UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                   FORM 10-Q


[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934 For the quarterly period ended August 31, 2002

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

Commission File Number: 0-18105

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

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

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

Registrant's Telephone Number                     (516) 997-4600

Number of Shares Outstanding of Common Stock,
$.001 Par Value, at October 18, 2002              57,559,120


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


<PAGE>

                       Vasomedical, Inc. and Subsidiaries



                                     INDEX

PART I - FINANCIAL INFORMATION

  Item 1 - Financial Statements (unaudited)                     Page
                                                                ----

    Consolidated Condensed Balance Sheets as of
    August 31, 2002 and May 31, 2002                               3

    Consolidated Condensed Statements of Earnings for the
    Three Months Ended August 31, 2002 and 2001                    4

    Consolidated Condensed Statement of Changes in Stockholders'
    Equity for the Period from June 1, 2002 to August 31, 2002     5

    Consolidated Condensed Statements of Cash Flows for the
    Three Months Ended August 31, 2002 and 2001                    6


    Notes to Consolidated Condensed Financial Statements           7

  Item 2 - Management's Discussion and Analysis of
           Financial Condition and Results of Operations          10

PART II - OTHER INFORMATION                                       15



                                       2
<PAGE>

                       Vasomedical, Inc. and Subsidiaries

                     CONSOLIDATED CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        August 31,      May 31,
                                                                           2002           2002
                                                                        ----------     --------
                                                                       (unaudited)    (audited)
<S>                                                                    <C>            <C>
ASSETS
CURRENT ASSETS
   Cash and cash equivalents                                           $ 2,488,924    $ 2,967,627
   Accounts receivable, net of an allowance for doubtful accounts of
     $1,322,372 at August 31, 2002 and $1,099,687 at May 31, 2002        9,987,321     12,682,725
   Inventories                                                           5,192,024      4,902,121
   Deferred income taxes                                                   877,000      3,033,000
   Financing receivables, net                                              172,250        633,786
   Other current assets                                                    891,969        627,243
                                                                       -----------    -----------
     Total current assets                                               19,609,488     24,846,502

PROPERTY AND EQUIPMENT, net                                              3,163,360      3,252,030
FINANCING RECEIVABLES, net                                                 798,311      2,941,587
NOTES RECEIVABLE                                                                 -        512,329
DEFERRED INCOME TAXES                                                   13,069,000      9,658,000
OTHER ASSETS                                                               363,737        207,810
                                                                       -----------    -----------
                                                                       $37,003,896    $41,418,258
                                                                       ===========    ===========
   LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable and accrued expenses                                $3,156,665     $3,645,846
   Current maturities of long-term debt and notes payable                1,047,258      1,046,445
   Sales tax payable                                                       679,160        732,362
   Deferred revenues                                                       372,016        272,000
   Accrued warranty and customer support expenses                          526,417        588,334
   Accrued professional fees                                               316,568        362,083
   Accrued commissions                                                     767,814        973,998
                                                                       -----------    -----------
     Total current liabilities                                           6,865,898      7,621,068

LONG-TERM DEBT                                                           1,060,593      1,072,716
ACCRUED WARRANTY COSTS                                                     369,583        402,666
DEFERRED REVENUES                                                          814,434        719,204
OTHER LIABILITIES                                                          400,000              -

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
   Preferred stock, $.01 par value; 1,000,000 shares authorized;
     none issued and outstanding                                                 -              -
   Common stock, $.001 par value; 110,000,000 shares authorized;
     57,559,120 and 57,309,120 shares at August 31, 2002 and
     May 31, 2002, respectively, issued and outstanding                     57,559         57,309
   Additional paid-in capital                                           50,240,960     50,116,148
   Accumulated deficit                                                 (22,805,131)   (18,570,853)
                                                                       -----------    -----------
     Total stockholders' equity                                         27,493,388     31,602,604
                                                                       -----------    -----------
                                                                       $37,003,896    $41,418,258
                                                                       ===========    ===========

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

                                       3
<PAGE>


                       Vasomedical, Inc. and Subsidiaries

                 CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                      Three months ended
                                                           August 31,
                                                    -----------------------
                                                    2002               2001
                                                    ----               ----
<S>                                             <C>                <C>
Revenues
  Equipment sales                               $ 4,204,509        $ 7,431,536
  Equipment rentals and services                    334,661            365,140
  Equipment sold under sales-type leases                  -          1,829,561
                                                -----------        -----------
                                                  4,539,170          9,626,237
Cost of sales and services                        1,959,352          2,779,108
                                                -----------        -----------
  Gross Profit                                    2,579,818          6,847,129

Expenses
  Selling, general and administrative             3,686,896          3,634,952
  Research and development                        1,190,986          1,149,880
  Provision for doubtful accounts                 3,248,874             99,000
  Interest and financing costs                       48,852             20,229
  Interest and other income, net                    (76,490)           (26,492)
                                                -----------        -----------
                                                  8,099,118          4,877,569
                                                -----------        -----------
  EARNINGS (LOSS) BEFORE
    INCOME TAXES                                 (5,519,300)         1,969,560
  Income tax (expense) benefit, net               1,285,022           (726,802)
                                                -----------        -----------

