UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                   FORM 10-Q


[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934 For the quarterly period ended August 31, 2001

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _______________ to ______________

Commission File Number: 0-18105

                               VASOMEDICAL, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        Delaware                                        11-2871434
--------------------------------------------------------------------------------
(State or other jurisdiction of             (IRS Employer Identification Number)
 incorporation or organization)

                   180 Linden Ave., Westbury, New York 11590
--------------------------------------------------------------------------------
                    (Address of principal executive offices)

Registrant's Telephone Number                          (516) 997-4600

Number of Shares Outstanding of Common Stock,
$.001 Par Value, at October 9, 2001                       57,213,620


     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]
                                   ---     --
<PAGE>
                       Vasomedical, Inc. and Subsidiaries



                                     INDEX



PART I - FINANCIAL INFORMATION

      Item 1 - Financial Statements (unaudited)                             Page
                                                                            ----
               Consolidated Condensed Balance Sheets as of
                       August 31, 2001 and May 31, 2001                       3

               Consolidated Condensed Statements of Earnings for the
                       Three Months Ended August 31, 2001 and 2000            4

               Consolidated Condensed Statement of Changes in Stockholders'
                       Equity for the Period from June 1, 2001 to
                       August 31, 2001                                        5

               Consolidated Condensed Statements of Cash Flows for the
                       Three Months Ended August 31, 2001 and 2000            6

               Notes to Consolidated Condensed Financial Statements           7

       Item 2 - Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                      9

PART II - OTHER INFORMATION                                                  11

                                       2
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

                      CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                           August 31,       May 31,
                                                                                              2001          2001
                                                                                              ----          ----
ASSETS                                                                                    (unaudited)      (audited)
<S>                                                                                       <C>             <C>
CURRENT ASSETS
          Cash and cash equivalents                                                        $2,366,692     $3,785,456
          Restricted cash                                                                   1,141,667      1,141,667
          Accounts receivable, net of an allowance for doubtful accounts of
          $644,000 at August 31, 2001 and $545,000 at May 31, 2001                         10,287,926      9,731,749
          Inventories                                                                       6,143,364      4,367,943
          Deferred income taxes                                                             3,042,000      2,908,000
          Financing receivables, net                                                          216,296              -
          Other current assets                                                                764,146        443,887
                                                                                          -----------    -----------
                  Total current assets                                                     23,962,091     22,378,702

PROPERTY AND EQUIPMENT, net                                                                 2,764,763      2,606,037
CAPITALIZED COST IN EXCESS OF FAIR
     VALUE OF NET ASSETS ACQUIRED, net of accumulated amortization of
      $1,423,137 and $1,349,613 at August 31, 2001 and May 31, 2001, respectively              88,811        142,085
FINANCING RECEIVABLES, net                                                                  1,613,265              -
DEFERRED INCOME TAXES                                                                      10,494,000     11,298,000
OTHER ASSETS                                                                                  106,993         94,150
                                                                                          -----------    -----------
                                                                                          $39,029,923    $36,518,974
                                                                                          ===========    ===========
          LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
          Accounts payable and accrued expenses                                            $5,871,291     $4,573,791
          Current maturities of long-term debt                                                 44,579         33,074
          Accrued warranty and customer support expenses                                      546,000        567,000
          Accrued professional fees                                                           221,937        320,854
          Accrued commissions                                                                 697,541        669,328
                                                                                          -----------    -----------
                  Total current liabilities                                                 7,381,348      6,164,047

LONG-TERM DEBT                                                                              1,097,088      1,108,593
ACCRUED WARRANTY COSTS                                                                        529,000        488,000
OTHER LONG-TERM LIABILITIES                                                                         -          6,454
DEFERRED REVENUES                                                                             224,800        243,151

