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, 2005

[ ] 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 January 13, 2006 62,464,897


     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 [ ]

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

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

                                     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, 2005 and May 31, 2005                            3

          Consolidated Condensed Statements of Operations for the
               Six and Three Months Ended November 30, 2005 and 2004         4

          Consolidated Condensed Statement of Changes in Stockholders'
               Equity for the Period from June 1, 2005 to November 30, 2005  5

          Consolidated Condensed Statements of Cash Flows for the
               Six Months Ended November 30, 2005 and 2004                   6

          Notes to Consolidated Condensed Financial Statements               7

     Item 2 - Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                     17

     Item 3 - Quantitative and Qualitative Disclosures About Market Risk    29

     Item 4 - Controls and Procedures                                       29

PART II - OTHER INFORMATION                                                 30



                                     Page 2
<PAGE>

                       Vasomedical, Inc. and Subsidiaries

                     CONSOLIDATED CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                November 30,           May 31,
                                                                                    2005                 2005
                                                                              -----------------    -----------------
                                  ASSETS                                         (unaudited)           (audited)
<S>                                                                               <C>                    <C>
CURRENT ASSETS
     Cash and cash equivalents                                                    $2,655,400             $989,524
     Certificates of deposit                                                         293,686            1,758,443
     Accounts receivable, net of an allowance for doubtful accounts of
       $458,639 at November 30, 2005, and $394,692 at May 31, 2005                 2,068,038            1,892,002
     Inventories, net                                                              2,949,298            3,360,272
     Other current assets                                                            370,680              223,902
                                                                              -----------------    -----------------
         Total current assets                                                      8,337,102            8,224,143

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $2,548,367 at
   November 30, 2005, and $2,626,983 at May 31, 2005                               1,892,501            2,234,153
DEFERRED INCOME TAXES                                                                     --           14,582,000
OTHER ASSETS                                                                         316,094              321,174
                                                                              -----------------    -----------------
                                                                                 $10,545,697          $25,361,470
                                                                              =================    =================

                  LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Accounts payable and accrued expenses                                        $1,702,527           $1,569,131
     Current maturities of long-term debt and notes payable                          258,477              148,212
     Sales tax payable                                                               218,206              216,753
     Deferred revenue                                                              1,718,581            1,667,080
     Accrued warranty and customer support expenses                                   62,000              110,583
     Accrued professional fees                                                       330,207              401,511
     Accrued commissions                                                             189,567              178,104
                                                                              -----------------    -----------------
         Total current liabilities                                                 4,479,565            4,291,374

LONG-TERM DEBT                                                                       888,805              947,597
ACCRUED WARRANTY COSTS                                                                 3,000                7,750
DEFERRED REVENUE                                                                     842,449              884,452
OTHER LIABILITIES                                                                         --               67,500

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
     Preferred stock, $.01 par value; 1,000,000 shares authorized;
       20,500 and 0 at November 30, 2005, and May 31, 2005,                              205                   --
       respectively, issued and outstanding; aggregate liquidation
       preference of $2,067,083 and $0 at November 30, 2005 and May 31,
       2005, respectively
     Common stock, $.001 par value; 110,000,000 shares authorized;
       59,964,897 and 58,552,688 shares at November 30, 2005, and May
       31, 2005, respectively, issued and outstanding                                 59,964               58,552
     Additional paid-in capital                                                   46,143,600           51,450,639
     Accumulated deficit                                                         (41,871,891)         (32,346,394)
                                                                              -----------------    -----------------
         Total stockholders' equity                                                4,331,878           19,162,797
                                                                              -----------------    -----------------
                                                                                 $10,545,697          $25,361,470
                                                                              =================    =================

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

                                     Page 3
<PAGE>

                       Vasomedical, Inc. and Subsidiaries

                CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                  (unaudited)
<TABLE>
<CAPTION>

                                                         Six Months Ended                     Three Months Ended
                                                           November 30,                          November 30,
                                                 ---------------------------------     --------------------------------
                                                      2005               2004               2005              2004
                                                 ---------------    --------------     --------------     -------------
<S>                                                 <C>                <C>                <C>               <C>
Revenues
   Equipment sales                                  $4,191,318         $6,497,459         $1,734,409        $2,522,562
   Equipment rentals and services                    2,025,237          1,785,632            945,775           939,113
                                                 ---------------    --------------     --------------     -------------
     Total revenues                                  6,216,555          8,283,091          2,680,184         3,461,675

Cost of Sales and Services
   Cost of sales, equipment                          1,857,405          2,202,664            825,148           877,343
   Cost of equipment rentals and services              663,608            633,003            272,681           296,531
                                                 ---------------    --------------     --------------     -------------
      Total cost of sales and services               2,521,013          2,835,667          1,097,829         1,173,874

                                                 ---------------    --------------     --------------     -------------
Gross Profit                                         3,695,542          5,447,424          1,582,355         2,287,801

Operating Expenses
   Selling, general and administrative               4,917,773          6,140,879          2,508,624         3,088,398
   Research and development                          1,115,702          1,657,846            603,696           785,948
   Provision for doubtful accounts                      70,575            132,956                 --                --
                                                 ---------------    --------------     --------------     -------------
     Total operating expenses                        6,104,050          7,931,681          3,112,320         3,874,346

                                                 ---------------    --------------     --------------     -------------
LOSS FROM OPERATIONS                                (2,408,508)        (2,484,257)        (1,529,965)       (1,586,545)

Other Income (Expense)
   Interest and financing costs                        (44,953)           (59,040)           (21,444)          (28,678)
   Interest and other income, net                       40,790             30,827             21,774            17,083
                                                 ---------------    --------------     --------------     -------------
     Total other income (expense)                       (4,163)           (28,213)               330           (11,595)

                                                 ---------------    --------------     --------------     -------------

LOSS BEFORE INCOME TAXES                            (2,412,671)        (2,512,470)        (1,529,635)       (1,598,140)
   Income tax expense, net                          (7,112,826)           (21,683)        (7,103,000)          (11,683)
                                                 ---------------    --------------     --------------     -------------
NET LOSS                                            (9,525,497)        (2,534,153)        (8,632,635)       (1,609,823)
   Preferred Stock Dividend                           (854,536)                --            (48,913)               --
                                                 ---------------    --------------     --------------     -------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
                                                  $(10,380,033)       $(2,534,153)       $(8,681,548)      $(1,609,823)
                                                 ===============    ==============     ==============     =============

Net loss per common share
     - basic                                            $(0.18)            $(0.04)            $(0.15)           $(0.03)
                                                 ===============    ==============     ==============     =============
     - diluted                                          $(0.18)            $(0.04)            $(0.15)           $(0.03)
                                                 ===============    ==============     ==============     =============

Weighted average common shares
  outstanding
     - basic                                        59,031,491         58,542,488         59,421,050        58,552,688
                                                 ===============    ==============     ==============     =============
     - diluted                                      59,031,491         58,542,488         59,421,050        58,552,688
                                                 ===============    ==============     ==============     =============

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

                                     Page 4

<PAGE>
                       Vasomedical, Inc. and Subsidiaries

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

<TABLE>
<CAPTION>
                                                                   Additional                                Total
                              Preferred Stock    Common Stock        Paid-in         Accumulated         Stockholders'
                              Shares  Amount   Shares     Amount     Capital           Deficit               Equity
                              ------  ------   ------    -------   ----------     ------------------    -----------------
<S>                           <C>      <C>    <C>         <C>      <C>                <C>                    <C>
Balance at June 1, 2005           --     --   58,552,688  $58,552  $51,450,639        $(32,346,394)          $19,162,797
   Issuance of Series D
     convertible
     preferred stock,
     net of costs             25,000   $250                          1,613,209                                 1,613,459
   Warrants  issued  in
     connection  with
     the issuance
     of Series D
     convertible
     preferred stock                                                   411,158                                   411,158
   Beneficial conversion
     feature embedded
     in Series D
     convertible
     preferred stock issued                                            786,247                                   786,247
   Dividends on Series D
     convertible preferred
     stock                                                            (854,536)                                 (854,536)
   Issuance of common stock
     in connection with the
     issuance of Series D
     convertible preferred
     stock                                       200,000      200      125,800                                   126,000
   Issuance of common stock
     in connection with the
     conversion of Series D
     convertible preferred
     stock                    (4,500)   (45)     987,209      987         (942)                                     --
   Issaunce of common stock
     in payment of outside
     director fees                               225,000      225      101,025                                   101,250
   Reserve for tax benefit of
     stock options and warrants
     exercised in prior years                                       (7,489,000)                               (7,489,000)
   Net loss                                                                             (9,525,497)           (9,525,497)
                              ------  ------  ----------  -------  -----------     ------------------    -----------------
Balance at November 30, 2005  20,500   $205   59,964,897  $59,964  $46,143,600        $(41,871,891)           $4,331,878
                              ======  ======  ==========  =======  ===========     ==================    =================

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

                                     Page 5
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                             Six months ended
                                                                                                November 30,
                                                                                    ------------------------------------
                                                                                         2005                2004
                                                                                    ---------------     ----------------
<S>                                                                                    <C>                 <C>
Cash flows from operating activities
     Net loss                                                                          $(9,525,497)        $(2,534,153)
                                                                                    ---------------     ----------------
     Adjustments to reconcile net loss to net cash used in operating activities
         Depreciation and amortization                                                     307,379             298,127
         Provision for doubtful accounts                                                    70,575             132,956
         Reserve for excess and obsolete inventory                                         (82,765)             27,062
         Deferred income taxes                                                           7,093,000                  --
         Common stock issued for services                                                  101,250                  --
         Changes in operating assets and liabilities
              Accounts receivable                                                         (246,611)          2,914,589
              Inventories                                                                  549,675          (1,062,827)
              Other current assets                                                         155,274            (204,873)
              Other assets                                                                 (16,583)            (37,749)
              Accounts payable, accrued expenses and other current liabilities              25,843          (1,204,245)
              Other liabilities                                                           (114,253)           (412,568)
                                                                                    ---------------     ----------------
                                                                                         7,842,784             450,472
                                                                                    ---------------     ----------------
     Net cash used in operating activities                                              (1,682,713)         (2,083,681)
                                                                                    ---------------     ----------------

