UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                   FORM 10-QSB


[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended February 29, 2008

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

Commission File Number: 0-18105

                                VASOMEDICAL, INC.
--------------------------------------------------------------------------------

        (Exact name of small business issuer 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)

Issuer's Telephone Number                                         (516) 997-4600

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

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

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

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

Number of Shares Outstanding of Common Stock, $.001 Par Value, at
April 14, 2008                                                        93,768,004


<PAGE>
Vasomedical, Inc. and Subsidiaries

                                      INDEX
<TABLE>
<CAPTION>
                                                                                            Page
                                                                                            ----
PART I - FINANCIAL INFORMATION

<S>      <C>                                                                                 <C>
         Item 1 - Financial Statements (unaudited)

                  Consolidated Condensed Balance Sheets as of
                           February 29, 2008 and May 31, 2007                                 3

                  Consolidated Condensed Statements of Operations for the
                           Nine and Three Months Ended February 29, 2008
                           and February 28, 2007                                              4

                  Consolidated Condensed Statement of Changes in Stockholders'
                           Equity for the Period from June 1, 2007 to February 29, 2008       5

                  Consolidated Condensed Statements of Cash Flows for the
                           Nine and Three Months Ended February 29, 2008
                           and February 28, 2007                                              6

                  Notes to Consolidated Condensed Financial Statements                        7

         Item 2 - Management's Discussion and Analysis or Plan of Operation                  14

         Item 3 - Controls and Procedures                                                    30

PART II - OTHER INFORMATION

         Item 1 - Legal Proceedings                                                          31

         Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds                31

         Item 3 - Defaults upon Senior Securities                                            31

         Item 4 - Submission of Matters to a Vote of Security Holders                        31

         Item 5 - Other Information                                                          31

         Item 6 - Exhibits                                                                   31
</TABLE>
                                     Page 2
<PAGE>
ITEM 1.  FINANCIAL STATEMENTS
                       VASOMEDICAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                               February 29,            May 31,
                                                                                   2008                 2007
                                                                             -----------------     ----------------
                                                                                (Unaudited)         (Derived from
                                                                                                  audited financial
                                                                                                     statements)
                                 ASSETS
CURRENT ASSETS
<S>                                                                              <C>                     <C>
     Cash                                                                        $2,585,400              $850,288
     Accounts receivable, net of an allowance for doubtful accounts of
       $291,964 at February 29, 2008 and $364,809 at May 31, 2007                   777,824               733,655
     Inventories, net                                                             1,664,051             2,117,627
     Other current assets                                                           115,248                34,761
                                                                             --------------------------------------
         Total current assets                                                     5,142,523             3,736,331

PROPERTY AND EQUIPMENT, net of accumulated depreciation of  $2,177,651
   at February 29, 2008 and $2,836,938 at May 31, 2007                              113,172             1,286,880
DEFERRED DISTRIBUTOR COSTS, net of accumulated amortization of $76,331
   at February 29, 2008                                                             432,545                    --
OTHER ASSETS                                                                        225,062               260,240
                                                                             --------------------------------------
                                                                                 $5,913,302            $5,283,451
                                                                             ======================================

                  LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Accounts payable and accrued expenses                                         $661,213              $575,793
     Current maturities of long-term debt and notes payable                              --                65,769
     Sales tax payable                                                              157,647               159,542
     Deferred revenue                                                             1,177,547             1,286,726
     Deferred gain on sale of building                                               53,245                    --
     Accrued expenses and professional fees                                         137,919               328,154
                                                                             --------------------------------------
         Total current liabilities                                                2,187,571             2,415,984

LONG-TERM DEBT                                                                           --               785,246
DEFERRED REVENUE                                                                    378,983               469,626
ACCRUED RENT EXPENSE                                                                  5,770                    --
DEFERRED GAIN ON SALE OF BUILDING                                                   181,922                    --

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
     Preferred stock, $.01 par value; 1,000,000 shares authorized; none
       issued and outstanding                                                            --                    --
     Common stock, $.001 par value; 110,000,000 shares authorized;
       93,768,004 shares issued and outstanding at February 29, 2008
       and 65,198,592 at May 31, 2007                                                93,768                65,198
     Additional paid-in capital                                                  48,063,118            46,165,998
     Accumulated deficit                                                        (44,997,830)          (44,618,601)
                                                                             --------------------------------------
         Total stockholders' equity                                               3,159,056             1,612,595
                                                                             --------------------------------------
                                                                                 $5,913,302            $5,283,451
                                                                             ======================================

</TABLE>

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

                                     Page 3
<PAGE>
                       VASOMEDICAL, INC. AND SUBSIDIARIES

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                  Nine Months       Nine Months       Three Months       Three Months
                                                     Ended             Ended              Ended              Ended
                                                 February 29,        February 28,     February 29,         February 28,
                                                      2008              2007               2008               2007
                                                 --------------    --------------     --------------     --------------
Revenues
<S>                                                 <C>               <C>                  <C>                <C>
   Equipment sales                                  $1,517,985        $2,080,272           $427,445           $432,124
   Equipment rentals and services                    2,397,600         2,906,308            760,249            949,377
                                                 --------------    --------------     --------------     --------------
     Total revenues                                  3,915,585         4,986,580          1,187,694          1,381,501
                                                 --------------    --------------     --------------     --------------

Cost of Sales and Services
   Cost of sales, equipment                          1,174,214         1,184,307            409,160            275,478
   Cost of equipment rentals and services              873,411         1,097,766            247,088            325,377
                                                 --------------    --------------     --------------     --------------
     Total cost of sales and services                2,047,625         2,282,073            656,248            600,855
                                                 --------------    --------------     --------------     --------------
Gross Profit                                         1,867,960         2,704,507            531,446            780,646
                                                 --------------    --------------     --------------     --------------
Operating Expenses
   Selling, general and administrative               1,932,645         3,380,512            732,351          1,027,349
   Research and development                            362,315           722,631            117,313            253,346
                                                 --------------    --------------     --------------     --------------
     Total operating expenses                        2,294,960         4,103,143            849,664          1,280,695
                                                 --------------    --------------     --------------     --------------
Loss From Operations                                  (427,000)       (1,398,636)          (318,218)          (500,049)

Other Income (Expense)
   Interest and financing costs                        (16,605)          (54,281)                --            (16,952)
   Interest and other income, net                       47,513            48,269             12,275             12,445
   Gain on sale of assets                               31,060                --             13,312                 --
                                                 --------------    --------------     --------------     --------------
     Total other income (expense)                       61,968            (6,012)            25,587             (4,507)
                                                 --------------    --------------     --------------     --------------
Loss Before Income Taxes                              (365,032)       (1,404,648)          (292,631)          (504,556)
   Income tax expense, net                             (14,197)          (14,000)            (3,750)            (5,700)
                                                 --------------    --------------     --------------     --------------
Net Loss Attributable to Common Stockholders         $(379,229)      $(1,418,648)         $(296,381)         $(510,256)
                                                 ==============    ==============     ==============     ==============
Net loss per common share
     - basic                                            $(0.00)           $(0.02)            $(0.00)            $(0.01)
                                                 ==============    ==============     ==============     ==============
     - diluted                                          $(0.00)           $(0.02)            $(0.00)            $(0.01)
                                                 ==============    ==============     ==============     ==============
Weighted average common shares
  outstanding
     - basic                                        91,687,349        65,198,592         93,761,337         65,198,592
                                                 ==============    ==============     ==============     ==============
     - diluted                                      91,687,349        65,198,592         93,761,337         65,198,592
                                                 ==============    ==============     ==============     ==============
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  condensed
financial statements.

                                     Page 4
<PAGE>
                       VASOMEDICAL, INC. AND SUBSIDIARIES

       CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                              Additional                                  Total
                                                  Common Stock                 Paid-in            Accumulated         Stockholders'
                                            Shares             Amount          Capital              Deficit               Equity
                                        ---------------    ------------    ----------------    ------------------     --------------
<S>                                     <C>                <C>              <C>                   <C>                    <C>
Balance at June 1, 2007                 65,198,592         $65,198          $46,165,998           $(44,618,601)          $1,612,595
   Common stock and warrants (net of
      expenses incurred) issued for
      Securities Purchase Agreement     21,428,572          21,429            1,354,461                     --            1,375,890
   Common stock issued for distribution
      and supply agreement               6,990,840           6,991              461,395                     --              468,386
   Common Stock issued to Director         150,000             150                8,850                     --                9,000
   Stock based compensation                     --              --               72,414                                      72,414
   Net loss                                     --              --                   --               (379,229)            (379,229)
                                      ---------------    ------------    ----------------    ------------------     ----------------
Balance at February 29, 2008            93,768,004         $93,768          $48,063,118           $(44,997,830)          $3,159,056
                                      ===============    ============    ================    ==================     ================
</TABLE>
The accompanying notes are an integral part of this consolidated condensed
financial statement.

