATEMENTS OF OPERATIONS |
|--------|--------|---------------------------------------|

|                                                |   | Years Ended May 31, |        |
|-----------------------------------------------------|--------|---------------------|-------------|
|                                                |   | 2010                |        |   | 2009 |   |
| Revenues                                            |   |                |        |   |   |   |
| Equipment sales                                     |   | $                   | 2,119,270   |   |   | $ | 2,219,729 |   |
| Equipment rentals and services                      |   |                | 2,086,672   |   |   |   | 2,251,457 |   |
| Total revenues                                      |   |                | 4,205,942   |   |   |   | 4,471,186 |   |
|                                                |   |                |        |   |   |   |   |   |
| Cost of Sales and Services                          |   |                |        |   |   |   |   |   |
| Cost of sales, equipment                            |   |                | 1,062,466   |   |   |   | 1,586,633 |   |
| Cost of equipment rentals and services              |   |                | 931,964     |   |   |   | 979,183 |   |
| Total cost of sales and services                    |   |                | 1,994,430   |   |   |   | 2,565,816 |   |
| Gross profit                                        |   |                | 2,211,512   |   |   |   | 1,905,370 |   |
|                                                |   |                |        |   |   |   |   |   |
| Operating Expenses                                  |   |                |        |   |   |   |   |   |
| Selling, general and administrative                 |   |                | 3,772,569   |   |   |   | 3,013,276 |   |
| Research and development                            |   |                | 418,803     |   |   |   | 519,509 |   |
| Total operating expenses                            |   |                | 4,191,372   |   |   |   | 3,532,785 |   |
| Loss from operations                                |   |                | (1,979,860  | ) |   |   | (1,627,415 | ) |
|                                                |   |                |        |   |   |   |   |   |
| Other Income (Expenses)                             |   |                |        |   |   |   |   |   |
| Interest and financing costs                        |   |                | (5,383      | ) |   |   | - |   |
| Interest and other income, net                      |   |                | 79,871      |   |   |   | 55,334 |   |
| Amortization of deferred gain on                    |   |                |        |   |   |   |   |   |
| sale-leaseback of building                          |   |                | 53,245      |   |   |   | 53,245 |   |
| Total other income, net                             |   |                | 127,733     |   |   |   | 108,579 |   |
|                                                |   |                |        |   |   |   |   |   |
| Loss before income taxes                            |   |                | (1,852,127  | ) |   |   | (1,518,836 | ) |
| Income tax benefit (expense), net                   |   |                | 35,952      |   |   |   | (5,875 | ) |
| Net loss                                            |   |                | (1,816,175  | ) |   |   | (1,524,711 | ) |
| Net income attributable to non-controlling interest |   |                | 75,898      |   |   |   | - |   |
| Net loss attributable to common stockholders        |   | $                   | (1,892,073  | ) |   | $ | (1,524,711 | ) |
|                                                |   |                |        |   |   |   |   |   |
| Net loss per common share                           |   |                |        |   |   |   |   |   |
| basic & diluted                                 |   | $                   | (0.02       | ) |   | $ | (0.02 | ) |
| Weighted average common shares outstanding          |   |                |        |   |   |   |   |   |
| basic & diluted                                 |   |                | 101,776,390 |   |   |   | 99,556,191 |   |
|                                                |   |                |        |   |   |   |   |   |

