NOTE A - ORGANIZATION AND PLAN
OF OPERATIONS
Vasomedical, Inc. was
incorporated in Delaware in July 1987. Unless the context requires otherwise,
all references to “we”, “our”, “us”, “Company”, “registrant”, “Vasomedical” or
“management” refer to Vasomedical, Inc. and its subsidiaries. Until 2010, we were
primarily engaged in designing, manufacturing, marketing and supporting EECP®
enhanced external counterpulsation systems based on our unique proprietary
technology currently indicated for use in cases of stable or unstable angina
(i.e., chest pain), congestive heart failure (“CHF”), acute myocardial
infarction (i.e., heart attack, (MI)) and cardiogenic shock. In May 2010, the Company, through its wholly-owned
subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, expanded into the sales
representation business via its agreement with GE Healthcare (“GEHC”), the
healthcare business unit of General Electric Company (NYSE: GE), to be GEHC’s
exclusive sales representative for the sale of select GEHC diagnostic imaging
products in specific market segments in the 48 contiguous states of the United
States and the District of Columbia. In June 2012, the Company entered into an
amendment, effective July 1, 2012, of the sales representative agreement (“GEHC
Agreement”) extending the initial term of three years commencing July 1, 2010
to five years through June 30, 2015, subject to earlier termination under
certain circumstances.
In September 2011, the Company acquired Fast Growth
Enterprises Limited (FGE), a British Virgin Islands company which, through its
subsidiaries, owns and controls two Chinese operating companies - Life
Enhancement Technologies Ltd. and Biox Instruments Co. Ltd., respectively – to
expand its technical and manufacturing capabilities and to enhance its
distribution network, technology, and product portfolio. Also in September 2011, the Company
restructured to further align its business management structure and long-term
growth strategy and now operates through three wholly-owned subsidiaries. Vaso Diagnostics d/b/a VasoHealthcare
continues as the operating subsidiary for the sales representation of GE
Healthcare diagnostic imaging products; Vasomedical Global Corp. operates the
Company’s recently-acquired Chinese companies; and Vasomedical Solutions, Inc.
manages and coordinates our EECP® therapy business as well as other
medical equipment operations.
We report the operations of Vasomedical Global Corp. and
Vasomedical Solutions, Inc. under our Equipment reportable segment. VasoHealthcare activities are included under
our Sales Representation reportable segment (See Note C).
NOTE B - BASIS OF PRESENTATION AND
CRITICAL ACCOUNTING POLICIES
Basis of Presentation and Use of
Estimates
The accompanying
consolidated condensed financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP") and pursuant to the accounting and disclosure rules and
regulations of the Securities and Exchange Commission (the "SEC").
Certain information and disclosures normally included in the consolidated
condensed financial statements prepared in accordance with U.S. GAAP have been
condensed or omitted pursuant to such rules and regulations. Accordingly, these
consolidated condensed financial statements should be read in connection with
the audited consolidated financial statements and related notes thereto
included in the Company's Transition Report on Form 10-K for the transition period
ended December 31, 2011, as filed with the SEC. These consolidated condensed
financial statements include the accounts of the companies over which we exercise
control. In the opinion of management, the accompanying consolidated condensed
financial statements reflect all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of interim results
for the Company. The results of operations for any interim period are not
necessarily indicative of results to be expected for any other interim period
or the full year.
The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the consolidated condensed
financial statements, the disclosure of contingent assets and liabilities in
the consolidated condensed financial statements and the accompanying notes, and
the reported amounts of revenues, expenses and cash flows during the periods
presented. Actual amounts and results could differ from those estimates. The
estimates and assumptions the Company makes are based on historical factors,
current circumstances and the experience and judgment of the Company's
management. The Company evaluates its estimates and assumptions on an ongoing
basis.
Significant Accounting Policies
Note B of the Notes to
Consolidated Financial Statements, included in the Transition Report on Form
10-K for the seven months ended December 31, 2011, includes a summary of the
significant accounting policies used in the preparation of the consolidated condensed
financial statements.
Revenue and Expense Recognition for VasoHealthcare
The Company recognizes commission revenue in its Sales
Representation segment (see Note C) when persuasive evidence of an arrangement
exists, service has been rendered, the price is fixed or determinable and
collectability is reasonably assured.
These conditions are deemed to be met when the underlying equipment has
been accepted at the customer site in accordance with the specific terms of the
sales agreement. Consequently, amounts
billable under the agreement with GE Healthcare in advance of the customer
acceptance of the equipment are recorded as accounts receivable and deferred
revenue in the Consolidated Balance Sheets.
