UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                   FORM 10-Q


[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934 For the quarterly period ended February 28, 2003

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

Commission File Number: 0-18105

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

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

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

Registrant's Telephone Number                                  (516) 997-4600

Number of Shares Outstanding of Common Stock,
$.001 Par Value, at April 10, 2003                               57,822,023


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



<PAGE>

                       Vasomedical, Inc. and Subsidiaries



                                     INDEX





PART I - FINANCIAL INFORMATION

     Item 1 - Financial Statements (unaudited)                              Page
                                                                            ----
            Consolidated Condensed Balance Sheets as of
               February 28, 2003 and May 31, 2002                              3

            Consolidated Condensed Statements of Earnings for the
               Nine and Three Months Ended February 28, 2003 and 2002          4

            Consolidated Condensed Statement of Changes in Stockholders'
               Equity for the Period from June 1, 2002 to February 28, 2003    5

            Consolidated Condensed Statements of Cash Flows for the
               Nine Months Ended February 28, 2003 and 2002                    6

            Notes to Consolidated Condensed Financial Statements               7

     Item 2 - Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                      13

     Item 3 - Qualitative and Quantitative Disclosures About Market Risk      19

     Item 4 - Procedures and Controls                                         19

PART II - OTHER INFORMATION                                                   20


<PAGE>

                       Vasomedical, Inc. and Subsidiaries

                      CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                             February 28,     May 31,
                                                                                2003           2002
                                                                                ----           ----
                                                                             (unaudited)     (audited)
<S>                                                                           <C>            <C>

          ASSETS
CURRENT ASSETS
          Cash and cash equivalents                                           $4,198,739     $2,967,627
          Accounts receivable, net of an allowance for doubtful accounts of
            $1,859,532 at February 28, 2003 and $1,099,687 at May 31, 2002     8,990,090     12,682,725
          Inventories                                                          3,917,032      4,902,121
          Deferred income taxes                                                  117,093      3,033,000
          Financing receivables, net                                             208,583        633,786
          Other current assets                                                   331,889        627,243
                                                                             -----------    -----------
                  Total current assets                                        17,763,426     24,846,502

PROPERTY AND EQUIPMENT, net                                                    3,369,155      3,252,030
FINANCING RECEIVABLES, net                                                       720,221      2,941,587
NOTES RECEIVABLE                                                                       -        512,329
DEFERRED INCOME TAXES                                                         14,193,327      9,658,000
OTHER ASSETS                                                                     242,725        207,810
                                                                             -----------    -----------
                                                                             $36,288,854    $41,418,258
                                                                             ===========    ===========

          LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
          Accounts payable and accrued expenses                              $ 2,828,076    $ 3,645,846
          Current maturities of long-term debt and notes payable               1,077,074      1,046,445
          Sales tax payable                                                      575,430        732,362
          Deferred revenues                                                      610,973        272,000
          Accrued warranty and customer support expenses                         584,000        588,334
          Accrued professional fees                                              169,853        362,083
          Accrued commissions                                                    747,104        973,998
                                                                             -----------    -----------
                  Total current liabilities                                    6,592,510      7,621,068

LONG-TERM DEBT                                                                 1,120,777      1,072,716
ACCRUED WARRANTY COSTS                                                           258,000        402,666
DEFERRED REVENUES                                                                977,521        719,204
OTHER LIABILITIES                                                                267,000              -

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
          Preferred stock, $.01 par value; 1,000,000 shares authorized;
            none issued and outstanding                                               -              -
          Common stock, $.001 par value; 110,000,000 shares authorized;
            57,809,120 and 57,309,120 shares at February 28, 2003 and
            May 31, 2002, respectively, issued and outstanding                    57,809         57,309
          Additional paid-in capital                                          50,391,329     50,116,148
          Accumulated deficit                                                (23,376,092)   (18,570,853)
                                                                             -----------     ----------
                  Total stockholders' equity                                  27,073,046     31,602,604
                                                                             -----------     ----------
                                                                             $36,288,854    $41,418,258
                                                                             ===========     ==========
</TABLE>
The accompanying notes are an integral part of these condensed statements.

                                       3
<PAGE>
                       Vasomedical, Inc. and Subsidiaries

                  CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
                                   (unaudited)
<TABLE>
<CAPTION>
                                                       Nine months ended                    Three months ended
                                                       -----------------                    ------------------
                                                         February 28,                          February 28,
                                                         ------------                          ------------
                                                       2003               2002            2003                2002
                                                       ----               ----            ----                ----
<S>                                             <C>                <C>              <C>                 <C>

Revenues
  Equipment sales                               $16,995,678        $21,744,400      $6,581,338          $6,831,731
  Equipment rentals and services                  1,340,344            980,387         571,246             307,185
  Equipment sold under sales-type leases                  -          3,464,014               -             880,090
                                                -----------        -----------      ----------          ----------
                                                 18,336,022         26,188,801       7,152,584           8,019,006
Cost of sales and services                        6,733,743          7,979,459       2,769,854           2,636,741
                                                -----------        -----------      ----------          ----------
  Gross Profit                                   11,602,279         18,209,342       4,382,730           5,382,265

Expenses
  Selling, general and administrative            10,877,174          9,879,612       3,013,330           3,104,749
  Research and development                        3,520,928          3,993,921       1,003,302           1,680,346
  Provision for doubtful accounts                 3,541,627            605,000         280,919             407,000
  Interest and financing costs                      143,997             68,502          46,930              20,713
  Interest and other income, net                   (135,766)          (160,190)        (31,062)            (73,175)
                                                -----------        -----------      ----------          ----------
                                                 17,947,960         14,386,845       4,313,419           5,139,633
                                                -----------        -----------      ----------          ----------
  EARNINGS (LOSS) BEFORE
      INCOME TAXES                               (6,345,681)         3,822,497          69,311             242,632
         Income tax (expense) benefit, net        1,540,442         (1,476,413)        (43,480)           (144,364)
                                                -----------        -----------      ----------          ----------
  NET EARNINGS (LOSS)                           $(4,805,239)        $2,346,084         $25,831             $98,268
                                                ===========        ===========      ==========          ==========
Net earnings (loss) per common share
      - basic                                         $(.08)              $.04            $.00                $.00
                                                     ======               ====            ====                ====
      - diluted                                       $(.08)              $.04            $.00                $.00
                                                     ======               ====            ====                ====
Weighted average common shares
  outstanding - basic                            57,647,032         57,231,460        57,809,120        57,281,353
                                                 ==========         ==========        ==========        ==========
              - diluted                          57,647,032         59,538,629        58,078,334        59,468,615
                                                 ==========         ==========        ==========        ==========
</TABLE>
The accompanying notes are an integral part of these condensed statements.