----

|                                                                                |   |               |        |   |              |   |    |                           |   |   |                     |   |   |                      |                                                                                         |
|-------------------------------------------------------------------------------------|--------|--------------------|-------------|--------|-------------------|--------|---------|--------------------------------|--------|--------|--------------------------|--------|--------|--------------------------------|----------------------------------------------------------------------------------------------|
|                                                                                |   | Common Shares |        |   | Stock Amount |   |    | AdditionalPaidin- Capital |   |   | Accumulated Deficit |   |   |  Non-controlling interest |        TotalStockholders'      Equity |   |
| Balance at May 31, 2008                                                             |   |               | 93,768,004  |   |              | $      | 93,768  |                           |   | $      | 48,068,432               |   |   | $                              | (45,219,668                                                                                  | ) |   | $ | (75,898 | ) |   | $ | 2,866,634 |   |
| Common stock issued pursuant to Distribution                                        |   |               |        |   |              |   |    |                           |   |   |                     |   |   |                           |                                                                                         |   |   |   |   |   |   |
|     and Supply agreement                                             |   |               | 3,000,000   |   |              |   | 3,000   |                           |   |   | 57,000                   |   |   |                           |                                                                                         |   |   |   |   |   |   |   | 60,000 |   |
| Common stock issued to Directors for fiscal year 2008 compensation                  |   |               | 2,075,000   |   |              |   | 2,075   |                           |   |   | 122,424                  |   |   |                           |                                                                                         |   |   |   |   |   |   |   | 124,499 |   |
| Stock-based compensation                                                            |   |               | 1,000,000   |   |              |   | 1,000   |                           |   |   | 33,855                   |   |   |                           |                                                                                         |   |   |   |   |   |   |   | 34,855 |   |
| Net loss                                                                            |   |               |        |   |              |   |    |                           |   |   |                     |   |   |                           | (1,524,711                                                                                   | ) |   |   |   |   |   |   | (1,524,711 | ) |
| Balance at May 31, 2009                                                             |   |               | 99,843,004  |   |              | $      | 99,843  |                           |   | $      | 48,281,711               |   |   | $                              | (46,744,379                                                                                  | ) |   | $ | (75,898 | ) |   | $ | 1,561,277 |   |
| Inventory purchased from related party paid in                                      |   |               |        |   |              |   |    |                           |   |   |                     |   |   |                           |                                                                                         |   |   |   |   |   |   |
|     common stock                                                     |   |               | 7,824,167   |   |              |   | 7,824   |                           |   |   | 461,626                  |   |   |                           |                                                                                         |   |   |   |   |   |   |   | 469,450 |   |
| Common stock issued to Directors for fiscal year 2009 compensation and meeting fees |   |               | 1,937,292   |   |              |   | 1,937   |                           |   |   | 148,663                  |   |   |                           |                                                                                         |   |   |   |   |   |   |   | 150,600 |   |
| Stock-based compensation                                                            |   |               | 666,668     |   |              |   | 667     |                           |   |   | 66,737                   |   |   |                           |                                                                                         |   |   |   |   |   |   |   | 67,404 |   |
| Net income (loss)                                                                   |   |               |        |   |              |   |    |                           |   |   |                     |   |   |                           | (1,892,073                                                                                   | ) |   |   | 75,898 |   |   |   | (1,816,175 | ) |
| Balance at May 31, 2010                                                             |   |               | 110,271,131 |   |              | $      | 110,271 |                           |   | $      | 48,958,737               |   |   | $                              | (48,636,452                                                                                  | ) |   | $ | - |   |   | $ | 432,556 |   |
|                                                                                |   |               |        |   |              |   |    |                           |   |   |                     |   |   |                           |                                                                                         |   |   |   |   |   |   |   |   |   |
|                                                                                |   |               |        |   |              |   |    |                           |   |   |                     |   |   |                           |                                                                                         |   |   |   |   |   |   |   |   |   |
|                                                                                |   |               |        |   |              |   |    |                           |   |   |                     |   |   |                           |                                                                                         |   |   |   |   |   |   |   |   |   |