Similarly, commissions payable to our sales force related to such
billings are recorded as deferred commission expense when the associated
deferred revenue is recorded. Commission
expense is recognized when the corresponding commission revenue is recognized.
Reclassifications
Certain reclassifications have
been made to prior period amounts to conform with the current period presentation.
NOTE C – SEGMENT REPORTING AND
CONCENTRATIONS
The Company views its business in two segments – the Equipment
segment and the Sales Representation segment.
The Equipment segment is engaged in designing, manufacturing, marketing
and supporting EECP® enhanced external counterpulsation systems both
domestically and internationally, as well as the marketing of other medical
devices. The Sales Representation
segment operates through the VasoHealthcare subsidiary and is currently engaged
solely in the execution of the Company’s responsibilities under our agreement
with GEHC. The Company evaluates segment
performance based on operating income.
Administrative functions such as finance, human resources, and
information technology are centralized and related expenses allocated to each
segment. Other costs not directly
attributable to operating segments, such as audit, legal, director fees,
investor relations, and others, as well as certain assets – primarily cash
balances – are reported in the Corporate entity below. There are no intersegment revenues. Summary financial information for the
segments is set forth below:
(in
thousands)
(in
thousands)
For the three months ended
September 30, 2012 and 2011, GE Healthcare accounted for 81% and 88% of
revenue, respectively. For the nine
months ended September 30, 2012 and 2011, GE Healthcare accounted for 76% and 82%
of revenue, respectively. Also, GE Healthcare accounted for $7.2 million,
or 86%, and $19.7 million, or 95%, of accounts and other receivables at September
30, 2012 and December 31, 2011, respectively.
NOTE D – SHARE-BASED COMPENSATION
The Company complies with ASC
Topic 718 “Compensation – Stock Compensation” (“ASC 718”), which requires all
share-based awards to employees, including grants of employee stock options, to
be recognized in the consolidated condensed financial statements based on their
estimated fair values.
During the three and nine-month
periods ended September 30, 2012,
the Company granted 0 and 500,000 restricted shares of common stock, valued at
$120,000 to an officer, of which half vested immediately and the remainder one
year thereafter. During the three months
ended September 30, 2011, 100,000 shares of restricted common stock valued at $35,000
were granted to officers and directors, and 466,279 shares of restricted common
stock valued at $170,500 were granted to officers and directors during the nine
months ended September 30, 2011.
During the nine-month periods
ended September 30, 2012 and 2011,
the Company did not grant any stock options.
For the three and nine months
ended September 30, 2012, the Company granted 500,000 and 2,690,000 shares of
restricted common stock valued at $130,000 and $678,000 to non-officer
employees in its VasoHealthcare subsidiary in conjunction with the extension of
the GEHC Agreement in June 2012. For the
three and nine months ended September 30, 2011, the Company granted 0 and 10,000
shares of restricted common stock, respectively, valued at $6,800 to other non-officer
employees.
Share-based compensation expense
recognized for the three and nine months ended September 30, 2012 was $328,000
and $559,000, respectively, and $92,000
and $295,000 for the three and nine months ended September 30, 2011, respectively. These expenses are included in cost of
revenues; selling, general, and administrative expenses; and research and
development expenses in the consolidated condensed statements of
operations. Expense for share-based
arrangements was $128,000 and $416,000 for the three and nine months ended
September 30, 2012, respectively, and $159,000 and $367,000 for the three and nine
months ended September 30, 2011, respectively.
Unrecognized expense related to existing share-based compensation and arrangements
is approximately $806,000 at September 30, 2012 and will be recognized through
July 2013.
NOTE E – LOSS PER COMMON SHARE
Basic loss per
common share is computed as earnings applicable to common stockholders divided
by the weighted-average number of common shares outstanding for the
period. Diluted loss per common share
reflects the potential dilution that could occur if securities or other
contracts to issue common shares were exercised or converted to common stock.
The following table represents common stock equivalents that were
excluded from the computation of diluted earnings per share for the three and nine
months ended September 30, 2012 and 2011, because the effect of their inclusion
would be anti-dilutive.
(in thousands)
NOTE
F – FAIR VALUE MEASUREMENTS
The Company complies with the provisions of ASC 820 “Fair
Value Measurements and Disclosures” (“ASC 820”). Under ASC 820, fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability
(i.e., the “exit price”) in an orderly transaction between market participants
at the measurement date.