  NET EARNINGS (LOSS)                           $(4,234,278)        $1,242,758
                                                ===========        ===========

Net earnings (loss) per common share
  - basic                                            $(.07)               $.02
                                                     =====                ====
  - diluted                                          $(.07)               $.02
                                                     =====                ====
Weighted average common shares
  outstanding          - basic                   57,477,598         57,198,388
                                                ===========        ===========
                       - diluted                 57,477,598         59,775,522
                                                ===========        ===========

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

                                       4


<PAGE>


                       Vasomedical, Inc. and Subsidiaries

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


<TABLE>
<CAPTION>
                                                                                                Total
                                                                  Additional                    stock-
                                          Common Stock             paid-in      Accumulated     holders'
                                             Shares      Amount    capital       deficit        equity
                                          ------------   ------   -----------   ------------    -------


<S>                                      <C>            <C>      <C>           <C>            <C>
Balance at June 1, 2002                  57,309,120     $57,309  $50,116,148   $(18,570,853)  $31,602,604
Exercise of warrants                        250,000         250      112,250                      112,500
Stock options granted for services                                    12,562                       12,562
Net loss                                                                         (4,234,278)   (4,234,278)
                                         ----------     -------  -----------   ------------   -----------
Balance at August 31, 2002               57,559,120     $57,559  $50,240,960   $(22,805,131)  $27,493,388
                                         ==========     =======  ===========   ============   ===========

    The accompanying notes are an integral part of this condensed statement.
</TABLE>

                                       5
<PAGE>

                       Vasomedical, Inc. and Subsidiaries

                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                  Three months ended
                                                                        August 31,
                                                                 ---------------------
                                                                 2002             2001
                                                                 ----             ----
<S>                                                         <C>               <C>
Cash flows from operating activities
  Net earnings (loss)                                       $(4,234,278)      $1,242,758
                                                            -----------       ----------
  Adjustments to reconcile net earnings (loss)
   to net cash used in operating activities
    Depreciation and amortization                               286,968          225,378
    Provision for doubtful accounts, net of write-offs        3,248,874           99,000
    Deferred income taxes                                    (1,255,000)         670,000
    Stock options granted for services                           12,562           15,000
     Changes in operating assets and liabilities
        Accounts receivable                                   2,472,719         (655,177)
        Financing receivables, net                               90,952       (1,829,561)
        Inventories                                            (438,108)      (2,011,209)
        Other current assets                                   (264,726)        (320,259)
        Other assets                                           (161,531)         (12,843)
        Accounts payable, accrued expenses and other
           current liabilities                                 (755,983)       1,205,796
        Other liabilities                                       462,147           16,195
                                                            -----------       ----------
                                                              3,698,874       (2,597,680)
                                                            -----------       ----------
     Net cash used in operating activities                     (535,404)      (1,354,922)
                                                            -----------       ----------

Cash flows from investing activities
  Purchase of property and equipment                            (44,489)         (95,042)
                                                            -----------       ----------
     Net cash used in investing activities                      (44,489)         (95,042)
                                                            -----------       ----------
Cash flows from financing activities
  Payments on notes                                             (11,310)               -
  Proceeds from exercise of options and warrants                112,500           31,200
                                                            -----------       ----------
     Net cash provided by financing activities                  101,190           31,200
                                                            -----------       ----------
      NET DECREASE IN CASH AND CASH EQUIVALENTS                (478,703)      (1,418,764)
Cash and cash equivalents - beginning of period               2,967,627        3,785,456
                                                            -----------       ----------
Cash and cash equivalents - end of period                    $2,488,924       $2,366,692
                                                            ===========       ==========

Non-cash investing and financing activities were
   as follows:
Inventories transferred to property and equipment,
   attributable to operating leases - net                      $148,205         $235,788



   The accompanying notes are in integral part of these condensed statements.
</TABLE>

                                       6

<PAGE>
                       Vasomedical, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                August 31, 2002
                                  (unaudited)

NOTE A - BASIS OF PRESENTATION

     The  consolidated  condensed  balance  sheet as of August 31,  2002 and the
related  consolidated  condensed  statements  of  earnings  for the  three-month
periods ended August 31, 2002 and 2001, changes in stockholders'  equity for the
three-month  period  ended  August 31,  2002 and cash flows for the  three-month
periods ended August 31, 2002 and 2001 have been prepared by  Vasomedical,  Inc.
and  Subsidiaries  (the "Company")  without audit. In the opinion of management,
all  adjustments  (which  include only normal,  recurring  accrual  adjustments)
necessary to present fairly the financial  position and results of operations as
of August 31, 2002 and for all periods presented have been made.

     Certain  information  and  footnote   disclosures,   normally  included  in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America, have been condensed or omitted.  These
financial statements should be read in conjunction with the financial statements
and notes thereto  included in the Annual Report on Form 10-K for the year ended
May 31, 2002.  Results of  operations  for the periods ended August 31, 2002 and
2001  are not  necessarily  indicative  of the  operating  results  expected  or
reported for the full year.