----

|                                                                                     |   | Years Ended May 31, |       |
|------------------------------------------------------------------------------------------|--------|---------------------|------------|
|                                                                                     |   | 2010                |       |   | 2009 |   |
| Cash flows from operating activities                                                     |   |                |       |   |   |   |
| Net loss                                                                                 |   | $                   | (1,816,175 | ) |   | $ | (1,524,711 | ) |
| Adjustments to reconcile net loss to net cash                                            |   |                |       |   |   |   |   |   |
|   used in operating activities                                                 |   |                |       |   |   |   |   |   |
| Depreciation and amortization of property and equipment                                  |   |                | 123,704    |   |   |   | 102,245 |   |
| Amortization of deferred gain on sale-leaseback of building                              |   |                | (53,246    | ) |   |   | (53,245 | ) |
| Provision for doubtful accounts                                                          |   |                | 51,988     |   |   |   | (175,210 | ) |
| Amortization of deferred distributor costs                                               |   |                | 125,585    |   |   |   | 111,458 |   |
| Expenses paid for distributor agreement                                                  |   |                | -          |   |   |   | (20,000 | ) |
| Stock-based compensation                                                                 |   |                | 218,004    |   |   |   | 159,354 |   |
| Changes in operating assets and liabilities:                                             |   |                |       |   |   |   |   |   |
| Accounts receivable                                                                      |   |                | 166,626    |   |   |   | 233,510 |   |
| Inventories, net                                                                         |   |                | (287,320   | ) |   |   | 19,629 |   |
| Other current assets                                                                     |   |                | 50,722     |   |   |   | (119,278 | ) |
| Accounts payable                                                                         |   |                | 158,036    |   |   |   | (406,145 | ) |
| Accrued expenses and other liabilites                                                    |   |                | (122,993   | ) |   |   | 88,854 |   |
| Sales tax payable                                                                        |   |                | (1,809     | ) |   |   | (5,609 | ) |
| Deferred revenue                                                                         |   |                | (260,359   | ) |   |   | (330,346 | ) |
| Accrued rent expense                                                                     |   |                | 1,615      |   |   |   | 7,384 |   |
| Accrued professional fees                                                                |   |                | 77,235     |   |   |   | (64,750 | ) |
| Trade payable due to related party                                                       |   |                | (20,000    | ) |   |   | 260,000 |   |
| Net cash used in operating activities                                                    |   |                | (1,588,387 | ) |   |   | (1,716,860 | ) |
|                                                                                     |   |                |       |   |   |   |   |   |
| Cash flows from investing activities                                                     |   |                |       |   |   |   |   |   |
| Purchases of property and equipment                                                      |   |                | (25,664    | ) |   |   | (22,559 | ) |
| Purchases of short-term investments                                                      |   |                | (68,850    | ) |   |   | (370,523 | ) |
| Redemption of short-term investments                                                     |   |                | 370,523    |   |   |   | - |   |
| Net cash provided by (used in) investing activities                                      |   |                | 276,009    |   |   |   | (393,082 | ) |
|                                                                                     |   |                |       |   |   |   |   |   |
| Cash flows from financing activities                                                     |   |                |       |   |   |   |   |   |
| Proceeds from notes payable                                                              |   |                | 1,250,000  |   |   |   | - |   |
| Net cash provided by financing activities                                                |   |                | 1,250,000  |   |   |   | - |   |
|                                                                                     |   |                |       |   |   |   |   |   |
| NET DECREASE IN CASH AND CASH EQUIVALENTS                                                |   |                | (62,378    | ) |   |   | (2,109,942 | ) |
| Cash and cash equivalents - beginning of year                                            |   |                | 544,057    |   |   |   | 2,653,999 |   |
| Cash and cash equivalents - end of year                                                  |   | $                   | 481,679    |   |   | $ | 544,057 |   |
|                                                                                     |   |                |       |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION                                              |   |                |       |   |   |   |   |   |
| Interest paid                                                                            |   | $                   | 109        |   |   | $ | - |   |
| Income taxes paid                                                                        |   | $                   | 6,349      |   |   | $ | - |   |
|                                                                                     |   |                |       |   |   |   |   |   |
| SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES                     |   |                |       |   |   |
| Inventories transferred to property and equipment, attributable to operating leases, net |   | $                   | 172,726    |   |   | $ | 153,325 |   |
| Common stock issued for distribution agreement                                           |   | $                   | -          |   |   | $ | 60,000 |   |
| Inventory purchased from related party paid in common stock                              |   | $                   | 469,450    |   |   | $ | - |   |
|                                                                                     |   |                |       |   |   |   |   |   |

----

----

    -  EECP® equipment sale; 
    -  provision of in-service and training support consisting of equipment set-up and training provided at the customer’s facilities; and 
    -  a service arrangement (usually one year), consisting of: service by factory-trained service representatives, material and labor costs, emergency and remedial service visits,  software upgrades, technical phone support and preferred response times. 