     Cash flows provided by (used in) investing activities
         Purchase of property and equipment                                                     --            (163,772)
         Purchase of certificates of deposit and treasury bills                                 --          (2,269,460)
         Redemptions of certificates of deposit                                          1,464,757                  --
                                                                                    ---------------     ----------------
     Net cash provided by (used in) investing activities                                 1,464,757          (2,433,232)
                                                                                    ---------------     ----------------

     Cash flows provided by financing activities
         Payments on long term debt and notes payable                                     (250,579)            (65,340)
         Payments of preferred stock dividends                                             (51,206)                 --
         Payments of preferred stock issue costs                                          (314,383)                 --
         Proceeds from exercise of options and warrants                                         --             130,666
         Proceeds from sale of convertible preferred stock                               2,500,000                  --
                                                                                    ---------------     ----------------
     Net cash provided by financing activities                                           1,883,832              65,326
                                                                                    ---------------     ----------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     1,665,876          (4,451,587)
     Cash and cash equivalents - beginning of period                                       989,524           6,365,049
                                                                                    ---------------     ----------------
     Cash and cash equivalents - end of period                                          $2,655,400          $1,913,462
                                                                                    ===============     ================

Non-cash investing and financing activities were as follows:
     Inventories  transferred to (from)  property and equipment,  attributable  to
       operating leases, net                                                              $(55,938)           $114,488
     Issue of note for purchase of insurance policy                                       $302,052                  --
     Preferred stock dividends                                                            $803,330                  --
     Preferred stock issue costs                                                          $227,087                  --

Supplemental Disclosures
     Interest Paid                                                                         $44,953             $59,040
     Income taxes paid                                                                     $22,086             $19,526

The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
                                     Page 6
<PAGE>

                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               November 30, 2005


NOTE A - BASIS OF PRESENTATION

     The consolidated  condensed  balance sheet as of November 30, 2005, and the
related  consolidated  condensed  statements  of  operations  for  the  six  and
three-month  periods ended November 30, 2005 and 2004,  changes in stockholders'
equity for the six-month  period ended November 30, 2005, and cash flows for the
six-month  periods  ended  November  30,  2005 and 2004,  have been  prepared by
Vasomedical, Inc. and Subsidiaries (the "Company") without audit. In the opinion
of  management,   all  adjustments  (which  include  normal,  recurring  accrual
adjustments)  necessary to present fairly the financial  position and results of
operations  as of November 30,  2005,  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, 2005.  Results of operations for the periods ended November 30, 2005 and
2004  are not  necessarily  indicative  of the  operating  results  expected  or
reported for the full year.

     We have  incurred  declines in revenue  and  significant  operating  losses
during the last three  fiscal  years and our  ability to continue  operating  is
dependent  upon  achieving  profitability  in the  refractory  angina  market or
through additional debt or equity financing.  Profitability is largely dependent
on reducing  operating costs as well as halting the declining  revenue trend and
maintaining  our current base of revenue in the refractory  angina  market.  Our
ability to  maintain  our  current  base of revenue  is largely  dependent  upon
refocusing our sales and marketing  efforts in the refractory  angina market and
operating  in a more  efficient  manner.  If we are  not  able to  maintain  our
existing base of revenue and reduce  operating costs as described below or raise
additional capital we will not be able to continue as a going concern.

     In order to bring the Company's cost structure more into alignment with its
current revenue base in the refractory  angina market, we have planned a company
restructuring  to be  initiated in January  2006.  The  restructure  will reduce
manufacturing  and operating costs by approximately $3 million per year compared
to  current  levels,  help us to  conserve  cash  and  provide  additional  time
necessary  to  complete  the  application  process  for  expanded  reimbursement
coverage  with The Centers  for  Medicare  and  Medicaid  Services  (CMS) and an
opportunity to rebuild sales to a profitable level.

     We believe that our cash flow from operations  following the  restructuring
initiated in January 2006,  together with our current cash reserves and the cash
received from the sale of convertible  preferred  stock and warrants on July 19,
2005,  will be sufficient  to fund our minimum  projected  capital  requirements
through at least May 31, 2006,  however it is not possible to predict the impact
of the  Proposed  Decision  Memorandum  issued  December  20,  2005,  on current
operations.

     In the event that additional capital is required, we may seek to raise such
capital  through public or private equity or debt  financings or other means. We
may not be able to obtain additional  financing on favorable terms or at all. If
we are unable to raise additional funds when we need them, we may be required to
further  scale back our  operations,  research,  marketing  or sales  efforts or
obtain funds through arrangements with collaborative partners or others that may
require us to license or relinquish  rights to technologies or products.  Future
capital funding, if available,  may result in dilution to current  shareholders,
and new investors could have rights superior to existing stockholders.

     The accompanying  financial  statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.

Reclassifications

     Certain  reclassifications  have been made to the prior  year's  amounts to
conform with the current year's presentation.

NOTE B - IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

     In May 2005, the FASB issued  Statement of Financial  Accounting  Standards
No. 154 ("SFAS No. 154"),  "Accounting  Changes and Error Corrections." SFAS No.
154 replaces APB Opinion No. 20, Accounting  Changes,  and FASB Statement No. 3,
Reporting  Accounting Changes in Interim Financial  Statements,  and changes the
requirements  for the  accounting  for and  reporting of a change in  accounting

                                     Page 7
<PAGE>

                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               November 30, 2005


principle.  The  Statement  applies  to  all  voluntary  changes  in  accounting
principle. It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition
provisions. When a pronouncement includes specific transition provisions,  those
provisions should be followed.  SFAS No. 154 is effective for accounting changes
and  corrections  of errors made in fiscal years  beginning  after  December 15,
2005.

     In December 2004, the Financial  Accounting  Standards  Board (FASB) issued
FASB Statement No. 153 ("SFAS No. 153"),  "Exchanges of Non-monetary Assets - an
amendment  of APB Opinion No. 29".  SFAS No. 153 amends  Opinion 29 to eliminate
the  exception  for  non-monetary  exchanges  of similar  productive  assets and
replaces it with a general  exception for exchanges of non-monetary  assets that
do not have  commercial  substance.  A non-  monetary  exchange  has  commercial
substance  if the  future  cash  flows of the  entity  are  expected  to  change
significantly as a result of the exchange.  SFAS No. 153 is effective for fiscal
periods  after June 15, 2005.  The Company  adopted SFAS No. 153  effective  for
fiscal periods beginning September 1, 2005. The adoption of SFAS No. 153 did not
have a material impact on the Company's consolidated financial statements.

     In  December  2004,  the FASB  issued  Statement  of  Financial  Accounting
Standards  No.  123(R)  ("SFAS  No.   123(R)"),   "Accounting   for  Stock-Based
Compensation".  SFAS No. 123(R)  establishes  standards for the  accounting  for
transactions  in which an entity  exchanges its equity  instruments for goods or
services.  This Statement  focuses  primarily on accounting for  transactions in
which an entity obtains employee services in share-based  payment  transactions.
SFAS No.  123(R)  requires  that the fair value of such  equity  instruments  be
recognized  as expense in the  historical  financial  statements as services are
performed.  Prior to SFAS No. 123(R), only certain pro-forma disclosures of fair
value were  required.  SFAS No.  123(R) shall be effective for the Company as of
the  beginning  of the next  fiscal year that begins  after June 15,  2005.  The
adoption  of this new  accounting  pronouncement  is expected to have a material
impact on the financial  statements of the Company  commencing  with the quarter
ending August 31, 2006.

     In  November  2004,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 151 ("SFAS No. 151"), Inventory Costs, an amendment of ARB No. 43,
Chapter 4. The amendments made by SFAS No. 151 will improve financial  reporting
by clarifying that abnormal amounts of idle facility expense,  freight, handling
costs, and wasted materials  (spoilage)  should be recognized as  current-period
charges  and by  requiring  the  allocation  of fixed  production  overheads  to
inventory  based on the normal capacity of the production  facilities.  SFAS No.
151 is effective  for inventory  costs  incurred  during fiscal years  beginning
after June 15, 2005.  Earlier  application  is  permitted  for  inventory  costs
incurred  during fiscal years  beginning  after  November 24, 2004.  The Company
adopted SFAS No. 151 effective  for fiscal  periods  beginning  June 1, 2005. We
determined that our production  facilities are currently  operating below normal
capacity and as a result we applied  production  overhead  rates based on normal
production  capacity  which  resulted in a  reduction  of the amount of overhead
allocated to inventory for the six month and three month periods ended  November
30, 2005 of $141,000  and  $68,000,  respectively.  Had the Company  adopted the
provisions  of SFAS No. 151  beginning in fiscal 2005,  there would have been no
change in overhead  allocation  as the Company was  operating  within its normal
production capacity at that time.

NOTE C - STOCK-BASED COMPENSATION

     The Company has five stock-based employee and director  compensation plans.
The Company  accounts for  stock-based  compensation  using the intrinsic  value
method  in  accordance  with  Accounting   Principles   Board  Opinion  No.  25,
"Accounting  for Stock Issued to Employees," and related  Interpretations  ("APB
No. 25") and has adopted the  disclosure  provisions  of  Statement of Financial
Accounting  Standards  No.  148,  "Accounting  for  Stock-Based  Compensation  -
Transition  and  Disclosure,  an amendment of FASB Statement No. 123." Under APB
No. 25, when the exercise  price of the Company's  employee stock options equals
the market price of the underlying  stock on the date of grant,  no compensation
expense is recognized.  Accordingly, no compensation expense has been recognized
in the  consolidated  financial  statements  in connection  with employee  stock
option grants.

     During the six-month period ended November 30, 2005, the Board of Directors
granted  non-qualified stock options under the 2004 Stock Option/Stock  Issuance
Plan to three  officers,  and 49 employees to purchase an aggregate of 1,218,045
shares of common stock, at an exercise price of $0.45 to $0.58 per share,  which
represented the fair market value of the underlying  common stock at the time of
the respective  grants.  These options vest over one to three year periods,  and
expire  ten years  from the date of grant.

                                      Page 8
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               November 30, 2005


     During the six-month  period ended  November 30, 2005,  options to purchase
391,410  shares  of  common  stock at an  exercise  price of $0.57 - $5.15  were
cancelled.

