<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549


                                    FORM 10-Q


[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 
For the quarterly period ended August 31, 1996

[ ] Transition Report Under 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 18, 1996                   46,730,645

         Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Exchange Act 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>   2
                       Vasomedical, Inc. and Subsidiaries



                                      INDEX



PART I - FINANCIAL INFORMATION

<TABLE>
<CAPTION>
         Item 1 - Financial Statements:                                     Page
                                                                            ----
<S>                                                                         <C>    
                  Consolidated Condensed Balance Sheets as of August 31,
                           1996 and May 31, 1996 (Unaudited)                   3

                  Consolidated Condensed Statements of Operations for the
                           Three-Months Ended August 31, 1996 and 1995
                           (Unaudited)                                         4

                  Consolidated Condensed Statement of Changes in
                           Stockholders' Equity for the period from June
                           1, 1996 to August 31, 1996 (Unaudited)              5

                  Consolidated Condensed Statements of Cash Flows for the
                           Three-Months Ended August 31, 1996 and 1995
                           (Unaudited)                                         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                                                   10
</TABLE>
<PAGE>   3
                       Vasomedical, Inc. and Subsidiaries

                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                     August 31,             May 31,
                                                                                           1996                1996
                                                                                           ----                ----
<S>                                                                                <C>                 <C>         
                  ASSETS
CURRENT ASSETS
          Cash and cash equivalents                                                $  4,444,932        $  4,447,806
          Accounts receivable, net                                                      754,594           1,010,965
          Inventory                                                                     871,155             563,272
          Other current assets                                                           96,572             160,987
                                                                                   ------------        ------------
                  Total current assets                                                6,167,253           6,183,030

PROPERTY AND EQUIPMENT, net                                                             233,373             211,173
CAPITALIZED COSTS IN EXCESS OF FAIR
     VALUE OF NET ASSETS ACQUIRED, net                                                1,154,629           1,208,915
DEFERRED LOAN COSTS, net                                                                                    619,445
OTHER ASSETS                                                                             23,588              23,588
                                                                                   ------------        ------------
                                                                                   $  7,578,843        $  8,246,151
                                                                                   ------------        ------------

          LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
          Accounts payable and accrued expenses                                    $    675,689        $    542,250
          Accrued professional fees                                                      86,750             133,471
          Accrued commissions                                                           146,571             309,315
          Accrued interest                                                                                  239,021
                                                                                   ------------        ------------
                  Total current liabilities                                             909,010           1,224,057

LONG-TERM DEBT                                                                                            3,725,000
OTHER LONG-TERM LIABILITIES                                                             256,000             206,000

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
          Preferred stock, $.01 par value; 1,000,000
            shares authorized; none issued and outstanding                                   --                  --
          Common stock, $.001 par value; 85,000,000 shares
            authorized; 46,312,749 shares and 42,204,113 shares at
            August 31 and May 31, 1996, respectively, issued and outstanding             46,313              42,204
          Additional paid-in capital                                                 28,175,929          24,427,338
          Deferred compensation                                                        (127,360)           (169,813)
          Accumulated deficit                                                       (21,681,049)        (21,208,635)
                                                                                   ------------        ------------
                                                                                      6,413,833           3,091,094
                                                                                   ------------        ------------
                                                                                   $  7,578,843        $  8,246,151
                                                                                   ------------        ------------
</TABLE>

The accompanying notes are an integral part of these condensed statements.

                                       3
<PAGE>   4
                       Vasomedical, Inc. and Subsidiaries

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                   Three-months ended August 31,
                                                   -----------------------------
                                                       1996                1995
                                                       ----                ----
<S>                                            <C>                 <C>         
Revenues
  Equipment sales                              $    982,328        $         --
  Equipment rentals                                 192,000
                                               ------------        ------------
                                                  1,174,328                  --
                                               ------------        ------------

COSTS and expenses
  Cost of sales                                     272,074                  --
  Selling, general and administrative             1,207,037             597,959
  Research and development                          149,534              93,209
  Depreciation and amortization                      76,413              66,053
  Interest and financing costs                        1,447              97,610
  Interest and other income - net                   (59,763)            (41,400)
                                               ------------        ------------

                                                  1,646,742             813,431
                                               ------------        ------------

  NET LOSS                                     $   (472,414)       $   (813,431)
                                               ------------        ------------


Net loss per common share                      $       (.01)       $       (.02)
                                               ------------        ------------


Weighted average common shares
  outstanding                                    46,250,476          38,598,829
                                               ------------        ------------
</TABLE>




The accompanying notes are an integral part of these condensed statements.