The following tables present information about the Company’s
assets and liabilities measured at fair value as of September 30, 2012 and December 31, 2011
(in thousands)
The fair values of the Company’s cash equivalents invested
in money market funds are determined through market, observable and
corroborated sources.
NOTE
G – ACCOUNTS AND OTHER RECEIVABLES, NET
The following table presents information regarding the
Company’s accounts and other receivables as of September 30, 2012 and December
31, 2011:
(in thousands)
Trade receivables include amounts due for shipped products
and services rendered. Amounts currently
due under the GEHC Agreement are subject to adjustment in subsequent periods
should the underlying sales order amount, upon which the receivable is based, change.
Allowance for doubtful accounts and commission adjustments
include estimated losses resulting from the inability of our customers to make
required payments, and adjustments arising from subsequent changes in sales
order amounts that may reduce the amount the Company will ultimately receive
under the GEHC Agreement. Due from
employees is primarily commission advances made to sales personnel.
Inventories, net of reserves, consist of the
following: (in thousands)
At September 30, 2012 and December
31, 2011, the Company had reserves for excess and obsolete inventory of $540,000
and $606,000, respectively.
NOTE I– BUSINESS COMBINATION
On September 2, 2011,
Vasomedical Global successfully completed the purchase of all the outstanding
capital stock of privately-held Fast Growth Enterprises Limited (“FGE”), a
British Virgin Islands company that owns subsidiaries which own and control
Life Enhancement Technology Ltd (“LET”) and Biox Instruments Co. Ltd. (“Biox”),
respectively, as per the stock purchase agreement signed on August 19, 2011.
The consideration of this acquisition included a cash payment of $1 million as
well as the issuance of 5 million restricted shares of the Company’s common
stock, up to 2.4 million shares of common stock contingently issuable upon the
achievement of certain operating performance targets, and warrants covering 1.5
million shares of common stock. The
Company completed its evaluation of FGE’s calendar year 2011 performance
targets and determined that the targets were met, resulting in the issuance of
2.4 million shares to the prior owners in September 2012.
LET, based in Foshan,
Guangdong, China, is Vasomedical’s supplier for its proprietary Enhanced
External Counterpulsation (EECP®) systems, including certain
Lumenair systems and all AngioNew® systems. Biox, a developer
and manufacturer of ambulatory monitoring devices, is located in Wuxi, Jiangsu,
China, and is Vasomedical’s supplier of the BIOX series ECG Holter recorder and
analysis software as well as ambulatory blood pressure monitoring systems.
Vasomedical has obtained FDA clearance to market these products in the United
States. The acquisition of LET provides
Vasomedical with consolidated technical and manufacturing capability in its EECP
business which has significantly increased gross margins and will enable the
Company to meet anticipated increasing demand for its EECP systems. The acquisition of Biox greatly enhances
Vasomedical's distribution network, technology and product portfolio, and with
combined market and sales efforts of the two companies, has improved
performance and profitability of Vasomedical's equipment segment.
The operating results of
FGE are included in the accompanying Consolidated Condensed Statements of
Operations and Comprehensive Income (Loss) and Cash Flows for the three and nine
months ended September 30, 2012. The
acquisition date fair value of the total consideration transferred was $3.979
million, which consisted of the following:
(in thousands)
In accordance with Accounting
Standards Codification ("ASC") 805, Business Combinations ("ASC
805"), the total purchase consideration is allocated to the net tangible
and identifiable intangible assets acquired and liabilities assumed based on
their estimated fair values as of September 2, 2011 (the acquisition
date). The purchase price was allocated
based on the information available as of
the acquisition date, and subsequently adjusted (measurement period
adjustments) after obtaining more information regarding, among other things, asset
valuations, liabilities assumed, and revisions of preliminary estimates. The measurement period adjustments were
completed during the quarter ended September 30, 2012 (within a year of the
acquisition date). The accompanying
Consolidated Condensed Balance Sheet as of December 31, 2011 has been
retroactively adjusted to include the effect of the measurement period
adjustment. The following table
summarizes the estimated fair values of the assets acquired and liabilities
assumed at the acquisition date:
(in
thousands)
The goodwill is attributable to
the synergies expected to arise after the Company’s acquisition of FGE as well
as FGE’s projected growth and profitability.
The goodwill is not expected to be deductible for tax purposes. Customer lists were valued based on sales
history of certain recurring customers and the timing of expected future
revenues.