NOTE B - IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

     In August 2001, the Financial  Accounting  Standards  Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144").  SFAS No. 144 supersedes  SFAS No. 121  "Accounting for the Impairment of
Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of" and Accounting
Principles  Board Opinion No. 30,  "Reporting  Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business,  and Extraordinary,  Unusual
and Infrequently  Occurring Events and Transactions." This statement retains the
fundamental  provisions  of SFAS No.  121 for  recognition  and  measurement  of
impairment,  but amends the accounting and reporting standards for segments of a
business to be disposed of. The new rules were effective for the Company on June
1, 2002.  The  adoption  of SFAS No.  144 did not have a material  effect on the
Company's financial position or results of operations.

NOTE C - INVENTORIES
<TABLE>
<CAPTION>
                                                  August 31,         May 31,
                                                     2002             2002
                                                  ----------       ---------
   Inventories consist of the following:
<S>                                               <C>             <C>
       Raw materials                              $2,461,692      $2,661,303
       Work in progress                              397,832         547,818
       Finished goods                              2,332,500       1,693,000
                                                  ----------      ----------
                                                  $5,192,024      $4,902,121
                                                  ==========      ==========
</TABLE>
NOTE D - FINANCING RECEIVABLES

     The  following  table shows the future  minimum  rentals  receivable  under
sales-type  leases and future  minimum  lease  payments  and  obligations  under
capital leases in effect for the twelve months ended August 31:
<TABLE>
<CAPTION>
        <S>                                      <C>
        2003                                     $  268,383
        2004                                        817,907
        2005                                        393,941
                                                 ----------
        Total minimum lease payments              1,480,231
        Less estimated executory costs              (64,808)
                                                 ----------
        Net minimum lease payments                1,415,423
        Less interest                              (199,037)
                                                 ----------
        Present value of minimum lease payments   1,216,386
        Less valuation allowance                   (245,825)
                                                 ----------
        Net financing receivables                   970,561
        Less current portion                       (172,250)
                                                 ----------
        Long-term portion                        $  798,311
                                                 ==========
</TABLE>
     The annual minimum lease payments are subject to adjustments based on usage
of the leased units in accordance with the provisions of the lease agreements.

                                       7
<PAGE>

                       Vasomedical, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                August 31, 2002
                                  (unaudited)

NOTE E - RECEIVABLES FROM A MAJOR CUSTOMER

     Under a multi-year sales contract,  the Company sold equipment (EECP units)
to a customer  engaged in establishing a national  network of EECP centers under
sales-type  leases  aggregating  revenues  of  $3,160,792  in  fiscal  2002.  No
additional  equipment was sold to this customer  during the quarter ended August
31, 2002. At August 31, 2002, financing receivables of approximately  $2,558,000
from these sales-type lease transactions with this customer are outstanding.  In
addition,  in March 2002, the Company provided a $500,000 unsecured loan to this
customer.  This financing was part of an aggregate $3.2 million credit facility,
subject to certain conditions,  executed by the customer with the Company and an
unaffiliated  lender in January  2002,  under  which the  Company has no further
financing  obligation.  The customer issued two notes to the Company of $250,000
each in connection with two EECP centers that bear interest at 18% per annum and
mature in September  2005.  Payments of principal and interest under these notes
will  commence in April 2003 in varying  amounts  determined  by a formula based
upon cash generated,  as defined in the loan agreement.  In connection with this
financing,  the customer  issued to the Company a warrant to purchase  52,620 of
its common  shares at $2.20 per share  expiring  in January  2007.  The  warrant
contains a  repurchase  option for a 30-day  period  beginning  December 1, 2006
(assuming no earlier  liquidity  event has taken place,  as defined) that allows
the  Company,  at its option,  to require the customer to redeem the warrant for
$249,945.  The  warrant  value  is  collateralized  by a  subordinated  security
interest in the customer's accounts  receivable.

     In late August 2002,  this  customer  became  delinquent  in its  scheduled
monthly payments under its financing  obligations to the Company.  Subsequently,
the Company was notified by this customer of recent  circumstances that preclude
their  ability  to remain  current  under  their  financing  obligations  to the
Company.  Based on their  situation,  for which the  customer is  attempting  to
remedy through a recapitalization, significant uncertainties exist in connection
with the  ongoing  viability  of their  business.  Accordingly,  management  has
decided to write-off, in full, all funds due from this customer as of August 31,
2002 which  aggregate  approximately  $3,000,000.  Future  collections  of these
receivables, if any, will be treated as a recovery of uncollectable accounts.

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

     The Company  purchased its headquarters and warehouse  facility and secured
notes of $641,667 and $500,000,  respectively,  under two programs  sponsored by
New York State. These notes,  which bear interest at 7.8% and 6%,  respectively,
are  payable  in monthly  installments  consisting  of  principal  and  interest
payments over a fifteen-year term and are secured by the building. At August 31,
2002, $1,107,851 remains outstanding in connection with these notes.