----

| ·   | EECP® equipment sales, when delivery and acceptance occurs based on delivery and acceptance documentation received from independent shipping companies or customers; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | in-service and training, following documented completion of the training; and |
|--------------------|-------------------------------------------------------------------------------|

| ·   | the service arrangement, ratably over the service period, which is generally one year. |
|--------------------|----------------------------------------------------------------------------------------|

----

|                            |    |
|---------------------------------|---------|
| Expected dividend yield         | 0.00%   |
| Average risk free interest rate | 2.24%   |
| Expected life                   | 5 years |
| Expected volatility             | 102.31% |
|                            |    |

----

|                                      |   | May 31, 2010 |    |   | May 31, 2009 |   |
|-------------------------------------------|--------|--------------|---------|--------|--------------|--------|
| Beginning Balance                         |   | $            | 94,973  |   |         | $      | 270,183 |   |
| Provision on losses on account receivable |   |         | 71,194  |   |         |   | - |   |
| Direct write-offs, net of recoveries      |   |         | (19,206 | )      |         |   | (175,210 | ) |
| Ending Balance                            |   | $            | 146,961 |   |         | $      | 94,973 |   |
|                                      |   |         |    |   |         |   |   |   |

|                     |   | May 31, 2010 |      |   | May 31, 2009 |   |
|--------------------------|--------|--------------|-----------|--------|--------------|--------|
| Domestic (United States) |   | $            | 2,953,672 |   |         | $      | 3,078,785 |   |
| Non-domestic (foreign)   |   |         | 1,252,270 |   |         |   | 1,392,401 |   |
|                     |   | $            | 4,205,942 |   |         | $      | 4,471,186 |   |
|                     |   |         |      |   |         |   |   |   |

----

----

----

----

|                                                                                                                                                      |                                                                                                          | Quoted Prices    |                                                                                                                      | Significant                                                                                                         |                                                                                                           |                                                                                                            |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|------------------|---------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                      |                                                                                                          | in Active        |                                                                                                                      | Other                                                                                                               | Significant                                                                                                    | Balance                                                                                                         |
|                                                                                                                                                      |                                                                                                          | Markets for      |                                                                                                                      | Observable                                                                                                          | Unobservable                                                                                                   | as of                                                                                                           |
|                                                                                                                                                      |                                                                                                          | Identical Assets |                                                                                                                      | Inputs                                                                                                              | Inputs                                                                                                         | May 31,                                                                                                         |
|                                                                                                                                                      |                                                                                                          | (Level 1)        |                                                                                                                      | (Level 2)                                                                                                           | (Level 3)                                                                                                      |   2010                                                                                                     |
|                                                                                                                                                      |                                                                                                          |             |                                                                                                                      |                                                                                                                |                                                                                                           |                                                                                                            |   |
| Assets                                                                                                                                                    |                                                                                                          |             |                                                                                                                      |                                                                                                                |                                                                                                           |                                                                                                            |   |
|                                                                                                                                                      |                                                                                                          |             |                                                                                                                      |                                                                                                                |                                                                                                           |                                                                                                            |   |
| Cash equivalents invested in     money market fund         (included in cash and cash equivalents) |     $             21,516 |             |  $                 -            |  $                -            |  $         21,516                                            |
|                                                                                                                                                      |                                                                                                          |             |                                                                                                                      |                                                                                                                |                                                                                                           |                                                                                                            |   |
|         Investment in certificates  of deposit (included in short-term investments)                               |                 68,850        |             |                     - |                    - |           68,850                                             |
|                                                                                                                                                      |                                                                                                          |             | $             90,366                                          |                                                                                                                |  $                 - |  $                  - |  $         90,366 |