After elimination of
intercompany transactions, which reduce the income from FGE, the amounts of
revenue and net loss of FGE included in the Company’s Consolidated Condensed
Statement of Operations and Comprehensive Loss for the three months ended September
30, 2012 was $271,000 and $189,000, respectively, and $1,181,000 and $299,000,
respectively, for the nine months ended September 30, 2012. For the three and nine months ended September
30, 2011, the amounts of revenue and net loss of FGE included in the Company’s
Consolidated Condensed Statement of Operations and Comprehensive Income (Loss)
were $96,000 and $24,000, respectively. The
effect of FGE’s loss on earnings per share for the three and nine months ended
September 30, 2012 and September 30, 2011 was $0.00.
The following supplemental pro
forma information presents the financial results as if the acquisition of FGE
had occurred June 1, 2009 (amounts in thousands, except per share amounts):
(in thousands except per share data)
The changes in the Company’s deferred revenues are as follows:
(in thousands)
NOTE L – RELATED-PARTY TRANSACTIONS
On June 21, 2007, we entered
into a Securities Purchase Agreement with Kerns Manufacturing Corp.
(“Kerns”). Pursuant to this agreement, a
five-year warrant to purchase 4,285,714 shares of our common stock at an
initial exercise price of $0.08 per share was issued to Kerns. In March 2012, Kerns exercised its warrant
and purchased 4,285,714 shares of common stock.
Concurrently with our entry into the Securities Purchase Agreement, we
also entered into a Distribution Agreement and a Supplier Agreement with Living
Data Technology Corporation (“Living Data”), an affiliate of Kerns. Pursuant to the Distribution Agreement, as
amended, we became the exclusive worldwide distributor of the AngioNew EECP®
systems manufactured through Living Data. The Distribution Agreement had an
initial term extending through May 31, 2012.
Subsequent to August 31, 2011 the Company acquired Life Enhancement
Technology (LET) (see Note I), the manufacturer of the AngioNew EECP®
system. Consequently, the Distribution
Agreement is no longer effective, and the Company wrote-off the remaining
unamortized balance of Deferred Distributor Costs during the seven months ended
December 31, 2011.
On February 28, 2011, David Lieberman and Edgar Rios
were appointed by the Board of Directors as directors of the Company. Mr. Lieberman, a practicing attorney in the
State of New York, was appointed to serve as the Vice Chairman of the
Board. He is currently a senior partner at the law firm of Beckman,
Lieberman & Barandes, LLP, which firm performs certain legal services for
the Company. Fees of approximately $30,000
and $102,000 were billed by the firm through the three and nine months ended
September 30, 2011, respectively, and approximately $60,000 and $194,000 were billed
by the firm through the three and nine months ended September 30, 2012,
respectively, at which date no amounts were outstanding.
Mr. Rios is President of Edgary Consultants, LLC, and
was appointed a director in conjunction with the Company’s consulting agreement
(the “Agreement”) with Edgary Consultants, LLC (“Consultant”). The Agreement commenced on March 1, 2011 and
runs for a two year term. The Agreement provides for the engagement
of Consultant to assist the Company in seeking broader reimbursement coverage
of EECP® therapy. More
specifically, Consultant will be assisting the Company in the following areas:
1. Engaging
the adoption of EECP® therapy as a first line option for FDA cleared
indications as it relates to CCS Class III/IV angina with a major commercial
healthcare third-party payer.
2. Engaging
a major commercial healthcare payer to formally collaborate and co-sponsor a study
with Vasomedical for the efficacy, efficiency and/or cost effectiveness of the
EECP® therapy for NYHA Class II/III heart failure.
3. Engaging
final approval from the Centers for Medicare and Medicaid Services (“CMS”) of
EECP® therapy as a first line treatment for CCS Class III/IV angina.
4. Engaging
final approval from CMS to extend coverage and provide for the reimbursement of
EECP® therapy for CCS Class II angina; and
5. Engaging
final approval from CMS to extend coverage and provide for the reimbursement of
EECP® therapy for NYHA Class II/III heart failure.
In consideration for the services to be provided by
Consultant under the Agreement, the Company has agreed to issue to Consultant
or its designees, approximately 10% of the outstanding capital stock of
the Company, of which the substantial portion (in excess of 82%) is performance
based as referenced above. In conjunction with the Agreement, 3,000,000 shares
of restricted common stock valued at $1,020,000 were issued in March 2011. In connection with the Agreement, Mr.
Lieberman received 600,000 of these restricted shares. The Company has recorded the fair value of
the shares issued to Consultant as a prepaid expense and is amortizing the cost
ratably over the two year agreement. The
unamortized value is reported as Deferred Related Party Consulting Expense in
our accompanying consolidated condensed balance sheets as of September 30, 2012
and December 31, 2011.
