STOCKHOLDERS' EQUITY
     Preferred stock, $.01 par value; 1,000,000
       shares authorized; 147,000 and 175,000 shares at
       August 31, 1999 and May 31, 1999, respectively,
       issued and outstanding (liquidation preference of
       $2,940,000 and $3,500,000 at August 31, 1999 and
       May 31, 1999, respectively)                                   1,470               1,750 

Item 5. Other Events

 On April 30, 1998, Vasomedical,  Inc. (the "Company") issued 175,000 shares
of newly created 5% Series C Convertible  Preferred Stock,  $.01 par value, at a
price of $20 per share, for an aggregate of $3,500,000.  The shares were sold to
one (1)  accredited  investor  pursuant to  Regulation D  promulgated  under the
Securities Act of 1933. The Series C Convertible  Preferred Stock is convertible
into Common Stock of the Company at an effective  conversion  price of the lower
of (i)  $2.08,  or (ii) 85% of the  average  closing  bid  price  on the  Nasdaq
SmallCap  Market System of the  Company's  Common Stock for the five (5) trading
days immediately preceding the Date of Conversion, as defined in the Certificate
of Designation of the Series C Convertible  Preferred  Stock attached  hereto as
Exhibit 3.1. In addition, the Investor was issued five-year warrants to purchase
413,712 shares of Common Stock at an exercise price of $2.08 per share.

"....Conversion"

         (c) (i) The  conversion  price for each share of Preferred  Stock (the
"Conversion  Price") in effect on any Conversion Date shall be the lesser of (a)
$2.08 (the  "Initial  Conversion  Price")  or (b) 85% of the  average of the Per
Share  Market  Value for the five (5) Trading  Days  immediately  preceding  the
Conversion  Date;  provided  that,  (a) if the  Underlying  Shares  Registration
Statement  is not  filed on or prior to the 92nd day after  the  Original  Issue
Date,  or (b) the  Company  fails to file  with the  Commission  a  request  for
acceleration in accordance with Rule 12d1-2  promulgated  under the Exchange Act
within  five (5) days of the date that the  Company  is  notified  (orally or in
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writing,  whichever  is earlier) by the  Commission  that an  Underlying  Shares
Registration  Statement  will not be  "reviewed"  or is not  subject  to further
review  or  comment  by  the  Commission,   or  (c)  if  the  Underlying  Shares
Registration  Statement is not declared  effective by the Commission on or prior
to the 105th day after the Original Issue Date, or (d) if such Underlying Shares
Registration  Statement is filed with and declared  effective by the  Commission
but thereafter ceases to be effective as to all Registrable  Securities (as such
term is defined in the Registration  Rights  Agreement) at any time prior to the
expiration  of the  "Effectiveness  Period"  (as  such  term as  defined  in the
Registration Rights Agreement),  without being succeeded within 10 Business Days
by a subsequent Underlying Shares Registration Statement filed with and declared
effective  by the  Commission,  or (e) if trading in the Common  Stock  shall be
suspended  for any  reason  for more  than  three  Trading  Days,  or (f) if the
conversion  rights of the holders of Preferred Stock hereunder are suspended for
any reason,  or (g) after an Underlying Shares  Registration  Statement has been
declared  effective by the Commission,  if holders of Preferred Stock are unable
to  utilize  an  Underlying  Shares  Registration  Statement  for the  resale of
Registrable Securities for an aggregate of ten (10) Trading Days in any 360 days
after the Original Issue Date (any such failure being referred to as an "Event,"
and for  purposes  of  clauses  (a),  (c) and (f) the date on which  such  Event
occurs,  or for purposes of clause (g) the Business Day after such Event occurs,
or for purposes of clause (b) the date on which such five
(5) days  period is  exceeded,  or for  purposes of clause (d) the date on which
such 10 Business Day-period is exceeded,  or for purposes of clause (e) the date
on which such three Trading Day period is exceeded,  being referred to as "Event
Date"),  the Conversion Price shall be decreased by 2.5% each month (i.e., 82.5%
as of the Event Date and 80% as of the one month  anniversary of the Event Date)
until the earlier to occur of the second month  anniversary after the Event Date
and such time as the  applicable  Event is cured.  Commencing  the second  month
anniversary  after the Event Date,  the Company  shall pay to the holders of the
Preferred Stock 2.5% of the  outstanding  amount of Preferred Stock (each holder
being  entitled  to receive  such  portion of such amount as equals its pro rata
portion of the Preferred Stock then outstanding) in cash as liquidated  damages,
and not as a penalty on the first day of each monthly  anniversary  of the Event
Date until such time as the  applicable  Event,  is cured.  Any  decrease in the
Conversion  Price  pursuant to this Section shall continue  notwithstanding  the
fact that the Event  causing such  decrease  has been  subsequently  cured.  The
provisions  of this  Section  are not  exclusive  and  shall in no way limit the
Company's  obligations under the Registration Rights Agreement.  Notwithstanding
anything to the  contrary  set forth  herein,  the Company may not,  without the
prior written consent of the holders,  pay liquidated  damages hereunder in cash
unless it shall have  received the prior  written  consent of all lenders of the
Company  or its  Affiliates  that have the right to require  such  consent or to
subordinate any such cash payment,  which consent shall provide that the payment
by the Company of any such  liquidated  damages  hereunder (and the retention of
such sum by the receiving holder) is not subject to any applicable subordination
rights of such lender.