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
          Preferred stock, $.01 par value; 1,000,000 shares authorized;
            none issued and outstanding                                                             -              -
          Common stock, $.001 par value; 110,000,000 shares authorized;
            57,210,453 and 57,195,453 shares at August 31, 2001 and
            May 31, 2001, respectively, issued and outstanding                                 57,210         57,195
          Additional paid-in capital                                                       49,854,678     49,808,493
          Accumulated deficit                                                             (20,114,201)   (21,356,959)
                                                                                          -----------    -----------
                  Total stockholders' equity                                               29,797,687     28,508,729
                                                                                          -----------    -----------
                                                                                          $39,029,923    $36,518,974
                                                                                          ===========    ===========
<FN>
</FN>
The accompanying notes are an integral part of these condensed statements.
</TABLE>

                                       3
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

                  CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
                                   (unaudited)
<TABLE>
<CAPTION>
                                                     Three months ended
                                                     ------------------
                                                         August 31,
                                                         ----------
                                                    2001               2000
                                                    ----               ----
<S>                                              <C>                <C>
Revenues
  Equipment sales                                $7,431,536         $5,193,909
  Equipment rentals and services                    365,140             50,750
  Equipment sold under sales-type leases          1,829,561                  -
                                                 ----------         ----------
                                                  9,626,237          5,244,659
Cost of sales and services                        2,779,108          1,362,266
                                                 ----------         ----------
  Gross Profit                                    6,847,129          3,882,393

Expenses
  Selling, general and administrative             3,634,952          2,394,494
  Research and development                        1,149,880            443,399
  Provision for doubtful accounts                    99,000             51,000
  Interest and financing costs                       20,229              2,427
  Interest and other income - net                   (26,492)           (51,246)
                                                 ----------         ----------
                                                  4,877,569          2,840,074
                                                 ----------         ----------
  EARNINGS BEFORE INCOME TAXES                    1,969,560          1,042,319
   Income tax (expense) benefit                    (726,802)           358,000
                                                 ----------         ----------
  NET EARNINGS                                   $1,242,758         $1,400,319
                                                 ==========         ==========

Earnings per common share
      Basic and diluted                                $.02               $.02
                                                       ====               ====
Weighted average common shares
  outstanding
      Basic                                      57,198,388         56,129,057
                                                 ==========         ==========
      Diluted                                    59,775,522         59,694,225
                                                 ==========         ==========
<FN>
</FN>
The accompanying notes are an integral part of these condensed statements.
</TABLE>
                                       4
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

       CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                               Total
                                                                Additional      Accum-         stock
                                            Common Stock         paid-in        ulated         holders'
                                           Shares    Amount       capital       deficit        equity
                                           ------    ------     ----------      -------        -------
<S>                                      <C>          <C>       <C>           <C>             <C>
Balance at June 1, 2001                  57,195,453   $57,195   $49,808,493   $(21,356,959)   $28,508,729
Exercise of options and warrants             15,000        15        31,185                        31,200
Stock options granted for services                                   15,000                        15,000
Net earnings                                                                     1,242,758      1,242,758
                                         ----------   -------   -----------   ------------    -----------
Balance at August 31, 2001               57,210,453   $57,210   $49,854,678   $(20,114,201)   $29,797,687
                                         ==========   =======   ===========   ============    ===========



<FN>
The accompanying notes are an integral part of this condensed statement.
</FN>
</TABLE>
                                       5
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                          Three months ended
                                                                          ------------------
                                                                               August 31,
                                                                               ----------
                                                                         2001             2000
                                                                         ----             ----
<S>                                                                   <C>              <C>
Cash flows from operating activities
  Net earnings                                                        $1,242,758       $1,400,319
                                                                      ----------       ----------
  Adjustments to reconcile net earnings
    to net cash (used in) provided by operating activities
     Depreciation and amortization                                       225,378          116,981
    Provision for bad debts                                               99,000           51,000
    Deferred income taxes                                                670,000         (358,000)
    Stock options granted for services                                    15,000            7,000
     Changes in operating assets and liabilities
        Accounts receivable                                             (655,177)        (485,913)
        Financing receivables, net                                    (1,829,561)               -
        Inventories                                                   (2,011,209)        (467,808)
        Other current assets                                            (320,259)           8,472
        Other assets                                                     (12,843)               -
        Accounts payable, accrued expenses and other current
         liabilities                                                   1,205,796          181,366
        Other liabilities                                                 16,195          181,917
                                                                      ----------       ----------
                                                                      (2,597,680)        (764,985)
                                                                      ----------       ----------
     Net cash (used in) provided by operating activities              (1,354,922)         635,334
                                                                      ----------       ----------