During the nine months ended September 30, 2012, a director
performed consulting services for the Company aggregating approximately $10,000.
Through the Company’s acquisition of FGE in September 2011,
it assumed the liability for $288,000 in unsecured notes payable to the
President of LET and his spouse, of which $95,000 was repaid in December 2011,
and $190,000, bearing interest at 6% per annum, was paid in March 2012. In addition, receivables due from FGE
management aggregating $159,000 were collected during the nine months ended
September 30, 2012.
NOTE M –
STOCKHOLDERS’ EQUITY
Common Stock
On June 17, 2010 the Board of Directors approved the 2010
Stock Plan (the “2010 Plan”) for officers, directors, employees and consultants
of the Company. The stock issuable under
the 2010 Plan shall be shares of the Company’s authorized but unissued or
reacquired common stock. The maximum
number of shares of common stock which may be issued under the 2010 Plan is
5,000,000 shares.
The 2010 Plan is comprised of two separate equity programs,
the Options Grant Program, under which eligible persons may be granted options
to purchase shares of common stock, and the Stock Issuance Program, under which
eligible persons may be issued shares of common stock directly, either through
the immediate purchase of such shares or as compensation for services rendered
to the Company.
The 2010 Plan provides that the Board of Directors, or a
committee of the Board of Directors, will administer it with full authority to
determine the identity of the recipients of the options or shares and the
number of options or shares. Options
granted under the 2010 Plan may be either incentive stock options or
non-qualified stock options. The option
price shall be 100% of the fair market value of the common stock on the date of
the grant ( or in the case of incentive stock options granted to any individual
stockholder possessing more than 10% of the total combined voting power of all
voting stock of the Company, 110% of such fair market value). The term of any option may be fixed by the Board
of Directors, or its authorized committee, but in no event shall it exceed five
years from the date of grant. Options
are exercisable upon payment in full of the exercise price, either in cash or
in common stock valued at fair market value on the date of exercise of the option.
As of September 30, 2012, 3,790,000 restricted shares of
common stock were granted under the 2010 Plan to non-officer employees and
consultants of the Company. As of September
30, 2012, 840,000 shares have been forfeited.
In March 2012, 500,000 restricted shares of common stock were granted
under the 2010 Plan to an officer, of which 250,000 vested immediately with the
remainder vesting over a one year period.
In June 2012, 2,190,000 additional shares, vesting at various times
through July 1, 2013, of restricted common stock were granted to non-officer
employees in conjunction with the extension of the GEHC Agreement, of which
185,500 shares had been forfeited as of September 30, 2012. In July 2012, 500,000 shares of restricted
common stock were granted to non-officer employees, of which 250,000 vest in
June 2013 and the remainder in June 2014.
No options were issued under the 2010 Plan during the nine
months ended September 30, 2012 and 2011.
In September 2011, the Company issued 5,000,000 shares of
restricted common stock and a two year common stock purchase warrant for
1,500,000 shares at an exercise price of $0.50 per share as partial
consideration for the acquisition of FGE.
In addition, 2,400,000 shares of common stock were issued, under the
terms of the purchase agreement, in September 2012 to former owners of FGE for
attaining certain operating targets for the twelve months ending December 31,
2011. The aggregate value of the
aforementioned noncash consideration relative to the FGE acquisition, recorded
as of the September 2, 2011 acquisition date, was $2,979,000 (see Note I).
Preferred Stock
On June 24, 2010, the Company filed a Certificate of
Designations of Preferences and Rights of Series E Convertible Preferred Stock
(“Certificate of Designations”), as authorized by the Board of Directors,
designating 350,000 shares of its 1,000,000 shares of preferred stock as Series
E Convertible Preferred Stock (“Series E Preferred”). The conversion rights of
the Series E Preferred are that each share will be convertible at any time on
or after January 1, 2011, at the holder’s option into 100 shares of common
stock (an exercise price of $.16 per share of common stock, the “Conversion
Price”), subject to anti-dilution adjustment as set forth below. Each share of outstanding Series E Preferred
Stock shall automatically be converted into shares of common stock on or after
July 1, 2011, at the then effective applicable conversion ratio, if, at any
time following the Issuance Date, the price of the common stock for any 30
consecutive trading days equals or exceeds three times the Conversion Price and
the average daily trading volume for the Company’s common stock for the 30
consecutive trading days exceeds 250,000 shares.