     The following  table  illustrates the effect on net loss and loss per share
had the Company  applied the fair value  recognition  provisions of Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation," to stock-based employee compensation.
<TABLE>
<CAPTION>
                                                   Six Months Ended                        Three Months Ended
                                                     November 30,                            November 30,
                                        --------------------------------------     ----------------------------------
                                               2005                 2004                2005                2004
                                        -----------------    -----------------     --------------     ---------------
<S>                                      <C>                  <C>                   <C>                <C>
Net  loss   attributable   to   common   $(10,380,033)        $(2,534,153)          $(8,681,548)       $(1,609,823)
stockholders, as reported
     Deduct: Total stock-based
       employee compensation expense
       determined under fair                 (433,742)           (653,526)             (221,448)          (482,605)
       value-based method for all
       awards
                                        -----------------    -----------------     --------------     ---------------
Pro forma net loss                       $(10,813,775)        $(3,187,679)          $(8,902,996)       $(2,092,428)
                                        =================    =================     ==============     ===============
Loss per share:
    Basic and diluted - as reported          $(0.18)              $(0.04)               $(0.15)            $(0.03)
                                        =================    =================     ==============     ===============
    Basic and diluted - pro forma            $(0.18)              $(0.05)               $(0.15)            $(0.04)
                                        =================    =================     ==============     ===============
</TABLE>

     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.

     The fair value of the Company's  stock-based  awards was estimated assuming
no expected dividends and the following weighted-average assumptions for the six
months ended November 30, 2005:
<TABLE>
        <S>                                             <C>
        Expected life (years)                             5
        Expected volatility                              70%
        Risk-free interest rate                        4.13%
        Expected dividend yield                         0.0%
</TABLE>

NOTE D - LOSS PER COMMON SHARE

     Basic  loss per  share is based on the  weighted  average  number of common
shares  outstanding  without  consideration of potential common shares.  Diluted
loss per share is based on the weighted  average  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, plus conversion of convertible preferred
stock into common shares based upon the most advantageous conversion rate during
the period, unless the effect on results of operations is antidilutive.

                                     Page 9
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               November 30, 2005


        The following table sets forth the computation of basic and diluted
earnings (loss) per common share:
<TABLE>
<CAPTION>

                                                           Six Months Ended                 Three Months Ended
                                                             November 30,                       November 30,
                                                  ----------------------------------    -------------------------------
                                                       2005               2004               2005             2004
                                                  ---------------    ---------------    --------------    -------------
<S>                                                 <C>                <C>               <C>               <C>
Numerator:
   Net loss                                         $(9,525,497)       $(2,534,153)      $(8,632,635)      $(1,609,823)
     Deemed  dividend  related  to  beneficial
     conversion  feature on Series D preferred
     stock                                             (786,247)                --                --                --
     Series D preferred stock dividends                 (68,289)                --           (48,913)               --
                                                  ---------------    ---------------    --------------    -------------
   Net    loss    attributable    to    common
   stockholders - basic and diluted                $(10,380,033)       $(2,534,153)      $(8,681,548)      $(1,609,823)
                                                  ===============    ===============    ==============    =============
Denominator:
   Basic - weighted average common shares            59,031,491         58,542,488        59,421,050        58,552,688
     Stock options                                           --                 --                --                --
     Warrants                                                --                 --                --                --
     Convertible preferred stock                             --                 --                --                --
                                                  ---------------    ---------------    --------------    -------------
   Diluted - weighted average common shares          59,031,491         58,542,488        59,421,050        58,552,688
                                                  ===============    ===============    ==============    =============

Basic and diluted loss per common share                  $(0.18)            $(0.04)           $(0.15)           $(0.03)
                                                  ===============    ===============    ==============    =============
</TABLE>

     Options,  warrants,  and  convertible  preferred  stock to purchase  common
stock,  in  accordance  with  the  following  table,   were  excluded  from  the
computation  of diluted  loss per share  because  the effect of their  inclusion
would be antidilutive.

<TABLE>
<CAPTION>
                                                                           Six months and three months
                                                                               ended November 30,
                                                                      --------------------------------------
                                                                            2005                 2004
                                                                      ----------------     -----------------
<S>                                                                        <C>                <C>
  Options to purchase common stock                                         7,372,179          6,893,086
  Warrants to purchase common stock                                        2,454,538            200,000
  Convertible preferred stock                                              5,125,000                 --
                                                                      ----------------     -----------------
                                                                          14,951,717          7,093,086
                                                                      ================     =================

NOTE E - INVENTORIES, NET

     Inventories, net consist of the following:

                                                                       November 30,            May 31,
                                                                           2005                 2005
                                                                     -----------------    -----------------
  Raw materials                                                            $857,239             $960,101
  Work in process                                                         1,053,185            1,194,688
  Finished goods                                                          1,038,874            1,205,483
                                                                     -----------------    -----------------
                                                                         $2,949,298           $3,360,272
                                                                     =================    =================
</TABLE>

     At November  30, 2005 and May 31, 2005,  the Company has recorded  reserves
for excess and obsolete inventory of $483,384 and $566,149, respectively.

                                    Page 10
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               November 30, 2005


NOTE F - PROPERTY AND EQUIPMENT

     Property and equipment is summarized as follows:

<TABLE>
<CAPTION>
                                                                     November 30,           May 31,
                                                                         2005                2005
                                                                    ----------------    ---------------
<S>                                                                   <C>                <C>
Land                                                                  $   200,000        $   200,000
Building and improvements                                               1,383,976          1,383,976
Office, laboratory and other equipment                                  1,444,850          1,445,168
EECP systems  under  operating  leases or under loan
   for clinical trials or evaluations                                   1,132,171          1,552,121
Furniture and fixtures                                                    162,068            162,068
Leasehold improvements                                                    117,803            117,803
                                                                    ----------------    ---------------
                                                                        4,440,868          4,861,136
                                                                    ----------------    ---------------
Less: accumulated depreciation and amortization                        (2,548,367)        (2,626,983)
                                                                    ----------------    ---------------
                                                                       $1,892,501         $2,234,153
                                                                    ================    ===============
</TABLE>

NOTE G - NOTES PAYABLE

     The Company  financed the purchase of Director's  and  Officer's  Liability
Insurance through the issuance of a note with a principal value of $302,052. The
note,  which  bears  interest at 5.85%,  is payable in ten monthly  installments
consisting  of principal and  interest,  and expires in March 2006.  The balance
outstanding  at November 30, 2005, of $122,586 is presented on the  consolidated
condensed  balance  sheet in  current  maturities  of  long-term  debt and notes
payable.

NOTE H - LONG-TERM DEBT

     The following table sets forth the computation of long-term debt:
<TABLE>
<CAPTION>

                                                                       November 30,           May 31,
                                                                           2005                2005
                                                                     -----------------    --------------
<S>                                                                      <C>                  <C>
Facility loans (a)                                                       $942,183             $969,566
Term loans (b)                                                             82,513              126,243
                                                                     -----------------    --------------
                                                                        1,024,696            1,095,809
Less: current portion                                                    (135,891)            (148,212)
                                                                     -----------------    --------------
                                                                         $888,805             $947,597
                                                                     =================    ==============
</TABLE>

     (a) 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  fifteen-  year terms,  expiring in September  2016 and
January 2017, respectively, and are secured by the building.

     (b) In  fiscal  years  2003 and 2004,  the  Company  financed  the cost and
implementation  of a management  information  system and secured  several notes,
aggregating  approximately  $305,219.  The notes,  which bear  interest at rates
ranging from 7.5% through 12.5%, are payable in monthly installments  consisting
of principal and interest  payments over  four-year  terms,  expiring at various
times between August and October 2006.

NOTE I - DEFERRED REVENUES

     The Company records revenue on extended service  contracts ratably over the
term of the related warranty contracts. Effective September 1, 2003, the Company
prospectively  adopted  the  provisions  of EITF  00-21.  Upon  adoption  of the
provisions of EITF 00-21, the Company began to defer revenue related to domestic

                                    Page 11
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               November 30, 2005

EECP system  sales for the fair value of  in-service  and training to the period
when the services are  rendered  and for service  arrangements  ratably over the
service period, which is generally one year:

     The changes in the Company's deferred revenues are as follows:
<TABLE>
<CAPTION>
                                                           Six Months Ended                    Three Months Ended
                                                             November 30,                         November 30,
                                                    ------------------------------       ------------------------------
                                                        2005             2004                2005             2004
                                                    -------------    -------------       -------------    -------------
<S>                                                   <C>              <C>                 <C>              <C>
Deferred Revenue at the beginning of the period       $2,551,532       $2,846,451          $2,476,763       $2,651,446
ADDITIONS
     Deferred extended service contracts               1,177,310        1,044,364             666,455          724,514
     Deferred in-service and training                     85,000          117,500              37,500           50,000
     Deferred service arrangements                       265,000          497,500             112,500          187,500
RECOGNIZED AS REVENUE
     Deferred extended service contracts              (1,143,855)        (883,446)           (563,855)        (450,675)
     Deferred in-service and training                    (85,000)        (170,000)            (35,000)         (42,500)
     Deferred service arrangements                      (288,957)        (678,751)           (133,333)        (346,667)
                                                    -------------    -------------       -------------    -------------
Deferred revenue at end of period                      2,561,030        2,773,618           2,561,030        2,773,618
     Less: current portion                            (1,718,581)      (1,959,910)         (1,718,581)      (1,959,910)
                                                    -------------    -------------       -------------    -------------
Long-term deferred revenue at end of period             $842,449         $813,708            $842,449         $813,708
                                                    =============    =============       =============    =============
</TABLE>

NOTE J - WARRANTY COSTS

     Equipment  sold is  generally  covered  by a  warranty  period of one year.
Effective  September  1, 2003,  we  adopted  the  provisions  of EITF 00-21 on a
prospective  basis for our  shipments to customers in the United  States.  Under
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 no longer accrue  warranty  costs
upon  delivery for these  customers  but rather  recognize  warranty and related
service  costs as incurred.  Prior to  September 1, 2003,  we accrued a warranty
reserve for estimated costs to provide warranty services when the equipment sale
was recognized.