                                     Page 5
<PAGE>
                       VASOMEDICAL, INC. AND SUBSIDIARIES

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                     Nine Months          Nine Months
                                                                                        Ended                Ended
                                                                                     February 29,         February 28,
                                                                                   ----------------     ----------------
                                                                                         2008                 2007
                                                                                   ----------------     ----------------
<S>                                                                                     <C>                <C>
Cash flows from operating activities
     Net loss                                                                           $(379,229)         $(1,418,648)
                                                                                   ----------------     ----------------
      Adjustments to reconcile net loss to net cash used in operating
       activities
         Depreciation and amortization                                                    149,582              230,192
         Amortization of deferred gain on sale of building                                (31,059)                  --
         Provision for doubtful accounts                                                  (27,524)              (1,340)
         Amortization of deferred distributor costs                                        76,332                   --
         Stock based compensation                                                          81,414               10,326
         Changes in operating assets and liabilities:
              Accounts receivable                                                         (16,645)             280,959
              Inventories                                                                 468,248              495,036
              Other current assets                                                        (80,487)             129,865
              Other assets                                                                     --               (1,073)
              Deferred distributor costs                                                  (40,490)                  --
              Accounts payable, accrued expenses and other current liabilities
                                                                                         (210,119)            (604,806)
              Other liabilities                                                           (90,643)            (228,005)
                                                                                   ----------------     ----------------
                                                                                          278,609              311,154
                                                                                   ----------------     ----------------
     Net cash used in operating activities                                               (100,620)          (1,107,494)
                                                                                   ----------------     ----------------

     Cash flows provided by investing activities
         Proceeds from the building sale                                                1,400,000                   --
         Expenses paid for sale of building                                               (89,143)                  --
                                                                                   ----------------     ----------------
     Net cash provided by investing activities                                          1,310,857                   --
                                                                                   ----------------     ----------------

     Cash flows provided by (used in) financing activities
         Payments on long term debt and notes payable                                    (851,015)            (236,394)
         Proceeds from Securities Purchase agreement                                    1,500,000                   --
         Expenses paid in relation to Securities Purchase Agreement                      (124,110)                  --
                                                                                   ----------------     ----------------
     Net cash provided by (used in) financing activities                                  524,875             (236,394)
                                                                                   ----------------     ----------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    1,735,112           (1,343,888)
     Cash and cash equivalents - beginning of period                                      850,288            2,385,778
                                                                                   ----------------     ----------------
     Cash and cash equivalents - end of period                                         $2,585,400           $1,041,890
                                                                                   ================     ================

Non-cash investing and financing activities were as follows:
     Inventories transferred to property and equipment, attributable to
       operating leases, net                                                              $14,672              $24,538
     Issuance of note for purchase of insurance policy                                         --             $192,120
     Common stock issued for distribution agreement                                      $468,386                  $--

Supplemental Disclosures
     Interest paid                                                                        $16,605              $54,281
     Income taxes paid                                                                     $6,551               $6,534
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  condensed
financial statements.

                                     Page 6
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                February 29, 2008


NOTE A - ORGANIZATION AND PLAN OF OPERATIONS

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

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

     During the last two fiscal  years  ended May 31,  2007 and 2006 we incurred
large operating  losses.  The Company has attempted to achieve  profitability by
reducing operating costs and halting the trend of declining  revenue,  to reduce
cash usage through  bringing its cost structure more into alignment with current
revenues by engaging in restructurings during January 2006, March 2007 and April
2007 to  substantially  reduce personnel and spending on sales,  marketing,  and
development projects. In addition, the Company was seeking to obtain a strategic
alliance within the sales and marketing areas and/or to raise additional capital
through public or private equity or debt financings.

     During the first  quarter of fiscal 2008 the  following  events took place,
which allowed us to raise additional  capital through a private equity financing
and by the sale of our facility under a leaseback agreement.

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

          We sold to  Kerns,  pursuant  to the  Securities  Purchase  Agreement,
          21,428,572  shares  of our  common  stock  at $.07  per  share,  and a
          five-year warrant to purchase  4,285,714 shares of our common stock at
          an  initial  exercise  price of $.08 per share (the  "Warrant")  for a
          total purchase price of $1,500,000 less expenses incurred of $124,110.
          We also have an option to sell an  additional $1 million of our common
          stock to Kerns. The agreement  further provided for the appointment to
          our Board of Directors of two representatives of Kerns. In furtherance
          thereof, Mr. Jun Ma and Mr. Simon Srybnik,  Chairman of both Kerns and

                                     Page 7
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                February 29, 2008


          Living Data, have been appointed members of our Board of Directors. On
          July 10, 2007,  Mr.  Benham  Movaseghi,  Treasurer of Kerns,  was also
          appointed  to our Board of  Directors.  Pursuant  to the  Distribution
          Agreement,  we have  become the  exclusive  distributor  in the United
          States of the AngioNew external  counterpulsation systems manufactured
          by Living Data. As additional  consideration  for such  agreement,  we
          agreed to issue an  additional  6,990,840  shares of our common stock,
          valued  at  $468,386,   to  Living  Data.  Pursuant  to  the  Supplier
          Agreement, Living Data now will be the exclusive supplier to us of the
          external  counterpulsation  therapy  systems  that we market under the
          registered  trademark  EECP(R).  The  Distribution  Agreement  and the
          Supplier Agreement each have an initial term extending through May 31,
          2012.

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

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

NOTE B - STOCK-BASED COMPENSATION

     As of June 1, 2006 the Company has adopted Statement of Financial Standards
No. 123 (revised  2004),  Share-Based  Payment ("SFAS No. 123 (R)"),  which is a
revision  of SFAS No.  123.  SFAS No. 123 (R)  supersedes  APB  Opinion  No. 25,
Accounting  for Stock Issued to  Employees,  and amends FASB  Statement  No. 95,
Statement of Cash Flows.  Generally,  the approach to accounting for share-based
payments in SFAS No.  123(R) is similar to the  approach  described  in SFAS No.
123.  However,  SFAS No. 123(R) requires all share-based  payments to employees,
including  grants of employee stock  options,  to be recognized in the financial
statements based on their fair values. Pro forma disclosure of the fair value of
share-based  payments  is  no  longer  an  alternative  to  financial  statement
recognition.

     Prior to first quarter of fiscal 2007 the Company accounted 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 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 prior to fiscal 2007.

     During  the  nine-month  period  ended  February  29,  2008,  the  Board of
Directors granted  non-qualified stock options under the 2004 Stock Option/Stock
Issuance  Plan to four  directors to purchase an aggregate of 600,000  shares of
common stock,  at an exercise price of $0.12 per share,  which  represented  the
fair market value of the  underlying  common stock at the time of the respective
grants.  These options vest  immediately,  and expire ten years from the date of
grant.  During the  three-month  period  ended  February  29, 2008 there were no
non-qualified stock options granted.

     During  the  nine and  three-month  periods  ended  February  29,  2008 the
Company's  Board of Directors  granted  150,000 shares of common stock under the
2004 Plan to one director of the Company having a fair market value of $0.06 per
share at the time of the respective grant.

     Stock-based  compensation expense recognized under SFAS 123(R) for the nine
months ended February 29, 2008 was $81,414 and $10,326 for the nine months ended
February 28, 2007. Stock-based compensation expense recognized under SFAS 123(R)
for the three  months  ended  February  29,  2008 was $14,164 and $5,314 for the
three months ended  February 28, 2007. For purposes of estimating the fair value

                                     Page 8
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                February 29, 2008


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

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

     The fair value of the Company's  stock-based  awards was estimated assuming
the following weighted-average assumptions:
<TABLE>
<CAPTION>
                                         February 29,          February 28,
                                             2008                 2007
                                       -----------------    ------------------
<S>                                         <C>                  <C>
Expected life (years)                          5                      5
Expected volatility                         89.5%                106.17%
Risk-free interest rate                      4.5%                   4.5%
Expected dividend yield                     0.00%                  0.00%
</TABLE>
     During the nine-month  period ended February 29, 2008,  options to purchase
1,305,625  shares of common stock at exercise  prices ranging from $0.20 - $3.96
were cancelled.

