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 November 30, 2008

[ ] 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

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

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer.

Large Accelerated Filer [ ]  Accelerated Filer [ ]  Non-Accelerated Filer  [ X ]

     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
                                            ---     --

Number of Shares Outstanding of Common Stock, $.001 Par Value, at
January 12, 2009 - 98,943,004

                                     Page 1
<PAGE>

Vasomedical, Inc. and Subsidiaries

                                      INDEX
                                                                      Page
PART I - FINANCIAL INFORMATION                                        ----

   Item 1 - Financial Statements (unaudited)

     Consolidated Condensed Balance Sheets as of
       November 30, 2008 and May 31, 2008                                3

     Consolidated Condensed Statements of Operations for the
       Six and Three Months Ended November 30, 2008 and 2007             4

     Consolidated Condensed Statements of Cash Flows for the
       Six Months Ended November 30, 2008 and 2007                       5


     Notes to Consolidated Condensed Financial Statements                6

   Item 2 - Management's Discussion and Analysis of Financial
            Condition and Results of Operations                         12

   Item 3 - Controls and Procedures                                     26

PART II - OTHER INFORMATION


   Item 6 - Exhibits                                                    27

                                     Page 2
<PAGE>

ITEM 1.  FINANCIAL STATEMENTS

                       Vasomedical, Inc. and Subsidiaries

                      CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                 November 30, 2008             May 31, 2008
                                                                                ---------------------      -------------------
                                   ASSETS                                           (Unaudited)                (Derived from
                                                                                                              audited financial
                                                                                                                 statements)
<S>                                                                                      <C>                      <C>
CURRENT ASSETS
   Cash and cash equivalents                                                             $ 1,873,689              $ 2,653,999
   Accounts receivable, net of an allowance for doubtful accounts of
     $108,953 at November 30, 2008, and $270,183 at May 31, 2008                             503,324                  717,849
   Inventories, net                                                                        1,702,108                1,652,678
   Other current assets                                                                      105,266                   58,933
                                                                                ---------------------      -------------------
      Total current assets                                                                 4,184,387                5,083,459

PROPERTY AND EQUIPMENT, net of accumulated depreciation of
   $2,067,153 at November 30, 2008, and $2,178,566 at May 31, 2008                           134,802                   57,170
DEFERRED DISTRIBUTOR COSTS, net of accumulated amortization of
    $152,663 at November 30, 2008, and  $101,775 at May 31, 2008                             356,213                  407,101
OTHER ASSETS                                                                                 189,884                  213,336
                                                                                ---------------------      -------------------
                                                                                         $ 4,865,286              $ 5,761,066
                                                                                =====================      ===================

                    LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable and accrued expenses                                                   $ 514,040                $ 822,244
   Sales tax payable                                                                         128,714                  149,304
   Deferred revenue                                                                        1,067,069                1,132,445
   Deferred gain on sale of building                                                          53,245                   53,245
   Accrued professional fees                                                                  76,683                   74,320
   Due to related party-current portion                                                      240,000                        -
                                                                                ---------------------      -------------------
     Total current liabilities                                                             2,079,751                2,231,558
                                                                                ---------------------      -------------------

LONG-TERM LIABILITIES
   Deferred revenue                                                                          419,731                  485,608
   Accrued rent expense                                                                       13,041                    8,656
   Deferred gain on sale of building                                                         141,987                  168,610
   Due to related party-long-term portion                                                     20,000                        -
                                                                                ---------------------      -------------------
     Total long term liabilities                                                             594,759                  662,874
                                                                                ---------------------      -------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
   Preferred stock, $.01 par value; 1,000,000 shares authorized;
      none issued and outstanding                                                                  -                        -
   Common stock, $.001 par value; 200,000,000 shares authorized;
      95,943,004 shares at November 30, 2008, and 93,768,004 at
      May 31, 2008, issued and outstanding                                                    95,943                   93,768
   Additional paid-in capital                                                             48,207,614               48,068,432
   Accumulated deficit                                                                   (46,112,781)             (45,295,566)
                                                                                ---------------------      -------------------
      Total stockholders' equity                                                           2,190,776                2,866,634
                                                                                ---------------------      -------------------
                                                                                         $ 4,865,286              $ 5,761,066
                                                                                =====================      ===================

The accompanying notes are an integral part of these consolidated condensed
financial statements.
</TABLE>
                                     Page 3

<PAGE>
                       Vasomedical, Inc. and Subsidiaries

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                            Six months ended November 30,          Three months ended November 30,
                                                         -------------------------------------    ---------------------------------
                                                               2008                2007                2008                2007
                                                         -----------------   -----------------    -----------------  --------------
<S>                                                           <C>                 <C>                   <C>                 <C>
Revenues
 Equipment sales                                              $ 1,244,794         $ 1,090,540           $ 588,298         $ 597,272
 Equipment rentals and services                                 1,225,752           1,637,351             570,527           790,543
                                                         -----------------   -----------------    ----------------    -------------
  Total revenues                                                2,470,546           2,727,891           1,158,825         1,387,815
                                                         -----------------   -----------------    ----------------    -------------

Cost of Sales and Services
 Cost of sales, equipment                                         891,345             765,054             363,064           424,416
 Cost of equipment rentals and services                           542,875             626,323             259,997           311,624
                                                         -----------------   -----------------    ----------------    -------------
  Total cost of sales and services                              1,434,220           1,391,377             623,061           736,040
                                                         -----------------   -----------------    ----------------    -------------
Gross profit                                                    1,036,326           1,336,514             535,764           651,775
                                                         -----------------   -----------------    ----------------    -------------

Operating Expenses
 Selling, general and administrative                            1,629,143           1,200,294             685,384           642,138
 Research and development                                         279,954             245,002             147,607           105,827
                                                         -----------------   -----------------    ----------------    -------------
  Total operating expenses                                      1,909,097           1,445,296             832,991           747,965
                                                         -----------------   -----------------    ----------------    -------------
Loss from operations                                             (872,771)           (108,782)           (297,227)          (96,190)
                                                         -----------------   -----------------    ----------------    -------------

Other Income (Expenses)
 Interest and financing costs                                           -             (16,605)                  -                 -
 Interest and other income, net                                    36,535              35,238              20,523            22,967
 Recognition of deferred gain on sale of building                  26,623              17,748              13,312            13,311
                                                         -----------------   -----------------    ----------------    -------------
  Total other income (expenses)                                    63,158              36,381              33,835            36,278
                                                         -----------------   -----------------    ----------------    -------------

Loss before income taxes                                         (809,613)            (72,401)           (263,392)          (59,912)
 Income tax expense, net                                           (7,602)            (10,447)             (3,852)           (4,151)
                                                         -----------------   -----------------    ----------------    -------------
Net loss                                                  $      (817,215)     $      (82,848)     $     (267,244)     $    (64,063)
                                                         =================   =================    ================    =============

Net loss per common share
     - basic                                              $         (0.01)     $        (0.00)     $        (0.00)     $      (0.00)
                                                         =================   =================    ================    =============
     - diluted                                            $         (0.01)     $        (0.00)     $        (0.00)     $      (0.00)
                                                         =================   =================    ================    =============

Weighted average common shares outstanding
     - basic                                                   94,261,960          90,667,355          94,766,893        93,618,004
                                                         =================   =================    ================    =============
     - diluted                                                 94,261,960          90,667,355          94,766,893        93,618,004
                                                         =================   =================    ================    =============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.


                                     Page 4
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                       Six Months Ended November 30,
                                                                       ----------------------------
                                                                          2008             2007
                                                                       ----------        ----------
<S>                                                                    <C>              <C>
Cash flows provided by (used in) operating activities
   Net loss                                                            $ (817,215)      $ (82,848)
   Adjustments to reconcile net loss to net cash provided by
    (used in) operating activities
    Depreciation and amortization                                          51,179         104,214
    Amortization of deferred gain on sale of building                     (26,623)        (17,748)
    Provision for doubtful accounts                                          -            (27,524)
    Amortization of deferred distributor costs                             50,888          50,888
    Expenses paid for distributor agreement                                  -            (40,490)
    Stock based compensation                                              141,357          67,100
    Changes in operating assets and liabilities:
       Accounts receivable                                                214,525        (104,679)
       Inventories                                                       (145,351)        408,197
       Other current assets                                               (46,333)       (166,148)
       Accounts payable, accrued expenses and other current liabilities  (387,422)       (163,447)
       Other liabilities                                                  (65,877)       (157,787)
       Due to related party                                               260,000            -
                                                                       -----------     -----------
                                                                           46,343         (47,424)
                                                                       -----------     -----------
    Net cash used in operating activities                                (770,872)       (130,272)
                                                                       -----------     -----------
    Cash flows provided by (used in) investing activities
       Proceeds from the building sale                                          -       1,400,000
       Expenses paid for sale of building                                       -         (89,143)
       Purchases of fixed assets                                           (9,438)           -
                                                                       -----------     -----------
    Net cash provided by (used in) investing activities                    (9,438)      1,310,857
                                                                       -----------     -----------

    Cash flows provided by (used in) financing activities
       Payments on long term debt and notes payable                          -           (851,015)
       Proceeds from Securities Purchase agreement                           -          1,500,000
       Expenses paid in relation to Securities Purchase Agreement            -           (124,110)
                                                                       -----------     -----------
    Net cash provided by financing activities                                -            524,875
                                                                       -----------     -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                     (780,310)      1,705,460
                                                                       -----------     -----------
    Cash and cash equivalents - beginning of period                     2,653,999         850,288
                                                                       -----------     -----------
    Cash and cash equivalents - end of period                          $1,873,689      $2,555,748
                                                                       ===========     ===========

Non-cash investing and financing activities were as follows:
    Inventories transferred to property and equipment, attributable
     to operating leases, net                                          $   95,921      $  (38,531)
    Common stock issued for distribution agreement                     $     -         $  468,386