     The Company  maintains  a secured  revolving  credit line with a bank.  The
credit  line,  as  amended  in  October  2002,  provides  for  borrowings  up to
$5,000,000  ($2,000,000,  at  anytime  that  consolidated  net  income  for  the
immediately  preceding three-month period is less than $1), primarily based upon
eligible  accounts  receivable,  as defined therein,  at the Libor Rate plus 200
basis  points  (3.82% at August 31,  2002).  At August 31,  2002,  approximately
$2,000,000 of the line was available of which there were outstanding  borrowings
of $1,000,000. Under the terms of the agreement, which expires in February 2005,
the Company is required to meet  certain  covenants,  including,  among  others,
minimum net income, minimum interest coverage and minimum tangible net worth. In
addition,  the line is secured by  substantially  all the tangible assets of the
Company.  At August 31, 2002, the Company did not meet the minimum  requirements
of certain  financial  covenants but has received a waiver from its bank for the
first  quarter.  As noted above,  the covenants  contained in the amended credit
agreement  have been  revised.  Management  expects  that the Company will be in
compliance with the revised covenants.

NOTE G - STOCKHOLDERS' EQUITY

     In the first quarter of fiscal 2003,  the Board of Directors  granted stock
options  under the 1999 Stock  Option Plan to an  employee  to  purchase  30,000
shares  of  common  stock  at an  exercise  price  of  $1.67  per  share  (which
represented the fair market value of the underlying  common stock at the time of
the respective grant).

     In the first quarter of fiscal 2003, warrants to purchase 250,000 shares of
common stock were exercised, aggregating $112,500 in proceeds to the Company.

                                       8
<PAGE>

                       Vasomedical, Inc. and Subsidiaries

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                August 31, 2002
                                  (unaudited)

NOTE H - EARNINGS (LOSS) PER COMMON SHARE

     Basic earnings (loss) per share are based on the weighted average number of
common  shares  outstanding  without  consideration  of potential  common stock.
Diluted earnings (loss) per share are based on the weighted number of common and
potential  common shares  outstanding.  The  calculation  takes into account the
shares that may be issued  upon the  exercise  of stock  options  and  warrants,
reduced by the shares that may be  repurchased  with the funds received from the
exercise,  based on the average price during the period. Options and warrants to
purchase  5,765,000 and 1,367,000  shares of common stock were excluded from the
computation  of  diluted  earnings  per  share as of August  31,  2002 and 2001,
respectively, because the effect of their inclusion would be antidilutive.

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings  (loss) per share:
<TABLE>
<CAPTION>
                                             Three months ended August 31,
                                             -----------------------------
                                                  2002          2001
                                                  ----          ----
<S>                                           <C>           <C>
Numerator:
   Basic and diluted earnings (loss)          $(4,234,278)  $  1,242,758
                                              ===========    ===========
Denominator:
   Basic - weighted average shares             57,477,598     57,198,388
           Stock options                                -      1,919,061
           Warrants                                     -        658,073
                                              -----------    -----------
   Diluted - weighted  average  shares         57,477,598     59,775,522
                                              ===========    ===========
Earnings (loss) per share - basic                   $(.07)          $.02
                                                    =====          =====
                          - diluted                 $(.07)          $.02
                                                    =====          =====
</TABLE>
NOTE I - COMMITMENTS AND CONTINGENCIES

Litigation
----------

     In June 2001, an action was commenced in the New York Supreme Court, Nassau
County,  against  the  Company  by the former  holder of a warrant  to  purchase
100,000  shares of the Company's  stock seeking  undefined  damages based upon a
claim that the Company  breached an  agreement  to  register  the common  shares
underlying  the warrant at the "earliest  practicable  date" after due demand by
the warrant holder had been made. In October 2002, the Company decided to settle
this matter for $600,000  through the execution of an agreement that enables the
Company to satisfy this obligation over a four-year  period  ($200,000 in fiscal
2003,  $133,000 each in fiscal years 2004 and 2005 and $134,000 in fiscal 2006).
Accordingly,  the Company has recorded a $600,000  charge to  operations  in the
three-month period ended August 31, 2002.

     In or about late June 2002,  the Company was  notified by a letter from the
domestic  counsel for Foshan Life  Sciences Co. Ltd.  ("FLSC"),  a joint venture
comprised of a Florida  company and Vamed  Medical  Instrument  Company  Limited
("Vamed"),  a  Chinese  company  with  whom  the  Company  had an  agreement  to
manufacture  the Company's  EECP Model MC2 system,  that FLSC was  initiating an
arbitration  proceeding before the Hong Kong International  Arbitration  Council
("HKIAC") to recover  compensatory  and punitive damages in excess of $1,000,000
and  injunctive  relief  based  upon  claims  of  breach  of  the  manufacturing
agreement,   tortious   interference   and   misappropriation   of  confidential
information and trade secrets.  Although possessing several substantive defenses
to these claims,  the Company initially has challenged the HKIAC's right to hear
and  determine  the dispute on the ground that FLSC is neither a legitimate  nor
recognized  party  to  the  manufacturing  agreement  which  provides  for  such
arbitration  and,  therefore,  is not entitled to enforce the same.  The Company
also has  demanded  that  FLSC  deposit  with the  HKIAC  security  to cover the
Company's  costs of  arbitration.  To date,  FLSC has neither  responded  to the
Company's  demand for security nor apparently  filed a formal statement of claim
with the HKIAC.