|                                                                                                             |                                                                                                          |             |                                                                                                                      |                                                                                                                |                                                                                                           |                                                                                                     |                                                     |
|------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|------------------|---------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|----------------------------------------------------------|
|                                                                                                             |                                                                                                          | Quoted Prices    |                                                                                                                      | Significant                                                                                                         |                                                                                                           |                                                                                                     |
|                                                                                                             |                                                                                                          | in Active        |                                                                                                                      | Other                                                                                                               | Significant                                                                                                    | Balance                                                                                                  |
|                                                                                                             |                                                                                                          | Markets for      |                                                                                                                      | Observable                                                                                                          | Unobservable                                                                                                   | as of                                                                                                    |
|                                                                                                             |                                                                                                          | Identical Assets |                                                                                                                      | Inputs                                                                                                              | Inputs                                                                                                         | May 31,                                                                                                  |
|                                                                                                             |                                                                                                          | (Level 1)        |                                                                                                                      | (Level 2)                                                                                                           | (Level 3)                                                                                                      |   2009                                                                                              |
|                                                                                                             |                                                                                                          |             |                                                                                                                      |                                                                                                                |                                                                                                           |                                                                                                     |                                                     |
| Assets                                                                                                           |                                                                                                          |             |                                                                                                                      |                                                                                                                |                                                                                                           |                                                                                                     |                                                     |
|                                                                                                             |                                                                                                          |             |                                                                                                                      |                                                                                                                |                                                                                                           |                                                                                                     |                                                     |
| Cash equivalents invested in money market fund    (included in cash and cash    equivalents) |    $           315,002                  |             |  $                 -            |  $                -            |  $       315,002                                                       |
|                                                                                                             |                                                                                                          |             |                                                                                                                      |                                                                                                                |                                                                                                           |                                                                                                     |                                                     |
| Investment in certificatesof deposit (included in short-term investments)                                        |                  370,523 |             |                     - |                    - |         370,523                                                        |
|                                                                                                             |                                                                                                          |             |                   $685,525           |                                                                                                                |  $                 - |  $                - |  $       685,525 |

----

|            |   | May 31, 2010 |      |   | May 31, 2009 |   |
|-----------------|--------|--------------|-----------|--------|--------------|--------|
|            |   |         |      |   |         |   |
| Raw materials   |   | $            | 585,991   |   |         | $      | 646,775 |   |
| Work in process |   |         | 608,658   |   |         |   | 522,823 |   |
| Finished goods  |   |         | 869,120   |   |         |   | 310,126 |   |
|            |   | $            | 2,063,769 |   |         | $      | 1,479,724 |   |
|            |   |         |      |   |         |   |   |   |
|            |   |         |      |   |         |   |   |   |

|                                      |   | May 31, 2010 |      |   | May 31, 2009 |   |
|-------------------------------------------|--------|--------------|-----------|--------|--------------|--------|
| Office, laboratory and other equipment    |   | $            | 942,476   |   |         | $      | 919,435 |   |
| EECP® systems under operating leases |   |         |      |   |         |
| or under loan for clinical trials         |   |         | 823,195   |   |         |   | 674,400 |   |
| Furniture and fixtures                    |   |         | 149,465   |   |         |   | 149,465 |   |
|                                      |   |         | 1,915,136 |   |         |   | 1,743,300 |   |
| Less:  accumulated depreciation |   |         | 1,612,098 |   |         |   | 1,562,891 |   |
| Property and equipment - net              |   | $            | 303,038   |   |         | $      | 180,409 |   |
|                                      |   |         |      |   |         |   |   |   |
|                                      |   |         |      |   |         |   |   |   |

|                     |   | May 31, 2010 |     |   | May 31, 2009 |   |
|--------------------------|--------|--------------|----------|--------|--------------|--------|
| Patent Costs             |   |         |     |   |         |   |
| Costs                    |   | $            | 469,043  |   |         | $      | 469,043 |   |
| Accumulated amortization |   |         | (350,553 | )      |         |   | (303,649 | ) |
|                     |   | $            | 118,490  |   |         | $      | 165,394 |   |
|                     |   |         |     |   |         |   |   |   |
|                     |   |         |     |   |         |   |   |   |