Cash flows from investing activities
  Purchase of property and equipment                                     (95,042)        (105,250)
                                                                      ----------       ----------
     Net cash used in investing activities                               (95,042)        (105,250)
                                                                      ----------       ----------

Cash flows from financing activities
  Proceeds from exercise of options and warrants                          31,200          868,146
                                                                      ----------       ----------
     Net cash provided by financing activities                            31,200          868,146
                                                                      ----------       ----------

      NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS            (1,418,764)       1,398,230
Cash and cash equivalents - beginning of period                        3,785,456        3,058,367
                                                                      ----------       ----------
Cash and cash equivalents - end of period                             $2,366,692       $4,456,597
                                                                      ==========       ==========


Non-cash investing and financing activities were as follows:
Inventories transferred to (from) property and equipment,
   attributable to operating leases - net                               $235,788         $(10,944)
<FN>
The accompanying notes are an integral part of these condensed statements.
</FN>
</TABLE>
                                       6
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 August 31, 2001
                                   (unaudited)

NOTE A - BASIS OF PRESENTATION

     The  consolidated  condensed  balance  sheet as of August 31,  2001 and the
related  consolidated  condensed  statements  of  earnings  for the  three-month
periods ended August 31, 2001 and 2000, changes in stockholders'  equity for the
three-month  period  ended  August 31,  2001 and cash flows for the  three-month
periods ended August 31, 2001 and 2000 have been prepared by  Vasomedical,  Inc.
and  Subsidiaries  (the "Company")  without audit. In the opinion of management,
all  adjustments  (which  include only normal,  recurring  accrual  adjustments)
necessary to present fairly the financial  position and results of operations as
of August 31, 2001 and for all periods presented have been made.

     Certain  information  and  footnote   disclosures,   normally  included  in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America, have been condensed or omitted.  These
financial statements should be read in conjunction with the financial statements
and notes thereto  included in the Annual Report on Form 10-K for the year ended
May 31, 2001.  Results of  operations  for the periods ended August 31, 2001 and
2000  are not  necessarily  indicative  of the  operating  results  expected  or
reported for the full year.

NOTE B - INVENTORIES
<TABLE>
<CAPTION>
                                                                      August 31,        May 31,
                                                                      ----------        -------
         Inventories consist of the following:                            2001            2001
                                                                          ----            ----
                  <S>                                                 <C>              <C>
                  Raw materials                                       $4,162,212       $3,364,276
                  Work in progress                                       610,652          497,667
                  Finished goods                                       1,370,500          506,000
                                                                      ----------       ----------
                                                                      $6,143,364       $4,367,943
                                                                      ==========       ==========
</TABLE>
NOTE C - FINANCING RECEIVABLES

     On August 1, 2001, the Company entered into sales-type lease agreements for
certain  EECP units with two  customers.  The  following  table shows the future
minimum  rentals  receivable  under  sales-type  leases and future minimum lease
payment and  obligations  under  capital  leases in effect for the twelve months
ended August 31:
<TABLE>
<CAPTION>
                                                                               Financing receivables
                                                                               ---------------------
                     <S>                                                            <C>
                     2002                                                           $387,600
                     2003                                                            387,600
                     2004                                                            986,778
                     2005                                                            241,800
                     2006                                                            241,800
                     Thereafter                                                      597,296
                                                                                   ---------
                     Total minimum lease payments                                  2,842,874
                     Less estimated executory costs                                (253,000)
                                                                                   ---------
                     Net minimum lease payments                                    2,589,874
                     Less interest                                                 (565,977)
                                                                                   ---------
                     Present value of minimum lease payments                       2,023,897
                     Less valuation allowance                                      (194,336)
                                                                                   ---------
                     Net financing receivables                                     1,829,561
                     Less current portion                                          (216,296)
                                                                                   ---------
                     Long-term portion                                            $1,613,265
                                                                                  ==========
</TABLE>
     The annual minimum lease  payments are subject to increases  based on usage
of the leased units in accordance with the provisions of the lease agreements.