                                       4
<PAGE>

                       Vasomedical, Inc. and Subsidiaries

       CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                                    Total
                                                                 Additional         Accum-          stock-
                                             Common Stock           paid-in         ulated        holders'
                                             Shares    Amount       capital         deficit        equity
                                             ------    ------ -------------   ------------   -------------
<S>                                      <C>          <C>       <C>           <C>             <C>

Balance at June 1, 2002                  57,309,120   $57,309   $50,116,148   $(18,570,853)   $31,602,604
Exercise of warrants                        500,000       500       224,500                       225,000
Stock options granted for services                                   50,681                        50,681
Net loss                                                                        (4,805,239)    (4,805,239)
                                         ----------   -------   -----------   ------------    -----------
Balance at February 28, 2003             57,809,120   $57,809   $50,391,329   $(23,376,092)   $27,073,046
                                         ==========   =======   ===========   ============    ===========
</TABLE>


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

                                       5
<PAGE>

                       Vasomedical, Inc. and Subsidiaries

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                           Nine months ended
                                                                           -----------------
                                                                              February 28,
                                                                              ------------
                                                                            2003             2002
                                                                            ----             ----
<S>                                                                  <C>               <C>

Cash flows from operating activities
  Net earnings (loss)                                                $(4,805,239)      $2,346,084
                                                                     ------------      ----------
  Adjustments to reconcile net earnings (loss)
    to net cash provided by (used in) operating activities
   Depreciation and amortization                                         879,375          694,825
   Provision for doubtful accounts, net of write-offs                  3,306,627          605,000
   Deferred income taxes                                              (1,619,420)       1,300,000
   Stock options granted for services                                     50,681           37,563
   Changes in operating assets and liabilities
        Accounts receivable                                            2,932,790       (2,974,080)
        Financing receivables, net                                       132,708       (3,279,536)
        Inventories                                                      709,978       (1,601,099)
        Other current assets                                             295,354          (23,958)
        Other assets                                                     (53,270)        (101,251)
        Accounts payable, accrued expenses and other current
         liabilities                                                  (1,059,187)         560,862
        Other liabilities                                                380,650          289,395
                                                                     ------------      ----------
                                                                       5,956,286       (4,492,279)
                                                                     ------------      ----------
     Net cash provided by (used in) operating activities               1,151,047       (2,146,195)
                                                                     ------------      ----------
Cash flows from investing activities
  Purchase of property and equipment                                    (223,625)        (248,083)
                                                                     ------------      ----------
     Net cash used in investing activities                              (223,625)        (248,083)
                                                                     ------------      ----------
Cash flows from financing activities
  Proceeds from notes                                                    126,960        1,641,667
  Payments on notes                                                      (48,270)      (1,153,057)
  Restricted cash                                                              -        1,141,667
  Proceeds from exercise of options and warrants                         225,000          199,643
                                                                     ------------      ----------
     Net cash provided by financing activities                           303,690        1,829,920
                                                                     ------------      ----------
      NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             1,231,112         (564,358)
Cash and cash equivalents - beginning of period                        2,967,627        3,785,456
                                                                     ------------      ----------
Cash and cash equivalents - end of period                             $4,198,739       $3,221,098
                                                                     ===========       ==========


Non-cash investing and financing activities were as follows:
Inventories transferred to property and equipment,
   attributable to operating leases - net                               $754,519         $472,849

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

                                       6
<PAGE>

                       Vasomedical, Inc. and Subsidiaries
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               February 28, 2003

NOTE A - BASIS OF PRESENTATION

     The  consolidated  condensed  balance sheet as of February 28, 2003 and the
related  consolidated   condensed  statements  of  earnings  for  the  nine  and
three-month  periods ended February 28, 2003 and 2002,  changes in stockholders'
equity for the nine-month  period ended February 28, 2003 and cash flows for the
nine-month  periods  ended  February  28,  2003 and 2002 have been  prepared  by
Vasomedical, Inc. and Subsidiaries (the "Company") without audit. In the opinion
of management,  all adjustments  (which include only normal,  recurring  accrual
adjustments)  necessary to present fairly the financial  position and results of
operations as of February 28, 2003 and for all periods presented have been made.

     Certain  information  and  footnote   disclosures,   normally  included  in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America, have been condensed or omitted.  These
financial statements should be read in conjunction with the financial statements
and notes thereto  included in the Annual Report on Form 10-K for the year ended
May 31, 2002.  Results of operations for the periods ended February 28, 2003 and
2002  are not  necessarily  indicative  of the  operating  results  expected  or
reported for the full year.

NOTE B - IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

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

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS 148") which addresses financial
accounting  and  reporting  for  recording  expenses for the fair value of stock
options.  SFAS 148 provides  alternative  methods of transition  for a voluntary
change  to fair  value  based  method of  accounting  for  stock-based  employee
compensation.  Additionally,  SFAS 148 requires more prominent and more frequent
disclosures   in  financial   statements   about  the  effects  of   stock-based
compensation.  The  provisions of this  Statement are effective for fiscal years
ending  after  December 15, 2002,  with early  application  permitted in certain
circumstances.  The interim  disclosure  provisions  are effective for financial
reports  containing  financial  statements for interim  periods  beginning after
December 15,  2002.  The Company does not expect the adoption of SFAS No. 148 to
have a  material  effect on the  Company's  financial  position  or  results  of
operations.

     In November 2002, the FASB issued FASB  Interpretation No. 45, "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of Others"  ("FIN 45").  FIN 45 requires that upon
issuance of a guarantee,  a guarantor  must  recognize a liability  for the fair
value  of an  obligation  assumed  under  a  guarantee.  FIN  45  also  requires
additional  disclosures  by a  guarantor  in its  interim  and annual  financial
statements  about  the  obligations   associated  with  guarantees  issued.  The
recognition  provisions  of FIN 45 are effective  for any  guarantees  issued or
modified after December 31, 2002. The disclosure  requirements are effective for
financial  statements  of interim or annual  periods  ending after  December 15,
2002.  The  adoption of FIN 45 did not have a material  impact on the  Company's
financial position or results of operations.

                                       7
<PAGE>
                       Vasomedical, Inc. and Subsidiaries
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                                February 28, 2003

NOTE B - IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS (continued)

     In January 2003, the FASB issued FASB  Interpretation No. 46 "Consolidation
of Variable  Interest  Entities"  ("FIN 46").  In general,  a variable  interest
entity is a corporation,  partnership,  trust, or any other legal structure used
for business purposes that either (a) does not have equity investors with voting
rights or (b) has equity  investors  that do not  provide  sufficient  financial
resources for the entity to support its activities.  A variable  interest entity
often holds financial  assets,  including  loans or receivables,  real estate or
other property.  A variable interest entity may be essentially passive or it may
engage  in  activities  on behalf  of  another  company.  Until  now,  a company
generally has included another entity in its consolidated  financial  statements
only if it controlled the entity through voting  interests.  FIN 46 changes that
by requiring a variable  interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable  interest
entity's  activities or entitled to receive a majority of the entity's  residual
returns  or both.  FIN 46's  consolidation  requirements  apply  immediately  to
variable  interest  entities  created or acquired  after  January 31, 2003.  The
consolidation  requirements  apply to older entities in the first fiscal year or
interim  period  beginning  after  June  15,  2003.  Certain  of the  disclosure
requirements  apply in all financial  statements  issued after January 31, 2003,
regardless of when the variable  interest  entity was  established.  The Company
adopted FIN 46 effective January 31, 2003. The adoption of FIN 46 did not have a
material impact on the Company's financial position or results of operations.