----

|                                            |   |       Years Ended |   May 31, |   |
|-------------------------------------------------|--------|--------------------------------------------|---------------------|--------|
|                                            |   | 2010                                       |                |   | 2009 |   |
| Deferred revenue at the beginning of the period |   | $                                          | 1,287,707           |   |   | $ | 1,618,053 |   |
| Additions:                                      |   |                                       |                |   |   |   |   |   |
| Deferred extended service contracts             |   |                                       | 1,047,290           |   |   |   | 1,086,968 |   |
| Deferred in-service and training                |   |                                       | 22,500              |   |   |   | 37,500 |   |
| Deferred service arrangement obligations        |   |                                       | 70,500              |   |   |   | 133,500 |   |
| Deferred service arrangement promotion          |   |                                       | -                   |   |   |   | 600 |   |
| Recognized as revenue:                          |   |                                       |                |   |   |   |   |   |
| Deferred extended service contracts             |   |                                       | (1,253,532          | )      |   |   | (1,366,062 | ) |
| Deferred in-service and training                |   |                                       | (30,000             | )      |   |   | (35,000 | ) |
| Deferred service arrangement obligations        |   |                                       | (117,117            | )      |   |   | (185,452 | ) |
| Deferred service arrangement promotion          |   |                                       | -                   |   |   |   | (2,400 | ) |
| Deferred revenue at end of period               |   |                                       | 1,027,348           |   |   |   | 1,287,707 |   |
| Less: current portion                           |   |                                       | 854,403             |   |   |   | 957,258 |   |
| Long-term deferred revenue at end of period     |   | $                                          | 172,945             |   |   | $ | 330,449 |   |
|                                            |   |                                       |                |   |   |   |   |   |
|                                            |   |                                       |                |   |   |   |   |   |

|             |   | May 31, 2010 |    |   | May 31, 2009 |   |
|------------------|--------|--------------|---------|--------|--------------|--------|
|             |   |         |    |   |         |   |
| Accounts payable |   | $            | 300,784 |   |         | $      | 142,748 |   |
| Accrued expenses |   |         | 205,032 |   |         |   | 328,525 |   |
| Other            |   |         | 34,000  |   |         |   | 33,500 |   |
|             |   | $            | 539,816 |   |         | $      | 504,773 |   |
|             |   |         |    |   |         |   |   |   |

----

|                                                  |   | Years ended May31, |    |
|-------------------------------------------------------|--------|--------------------|---------|
|                                                  |   | 2010               |    |   | 2009 |   |
| Warranty liability at the beginning of the period     |   | $                  | 23,250  |   |   | $ | 17,250 |   |
| Expense for new warranties issued                     |   |               | 47,500  |   |   |   | 81,800 |   |
| Warranty claims                                       |   |               | (44,250 | ) |   |   | (75,800 | ) |
| Warranty liability at the end of the period           |   |               | 26,500  |   |   |   | 23,250 |   |
| Long-term warranty liability at the end of the period |   | $                  | -       |   |   | $ | - |   |
|                                                  |   |               |    |   |   |   |   |   |

----

----

|     |   | Authorized shares |    |   | Stated par value |   |
|----------|--------|-------------------|---------|--------|------------------|--------|
| Series A |   |              | 500,000 |   |             | NONE   |   |
| Series B |   |              | 150,000 |   |             | $      | 20.00 |   |
| Series C |   |              | 175,000 |   |             | $      | 20.00 |   |
| Series D |   |              | 25,000  |   |             | $      | 100.00 |   |

----

|                                         |   | Employees |   |   | Consultants |   |      | Total  |   |   | Weighted Average Price |   |
|----------------------------------------------|--------|-----------|--------|--------|-------------|--------|-----------|--------|--------|--------|-----------------------------|--------|
| Balance at May 31, 2008                      |   |      | -      |   |        |   | 6,540,252 |   |   |   | 6,540,252                   |   |   | $ | 0.29 |   |
| Warrants Expired                             |   |      | -      |   |        |   | -         |   |   |   | -                           |   |   |   |   |   |
| Warrants Issued                              |   |      | -      |   |        |   | -         |   |   |   | -                           |   |   |   |   |   |
| Balance at May 31, 2009                      |   |      | -      |   |        |   | 6,540,252 |   |   |   | 6,540,252                   |   |   | $ | 0.29 |   |
| Warrants Expired                             |   |      | -      |   |        |   | -         |   |   |   | -                           |   |   |   |   |   |
| Warrants Issued                              |   |      | -      |   |        |   | -         |   |   |   | -                           |   |   |   |   |   |
| Number of shares exercisable at May 31, 2010 |   |      | -      |   |        |   | 6,540,252 |   |   |   | 6,540,252                   |   |   | $ | 0.29 |   |
|                                         |   |      |   |   |        |   |      |   |   |   |                        |   |   |   |   |   |
|                                         |   |      |   |   |        |   |      |   |   |   |                        |   |   |   |   |   |
|                                         |   |      |   |   |        |   |      |   |   |   |                        |   |   |   |   |   |