Pursuant to its conversion terms, the Series E Preferred
was deemed automatically converted to common stock effective July 1, 2011. As of September 30, 2012, 30,668,500 shares
of common stock had been issued for 306,685 shares of Series E Preferred.
For the three and nine months ended September 30, 2011, the
Company sold 0 and 9,375 shares of Series E Preferred aggregating $150,000, and
recorded dividends totaling $1,180,000 and $1,459,000, respectively. Included in such dividends is the recognition
of the value of the embedded beneficial conversion feature of the Series E
Preferred, which reflects the difference between the conversion price and the
market price at time of investment. The amounts included in the dividends
reported attributable to this beneficial conversion feature are $1,180,000 and
$1,336,000 for the three and nine months ended September 30, 2011, respectively.
These are noncash dividends requiring no
payment and ceased on conversion of the Series E Preferred to common
stock.
NOTE N – COMMITMENTS
AND CONTINGENCIES
Sales representation agreement
In June 2012, the Company concluded an
amendment of the GEHC Agreement with GE Healthcare, originally signed on May
19, 2010. The amendment, effective July
1, 2012, extends the initial term of three years commencing July 1, 2010 to
five years through June 30, 2015, subject to earlier termination under certain
circumstances. These circumstances
include not materially achieving certain sales goals, not maintaining a minimum
number of sales representatives, and various legal and GEHC policy
requirements. Under the terms of the
agreement, the Company is required to lease dedicated computer equipment from GEHC
for connectivity to their network.
In conjunction with the extension of the GEHC
Agreement, the Company granted VasoHealthcare employees both stock and
cash-based performance incentives for the ensuing year. The incentives provide for cash payments of
up to $2.2 million and 2.2 million shares of restricted common stock grants and
vest at various times through July 1, 2013.
A condition of the incentives is that the employees remain continuously
employed through the vesting dates. As
of September 30, 2012, approximately $1.3 million and 1.3 million shares remain
unvested.
NOTE O - RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS
Other Comprehensive Income: Presentation of
Comprehensive Income
In June 2011, new guidance was issued that amends the
current comprehensive income guidance. The new guidance allows the option to
present the total of comprehensive income, the components of net income, and
the components of other comprehensive income either in a single or continuous
statement of comprehensive income or in two separate but consecutive
statements. The amendments in this update do not change the items that must be
reported in other comprehensive income or when an item of other comprehensive
income must be reclassified to net income. The new guidance is to be applied
retrospectively and is effective for fiscal years, and interim periods,
beginning after December 15, 2011, with early adoption permitted. The adoption of this guidance did not have a
material impact on the Company’s consolidated condensed financial statements.
In December 2011, the FASB issued authoritative guidance to
defer the effective date for those aspects of the guidance relating to the
presentation of reclassification adjustments out of accumulated other
comprehensive income. The adoption of this new guidance will not have an impact
on the Company’s consolidated financial position, results of operations or cash
flows as it only requires a change in the format of the current presentation of
other comprehensive income.
Except for
historical information contained in this report, the matters discussed are
forward-looking statements that involve risks and uncertainties. When used in
this report, words such as “anticipates”, “believes”, “could”, “estimates”,
“expects”, “may”, “plans”, “potential” and “intends” and similar expressions,
as they relate to the Company or its management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of the
Company’s management, as well as assumptions made by and information currently
available to the Company’s management. Among the factors that could cause
actual results to differ materially are the following: the effect of business and economic conditions; the effect of the dramatic changes taking place in the
healthcare environment; the impact of competitive procedures and products and
their pricing; medical insurance reimbursement policies; unexpected
manufacturing or supplier problems; unforeseen difficulties and delays in the
conduct of clinical trials and other product development programs; the actions
of regulatory authorities and third-party payers in the United States and
overseas; uncertainties about the acceptance of a novel therapeutic modality by
the medical community; continuation of the GEHC Agreement and the risk factors
reported from time to time in the Company’s SEC reports, including its recent
transition report on Form 10-K. The
Company undertakes no obligation to update forward-looking statements as a
result of future events or developments.
General Overview
Vasomedical, Inc. was incorporated in Delaware in July
1987. Unless the context requires
otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”,
“Vasomedical” or “management” refer to Vasomedical, Inc. and its
subsidiaries. Until 2010, we were
primarily engaged in designing, manufacturing, marketing and supporting EECP®
Enhanced External Counterpulsation systems, based on our proprietary
technology, to physicians and hospitals throughout the United States and in
select international markets.