Supplemental Disclosures
    Interest paid                                                      $     -         $   16,605
    Income taxes paid                                                  $      790      $    2,983

</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  condensed
financial statements

                                     Page 5

<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                November 30, 2008

NOTE A - ORGANIZATION AND PLAN OF OPERATIONS

     Vasomedical,  Inc. was  incorporated  in Delaware in July 1987.  Unless the
context requires  otherwise,  all references to "we",  "our",  "us",  "Company",
"registrant",  "Vasomedical"  or "management"  refer to Vasomedical Inc. and its
subsidiaries.   Since  1995,  we  have  been  primarily  engaged  in  designing,
manufacturing,    marketing   and   supporting    EECP(R)   enhanced    external
counterpulsation  systems based on our unique proprietary  technology  currently
indicated  for use in cases of stable or unstable  angina  (i.e.,  chest  pain),
congestive heart failure (CHF), acute myocardial infarction (i.e., heart attack,
(MI)) and cardiogenic  shock. The EECP(R) therapy is a non-invasive,  outpatient
treatment  of  diseases of the  cardiovascular  system.  The  therapy  serves to
increase  circulation in areas of the heart with less than adequate blood supply
and helps to restore  systemic  vascular  function.  The therapy also  increases
blood flow and oxygen  supply to the heart muscle and other organs and decreases
the heart's workload and need for oxygen,  while also improving  function of the
endothelium,  the  lining  of  blood  vessels  throughout  the  body,  lessening
resistance to blood flow. We provide  hospitals,  clinics and physician  private
practices with EECP(R) equipment,  treatment guidance,  and a staff training and
equipment  maintenance  program  designed to provide optimal  patient  outcomes.
EECP(R) is a registered  trademark  for our enhanced  external  counterpulsation
therapy and systems. For more information, visit www.vasomedical.com.

     We have Food and Drug Administration  (FDA) clearance to market our EECP(R)
therapy for use in the treatment of stable and unstable angina, congestive heart
failure,  acute  myocardial  infarction,  and cardiogenic  shock,  however,  our
current  marketing efforts are limited to the treatment of chronic stable angina
and congestive heart failure.  Medicare and other  third-party  payers currently
reimburse for the treatment of angina pectoris  patients with moderate to severe
symptoms who are  refractory  to  medications  and not  candidates  for invasive
procedures,  including  patients  with  serious  co-morbidities,  such as  heart
failure,  diabetes,  and  peripheral  vascular  disease.  Patients  with primary
diagnoses of heart failure,  diabetes,  and peripheral vascular disease are also
reimbursed  under  the  same  criteria,  provided  the  primary  indication  for
treatment with EECP(R) therapy is angina symptoms.

     During the last  several  years,  we  incurred  operating  losses.  We have
attempted to achieve  profitability by reducing  operating costs and halting the
trend of declining  revenue,  and to reduce cash usage through bringing our cost
structure   more  into  alignment   with  current   revenues.   By  engaging  in
restructurings  during March 2007 and April 2007, the Company has  substantially
reduced personnel and spending on sales,  marketing and development projects. In
addition,  during the first  quarter of fiscal year 2008,  we raised  additional
capital through a private equity financing and by the sale of our facility under
a leaseback agreement.

     o    On June 21, 2007, we entered into a Securities Purchase Agreement with
          Kerns Manufacturing  Corp.  (Kerns).  Concurrently with our entry into
          the Securities Purchase Agreement, we also entered into a Distribution
          Agreement  and  a  Supplier  Agreement  with  Living  Data  Technology
          Corporation (Living Data), an affiliate of Kerns.

          We sold to  Kerns,  pursuant  to the  Securities  Purchase  Agreement,
          21,428,572  shares  of our  common  stock  at $.07  per  share  for an
          aggregate of  $1,500,000,  as well as a five-year  warrant to purchase
          4,285,714  shares of our common stock at an initial  exercise price of
          $.08 per share (the Warrant).  The agreement  further provided for the
          appointment to our Board of Directors of two representatives of Kerns.
          In furtherance  thereof,  Jun Ma and Simon  Srybnik,  Chairman of both
          Kerns and Living  Data,  have been  appointed  members of our Board of
          Directors.  On October 16, 2008 Mr. Jun Ma was appointed President and
          Chief Executive  Officer of the Company.  Pursuant to the Distribution
          Agreement,  we have  become the  exclusive  distributor  in the United
          States of the AngioNew  ECP systems  manufactured  by Living Data.  As
          additional  consideration  for such  agreement,  we agreed to issue an
          additional  6,990,840  shares  of our  common  stock to  Living  Data.
          Pursuant to the Supplier  Agreement,  Living Data is now the exclusive
          supplier to us of the ECP  therapy  systems  that we market  under the
          registered  trademark  EECP(R).  The  Distribution  Agreement  and the
          Supplier Agreement each have an initial term extending through May 31,
          2012.

                                     Page 6
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                November 30, 2008

          Pursuant to a Registration  Rights Agreement,  we granted to Kerns and
          Living Data, subject to certain restrictions,  "piggyback registration
          rights"  covering  the  shares  sold to  Kerns  as well as the  shares
          issuable  upon exercise of the Warrant and the shares issued to Living
          Data.

     o    On August 15, 2007, we sold our facility  under a five-year  leaseback
          agreement  for $1.4  million.  The net  proceeds  from  the sale  were
          approximately $425,000, after payment in full of the two secured notes
          on our facility,  brokers fees,  closing  costs,  and the opening of a
          certificate  of deposit in accordance  with the  provisions of the new
          lease.

     On  November  20,  2008,  the  Company  entered  into an  Amendment  to the
Distribution  Agreement with Living Data to expand the territory  covered in the
Distribution  Agreement to provide for exclusive  distribution rights worldwide.
In  consideration  for these  rights,  the Company  agreed to issue  Living Data
3,000,000 restricted shares of its common stock.

NOTE B - STOCK-BASED COMPENSATION

     As of June 1, 2006, the Company  adopted  Statement of Financial  Standards
No. 123 (revised  2004),  Share-Based  Payment ("SFAS No. 123 (R)"),  which is a
revision  of SFAS No.  123.  SFAS No. 123 (R)  supersedes  APB  Opinion  No. 25,
Accounting  for Stock Issued to  Employees,  and amends FASB  Statement  No. 95,
Statement of Cash Flows.

     Generally,  the approach to accounting for share-based payments in SFAS No.
123(R) is similar to the approach  described in SFAS No. 123. However,  SFAS No.
123(R)  requires all  share-based  payments to  employees,  including  grants of
employee stock options,  to be recognized in the financial  statements  based on
their  fair  values.  Pro  forma  disclosure  of the fair  value of  share-based
payments is no longer an alternative to financial statement recognition.

     During the six-month period ended November 30, 2008, the Board of Directors
did not grant any non-qualified stock options.

     During the six-month period ended November 30, 2008, the Company's Board of
Directors  granted 100,000 shares of common stock to one employee of the Company
having a fair  market  value of $0.08  per  share at the time of the  respective
grant.

     Stock-based  compensation expense recognized under SFAS 123(R) was $141,357
and $67,100 for the six months endedd November 30, 2008 and 2007,  respectively.
For purposes of  estimating  the fair value of each option on the date of grant,
the Company utilized the Black-Scholes  option-pricing  model. The Black-Scholes
option  valuation  model was developed  for use in estimating  the fair value of
traded options,  which have no vesting  restrictions and are fully transferable.
In addition,  option  valuation  models  require the input of highly  subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics  significantly  different from those
of traded options and because  changes in the subjective  input  assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.

     Equity  instruments issued to non-employees in exchange for goods, fees and
services are accounted for under the fair value-based method of SFAS No. 123(R).


NOTE C - LOSS PER COMMON SHARE

     The following  table sets forth the  computation  of basic and diluted loss
per share:

                                     Page 7
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                November 30, 2008


<TABLE>
<CAPTION>
                                                            Six months ended November 30,          Three months ended November 30,
                                                       --------------------------------------    ----------------------------------
                                                               2008                 2007               2008                2007
                                                         -----------------    -----------------  -----------------   --------------
Numerator:
<S>                                                      <C>                  <C>                 <C>                <C>
   Net loss                                              $      (817,215)     $       (82,848)    $     (267,244)    $      (64,063)
                                                        =================    =================   ================    ===============
 Denominator:
   Basic - weighted average common shares                     94,261,960           90,667,355         94,766,893         93,618,004
    Stock options                                                      -                    -                  -                  -
    Warrants                                                           -                    -                  -                  -
                                                        -----------------    -----------------   ----------------   ----------------
   Diluted - weighted average common shares                   94,261,960           90,667,355         94,766,893         93,618,004
                                                        =================    =================    =================   ==============

Loss per share - basic                                   $         (0.01)     $         (0.00)     $       (0.00)     $       (0.00)
                                                        =================    =================    =================   ==============
               - diluted                                 $         (0.01)     $         (0.00)     $       (0.00)     $       (0.00)
                                                        =================    =================    =================   ==============
</TABLE>
     Options and warrants, in accordance with the following table, were excluded
from the computation of diluted loss per share for the six months ended November
30, 2008 and 2007, because the effect of their inclusion would be antidilutive.
<TABLE>
<CAPTION>
                                                 As of November 30,
                                      ----------------------------------------
                                            2008                   2007
                                      ------------------     -----------------
     <S>                                     <C>                   <C>
     Options                                  5,134,877             5,886,710
     Warrants                                 6,540,252             6,540,252
                                      ------------------     -----------------
                                             11,675,129            12,426,962
                                      ==================     =================
</TABLE>
NOTE D - INVENTORIES, NET

          Inventories, net of reserves consist of the following:
<TABLE>
<CAPTION>
                                              November 30, 2008            May 31, 2008
                                           ---------------------     ---------------------
   <S>                                                <C>                       <C>
   Raw materials                                      $ 872,541                 $ 936,035
   Work in process                                      456,874                   603,925
   Finished goods                                       372,693                   112,718
                                           ---------------------     ---------------------
                                                    $ 1,702,108               $ 1,652,678
                                           =====================     =====================
</TABLE>
     At November 30, 2008 and May 31, 2008,  the Company had reserves for excess
and obsolete inventory of $581,725 and $594,042, respectively.