     Equipment sold to international  customers through our distributor  network
is generally  covered by a one- year warranty period.  We do not offer a service
arrangement to  international  customers;  consequently,  for these customers we
accrue a warranty reserve for estimated costs to provide warranty  services 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.  The
warranty provision  resulting from transactions prior to September 1, 2003, will
be reduced in future  periods for material  and labor costs  incurred as related
product is  returned  during the  warranty  period or when the  warranty  period
elapses.

     The changes in the Company's product warranty liability are as follows:
<TABLE>
<CAPTION>
                                                          Six Months Ended                   Three Months Ended
                                                            November 30,                         November 30,
                                                   -------------------------------      ------------------------------
                                                       2005              2004               2005             2004
                                                   -------------     -------------      -------------    -------------
<S>                                                    <C>               <C>                 <C>             <C>
Warranty liability at the beginning of the             $118,333          $244,917            $95,000         $188,833
   period
     Expense for new warranties issued                   15,000                --              3,000               --
     Warranty amortization                              (68,333)          (90,334)           (33,000)         (34,250)
                                                   -------------     -------------      -------------    -------------
Warranty liability at end of period                      65,000           154,583             65,000          154,583
     Less: current portion                              (62,000)         (120,083)           (62,000)        (120,083)
                                                   -------------     -------------      -------------    -------------
Long-term warranty liability at end of period            $3,000           $34,500             $3,000          $34,500
                                                   =============     =============      =============    =============
</TABLE>

                                    Page 12
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               November 30, 2005

NOTE K - INCOME TAXES

     As of August 31, 2005, we had recorded  deferred tax assets of  $14,582,000
net of a $4,674,000  valuation allowance related to the anticipated  recovery of
tax loss carryforwards.

     As  discussed  in Note N, on December  20,  2005,  Centers for Medicare and
Medicaid Services (CMS) issued a Proposed Decision Memorandum (PDM) for External
Counterpulsation   in   response   to   Vasomedical's   application   to  expand
reimbursement  coverage to include Canadian  Cardiovascular Society (CCSC) Class
II angina and New York Heart  Association  (NYHA) Class II/III  congestive heart
failure  (CHF).  The PDM stated that the  evidence  was not adequate to conclude
that external  counterpulsation  therapy is  reasonable  and necessary to expand
reimbursement  coverage  to CCSC  Class II angina  and NYHA  Class  II/III  CHF.
Current coverage for CCSC class III/IV refractory angina will remain in effect.

     Consequently,  we could no longer  conclude that,  based upon the weight of
available  evidence,  it was "more  likely than not" that the net  deferred  tax
asset of $14,582,000  would be realized,  and added $14,582,000 to the valuation
allowance to bring the net deferred tax asset carrying value to zero. During the
six-months  ended  November 30, 2005 and 2004,  we thus recorded a provision for
income taxes of $7,112,826 and $21,683,  respectively.  The provision for income
taxes for the second  quarter of fiscal 2006  consisted  mainly of a  $7,093,000
increase  in the  valuation  allowance,  but  does  not  include  an  additional
$7,489,000  added to the  deferred  tax  valuation  allowance  for tax  benefits
associated with prior years' exercises of stock options and warrants,  which was
charged directly to additional paid-in capital.

     Prior to December 20, 2005, we believed that the Company was positioned for
long-term  growth  despite the  declines in revenue  and  significant  operating
losses  during the last three  fiscal  years,  and that based upon the weight of
available  evidence,  that it was "more  likely than not" that net  deferred tax
assets would be realized. The "more likely than not" standard is subjective, and
was based upon management's  estimate of a greater than 50% probability that its
long range business plan could be realized. Our estimates were largely dependent
upon  achieving  considerable  growth in revenue and profits  resulting from the
successful  commercialization  of EECP therapy into the congestive heart failure
indication, which we believed would have enabled us to reverse the current trend
of increasing  losses and generate  pre-tax income in excess of $39 million over
the next seven years in order to fully utilize all of the deferred tax assets.

     Ultimate  realization  of the  deferred  tax assets is  dependent  upon our
generating  sufficient  taxable  income prior to the  expiration of the tax loss
carryforwards.

NOTE L - SERIES D CONVERTIBLE PREFERRED STOCK AND WARRANTS

     On July 19,  2005,  we entered into a Securities  Purchase  Agreement  that
provided us with gross proceeds of $2.5 million  through a private  placement of
preferred stock with M.A.G.  Capital,  LLC through its designated funds, Monarch
Pointe Fund Ltd., Mercator Momentum Fund III, LP, and Mercator Momentum Fund, LP
(the  "Investors").  The  agreement  provided for a private  placement of 25,000
shares  of  Vasomedical's  Series  D  Preferred  Stock at $100  per  share.  The
preferred stock is convertible into shares of  Vasomedical's  common stock at 85
percent of the volume weighted average price per share for the five trading days
preceding  any  conversion,  but not at more than $0.6606 or less than $0.40 per
share.  Vasomedical may, at its option, require the holders to convert all their
preferred stock into common shares if the closing price for the common stock for
the  preceding  20 trading  days has been  greater  than  $1.30 per  share.  The
Investors also acquired  warrants for the purchase of 1,892,219 shares of common
stock. The warrants may be exercised at a price of $0.69 per share for a term of
five years, ending July 19, 2010. Conversion of the preferred stock and exercise
of the warrants are subject to limitation such that the beneficial  ownership of
the  Investors and their  affiliates  shall not exceed 9.99% of the common stock
outstanding.

     An event  of  default  occurs  if we fail to  timely  pay the  dividend  or
commence a voluntary case or proceeding  under the bankruptcy  laws, among other
specified  occurrences.  Upon an  event of  default,  the  price  at  which  the
preferred stock may be converted into common stock is reduced from 85 percent to
75 percent of the then current volume  weighted  average market price per share,
but not more than $0.6606 or less than $0.40 per share (the "Floor  Price").  In
the event that our quarterly gross revenues are less than  $2,500,000,  then the
Floor Price shall automatically reduce to $0.30. In addition, the holders of the
preferred  stock have the right to be paid first from the assets of  Vasomedical
upon any  dissolution  or  liquidation of the Company in an amount equal to $100
per share plus any declared but unpaid dividends.

                                    Page 13
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               November 30, 2005

     Under the terms of a  Registration  Rights  Agreement  with the  Investors,
Vasomedical  filed a Form S-3  registration  statement  with the  Securities and
Exchange  Commission  (SEC) on August 22, 2005, for 10,787,871  shares of common
stock representing up to 8,533,333 shares issuable in connection with conversion
of our Series D Convertible  Preferred Stock and up to 2,254,538 shares issuable
upon the  exercise  of our common  stock  purchase  warrants.  The  registration
statement  was declared  effective  by the SEC on  September 1, 2005.  The total
number of shares  registered is based on a conversion  price of $0.30 per share,
which  would  only have  affect in the event of default  by  Vasomedical  of its
obligation to holders of the Series D Convertible Preferred Stock.

     These  securities  were  offered  and sold to the  Investors  in a  private
placement  transaction  made  in  reliance  upon  exemptions  from  registration
pursuant  to Section  4(2) of the  Securities  Act of 1933.  The  Investors  are
accredited  investors as defined in Rule 501 of Regulation D  promulgated  under
the Securities Act of 1933.  Vasomedical  intends to apply the funds for working
capital.

Warrants and Beneficial Conversion Feature

     The Company applied  Emerging Issues Task Force Issue No. 98-5  "Accounting
for Convertible  Securities with Beneficial  Conversion Features or Contingently
Adjustable  Conversion  Ratios"(EITF  No. 98-5) and  Emerging  Issues Task Force
(EITF 00-27) Application of Issue No. 98-5 to Certain Convertible Instruments in
accounting  for the  preferred  stock  issuance.  EITF No.  98-5  provides  that
detachable  warrants issued with convertible  securities are valued  separately,
and that the  beneficial  conversion  feature  of the  convertible  security  be
measured and recognized over the minimum period over which the  shareholders can
realize the return.

     The Task Force reached a consensus that  convertible  preferred  securities
with a non-detachable  conversion feature that is in-the-money at the commitment
date  represents  an  embedded  beneficial  conversion  feature  that  should be
recognized as a dividend and recorded to additional paid-in capital. That amount
should be  calculated  at the  commitment  date as the  difference  between  the
allocated  portion of the gross proceeds to the convertible  preferred stock and
the fair value of the common stock or other  securities  into which the security
is  convertible,  multiplied  by the number of shares into which the security is
convertible  (intrinsic  value  method).

     The beneficial conversion feature is treated analogous to a dividend and is
recognizable  immediately  over the minimum  period  during which the  preferred
shareholders  can realize that return.  The imputed  dividend  will increase the
Company's loss for the purpose of computing the  loss-per-share.  The beneficial
conversion  feature is calculated at its intrinsic  value at the commitment date
(that is, the  difference  between the total  gross  proceeds  allocated  to the
preferred  stock as compared to the total  market value of the common stock into
which the Preferred  Stock is convertible  on the commitment  date. The computed
value of the  beneficial  conversion  feature is  treated  as a deemed  dividend
immediately  with a  corresponding  increase to paid-in  capital.  No additional
amount will be recognized at the  conversion  date in recognition of an increase
in the fair value of the stock conversion.

     In circumstances in which convertible securities are issued with detachable
warrants,  the Task  Force  noted  that in order to  determine  the amount to be
allocated to the beneficial  conversion feature,  the issuer must first allocate
the proceeds  between the  convertible  instrument and the  detachable  warrants
using the relative fair value method of APB Opinion Number 14.