In May 2010, the Company, through its wholly-owned
subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, expanded into the sales
representation business via its agreement with GE Healthcare (“GEHC”), the
healthcare business unit of General Electric Company (NYSE: GE), to be GEHC’s
exclusive sales representative for the sale of select GEHC diagnostic imaging
products in specific market segments in the 48 contiguous states of the United
States and the District of Columbia. In June 2012, the Company
entered into an amendment, effective July 1, 2012, of the sales representative
agreement (“GEHC Agreement”) extending the initial term of three years
commencing July 1, 2010 to five years through June 30, 2015, subject to earlier
termination under certain circumstances.
In September 2011, the Company acquired Fast Growth
Enterprises Limited (FGE), a British Virgin Islands company, which, through its
subsidiaries, owns and controls two Chinese operating companies - Life
Enhancement Technology Ltd. and Biox Instruments Co. Ltd., respectively - to
expand its technical and manufacturing capabilities and to enhance its
distribution network, technology, and product portfolio. Also in September 2011, the Company
restructured to further align its business management structure and long-term
growth strategy, and now operates through three wholly-owned subsidiaries. Vaso Diagnostics d/b/a VasoHealthcare
continues as the operating subsidiary for the sales representation of GE
diagnostic imaging products; Vasomedical Global Corp. operates the Company’s
newly-acquired Chinese companies; and Vasomedical Solutions, Inc. was formed to
manage and coordinate our EECP® therapy business as well as other
medical equipment operations.
We now report the operations of Vasomedical Global Corp.
and Vasomedical Solutions, Inc. under our Equipment reportable segment. VasoHealthcare activities are included under
our Sales Representation reportable segment (see Note C).
The Company will seek to improve
profitability through our recent accretive acquisition of the two Chinese
medical device companies and by expanding our U.S. market product
portfolio. In addition, the Company
plans to actively pursue other accretive acquisitions.
Critical Accounting Policies and Estimates
Our discussion and analysis of
our financial condition and results of operations are based upon the
accompanying unaudited consolidated condensed financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States (“U.S. GAAP”). The preparation of financial statements in
conformity with U.S. GAAP requires management to make judgments, estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
expenses, and the related disclosures at the date of the financial statements
and during the reporting period. Although these estimates are based on our
knowledge of current events, our actual amounts and results could differ from
those estimates. The estimates made are based on historical factors, current
circumstances, and the experience and judgment of our management, who
continually evaluate the judgments, estimates and assumptions and may employ
outside experts to assist in the evaluations.
Certain of our accounting
policies are deemed “critical”, as they are both most important to the
financial statement presentation and require management’s most difficult,
subjective or complex judgments as a result of the need to make estimates about
the effect of matters that are inherently uncertain. For a discussion of our
critical accounting policies, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in our Transition Report on Form
10-K for the seven months ended December 31, 2011.
On June 15, 2011, the Board of Directors approved a change
of the Company’s fiscal year end from May 31st to December 31st. As a result of this change, the Company filed
a Transition Report on Form 10-K for the seven-month transition period ended
December 31, 2011. Going forward,
references to our 2012 and 2011 fiscal years herein mean the fiscal years ended
December 31, 2012 and December 31, 2011, respectively.
New Accounting Pronouncements - Adoption of New Standards
Other Comprehensive Income: Presentation of
Comprehensive Income
In June 2011, new guidance was issued that amends the
current comprehensive income guidance. The new guidance allows the option to
present the total of comprehensive income, the components of net income, and
the components of other comprehensive income either in a single or continuous
statement of comprehensive income or in two separate but consecutive
statements. The amendments in this update do not change the items that must be
reported in other comprehensive income or when an item of other comprehensive income
must be reclassified to net income. The new guidance is to be applied
retrospectively and is effective for fiscal years, and interim periods,
beginning after December 15, 2011, with early adoption permitted. The adoption of this guidance did not have a
material impact on the Company’s consolidated financial statements.
In December 2011, the FASB issued authoritative guidance to
defer the effective date for those aspects of the guidance relating to the
presentation of reclassification adjustments out of accumulated other
comprehensive income. The adoption of this new guidance will not have an impact
on the Company’s consolidated financial position, results of operations or cash
flows as it only requires a change in the format of the current presentation of
other comprehensive income.