NOTE C - INVENTORIES
<TABLE>
<CAPTION>
                                                        February 28,      May 31,
                                                        -----------       -------
        Inventories consist of the following:                 2003            2002
                                                              ----            ----
                <S>                                     <C>             <C>
                Raw materials                           $1,843,323      $2,661,303
                Work in progress                           358,663         547,818
                Finished goods                           1,715,046       1,693,000
                                                        ----------      ----------
                                                        $3,917,032      $4,902,121
                                                        ==========      ==========
</TABLE>

NOTE D - FINANCING RECEIVABLES

     The  following  table shows the future  minimum  rentals  receivable  under
sales-type  leases and future  minimum  lease  payments  and  obligations  under
capital leases in effect for the twelve months ended February 28:
<TABLE>
                     <S>                                      <C>
                     2004                                     $  230,880
                     2005                                        745,008
                     2006                                        401,034
                                                               ---------
                     Total minimum lease payments              1,376,922
                     Less estimated executory costs              (52,661)
                                                               ---------
                     Net minimum lease payments                1,324,261
                     Less interest                              (150,464)
                                                               ---------
                     Present value of minimum lease payments   1,173,797
                     Less valuation allowance                   (244,993)
                                                               ---------
                     Net financing receivables                   928,804
                     Less current portion                       (208,583)
                                                               ---------
                     Long-term portion                          $720,221
                                                               =========
</TABLE>
     These  sales-type  leases are for a term of three years. The annual minimum
lease  payments are subject to adjustment  based on usage of the leased units in
accordance with the provisions of the lease agreements.

                                       8
<PAGE>

                       Vasomedical, Inc. and Subsidiaries
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               February 28, 2003

NOTE E  RECEIVABLES FROM A MAJOR CUSTOMER

     Under a multi-year sales contract,  the Company sold equipment (EECP units)
to a customer  engaged in establishing a national  network of EECP centers under
sales-type  leases  aggregating  revenues  of  $3,160,792  in  fiscal  2002.  No
additional  equipment  has been sold to this  customer  during  fiscal 2003.  At
August 31, 2002,  financing  receivables of approximately  $2,558,000 from these
sales-type lease transactions with this customer were outstanding.  In addition,
in March 2002, the Company provided a $500,000  unsecured loan to this customer.
This financing was part of an aggregate $3.2 million credit facility, subject to
certain   conditions,   executed  by  the  customer  with  the  Company  and  an
unaffiliated  lender in January  2002,  under  which the  Company had no further
financing  obligation.  The customer issued two notes to the Company of $250,000
each in connection with two EECP centers that bore interest at 18% per annum and
were scheduled to mature in September  2005.  Payments of principal and interest
under these  notes was  scheduled  to commence in April 2003 in varying  amounts
determined  by a formula  based  upon cash  generated,  as  defined  in the loan
agreement. In connection with this financing, the customer issued to the Company
a warrant to purchase 52,620 of its common shares at $2.20 per share expiring in
January  2007.  The warrant  contains a  repurchase  option for a 30-day  period
beginning December 1, 2006 (assuming no earlier liquidity event has taken place,
as defined) that allowed the Company,  at its option, to require the customer to
redeem the  warrant  for  $249,945.  The warrant  value is  collateralized  by a
subordinated  security interest in the customer's accounts receivable.  As noted
below,  the customer ceased  operations in November 2002,  and, as a result,  it
does not appear that the Company will receive any proceeds  from the  redemption
of the warrant.

     In late August 2002,  this  customer  became  delinquent  in its  scheduled
monthly payments under its financing  obligations to the Company.  In September,
the Company was notified by this customer of recent circumstances that precluded
their  ability  to remain  current  under  their  financing  obligations  to the
Company.  Based on their  situation,  for which the customer was  attempting  to
remedy  through  a  recapitalization,   significant   uncertainties  existed  in
connection with the ongoing viability of their business. Accordingly, management
decided to write-off, in full, all funds due from this customer as of August 31,
2002, which aggregated approximately $3,000,000,  including the present carrying
amount of the  underlying  equipment  due to the  uncertainty  of the  Company's
ability to repossess  the  equipment.  During the second  quarter,  the customer
ceased  operations and the Company was able to  successfully  recover all of the
units that it had sold under  sales-type  leases to the  customer  back into its
finished  goods  inventory and recorded a bad debt  recovery of $479,000,  which
represented  the  present  carrying  amount of the  equipment.  The  Company has
redeployed certain pieces of the equipment while other pieces have been returned
to the Company's inventory.

NOTE F  LONG-TERM DEBT AND LINE OF CREDIT AGREEMENT

     The Company  purchased its headquarters and warehouse  facility and secured
notes of $641,667 and $500,000,  respectively,  under two programs  sponsored by
New York State. These notes,  which bear interest at 7.8% and 6%,  respectively,
are  payable  in monthly  installments  consisting  of  principal  and  interest
payments over a fifteen-year  term and are secured by the building.  At February
28, 2003, $1,084,632 remains outstanding in connection with these notes.

     The Company  maintains  a secured  revolving  credit line with a bank.  The
credit  line,  as  amended  in  October  2002,  provides  for  borrowings  up to
$5,000,000  ($2,000,000,  at any  time  that  consolidated  net  income  for the
immediately  preceding three-month period is less than $1), primarily based upon
eligible  accounts  receivable,  as defined therein,  at the Libor Rate plus 200
basis points (3.4% at February 28,  2003).  At February 28, 2003,  $2,600,000 of
the line was available of which there were outstanding borrowings of $1,000,000.
Under the terms of the agreement, which expires in February 2005, the Company is
required  to  meet  certain  quarterly  covenants,   including  leverage  ratio,
liquidity,  capital expenditures,  minimum net income, minimum interest coverage
and minimum  tangible  net worth.  However,  in April 2003,  the  agreement  was
further  amended to allow for borrowings  absent  compliance  with the financial
covenants as long as such eligible  borrowings  are  collateralized  by cash. In
addition,  the line is secured by  substantially  all the tangible assets of the
Company. At February 28, 2003, the Company did not meet the minimum requirements
of the interest  coverage and  tangible net worth  covenants  but has received a
waiver from the bank for the third quarter.  Management expects,  based upon its
internal forecasts, that the Company will be in compliance with the covenants in
future  quarters,  however,  there  can  be no  assurance  that  it  will  be in
compliance  or that the bank will  issue  future  waivers.  In April  2003,  the
Company  repaid  all  outstanding  borrowings  under the  agreement  instead  of
maintaining restricted cash balances.