NOTE C - 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  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.

     The following  table sets forth the  computation  of basic and diluted loss
per common share:
<TABLE>
<CAPTION>
                                                  Nine Months         Nine Months        Three Months         Three Months
                                                     Ended               Ended               Ended               Ended
                                                  February 29,         February 28,      February 29,          February 28,
                                                -----------------    ---------------    ----------------    -----------------
                                                      2008                2007                2008                2007
                                                -----------------    ---------------    ----------------    -----------------
Numerator:
<S>                                                 <C>                <C>                  <C>                 <C>
   Net loss                                         $(379,229)         $(1,418,648)         $(296,381)          $(510,256)
Denominator:
   Basic  weighted average common shares           91,687,349           65,198,592         93,761,337          65,198,592
     Stock options                                         --                   --                 --                  --
     Warrants                                              --                   --                 --                  --
                                                -----------------    ---------------    ----------------    -----------------
   Diluted - weighted average common shares        91,687,349           65,198,592         93,761,337          65,198,592
                                                =================    ===============    ================    =================
Basic and diluted loss per common share                $(0.00)              $(0.02)            $(0.00)             $(0.01)
                                                =================    ===============    ================    =================
</TABLE>
                                     Page 9
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                February 29, 2008


     Options and warrants, in accordance with the following table, were excluded
from the  computation  of diluted  loss per share for the nine and three  months
ended  February  29, 2008 and  February  28,  2007,  because the effect of their
inclusion would be antidilutive.
<TABLE>
<CAPTION>
                                                                Nine and Three       Nine and Three
                                                                    Months               Months
                                                                    Ended                Ended
                                                                 February 29,         February 28,
                                                               ---------------- --- ----------------
                                                                     2008                 2007
                                                               ----------------     ----------------
   <S>                                                              <C>                  <C>
   Options                                                          5,886,710            6,741,150
   Warrants                                                         6,540,252            2,254,538
                                                               ----------------     ----------------
                                                                   12,426,962            8,995,688
                                                               ================     ================
</TABLE>
NOTE D - INVENTORIES, NET

         Inventories, net consist of the following:
<TABLE>
<CAPTION>
                                                                  February 29,            May 31,
                                                                      2008                 2007
                                                                -----------------    -----------------

   <S>                                                             <C>                  <C>
   Raw materials                                                     $940,652             $794,188
   Work in process                                                    586,338              915,744
   Finished goods                                                     137,061              407,695
                                                                -----------------    -----------------
                                                                   $1,664,051           $2,117,627
                                                                =================    =================
</TABLE>
     At both  February  29, 2008 and May 31,  2007,  the Company has  recorded a
reserve for excess and obsolete inventory of $677,166.

NOTE E - PROPERTY AND EQUIPMENT

     Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
                                                                 February 29,           May 31,
                                                                     2008                2007
                                                               -----------------    ---------------
<S>                                                                <C>                 <C>
Land                                                                     $--            $200,000
Building and improvements                                                 --           1,394,569
Office, laboratory and other equipment                             1,368,169           1,436,360
EECP  therapy  systems  under  operating  leases  or
   under loan for clinical trials                                    771,013             813,020
Furniture and fixtures                                               151,641             162,066
Leasehold improvements                                                    --             117,803
                                                               -----------------    ---------------
                                                                   2,290,823           4,123,818
Less: accumulated depreciation and amortization                   (2,177,651)         (2,836,938)
                                                               -----------------    ---------------
                                                                    $113,172          $1,286,880
                                                               =================    ===============
</TABLE>
          Depreciation  and  amortization  expense  for the  nine  months  ended
          February 29, 2008 and February 28, 2007 was  $149,582,  and  $230,192,
          respectively

NOTE F - LONG-TERM DEBT

         Long-term debt is summarized as follows:

                                    Page 10
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                February 29, 2008

<TABLE>
<CAPTION>
                                                              February 29,           May 31,
                                                                  2007                2008
                                                             ----------------    ---------------
   <S>                                                             <C>             <C>
   Facility loans (a)                                              $--             $851,015
   Less: current portion                                            --              (65,769)
                                                             ----------------    ---------------
                                                                   $--             $785,246
                                                             ================    ===============
</TABLE>
     (a)  The Company  purchased its  headquarters  and warehouse  facility with
          secured  notes of  $641,667  and  $500,000,  respectively,  under  two
          programs sponsored by New York State. These notes, which bore interest
          at 7.8% and 6%,  respectively,  were  payable in monthly  installments
          consisting of principal and interest payments over fifteen-year terms,
          expiring in September  2016 and January 2017,  respectively,  and were
          secured by the building.

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

NOTE G - DEFERRED REVENUES

     The changes in the Company's deferred revenues are as follows:
<TABLE>
<CAPTION>
                                                         Nine           Nine Months       Three Months        Three Months
                                                      Months Ended         Ended              Ended              Ended
                                                     February 29,        February 28,     February 29,         February 28,
                                                     --------------    --------------     --------------     ---------------
                                                          2008              2007               2008               2007
                                                     --------------    --------------     --------------     ---------------
<S>                                                    <C>               <C>                <C>                <C>
Deferred revenue at the beginning of the period        $1,756,352        $2,322,588         $1,598,241         $2,051,198
Additions:
     Deferred extended service contracts                1,334,506         1,483,702            427,067            434,241
     Deferred in-service and training                      30,000            35,000             12,500             10,000
     Deferred service arrangements                        143,750           105,000             63,750             30,000
     Deferred service contract promotion                    8,850                --              1,050                 --
Recognized as revenue:
     Deferred extended service contracts               (1,575,282)       (1,882,386)          (497,751)          (640,910)
     Deferred in-service and training                     (17,500)          (35,000)            (7,500)           (10,000)
     Deferred service arrangements                       (110,796)         (204,375)           (38,877)           (50,000)
     Deferred service contract promotion                  (13,350)               --             (1,950)                --
                                                     --------------    --------------     --------------     ---------------
Deferred revenue at end of period                       1,556,530         1,824,529          1,556,530          1,824,529
     Less: current portion                             (1,177,547)       (1,329,333)        (1,177,547)        (1,329,333)
                                                     --------------    --------------     --------------     ---------------
Long-term deferred revenue at end of period              $378,983          $495,196           $378,983           $495,196
                                                     ==============    ==============     ==============     ===============
</TABLE>
NOTE H - SALE-LEASEBACK

     In August 2007,  the Company sold its warehouse and corporate  facility for
$1,400,000.  Under the agreement,  the Company is leasing back the property from
the purchaser  over a period of five years.  The Company is  accounting  for the
leaseback  as an  operating  lease.  The  gain  of  $266,226  realized  in  this
transaction  has been deferred and is being amortized to income ratably over the
term of the lease.  At February  29,  2008,  the  unamortized  deferred  gain of
$235,167  is shown  as  "Deferred  gain on sale of  building"  in the  Company's
consolidated condensed balance sheet.

                                    Page 11
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                February 29, 2008


NOTE I - WARRANTY COSTS

     The changes in the Company's product warranty liability are as follows:
<TABLE>
<CAPTION>
                                                      Nine               Nine              Three             Three
                                                      Months             Months            Months            Months
                                                      Ended              Ended             Ended             Ended
                                                   February 29,       February 28,      February 29,      February 28,
                                                  --------------     -------------    --------------     -------------
                                                       2008               2007              2008              2007
                                                  --------------     -------------    --------------     -------------
<S>                                                    <C>                <C>             <C>                 <C>
Warranty liability at the beginning of the
   period                                              $15,750            $32,000         $31,000             $26,500
     Expense for new warranties issued                  33,000             36,000              --               6,000
     Warranty amortization                             (27,750)           (47,500)        (10,000)            (12,000)
                                                  --------------     -------------    --------------     -------------
Warranty liability at end of period                     21,000             20,500          21,000              20,500
     Less: current portion                             (21,000)           (20,500)        (21,000)            (20,500)
                                                  --------------     -------------    --------------     -------------
Long-term warranty liability at end of period
                                                           $--                $--             $--                 $--
                                                  ==============     =============    ==============     =============
</TABLE>
NOTE  J - INCOME TAXES

     During the nine-months ended February 29, 2008 and February 28, 2007, state
income taxes were $14,197 and $14,000, respectively.