     The investors and consultants acquired detachable warrants for the purchase
of 1,892,219 and 362,319 shares of common stock, respectively, which were valued
at $345,071 and $66,087,  respectively. The warrants may be exercised at a price
of $0.69 per share for a term of five years,  ending July 18, 2010. For purposes
of estimating  the intrinsic  fair value of each warrant as of July 19, 2005, we
utilized the Black-Scholes  option-pricing model. We estimated the fair value of
the warrants assuming no expected  dividends and the following  weighted-average
assumptions:
<TABLE>
<CAPTION>
<S>                                                      <C>
        Expected life (years)                            2.5
        Expected volatility                              66%
        Risk-free interest rate                        4.16%
        Expected dividend yield                         0.0%
</TABLE>

     We next  determined the intrinsic fair value of the  convertible  preferred
stock as of July 19, 2005, to be $2,941,176 based on the number of common shares
that could be acquired as of the date of closing times $0.63,  the closing price
of the  common  stock on the date  preceding  the close of the  transaction.  In

                                    Page 14
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               November 30, 2005

applying  EITF No. 98-5,  we then  allocated  the gross  proceeds of  $2,500,000
between  the  warrants  and  preferred  stock based on  intrinsic  value of each
instrument.  As a result,  we  allocated  $2,154,929  of gross  proceeds  to the
convertible  preferred  stock  and  $345,071  to the  detachable  warrants.  The
beneficial conversion feature of $786,247 was then determined by subtracting the
allocated proceeds of convertible  preferred stock from the intrinsic fair value
of  convertible   preferred  stock.  The  beneficial   conversion   feature  was
immediately recognized as a preferred stock dividend, as the preferred stock can
be converted immediately.

Dividends

     By the placement of the convertible  preferred  stock  described  above, we
became  obligated to pay a cash dividend  monthly on the  outstanding  shares of
convertible  preferred  stock.  The dividend rate is the higher of (i) the prime
rate as reported by the Wall Street Journal on the first day of the month,  plus
three  percent or, (ii) 8.5% times $100 per share,  but in no event greater than
10% annually.  For the six-month  period ended November 30, 2005, cash dividends
of  $68,289  were  recorded,  of which  $17,083  were  unpaid.  Preferred  stock
dividends for the six months ended November 30, 2005, are summarized as follows:

<TABLE>
<CAPTION>

                                                    Amount
                                                    ------
<S>                                                <C>
        Cash dividends paid                        $51,206
        Cash dividends accrued                      17,083
        Beneficial conversion feature              786,247
                                               --------------
                                                  $854,536
                                               ==============
</TABLE>

Common stock

     The  Company  issued  200,000  shares of  common  stock in lieu of cash for
$126,000 in  consultant  services  associated  with the issuance of the Series D
Convertible  Preferred  Stock.  These issue costs were treated as a reduction in
the paid-in capital associated with the preferred stock issuance.

Conversion of preferred stock to common stock

     During the three months ended  November 30, 2005,  4,500 shares of Series D
Convertible Preferred Stock were converted into 987,209 shares of common stock.

NOTE M - COMMITMENTS AND CONTINGENCIES

Litigation

     The  Company is  currently,  and has in the past  been,  a party to various
routine  legal  proceedings  incident to the ordinary  course of  business.  The
Company  believes that the outcome of all such pending legal  proceedings in the
aggregate  is  unlikely  to have a material  adverse  effect on the  business or
consolidated financial condition of the Company.

NOTE N - SUBSEQUENT EVENT

     We sponsored a pivotal study to demonstrate the efficacy of EECP therapy in
the most prevalent types of heart failure patients.  This study,  known as PEECH
(Prospective  Evaluation of EECP in Congestive  Heart Failure),  was intended to
provide  additional  clinical  data in  order to  support  our  application  for
expanded  Medicare  national  coverage policy for the use of EECP therapy in the
treatment of CHF.  The  preliminary  results of the trial were  presented at the
American College of Cardiology  scientific sessions in March 2005, and we expect
the  results of the PEECH  clinical  trial to be  published  in a  peer-reviewed
journal  within the next few months.  On June 20, 2005, the Centers for Medicare
and Medicaid  Services (CMS) accepted our application  for expanded  coverage of
EECP  therapy  to include  CHF as a primary  indication,  as well as  additional
patients with angina.

     However,  on December 20, 2005, CMS issued a Proposed  Decision  Memorandum
(PDM) to keep the existing  coverage  with no changes for  expansion of External
Counterpulsation  therapy.  In its  announcement,  CMS  states,  "CMS is seeking
public comment on the proposed  determination  that the evidence is not adequate

                                    Page 15
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               November 30, 2005


to conclude that external  counterpulsation  therapy is reasonable and necessary
for Canadian  Cardiovascular  Society  classification  (CCSC) II Angina and NYHA
Class  II/III  stable  heart  failure  with  ejection  fraction < 35%."  Current
coverage for CCSC class III/IV  refractory angina will remain in effect. A final
decision is  anticipated  by March 20,  2006.  It is not possible to predict the
impact of the Centers for Medicare and Medicaid Services (CMS) Proposed Decision
Memorandum (PDM) issued December 20, 2005, on current operations.






                                    Page 16
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                       Vasomedical, Inc. and Subsidiaries

           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  "anticipated",  "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,
including  the  continued   inability  to  obtain  Medicare   reimbursement  for
congestive heart failure patents; unexpected manufacturing or supplier problems;
the ability to attract and retain qualified executives and employees; 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.  incorporated  in  Delaware  in July  1987 is  primarily
engaged in designing,  manufacturing,  marketing and supporting EECP(R) external
counterpulsation systems based on our proprietary technology.  EECP therapy is a
non-invasive,   outpatient   therapy  for  the  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 has been shown to improve
systemic vascular function. We provide hospitals and physician private practices
with EECP  equipment,  treatment  guidance,  and a staff  training and equipment
maintenance  program  designed to provide  optimal patient  outcomes.  EECP is a
registered  trademark  for  Vasomedical's  enhanced  external   counterpulsation
systems.

     We have Food and Drug  Administration  (FDA)  clearance  to market our EECP
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 stable angina and  congestive
heart  failure  indications.  Within  the  stable  angina  and CHF  indications,
Medicare and other  third-party  payers  currently  reimburse  for stable angina
patients with moderate to severe  symptoms who are refractory to medications and
not candidates for invasive  procedures.  CHF patients are also reimbursed under
the same criteria, provided their primary symptoms are angina.

     We sponsored a pivotal study to demonstrate the efficacy of EECP therapy in
the most prevalent types of heart failure patients.  This study,  known as PEECH
(Prospective  Evaluation of EECP in Congestive  Heart Failure),  was intended to
provide  additional  clinical  data in  order to  support  our  application  for
expanded  Medicare  national  coverage policy for the use of EECP therapy in the
treatment of CHF.  The  preliminary  results of the trial were  presented at the
American College of Cardiology  scientific sessions in March 2005, and we expect
the  results of the PEECH  clinical  trial to be  published  in a  peer-reviewed
journal  within the next few months.  On June 20, 2005, the Centers for Medicare
and Medicaid  Services (CMS) accepted our application  for expanded  coverage of
EECP  therapy  to include  CHF as a primary  indication,  as well as  additional
patients with angina.

     On December 20, 2005, CMS issued a Proposed Decision Memorandum to maintain
the existing coverage with no changes for expansion of external counterpulsation
therapy. In its announcement,  CMS states, "CMS is seeking public comment on the
proposed  determination  that the  evidence is not  adequate  to  conclude  that
external  counterpulsation  therapy is  reasonable  and  necessary  for Canadian
Cardiovascular  Society  classification  (CCSC) II Angina and NYHA Class  II/III
stable heart failure with ejection fraction < 35%."

     We have  incurred  declines in revenue  and  significant  operating  losses
during the last three  fiscal  years and our  ability to continue  operating  is
dependent  upon  achieving  profitability  in the  refractory  angina  market or
through additional debt or equity financing.  Profitability is largely dependent
on reducing  operating costs as well as halting the declining  revenue trend and
maintaining  our current base of revenue in the refractory  angina  market.  Our
ability to  maintain  our  current  base of revenue  is largely  dependent  upon
refocusing our sales and marketing  efforts in the refractory  angina market and
operating  in a more  efficient  manner.  If we are  not  able to  maintain  our
existing base of revenue and reduce  operating costs as described below or raise
additional capital we will not be able to continue as a going concern.

                                    Page 17
<PAGE>

                       Vasomedical, Inc. and Subsidiaries

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

     In order to bring the Company's cost structure more into alignment with its
current revenue base in the refractory  angina market, we have planned a company
restructuring  to be  initiated in January  2006.  The  restructure  will reduce
manufacturing  and operating costs by approximately $3 million per year compared
to  current  levels,  help us to  conserve  cash  and  provide  additional  time
necessary  to  complete  the  application  process  for  expanded  reimbursement
coverage  with The Centers  for  Medicare  and  Medicaid  Services  (CMS) and an
opportunity to rebuild sales to a profitable level.

     We believe that our cash flow from operations  following the  restructuring
initiated in January 2006,  together with our current cash reserves and the cash
received from the sale of convertible  preferred  stock and warrants on July 19,
2005,  will be sufficient  to fund our minimum  projected  capital  requirements
through at least May 31, 2006,  however it is not possible to predict the impact
of the  Proposed  Decision  Memorandum  issued  December  20,  2005,  on current
operations.

     In the event that additional capital is required, we may seek to raise such
capital  through public or private equity or debt  financings or other means. We
may not be able to obtain additional  financing on favorable terms or at all. If
we are unable to raise additional funds when we need them, we may be required to
further  scale back our  operations,  research,  marketing  or sales  efforts or
obtain funds through arrangements with collaborative partners or others that may
require us to license or relinquish  rights to technologies or products.  Future
capital funding, if available,  may result in dilution to current  shareholders,
and new investors could have rights superior to existing stockholders.

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 our Annual  Report on Form 10-K for the year
ended May 31, 2005,  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

     We recognize  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  systems in the period in which we
deliver the system to the customer. Revenue from the sale of our EECP systems to
international markets is recognized upon shipment, during the period in which we
deliver 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 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.  Effective September 1, 2003, we adopted the
provisions of Emerging  Issues Task Force,  or EITF,  Issue No. 00-21,  "Revenue
Arrangements  with  Multiple  Deliverables",  ("EITF  00-21"),  on a prospective
basis. 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 systems includes a
combination of three elements that qualify as separate units of accounting:

     i.   EECP equipment sale,

                                    Page 18
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                       Vasomedical, Inc. and Subsidiaries

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

     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,  preventative  maintenance,
          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 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:

     i.   EECP 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 three 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  equipment  revenue at the time the  in-service  and  training is
completed and the amount related to service  arrangements is recognized  ratably
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.

     We also recognize revenue generated from servicing EECP 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  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 balance sheets.