                                       9

<PAGE>

                       Vasomedical, Inc. and Subsidiaries
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               February 28, 2003

NOTE G  WARRANTY COSTS

     Equipment sold is generally  covered by a warranty  period of one year. The
Company  accrues a warranty  reserve  for  estimated  costs to provide  warranty
services  when the  equipment  sale is  recognized.  The factors  affecting  the
Company's warranty liability include the number of units sold and historical and
anticipated  rates of claims  and  costs per  claim.  The  Company  periodically
assesses  the  adequacy  of its  warranty  liability  based on  changes in these
factors.

     The Company records revenue on extended warranties on a straight-line basis
over the term of the related warranty  contracts.  Deferred  revenues related to
extended warranties are $1,588,494 and $991,204 at February 28, 2003 and May 31,
2002,  respectively.  Service costs are expensed as incurred. The changes in the
Company's product warranty liability are as follows:
<TABLE>
<CAPTION>
                                                              Nine months ended Nine months ended
                                                                  February 28,   February 28,
                                                                         2003           2002
                                                                  -----------    -----------
       <S>                                                           <C>          <C>
        Warranty liability at the beginning of the period            $991,000     $1,055,000
        Expense for new warranties issued                             540,000        576,000
        Warranty claims                                              (689,000)      (590,000)
                                                                     --------     ----------
        Warranty liability at end of period                          $842,000     $1,041,000
                                                                     ========     ==========

                                                             Three months ended Three months ended
                                                                  February 28,   February 28,
                                                                         2003           2002
                                                                  -----------    -----------
        Warranty liability at the beginning of the period            $869,000     $1,010,000
        Expense for new warranties issued                             204,000        176,000
        Warranty claims                                              (231,000)      (145,000)
                                                                     --------     ----------
        Warranty liability at end of period                          $842,000     $1,041,000
                                                                     ========     ==========
</TABLE>

NOTE H - STOCKHOLDERS' EQUITY

     In the  nine-month  period of fiscal 2003,  the Board of Directors  granted
stock  options  under the 1999 Stock  Option Plan (the "1999 Plan") to employees
and  directors to purchase an aggregate  of 395,000  shares and 120,000  shares,
respectively, of common stock, at exercise prices ranging from $.72 to $1.67 per
share (which represented the fair market value of the underlying common stock at
the time of the  respective  grants).  Subsequent  to February 28,  2003,  stock
options  under the 1999 Plan were  granted to employees to purchase an aggregate
of 560,000  shares of common stock at exercise  prices ranging from $.71 to $.91
per share  (which  represented  the fair market value of the  underlying  common
stock at the time of the respective grants).

     In the  nine-month  period of fiscal  2003,  warrants to  purchase  500,000
shares of common stock were exercised,  aggregating  $225,000 in proceeds to the
Company.

     On February 14, 2003,  the Company was notified by The Nasdaq Stock Market,
Inc. that it was not in compliance with the minimum $1.00 per share  requirement
for  continued  inclusion  and  that it  would be  provided  180 days to  regain
compliance.  If compliance is not  demonstrated  by that time, the Company would
likely  be  granted  an  additional  180-day  grace  period  in which to  regain
compliance  because it  continues to meet  Nasdaq's  initial  listing  criteria.
Ultimately, non-compliance could result in Nasdaq delisting the Company's common
stock.  Such  delisting  could have an adverse  effect on the  liquidity  of the
Company's  common  stock and could also  impact the  Company's  ability to raise
additional equity capital, if necessary.

                                       10
<PAGE>

                       Vasomedical, Inc. and Subsidiaries
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               February 28, 2003

NOTE I  EARNINGS (LOSS) PER COMMON SHARE

     Basic earnings (loss) per share is based on the weighted  average number of
common shares  outstanding  without  consideration  of potential  common shares.
Diluted  earnings (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. Options and warrants to
purchase  5,753,000 and 1,985,000  shares of common stock were excluded from the
computation of diluted earnings per share for the nine months ended February 28,
2003 and 2002,  respectively,  because  the effect of their  inclusion  would be
antidilutive. Options and warrants to purchase 4,708,000 and 2,189,000 shares of
common stock were excluded from the  computation  of diluted  earnings per share
for the three months ended February 28, 2003 and 2002, respectively, because the
effect of their inclusion would be antidilutive.

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
                                                Nine months ended Feb. 28,       Three months ended Feb. 28,
                                                    2003           2002             2003              2002
                                                    ----           ----             ----              ----
<S>                                          <C>             <C>                 <C>               <C>
Numerator:
   Basic and diluted earnings (loss)         $(4,805,239)    $2,346,084          $25,831           $98,268
                                             ============    ==========          =======           =======
Denominator:
   Basic - weighted average shares            57,647,032     57,231,460       57,809,120        57,281,353
     Stock options                                     -      1,677,215           26,721         1,568,948
     Warrants                                          -        629,954          242,493           618,314
                                            ------------     ----------       ----------        ----------
   Diluted - weighted average shares          57,647,032     59,538,629       58,078,334        59,468,615
                                            ============     ==========       ==========        ==========
Basic and diluted earnings (loss) per share        $(.08)          $.04             $.00              $.00
                                                  ======           ====             ====              ====
</TABLE>

NOTE J - COMMITMENTS AND CONTINGENCIES

Employment Agreements
---------------------

     In October 2002, the Company and its Chief Executive Officer entered into a
termination and consulting agreement,  whereby the employment agreement that had
previously  existed  between  the parties  was  terminated.  As a result of this
termination,  the Company will pay to the former employee a severance payment of
$240,000 in equal monthly installments through October 31, 2003. The Company has
recorded a charge to  operations  during the three- month period ended  November
30, 2002 to reflect this obligation.  The consulting agreement, which expires on
December 31, 2003,  provides for a consulting fee of $40,000 to be paid in equal
monthly  installments  over the term of the agreement.  Further,  the consulting
agreement  provides  for the  continued  vesting of stock  options that had been
previously  granted to the employee which would have otherwise vested during the
term of the  agreement.  The terms of the original  option  grants  provided for
vesting  throughout  the period  that the former  employee  was  employed  by or
provided  services to the Company.  There were no other  modifications to any of
the previously granted stock options. The Company measured the fair value of the
unvested options as of the date of the termination and consulting  agreement and
has recorded a charge to operations of approximately $25,000 as a result of this
modification.

     In October 2002, the Company entered into an employment  agreement with the
Company's  new President  and Chief  Operating  Officer.  The  agreement,  which
expires in October 2004, provides for certain settlement  benefits,  including a
lump-sum  payment  of twelve  months of base  salary in the event of a change of
control,  as defined,  or a termination payment in an amount equal to six months
of base salary in the event of termination without cause, as defined.