                                       4
<PAGE>   5
                       Vasomedical, Inc. and Subsidiaries

       CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                                                          Total
                                                  Common stock             Additional     Deferred                        stock-
                                                  ------------              paid-in       compen-       Accumulated      holders'
                                              Shares          Amount        capital       sation          deficit         equity
                                              ------          ------        -------       ------          -------         ------
<S>                                         <C>               <C>         <C>            <C>           <C>              <C>       
Balance at June 1, 1996                     42,204,113        $42,204     $24,427,338    $(169,813)    $(21,208,635)    $3,091,094

Conversion of debt                           3,725,000          3,725       3,330,850                                    3,334,575
Exercise of warrants                           383,636            384         417,741                                      418,125
Amortization of deferred compensation                                                       42,453                          42,453
Net loss                                                                                                   (472,414)      (472,414)
                                            ----------        -------     -----------    ---------     ------------     ----------
Balance at August 31, 1996                  46,312,749        $46,313     $28,175,929    $(127,360)    $(21,681,049)    $6,413,833
                                            ----------        -------     -----------    ---------     ------------     ----------
</TABLE>




The accompanying notes are an integral part of this condensed statement.




                                       5
<PAGE>   6
                       Vasomedical, Inc. and Subsidiaries

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                           Three-months ended August 31,
                                                           -----------------------------
                                                              1996               1995
                                                              ----               ----
<S>                                                    <C>                <C>         
Cash flows from operating activities
  Net loss                                             $  (472,414)       $  (813,431)
                                                       -----------        -----------
  Adjustments to reconcile net loss
    to net cash used in operating activities
      Depreciation and amortization                         76,413             66,053
      Provision for doubtful accounts                      100,000
      Amortization of deferred compensation                 42,453             42,453
      Amortization of deferred loan costs                                      49,556
      Changes in operating assets and liabilities
        Decrease in accounts receivable                    156,371
        Increase in inventory                             (307,883)          (255,481)
        Decrease in other current assets                    64,415             54,959
        Decrease in accounts payable, accrued
          expenses and other current liabilities           (76,027)           (18,109)
        Increase in other liabilities                       50,000
                                                       -----------        -----------
                                                           105,742            (60,569)
                                                       -----------        -----------
     Net cash used in operating activities                (366,672)          (874,000)
                                                       -----------        -----------

Cash flows from investing activities
  Purchase of investments                                                     (10,017)
  Purchase of property and equipment                       (44,327)            (4,655)
                                                       -----------        -----------
Net cash used in investing activities                      (44,327)           (14,672)
                                                       -----------        -----------

Cash flows from financing activities
  Proceeds from exercise of warrants                       418,125             90,000
  Debt conversion fees                                     (10,000)
  Proceeds from issuance of long-term debt, net                             3,708,000
                                                       -----------        -----------
Net cash provided by financing activities                  408,125          3,798,000
                                                       -----------        -----------

      NET INCREASE (DECREASE) IN
        CASH AND CASH EQUIVALENTS                           (2,874)         2,909,328
Cash and cash equivalents - beginning of period          4,447,806            491,609
                                                       -----------        -----------
Cash and cash equivalents - end of period              $ 4,444,932        $ 3,400,937
                                                       -----------        -----------




Non-cash investing and financing activities:
Issuance of common stock upon conversion of debt       $ 3,344,575
</TABLE>




The accompanying notes are an integral part of these condensed statements.




                                       6
<PAGE>   7
                       Vasomedical, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 August 31, 1996
                                   (unaudited)

NOTE A - BASIS OF PRESENTATION

         The consolidated condensed balance sheet as of August 31, 1996 and the
related consolidated condensed statements of operations for the three-month
periods ended August 31, 1996 and 1995 and changes in stockholders' equity and
cash flows for the three-month period ended August 31, 1996 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 as of
August 31, 1996 and for all periods presented have been made.

         Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, 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-KSB for the year ended May 31, 1996. Results of
operations for the period ended August 31, 1996 are not necessarily indicative
of the operating results expected for the full year.


NOTE B - LONG-TERM DEBT

         In June 1996, the $3,725,000 outstanding principal amount of Notes were
converted into 3,725,000 shares of the Company's common stock. As a result of
such conversion, accrued interest of $239,000 was also canceled in accordance
with the terms of the Note agreement. The effect of this conversion to the
quarter ended August 31, 1996 was to increase stockholders' equity by
approximately $3,335,000, consisting of the debt conversion ($3,725,000) and
accrued interest ($239,000), net of unamortized loan costs and conversion fees
($629,000).