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

     At August 31, 2002,  the Company had  outstanding  purchase  commitments of
$162,000  with  FLSC,  a  Chinese  company  that  has  assumed  the  operational
activities of Vamed,  another Chinese  company,  for the manufacture of its EECP
Model  MC2  system.  The  Company  believes  that  FLSC will be able to meet the
Company's future need for this system.

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

Results of Operations

Three Months Ended August 31, 2002 and August 31, 2001

     The Company  generated  revenues from the sale and lease of EECP(R) systems
of  $4,539,000  and  $9,626,000  for the three  months ended August 31, 2002 and
2001,  respectively,  representing a 53% decrease.  The decrease in revenues for
the three  months  ended  August 31,  2002 as  compared  to August 31, 2001 is a
result of the following:

     (1) The Company's  prior-year quarterly revenues were favorably impacted by
$1,800,000  resulting  from the shipment of sixteen EECP units under  sales-type
leases.  There was no  equipment  sold under  sales-type  leases in the  current
quarterly  period and the  Company  does not expect  fiscal 2003  revenues  from
sales-type leases to approach fiscal 2002 levels.  The Company offered equipment
under sales-type  leases only to select customers in the past, based upon, among
other things, the customers' credit history with the Company.

     (2) At August 31, 2002, the Company had received  approximately  $3,100,000
in sales  orders for EECP  systems from  domestic  and  international  customers
which,   due  to  certain  customer   constraints   (principally  the  temporary
unavailability  of space or personnel) as well as the present  regulatory status
of the EECP Model TS3 in Europe,  were  unable to be shipped and  recognized  as
revenue in the first quarter. The Company has completed and filed its submission
for the CE mark on its EECP Model TS3 in October 2002 and expects to receive the
approval  notification  to allow for  shipments to Europe in the second or third
quarter of fiscal 2003. In addition,  the Company  expects that a portion of the
domestic  orders  received  will ship in the  second  quarter  as well.

     (3) The Company also has been  experiencing a longer selling cycle for EECP
systems and attributes  this to, among other things,  (a) a change in the mix of
prospective  customers toward larger medical  practices and hospitals which have
longer decision-making  processes;  (b) inconsistent or inadequate reimbursement
coverage  policies among certain  third-party  insurers;  (c) the activities and
pricing of competitors which lengthens the negotiation  process; and (d) general
economic conditions.

     As a result of the shortfall in revenues and certain non-recurring charges,
the Company  incurred a loss before  income  taxes of  $5,519,000  for the three
months ended August 31, 2002 versus  earnings  before income taxes of $1,970,000
for the three months ended August 31, 2001.  The Company  reported a net loss of
$4,234,000  versus net earnings of $1,243,000  for the three months ended August
31, 2002 and 2001,  respectively,  after  recognition of an income tax (benefit)
provision of $(1,285,000) and $727,000, respectively.

     The Company's revenue growth over the last several years resulted primarily
from the increase in cardiology  practices and hospitals who became providers of
EECP therapy following the announcement by the Centers for Medicare and Medicaid
Services  (CMS)  (formerly the Health Care Financing  Administration  (HCFA)) in
February  1999 of its decision to extend  Medicare  coverage  nationally  to the
Company's noninvasive,  outpatient treatment for coronary artery disease. CMS is
the federal agency that  administers the Medicare  program for  approximately 39
million  beneficiaries.  In addition,  the results of the Company's multicenter,
prospective,  randomized, blinded, controlled clinical study of EECP (MUST-EECP)
were published in the June 1999 issue of the Journal of the American  College of
Cardiology.  Interest in EECP therapy has also been spurred by the  announcement
of the results of six-month,  twelve-month and twenty-four month  post-treatment
outcomes  reported  by the  International  EECP  Patient  Registry,  as  well as
numerous  other  studies  reported and presented at major  scientific  meetings,
including  the American  Heart  Association  (AHA) and the  American  College of
Cardiology (ACC) annual meetings.