NOTE E - PROPERTY AND EQUIPMENT


          Property and equipment is summarized as follows:

                                     Page 8
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                November 30, 2008

<TABLE>
<CAPTION>
                                                     November 30, 2008            May 31, 2008
                                                    ---------------------     ---------------------
     <S>                                             <C>                       <C>
     Office, laboratory and other equipment          $        1,238,830        $        1,368,170
     EECP(R) systems under operating leases
        or under loan for clinical trials                       815,320                   719,401
     Furniture and fixtures                                     148,165                   148,165
                                                    ---------------------     ---------------------
                                                              2,202,315                 2,235,736
     Less:  accumulated depreciation                          2,067,513                 2,178,566
                                                    ---------------------     ---------------------
        Property and equipment - net                 $          134,802        $           57,170
                                                    =====================     =====================
</TABLE>
          Depreciation   expense   amounted   to  $9,957  and  $30,504  for  the
     three-month period ended November 30, 2008 and 2007, respectively.  For the
     six-month period ended November 30, 2008 and 2007, depreciation expense was
     $27,729 and $89,238 respectively.

NOTE F - DEFERRED REVENUE

          The changes in the Company's deferred revenues are as follows:
<TABLE>
<CAPTION>
                                                         Six Months Ended November 30,           Three Months Ended November 30,
                                                     --------------------------------------   --------------------------------------
                                                           2008                2007                 2008                 2007
                                                     -----------------   ------------------   -----------------    -----------------
<S>                                                       <C>                  <C>                 <C>                  <C>
Deferred revenue at the beginning of the period           $ 1,618,053          $ 1,756,351         $ 1,662,682          $ 1,619,631
Additions:
   Deferred extended service contracts                        632,893              914,254             186,058              502,353
   Deferred in-service and training                            22,500               17,500               5,000                7,500
   Deferred service arrangements                               79,500               80,000              27,000               30,000
   Deferred service arrangement obligations                       600                7,800                   -                3,300
Recognized as revenue:
   Deferred extended service contracts                       (732,218)          (1,084,345)           (322,091)            (518,341)
   Deferred in-service and training                           (25,000)             (10,000)            (12,500)              (2,500)
   Deferred service arrangements                             (108,328)             (71,919)            (58,749)             (35,752)
   Deferred service arrangement obligations                    (1,200)             (11,400)               (600)              (7,950)
                                                     -----------------   ------------------   -----------------    -----------------
Deferred revenue at end of period                           1,486,800            1,598,241           1,486,800            1,598,241
   Less: current portion                                    1,067,069            1,289,289           1,067,069            1,289,289
                                                     -----------------   ------------------   -----------------    -----------------
Long-term deferred revenue at end of period                 $ 419,731            $ 308,952           $ 419,731            $ 308,952
                                                     =================   ==================   =================    =================
</TABLE>
NOTE G - SALE-LEASEBACK

     In August 2007,  the Company sold its warehouse and corporate  facility for
$1,400,000.  Under the agreement,  the Company is leasing back the property from
the purchaser  over a period of five years.  The Company is  accounting  for the
leaseback  as an  operating  lease.  The  gain  of  $266,226  realized  in  this
transaction  has been deferred and is being amortized to income ratably over the
term of the  lease.  At  November  30,  2008 the  unamortized  deferred  gain of
$195,232  is shown  as  "Deferred  gain on sale of  building"  in the  Company's
consolidated condensed balance sheet. The short-term portion of $53,245 is shown
in current  liabilities  and the  long-term  portion of $141,987 is in long-term
liabilities.  The amount  recognized as a gain in the first six months of fiscal
2009 was $26,623.

NOTE H - WARRANTY LIABILITY

     The changes in the  Company's  product  warranty  liability are as follows:

                                     Page 9
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                November 30, 2008
<TABLE>
<CAPTION>
                                                                Six Months Ended November 30,        Three Months Ended November 30,
                                                           --------------------------------------    -------------------------------
                                                                  2008                 2007                 2008             2007
                                                           -----------------    -----------------    -----------------   -----------
<S>                                                         <C>                  <C>                  <C>                 <C>
Warranty liability at the beginning of the period           $     17,250          $    15,750          $    23,500         $ 30,000
   Expense for new warranties issued                              42,000               33,000               24,000            9,000
   Warranty claims                                               (26,000)             (17,750)             (14,250)         (12,500)
                                                           -----------------    -----------------    -----------------   -----------
Warranty liability at the end of the period                       33,250               31,000               33,250           26,500
                                                           -----------------    -----------------    -----------------   -----------
Long-term warranty liability at the end of the period       $          -          $         -          $         -         $      -
                                                           =================    =================    =================   ===========
</TABLE>
NOTE I - RELATED-PARTY TRANSACTIONS

     On June 21,  2007,  we entered into a Securities  Purchase  Agreement  with
Kerns.  Concurrently with our entry into the Securities Purchase  Agreement,  we
also entered into a Distribution  Agreement and a Supplier Agreement with Living
Data, an affiliate of Kerns.

     We sold to Kerns, pursuant to the Securities Purchase Agreement, 21,428,572
shares of our common stock at $.07 per share for an aggregate of $1,500,000,  as
well a five-year warrant to purchase  4,285,714 shares of our common stock at an
initial exercise price of $.08 per share (the "Warrant").  The agreement further
provided for the appointment to our Board of Directors of two representatives of
Kerns. In furtherance thereof, Jun Ma and Simon Srybnik,  Chairman of both Kerns
and Living  Data,  have been  appointed  members of our Board of  Directors.  On
October 16, 2008 Mr. Jun Ma was appointed  President and Chief Executive Officer
of the  Company.  Pursuant  to the  Distribution  Agreement,  we have become the
exclusive  distributor  in  the  United  States  of  the  AngioNew  ECP  systems
manufactured by Living Data. As additional  consideration for such agreement, we
agreed to issue an  additional  6,990,840  shares of our common  stock to Living
Data.  Pursuant to the  Supplier  Agreement,  Living  Data is now the  exclusive
supplier to us of the ECP therapy  systems that we market  under the  registered
trademark  EECP(R).  The Distribution  Agreement and the Supplier Agreement each
have an initial term extending through May 31, 2012.

     On  November  20,  2008,  the  Company  entered  into an  Amendment  to the
Distribution  Agreement with Living Data to expand the territory  covered in the
Distribution  Agreement to provide for exclusive  distribution rights worldwide.
In  consideration  for these  rights,  the Company  agreed to issue  Living Data
3,000,000 restricted shares of its common stock.

     Pursuant to a Registration Rights Agreement, we granted to Kerns and Living
Data, subject to certain restrictions,  "piggyback registration rights" covering
the shares  sold to Kerns as well as the shares  issuable  upon  exercise of the
Warrant and the shares issued to Living Data.

     On July 10,  2007,  the  Board of  Directors  appointed  Behnam  Movaseghi,
Treasurer and Chief Financial Officer of Kerns Manufacturing Corporation, to our
Board of Directors.

     As affiliates of Living Data and Kerns,  Mr. Movaseghi and Mr. Srybnik have
each been directly involved in the transactions between Living Data or Kerns, on
the one hand, and the Company, on the other hand, with respect to the Securities
Purchase Agreement,  the Distribution  Agreement and the Supplier Agreement,  as
well as providing consulting services to the Company without compensation.

     During the six-month period ended November 30, 2008, the Company  purchased
ECP therapy systems under the Supplier  Agreement for $505,000 from Living Data.
Payment terms on certain  purchases leave a balance of $20,000 in due to related
party-long term portion and $240,000 in due to related  party-current portion on
the accompanying balance sheet. In addition,  Living Data purchased $3,162 worth
of ECP therapy system components from the Company.

                                    Page 10
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                November 30, 2008

     During the six-month  period ended November 30, 2008,  Living Data assigned
to the  Company  all of its  rights  and  interests  under  its  Distributorship
Agreement  with a  corporation  organized  and  existing  under  the laws of the
People's Republic of China that manufactures Ambulatory Blood Pressure Monitors,
Ambulatory  ECG  Recorders  and Holter & ABPM  Combiner  Recorders,  for $20,000
payable to Living Data based on certain  terms and  conditions.  The Company has
also agreed to pay to Living  Data 5% of the selling  price or 5% of the cost of
all goods sold (whichever is higher) and 5% of the cost of all goods transferred
but not sold under the  Assignment  Agreement  to Living  Data based on sales of
this  equipment.  The Company intends to sell these systems in the United States
and other countries subject to obtaining regulatory clearance.

     During the six-month  period ended November 30, 2008,  Living Data assigned
to the  Company  all of its  rights  and  interests  under  its  Distributorship
Agreement  with a  corporation  organized  and  existing  under  the laws of the
People's Republic of China that manufactures  Ultrasound  Scanners,  for $20,000
payable to Living Data based on certain  terms and  conditions.  The Company has
also agreed to pay to Living  Data 5% of the selling  price or 5% of the cost of
all goods sold (whichever is higher) and 5% of the cost of all goods transferred
but not sold under the  Assignment  Agreement  to Living  Data based on sales of
this  equipment.  The Company intends to sell these systems in the United States
and other countries subject to obtaining regulatory clearance.

     Further,  Kerns provides the Company, free of charge,  part-time use of one
of its Information Technology (IT) employees as well one of their IT consultants
to provide the Company with IT and database  support  services.  In addition,  a
clinical applications support specialist and a service engineer from Living Data
may be used by the  Company to provide  customers  with  clinical  training  and
technical  service.  The  Company  was  charged  $3,900 for the  services of the
clinical  applications  support  specialist  and $2,700 for the  services of the
service engineer during the six-month period ended November 30, 2008.