     Revenues  from  the  sale  of  EECP  systems   through  our   international
distributor  network are generally  covered by a one-year warranty period. We do
not offer a service arrangement to international  customers;  consequently,  for
these  customers  we accrue a warranty  reserve for  estimated  costs to provide
warranty services when the equipment sale is recognized.

     We have also entered into lease agreements for our EECP 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 system utilized under operating leases is recorded
as a component of property and  equipment  and is amortized to cost of equipment
rentals and services 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, 2005.

Accounts Receivable, net

     The Company's accounts receivable - trade 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  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 our accounts  receivable by aging category.  In determining  these
percentages,  we look at historical  write-offs of our receivables.  The Company

                                    Page 19
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                       Vasomedical, Inc. and Subsidiaries

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

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.

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
systems at various field locations for demonstration,  training, evaluation, and
other  similar  purposes  at no  charge.  The  cost of  these  EECP  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 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 our
products as well as forecasts of future product demand.

     Effective June 1, 2005, we 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  $141,000  less in
fixed production overheads into inventory.

Deferred Revenues

     We record revenue on extended  service  contracts  ratably over the term of
the related contracts. Effective September 1, 2003, we prospectively adopted the
provisions of EITF 00-21. Upon adoption of the provisions of EITF 00-21 we began
to defer revenue related to EECP system sales for the fair value of installation
and  in-service  training to the period when the  services  are rendered and for
service  arrangements  ratably over the service  period,  which is generally one
year.

Warranty Costs

     Equipment  sold is  generally  covered  by a  warranty  period of one year.
Effective  September  1, 2003,  we  adopted  the  provisions  of EITF 00-21 on a
prospective basis. Under 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 no
longer accrue  warranty  costs upon delivery but rather  recognize  warranty and
related  service  costs as incurred.  Prior to  September 1, 2003,  we accrued a
warranty  reserve for  estimated  costs to provide  warranty  services  when the
equipment sale was recognized.

     Equipment sold to international  customers through our distributor  network
is generally  covered by a one year warranty  period.  We do not offer a service
arrangement to  international  customers;  consequently,  for these customers we
accrue a warranty reserve for estimated costs to provide warranty  services 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.  The
warranty provision  resulting from transactions prior to September 1, 2003, will
be reduced in future  periods for material  and labor costs  incurred as related
product is  returned  during the  warranty  period or when the  warranty  period
elapses.

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

                                    Page 20
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                       Vasomedical, Inc. and Subsidiaries

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS


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
continually  evaluated for  realizability.  To the extent our 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 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 our long range business plan can be realized.

     Deferred  tax   liabilities   and  assets  are  classified  as  current  or
non-current  based on the  classification  of the related asset or liability for
financial reporting. A deferred tax liability or asset 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 we  previously  recorded
relates  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 in the following  twelve months.  Such
allocation  was based our  internal  financial  forecast  and may be  subject to
revision based upon actual results.

Stock-based Employee Compensation

     We have five  stock-based  employee and  director  compensation  plans.  We
account  for  stock-based  compensation  using  the  intrinsic  value  method in
accordance  with  Accounting  Principles  Board Opinion No. 25,  "Accounting for
Stock Issued to Employees," and related  Interpretations ("APB No. 25") and have
adopted the disclosure provisions of Statement of Financial Accounting Standards
No. 148,  "Accounting for Stock-Based  Compensation - Transition and Disclosure,
an  amendment  of FASB  Statement  No. 123." Under APB No. 25, when the exercise
price of our employee  stock options  equals the market price of the  underlying
stock on the date of grant, no compensation expense is recognized.  Accordingly,
no  compensation  expense  has been  recognized  in the  consolidated  financial
statements in connection with employee stock option grants.

     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.

Recently Issued Accounting Standards

     In May 2005, the FASB issued  Statement of Financial  Accounting  Standards
No. 154 ("SFAS No. 154"),  "Accounting  Changes and Error Corrections." SFAS No.
154 replaces APB Opinion No. 20, Accounting  Changes,  and FASB Statement No. 3,
Reporting  Accounting Changes in Interim Financial  Statements,  and changes the
requirements  for the  accounting  for and  reporting of a change in  accounting
principle.  The  Statement  applies  to  all  voluntary  changes  in  accounting
principle. It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition
provisions. When a pronouncement includes specific transition provisions,  those
provisions should be followed.  SFAS No. 154 is effective for accounting changes
and  corrections  of errors made in fiscal years  beginning  after  December 15,
2005.

     In December 2004, the Financial  Accounting  Standards  Board (FASB) issued
FASB Statement No. 153 ("SFAS No. 153"),  "Exchanges of  Non-monetary  Assets an
amendment  of APB Opinion No. 29".  SFAS No. 153 amends  Opinion 29 to eliminate
the  exception  for  non-monetary  exchanges  of similar  productive  assets and
replaces it with a general  exception for exchanges of non-monetary  assets that
do not have  commercial  substance.  A non-  monetary  exchange  has  commercial
substance  if the  future  cash  flows of the  entity  are  expected  to  change

                                    Page 21
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                       Vsomedical, Inc. and Subsidiaries

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

significantly as a result of the exchange.  SFAS No. 153 is effective for fiscal
periods  after June 15, 2005.  The Company  adopted SFAS No. 153  effective  for
fiscal periods beginning September 1, 2005. The adoption of SFAS No. 153 did not
have a material impact on the Company's consolidated financial statements.

     In  December  2004,  the FASB  issued  Statement  of  Financial  Accounting
Standards  No.  123(R)  ("SFAS  No.   123(R)"),   "Accounting   for  Stock-Based
Compensation".  SFAS No. 123(R)  establishes  standards for the  accounting  for
transactions  in which an entity  exchanges its equity  instruments for goods or
services.  This Statement  focuses  primarily on accounting for  transactions in
which an entity obtains employee services in share-based  payment  transactions.
SFAS No.  123(R)  requires  that the fair value of such  equity  instruments  be
recognized  as expense in the  historical  financial  statements as services are
performed.  Prior to SFAS No. 123(R), only certain pro-forma disclosures of fair
value were  required.  SFAS No.  123(R) shall be effective for the Company as of
the beginning of the first interim  reporting  period that begins after June 15,
2005.  The adoption of this new accounting  pronouncement  is expected to have a
material impact on the financial  statements of the Company  commencing with the
quarter ending August 31, 2006.

     In  November  2004,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 151 ("SFAS No. 151"), Inventory Costs, an amendment of ARB No. 43,
Chapter 4. The amendments made by SFAS No. 151 will improve financial  reporting
by clarifying that abnormal amounts of idle facility expense,  freight, handling
costs, and wasted materials  (spoilage)  should be recognized as  current-period
charges  and by  requiring  the  allocation  of fixed  production  overheads  to
inventory  based on the normal capacity of the production  facilities.  SFAS No.
151 is effective  for inventory  costs  incurred  during fiscal years  beginning
after June 15, 2005.  Earlier  application  is  permitted  for  inventory  costs
incurred  during fiscal years beginning after November 24, 2004. The Company has
adopted SFAS No. 151 effective June 1, 2005.

Results of Operations

Three Months Ended November 30, 2005 and 2004

     Net  revenue  from sales,  leases and  service of our EECP  systems for the
three-month  periods  ended  November  30,  2005 and 2004,  was  $2,680,184  and
$3,461,675,  respectively,  which  represented  a decline of $781,491 or 23%. We
reported a net loss of  $8,632,635  compared to $1,609,823  for the  three-month
periods ended November 30, 2005 and 2004, respectively.  Our net loss per common
share was $0.15 for the three-month period ended November 30, 2005 compared to a
net loss of $0.03 per share for the three-month  period ended November 30, 2004.
The increase in net loss is primarily  due to the  establishment  of a valuation
reserve for the remaining carrying value of the deferred tax asset.

Revenues

     Revenue from equipment sales declined  approximately  31% to $1,734,409 for
the three-month period ended November 30, 2005 as compared to $2,522,562 for the
same period for the prior year. The decline in equipment  sales is due primarily
to a 35% decline in the number of equipment shipments, partially offset by a 10%
improvement in average sales prices.  A higher mix of both newer model equipment
and new equipment versus used equipment was the primary cause of the increase in
average sales prices.

     We believe the decline in domestic units shipped  reflects  weakened demand
in the  refractory  angina market as existing  capacity is more fully  utilized,
coupled with increased  competition from surgical procedures,  mainly the use of
drug-eluting stents.  Although average domestic selling prices improved compared
to the second quarter of fiscal 2005, we anticipate  that a prevailing  trend of
declining  prices  will  continue  in the  immediate  future as our  competition
attempts to capture greater market share through pricing  discounts.  We sold an
unusually  high  percentage  of used  equipment in the second  quarter of fiscal
2005, which reduced the average selling price in that period.  The average price
of new systems sales declined  approximately  5% in the second quarter of fiscal
2006 compared to the same period in the prior year. Our revenue from the sale of
EECP systems to international  distributors in the second quarter of fiscal 2006
decreased  approximately  35% to $90,000 compared to $137,995 in the same period
of the prior year as a result of decreased sales volume.

     The above decline in revenue from equipment sales was partially offset by a
1% increase in revenue  from  equipment  rental and services for the three month
period ended November 30, 2005,  from the same  three-month  period in the prior
year.  Revenue  from  equipment  rental and  services  represented  35% of total

                                    Page 22

<PAGE>
                       Vasomedical, Inc. and Subsidiaries

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

revenue  in the  second  quarter of fiscal  2006  compared  to 27% in the second
quarter of fiscal 2005. The increase in both absolute  amounts and percentage of
total  revenue  resulted  primarily  from an  increase of  approximately  19% in
service  related  revenue.  The higher service  revenue  reflects an increase in
service and spare parts,  plus greater  marketing  focus on the sale of extended
service contracts. Rental revenue declined approximately 75%, largely offsetting
the above. The decline was primarily due to a multi-system  customer  defaulting
on its rental  payments;  consequently,  we shifted to a cash basis for  revenue
recognition for this customer and have secured the return of our equipment.