NOTE C - STOCKHOLDERS' EQUITY

         In the first quarter of fiscal 1997, warrants to purchase 383,636
shares of common stock were exercised, aggregating $418,000.

         Subsequent to the end of the first quarter of fiscal 1997, warrants to
purchase 417,896 shares of common stock were exercised, aggregating $458,000.


NOTE D - COMMITMENTS AND CONTINGENCIES

  Employment Agreements

         Approximate aggregate minimum annual compensation obligations under
active employment agreements at August 31, 1996, are summarized as follows:

<TABLE>
<CAPTION>
                  Twelve-months ended August 31,                 Amount
                  ------------------------------                 ------
<S>                                                          <C>       
                                        1997                 $  714,000
                                        1998                    508,000
                                        1999                     99,000
                                                             ----------
                                                             $1,321,000
                                                             ----------
</TABLE>




                                       7
<PAGE>   8
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
                                 August 31, 1996
                                   (unaudited)

NOTE D - COMMITMENTS AND CONTINGENCIES (continued)
SEC Investigation

         The Company has been served with a subpoena duces tecum by the
broker-dealer branch of the Northeast Regional Office of the Securities and
Exchange Commission ("SEC") requesting certain documents from the Company
pursuant to a formal order of private investigation in connection with possible
registration and reporting violations. The Company is cooperating fully with
such investigation. As stated in the subpoena, the "investigation is
confidential and should not be construed as an indication by the Commission or
its staff that any violations of law have occurred, nor should it be interpreted
as an adverse reflection on any person, entity or security." This investigation
is in its early stages and the Company is unable to determine the likelihood of
any unfavorable outcome or the existence or amount of any potential loss.

Litigation

         Following a previously withdrawn motion for pre-trial discovery, on or
about May 23, 1996, an action was commenced in the Supreme Court of the State of
New York, Nassau County, against the Company, its directors and certain of its
officers and employees for the alleged breach of an agreement to appoint a
non-affiliated party as its exclusive distributor of EECP(TM). The complaint
seeks damages in the approximate sum of $50,000,000, declaratory relief and
punitive damages. The Company denies the existence of any agreement, believes
that the complaint is frivolous and without merit and is vigorously defending
the claims as well as asserting substantial counterclaims. This matter is in its
preliminary stages and the Company is unable to determine the likelihood of an
unfavorable outcome or the existence or amount of any potential loss.

The Research Foundation

          The Company has entered into an agreement with the Research Foundation
of the State University of New York at Stony Brook to perform research on
EECP(TM). The Company has committed monthly payments of $15,000 to the Research
Foundation through September 1, 1997.

Agreement with Foshan

          The Company has entered into an agreement, expiring November 2008,
with Foshan Analytical Instrument Factory ("Foshan"), a Chinese company, for the
contract manufacture of EECP(TM), subject to certain performance standards, as
defined. At October 1, 1996, the Company has outstanding purchase commitments
aggregating $1,344,000.

Multi-center Clinical Trial

         The Company has entered into several agreements with medical
institutions and consultants in connection with a multi-center clinical trial
and cost-effectiveness study expected to be completed during fiscal 1997. As of
August 31, 1996, the aggregate minimum obligation under such agreements
approximates $183,000.




                                       8
<PAGE>   9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Results  of Operations - Three-months Ended August 31, 1996 and 1995 

         The Company generated revenues from the sale and lease of its EECP(TM)
(Enhanced External Counterpulsation) device in the first quarter of fiscal 1997
of $1,174,000. No revenues were generated in the first quarter of fiscal 1996.
The Company incurred net losses of $472,000 and $813,000 for the three-months
ended August 31, 1996 and 1995, respectively. Although there can be no
assurances that EECP(TM) will be successfully commercialized, the Company
expects to generate increasing revenues in fiscal 1997, including the
introduction of EECP(TM) in international markets.

         Gross margins from the EECP(TM) are dependent on a number of factors,
particularly the number of units sold or leased during the period, and by
certain fixed period costs including facilities, payroll and insurance.
Furthermore, gross margins are affected by the location of the Company's
customers and the amount and nature of training and other initial costs required
to place the EECP(TM) in service for customer use. Accordingly, the gross margin
realized during the current period may not be indicative of future margins.