     The approximate  aggregate  minimum  compensation  obligations under active
employment agreements at February 28, 2003 are summarized as follows:
<TABLE>
<CAPTION>
                Twelve months ended February 28,         Amount
                --------------------------------         ------
                                       <S>             <C>
                                        2004            $370,000
                                        2005             284,000
                                                        --------
                                                        $654,000
                                                        ========
</TABLE>

                                      11
<PAGE>

                       Vasomedical, Inc. and Subsidiaries
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
                               February 28, 2003

NOTE J - COMMITMENTS AND CONTINGENCIES (continued)

Litigation
----------

     In June 2001, an action was commenced in the New York Supreme Court, Nassau
County,  against  the  Company  by the former  holder of a warrant  to  purchase
100,000  shares of the Company's  stock seeking  undefined  damages based upon a
claim that the Company  breached an  agreement  to  register  the common  shares
underlying  the warrant at the "earliest  practicable  date" after due demand by
the warrant  holder had been made.  In October  2002,  the Company  settled this
matter for  $600,000  through the  execution  of an  agreement  that enables the
Company to satisfy this obligation over a four-year  period  ($200,000 in fiscal
2003,  $133,000 each in fiscal years 2004 and 2005 and $134,000 in fiscal 2006).
Accordingly,  the  Company  recorded  a  $600,000  charge to  operations  in the
six-month period ended November 30, 2002.  During the quarter ended February 28,
2003, the Company paid $200,000 to the warrant  holder  pursuant to the terms of
the settlement agreement.

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

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

     At February 28, 2003, the Company had no outstanding  purchase  commitments
with FLSC, a Chinese  company  that has assumed the  operational  activities  of
Vamed,  another Chinese company,  for the manufacture of its  earlier-generation
EECP Model MC2  system.  At May 31,  2002,  such  outstanding  commitments  were
$324,000.  Requirements  for this  earlier-generation  system are expected to be
minimal,  if any,  and the Company  believes  that FLSC will be able to meet any
future needs for this system.

Indemnifications
----------------

     The Company is obligated to indemnify  its officers and  directors  against
all  reasonable  costs and  expenses  related to  stockholder  and other  claims
pertaining  to actions taken in their  capacity as officers and directors  which
are not covered by the Company's directors and officers' insurance policy. These
indemnification  obligations  are in the regular  course of business and in most
cases do not include a limit on a maximum  potential  future  payments,  nor are
there any recourse  provisions  or  collateral  that may offset the cost.  As of
February 28, 2003, the Company has not recorded a liability for any  obligations
arising as a result of these indemnification obligations.

                                       12
<PAGE>
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS
Results of Operations
Nine Months and Three Months Ended February 28, 2003 and 2002
-------------------------------------------------------------

     The Company  generated  revenues  from the sale,  lease and service of EECP
systems of $18,336,000 and $26,189,000 for the nine-month periods ended February
28, 2003 and 2002, respectively, representing a 30% decrease, and $7,153,000 and
$8,019,000  for the  three-month  periods  ended  February  28,  2003 and  2002,
respectively,  representing  an 11%  decrease.  The Company  generated  earnings
(loss) before income taxes of  $(6,346,000)  and  $3,822,000  for the nine-month
periods ended February 28, 2003 and 2002, respectively, and $69,000 and $243,000
for the three-month periods ended February 28, 2003 and 2002, respectively.  The
Company  reported net earnings  (loss) of  $(4,805,000)  and  $2,346,000 for the
nine-months  periods  ended  February  28,  2003 and 2002,  respectively,  after
recognition of an income tax provision (benefit) of $(1,540,000) and $1,476,000,
respectively.  The Company  reported net earnings of $26,000 and $98,000 for the
three-month  periods  ended  February  28,  2003 and 2002,  respectively,  after
recognition of an income tax provision of $43,000 and $144,000, respectively.

     The  decrease  in  revenues  for the nine  and  three-month  periods  ended
February  28,  2003 as  compared  to  February  28,  2002  are a  result  of the
following:

(1)  The  Company's  prior-year  nine  and  three  month  period  revenues  were
     favorably impacted by $3,464,000 and $880,000, respectively, resulting from
     the shipment of EECP units under sales-type leases.  There was no equipment
     sold under  sales-type  leases in the  current  quarterly  periods  and the
     Company does not expect fiscal 2003 revenues from  sales-type  leases to be
     significant,  if at all. The Company  offered  equipment  under sales- type
     leases  only to select  customers  in the past,  based  upon,  among  other
     things, the customers' business model and history with the Company.

(2)  Revenues in fiscal  2003 were  affected by several  factors  including,  an
     increase  in the  duration  of the  selling  cycle  of the  Company's  EECP
     systems,  the  two-month  delay by the Centers for  Medicare  and  Medicaid
     Services (CMS) in updating annual  reimbursement rates, and reduced average
     unit selling  prices.  Factors that have created a longer selling cycle for
     EECP  systems  include,  among  other  things,  (a) a change  in the mix of
     prospective  customers toward larger medical  practices and hospitals which
     have longer  decision-making  processes;  (b)  inconsistent  or  inadequate
     reimbursement coverage policies among certain third-party insurers; and (c)
     general  economic  conditions.  Factors  that have  contributed  to reduced
     average selling prices include  increased  competition and general economic
     conditions.  Revenues  from  equipment  sales were  adversely  impacted  by
     reductions  in  average  selling  prices by  approximately  $1,500,000  and
     $400,000  for the nine and  three-month  periods  ended  February 28, 2003,
     respectively.

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

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

                                       13
<PAGE>

more than 50% enrolled,  is of  significant  importance  and should  confirm the
benefits of EECP for heart  failure  patients that have been observed to date in
smaller  studies  and lead to more  widespread  acceptance  and  adoption of the
therapy in clinical practice.  The Company's heart failure feasibility study was
published in the July/August issue of the journal Congestive Heart Failure.

     In November  2002,  the Company  received the CE Mark approval for its EECP
systems from its notified body, DGM of Denmark,  indicating  compliance with the
European Union (EU) Medical Device Directives. This enables the Company to begin
marketing new or improved  EECP products in all 15 EU countries and  cooperating
partner  countries  without  undergoing  separate review and inspection for each
product.  As a result,  the Company  began  marketing its Model TS3 EECP system,
which includes the Company's  patent-pending  congestive heart failure treatment
and oxygen saturation monitoring technologies, throughout the EU.

     In late  December,  CMS  published  changes to the Medicare  Physician  Fee
Schedule for Calendar  Year 2003 that were  expected to result in a new national
average payment level of  approximately  $195 per session for the Company's EECP
therapy,  or $6,841 per standard course of treatment.  The new proposed  average
payment reflected a 27% increase in the national average  reimbursement for EECP
over 2002 levels.  In February 2003,  CMS finalized its December  proposal which
further  increased the national average payment level to approximately  $208 per
session  for the  Company's  EECP  therapy,  or $7,280  per  standard  course of
treatment,  resulting  in an  increase  of 35% over 2002  levels.  The  national
average  payment rate for the therapy has  increased by 60% since  January 2000.
The new rates took effect March 1, 2003.