     As of February 29, 2008, the recorded deferred tax assets were $19,720,352,
reflecting a $103,000 increase during the third quarter of fiscal 2008. Ultimate
realization  of any or all of the  deferred  tax assets is not  assured,  due to
significant  uncertainties and material assumptions associated with estimates of
future taxable income during the carryforward  period. The Company has concluded
that, based upon the weight of available evidence, it was "more likely than not"
that the net  deferred  tax  asset  would not be  realized  and has  recorded  a
valuation allowance to bring the net deferred tax asset carrying value to zero.

     At May 31,  2007 (the  Company's  fiscal  year end),  the  Company  had net
operating  loss  carryforwards  for  Federal  and state  income tax  purposes of
approximately $53,400,000, expiring at various dates from 2016 through 2029.

     In June 2006, the Financial  Accounting  Standards Board (FASB) issued FASB
Interpretation  (FIN) No. 48, Accounting for Uncertainty in Income Taxes,  which
supplements  Statement of Financial  Accounting Standard No. 109, Accounting for
Income Taxes, by defining the confidence  level that a tax position must meet in
order to be  recognized  in the  financial  statements.  FIN 48 requires the tax
effect of a position to be recognized only if it is "more-likely-than-not" to be
sustained  based solely on its technical  merits as of the reporting  date. If a
tax position is not considered more-likely-than-not to be sustained based solely
on its technical merits,  no benefits of the position are recognized.  This is a
different   standard  for  recognition   than  was  previously   required.   The
more-likely-than-not  threshold must continue to be met in each reporting period
to support  continued  recognition  of a benefit.  At adoption,  companies  must
adjust their  financial  statements to reflect only those tax positions that are
more-likely-than-not  to be  sustained as of the adoption  date.  Any  necessary
adjustment is recorded  directly to opening  retained  earnings in the period of
adoption  and  reported as a change in  accounting  principle.  The adoption the
provisions of FIN 48 did not have a material  effect on the Company's  financial
position.

                                    Page 12
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                February 29, 2008



NOTE K - COMMITMENTS AND CONTINGENCIES

Leases

     On  August  15,  2007 we sold  our  facility  under a  five-year  leaseback
agreement. Future rental payments under the operating lease are as follows:
<TABLE>
<CAPTION>
         For the years ended:
                <S>                         <C>
                May 31, 2008                 $34,655
                May 31, 2009                 142,777
                May 31, 2010                 148,488
                May 31, 2011                 154,427
                May 21, 2012                 160,604
                May 31, 2013                  40,540
                                       -----------------
               Total                        $681,491
                                       =================
</TABLE>
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.

                                    Page 13
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


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

General Overview

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

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

     During the last two fiscal  years  ended May 31,  2007 and 2006 we incurred
large  operating  losses.  We  attempted  to achieve  profitability  by reducing
operating costs and halting the trend of declining revenue, to reduce cash usage
through  bringing our cost structure more into alignment with current revenue by
engaging in  restructurings  during January 2006,  March 2007, and April 2007 to
substantially reduce personnel and spending on sales, marketing, and development
projects. In addition, we sought to obtain a strategic alliance within the sales
and marketing areas and/or to raise additional capital through public or private
equity or debt financings.

     During the first  quarter of fiscal 2008 the  following  events took place,
which allowed us to raise additional  capital through a private equity financing
and by the sale of our facility under a leaseback agreement.

                                    Page 14
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



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

          We sold to  Kerns,  pursuant  to the  Securities  Purchase  Agreement,
          21,428,572  shares  of our  common  stock  at $.07  per  share,  and a
          five-year warrant to purchase  4,285,714 shares of our common stock at
          an  initial  exercise  price of $.08 per share (the  "Warrant")  for a
          total purchase price of $1,500,000 less expenses incurred of $124,110.
          We also have an option to sell an  additional $1 million of our common
          stock to Kerns. The agreement  further provided for the appointment to
          our Board of Directors of two representatives of Kerns. In furtherance
          thereof, Mr. Jun Ma and Mr. Simon Srybnik,  Chairman of both Kerns and
          Living Data, have been appointed members of our Board of Directors. On
          July 10, 2007,  Mr.  Benham  Movaseghi,  Treasurer of Kerns,  was also
          appointed  to our Board of  Directors.  Pursuant  to the  Distribution
          Agreement,  we have  become the  exclusive  distributor  in the United
          States of the AngioNew external  counterpulsation systems manufactured
          by Living Data. As additional  consideration  for such  agreement,  we
          agreed to issue an  additional  6,990,840  shares of our common stock,
          valued  at  $468,386,   to  Living  Data.  Pursuant  to  the  Supplier
          Agreement, Living Data now will be the exclusive supplier to us of the
          external  counterpulsation  therapy  systems  that we market under the
          registered  trademark  EECP(R).  The  Distribution  Agreement  and the
          Supplier Agreement each have an initial term extending through May 31,
          2012.

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

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

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

     The  preliminary  results of the PEECH trial were presented at the American
College of Cardiology  scientific  sessions in March 2005. On June 20, 2005, the
Centers for Medicare and Medicaid  Services (CMS) accepted our  application  for
expansion of reimbursement  coverage of EECP(R) therapy to include patients with
New York Heart  Association  (NYHA) Class II/III stable heart  failure  symptoms
with an ejection  fraction of less than or equal to 35%, i.e.  chronic,  stable,
mild-to-moderate  systolic  heart  failure as a primary  indication,  as well as
patients with Canadian  Cardiovascular  Society  Classification  (CCSC) II, i.e.
chronic, stable mild angina.

                                    Page 15
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



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

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

     o    Canadian Cardiovascular Society Classification (CCSC) II angina
     o    Heart Failure
     o    New York Heart  Association Class II/III stable heart failure symptoms
          with an ejection fraction of less than or equal to 35%
     o    New York Heart  Association Class II/III stable heart failure symptoms
          with an ejection fraction of less than or equal to 40%
     o    New York Heart Association Class IV heart failure
     o    Acute heart failure
     o    Cardiogenic shock
     o    Acute myocardial infarction."

     They  commented  in their  decision  memorandum  that they were not able to
apply full weight to the evidence  generated by the PEECH(TM)  trial,  as it had
not yet been published in a peer-reviewed  medical journal by the time they were
required to issue a final decision on this application.  Moreover,  they did not
opine on whether they would  consider the results of the trial when published to
be sufficient  evidence to conclude that  external  counterpulsation  therapy is
reasonable and necessary for the treatment of New York Heart  Association  Class
II/III stable heart failure  symptoms with an ejection  fraction of less than or
equal to 35%.  They did,  however,  reiterate  in the decision  memorandum  that
"Current  coverage  as  described  in  Section  20.20 of the  Medicare  National
Coverage  Determination  (NCD)  manual will remain in effect.",  for  refractory
angina patients.

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

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

     The above 2 papers have been  submitted to CMS for  reconsideration  of our
application.  We had met with  representatives  of CMS on February  28, 2007 and
presented  our case.  CMS has  requested  more data from us. We will continue to
gather the data and continue our dialogue with CMS to obtain  coverage for heart
failure  patients.  However,  there is no  assurance  that the Company will have
sufficient  resources to gather the  necessary  data to be sufficient to support
expansion of the Medicare national coverage policy for EECP(R) therapy treatment
for NYHA class II and III heart failure patients.

                                    Page 16
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



     We will  continue  to educate the  marketplace  that  EECP(R)  therapy is a
therapy for ischemic  cardiovascular  disease and that patients with a diagnosis
of heart failure, diabetes,  peripheral vascular disease, etc. are also eligible
for  reimbursement  under the  current  coverage  policy,  provided  the primary
indication  for treatment  with EECP(R)  therapy is refractory  angina or angina
equivalent symptoms and the patient satisfies other listed criteria.

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 B of  the  Notes  to  Consolidated
Financial  Statements  included in our Annual Report on Form 10-KSB for the year
ended May 31, 2007,  includes a summary of our significant  accounting  policies
and methods used in the  preparation of our financial  statements.  In preparing
these  financial  statements,  we have made our best  estimates and judgments of
certain amounts included in the financial  statements,  giving due consideration
to  materiality.  The  application  of these  accounting  policies  involves the
exercise of judgment and use of assumptions as to future uncertainties and, as a
result,  actual  results  could  differ  from  these  estimates.   Our  critical
accounting policies are as follows:

Revenue Recognition

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

     In most cases,  revenue  from  domestic  EECP(R)  therapy  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(R) therapy
systems  includes a combination of three elements that qualify as separate units
of accounting:
     i.   EECP(R) therapy equipment sale,
     ii.  provision of in-service and training  support  consisting of equipment
          set-up and training provided at the customer's facilities, and
     iii. a service  arrangement  (usually one year),  consisting of: service by
          factory-trained  service  representatives,  material  and labor costs,
          emergency and remedial service visits,  software  upgrades,  technical
          phone support and preferred response times.