NOTE J - INCOME TAXES

     During the  six-month  period ended  November 30, 2008 and August 31, 2007,
state income taxes were $7,500 and $10,447, respectively.

     As of November 30, 2008, the recorded deferred tax assets were $20,095,252,
reflecting a $275,900  increase  during the first six months of fiscal 2009. The
deferred  tax assets were offset by a valuation  allowance  of the same  amount.
Ultimate  realization  of any or all of the  deferred tax assets is not assured,
due to  significant  uncertainties  and  material  assumptions  associated  with
estimates of future taxable income during the  carryforward  period.  Management
has concluded that,  based upon the weight of available  evidence,  it was "more
likely than not" that the net deferred tax asset would not be realized.

NOTE K - COMMITMENTS AND CONTINGENCIES

Leases

     On August  15,  2007,  we sold our  facility  under a  five-year  leaseback
agreement. Future rental payments under the operating lease are as follows:
<TABLE>
<CAPTION>
        For the years ended:
        <S>                                    <C>
        May 31, 2009                           $     72,081
        May 31, 2010                                148,488
        May 31, 2011                                154,427
        May 31, 2012                                160,604
        May 31, 2013                                 40,541
                                             ------------------
        Total                                  $    576,141
                                             ==================
</TABLE>

                                    Page 11
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS

     Except for  historical  information  contained in this report,  the matters
discussed are  forward-looking  statements that involve risks and uncertainties.
When used in this  report,  words such as  "anticipates",  "believes",  "could",
"estimates",  "expects",  "may", "plans",  "potential" and "intends" 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 business and economic  conditions;  the effect of the dramatic changes
taking place in the healthcare environment; the impact of competitive procedures
and  products  and their  pricing;  medical  insurance  reimbursement  policies;
unexpected  manufacturing  or supplier  problems;  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.

General Overview

     Vasomedical,  Inc. was  incorporated  in Delaware in July 1987.  Unless the
context requires  otherwise,  all references to "we",  "our",  "us",  "Company",
"registrant",  "Vasomedical" or "management" refer to Vasomedical,  Inc. and its
subsidiaries.   Since  1995,  we  have  been  primarily  engaged  in  designing,
manufacturing,    marketing   and   supporting    EECP(R)   enhanced    external
counterpulsation  systems based on our unique proprietary  technology  currently
indicated  for use in cases of stable or unstable  angina  (i.e.,  chest  pain),
congestive heart failure (CHF), acute myocardial infarction (i.e., heart attack,
(MI)) and cardiogenic  shock. The EECP(R) therapy is a non-invasive,  outpatient
treatment  of  diseases of the  cardiovascular  system.  The  therapy  serves to
increase  circulation in areas of the heart with less than adequate blood supply
and helps to restore  systemic  vascular  function.  The therapy also  increases
blood flow and oxygen  supply to the heart muscle and other organs and decreases
the heart's workload and reduces oxygen demand, while also improving function of
the  endothelium,  the lining of blood vessels  throughout  the body,  lessening
resistance to blood flow. We provide  hospitals,  clinics and physician  private
practices with EECP(R) equipment,  treatment guidance,  and a staff training and
equipment  maintenance  program  designed to provide optimal  patient  outcomes.
EECP(R)  is  a  registered   trademark  for   Vasomedical's   enhanced  external
counterpulsation   therapy   and   systems.   For   more   information,    visit
www.vasomedical.com.

     We  have  FDA  clearance  to  market  our  EECP(R)  therapy  for use in the
treatment  of stable  and  unstable  angina,  congestive  heart  failure,  acute
myocardial  infarction,  and cardiogenic shock;  however,  our current marketing
efforts are limited to the  treatment of chronic  stable  angina and  congestive
heart failure. Medicare and other third-party payers currently reimburse for the
treatment of angina  pectoris  patients with moderate to severe symptoms who are
refractory to medications and not candidates for invasive  procedures.  Patients
with  co-morbidities of heart failure,  diabetes,  peripheral  vascular disease,
etc. are also reimbursed under the same criteria, provided the primary diagnosis
and indication for treatment with EECP(R) therapy is angina symptoms.

     During the last  several  years,  we  incurred  operating  losses.  We have
attempted to achieve  profitability by reducing  operating costs and halting the
trend of declining  revenue,  and to reduce cash usage through bringing our cost
structure   more  into  alignment   with  current   revenues.   By  engaging  in
restructurings  during March 2007 and April 2007, the Company has  substantially
reduced personnel and spending on sales,  marketing and development projects. In
addition,  during the first  quarter of fiscal year 2008,  we raised  additional
capital through a private equity financing and by the sale of our facility under
a leaseback agreement. See Note A for details of these events.

                                    Page 12
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS

Market Overview

     Cardiovascular disease (CVD) is the leading cause of death in the world and
is among the top three diseases in terms of healthcare  spending in nearly every
country.  CVD claimed  approximately  2.4 million  lives in the United States in
2005 and was  responsible  for 1 of every 5 deaths,  according  to The  American
Heart Association (AHA) Heart and Stroke  Statistical 2009 Update (2009 Update).
Approximately  80  million  Americans  suffer  from some form of  cardiovascular
disease. Among these, 16.8 million have coronary heart disease (CHD).

     We  have  FDA  clearance  to  market  our  EECP(R)  therapy  for use in the
treatment  of stable  and  unstable  angina,  congestive  heart  failure,  acute
myocardial  infarction,  and cardiogenic shock;  however,  our current marketing
efforts  are  mostly  limited to the  treatment  of  chronic  stable  angina and
congestive  heart  failure.  Medicare  and other  third-party  payers  currently
reimburse for the treatment of angina pectoris  patients with moderate to severe
symptoms who are  refractory  to  medications  and not  candidates  for invasive
procedures.  Patients with co-morbidities of heart failure, diabetes, peripheral
vascular disease, etc. are also reimbursed under the same criteria, provided the
primary   diagnosis  and  indication  for  treatment  with  EECP(R)  therapy  is
refractory angina symptoms.

Angina

     Angina  pectoris is the medical term for a recurring  pain or discomfort in
the  chest due to  coronary  artery  disease  (CAD).  Angina  is a symptom  of a
condition  called  myocardial  ischemia,  which  occurs when the heart muscle or
myocardium  doesn't receive sufficient blood, hence as much oxygen, as it needs.
This  usually  happens  because one or more of the heart's  arteries,  the blood
vessels  that  supply  blood  to  the  heart  muscle,   is  narrow  or  blocked.
Insufficient  blood  supply to meet the need of the organ to  function is called
ischemia.

     The  cardinal  symptom of stable CAD is  anginal  chest pain or  equivalent
symptoms,  such as  exertional  dyspnea  or  fatigue.  Angina  is  uncomfortable
pressure,  fullness,  squeezing or pain,  usually occurring in the center of the
chest under the  breastbone.  The discomfort  also may be felt in the neck, jaw,
shoulder, back or arm. Often the patient suffers not only from the discomfort of
the symptom itself but also from the accompanying  limitations on activities and
the  associated  anxiety  that  the  symptoms  may  produce.  Uncertainty  about
prognosis  may be an  additional  source  of  anxiety.  For some  patients,  the
predominant   symptoms  may  be  palpitations  or  syncope  that  is  caused  by
arrhythmias or fatigue, edema, or orthopnea caused by heart failure. Episodes of
angina  occur  when the  heart's  need for  oxygen  increases  beyond the oxygen
available  from the blood  nourishing the heart.  Physical  exertion is the most
common trigger, but not the only one for angina. For example, running to catch a
bus could trigger an attack of angina while walking might not. Angina may happen
during exercise,  periods of emotional stress, exposure to extreme cold or heat,
heavy meals,  alcohol  consumption or cigarette  smoking.  Some people,  such as
those with a coronary artery spasm, may have angina when they are resting.

     There are  approximately  6.4 million angina  patients in the United States
and our EECP(R) therapy currently competes with other technologies in the market
for approximately 100,000 to 150,000 new refractory angina patients annually who
do not adequately respond to or are not amenable to medical and surgical therapy
and have the  potential  to meet the  guidelines  for  reimbursement  of EECP(R)
therapy.  Most angina  patients are treated  with  medications,  including  beta
blockers  to slow and  protect  the  heart,  and  vasodilators  which  are often
prescribed to increase blood flow to the coronary  arteries.  When drugs fail or
inadequately  correct the problem,  the patients are considered  unresponsive to
medical  therapy.   Most  angina  patients  are  readily  amenable  to  invasive
revascularization  procedures such as angioplasty and coronary stent  placement,
as  well  as  coronary  artery  bypass  grafting  (CABG).   However,  there  are
approximately  100,000 to 150,000 angina patients each year whose angina can not
be stopped by medication and they are no longer  readily  amenable to palliative
invasive procedures.

     In February 1999, the Centers for Medicare and Medicaid Services (CMS), the
federal agency that  administers  the Medicare  program for more than 39 million
beneficiaries,  issued  a  national  coverage  policy  for the  use of  external
counterpulsation  therapy  in  the  treatment  of  refractory  angina.  Medicare
reimbursement  guidelines have a significant impact in determining the available
market for  EECP(R)  therapy.  We  believe  that over 65% of the  patients  that
receive EECP(R) therapy are Medicare patients and many of the third-party payers
follow Medicare  guidelines,  which limit  reimbursement  for EECP(R) therapy to


                                    Page 13
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS

patients who do not adequately respond to or are not amenable to medical therapy
and are not readily  amenable to invasive  therapy.  As a result,  an  important
element  ofour  strategy is to grow the market for EECP(R)  therapy by expanding
reimbursement  coverage to include a broader  range of angina  patients than the
current coverage policy provides and enable EECP(R) therapy to compete more with
other   therapies   for  ischemic   heart   disease.   Please  see  the  heading
"Reimbursement"  in the "Item-1 Business" section of this Form 10-KSB for a more
detailed discussion of reimbursement issues.