----

----

|                                 |   |                       |       | Outstanding Options |
|--------------------------------------|--------|----------------------------|------------|--------------------------|
|                                 |   | Shares Available for Grant |       | Number of Shares         |   | Range of Exercise Price per Share | Weighted Average Exercise Price |
| Balance at May 31, 2008              |   |                       | 1,662,460  |                     | 5,455,210 |   | $ | 0.09 - $4.28 | $ | $0.86 |
| Options canceled                     |   |                       | 2,104,303  |                     | (2,461,971 | ) | $ | 0.09 - $4.28 | $ | $0.99 |
| Balance at May 31, 2009              |   |                       | 3,766,763  |                     | 2,993,239 |   | $ | 0.09 - $3.96 | $ | $0.74 |
| Options Granted                      |   |                       | (450,000   | )                        | 450,000 |   | $ | 0.08 | $ | $0.08 |
| Options canceled                     |   |                       | 479,463    |                     | (479,463 | ) | $ | 0.57 - $3.96 | $ | $1.24 |
| Expiration of 1999 Stock option plan |   |                       | (2,510,364 | )                        |   |   |   |   |   |   |
| Balance at May 31, 2010              |   |                       | 1,285,862  |                     | 2,963,776 |   | $ | 0.08 - $3.96 | $ | $0.57 |
|                                 |   |                       |       |                     |   |   |   |   |   |   |

----

|                           |         |   | Options Outstanding                |   |      | Options Exercisable                                |   |
|--------------------------------|--------------|--------|------------------------------------|--------|-----------|----------------------------------------------------|--------|
|  Range of Exercise Prices |         |   | Number Outstanding at May 31, 2010 |   |      | Weighted Average Remaining Contractual Life (yrs.) |   |   | Weighted Average Exercise Price |   |   | Number Exercisable at May 31, 2010 |   |   | Weighted Average Exercise Price |   |
|                           |         |   |                               |   |      |                                               |   |   |   |   |   |   |   |   |   |   |
| $                              | 0.08 - $0.58 |   |                               |   | 2,139,776 |                                               |   |   | 6.0 |   |   | $ | 0.16 |   |   |   | 2,139,776 |   |   | $ | 0.16 |   |
| $                              | 0.71 - $0.95 |   |                               |   | 320,000   |                                               |   |   | 3.1 |   |   | $ | 0.88 |   |   |   | 320,000 |   |   | $ | 0.88 |   |
| $                              | 1.00 - $1.31 |   |                               |   | 295,000   |                                               |   |   | 3.8 |   |   | $ | 1.15 |   |   |   | 295,000 |   |   | $ | 1.15 |   |
| $                              | 2.91 - $3.96 |   |                               |   | 209,000   |                                               |   |   | 1.2 |   |   | $ | 3.43 |   |   |   | 209,000 |   |   | $ | 3.43 |   |
|                           |         |   |                               |   | 2,963,776 |                                               |   |   | 5.1 |   |   | $ | 0.57 |   |   |   | 2,963,776 |   |   | $ | 0.57 |   |
|                           |         |   |                               |   |      |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                              |   | 2010   |        |   | 2009   |   |
|-----------------------------------|--------|--------|-------------|--------|--------|--------|
| Net operating loss carryforwards  |   | $      | 20,783,805  |   |   | $      | 20,123,742 |   |
| Depreciation and amortization     |   |   | (34,670     | )      |   |   | (16,110 | ) |
| Deferred rent                     |   |   | 6,000       |   |   |   | 5,450 |   |
| Deferred gain on sale of building |   |   | 39,220      |   |   |   | 57,330 |   |
| Allowance for doubtful accounts   |   |   | 49,970      |   |   |   | 32,290 |   |
| Reserve for obsolete inventory    |   |   | 122,050     |   |   |   | 133,950 |   |
| Total gross deferred taxes        |   |   | 20,966,375  |   |   |   | 20,336,652 |   |
| Valuation allowance               |   |   | (20,966,375 | )      |   |   | (20,336,652 | ) |
| Net deferred tax assets           |   | $      | -           |   |   | $      | - |   |
|                              |   |   |        |   |   |   |   |   |
|                              |   |   |        |   |   |   |   |   |