     The Company  continues to be optimistic about its future. In June 2002, the
Company  announced  that all  three of its  models of the EECP  system  had been
granted a 510(k) market  clearance from the Food and Drug  Administration  (FDA)
for a new indication for the treatment of congestive  heart failure.  Congestive
heart failure  afflicts  more than 5 million  people in the United States alone,
with more than 550,000 new patients  diagnosed every year. It is the single most
expensive  disease state in the nation,  accounting for more than $40 billion in
direct and indirect medical costs.  EECP therapy was the featured topic at a CME
(Continuing  Medical  Education)  satellite  symposium held at the Heart Failure
Society of America's Sixth Annual Scientific Meeting in September where over 300
heart failure  specialists  attended the symposium,  entitled "Enhanced External
Counterpulsation:  A Novel  Potential  Approach  to Heart  Failure,"  which  was
sponsored by the University of Minnesota and supported by an  educational  grant
from the Company. Vasomedical's multicenter,  randomized,  controlled, PEECH(TM)
(Prospective  Evaluation of EECP in Congestive  Heart Failure)  trial,  which is
more than 50% enrolled,  is of  significant  importance  and should  confirm the
benefits of EECP for heart  failure  patients that have been observed to date in
smaller  studies  and lead to more  widespread  acceptance  and  adoption of the
therapy in clinical practice.  The Company's heart failure feasibility study was
published in the July/August issue of the journal Congestive Heart Failure.

                                       10
<PAGE>

     Gross profit  margins for the first  quarter ended August 31, 2002 and 2001
were 57% and 71%,  respectively.  Gross  profits  are  dependent  on a number of
factors,  particularly  the mix of EECP units sold,  rented or placed during the
period,  the mix of EECP models sold, the ongoing costs of servicing such units,
and certain fixed period costs,  including  facilities,  payroll and  insurance.
Gross  margins  are  furthermore  affected  by the  location  of  the  Company's
customers  (including  non-domestic  business  or  distributorship  arrangements
which, for discounted  equipment  purchase  prices,  co-invest in establishing a
market for EECP  equipment)  and the amount  and  nature of  training  and other
initial  costs  required to place the EECP system in service for  customer  use.
Consequently,  the gross profit  realized  during the current  period may not be
indicative of future margins.  The decrease in gross profit margin for the three
months ended August 31, 2002 compared to August 31, 2001 primarily resulted from
the significant decrease in revenue from the prior comparable quarter.

     Selling,  general and  administrative  (SG&A) expenses for the three months
ended August 31, 2002 and 2001 were  $3,687,000 (81% of revenues) and $3,635,000
(38% of revenues), respectively. The increase in the percentage of SG&A expenses
as a percentage of sales increased 43% primarily due to the significant decrease
in revenue from the prior comparable quarter. The increase in SG&A expenses,  on
an absolute basis,  from the comparable prior fiscal quarter resulted  primarily
from the $600,000  accrual arising from the settlement of litigation,  offset by
decreases  in  sales  commissions  related  to  decreased  revenues,  and  other
decreases  which resulted from the timing of certain  marketing and  promotional
programs in the prior year versus the current year.

     During the first quarter of fiscal 2003, the Company charged  $3,249,000 to
its  provision  for  doubtful  accounts as compared to $99,000  during the first
quarter of fiscal 2002,  primarily as a result of a write-off due to significant
uncertainties with respect to a major customer's ability to meet its present and
future  financial  obligations,  as well as  reserves  applied  against  certain
domestic  and  international  accounts  for which  extended  credit  terms  were
offered.

     Research and development (R&D) expenses of $1,191,000 (26% of revenues) for
the three  months ended  August 31, 2002  increased by $41,000,  or 4%, from the
prior three months ended August 31, 2001 of $1,150,000  (12% of  revenues).  R&D
expenses are primarily  impacted by the PEECH  clinical  trial in heart failure,
other clinical studies and initiatives (including the International EECP Patient
Registry),  as well as  continued  product  design and  development  costs.  The
Company expects to continue its investments in product  development and clinical
trials in fiscal 2003 and beyond to further expand the clinical  applications of
EECP, including, but not limited to, heart failure,  diabetes disease management
and acute coronary syndromes.

     In the first  quarter of fiscal  2003,  the Company  recorded a benefit for
income  taxes of  $1,285,000,  inclusive  of a $622,000  valuation  allowance on
deferred  tax assets and $30,000 in current tax  benefit  principally  resulting
from a state  tax  refund.  This is in  contrast  to a  deferred  tax  provision
reported the first  quarter of fiscal 2002 of $727,000,  inclusive of $57,000 in
current tax expense  principally  resulting from the federal alternative minimum
tax.

     The increase in interest  income from the prior period is the direct result
of interest income reported on equipment sold under sales-type leases, offset by
the decrease in the average cash balances  invested  during the year, as well as
declining interest rates this year over last year.

     The increase in interest  expense over the prior period is primarily due to
interest  on loans  secured to  refinance  the  November  2000  purchase  of the
Company's  headquarters  and  operating  facility,  as well as  working  capital
borrowings under the Company's revolving secured credit facility.