     Each of these  elements  represent  individual  units of  accounting as the
delivered  item has value to a customer on a  stand-alone  basis,  objective and
reliable  evidence of fair value exists for undelivered  items, and arrangements
normally do not  contain a general  right of return  relative  to the  delivered
item. We determine fair value based on the price of the  deliverable  when it is

                                    Page 17
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                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


sold  separately  or based  on  third-party  evidence.  In  accordance  with the
guidance in EITF 00-21,  we use the residual  method to allocate the arrangement
consideration  when it does not have fair value of the  EECP(R)  therapy  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(R) therapy  equipment sales,  when delivery and acceptance occurs
          based  on  delivery  and   acceptance   documentation   received  from
          independent shipping companies or customers,
     ii.  in-service  and  training,  following  documented  completion  of  the
          training, and
     iii. the service  arrangement,  ratably over the service  period,  which is
          generally one year.

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

     The Company  also  recognizes  revenue  generated  from  servicing  EECP(R)
therapy  systems that are no longer  covered by the service  arrangement,  or by
providing sites with additional training,  in the period that these services are
provided. Revenue related to future commitments under separately priced extended
service  agreements on our EECP(R)  therapy  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(R) therapy systems through our international
distributor  network are  generally  covered by a parts only  one-year  warranty
period.  For these customers we accrue a warranty reserve for estimated costs to
provide warranty parts when the equipment sale is recognized.

     The Company has also entered into lease  agreements for our EECP(R) therapy
systems,  generally  for  terms  of one year or less,  that  are  classified  as
operating leases.  Revenues from operating leases are generally  recognized,  in
accordance with the terms of the lease agreements, on a straight-line basis over
the life of the respective leases. For certain operating leases in which payment
terms are  determined  on a  "fee-per-use"  basis,  revenues are  recognized  as
incurred (i.e., as actual usage occurs).  The cost of the EECP(R) therapy system
utilized  under  operating  leases is recorded as a  component  of property  and
equipment  and is amortized to cost of sales over the  estimated  useful life of
the  equipment,  not to exceed five  years.  There were no  significant  minimum
rental commitments on these operating leases at February 29, 2008.

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 that remain  outstanding  longer
than the contractual  payment terms are considered past due.  Estimates are used
in  determining  the  allowance  for doubtful  accounts  based on the  Company's
historical  collections   experience,   current  trends,  credit  policy  and  a
percentage of its accounts  receivable by aging category.  In determining  these
percentages,  we look at historical  write-offs of our receivables.  The Company
also looks at the credit  quality of its customer base as well as changes in its
credit policies. The Company continuously monitors collections and payments from
our customers.  While credit losses have historically  been within  expectations
and the  provisions  established,  the  Company  cannot  guarantee  that it will
continue to experience the same credit loss rates that it has in the past.

                                    Page 18
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                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



Inventories, net

     The Company values inventory at the lower of cost or estimated market, cost
being  determined  on a first-in,  first-out  basis.  The Company  often  places
EECP(R) therapy systems at various field locations for demonstration,  training,
evaluation,  and other similar purposes at no charge.  The cost of these EECP(R)
therapy  systems is  transferred to property and equipment and is amortized over
the  next  two to five  years.  The  Company  records  the  cost of  refurbished
components of EECP(R) therapy  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 record a provision for
excess and obsolete inventory based primarily on existing and anticipated design
and  engineering  changes to its products as well as forecasts of future product
demand.

     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.

Deferred Revenues

     The Company records revenue on extended service  contracts ratably over the
term  of  the  related  contract  period.   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(R)  therapy
system sales for the fair value of installation  and in-service  training to the
period when the services are rendered and for warranty  obligations ratably over
the service period, which is generally one year.

Warranty Costs

     Equipment  sold is  generally  covered  by a  warranty  period of one year.
Effective September 1, 2003, the Company 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.

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

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

Net Loss per Common Share

     Basic  loss per  share is based on the  weighted  average  number of common
shares outstanding without consideration of potential common stock. Diluted loss
per  share is based on the  weighted  number of common  and  potential  dilutive
common shares  outstanding.  The calculation  takes into account the shares that
may be issued upon the exercise of stock  options and  warrants,  reduced by the
shares that may be repurchased with the funds received from the exercise,  based
on the average price during the period.

Income Taxes

     Deferred  income taxes are  recognized  for temporary  differences  between
financial  statement  and income tax bases of assets  and  liabilities  and loss
carryforwards  for which  income tax  benefits  are  expected  to be realized in

                                    Page 19
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                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



future years. A valuation  allowance is established,  when necessary,  to reduce
deferred tax assets to the amount expected to be realized.  In estimating future
tax consequences, we generally consider all expected future events other than an
enactment  of  changes  in the tax laws or  rates.  The  deferred  tax  asset is
continually  evaluated for  realizability.  To the extent our judgment regarding
the  realization  of the  deferred  tax assets  changes,  an  adjustment  to the
allowance is recorded,  with an offsetting increase or decrease, as appropriate,
in income tax expense.  Such adjustments are recorded in the period in which our
estimate as to the  realizability  of the asset  changed that it is "more likely
than not" that 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.

Stock-based Employee Compensation

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

     Prior to fiscal 2007 the Company  accounted  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  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 was
recognized in the consolidated  financial statements in connection with employee
stock option grants prior to fiscal 2007.

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

     For  purposes  of  estimating  the fair value of each option on the date of
grant, the Company 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
measure of the fair value of its employee stock options.

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

                                    Page 20
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



Recently Issued Accounting Pronouncements Not Yet Effective

     Statement  of  Financial   Accounting   Standards   No.  157,   Fair  Value
Measurements.  This  Statement  defines fair value,  establishes a framework for
measuring fair value,  and expands  disclosures  about fair value  measurements.
This Statement  applies under other  accounting  pronouncements  that require or
permit fair value measurements,  the Board having previously  concluded in those
accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly,  this Statement  does not require any new fair value  measurements.
However,  for some  entities,  the  application  of this  Statement  will change
current  practice.  This Statement is effective for financial  statements issued
for fiscal years  beginning  after November 15, 2007, and interim periods within
those  fiscal  years.  Earlier  application  is  encouraged,  provided  that the
reporting entity has not yet issued  financial  statements for that fiscal year,
including  financial  statements  for an interim period within that fiscal year.
The Company  does not expect that SFAS 157 will have any  significant  effect on
future financial statements.

     Statement of Financial  Accounting Standards No. 159, The Fair Value Option
for Financial Assets and Financial  Liabilities - Including an Amendment to FASB
Statement No. 115.  This  Statement  permits  entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve  financial  reporting  by providing  entities  with the  opportunity  to
mitigate  volatility in reported earnings caused by measuring related assets and
liabilities  differently  without  having  to  apply  complex  hedge  accounting
provisions.  This  Statement  is  expected  to  expand  the  use of  fair  value
measurement,   which  is  consistent  with  the  Board's  long-term  measurement
objectives for accounting for financial instruments. This Statement is effective
as of the beginning of an entity's  first fiscal year that begins after November
15, 2007,  and interim  periods  within those fiscal  years.  Early  adoption is
permitted as of the beginning of a fiscal year that begins on or before November
15,  2007,  provided  the entity  also  elects to apply the  provisions  of FASB
Statement  No. 157,  Fair Value  Measurements.  The Company does not expect that
SFAS 159 will have any significant effect on future financial statements.

     Statement  of  Financial  Accounting  Standards  No.  160,   Noncontrolling
Interests in  Consolidated  Financial  Statements - An amendment of ARB No. 51 -
establishes  new  accounting  and  reporting  standards  for the  noncontrolling
interest in a subsidiary.  (Noncontrolling  interest  formerly called a minority
interest).  Requires recognition of a noncontrolling interest as a separate item
of equity in the  consolidated  financial  statements.  Requires  the  parent to
recognize a gain or loss when a  subsidiary  is  deconsolidated.  Effective  for
fiscal years and interim  periods  beginning on or after  December 15, 2008. The
Company does not expect that SFAS 160 will have any significant effect on future
financial statements.