----

| Fiscal Year |   |   |   | Amount |       |
|-------------|--------|--------|--------|--------|------------|
| 2011        |   |   |   | $      | 5,400,000  |   |
| 2012        |   |   |   |   | 6,100,000  |   |
| 2013        |   |   |   |   | 4,400,000  |   |
| 2014        |   |   |   |   | -          |   |
| 2015        |   |   |   |   | -          |   |
| Thereafter  |   |   |   |   | 37,700,000 |   |
| Total       |   |   |   | $      | 53,600,000 |   |
|        |   |   |   |   |       |   |

|                               |   | 2010   |   |   | 2009   |   |
|------------------------------------|--------|--------|--------|--------|--------|--------|
|                               |   | %      |   |   | %      |   |
| Federal statutory rate             |   |   | (34.00 | )      |   |   | (34.00 | ) |
| Change in valuation allowance      |   |   |   |   |   |   |   |   |
|   relating to operations |   |   | 34.00  |   |   |   | 34.00 |   |
| Other                              |   |   | (1.90  | )      |   |   | - |   |
|                               |   |   | (1.90  | )      |   |   | - |   |
|                               |   |   |   |   |   |   |   |   |
|                               |   |   |   |   |   |   |   |   |

----

| 2011   |   | $      | 201,000 |   |
|--------|--------|--------|---------|--------|
| 2012   |   |   | 210,000 |   |
| 2013   |   |   | 88,000  |   |
| Total  |   | $      | 499,000 |   |
|   |   |   |    |   |
|   |   |   |    |   |

| i.   | Face Amount. The face amount per share of the Series E Preferred Stock is $16.00. |
|----------------|-----------------------------------------------------------------------------------|

| ii.   | Dividends. Cumulative dividends will accrue at a rate of 5% per annum, payable semi-annually in additional shares of the Series E Preferred. Dividends on the Series E Preferred will be paid in preference to any dividends paid to the holders of the Company’s Common Stock or any other series of the Company’s preferred stock made junior to the Series E Preferred. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| iii.   | Liquidation Preference. On any liquidation, dissolution or winding-up of the Corporation, the holders of the Series E Preferred will receive payment of twice the aggregate face amount thereof, plus all accrued and unpaid dividends, before any payments or distributions are paid or provided for the Company’s Common Stock or any other series of the Company’s preferred stock made junior to the Series E Preferred. In the event of a sale of all or substantially all the Company’s stock or assets, the holders of the Series E Preferred will receive payment of 1.2 times the aggregate face amount thereof, plus all accrued and unpaid dividends, before any payments or distributions are paid or provided for the Company’s Common Stock or any other series of the Company’s preferred stock made junior to the Series E Preferred. |
|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| iv.   | Conversion Rights. Each share of the Series E Preferred will be convertible at any time or from time to time at the holder’s option commencing six months from the issuance date into 100 shares of Common Stock (an exercise price of $.16 per share of Common Stock, the “Conversion Price”), subject to anti-dilution adjustment as set forth below. Commencing at any time one year from the issuance date, one-half 50% of the Series E Preferred will be automatically converted into 100 shares of Common Stock for each share of Series E Preferred if the closing market price of the Common Stock is 3 times the Conversion Price for 30 consecutive trading days and the average daily trading volume during those 30 days is 250,000 shares or greater. Notwithstanding the foregoing, the Series E Preferred shall be automatically converted into Common Stock on June 1, 2015. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| v.   | Voting Rights. Investors in the Series E Preferred will have voting rights in the ratio of 100 votes for each share of Series E Preferred and shall vote together with the Common Stock as a single class. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| vi.   | Anti-Dilution Adjustments. The 100-to-1 conversion ratio of the Series E Preferred will be subject to proportional adjustment for stock dividends, stock splits and other similar changes in capitalization. If the Company issues or sells shares of its capital stock for consideration of a price of less than the lesser of its then current market price or the applicable Conversion Price, the Conversion Price shall be adjusted to be such lower price at which the Company issued or sold shares of its capital stock; provided, however, that the Company shall have the right to issue shares and options under its option plans. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----