Liquidity and Capital Resources

     The Company has financed its fiscal 2003 and 2002 operations primarily from
working  capital and operating  results.  At August 31, 2002,  the Company had a
cash balance of $2,489,000  and working  capital of  $12,744,000,  compared to a
cash balance of $2,968,000  and working  capital of $17,225,000 at May 31, 2002.
The Company's  operating  activities  used cash of $535,000 and  $1,355,000  for
August 31, 2002 and 2001,  respectively.  Net cash used in operations during the
three  months  ended  August  31,  2002  consisted  primarily  of  increases  in
inventory,  other current assets and other  liabilities,  offset by decreases in
accounts  receivable,  accounts  payable and accrued  expenses.  The increase in
inventories  resulted from an increase in finished goods of the Company's  Model
TS3 system due to a shortfall  in  anticipated  sales.  The decrease in accounts
receivable  resulted primarily from decreased sales in the current quarter.  The
Company's  management  provides  routine  oversight with respect to its accounts
receivable credit and collection  efforts, as well as the procurement of its raw
materials  and  management  of finished  goods  inventory  levels.  Cash used in
operations during the first quarter of fiscal 2003 is not necessarily indicative
of the results expected in future years.

     Investing  activities used net cash of $44,000 and $95,000 during the three
months ended August 31, 2002 and 2001,  respectively.  The principal use of cash
was for the purchase of property and equipment.

                                       11
<PAGE>

     Financing activities provided cash of $101,000 and $31,000 during the three
months ended August 31, 2002 and 2001, respectively. Financing activities during
fiscal 2002 and 2001  consisted  of the sale of common stock and receipt of cash
proceeds  upon the  exercise of Company  common  stock  options and  warrants by
officers,  directors,  employees and  consultants.  In October 2002, the Company
amended its existing  credit facility to provide for borrowings up to $5,000,000
($2,000,000,  at any time  that  consolidated  net  income  for the  immediately
preceding  three-month  period is less than $1),  primarily  based upon eligible
accounts  receivable,  as  defined  therein,  at the  Libor  Rate plus 200 basis
points.  Although  the  Company was not in  compliance  with  certain  financial
covenants at August 31,  2002,  the bank issued a waiver to the Company for that
period. As noted above, the covenants  contained in the amended credit agreement
have been  revised.  Management  expects that the Company will be in  compliance
with the  revised  covenants.  At August 31,  2002,  $2,000,000  of the line was
available of which there were outstanding borrowings of $1,000,000.

     Management  believes that its working capital  position at August 31, 2002,
the availability of its credit facility,  and the ongoing  commercialization  of
the EECP system will make it possible  for the Company to support its  operating
expenses  and to  implement  its  business  plans for at least  the next  twelve
months.

     The following table presents the Company's  expected cash  requirements for
contractual obligations outstanding as of August 31, 2002:

<TABLE>
<CAPTION>
                                              Due as of    Due as of 8/31/04    Due as of 8/31/06   Due
                                   Total        8/31/03          and 8/31/05          and 8/31/07   Thereafter
---------------------------------------------------------------------------------------------------------------
<S>                              <C>              <C>          <C>                  <C>              <C>
Line-of Credit (1)              $1,000,000    $1,000,000
Long-Term Debt                   1,107,850        47,258       $104,958             $120,634         $835,000
Operating Leases                   226,000        94,000         92,000               40,000                -
Litigation Settlement              600,000       200,000        266,000              134,000
Employment Agreements              666,500       390,000        276,500                    -                -
Purchase Obligations               162,000       162,000              -                    -                -
                             ----------------------------------------------------------------------------------
Total Contractual Cash
Obligations                     $3,762,350    $1,893,258       $739,458             $294,634         $835,000
                             ==================================================================================

(1)  The Company  maintains a revolving  credit  agreement  that,  as amended in
     October 2002, provides for borrowings of up to $5,000,000,  primarily based
     upon  eligible  accounts  receivable,  as  defined  therein.  Approximately
     $2,000,000 is available  under the  revolving  credit  agreement,  of which
     $1,000,000  is  outstanding  at  August  31,  2002.  The  revolving  credit
     agreement expires in February 2005.

</TABLE>

Effects of Inflation

     The Company believes that inflation and changing prices over the past three
years have not had a  significant  impact on our  revenue  or on our  results of
operations.

Qualitative and Quantitative Disclosures About Market Risk

     The Company is exposed to certain financial market risks, including changes
in interest rates. All of the Company's  revenue,  expenses and capital spending
are transacted in US dollars.  The Company's exposure to market risk for changes
in interest rates relates  primarily to our cash and cash  equivalent  balances,
investments in sales-type leases and the line of credit agreement.  The majority
of our investments are in short-term  instruments and subject to fluctuations in
US interest rates. Due to the nature of our short-term  investments,  we believe
that there is no material risk exposure.

Critical Accounting Policies

     Financial  Reporting  Release No. 60, which was released by the  Securities
and Exchange  Commission,  or 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 A of  the  Notes  to  Consolidated
Financial  Statements  included in the Company's  Annual Report on Form 10-K for
the year ended May 31,  2002  includes a summary  of the  Company's  significant
accounting  policies  and  methods  used  in the  preparation  of our  financial
statements.  In preparing these financial  statements,  the Company has made its
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.  The  Company  does  not  believe  there is a great  likelihood  that
materially  different  amounts would be reported under  different  conditions or
using different  assumptions.  The Company's critical accounting policies are as
follows:

                                       12
<PAGE>

Revenue Recognition

     The  Company  recognizes  revenue  from the sale of its EECP  system in the
period in which the Company  fulfills its obligations  under the sale agreement,
including  delivery and customer  acceptance.  The Company has also entered into
lease  agreements for its EECP system,  generally for terms of one year or less,
that are  classified as operating  leases.  Revenues from  operating  leases are
recognized  on a  straight-line  basis over the life of the  respective  leases.
Revenues from the sale of extended  warranties on the EECP system are recognized
on a straight-line  basis over the life of the extended  warranty,  ranging from
one year to four years.  Deferred revenues relate to extended warranty fees that
have  been paid by  customers  prior to the  performance  of  extended  warranty
services.