     Gross profit  margins for the nine months ended  February 28, 2003 and 2002
and were 63% and 70%,  respectively.  Gross profit  margins for the three months
ended  February  28,  2003 and 2002  and were 61% and 67%,  respectively.  Gross
profits  are  dependent  on a number of  factors,  particularly  the mix of EECP
models sold and their respective  average selling prices,  the mix of EECP units
sold,  rented or placed during the period,  the ongoing costs of servicing  such
units,  and  certain  fixed  period  costs,  including  facilities,  payroll and
insurance.  Gross profit margins are generally less on non-domestic business due
to the use of distributors which results in lower selling prices.  Consequently,
the gross profit  realized  during the current  period may not be  indicative of
future  margins.  The decrease in overall gross profit for the nine months ended
February 28, 2003 compared to 2002 primarily  resulted from increases in product
costs  due to  greater  absorption  of  overhead  expenses  as a result of lower
production levels as well as overall  reductions in the average selling price of
EECP units.

     Selling,  general and  administrative  (SG&A)  expenses for the nine months
ended February 28, 2003 and 2002 were $10,877,000 and $9,880,000,  respectively.
For the three  months  ended  February  28, 2003 and 2002,  SG&A  expenses  were
$3,013,000 and $3,105,000,  respectively. The increase in the percentage of SG&A
expenses as a percentage of sales was primarily due to the significant  decrease
in revenues from the prior comparable  periods, as discussed above. The increase
in SG&A expenses, on an absolute basis, from the comparable prior fiscal periods
resulted  primarily  from a $600,000  accrual  arising  from the  settlement  of
litigation in the first quarter,  non-recurring charges of $420,000 for employee
severance  arrangements and executive recruiting fees in the second quarter, and
general increases in professional and consulting fees of approximately $150,000,
offset by overall decreases in sales related expenses due to decreased revenues.

     Research and development (R&D) expenses of $3,521,000 (19% of revenues) for
the nine months ended February 28, 2003 decreased by $473,000,  or 12%, from the
prior nine months ended February 28, 2002 of $3,994,000  (15% of revenues).  R&D
expenses are primarily impacted by the PEECH clinical trial in heart failure and
other clinical initiatives  (including the International EECP Patient Registry),
as well as continued  product design and development  costs. The Company expects
to continue its investments in product development and clinical trials in fiscal
2003 and beyond to further  validate  and expand the  clinical  applications  of
EECP, including, but not limited to, heart failure and acute coronary syndromes.

     During the first,  second and third  quarters of fiscal  2003,  the Company
charged  $3,249,000,  $12,000 (which was net of bad debt recoveries of $479,000)
and $281,000,  respectively,  to its provision for doubtful accounts as compared
to $99,000 in each of the first and second  quarters of fiscal 2002 and $407,000
for the third quarter of fiscal 2002. These charges primarily resulted from of a
full  write-off of  receivables,  including the present  carrying  amount of the
underlying  equipment  due  to  the  uncertainty  of the  Company's  ability  to
repossess  the  equipment,  with  respect to a major  customer  during the first
quarter  of  fiscal  2003,  as  well  as  specific   reserves   against  certain
international accounts for which extended credit terms were offered.  During the
second quarter,  the Company was able to  successfully  recover all of the units
that it had sold under sales-type  leases to the  aforementioned  major customer
back into its  finished  goods  inventory  and  recorded a bad debt  recovery of
$479,408,  which  represented the present carrying amount of the equipment.  The
Company has  redeployed  certain  pieces of the  equipment  while  certain other
pieces have been returned to the Company's inventory.

                                       14
<PAGE>
     The decrease in interest income from the prior periods is the direct result
of interest  income related to certain  equipment sold under  sales-type  leases
reported in fiscal 2002 and during the first  quarter of fiscal 2003, as well as
declining interest rates this year over last year, offset by the increase in the
average cash balances invested during the year.

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

     In the nine months ended February 28, 2003, the Company  recorded a benefit
for income taxes of $1,540,000,  inclusive of a $622,000 valuation  allowance on
deferred tax assets.  This is in contrast to an income tax provision reported in
the nine months ended February 28, 2002 of $1,476,000.  Ultimate  realization of
the deferred tax assets,  inclusive of the  $1,540,000  benefit for income taxes
recorded for the nine months ended  February  28,  2003,  is dependent  upon the
Company generating sufficient taxable income prior to the expiration of the loss
carryforwards.  Although  realization is not assured,  management believes it is
more likely than not that the net  deferred  tax assets  will be  realized.  The
amount of the  deferred  tax assets  considered  realizable,  however,  could be
reduced  in the  future  if  estimates  of  future  taxable  income  during  the
carryforward period are reduced.

Liquidity and Capital Resources

     The Company has financed its fiscal 2003 and 2002 operations primarily from
working capital and operating  results.  At February 28, 2003, the Company had a
cash balance of $4,199,000  and working  capital of  $11,171,000,  compared to a
cash balance of $2,968,000  and working  capital of $17,225,000 at May 31, 2002.
The  Company's  working  capital  decreased  in the  current  nine-month  period
compared to May 31, 2002 primarily due to, among other things  described  below,
the reclassification of approximately  $2,400,000 in current deferred tax assets
related to the  anticipated  utilization  in fiscal 2003 of net  operating  loss
carryforwards  to  long-term  deferred  tax assets as a result of  current  year
operating losses.  The Company's  operating  activities  provided (used) cash of
$1,151,000 and  $(2,146,000) for February 28, 2003 and 2002,  respectively.  Net
cash provided  from  operations  during the nine months ended  February 28, 2003
consisted primarily of decreases in accounts  receivable,  inventories and other
current assets and increases in other long-term liabilities, partially offset by
decreases in accounts payable and accrued expenses.  The decrease in inventories
primarily  resulted from the  management and  utilization of raw materials.  The
decrease in accounts  receivable  resulted  primarily from collection efforts in
the period. The Company's management has tightened its sales and credit policies
and provides routine  oversight with respect to its accounts  receivable  credit
and  collection  efforts,  as well as the  procurement  of its raw materials and
management  of finished  goods  inventory  levels.  Cash  provided by operations
during  the nine  months of fiscal  2003 is not  necessarily  indicative  of the
results expected in future periods.

     Investing activities used net cash of $224,000 and $248,000 during the nine
months ended February 28, 2003 and 2002, respectively. The principal use of cash
was for the purchase of property and equipment.