Gross Profit

     The  gross  profit  declined  to  $1,582,355  or 59% of  revenues  for  the
three-month  period ended  November 30, 2005,  compared to  $2,287,801 or 66% of
revenues for the three-month period ended November 30, 2004. Gross profit margin
as a percentage of revenue for the  three-month  period ended November 30, 2005,
decreased  compared  to the same  year of the  prior  fiscal  year  despite  the
improvement in average selling prices, mainly due to an unfavorable sales mix of
lower cost used equipment, and the higher production units costs associated with
reduced  production  volumes in the last three  fiscal  quarters.  In  addition,
adoption  of SFAS No. 151 lowered the amount of fixed  overhead  costs  absorbed
into  inventory in the second quarter of fiscal 2006.  Partially  offsetting the
decline was an improvement in the gross profit margins associated with accessory
revenues,  reflecting higher average selling prices. The decline in gross profit
when  compared to the prior year in absolute  dollars is a direct  result of the
lower sales volume.

     Gross profits are dependent on a number of factors, particularly the mix of
EECP models sold and their  respective  average selling prices,  the mix of EECP
units sold,  rented or placed during the period,  the ongoing costs of servicing
such units, and certain fixed period costs,  including  facilities,  payroll and
insurance.  Gross profit margins are generally less on non-domestic business due
to the use of distributors resulting in lower selling prices. Consequently,  the
gross profit  realized during the current period may not be indicative of future
margins.

Selling, General and Administrative

     Selling,  general and administrative ("SG&A") expenses for the three-months
ended  November  30,  2005 and 2004,  were  $2,508,624  or 94% of  revenues  and
$3,088,398 or 89% of revenues,  respectively  reflecting an decrease of $579,774
or approximately 19%. The decrease in SG&A expenditures in the second quarter of
fiscal 2006 compared to fiscal 2005 resulted  primarily from decreased sales and
marketing  expenditures  reflecting  fewer  sales and  marketing  personnel  and
reduced travel, plus lower market research, trade show, and accounting costs.

Research and Development

     Research and  development  ("R&D")  expenses of $603,696 or 23% of revenues
for the three months ended November 30, 2005, decreased by $182,252 or 23%, from
the three months  ended  November 30 2004,  of $785,948 or 23% of revenues.  The
decrease is primarily attributable to lower new product development spending.

Provision for Doubtful Accounts

     During  the three  month  periods  ended  November  30,  2005 and 2004,  we
collected  funds from  previously  reserved  accounts,  which offset new reserve
requirements.  As a  result,  we did not  incur a charge  to our  provision  for
doubtful accounts in either of these fiscal periods.

Interest Expense and Financing Costs

     Interest   expense  and  financing   costs  decreased  to  $21,444  in  the
three-month  period ended November 30, 2005, from $28,678 for the same period in
the prior year. Interest expense primarily reflects interest on loans secured to
refinance the November 2000 purchase of the Company's headquarters and warehouse
facility,  as well as on loans secured to finance the cost and implementation of
a new management information system.

Interest and Other Income, Net

     Interest and other income for the second fiscal  quarters of 2006 and 2005,
was $21,774 and $17,083,  respectively. The increase in interest income from the
prior  period is the direct  result of $7,243 in  increased  unrealized  gain on
investments. Lower average cash balances invested during the quarter compared to
the prior period partially offset the above.

                                    Page 23
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Income Tax Expense, Net

     During the  three-months  ended  November 30, 2005 and 2004,  we recorded a
provision for income taxes of  $7,103,000  and $11,683,  respectively,  of which
$7,093,000  was associated  with an increase in the valuation  allowance for the
deferred tax asset in the three months ended  November 30, 2005.  The  provision
for  income  taxes  for the  second  quarter  of fiscal  2006  does not  include
$7,489,000  added to the  deferred  tax  valuation  allowance  for tax  benefits
associated with prior years' exercises of stock options and warrants,  which was
charged directly to additional paid-in capital.

     As of August 31, 2005, we had recorded  deferred tax assets of  $14,582,000
net of a $4,674,000  valuation allowance related to the anticipated  recovery of
tax loss  carryforwards.  As discussed in Note N, on December 20, 2005,  Centers
for Medicare and Medicaid Services (CMS) issued a Proposed  Decision  Memorandum
(PDM) for External  Counterpulsation in response to Vasomedical's application to
expand reimbursement coverage to include Canadian  Cardiovascular Society (CCSC)
Class II angina and New York Heart  Association  (NYHA) Class II/III  congestive
heart  failure  (CHF).  The PDM stated  that the  evidence  was not  adequate to
conclude that external  counterpulsation  therapy is reasonable and necessary to
expand reimbursement coverage to CCSC Class II angina and NYHA Class II/III CHF.
Current coverage for CCSC class III/IV refractory angina will remain in effect.

     Consequently,  we could no longer  conclude that,  based upon the weight of
available  evidence,  it was "more  likely than not" that the net  deferred  tax
asset of $14,582,000  would be realized,  and added $14,582,000 to the valuation
allowance to bring the net deferred tax asset carrying value to zero.

Six Months Ended November 30, 2005 and 2004

     Net  revenue  from sales,  leases and  service of our EECP  systems for the
six-month  periods  ended  November  30,  2005  and  2004,  was  $6,216,555  and
$8,283,091,  respectively,  which represented a decline of $2,066,536 or 25%. We
reported a net loss of  $9,525,497  compared  to  $2,534,153  for the  six-month
periods ended November 30, 2005 and 2004, respectively.  Our net loss per common
share was $0.18 for the six-month  period ended  November 30, 2005 compared to a
net loss of $0.04 per share for the  six-month  period  November 30,  2004.  The
increase  in net loss is  primarily  due to the  establishment  of a  $7,093,000
valuation reserve in the second fiscal quarter for the remaining  carrying value
of the deferred tax asset.

Revenues

     Revenue from equipment sales declined  approximately  35% to $4,191,318 for
the six-month  period ended  November 30, 2005 as compared to $6,497,459 for the
same period for the prior year. The decline in equipment  sales is due primarily
to a 40% decline in the number of equipment  shipments,  partially  offset by an
11%  improvement  in average  sales  prices.  A higher  mix of both newer  model
equipment and new equipment  versus used  equipment was the primary cause of the
increase in average sales prices.

     We believe the decline in domestic units shipped  reflects  weakened demand
in the  refractory  angina market as existing  capacity is more fully  utilized,
coupled with increased  competition from surgical procedures,  mainly the use of
drug-eluting stents.  Although average domestic selling prices improved compared
to the first half of fiscal  2005,  we  anticipate  that a  prevailing  trend of
declining  prices  will  continue  in the  immediate  future as our  competition
attempts to capture greater market share through pricing  discounts.  We sold an
unusually  high  percentage of used  equipment in the first six months of fiscal
2005, which reduced the average selling price in that period.  The average price
of new systems sales declined approximately 2% in the first six months of fiscal
2006 compared to the same period in the prior year. Our revenue from the sale of
EECP  systems to  international  distributors  in the first half of fiscal  2006
decreased  approximately 15% to $395,000 compared to $462,995 in the same period
of the prior year, as a result of decreased volume.

     The above decline in revenue from equipment sales was partially offset by a
13%  increase in revenue  from  equipment  rental and services for the six month
period  ended  November 30, 2005,  from the same  six-month  period in the prior
year.  Revenue  from  equipment  rental and  services  represented  33% of total
revenue  in the first six  months of  fiscal  2006  compared  to 22% in the same
period of fiscal 2005.  The increase in both absolute  amounts and percentage of

                                    Page 24

<PAGE>
                       Vasomedical, Inc. and Subsidiaries

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS


total  revenue  resulted  primarily  from an  increase of  approximately  28% in
service  related  revenue.  The higher service  revenue  reflects an increase in
service,  spare parts and accessories,  plus greater marketing focus on the sale
of extended  service  contracts.  Rental  revenue  declined  approximately  54%,
partially  offsetting the above. The decline was primarily due to a multi-system
customer defaulting on its rental payments;  consequently,  we shifted to a cash
basis for revenue recognition for this customer.

Gross Profit

     The  gross  profit  declined  to  $3,695,542  or 59% of  revenues  for  the
six-month  period  ended  November 30, 2005,  compared to  $5,447,424  or 66% of
revenues for the six-month  period ended November 30, 2004.  Gross profit margin
as a percentage  of revenue for the  six-month  period ended  November 30, 2005,
decreased  compared  to the same  period of the prior  fiscal  year  despite the
improvement in average selling prices, mainly due to an unfavorable sales mix of
lower cost used equipment, and the higher production units costs associated with
reduced  production  volumes in the last three  fiscal  quarters.  In  addition,
adoption  of SFAS No. 151 lowered the amount of fixed  overhead  costs  absorbed
into inventory in the first six months of fiscal 2006.  Partially offsetting the
decline was an improvement in the gross profit margins associated with accessory
revenues,  reflecting higher average selling prices. The decline in gross profit
when  compared to the prior year in absolute  dollars is a direct  result of the
lower sales volume.

     Gross profits are dependent on a number of factors, particularly the mix of
EECP models sold and their  respective  average selling prices,  the mix of EECP
units sold,  rented or placed during the period,  the ongoing costs of servicing
such units, and certain fixed period costs,  including  facilities,  payroll and
insurance.  Gross profit margins are generally less on non-domestic business due
to the use of distributors resulting in lower selling prices. Consequently,  the
gross profit  realized during the current period may not be indicative of future
margins.

Selling, General and Administrative

     Selling,  general and  administrative  ("SG&A") expenses for the six-months
ended  November  30,  2005 and 2004,  were  $4,917,773  or 79% of  revenues  and
$6,140,879 or 74% of revenues, respectively reflecting an decrease of $1,223,106
or  approximately  20%. The decrease in SG&A  expenditures in the second half of
fiscal 2006 compared to fiscal 2005 resulted  primarily from decreased sales and
marketing  expenditures  reflecting  fewer  sales and  marketing  personnel  and
reduced  travel,  plus lower  market  research,  advertising,  trade  show,  and
accounting costs.

Research and Development

     Research and development  ("R&D") expenses of $1,115,702 or 18% of revenues
for the six months ended  November 30, 2005,  decreased by $542,144 or 33%, from
the six months ended  November 30 2004, of  $1,657,846  or 20% of revenues.  The
decrease is primarily attributable to lower new product development spending.