     The Company follows SFAS No. 13,  "Accounting For Leases," for its sales of
EECP units under sales-type  leases with two customers.  In accordance with SFAS
No. 13, the Company  records the sale and financing  receivable at the amount of
the minimum lease payment,  less unearned interest income,  which is computed at
the interest rate implicit in the lease,  and executory  costs.  The cost of the
EECP unit  acquired  by the  customer  is  recorded as cost of sales in the same
period.

Accounts Receivable/Financing Receivables

     Estimates are used in determining our allowance for doubtful accounts based
on our historical  collections  experience,  current trends, credit policy and a
percentage of our 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
its 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.

     In  addition,  the  Company  periodically  reviews  and  assesses  the  net
realizability of its receivables  arising from sales-type leases. If this review
results in a lower estimate of the net realizable  value of the  receivable,  an
allowance for the  unrealized  amount is  established in the period in which the
estimate is changed. In the first quarter of fiscal 2003,  management decided to
write-off  financing   receivables  under  sales-type  leases  of  approximately
$2,500,000  as a result of  significant  uncertainties  with  respect to a major
customer's ability to meet its present and future financial obligations.

Inventories

     The Company values inventory at the lower of cost or estimated market, cost
being determined on a first-in,  first-out basis. 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 our products as well
as forecasts of future product demand.

Warranty Costs

     Equipment sold is generally  covered by a warranty  period of one year. The
Company  accrues a warranty  reserve  for  estimated  costs to provide  warranty
services.  The estimate of costs to service our warranty obligations is based on
historical  experience  and an  expectation  of future  conditions.  While these
warranty costs have historically been within the Company's  expectations and the
provisions established, to the extent the Company experiences increased warranty
claim activity or increased costs  associated  with servicing those claims,  the
warranty accrual will increase, and the Company would experience decreased gross
profit.

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,  the Company  generally  considers all expected future events
other than an  enactment  of changes in the tax laws or rates.  The deferred tax
asset is continually  evaluated for  realizability.  To the extent  management's
judgment  regarding  the  realization  of the  deferred  tax assets  change,  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  management's  estimate  as to the  realizability  of the
asset changed.

                                       13
<PAGE>

Stock Compensation

     The Company measures  stock-based  awards using the intrinsic value method.
As described in Note I to the consolidated  financial statements included in the
Annual Report on Form 10-K for the year ended May 31, 2002, pro forma disclosure
of the  effect  on net  earnings  and net  earnings  per  common  share has been
computed  as if the fair  value-based  method  had  been  applied  in  measuring
compensation expense.

Recently Issued Accounting Standards

     In August 2001, the Financial  Accounting  Standards  Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144").  SFAS No. 144 supersedes  SFAS No. 121  "Accounting for the Impairment of
Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of" and Accounting
Principles  Board Opinion No. 30,  "Reporting  Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business,  and Extraordinary,  Unusual
and Infrequently  Occurring Events and Transactions." This statement retains the
fundamental  provisions  of SFAS No.  121 for  recognition  and  measurement  of
impairment,  but amends the accounting and reporting standards for segments of a
business to be disposed of. The new rules were effective for the Company on June
1, 2002.  The  adoption  of SFAS No.  144 did not have a material  effect on the
Company's financial position or results of operations.

Procedures and Controls

     Within the 90 days prior to the date of this  report,  the Company  carried
out an  evaluation,  under the  supervision  and with the  participation  of the
Company's management,  including the Company's Chief Executive Officer and Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of the
Company's  disclosure  controls  and  procedures  pursuant to Exchange  Act Rule
13a-14.  Based  upon that  evaluation,  the Chief  Executive  Officer  and Chief
Financial  Officer  concluded  that  the  Company's   disclosure   controls  and
procedures  are effective.  There were no  significant  changes in the Company's
internal  controls or in other  factors  that could  significantly  affect these
controls subsequent to the date of their evaluation.



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

                                       14
<PAGE>


                       VASOMEDICAL, INC. AND SUBSIDIARIES
                       ----------------------------------

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



ITEM 1 - LEGAL PROCEEDINGS:

        Previously reported.

ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS:

        None

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES:

        None

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

        None

ITEM 5 - OTHER INFORMATION:

        None

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

        (a) Exhibit 99 - Certification of Periodic Report

        (b) Reports on Form 8K: None


                                       15
<PAGE>

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


                                        VASOMEDICAL, INC.

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

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

Date:  October 18, 2002




                                       16