NOTE D - LONG-TERM DEBT AND LINE OF CREDIT AGREEMENT

     In November  2000,  the Company  purchased its  headquarters  and warehouse
facility and secured two notes payable from a financial institution for $641,667
and $500,000, respectively. These notes bear interest at the Libor Rate plus 150
basis  points  (3.58% at August  31,  2001) and are due in monthly  payments  of
interest only. The notes are secured by the building,  and the Company maintains
a restricted  cash balance with the financial  institution for the amount of the
notes during their outstanding terms. Concurrent with the building purchase, the
Company  had  received  long-term  financing   commitments  under  two  programs
sponsored by New York State. In September 2001, the Company refinanced  $641,667
of the  notes  under  the  first New York  State  sponsored  program  at a fixed
interest rate of 7.8% over a  fifteen-year  term. The second note is expected to
be refinanced in the second  quarter of fiscal 2001 under a program with a fixed
interest  rate  of 6%  over a  fifteen-year  term.  As  such,  the  Company  has
classified the notes payable in the accompanying  consolidated  balance sheet in
accordance with the estimated  amortization  schedules of principal and interest
payments.

                                       7
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
                                 August 31, 2001
                                   (unaudited)

NOTE D - LONG-TERM DEBT AND LINE OF CREDIT AGREEMENT (continued)

     On February 28, 2001, the Company  established a secured  revolving  credit
line with its  existing  bank.  The credit line  provides for  borrowings  up to
$5,000,000,  based upon eligible accounts receivable, as defined therein, at the
Libor Rate plus 150 basis points (3.58% at August 31, 2001).  Under the terms of
the agreement,  which expires on October 31, 2001 and is expected to be renewed,
the Company is required to meet  certain  covenants,  including,  among  others,
maintenance of minimum  tangible net worth and current ratio.  In addition,  the
line is secured by  substantially  all the tangible  assets of the  Company.  At
August  31,  2001,  there were no  outstanding  borrowings  under this line.  In
September 2001, the Company borrowed $500,000 under this line.

NOTE E - STOCKHOLDERS' EQUITY

     In the first quarter of fiscal 2002,  the Board of Directors  granted stock
options  under the 1999 Stock  Option  Plan (the "1999  Plan") to  employees  to
purchase an  aggregate of 750,500  shares of common  stock,  at exercise  prices
ranging form $3.65 to $4.02 per share (which  represented  the fair market value
of the underlying common stock at the time of the respective grants).

     In the first  quarter of fiscal  2002,  options  and  warrants  to purchase
15,000 shares of common stock were exercised, aggregating $31,200 in proceeds to
the Company.  Subsequent to August 31, 2001, options to purchase 3,167 shares of
common stock were exercised, aggregating $4,490 in proceeds to the Company.

NOTE F - EARNINGS PER COMMON SHARE

     Basic earnings per share are based on the weighted average number of common
shares  outstanding  without  consideration of potential  common stock.  Diluted
earnings  per share are based on the  weighted  number of common  and  potential
common shares  outstanding.  The calculation  takes into account the shares that
may be issued upon the exercise of stock  options and  warrants,  reduced by the
shares that may be repurchased with the funds received from the exercise,  based
on the  average  price  during the  period,  and  convertible  preferred  stock,
assuming  conversion  at the  beginning  of the period.  Options and warrants to
purchase  1,367,000  and 236,500  shares of common stock were  excluded from the
computation  of  diluted  earnings  per  share as of August  31,  2001 and 2000,
respectively, because the effect of their inclusion would be antidilutive.