     FASB  Statement  No. 161,  Disclosures  about  Derivative  Instruments  and
Hedging  Activities - an Amendment of FASB  Statement  133 -- enhances  required
disclosures  regarding  derivatives and hedging  activities,  including enhanced
disclosures  regarding  how:  (a) an entity  uses  derivative  instruments;  (b)
derivative  instruments  and related  hedged items are  accounted for under FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities;
and (c)  derivative  instruments  and related  hedged  items  affect an entity's
financial  position,   financial  performance,  and  cash  flows.  Specifically,
Statement 161 requires:

     o    Disclosure  of the  objectives  for using  derivative  instruments  be
          disclosed in terms of underlying risk and accounting designation;

     o    Disclosure  of the fair  values of  derivative  instruments  and their
          gains and losses in a tabular format;

     o    Disclosure  of  information   about   credit-risk-related   contingent
          features; and

     o    Cross-reference  from the  derivative  footnote to other  footnotes in
          which derivative-related information is disclosed.

     Effective for fiscal years and interim periods beginning after November 15,
2008. Early application is encouraged.

                                    Page 21
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



     EITF Issue 06-1,  Accounting for Consideration  Given by a Service Provider
to a  Manufacturer  or Reseller of Equipment  Necessary for an  End-Customer  to
Receive  Service from the Service  Provider.  The Task Force reached a consensus
that if the  consideration  given by a service  provider  to a  manufacturer  or
reseller  (that  is  not a  customer  of the  service  provider)  can be  linked
contractually  to the benefit  received by the service  provider's  customer,  a
service  provider  should  use the  guidance  in  Issue  01-9 to  determine  the
characterization of the consideration  (that is, "cash  consideration" or "other
than  cash"   consideration).   Issue  01-9   presumes  that  an  entity  should
characterize  "cash  consideration"  as a reduction of revenue  unless an entity
meets the  requirements of paragraph 9 of Issue 01-9.  Under Issue 01-9,  "other
than cash" consideration should be characterized as an expense. In applying that
guidance,  the service provider should characterize the consideration given to a
third-party manufacturer or reseller based on the form of consideration directed
by the service provider to be provided to the service  provider's  customer.  If
the form of the  consideration  is  directed  to be  anything  other  than "cash
consideration"  (as defined in Issue 01-9),  then the form of the  consideration
should be  characterized  as "other  than cash"  consideration.  If the  service
provider does not control the form of the consideration  provided to the service
provider's  customer,  the consideration  should be characterized as "other than
cash"  consideration.  In reaching this conclusion,  Task Force members observed
that  consideration  paid by a  service  provider  that  results  in a  customer
receiving a reduced price on equipment purchased from a manufacturer or reseller
should be  characterized  as "other  than cash"  consideration  for  purposes of
applying  Issue 01-9.  The  consensus in this Issue is  effective  for the first
annual reporting period  beginning after June 15, 2007.  Earlier  application is
permitted  for  financial  statements  that have not yet been  issued.  Entities
should recognize the effects of applying the consensus in this Issue as a change
in accounting principle through  retrospective  application to all prior periods
unless  it is  impracticable  to  do  so.  The  Company  does  not  expect  that
pronouncement  EITF  Issue  06-1  will  have any  significant  effect  on future
financial statements.

     EITF Issue 06-4,  Accounting for Deferred  Compensation and  Postretirement
Benefit  Aspects of Endorsement  Split-Dollar  Life Insurance  Arrangements.  An
endorsement  split-dollar life insurance should be recognized as a liability for
future  benefits  in  accordance  with  Statement  106  (if,  in  substance,   a
postretirement  benefit  plan exists) or Opinion 12 (if the  arrangement  is, in
substance,   an  individual  deferred   compensation   contract)  based  on  the
substantive  agreement  with  the  employee.  The  consensus  in this  Issue  is
effective  for fiscal years  beginning  after  December  15, 2007,  with earlier
application permitted. The Company does not expect that pronouncement EITF Issue
06-4 will have any significant effect on future financial statements.

Results of Operations

Three Months Ended February 29, 2008 and February 28, 2007

     Net revenue from sales,  leases and service of our EECP therapy systems for
the  three-month  periods  ended  February 29, 2008 and February 28, 2007,  were
$1,187,694,  and  $1,381,501,  respectively,  which  represented  a  decline  of
$193,807 or 14%. We reported a net loss  attributable to common  shareholders of
$296,381 and $510,256 for the  three-month  periods ended  February 29, 2008 and
February 28, 2007, respectively.  The decrease in the net loss was primarily due
to the significant decrease in our operating expenses from the comparative prior
period,  offset  slightly by the  decrease  in revenue.  Our net loss per common
share was $(0.00),  and $(0.01) for the  three-month  periods ended February 29,
2008 and February 28, 2007, respectively.

Revenues

     Revenue from equipment  sales decreased by  approximately  1%, to $427,445,
for the  three-month  period ended February 29, 2008 as compared to $432,124 for
the same period for the prior year. The minimal  decrease in equipment  sales is
due primarily to a 29% decrease in blended average  selling prices,  offset by a
25%  increase in the number of  equipment  shipments.  The  overall  decrease in
average  sales  prices is primarily  due to the  reduction in sales price due to
competition  in both the  domestic  and  international  markets,  from the prior
fiscal year.

                                    Page 22
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION




     We believe the decline in domestic average selling price reflects  weakened
demand in the  refractory  angina  market as  existing  capacity  is more  fully
utilized, coupled with increased direct and indirect competition.  We anticipate
that demand for EECP(R) therapy systems will remain soft unless there is greater
clinical  acceptance  for the use of EECP(R)  therapy in treating  patients with
angina  or  angina  equivalent  symptoms,  who  meet the  current  reimbursement
guidelines or an expansion of the current CMS national  reimbursement  policy to
include some or all Class II & III heart failure patients.  Patients with angina
or angina equivalent  symptoms eligible for reimbursement under current policies
include  many with  serious  co-morbidities,  such as heart  failure,  diabetes,
peripheral  vascular  disease  and/or  others.  Despite  this,  many  cardiology
clinicians appear to be waiting for approval of reimbursement coverage for heart
failure as a primary indication before they will move forward with the treatment
of ischemic heart failure patients with angina equivalent  symptoms.  Reluctance
to  bill  for  ischemic  heart  failure  patients  under  the  current  coverage
guidelines,  and failure to get or maintain adequate  reimbursement coverage for
angina and heart  failure  would  adversely  affect our business  prospects.  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.  The average price of new systems sales declined by
39% in the  three-month  period ended February 29, 2008,  compared to prior year
and the average  sales price of used systems  increased  17% in the  three-month
period ended  February 29, 2008.  We continue to  reorganize  certain  territory
responsibilities in our sales department due to the reduction in our sales force
and vacant and/or unproductive territories.

     Our revenue from the sale of EECP(R) therapy  systems and related  products
to international  distributors in the three-month period ended February 29, 2008
decreased  approximately  92% to $11,332 compared to $137,333 in the three-month
period ending February 28, 2007.

     Our revenue from equipment  rental and services for the three-month  period
ended February 29, 2008 declined 20% compared to the same three-month  period in
the prior  fiscal  year.  The decline is related to a decrease in the  equipment
services  related  revenue as a result of decreased  sales volume,  while rental
revenue   remained   constant.   Revenue  from  equipment  rental  and  services
represented  64% of total  revenues  as compare to 69% of total  revenues in the
prior comparative year.

Gross Profit

     The  gross  profit  declined  to  $531,446,  or 45% of  revenues,  for  the
three-month  period  ended  February  29,  2008,  compared to $780,646 or 57% of
revenues,  for the  three-month  period ended  February 28, 2007. The decline in
gross profit  primarily  reflects the  decrease in the blended  average  selling
price, as well as the equipment service revenue decline.

     Gross profits are dependent on a number of factors, particularly the mix of
EECP(R) therapy system models sold  domestically and  internationally  and their
respective average selling prices, the mix of EECP(R) therapy system 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  February  29,  2008 and  February  28,  2007,  were  $732,351,  or 62% of
revenues, and $1,027,349 or 74% of revenues,  respectively reflecting a decrease
of $249,998 or approximately 29%. The decrease in SG&A expenditures in the third
quarter  of fiscal  2008  compared  to fiscal  2007  resulted  primarily  from a
decrease of $89,548 due to reduced sales  personnel and  associated  travel plus
lower sales commission due to reduced sales volume. Marketing expenses decreased
$187,410 due to reduced  personnel  in the  marketing  and clinical  application
support areas, as well as associated travel, plus lower market research, product

                                    Page 23
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



promotion,   advertising,  and  trade  show  expenses.  Administrative  expenses
decreased $9,379 as a result of decreased  expenditures  associated with reduced
personnel and their associated costs.