Congestive Heart Failure (CHF)

     CHF is a condition in which the heart loses its pumping  capacity to supply
the metabolic needs of all other organs. The condition affects both sexes and is
most common in people over age 50. Symptoms include angina, shortness of breath,
weakness,  fatigue, swelling of the abdomen, legs and ankles, rapid or irregular
heartbeat and low blood pressure. Causes range from chronic high blood pressure,
heart-valve   disease,   heart  attack,   coronary  artery  disease,   heartbeat
irregularities,  severe lung  disease  such as  emphysema,  congenital  disease,
cardiomyopathy, hyperthyroidism, severe anemia and others.

     CHF is treated with medication and,  sometimes,  surgery on heart valves or
the coronary  arteries and, in certain  severe cases,  heart  transplants.  Left
ventricular assist devices (LVADs) and the use of cardiac  resynchronization and
implantable  defibrillators  are useful in selected patients with heart failure.
Still, no consensus therapy currently exists for CHF and patients must currently
suffer their symptoms chronically and have a reduced life expectancy.

     According to the 2009 Update, in 2005 approximately 3.2 million men and 2.5
million  women in the United  States had CHF and about  670,000 new cases of the
disease occur each year. The prevalence of the disease is growing as a result of
the aging of the population and the improved survival rate of people after heart
attacks.  Because the condition  frequently entails visits to the emergency room
and in-patient treatment centers,  two-thirds of all hospitalizations for people
over age 65 are due to CHF. The economic  burden of congestive  heart failure is
enormous with an estimated  cost to the health care system in 2005 in the United
States of $37.2  billion.  Congestive  heart failure offers a good strategic fit
with our current angina business and offers an expanded  market  opportunity for
EECP(R) therapy.  Unmet clinical needs in CHF are greater than those for angina,
as there are few  consensus  therapies,  invasive or otherwise,  beyond  medical
management  for the  condition.  It is noteworthy  that data  collected from the
International   EECP(R)  Patient   Registry(TM)  (IEPR)  at  the  University  of
Pittsburgh  Graduate School of Public Health shows that approximately  one-third
of angina  patients  treated  with EECP(R) also have a history of CHF and 70% to
80% have demonstrated positive outcomes from EECP(R) therapy.

     We  sponsored  a pivotal,  randomized  clinical  trial to  demonstrate  the
efficacy  of  EECP(R)  therapy  in the most  prevalent  types  of heart  failure
patients.  This trial, known as PEECH(TM) (Prospective  Evaluation of EECP(R) in
Congestive Heart Failure),  was intended to provide  additional  evidence of the
safety and  efficacy of EECP(R)  therapy in the  treatment  of  mild-to-moderate
heart  failure and to support our  application  for  expansion  of the  Medicare
national reimbursement coverage policy to include mild-to-moderate heart failure
as a primary  indication.  The PEECH(TM)  trial was a positive  clinical  trial,
having met the statistical requirement of meeting at least one of its co-primary
endpoints,  a significant  difference in the proportion of patients satisfying a
prespecified  threshold  of  improvement  in exercise  duration.  The trial also
demonstrated  significant  improvements  in favor of EECP(R)  therapy on several
important  secondary  endpoints,  including exercise duration and improvement in
symptom  status  and  quality  of  life.  Measures  of  change  in  peak  oxygen
consumption were not statistically  significant in the overall study population,
though a trend favoring EECP(R) therapy was present in early follow-up. Patients
in the trial who had an ischemic  etiology (i.e.  pre-existing  coronary  artery
disease),  demonstrated a greater response to EECP(R) therapy than those who had
an idiopathic (non-ischemic) etiology.

     The  preliminary  results  of the  PEECH(TM)  trial were  presented  at the
American  College of Cardiology  scientific  sessions in March 2005. On June 20,
2005, CMS accepted our  application for expansion of  reimbursement  coverage of

                                    Page 14
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS

EECP(R) therapy to include patients with New York Heart Association (NYHA) Class
II/III stable heart failure  symptoms with an ejection  fraction of less than or
equal to 35% (i.e. chronic, stable, mild-to-moderate systolic heart failure as a
primary indication),  as well as patients with Canadian  Cardiovascular  Society
Classification (CCSC) II (i.e. chronic, stable mild angina).

     On June 23, 2005, CMS also received a request from a competing manufacturer
of external  counterpulsation  therapy equipment to reconsider the reimbursement
coverage policy. They requested expansion of coverage to include 1) treatment of
congestive heart failure,  to include NYHA Class II, III with a left ventricular
ejection fraction (LVEF) less than or equal to 40%, and acute heart failure;  2)
treatment  of stable  angina to include  CCSC II angina;  3)  treatment of acute
myocardial  infarction;  and 4) treatment of cardiogenic shock. On September 15,
2005,  the  competing  manufacturer  also amended  their request to include NYHA
Class IV heart failure.

     On March 20, 2006,  CMS issued their  Decision  Memorandum  regarding  this
reconsideration  with the opinion "that the evidence is not adequate to conclude
that  external  counterpulsation  therapy is  reasonable  and  necessary for the
treatment of:

     o CCSC II angina
     o Heart Failure
          0    NYHA Class II/III stable heart failure  symptoms with an ejection
               fraction of less than or equal to 35%
          0    NYHA Class II/III stable heart failure  symptoms with an ejection
               fraction of less than or equal to 40%
          0    NYHA Class IV heart failure
          0    Acute heart failure
     o Cardiogenic shock
     o Acute myocardial infarction."

     They did,  however,  reiterate in the  decision  memorandum  that  "Current
coverage  as  described  in  Section  20.20 of the  Medicare  National  Coverage
Determination  (NCD)  manual  will  remain  in  effect"  for  refractory  angina
patients.

     On August 25, 2006 the results of the trial were initially published online
by the Journal of the American College of Cardiology  (JACC) and in print in its
September 19, 2006 issue.  JACC is the official  journal of the American College
of Cardiology.

     In the  November-December  issue of the journal Congestive Heart Failure, a
second report of results from the PEECH(TM) trial was published, focusing on the
results of a prespecified  subgroup  analysis in trial patients age 65 and over.
This analysis demonstrated a statistically  positive response on both co-primary
endpoints of the trial in patients  receiving  EECP(R)  therapy versus those who
did not, i.e. a significantly  larger proportion of patients  undergoing EECP(R)
therapy met or  exceeded  prespecified  thresholds  of  improvement  in exercise
duration and peak oxygen  consumption.  Moreover,  the patients age 65 and older
who received EECP(R) therapy  demonstrated the greatest  differences in exercise
duration, peak oxygen consumption and functional class (symptom status) compared
with those who did not receive EECP(R) therapy.

     These  papers  were  submitted  to CMS and we were  advised to  continue to
gather more clinical evidence for future submission.

     We will  continue  to educate the  marketplace  that  EECP(R)  therapy is a
therapy for ischemic  cardiovascular  disease and that  patients  with a primary
diagnosis of heart failure, diabetes, peripheral vascular disease, etc. are also
eligible  for  reimbursement  under the current  coverage  policy,  provided the

                                    Page 15
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS

primary  indication for treatment with EECP(R)  therapy is refractory  angina or
angina  equivalent  symptoms and the patient  satisfies  other listed  criteria.
Additionally,  we intend to continue to pursue expansion of coverage for EECP(R)
therapy with Medicare and other  third-party  payers as evidence of its clinical
utility develops.

Critical Accounting Policies

     Financial  Reporting  Release No. 60, which was released by the  Securities
and Exchange  Commission,  (SEC),  in December  2001,  requires all companies to
include a  discussion  of critical  accounting  policies or methods  used in the
preparation  of  financial  statements.  Note B of  the  Notes  to  Consolidated
Condensed Financial  Statements included in our Annual Report on Form 10-KSB for
the year ended May 31, 2008,  includes a summary of our  significant  accounting
policies and methods used in the  preparation  of our financial  statements.  In
preparing  these  financial  statements,  we have  made our best  estimates  and
judgments of certain amounts  included in the financial  statements,  giving due
consideration  to  materiality.  The  application of these  accounting  policies
involves  the  exercise  of  judgment  and  use  of  assumptions  as  to  future
uncertainties  and,  as  a  result,  actual  results  could  differ  from  these
estimates. Our critical accounting policies are as follows:

Revenue Recognition

     The Company recognizes  revenue when persuasive  evidence of an arrangement
exists,  delivery has occurred or service has been rendered,  the price is fixed
or determinable and collectibility is reasonably  assured. In the United States,
we recognize revenue from the sale of our EECP(R) systems in the period in which
we deliver  the system to the  customer.  Revenue  from the sale of our  EECP(R)
systems to international markets is recognized upon shipment of the product to a
common carrier,  as are supplies,  accessories and spare parts delivered to both
domestic  and  international  customers.  Returns  are  accepted  prior  to  the
in-service  and  training  subject  to a 10%  restocking  charge  or for  normal
warranty  matters,  and we are not  obligated  for  post-sale  upgrades to these
systems.  In addition,  we use the installment method to record revenue based on
cash receipts in situations  where the account  receivable is collected  over an
extended  period of time and in our  judgment  the degree of  collectibility  is
uncertain.

     In most cases, revenue from domestic EECP(R) system sales is generated from
multiple-element  arrangements  that  require  judgment in the areas of customer
acceptance,  collectibility,  the  separability of units of accounting,  and the
fair value of individual  elements.  We follow the provisions of Emerging Issues
Task Force,  or EITF,  Issue No.  00-21,  "Revenue  Arrangements  with  Multiple
Deliverables" ("EITF 00-21"). The principles and guidance outlined in EITF 00-21
provide a framework to determine (a) how the arrangement consideration should be
measured (b) whether the  arrangement  should be divided into separate  units of
accounting,  and (c) how the arrangement consideration should be allocated among
the separate  units of accounting.  We determined  that the domestic sale of our
EECP(R)  systems  includes  a  combination  of three  elements  that  qualify as
separate units of accounting:
          i.   EECP(R) equipment sale,
          ii.  provision  of  in-service  and  training  support  consisting  of
               equipment   set-up  and  training   provided  at  the  customer's
               facilities, and
          iii. 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.