     Financing  activities  provided cash of $304,000 and $1,830,000  during the
nine months ended February 28, 2003 and 2002, respectively. Financing activities
during  fiscal 2003 and 2002  consisted of the receipt of cash proceeds upon the
exercise of Company  common stock  options and warrants by officers,  directors,
employees and consultants.  In addition,  in fiscal 2002, the Company refinanced
its  long-term  obligations  on the purchase of its  headquarters  and warehouse
facility.  In October 2002, the Company  amended its existing credit facility to
provide  for  borrowings  up  to  $5,000,000  ($2,000,000,   at  any  time  that
consolidated net income for the immediately preceding three-month period is less
than $1), primarily based upon eligible accounts receivable, as defined therein,
at the Libor Rate plus 200 basis points. Under the terms of the agreement, which
expires in February  2005,  the Company is  required to meet  certain  quarterly
covenants,  including leverage ratio, liquidity,  capital expenditures,  minimum
net income,  minimum interest coverage and minimum tangible net worth.  Although
the Company was not in  compliance  with the interest  coverage and tangible net
worth financial  covenants at February 28, 2003, the bank issued a waiver to the
Company for that period.  Management expects, based upon its internal forecasts,
that the Company will be in compliance  with the  covenants in future  quarters,
however,  there can be no assurance  that it will be in  compliance  or that the
bank will issue future waivers. At February 28, 2003, $2,600,000 of the line was
available of which there were  outstanding  borrowings of  $1,000,000.  In April

                                       15
<PAGE>

2003,  the  agreement  was  further  amended  to  allow  for  borrowings  absent
compliance with the financial  covenants as long as such eligible borrowings are
collateralized  by cash.  In April  2003,  the  Company  repaid all  outstanding
borrowings under the agreement instead of maintaining restricted cash balances.

     On February 14, 2003,  the Company was notified by The Nasdaq Stock Market,
Inc. that it was not in compliance with the minimum $1.00 per share  requirement
for  continued  inclusion  and  that it  would be  provided  180 days to  regain
compliance.  If compliance is not  demonstrated  by that time, the Company would
likely  be  granted  an  additional  180-day  grace  period  in which to  regain
compliance  because it  continues to meet  Nasdaq's  initial  listing  criteria.
Ultimately, non-compliance could result in Nasdaq delisting the Company's common
stock.  Such  delisting  could have an adverse  effect on the  liquidity  of the
Company's  common  stock and could also  impact the  Company's  ability to raise
additional equity capital, if necessary.

     Management believes that its working capital position at February 28, 2003,
the ongoing  commercialization of the EECP system, and the effect of initiatives
undertaken to improve our cash position by managing operating expense levels and
by  strenghthening  our sales and credit  policies will make it possible for the
Company to support its operating  expenses and to implement  its business  plans
for at least the next twelve months.

     The following table presents the Company's  expected cash  requirements for
contractual obligations outstanding as of February 28, 2003:
<TABLE>
<CAPTION>
                                                  Due as of   Due as of 2/28/05    Due as of 2/28/07            Due
                                        Total       2/28/04         and 2/28/06          and 2/28/08     Thereafter
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>                   <C>                  <C>            <C>
Line-of Credit (1)                 $1,000,000    $1,000,000
Long-Term Debt                      1,198,000        77,000            $173,000             $146,000       $802,000
Operating Leases                      172,000        70,000              81,000               21,000              -
Litigation Settlement                 400,000       133,000             267,000                    -              -
Severance obligations                 160,000       160,000                   -                    -              -
Employment Agreements                 654,000       370,000             284,000                    -              -

                                ------------------------------------------------------------------------------------
Total     Contractual     Cash
Obligations                        $3,584,000    $1,810,000            $805,000             $167,000       $802,000
                                ====================================================================================
<FN>
(1) The Company  maintains  a revolving  credit  agreement  that,  as amended in
October  2002 and  April  2003,  provides  for  borrowings  of up to  $5,000,000
($2,000,000,  at any time  that  consolidated  net  income  for the  immediately
preceding  three-month  period is less than $1),  primarily  based upon eligible
accounts  receivable,  as defined  therein.  $2,600,000  is available  under the
revolving credit  agreement,  of which $1,000,000 is outstanding at February 28,
2003. In April 2003, the Company  repaid all  outstanding  borrowings  under the
agreement. The revolving credit agreement expires in February 2005.
</FN>
</TABLE>
Effects of Inflation

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

Critical Accounting Policies

     Financial  Reporting  Release No. 60, which was released by the  Securities
and Exchange  Commission,  or SEC, in December  2001,  requires all companies to
include a  discussion  of critical  accounting  policies or methods  used in the
preparation  of  financial  statements.  Note A of  the  Notes  to  Consolidated
Financial  Statements  included in the Company's  Annual Report on Form 10-K for
the year ended May 31,  2002  includes a summary  of the  Company's  significant
accounting  policies  and  methods  used  in the  preparation  of our  financial
statements.  In preparing these financial  statements,  the Company has made its
best  estimates  and  judgments  of certain  amounts  included in the  financial
statements,  giving due  consideration to materiality.  The application of these
accounting  policies involves the exercise of judgment and use of assumptions as
to future uncertainties and, as a result, actual results could differ from these
estimates. The Company's critical accounting policies are as follows:

Revenue Recognition

     The  Company  recognizes  revenue  from the sale of its EECP  system in the
period in which the Company  fulfills its obligations  under the sale agreement,
including  delivery and customer  acceptance.  The Company has also entered into
lease  agreements for its EECP system,  generally for terms of one year or less,
that are  classified as operating  leases.  Revenues from  operating  leases are

                                       16
<PAGE>
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.  The cost of the EECP system utilized under
operating leases is amortized to cost of sales over the estimated useful life of
the  equipment,  not to exceed  five years.  Revenues  from the sale of extended
warranties on the EECP system are recognized on a  straight-line  basis over the
life of the extended  warranty,  ranging  from one year to four years.  Deferred
revenues relate to extended warranty fees that have been paid by customers prior
to the performance of extended warranty services.

     The Company follows SFAS No. 13,  "Accounting For Leases," for its sales of
EECP units  under  sales-type  leases it  presently  has with one  customer.  In
accordance  with  SFAS No.  13,  the  Company  records  the  sale and  financing
receivable at the amount of the minimum lease  payment,  less unearned  interest
income,  which is  computed at the  interest  rate  implicit  in the lease,  and
executory  costs which are  primarily  related to product  warranties.  Unearned
interest income is amortized to income in a manner that produces a constant rate
of return on the investment in the sales-type  lease.  The cost of the EECP unit
acquired by the customer is recorded as cost of sales in the same period.

Accounts Receivable/Financing Receivables

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

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

Inventories

     The Company values inventory at the lower of cost or estimated market, cost
being determined on a first- in, first-out basis. The Company  regularly reviews
inventory  quantities on hand,  particularly  raw materials and components,  and
records a  provision  for excess  and  obsolete  inventory  based  primarily  on
existing and anticipated design and engineering  changes to our products as well
as forecasts of future product demand.