Research and Development

     Research and development ("R&D") expenses of $117,313,  or 10% of revenues,
for the  three-months  ended February 29, 2008,  decreased by $136,033,  or 54%,
from the  three-months  ended  February 28,  2007,  which was $253,346 or 18% of
revenues.  The decrease is primarily attributable to fewer engineering personnel
and lower new product development spending.

Interest Expense and Financing Costs

     There were no interest  expense and  financing  costs  incurred  during the
three-month  period  ended  February  29, 2008  compared to $16,952 for the same
period in the prior year. Interest expense reflects interest on loans secured to
refinance the November 2000 purchase of the Company's headquarters and warehouse
facility.  The elimination of this cost in the third quarter of fiscal 2008 is a
direct result of the sale-leaseback agreement for the Company's headquarters and
warehouse facility, which occurred during the first quarter of fiscal 2008.

Interest and Other Income, Net

     Interest and other income for the  three-month  periods ended  February 29,
2008 and  February 28, 2007,  were $12,275 and $12,445,  respectively.  Interest
income primarily reflects interest earned on the Company's cash balances.

Gain on Sale of Assets

     Gain on Sale of Assets for the three-month  periods ended February 29, 2008
and  February  28, 2007,  were  $13,312 and $0,  respectively.  This gain is the
result of the Company's  recognition  on the gain on the  sale-leaseback  of its
facility and  liquidation  of equipment and fixtures  used in previously  leased
properties.

Income Tax Expense, Net

         During the three-month periods ended February 29, 2008 and February 28,
2007, state income taxes were $3,750 and $5,700, respectively.

     As of February 29, 2008, the recorded deferred tax assets were $19,720,352,
reflecting a $103,000 increase during the third quarter of fiscal 2008. Ultimate
realization  of any or all of the  deferred  tax assets is not  assured,  due to
significant  uncertainties and material assumptions associated with estimates of
future taxable income during the carryforward  period. The Company has concluded
that, based upon the weight of available evidence, it was "more likely than not"
that the net  deferred  tax  asset  would not be  realized  and has  recorded  a
valuation allowance to bring the net deferred tax asset carrying value to zero.

Results of Operations

Nine Months Ended February 29, 2008 and February 28, 2007

     Net revenue from sales,  leases and service of our EECP(R)  therapy systems
for the nine-month  periods ended February 29, 2008 and February 28, 2007,  were
$3,915,585  and  $4,986,580,   respectively,  which  represented  a  decline  of
$1,070,995,  or 21%. We  reported a net loss of $379,229  compared to a net loss

                                    Page 24
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



attributable  to common  stockholders  of $1,418,648 for the nine-month  periods
ended  February 29, 2008 and February 28, 2007,  respectively.  Our net loss per
common  share  was $0.00 for the  nine-month  period  ended  February  29,  2008
compared  to a net loss of $0.02  per  share  for the  nine-month  period  ended
February 28, 2007.  The decrease in the net loss per common share was  primarily
due to the significant  decrease in our operating  expenses from the comparative
prior period.

Revenues

     Revenue from equipment sales declined approximately 27%, to $1,517,985, for
the nine-month  period ended February 29, 2008 as compared to $2,080,272 for the
same period for the prior year. The decrease in equipment sales is due primarily
to a 31% decrease in blended  average sales prices,  offset by a 10% increase in
number of equipment  shipments.  The overall decrease in average sales prices is
primarily  due to the  reduction in sales price due to  competition  in both the
domestic and international markets, from the prior fiscal year.

     We believe the decline in domestic units average  selling  prices  reflects
weakened  demand in the  refractory  angina market as existing  capacity is more
fully  utilized,  coupled with  increased  direct and indirect  competition.  We
anticipate that demand for EECP(R) therapy systems will remain soft unless there
is  greater  clinical  acceptance  for the use of EECP(R)  therapy  in  treating
patients  with  angina  or  angina  equivalent  symptoms,  who meet the  current
reimbursement   guidelines   or  an   expansion  of  the  current  CMS  national
reimbursement  policy  to  include  some or all  Class  II & III  heart  failure
patients.  Patients  with  angina or angina  equivalent  symptoms  eligible  for
reimbursement  under current policies include many with serious  co-morbidities,
such as heart  failure,  diabetes,  peripheral  vascular  disease and/or others.
Despite this,  many cardiology  clinicians  appear to be waiting for approval of
reimbursement  coverage for heart  failure as a primary  indication  before they
will move forward with the  treatment of ischemic  heart  failure  patients with
angina  equivalent  symptoms.  Reluctance  to bill for  ischemic  heart  failure
patients under the current coverage  guidelines,  and failure to get or maintain
adequate  reimbursement  coverage for angina and heart failure  would  adversely
affect  our  business  prospects.  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.  The average
price of new  systems  sales  declined by 33%,  in the nine month  period  ended
February  29, 2008,  compared to prior year and the average  sales price of used
systems  declined  31% in the nine month period  ended  February  29,  2008.  We
continue  to  reorganize  certain  territory   responsibilities   in  our  sales
department   due  to  the  reduction  in  our  sales  force  and  vacant  and/or
unproductive territories.

     Our revenue from the sale of EECP(R) therapy  systems and related  products
to international  distributors in the nine-month  period ended February 29, 2008
decreased approximately 27%, to $603,184, compared to $829,288 in the nine-month
period ending February 28, 2007.

     Our revenue from  equipment  rental and service for the  nine-month  period
ended February 29, 2008 declined 18% compared to the same  nine-month  period in
the prior fiscal year.  Rental revenues  decreased 67% as a result of a decrease
in the rental  installation base and equipment services revenue decreased 17% as
a result of decreased sales volume.  Revenue from equipment  rental and services
represented  61% of total revenue  compared to 58% of total revenue in the prior
comparative year.

Gross Profit

     The gross  profit  declined  to  $1,867,960,  or 48% of  revenues,  for the
nine-month  period ended February 29, 2008,  compared to  $2,704,507,  or 54% of
revenues,  for the  nine-month  period ended  February 28, 2007.  The decline in
gross profit  primarily  reflects the decline in the unit sales blended  average
selling price as well as the equipment service revenue decline.

                                    Page 25
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



     Gross profits are dependent on a number of factors, particularly the mix of
EECP(R) therapy system models sold  domestically and  internationally  and their
respective average selling prices, the mix of EECP(R) therapy system 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 nine-months
ended  February  29, 2008 and  February 28,  2007,  were  $1,932,645,  or 49% of
revenues, and $3,380,512 or 68% of revenues, respectively, reflecting a decrease
of $1,447,867,  or approximately  43%. The decrease in SG&A  expenditures in the
first three  quarters of fiscal 2008 compared to fiscal 2007 resulted  primarily
from a decrease of $628,612 due to reduced sales personnel and associated travel
plus lower sales  commission  due to reduced  sales volume.  Marketing  expenses
decreased  $438,731  due to reduced  personnel  in the  marketing  and  clinical
application  support  areas,  as well as  associated  travel,  plus lower market
research,   product   promotion,   advertising,   and   trade   show   expenses.
Administrative expenses decreased $381,864 as a result of decreased expenditures
in professional  fees related to accounting and outside  consulting,  along with
reduced personnel and their associated costs.

Research and Development

     Research and development  ("R&D") expenses of $362,315,  or 9% of revenues,
for the nine months ended February 29, 2008, decreased by $360,316, or 50%, from
the nine months ended February 28, 2007,  which was $722,631 or 14% of revenues.
The decrease is primarily attributable to fewer engineering personnel, lower new
product development spending, and reduced spending on clinical trials.

Interest Expense and Financing Costs

     Interest expense and financing costs decreased to $16,605 in the nine-month
period ended  February  29, 2008,  from $54,281 for the same period in the prior
year.  Interest  expense  reflects  interest on loans  secured to refinance  the
November 2000 purchase of the Company's headquarters and warehouse facility. The
decrease  in the first three  quarters of fiscal 2008 is a direct  result of the
sale-leaseback  agreement for the Company's headquarters and warehouse facility,
which occurred in the first quarter of fiscal 2008.

Interest and Other Income, Net

     Interest and other income for the  nine-month  periods  ended  February 29,
2008 and  February 28, 2007,  were $47,513 and $48,269,  respectively.  Interest
income primarily reflects interest earned on the Company's cash balances.