     Each of these  elements  represent  individual  units of  accounting as the
delivered  item has value to a customer on a  stand-alone  basis,  objective and
reliable  evidence of fair value exists for undelivered  items, and arrangements
normally do not  contain a general  right of return  relative  to the  delivered
item. We determine fair value based on the price of the  deliverable  when it is
sold  separately  or based  on  third-party  evidence.  In  accordance  with the
guidance in EITF 00-21,  we use the residual  method to allocate the arrangement
consideration when it does not have fair value of the EECP(R) system sale. Under
the residual method, the amount of consideration allocated to the delivered item
equals the total arrangement  consideration less the aggregate fair value of the
undelivered items. Assuming all other criteria for revenue recognition have been
met, we recognize revenue for:

                                    Page 16
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS


     i.   EECP(R)  equipment sales, when delivery and acceptance occurs based on
          delivery  and  acceptance   documentation  received  from  independent
          shipping companies or customers,
     ii.  in-service  and  training,  following  documented  completion  of  the
          training, and
     iii. the service  arrangement,  ratably over the service  period,  which is
          generally one year.

     In-service and training generally occurs within a few weeks of shipment and
our return policy states that no returns will be accepted  after  in-service and
training has been  completed.  The amount  related to in-service and training is
recognized  as  service  revenue  at the time the  in-service  and  training  is
completed and the amount related to service  arrangements is recognized  ratably
as service revenue over the related service period, which is generally one year.
Costs  associated  with the provision of in-service and training and the service
arrangement,  including salaries,  benefits,  travel, spare parts and equipment,
are recognized in cost of equipment sales as incurred.

     The Company  also  recognizes  revenue  generated  from  servicing  EECP(R)
systems that are no longer covered by the service  arrangement,  or by providing
sites with additional training,  in the period that these services are provided.
Revenue related to future  commitments  under separately priced extended service
agreements on our EECP(R)  system are deferred and  recognized  ratably over the
service period,  generally ranging from one year to four years. Costs associated
with the provision of service and  maintenance,  including  salaries,  benefits,
travel, spare parts and equipment,  are recognized in cost of sales as incurred.
Amounts billed in excess of revenue  recognized are included as deferred revenue
in the consolidated condensed balance sheets.

     Revenues  from  the  sale of  EECP(R)  systems  through  our  international
distributor  network are generally  covered by a one-year  warranty period.  For
these  customers  we accrue a warranty  reserve for  estimated  costs to provide
warranty parts when the equipment sale is recognized.

     The Company has also entered into lease agreements for our EECP(R) systems,
generally  for  terms of one year or less,  that  are  classified  as  operating
leases.  Revenues from operating leases are generally recognized,  in accordance
with the terms of the lease agreements,  on a straight-line  basis over the life
of the respective  leases.  For certain  operating leases in which payment terms
are  determined on a  "fee-per-use"  basis,  revenues are recognized as incurred
(i.e.,  as actual usage occurs).  The cost of the EECP(R) system  utilized under
operating  leases is recorded as a component  of property and  equipment  and is
amortized to cost of sales over the estimated useful life of the equipment,  not
to exceed five years.  There were no significant  minimum rental  commitments on
these operating leases at November 30, 2008.

Accounts Receivable, net

     The Company's  accounts  receivable are due from  customers  engaged in the
provision  of medical  services.  Credit is extended  based on  evaluation  of a
customer's  financial  condition  and,  generally,  collateral  is not required.
Accounts receivable are generally due 30 to 90 days from shipment and are stated
at amounts due from customers net of allowances for doubtful accounts,  returns,
term discounts and other  allowances.  Accounts that remain  outstanding  longer
than the contractual  payment terms are considered past due.  Estimates are used
in  determining  the  allowance  for doubtful  accounts  based on the  Company's
historical  collections   experience,   current  trends,  credit  policy  and  a
percentage of its accounts  receivable by aging category.  In determining  these
percentages,  we look at historical  write-offs of our receivables.  The Company
also looks at the credit  quality of its customer base as well as changes in its
credit policies. The Company continuously monitors collections and payments from
our customers.  While credit losses have historically  been within  expectations
and the  provisions  established,  the  Company  cannot  guarantee  that it will
continue to experience the same credit loss rates that it has in the past.

Inventories, net

     The Company values inventory at the lower of cost or estimated market, cost
being  determined  on a first-in,  first-out  basis.  The Company  often  places
EECP(R)  systems  at  various  field  locations  for  demonstration,   training,

                                    Page 17
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS


evaluation,  and other similar purposes at no charge.  The cost of these EECP(R)
systems is  transferred to property and equipment and is amortized over the next
two to five years.  The Company  records the cost of  refurbished  components of
EECP(R) systems and critical  components at cost plus the cost of refurbishment.
The Company  regularly reviews  inventory  quantities on hand,  particularly raw
materials  and  components,  and  records a  provision  for excess and  obsolete
inventory  based  primarily on existing and  anticipated  design and engineering
changes to its products as well as forecasts of future product demand.

     We have  adopted  the  provisions  of  Statement  of  Financial  Accounting
Standards No. 151,  "Inventory  Costs",  on a prospective  basis.  The statement
clarifies  that abnormal  amounts of idle facility  expense,  freight,  handling
costs, and wasted materials  (spoilage)  should be recognized as  current-period
charges and requires the allocation of fixed  production  overheads to inventory
based on the  normal  capacity  of the  production  facilities.  As a result  of
adopting  SFAS  No.  151,  we  absorbed  approximately  $73,000  more  in  fixed
production  overhead into  inventory  during the first six months of fiscal year
2009 as compared to the same period in fiscal 2008.

Deferred Revenues

     The Company records revenue on extended service  contracts ratably over the
term of the related contract  period.  In accordance with the provisions of EITF
00-21,  we began to defer revenue  related to EECP(R)  system sales for the fair
value of  installation  and in-service  training to the period when the services
are rendered and for warranty obligations ratably over the service period, which
is generally one year.

Warranty Costs

     Equipment sold is generally covered by a warranty period of one year. Under
the provisions of EITF 00-21, for certain arrangements, a portion of the overall
system price attributable to the first year service  arrangement is deferred and
recognized  as  revenue  over the  service  period.  As such,  we do not  accrue
warranty  costs upon  delivery  but we rather  recognize  warranty  and  related
service costs as incurred.

     Equipment sold to international  customers through our distributor  network
is generally  covered by a one-year  warranty  period.  For these  customers the
Company accrues a warranty reserve for estimated costs of providing a parts only
warranty when the equipment sale is recognized.

     The factors affecting our warranty  liability  included the number of units
sold and historical and anticipated rates of claims and costs per claim.

Net Loss per Common Share

     Basic  loss per  share is based on the  weighted  average  number of common
shares outstanding without consideration of potential common stock. Diluted loss
per  share is based on the  weighted  number of common  and  potential  dilutive
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.

Income Taxes

     Deferred  income taxes are  recognized  for temporary  differences  between
financial  statement  and income tax bases of assets  and  liabilities  and loss
carryforwards  for which  income tax  benefits  are  expected  to be realized in
future years. A valuation  allowance is established,  when necessary,  to reduce
deferred tax assets to the amount expected to be realized.  In estimating future
tax consequences, we generally consider all expected future events other than an
enactment  of  changes  in the tax laws or  rates.  The  deferred  tax  asset is

                                    Page 18
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS


continually  evaluated for  realizability.  To the extent our judgment regarding
the  realization  of the  deferred  tax assets  changes,  an  adjustment  to the
allowance is recorded,  with an offsetting increase or decrease, as appropriate,
in income tax expense.  Such adjustments are recorded in the period in which our
estimate as to the  realizability  of the asset  changed that it is "more likely
than not" that all of the deferred tax assets will be realized. The "more likely
than not"  standard is  subjective,  and is based upon our estimate of a greater
than 50% probability that the deferred tax asset will be realized.

     Deferred  tax  assets  and   liabilities   are  classified  as  current  or
non-current  based on the  classification  of the related asset or liability for
financial reporting. A deferred tax asset or liability that is not related to an
asset or  liability  for  financial  reporting,  including  deferred  tax assets
related to carryforwards, are classified according to the expected reversal date
of the  temporary  difference.  The  deferred  tax asset the Company  previously
recorded,  and then  reversed  fully in fiscal  2006,  related  primarily to the
realization of net operating loss carryforwards,  of which the allocation of the
current  portion,  if any,  reflected  the  expected  utilization  of  such  net
operating losses for the following  twelve months.  Such allocation was based on
the Company's  internal  financial forecast and may be subject to revision based
upon actual results.

Stock-based Employee Compensation

     In December 2004, the FASB issued Statement of Financial  Standards No. 123
(revised 2004), Share-Based Payment ("SFAS No. 123 (R)"), which is a revision of
SFAS No. 123. SFAS No. 123 (R)  supersedes  APB Opinion No. 25,  Accounting  for
Stock Issued to Employees,  and amends FASB Statement No. 95,  Statement of Cash
Flows.  Generally,  the approach to accounting for share-based  payments in SFAS
No. 123(R) is similar to the approach  described in SFAS No. 123. However,  SFAS
No. 123(R) requires all share-based  payments to employees  including  grants of
employee stock options,  to be recognized in the financial  statements  based on
their  fair  values.  Pro  forma  disclosure  of the fair  value of  share-based
payments is no longer an alternative  to financial  statement  recognition.  The
Company has five stock-based employee compensation plans.

     As new stock  options  are issued by the  Company  this may have a material
effect  on its  quarterly  and  annual  financial  statements,  in the  form  of
additional  compensation  expense. It is not possible to precisely determine the
expense  impact of  adoption  since a portion of the  ultimate  expense  that is
recorded  will  likely  relate to awards  that  have not yet been  granted.  The
expense  associated  with these future  awards can only be  determined  based on
factors such as the price for the  Company's  common  stock,  volatility  of the
Company's  stock  price and risk free  interest  rates as  measured at the grant
date.