Provision for Doubtful Accounts

     During the six month period ended November 30, 2005, we charged  $70,575 to
our  provision  for doubtful  accounts,  as compared to $132,956  during the six
month  period ended  November  30, 2004.  The decrease was mainly due to reduced
sales.

Interest Expense and Financing Costs

     Interest  expense and financing costs decreased to $44,953 in the six-month
period ended  November  30, 2005,  from $59,040 for the same period in the prior
year. Interest expense primarily reflects interest on loans secured to refinance
the November 2000 purchase of the Company's headquarters and warehouse facility,
as well as on loans  secured to  finance  the cost and  implementation  of a new
management information system.

Interest and Other Income, Net

     Interest  and other  income  for the first  half of fiscal  2006 and fiscal
2005,  were $40,790 and $30,827,  respectively.  The increase in interest income
from the prior period is the direct  result of $15,820 in  increased  unrealized
gain on investments.  Lower average cash balances invested during the first half
of fiscal 2006 compared to the prior period partially offset the above.

                                    Page 25
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Income Tax Expense, Net

     During the  six-months  ended  November  30,  2005 and 2004,  we recorded a
provision for income taxes of $7,112,826 and $21,683,  respectively.  The fiscal
2006 provision consisted mainly of $7,093,000 in additional  valuation allowance
provided  for the  deferred tax asset.  The  provision  for income taxes for the
second half of fiscal 2006 does not include $7,489,000 added to the deferred tax
valuation  allowance for tax benefits  associated with prior years' exercises of
stock options and  warrants,  which was charged  directly to additional  paid-in
capital.

     As of August 31, 2005, we had recorded  deferred tax assets of  $14,582,000
net of a $4,674,000  valuation allowance related to the anticipated  recovery of
tax loss  carryforwards.  As discussed in Note N, on December 20, 2005,  Centers
for Medicare and Medicaid Services (CMS) issued a Proposed  Decision  Memorandum
(PDM) for External  Counterpulsation in response to Vasomedical's application to
expand reimbursement coverage to include Canadian  Cardiovascular Society (CCSC)
Class II angina and New York Heart  Association  (NYHA) Class II/III  congestive
heart  failure  (CHF).  The PDM stated  that the  evidence  was not  adequate to
conclude that external  counterpulsation  therapy is reasonable and necessary to
expand reimbursement coverage to CCSC Class II angina and NYHA Class II/III CHF.
Current coverage for CCSC class III/IV refractory angina will remain in effect.

     Consequently,  we could no longer  conclude that,  based upon the weight of
available  evidence,  it was "more  likely than not" that the net  deferred  tax
asset of $14,582,000  would be realized,  and added $14,582,000 to the valuation
allowance to bring the net deferred tax asset carrying value to zero.

Liquidity and Capital Resources

Cash and cash flow

     We have financed our operations in fiscal 2006 and fiscal 2005 from working
capital and in fiscal 2006 from the issuance of preferred stock. At November 30,
2005, we had cash, cash  equivalents,  and  certificates of deposit  balances of
$2,949,086  and  working  capital  of  $3,857,537  as  compared  to  cash,  cash
equivalents,  and  certificates  of deposit  balances of $2,747,967  and working
capital  of  $3,932,769  at May  31,  2005.  Our  cash,  cash  equivalents,  and
certificates of deposit balances increased $201,119 for the first half of fiscal
year 2006  primarily  due to  $2,185,617  in net  proceeds  from the issuance of
preferred  stock,  which offset cash used in operating  activities of $1,682,713
and other financing activities of $301,785.

     The increase in cash used in our operating activities during the first half
of fiscal year 2006 resulted primarily from the net loss of $9,525,497 offset by
adjustments  to reconcile  net loss to net cash used in operating  activities of
$7,842,784.  The adjustments to reconcile net loss to net cash used in operating
activities  consisted  mainly of $7,489,439 in non-cash  adjustments,  primarily
$7,093,000  for deferred  income  taxes,  as well as an aggregate of $396,439 in
depreciation and  amortization,  allowances for doubtful  accounts and inventory
write-offs,  and common stock issued for services.  In addition,  changes in our
operating assets and liabilities  provided net cash of $353,345.  The changes in
the asset  components  primarily  reflect an increase in accounts  receivable of
$246,611,  offset by lower  inventory of $549,675.  The changes in our operating
liability  components  reflect an  increase  in  accounts  payable  and  accrued
liabilities  of $25,843 and a decrease in other  liabilities  of  $114,253.  Net
accounts receivable were 33% of revenues for the six-month period ended November
30, 2005,  compared to 30% at the end of the six-month period ended November 30,
2004, and accounts receivable turnover decreased to 5.7 times as of November 30,
2005, as compared to 5.8 times as of November 30, 2004.

     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  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  first  half of  fiscal  2006  and  2005,  approximately  0% and 2%,
respectively,  of revenues were  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

                                    Page 26

<PAGE>
                       Vasomedical, Inc. and Subsidiaries

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

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  program.  As we are
creating a new market for the EECP 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  provided net cash of $1,464,757 during the six-month
period  ended  November 30,  2005.  Cash was provided by the sale of  short-term
certificates  of  deposit.  All of our  certificates  of deposit  have  original
maturities of greater than three months and mature in less than twelve months.

     Our  financing  activities  provided  net  cash of  $1,883,832  during  the
six-month period ended November 30, 2005,  reflecting $2,185,617 in net proceeds
received from the issuance of preferred stock,  less payments on our outstanding
notes and  loans  totaling  $250,579,  and  preferred  stock  dividend  payments
totaling  $51,206.  On July 19,  2005,  we entered  into a  Securities  Purchase
Agreement that provided us with gross proceeds of $2.5 million through a private
placement of preferred  stock with M.A.G.  Capital,  LLC through its  designated
funds,  Monarch Pointe Fund Ltd.,  Mercator  Momentum Fund III, LP, and Mercator
Momentum  Fund,  LP. The  agreement  provided for a private  placement of 25,000
shares of Vasomedical's Series D Preferred Stock at $100 per share.

     We do not have an available line of credit.

Liquidity

     We have  incurred  declines in revenue  and  significant  operating  losses
during the last three  fiscal  years and our  ability to continue  operating  is
dependent  upon  achieving  profitability  in the  refractory  angina  market or
through additional debt or equity financing.  Profitability is largely dependent
on reducing  operating costs as well as halting the declining  revenue trend and
maintaining  our current base of revenue in the refractory  angina  market.  Our
ability to  maintain  our  current  base of revenue  is largely  dependent  upon
refocusing our sales and marketing  efforts in the refractory  angina market and
operating  in a more  efficient  manner.  If we are  not  able to  maintain  our
existing base of revenue and reduce  operating costs as described below or raise
additional capital we will not be able to continue as a going concern.

     In order to bring the Company's cost structure more into alignment with its
current revenue base in the refractory  angina market, we have planned a company
restructuring  to be  initiated in January  2006.  The  restructure  will reduce
manufacturing  and operating costs by approximately $3 million per year compared
to  current  levels,  help us to  conserve  cash  and  provide  additional  time
necessary  to  complete  the  application  process  for  expanded  reimbursement
coverage  with The Centers  for  Medicare  and  Medicaid  Services  (CMS) and an
opportunity to rebuild sales to a profitable level.

     We believe that our cash flow from operations  following the  restructuring
initiated in January 2006,  together with our current cash reserves and the cash
received from the sale of convertible  preferred  stock and warrants on July 19,
2005,  will be sufficient  to fund our minimum  projected  capital  requirements
through at least May 31, 2006,  however it is not possible to predict the impact
of the  Proposed  Decision  Memorandum  issued  December  20,  2005,  on current
operations.

     In the event that additional capital is required, we may seek to raise such
capital  through public or private equity or debt  financings or other means. We
may not be able to obtain additional  financing on favorable terms or at all. If
we are unable to raise additional funds when we need them, we may be required to
further  scale back our  operations,  research,  marketing  or sales  efforts or
obtain funds through arrangements with collaborative partners or others that may
require us to license or relinquish  rights to technologies or products.  Future
capital funding, if available,  may result in dilution to current  shareholders,
and new investors could have rights superior to existing stockholders.

                                    Page 27

<PAGE>
                       Vssomedical, Inc. and Subsidiaries

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Contractual Obligations

     The following table presents the Company's  expected cash  requirements for
contractual obligations outstanding as of November 30, 2005.

<TABLE>
<CAPTION>

                                                                     Due as of       Due as of
                                                     Due as of      11/30/07 and    11/30/09 and         Due
                                      Total          11/30/06         11/30/08        11/30/10       Thereafter
--------------------------------------------------------------------------------------------------------------------
<S>                                   <C>               <C>              <C>             <C>             <C>
Long-Term Debt                        $1,024,696        $135,891         $137,382        $151,107        $600,316
Notes Payable                            122,586         122,586               --              --              --
Operating Leases                          35,596          35,596               --              --              --
Litigation Settlement                    134,000         134,000               --              --              --
--------------------------------------------------------------------------------------------------------------------
Total Contractual Cash
Obligations                           $1,316,878       $ 428,073         $137,382        $151,107        $600,316
====================================================================================================================
</TABLE>

Effects of Inflation

     We believe 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.

                                    Page 28
<PAGE>

                       Vssomedical, Inc. and Subsidiaries


ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to certain  financial  market  risks,  including  changes in
interest rates. All of our revenue, expenses and capital spending are transacted
in US dollars. Our exposure to market risk for changes in interest rates relates
primarily  to our  cash  and  cash  equivalent  balances.  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.

ITEM 4 - 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
Financial  Officer,  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 Financial  Officer
concluded that, as of November 30, 2005, 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 30, 2005 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 29

<PAGE>

                       Vssomedical, Inc. and Subsidiaries


                          PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS:

        None.

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:

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.

Reports on Form 8-K

        None

<PAGE>

                       Vssomedical, Inc. and Subsidiaries



     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/ Thomas Glover
                                     ------------------------------------
                                     Thomas Glover
                                     Chief Executive Officer and Director
                                     (Principal Executive Officer)

                                     /s/ Thomas W. Fry
                                     -------------------------------------
                                     Thomas W. Fry
                                     Chief Financial Officer
                                     (Principal Financial and Accounting
                                     Officer)

Date:  January 17, 2006