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share:
<TABLE>
<CAPTION>
                                                                    Three months ended August 31,
                                                                    2001                      2000
                                                                    ----                      ----
<S>                                                              <C>                       <C>
Numerator:
   Basic and diluted earnings                                    $1,242,758                $1,400,319
                                                                 ==========                ==========
Denominator:
   Basic - weighted average shares                               57,198,388                56,129,057
         Stock options                                            1,919,061                 2,473,640
         Warrants                                                   658,073                 1,091,528
                                                                 ----------                ----------
   Diluted - weighted average shares                             59,775,522                59,694,225
                                                                 ==========                ==========
Basic and diluted earnings per share                                   $.02                      $.02
                                                                       ====                      ====
</TABLE>
NOTE G - COMMITMENTS AND CONTINGENCIES

Litigation
----------

     In June 2001, an action was commenced in the New York Supreme Court, Nassau
County,  against the Company.  The action seeks undefined damages based upon the
alleged  breach of an agreement  to register the  Company's  common  stock.  The
Company believes that the complaint is without merit and is vigorously defending
the claims.  This matter is in its preliminary  stages and the Company is unable
to establish the likelihood of an unfavorable outcome or the existence or amount
of any potential loss.

     In February  1999,  an action was commenced in the  Massachusetts  Superior
Court, Essex County, against the Company. The action seeks damages in the sum of
$1,000,000  based  upon an  alleged  breach  of a sales  contract.  The  Company
believes that the  complaint is without  merit and is  vigorously  defending the
claims.  This matter is in its  preliminary  stages and the Company is unable to
establish the likelihood of an unfavorable outcome or the existence or amount of
any potential loss.

Purchase Commitments
--------------------

     At August 31, 2001,  the Company had  outstanding  purchase  commitments of
$648,000  with  VAMED  Medical  Instrument  Company  Ltd.  ("VAMED"),  a Chinese
company,  for the contract manufacture of its EECP Model MC2 system. The Company
believes  that VAMED will be able to meet the  Company's  future needs for these
systems.

                                       8
<PAGE>
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

Results of Operations
Three Months Ended August 31, 2001 and August 31, 2000
------------------------------------------------------

     The Company  generated  revenues from the sale and lease of EECP(R) systems
of $9,626,000  and $5,245,000 for the three- month periods ended August 31, 2001
and 2000,  respectively,  representing  an 84% increase.  The Company  generated
earnings  before income taxes of $1,970,000 and  $1,042,000 for the  three-month
periods  ended  August  31,  2001 and 2000,  respectively,  representing  an 89%
increase. The Company reported net earnings of $1,243,000 and $1,400,000 for the
three-month  periods  ended  August  31,  2001  and  2000,  respectively,  after
recognition  of an income tax  provision  of $670,000 for the three months ended
August 31,  2001 and a deferred  income tax  benefit of  $358,000  for the three
months ended August 31, 2000.

     The number of cardiology  practices  and  hospitals  interested in becoming
providers of EECP therapy has increased following the announcement by the Health
Care Financing  Administration (HCFA) in February 1999 of its decision to extend
Medicare coverage nationally to the Company's noninvasive,  outpatient treatment
for coronary  artery  disease.  HCFA is the federal agency that  administers the
Medicare program for approximately 39 million  beneficiaries.  In addition,  the
results  of  the  Company's  multicenter,   prospective,   randomized,  blinded,
controlled  clinical study of EECP  (MUST-EECP)  were published in the June 1999
issue of the Journal of the  American  College of  Cardiology.  Interest in EECP
therapy has also been spurred by the  announcement  of the results of six-month,
twelve-month  and  twenty-four  month  post-treatment  outcomes  reported by the
International EECP Patient Registry and presented at major scientific  meetings,
including  the American  Heart  Association  (AHA) and the  American  College of
Cardiology (ACC) annual meetings.

     Beginning  August 1, 2000,  Medicare  coverage was extended to include EECP
treatment  received on an outpatient  basis at hospitals and outpatient  clinics
under the new APC  (Ambulatory  Payment  Classification)  system.  The  national
average payment rate approximates  $150 per session.  Effective January 1, 2001,
HCFA approved an 11% increase in the  reimbursement  rate for EECP therapy which
raised the average  Medicare  payment from $130 to $144 per hourly  session,  or
$5,040 for a full course of therapy. These events led to an increased demand for
EECP therapy and EECP equipment and, consequently, to revenue growth overall, as
well  as  an  increase  in  the  number  of  systems  placed  under  fee-per-use
arrangements with certain providers.  Pursuant to contractual  arrangements with
some customers,  the Company has sold equipment under sales-type leases. For the
period ended August 31, 2001,  $1,830,000 of revenue was reported from equipment
sold under sales-type leases.