     For  purposes  of  estimating  the fair value of each option on the date of
grant, the Company utilizes the Black-Scholes option-pricing model.

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded options,  which have no vesting restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because changes in the subjective input  assumptions can materially
affect the fair value estimate,  in management's opinion, the existing models do
not  necessarily  provide a reliable  measure of the fair value of its  employee
stock options.

     Equity  instruments issued to non-employees in exchange for goods, fees and
services are  accounted  for under the fair  value-based  method of SFAS No. 123
(R).

Recently Issued Accounting Pronouncements Not Yet Effective

     SFAS  No.  160,   "Noncontrolling   Interests  in  Consolidated   Financial
Statements" -- changes the way the  consolidated  income statement is presented.
It requires  consolidated  net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interest. It also

                                    Page 19
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS

requires disclosure, on the face of the consolidated statement of income, of the
amounts  of  consolidated  net  income  attributable  to the  parent  and to the
noncontrolling   interest.   Previously,   net   income   attributable   to  the
noncontrolling  interest generally was reported as an expense or other deduction
in  arriving  at  consolidated  net  income.  It also  was  often  presented  in
combination with other financial  statement amounts.  Effective for fiscal years
beginning after December 15, 2008.

     FSP APB 14-1,  "Accounting for  Convertible  Debt  Instruments  That May Be
Settled  in  Cash  upon  Conversion  (Including  Partial  Cash  Settlement)"  --
clarifies that  convertible  debt  instruments  that may be settled in cash upon
conversion (including partial cash settlement) are not addressed by paragraph 12
of APB  Opinion No. 14,  Accounting  for  Convertible  Debt and Debt Issued with
Stock Purchase Warrants.  Additionally,  this FSP specifies that issuers of such
instruments should separately account for the liability and equity components in
a manner that will reflect the entity's  nonconvertible debt borrowing rate when
interest cost is recognized  in  subsequent  periods.  This FSP is effective for
financial  statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years.

     FSP FAS 142-3,  "Determination of the Useful Life of Intangible  Assets" --
amends the factors that should be considered in developing  renewal or extension
assumptions  used to determine the useful life of a recognized  intangible asset
under FASB Statement No. 142,  Goodwill and Other Intangible  Assets.  Paragraph
11(d) of Statement 142 precluded an entity from using its own assumptions  about
renewal or extension of an  arrangement  where there is likely to be substantial
cost or material modifications. This FSP amends paragraph 11(d) of Statement 142
so that an entity will use its own assumptions  about renewal or extension of an
arrangement,  adjusted  for  the  entity-specific  factors  in  paragraph  11 of
Statement  142,  even when there is likely to be  substantial  cost or  material
modifications.  Therefore,  in  determining  the  useful  life of the  asset for
amortization  purposes,  an entity shall  consider  the period of expected  cash
flows  used to  measure  the fair  value  of the  recognized  intangible  asset,
adjusted for the entity-specific factors including,  but are not limited to, the
entity's  expected use of the asset and the entity's  historical  experience  in
renewing or extending  similar  arrangements.  This FSP shall be  effective  for
financial  statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited.

Results of Operations

Three Months Ended November 30, 2008 and 2007

     Net revenue from sales,  leases and service of our EECP(R)  systems for the
three months ended November 30, 2008 and 2007,  was  $1,158,825 and  $1,387,815,
respectively,  which  represented a decrease of $228,990,  or 17%. We reported a
net loss  attributable  to common  stockholders  of $267,244 and $64,063 for the
second  quarter of fiscal 2009 and 2008,  respectively.  The increase in the net
loss was primarily due to a decrease in service related revenues compared to the
same period of the prior year.

Revenues

     Revenue from equipment sales decreased approximately 2% to $588,298 for the
three-month  period ended November 30, 2008 as compared to $597,292 for the same
period in the prior year. The decrease in equipment  sales is due primarily to a
13%  decrease  in the  average  blended  per unit sale price  offset by a slight
increase in the number of equipment shipments.

     We  believe  the  decline  in the sales  price per unit  reflects  weakened
domestic  demand in the  refractory  angina market as existing  capacity is more
fully  utilized,  coupled with  increased  direct and indirect  competition.  We
anticipate  that demand for  EECP(R)  systems  will remain soft unless  there is
greater clinical  acceptance for the use of EECP(R) therapy in treating patients
with angina or angina  equivalent  symptoms  who meet the current  reimbursement
guidelines or an expansion of the current CMS national  reimbursement  policy to
include some or all Class II & III heart failure patients.  Patients with angina
or angina equivalent  symptoms eligible for reimbursement under current policies

                                    Page 20
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS


include  many  with  serious  comorbidities,  such as heart  failure,  diabetes,
peripheral vascular disease and/or others.

     Our  revenue  from the sale of EECP(R)  systems  and  related  products  to
international  distributors  in the  second  quarter  of fiscal  2009  increased
approximately  13%  compared  to the same  three-month  period in the prior year
reflecting  increased sales volume. We believe this reflects an expansion of our
international market.

     Our revenue from equipment rental and services decreased 28% to $570,527 in
the second  quarter of fiscal 2009 from $790,543 in the second quarter of fiscal
year 2008.  Revenue from equipment rental and services  represented 49% of total
revenue in the  second  quarter  of fiscal  2009 and 57% in the same  quarter of
fiscal  2008.  The  decrease in revenue  generated  from  equipment  rentals and
services is due to a decrease in the service  business,  with respect to service
contract  sales,  and  service  related  income  generated  from units not under
contract,  as well as, a decrease  in  accessories  and  service  parts  shipped
compared to the same quarter of the prior fiscal year.

Gross Profit

     Gross  profit  declined to  $535,764,  or 46% of  revenues,  for the second
quarter of fiscal 2009  compared to $651,775,  or 47% of revenues,  for the same
quarter of fiscal  2008.  Gross  profits are  dependent  on a number of factors,
particularly the mix of new and used EECP(R) systems and the mix of models sold,
their respective  average selling prices,  the mix of EECP(R) units sold, rented
or placed during the period, the ongoing costs of servicing EECP(R) systems, and
certain fixed period costs, including facilities, payroll and insurance.

Selling, General and Administrative

     Selling,  general  and  administrative  ("SG&A")  expenses  for the  second
quarter of fiscal 2009 and 2008 were $685,384, or 59% of revenues, and $642,138,
or  46%  of  revenues,  respectively,  reflecting  an  increase  of  $43,246  or
approximately  7%. The increase in SG&A  expenditures  in the second  quarter of
fiscal 2009 resulted  primarily from increased direct  expenditures in sales and
marketing.   Administrative   expenses   decreased  as  a  result  of  decreased
expenditures in wages and benefits, professional fees, and insurance expenses.

     During the second quarter of fiscal 2009 and 2008, there were no changes in
the Company's provision for doubtful accounts.

Research and Development

     Research and development ("R&D") expenses of $147,607,  or 13% of revenues,
for the  second  quarter of fiscal  2009  increased  by  $41,780,  or 39%,  from
$105,827, or 8% of revenues, for the second quarter of fiscal 2008. The increase
is  primarily  attributable  to an increase in  expenses  paid to fund  clinical
research  studies,  and  product  development  costs,  offset by a  decrease  in
regulatory affairs expenses.

Interest and Other Income, Net

     Interest  and other  income for the second  quarter of 2009 and 2008,  were
$20,523 and $22,967,  respectively.  Interest income reflects interest earned on
the Company's cash balances.

Recognition of Deferred Gain on Sale of Building

     The recognition of deferred gain on sale of building for the second quarter
of 2009 and 2008, were $13,312 and $13,311, respectively. The gain resulted from
the Company's sale-leaseback of its facility. See Note G.

                                    Page 21
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS

Income Tax Expense, Net

     During the second  quarter of fiscal 2009 and 2008, we recorded a provision
for income taxes of $3,852 and $4,151, respectively.

     As of November 30, 2008, the recorded deferred tax assets were $20,095,252,
reflecting  an increase  of $93,400  during the second  quarter of fiscal  2009,
which was offset by a valuation allowance of the same amount.

     Ultimate  realization  of any or all of  the  deferred  tax  assets  is not
assured due to significant  uncertainties  and material  assumptions  associated
with  estimates of future  taxable  income during the  carryforward  period.  In
November 2005, we concluded that,  based upon the weight of available  evidence,
it was  "more  likely  than not" that the net  deferred  tax asset  would not be
realized and  increased  the  valuation  allowance to bring the net deferred tax
asset carrying value to zero.

Six Months Ended November 30, 2008 and 2007

     Net revenue from sales,  leases and service of our EECP(R)  systems for the
six months ended  November 30, 2008 and 2007,  was  $2,470,546  and  $2,727,891,
respectively, which represented a decrease of $257,345, or 9%. We reported a net
loss  attributable to common  stockholders of $817,215 and $82,848 for the first
six months of fiscal 2009 and 2008,  respectively.  The increase in the net loss
was  primarily  due to increases in our  operating  expenses,  and  decreases in
revenue from the comparative prior period.

Revenues

     Revenue from equipment sales increased  $154,254,  or approximately  14% to
$1,244,794  for the  six-month  period  ended  November  30, 2008 as compared to
$1,090,540  for the same period in the prior  year.  The  increase in  equipment
sales is due  primarily to a 23%  increase in the number of equipment  shipments
offset by a moderate decrease in the average blended per unit sale price.

     Our  revenue  from the sale of EECP(R)  systems  and  related  products  to
international  distributors  in the first six  months of fiscal  2009  increased
approximately  37%  compared  to the same  six-month  period in the  prior  year
reflecting  increased sales volume. We believe this reflects an expansion of our
international market.