Warranty Costs

     Equipment sold is generally  covered by a warranty  period of one year. The
Company  accrues a warranty  reserve  for  estimated  costs to provide  warranty
services  when the  equipment  sale is  recognized.  The factors  affecting  the
Company's warranty liability include the number of units sold and historical and
anticipated  rates of claims  and  costs per  claim.  The  Company  periodically
assesses  the  adequacy  of its  warranty  liability  based on  changes in these
factors.  The Company records revenue on extended  warranties on a straight-line
basis  over  the term of the  related  warranty  contracts.  Service  costs  are
expensed as incurred.

Income Taxes

     Deferred  income taxes are  recognized  for temporary  differences  between
financial  statement  and income tax bases of assets  and  liabilities  and loss
carryforwards  for which  income tax  benefits  are  expected  to be realized in
future years. A valuation  allowance is established,  when necessary,  to reduce
deferred tax assets to the amount expected to be realized.  In estimating future
tax  consequences,  the Company  generally  considers all expected future events
other than an  enactment  of changes in the tax laws or rates.  The deferred tax
asset is continually  evaluated for  realizability.  To the extent  management's
judgment  regarding  the  realization  of the  deferred  tax assets  change,  an
adjustment  to the  allowance  is  recorded,  with  an  offsetting  increase  or
decrease,  as appropriate,  in income tax expense. Such adjustments are recorded

                                       17
<PAGE>

in the period in which  management's  estimate  as to the  realizability  of the
asset changed.

Stock Compensation

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

Recently Issued Accounting Standards

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

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS 148") which addresses financial
accounting  and  reporting  for  recording  expenses for the fair value of stock
options.  SFAS 148 provides  alternative  methods of transition  for a voluntary
change  to fair  value  based  method of  accounting  for  stock-based  employee
compensation.  Additionally,  SFAS 148 requires more prominent and more frequent
disclosures   in  financial   statements   about  the  effects  of   stock-based
compensation.  The  provisions of this  Statement are effective for fiscal years
ending  after  December 15, 2002,  with early  application  permitted in certain
circumstances.  The interim  disclosure  provisions  are effective for financial
reports  containing  financial  statements for interim  periods  beginning after
December 15,  2002.  The Company does not expect the adoption of SFAS No. 148 to
have a  material  effect on the  Company's  financial  position  or  results  of
operations.

     In November 2002, the FASB issued FASB  Interpretation No. 45, "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of Others"  ("FIN 45").  FIN 45 requires that upon
issuance of a guarantee,  a guarantor  must  recognize a liability  for the fair
value  of an  obligation  assumed  under  a  guarantee.  FIN  45  also  requires
additional  disclosures  by a  guarantor  in its  interim  and annual  financial
statements  about  the  obligations   associated  with  guarantees  issued.  The
recognition  provisions  of FIN 45 are effective  for any  guarantees  issued or
modified after December 31, 2002. The disclosure  requirements are effective for
financial  statements  of interim or annual  periods  ending after  December 15,
2002.  The  adoption of FIN 45 did not have a material  impact on the  Company's
financial position or results of operations.

     In January 2003, the FASB issued FASB  Interpretation No. 46 "Consolidation
of Variable  Interest  Entities"  ("FIN 46").  In general,  a variable  interest
entity is a corporation,  partnership,  trust, or any other legal structure used
for business purposes that either (a) does not have equity investors with voting
rights or (b) has equity  investors  that do not  provide  sufficient  financial
resources for the entity to support its activities.  A variable  interest entity
often holds financial  assets,  including  loans or receivables,  real estate or
other property.  A variable interest entity may be essentially passive or it may
engage  in  activities  on behalf  of  another  company.  Until  now,  a company
generally has included another entity in its consolidated  financial  statements
only if it controlled the entity through voting  interests.  FIN 46 changes that
by requiring a variable  interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable  interest
entity's  activities or entitled to receive a majority of the entity's  residual
returns  or both.  FIN 46's  consolidation  requirements  apply  immediately  to
variable  interest  entities  created or acquired  after  January 31, 2003.  The
consolidation  requirements  apply to older entities in the first fiscal year or
interim  period  beginning  after  June  15,  2003.  Certain  of the  disclosure
requirements  apply in all financial  statements  issued after January 31, 2003,
regardless of when the variable  interest  entity was  established.  The Company
adopted FIN 46 effective January 31, 2003. The adoption of FIN 46 did not have a
material impact on the Company's financial position or results of operations.

                                       18
<PAGE>
Qualitative and Quantitative Disclosures About Market Risk

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

Procedures and Controls

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

     Except for historical  information  contained herein, the matters discussed
are forward-looking  statements that involve risks and uncertainties.  When used
in this report, words such as "anticipated",  "believes",  "could", "estimates",
"expects" 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 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 problems in foreign supplier facilities;  unforeseen  difficulties
and delays in the  conduct of  clinical  trials  and other  product  development
programs;  the actions of regulatory  authorities and third-party  payers in the
United  States  and  overseas;  uncertainties  about the  acceptance  of a novel
therapeutic  modality by the medical  community;  and the risk factors  reported
from time to time in the  Company's  SEC  reports.  The  Company  undertakes  no
obligation to update forward-looking  statements as a result of future events or
developments.

                                       19
<PAGE>

                       VASOMEDICAL, INC. AND SUBSIDIARIES
                       ----------------------------------
                          PART II - OTHER INFORMATION
                          ---------------------------


ITEM 1 - LEGAL PROCEEDINGS:

        Previously reported.

ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS:

        None

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES:

        None

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

        None

ITEM 5 - OTHER INFORMATION:

        None

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

        (a) Exhibits

          10.1 - Amendment No. 2 and Waiver to Credit  Agreement dated April 10,
                 2003 between the Registrant and Fleet National Bank

          99   - Certification of Periodic Report

        (b) Reports on Form 8K: None

                                       20
<PAGE>

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


                                                VASOMEDICAL, INC.

                                        By: /s/ Photios T. Paulson
                                            ------------------------------------
                                            Photios T. Paulson
                                            Chief Executive Officer and Director
                                            (Principal Executive Officer)

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

Date:  April 10, 2003

                                       21
<PAGE>
CERTIFICATION BY P.T. PAULSON PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14

I, Photios T. Paulson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Vasomedical, Inc.;

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed  such  disclosure  controls and  procedures  to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and

b) any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: April 10, 2003

/s/ Photios T. Paulson
-------------------------------
Photios T. Paulson
Chief Executive Officer

                                      22
<PAGE>

CERTIFICATION BY J.A. GIACALONE PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14

I, Joseph A. Giacalone, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Vasomedical, Inc.;

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed  such  disclosure  controls and  procedures  to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;

b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and

b) any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: April 10, 2003

/s/ Joseph A. Giacalone
-----------------------------------
Joseph A. Giacalone
Chief Financial Officer

                                       23