     Gross profits are dependent on a number of factors, particularly the mix of
EECP units  sold,  rented or placed  during the  period,  the  ongoing  costs of
servicing  such units,  and certain  fixed period costs,  including  facilities,
payroll and insurance. Gross margins are furthermore affected by the location of
the Company's  customers  (including  non-domestic  business or  distributorship
arrangements  which,  for discounted  equipment  purchase  prices,  co-invest in
establishing a market for EECP  equipment) and the amount and nature of training
and other  initial  costs  required  to place the EECP  system  in  service  for
customer use. Consequently,  the gross profit realized during the current period
may not be  indicative of future  margins.  The decrease in gross profit for the
first quarter ended August 31, 2001 compared to the comparable prior-year period
was primarily  attributable to the increased  production  costs of its Model TS3
system  manufactured in Westbury,  NY. Management  believes that these increased
costs will be offset in the future by manufacturing efficiencies and the Company
is presently  engaged in a product cost reduction  program.  In addition,  gross
profit was  affected by the  Company's  increase in revenues  from  non-domestic
business in the current  quarter which,  as described  above, is less profitable
than its domestic business.

     Selling,  general and  administrative  (SG&A) expenses for the three months
ended August 31, 2001 and 2000 were  $3,635,000 (38% of revenues) and $2,394,000
(46% of revenues), respectively. The Company has been effectively leveraging its
SG&A expenses as a percentage of sales,  decreasing nearly 17%. The increases in
SG&A  expenses,  on  an  absolute  basis,  of  $1,241,000  from  the  comparable
prior-year fiscal period resulted primarily from increases in personnel in sales
and marketing functions,  increases in selling and marketing expenses, including
commissions,  related to increased  revenues,  as well as increases in insurance
and other administrative expenses.

     Research and  development  (R&D) expenses of $1,150,000 or 12% of revenues,
for the three  months  ended  August 31, 2001  increased  by  $707,000  from the
comparable prior-year period of $443,000 or 8% of revenues. The increase relates
primarily  to continued  product  design and  development  costs  (including  an
increase in engineering and other personnel), as well as expenses related to the
PEECH clinical trial in heart failure (which  received FDA approval in July 2000
and began treating  patients in March 2001) and the initiation of other studies.
The  Company's  newly  developed  EECP  system,  Model TS3,  received FDA 510(k)
clearance to market in December 2000 and was commercially  available for sale in
the fourth quarter of fiscal 2001. The Company intends to aggressively invest in
product  development and clinical trials in future periods to further expand the
clinical applications of EECP, including,  but not limited to, heart failure and
diabetes disease management.

        In the first quarter of fiscal 2002, the Company recorded a provision
for income taxes of $727,000, inclusive of $57,000 in current tax expense
principally resulting from the federal alternative minimum tax. This is in
contrast to a deferred tax benefit reported in the prior-year period of
$358,000.

     The $25,000  decrease in interest income is the result of a decrease in the
average cash balances  invested during the current period,  as well as declining
interest rates over the respective periods.

     The  $18,000  increase  in interest  expense  primarily  is due to interest
payments on loans  secured for the purchase of the  Company's  headquarters  and
operating facility in November 2000.