     Our revenue from equipment rental and services  decreased 26% to $1,225,752
in the first six months of fiscal 2009 from  $1,637,351  in the first six months
of fiscal year 2008. Revenue from equipment rental and services  represented 50%
of total  revenue  in the  first six  months of fiscal  2009 and 60% in the same
quarters of fiscal  2008.  The  decrease  in revenue  generated  from  equipment
rentals and services is due to a decrease in the service business,  with respect
to service  contract sales,  and service related income generated from units not
under contract,  as well as, a decrease in accessories and service parts shipped
compared to the same quarter of the prior fiscal year.

Gross Profit

     Gross profit declined to $1,036,326,  or 42% of revenues, for the first six
months of fiscal 2009 compared to $1,336,514,  or 49% of revenues,  for the same
period of fiscal  2008.  Gross  profits  are  dependent  on a number of factors,
particularly the mix of new and used EECP(R) systems and the mix of models sold,
their respective  average selling prices,  the mix of EECP(R) units sold, rented
or placed during the period, the ongoing costs of servicing EECP(R) systems, and
certain fixed period costs, including facilities, payroll and insurance.

Selling, General and Administrative

     Selling,  general and  administrative  ("SG&A")  expenses for the first six
months  of  fiscal  2009 and  2008  were  $1,629,143,  or 66% of  revenues,  and
$1,200,294, or 44% of revenues, respectively, reflecting an increase of $428,849

                                    Page 22
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS

or approximately  36%. The increase in SG&A expenditures in the first six months
of fiscal 2009 resulted  primarily from increased  direct  expenditures in sales
and  marketing.  Administrative  expenses  increased  as a result  of  increased
expenditures in wages and benefits, professional fees, and corporate expenses.

     During the first six months of fiscal 2009 and 2008,  there were no changes
in the Company's provision for doubtful accounts.

Research and Development

     Research and development ("R&D") expenses of $279,954,  or 11% of revenues,
for the first six months of fiscal  2009  increased  by  $34,952,  or 14%,  from
$245,002,  or 9% of  revenues,  for the first six  months  of fiscal  2008.  The
increase is  primarily  attributable  to an  increase  in expenses  paid to fund
clinical research studies, and product development costs.

Interest Expense and Financing Costs

     The Company had no interest  expense and financing  costs for the first six
months of fiscal 2009 and $16,605 in the same period of 2008.  Interest  expense
primarily  reflects  interest on loans  secured to refinance  the November  2000
purchase of the Company's headquarters and warehouse facility. The decrease is a
direct result of the  sale-leaseback  agreements for the Company's  headquarters
and warehouse facility, which occurred during the first quarter of fiscal 2008

Interest and Other Income, Net

     Interest and other  income for the first six months of 2009 and 2008,  were
$36,535 and $35,238,  respectively.  Interest income reflects interest earned on
the Company's cash balances.

Recognition of Deferred Gain on Sale of Building

     The  recognition  of deferred  gain on sale of  building  for the first six
months  of 2009 and 2008,  were  $26,623  and  $17,748,  respectively.  The gain
resulted from the Company's sale-leaseback of its facility. See Note G.

Income Tax Expense, Net

     During  the  first  six  months of fiscal  2009 and  2008,  we  recorded  a
provision for income taxes of $7,602 and $10,447, respectively.

     As of November 30, 2008, the recorded deferred tax assets were $20,095,252,
reflecting  an increase of $275,900  during the first six months of fiscal 2009,
which was offset by a valuation allowance of the same amount.

     Ultimate  realization  of any or all of  the  deferred  tax  assets  is not
assured due to significant  uncertainties  and material  assumptions  associated
with  estimates of future  taxable  income during the  carryforward  period.  In
November 2005, we concluded that,  based upon the weight of available  evidence,
it was  "more  likely  than not" that the net  deferred  tax asset  would not be
realized and  increased  the  valuation  allowance to bring the net deferred tax
asset carrying value to zero.

Liquidity and Capital Resources

                                    Page 23
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS

Cash and Cash Flow

     We have financed our operations  primarily from working capital,  a private
equity financing,  and by the sale of our facility under a leaseback  agreement.
At November 30, 2008, we had cash and cash equivalents of $1,873,689 and working
capital of $2,104,636  compared to cash and cash  equivalents  of $2,653,999 and
working capital of $2,851,901 at May 31, 2008.

     Cash used in operating  activities was $770,872 during the first six months
of fiscal 2009, which consisted of a net cash loss after adjustments of $600,414
and cash used by operating  assets and  liabilities of $170,458.  The changes in
the accounts  balances  primarily  reflects  increases in inventory of $145,351,
including  $95,921 of inventories  transferred  to property and  equipment,  and
other  current  assets of  $46,333,  a decrease  in  accounts  payable,  accrued
expenses,  and other current  liabilities  of $387,422,  and a decrease in other
liabilities  of $65,877  which were  primarily  offset by a decrease in accounts
receivable  of  $214,525  and due to related  party of  $260,000.  Net  accounts
receivable  were 20% of revenues for the  six-month  period  ended  November 30,
2008, as compared to 32% for the six-month  period ended  November 30, 2007, and
accounts  receivable  turnover was 6 times for the six months ended November 30,
2008 and November 30, 2007.

     Standard payment terms on our domestic equipment sales are generally net 30
to 90 days from  shipment and do not contain  "right of return"  provisions.  We
have  historically  offered a  variety  of  extended  payment  terms,  including
sales-type  leases,  in certain  situations and to certain customers in order to
expand  the  market  for  our  EECP(R)  therapy  system  products  in the US and
internationally.  Such  extended  payment  terms  were  offered in lieu of price
concessions,  in competitive situations, when opening new markets or geographies
and for repeat  customers.  Extended payment terms cover a variety of negotiated
terms,  including  payment  in full - net  120,  net 180  days or some  fixed or
variable  monthly  payment amount for a six to twelve month period followed by a
balloon payment, if applicable.  During the six-month periods ended November 30,
2008 and 2007,  there were no  revenues  generated  from sales in which  initial
payment  terms were  greater  than 90 days and we offered no  sales-type  leases
during either  period.  In general,  reserves are  calculated on a formula basis
considering factors such as the aging of the receivables, time past due, and the
customer's  credit history and their current financial status. In most instances
where reserves are required, or accounts are ultimately  written-off,  customers
have been unable to successfully  implement their EECP(R) therapy program. As we
are creating a new market for the EECP(R) therapy and recognizing the challenges
that  some   customers  may   encounter,   we  have  opted,   at  times,   on  a
customer-by-customer  basis, to recover our equipment  instead of pursuing other
legal remedies, which has resulted in our recording of a reserve or a write-off.

     Investing  activities  used net cash of $9,438  for the  purchase  of fixed
assets during the six-month period ended November 30, 2008.

     The Company had no financing  activities  during the six-month period ended
November 30, 2008.

     The following table presents the Company's  expected cash  requirements for
contractual obligations outstanding as of November 30, 2008.

                                    Page 24
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

     ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
                                             Due thru         Due thru          Due thru
                                          12/1/2008 and     12/1/2009 and    12/1/2011 and         Due
                                Total       11/30/2009       11/30/2011        11/30/2013       Thereafter
                              --------------------------------------------------------------------------------
<S>                            <C>              <C>               <C>              <C>            <C>
Operating Leases               $ 576,141        $ 145,604         $ 308,914        $ 121,623      $     -
Due to related party             260,000          240,000            20,000                -            -
                              --------------------------------------------------------------------------------
Total Contractual Cash
 Obligations                   $ 836,141        $ 385,604         $ 328,914        $ 121,623      $     -
                              ================================================================================
</TABLE>
Liquidity

     During the first quarter of fiscal 2008,  events took place that allowed us
to raise  additional  capital through a private equity financing and by the sale
of our  facility  under a leaseback  agreement.  See Note A for details of these
events.

     Based  on  our  current  operations  and  the  amounts  received  from  the
transactions  described  in Note A, we believe that we have  sufficient  working
capital to continue our operations through at least November 30, 2009.

Effects of Current Economic Conditions

     We do not believe that the current  lack of credit  available in the market
will have an impact on our revenue or on our results of operations.

                                    Page 25
<PAGE>


                       Vasomedical, Inc. and Subsidiaries


     ITEM 3. - CONTROLS AND PROCEDURES

     We  carried  out  an  evaluation,   under  the  supervision  and  with  the
participation of our management, including our Chief Executive Officer and Chief
Accountant,  of the  effectiveness of the design and operation of our disclosure
controls and  procedures  pursuant to Exchange Act Rule 13a-15.  Based upon that
evaluation,  the Chief Executive Officer and Chief Accountant concluded that, as
of November 30, 2008,  our  disclosure  controls and procedures are effective to
provide  reasonable  assurances  that such  disclosure  controls and  procedures
satisfy their objectives and that the information required to be disclosed by us
in the reports we file under the Exchange Act is recorded, processed, summarized
and reported within the required time periods.  There were no changes during the
fiscal quarter ended November, 2008 in our internal controls or in other factors
that could have  materially  affected,  or are  reasonably  likely to materially
affect, our internal control over financial reporting.

                                    Page 26

<PAGE>
                       Vasomedical, Inc. and Subsidiaries

                           PART II - OTHER INFORMATION


ITEM 6 - EXHIBITS:


Exhibits

31   Certifications  pursuant to Rules 13a-14(a) as adopted  pursuant to Section
     302 of the Sarbanes-Oxley Act of 2002.

32   Certifications  pursuant to 18 U.S.C.  Section 1350 as adopted  pursuant to
     Section 906 of the Sarbanes-Oxley Act of 2002.

                                    Page 27
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

         In accordance with 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/ Jun Ma
                                             -----------------------------------
                                             Jun Ma
                                             President & Chief Executive Officer
                                             (Principal Executive Officer)

                                             /s/ Dave Singh
                                             -----------------------------------
                                             Dave Singh
                                             Chief Accountant

Date:  January 14, 2009