         Selling, general and administrative (SGA) expenses for the three-months
ended August 31, 1996 and 1995 were approximately $1,207,000 and $598,000,
respectively. The $609,000 increase in SGA expenses for the first quarter
resulted primarily from a $342,000 increase in payroll, commissions and related
costs associated with the addition of a direct national sales force and other
operating personnel, an increase of $107,000 in marketing and related costs
associated with the commercialization of EECP(TM) and a $100,000 reserve against
uncollectable accounts.

         Research and development (R&D) expenses increased $56,000 for the
three-months ended August 31, 1996. The increase is a result of the timing of
commitments and expenses related to the Company's multi-center clinical study
for EECP(TM). Such commitments and expenses are expected to continue in fiscal
1997.

         The decrease in interest and financing costs is directly attributable
to the conversion of debt in June 1996.

         Investment income increased in the first quarter of fiscal 1997 as a
result of an increase in the Company's average cash and investment position from
the sales and lease of EECP(TM) and from proceeds generated from the exercise of
warrants.

Liquidity and Capital Resources

         Working capital at August 31, 1996 increased $299,000 to $5,258,000 as
compared to $4,959,000 at May 31, 1996 due to proceeds from the exercise of
warrants and the cancellation of $239,000 of interest due as a result of the
conversion of Notes, offset by continuing operating losses. In the first quarter
of fiscal 1997, the Company generated net proceeds of $418,000 from the exercise
of common stock purchase warrants. In September 1996, an additional $458,000 was
generated from the exercise of common stock purchase warrants.

         In June 1996, the $3,725,000 outstanding principal amount of Notes were
converted into 3,725,000 shares of the Company's common stock. The first quarter
effect of this conversion was to increase stockholders' equity by approximately
$3,335,000, consisting of the debt conversion ($3,725,000) and accrued interest
($239,000), net of unamortized loan costs and conversion fees ($629,000).

         In March 1996, the Company entered into an exclusive agreement with a
third party whereby such third party will purchase, subject to credit approval,
the EECP(TM) system on a non-recourse basis and lease the system to the
Company's customers. During the first quarter of fiscal 1997, approximately 66%
of the Company's revenues were derived through such transactions. Although there
can be no assurance as to future revenues generated through these transactions,
the Company expects that these transactions will generate significant revenues
and working capital in fiscal 1997.

         Management believes that its present working capital position at August
31, 1996 and the ongoing commercialization of EECP(TM), some units of which will
be purchased by the aforementioned medical equipment finance company, will make
it possible for the Company to support its internal overhead expenses and to
implement its new development and business plans at least through August 31,
1997.

         Except for historical information contained herein, the matters
discussed are forward looking statements that involve risks and uncertainties.
Among the factors that could cause actual results to differ materially are the
following: the effect of business and economic conditions; the impact of
competitive products and pricing; capacity and supply constraints or
difficulties; product development, commercialization or technological
difficulties; the regulatory, reimbursement and trade environment; and the risk
factors reported from time to time in the Company's SEC reports.




                                       9
<PAGE>   10
                                VASOMEDICAL, INC.
                                AND SUBSIDIARIES

                           PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS:

         Previously reported.

ITEM 2 - CHANGES IN SECURITIES:

         None

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES:

         None

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

         A. The registrant held its Annual Meeting of Stockholders on
October 10, 1996.

         C. Three directors were elected at the Annual Meeting to serve in Class
I until the Annual Meeting of Stockholders for fiscal 1999. The names of these
directors and votes cast in favor of their election and shares withheld are as
follows:

<TABLE>
<CAPTION>
Name                                 Class            Votes For   Votes Withheld
----                                 -----            ---------   --------------
<S>                                      <C>         <C>                  <C>   
E. Donald Shapiro                        I           31,771,275           90,996
Anthony Viscusi                          I           31,777,775           80,476
Zhen-sheng Zheng                         I           31,777,775           84,496
</TABLE>

         The other matter voted upon and the votes cast are as follows:

         1) Ratification of the appointment of Grant Thornton LLP as the
Company's independent certified public accountants for the fiscal year ended May
31, 1997.

                  Votes For: 31,722,524; Votes Against: 48,605; Votes
Abstained: 91,142

ITEM 5 - OTHER INFORMATION:

         None

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

         Exhibits:
                  None

         Reports on Form 8-K:
                  None




                                       10
<PAGE>   11
         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/ Anthony Viscusi
                                   -----------------------
                                   President and CEO (Principal Executive 
                                   Officer)


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


Date:  October 18, 1996




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