                                       9
<PAGE>
Liquidity and Capital Resources
-------------------------------

     The Company has financed its fiscal 2002 and 2001 operations primarily from
working  capital and operating  results.  At August 31, 2001,  the Company had a
cash balance of $2,367,000  and working  capital of  $16,581,000,  compared to a
cash balance of $3,785,000  and working  capital of $16,215,000 at May 31, 2001.
The Company's  operating  activities  (used) provided cash of  $(1,355,000)  and
$635,000 for the three months ended August 31, 2001 and 2000, respectively.  Net
cash (used in) provided by  operations  during the three months ended August 31,
2001  consisted  primarily  from  increases  in accounts  receivable,  financing
receivables and inventories, offset by increases in accounts payable and accrued
expenses. The increase in financing receivables resulted from sales of equipment
under sales-type leases, the first such commercial contracts entered into by the
Company.  Cash receipts under sales-type  leases are expected over terms ranging
between  three and six years.  The  increase in  inventories,  particularly  raw
materials, and the increase in accounts payable are attributable to the purchase
of components  and  assemblies  for the  production of the new Model TS3 system,
which began  commercial  shipments  in the fourth  quarter of fiscal  2001.  The
increase in accounts  receivable  has resulted  primarily  from extended  credit
terms offered to customers,  particularly non-domestic customers, in the current
and prior quarters.  The Company's  management  provides routine  oversight with
respect to its accounts receivable credit and collection efforts, as well as the
procurement of its raw materials  inventory.  Cash used in operations during the
quarter  ended  August  31,  2001,  particularly  as they  relate  to  financing
receivables,  are not necessarily  indicative of the results  expected in future
quarters.

     Investing activities used net cash of $95,000 and $105,000 during the three
months ended August 31, 2001 and 2000, respectively. The principal uses were for
the purchase of property and equipment.

     Financing activities provided cash of $31,000 and $868,000 during the three
months ended August 31, 2001 and 2000, respectively. Financing activities during
fiscal  2001 and 2000  consisted  primarily  from the sale of  common  stock and
receipt of cash proceeds upon the exercise of Company  common stock  warrants by
officers, directors,  employees and consultants.  Subsequent to August 31, 2001,
the Company  received  additional  cash  proceeds of $4,490 from the exercise of
Company  common stock  options.  In  September  2001,  the Company  refinanced a
$641,667  outstanding  note  payable  with  the New  York  Business  Development
Corporation. This transaction released $641,667 of cash previously restricted as
collateral  under the original  note.  The cash  restricted as collateral on the
second  outstanding  note for $500,000  will be released  upon its  refinancing,
expected to occur in the second quarter of fiscal 2002.

     Management  believes that its working capital  position at August 31, 2001,
the   availability  of  its  $5  million  credit   facility,   and  the  ongoing
commercialization  of the EECP system  will make it possible  for the Company to
support its operating  expenses and to implement its business plans for at least
the next twelve months.



     Except for historical  information  contained herein, the matters discussed
are forward-looking  statements that involve risks and uncertainties.  When used
in this report, words such as "anticipate",  "believe", "estimate", "expect" and
"intend"  and  similar  expressions,  as  they  relate  to  the  Company  or its
management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of the  Company's  management,  as well as  assumptions
made by and information currently available to the Company's  management.  Among
the  factors  that  could  cause  actual  results to differ  materially  are the
following:  the effect of the dramatic  changes  taking place in the  healthcare
environment;  the  impact  of  competitive  procedures  and  products  and their
pricing;  unexpected  manufacturing  problems  in foreign  supplier  facilities;
unforeseen  difficulties  and delays in the conduct of clinical trials and other
product  development  programs;   the  actions  of  regulatory  authorities  and
third-party  payers in the United States and overseas;  uncertainties  about the
acceptance of a novel  therapeutic  modality by the medical  community;  and the
risk  factors  reported  from time to time in the  Company's  SEC  reports.  The
Company  undertakes  no  obligation  to update  forward-looking  statements as a
result of future events or developments.

                                       10
<PAGE>
                       VASOMEDICAL, INC. AND SUBSIDIARIES
                       ----------------------------------

                          PART II - OTHER INFORMATION
                          ---------------------------


ITEM 1 - LEGAL PROCEEDINGS:

         Previously reported.

ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS:

         None

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES:

         None

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

         None

ITEM 5 - OTHER INFORMATION:

         None

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:

         None

                                       11
<PAGE>


     In accordance with to the  requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                          VASOMEDICAL, INC.

                                  By:     /s/ D. Michael Deignan
                                          ----------------------
                                          D. Michael Deignan
                                          President, Chief Executive Officer and
                                          Director (Principal Executive Officer)

                                          /s/ Joseph A. Giacalone
                                          -----------------------
                                          Joseph A. Giacalone
                                          Chief Financial Officer (Principal
                                          Financial and Accounting Officer)


Date:  October 9, 2001

                                       12