 Gain on Sale of Assets

     Gain on Sale of Assets for the  nine-month  periods ended February 29, 2008
and  February  28, 2007,  were  $31,060 and $0,  respectively.  This gain is the
result of the Company's  recognition  on the gain on the  sale-leaseback  of its
facility and  liquidation  of equipment and fixtures  used in previously  leased
properties.

Income Tax Expense, Net

     During the  nine-month  periods  ended  February  29, 2008 and February 28,
2007, state income taxes were $14,197 and $14,000, respectively.

                                    Page 26
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



     As of February 29, 2008, the recorded deferred tax assets were $19,720,352,
reflecting a $131,000  increase  during the first three quarters of fiscal 2008.
Ultimate  realization  of any or all of the  deferred tax assets is not assured,
due to  significant  uncertainties  and  material  assumptions  associated  with
estimates of future taxable income during the carryforward  period.  The Company
has concluded that,  based upon the weight of available  evidence,  it was "more
likely than not" that the net  deferred  tax asset would not be realized and has
recorded a valuation  allowance  to bring the net  deferred  tax asset  carrying
value to zero.

Liquidity and Capital Resources

Cash and Cash Flow

     At February  29, 2008,  we had cash of  $2,585,400  and working  capital of
$2,954,952  as compared  to cash and cash  equivalents  of $850,288  and working
capital of $1,320,347 at May 31, 2007. Our cash and cash  equivalents  increased
$1,735,112 in fiscal year 2008.

     Cash used in  operating  activities  was $100,620 for the nine months ended
February  29,  2008,  which  consisted  of net cash loss  after  adjustments  of
$130,484 and cash provided by operating  assets and liabilities of $29,864.  The
changes in the  account  balances  primarily  reflect an  increase  in  accounts
receivable of $16,645,  a decrease in accounts payable,  accrued  expenses,  and
other  current  liabilities  of  $210,119,  a decrease in other  liabilities  of
$90,643,  an increase in other current  assets of $80,487,  and  recognition  of
deferred  distributor costs of $40,490,  which were offset by lower inventory of
$468,248. Net accounts receivable were 20% of revenues for the nine-month period
ended  February 29,  2008,  as compared to 11% for the  nine-month  period ended
February 28, 2007, and accounts receivable turnover was 7.9 times, and 6.4 times
for the nine months ended February 29, 2008 and February 27, 2007, respectively.

     Standard payment terms on our domestic equipment sales are generally net 30
to 90 days from  shipment and do not contain  "right of return"  provisions.  We
have  historically  offered a  variety  of  extended  payment  terms,  including
sales-type  leases,  in certain  situations and to certain customers in order to
expand  the  market  for  our  EECP(R)  therapy  system  products  in the US and
internationally.  Such  extended  payment  terms  were  offered in lieu of price
concessions,  in competitive situations, when opening new markets or geographies
and for repeat  customers.  Extended payment terms cover a variety of negotiated
terms,  including  payment  in full - net  120,  net 180  days or some  fixed or
variable  monthly  payment amount for a six to twelve month period followed by a
balloon payment, if applicable. During the nine-month periods ended February 29,
2008 and February 28, 2007, there were no revenues generated from sales in which
initial  payment  terms were greater  than 90 days and we offered no  sales-type
leases during either  period.  In general,  reserves are calculated on a formula
basis considering  factors such as the aging of the receivables,  time past due,
and the customer's  credit history and their current  financial  status. In most
instances where reserves are required,  or accounts are ultimately  written-off,
customers  have been unable to  successfully  implement  their  EECP(R)  therapy
program. As we are creating a new market for the EECP(R) therapy and recognizing
the challenges that some customers may encounter,  we have opted, at times, on a
customer-by-customer  basis, to recover our equipment  instead of pursuing other
legal remedies, which has resulted in our recording of a reserve or a write-off.

     Investing  activities provided net cash of $1,310,857 during the nine-month
period ended February 29, 2008,  which  represented  proceeds  received from the
building sale, net of related costs.

     Our  financing   activities  provided  net  cash  of  $524,875  during  the
nine-month period ended February 29, 2008,  reflecting proceeds,  net of related
expenses, of $1,375,890 from the Securities Purchase Agreement, which was offset
by loan repayments on the building of $851,015.

                                    Page 27
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



     The following table presents the Company's  expected cash  requirements for
contractual obligations outstanding as of February 29, 2008.
<TABLE>
<CAPTION>
                                                                        Due as of       Due as of
                                                         Due as of     2/28/10 and     2/29/12 and        Due
                                         Total           2/28/09         2/28/11         2/28/13       Thereafter
         -----------------------------------------------------------------------------------------------------------
         <S>                             <C>             <C>             <C>             <C>               <C>
         Operating Leases                $681,491        $141,390        $299,974        $240,127          $--
                                    --------------------------------------------------------------------------------
         Total Contractual Cash
         Obligations                     $681,491        $141,390        $299,974        $240,127          $--
                                    ================================================================================
</TABLE>
Liquidity

     During the first  quarter of fiscal 2008 the  following  events took place,
which allowed us to raise additional  capital through a private equity financing
and by the sale of our facility under a leaseback agreement.

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

          We sold to  Kerns,  pursuant  to the  Securities  Purchase  Agreement,
          21,428,572  shares  of our  common  stock  at $.07  per  share,  and a
          five-year warrant to purchase  4,285,714 shares of our common stock at
          an initial  exercise  price of $.08 per share (the  "Warrant"),  for a
          total purchase price of $1,500,000 less expenses incurred of $124,110.
          We also have an option to sell an  additional $1 million of our common
          stock to Kerns. The agreement  further provided for the appointment to
          our Board of Directors of two representatives of Kerns. In furtherance
          thereof, Mr. Jun Ma and Mr. Simon Srybnik,  Chairman of both Kerns and
          Living Data, have been appointed members of our Board of Directors. On
          July 10, 2007,  Mr.  Benham  Movaseghi,  Treasurer of Kerns,  was also
          appointed  to our Board of  Directors.  Pursuant  to the  Distribution
          Agreement,  we have  become the  exclusive  distributor  in the United
          States of the AngioNew  ECP systems  manufactured  by Living Data.  As
          additional  consideration  for such  agreement,  we agreed to issue an
          additional  6,990,840  shares  of our  common  stock to  Living  Data.
          Pursuant  to the  Supplier  Agreement,  Living  Data  now  will be the
          exclusive  supplier  to us of the ECP therapy  systems  that we market
          under the registered trademark EECP(R). The Distribution Agreement and
          the Supplier Agreement each have an initial term extending through May
          31, 2012.

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

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

     Based on our current  operations  and the amounts  received  from the above
transactions, we believe that we have sufficient working capital to continue our
operations through at least the next twelve months.

                                    Page 28
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

          ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



Effects of Inflation

     We believe that  inflation and changing  prices over the past year have not
had a significant impact on our revenue or on our results of operations.

                                    Page 29

<PAGE>


                       Vasomedical, Inc. and Subsidiaries


ITEM 3 - CONTROLS AND PROCEDURES

     We  carried  out  an  evaluation,   under  the  supervision  and  with  the
participation of our management, including our Chief Executive Officer and Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of our
disclosure  controls  and  procedures  pursuant to Exchange Act Rule 13a-15 (b).
Based upon that  evaluation,  the Chief  Executive  Officer and Chief  Financial
Officer  concluded  that, as of February 29, 2008, our  disclosure  controls and
procedures are effective to provide  reasonable  assurances that such disclosure
controls  and  procedures  satisfy  their  objectives  and that the  information
required to be  disclosed by us in the reports we file under the Exchange Act is
recorded,  processed,  summarized and reported within the required time periods.
There were no changes  during the fiscal  quarter ended February 29, 2008 in our
internal  controls or in other factors that could have materially  affected,  or
are reasonably likely to materially  affect, our internal control over financial
reporting.

                                    Page 30

<PAGE>


                       Vasomedical, Inc. and Subsidiaries



                           PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

         None.

ITEM 2 - UNREGISTERED SALES OF EQUITY 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


Exhibits

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

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


                                    Page 31



<PAGE>


                       Vasomedical, Inc. and Subsidiaries



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


                                VASOMEDICAL, INC.

                          By:   /s/ John C.K. Hui
                                ------------------------------------------------
                                John C.K. Hui
                                Chief Executive Officer, Director, and Chief
                                Technology Officer (Principal Executive Officer)

                                /s/ Tricia Efstathiou
                                ------------------------------------------------
                                Tricia Efstathiou
                                Chief Financial Officer (Principal Financial and
                                Accounting Officer)

Date:  April 14, 2008

                                    Page 32