Consolidated Results of
Operations
Three months ended September 30, 2012 and September
30, 2011
Total revenue for the three months ended September 30, 2012
and September 30, 2011, was $5,722,000 and $6,530,000, respectively, a decrease
of $808,000, or 12%. Net loss for the three months ended September 30, 2012 was
$2,518,000 compared to net income of $64,000 for the three months ended
September 30, 2011. We a reported net loss
applicable to common stockholders of $2,518,000 for the third quarter of fiscal
year 2012 compared to a net loss applicable to common stockholders of $1,116,000
for the third quarter of fiscal year 2011. The increase in net loss applicable
to common stockholders was primarily attributable to a $2,038,000 increase in selling,
general and administrative (“SG&A”) costs (of which $1,557,000 was
attributable to the Sales Representation segment), partially offset by a $1,180,000
decrease in preferred stock dividends.
Our total net loss was ($0.02) and ($0.01) per basic and diluted common
share for the three months ended September 30, 2012 and 2011, respectively.
Revenues
Revenue in our Equipment segment
increased by $263,000, or 33%, to $1,063,000 for the three-month period ended September
30, 2012 from $800,000 for the same period of the prior year. Equipment segment revenue from equipment
sales increased by $278,000, or 68%, to $688,000 for the three-month period
ended September 30, 2012 as
compared to $410,000 for the same period in the prior year. The increase in
equipment sales is due to an increase of $175,000 in equipment sales generated
by our Chinese subsidiaries acquired in September 2011 and an increase in the
sales price per EECP® unit, partially offset by decreases in the
number of EECP® and other medical equipment units shipped.
Current demand for EECP®
systems will likely remain soft until there is greater clinical acceptance for
the use of EECP® therapy in treating patients with angina or angina
equivalent symptoms who meet the current reimbursement guidelines, or a
favorable change in current reimbursement policies by CMS or third party payers
to consider EECP therapy as a first-line treatment option for angina or cover
some or all Class II & III heart failure patients. Patients with angina or
angina equivalent symptoms eligible for reimbursement under current policies
include many with serious comorbidities, such as heart failure, diabetes,
peripheral vascular disease and/or others.
As described in Note L, we are pursuing initiatives to expand
reimbursement that we expect should ultimately increase overall market demand
for our EECP® systems.
Equipment segment revenue from
equipment rental and services decreased 4% to $375,000 in the third quarter of
2012 from $390,000 in the third quarter of 2011. Revenue from equipment rental
and services represented 35% and 49% of total Equipment segment revenue in the third
quarters of fiscal 2012 and fiscal 2011, respectively. The decrease in revenue generated from
equipment rentals and services is due primarily to decreased accessory part
revenue.
Commission revenues in the Sales
Representation segment were $4,659,000 in the third quarter of 2012, as
compared to $5,730,000 in the third quarter of 2011, a decrease of 19%. The decrease in commission revenue in the third
quarter of 2012 is due to a 15% decrease in volume of equipment delivered by
GEHC. In addition, third quarter 2011
revenue also exceeded third quarter 2012 revenue because a retroactive
commission rate adjustment recorded in the third quarter of 2011 was, due to a
change in contract terms which allowed us to recognize a higher commission rate
earlier, recorded in the second quarter in 2012. The Company recognizes revenue when the
underlying equipment has been accepted at the customer site in accordance with
the specific terms of the sales agreement.
Consequently, amounts billable under the agreement with GE Healthcare prior
to customer acceptance of the equipment are recorded as deferred revenue in the
Consolidated Condensed Balance Sheet. Due
to the nature of our commission structure under the GEHC Agreement, wherein the
Company earns progressively higher commission rates retroactively as calendar
year targets are met, revenues earned in the first and fourth quarters typically
reflect a higher blended commission rate than revenues earned in the second and
third quarters. As of September 30, 2012,
$13,689,000 in deferred commission revenue was recorded in the Company’s
consolidated condensed balance sheet, of which $4,378,000 is long-term. At September 30, 2011, $12,417,000 in
deferred commission revenue was recorded in the Company’s consolidated
condensed balance sheet, of which $3,106,000 was long-term.
Gross Profit
The Company had a gross profit
of $4,063,000 in the third quarter of 2012 compared to $4,719,000 in the third quarter
of the prior year, a decrease of 14%. The
decrease is principally due to the decrease in commission revenue discussed
below. Equipment segment gross profit increased
to $633,000, or 60% of Equipment segment revenues, for the third quarter of
2012 compared to $443,000 or 55% of Equipment segment revenues, for the same
quarter of 2011. Equipment segment gross
profit was favorably impacted both in absolute dollars and gross profit
percentage by the $271,000 in sales of other medical equipment sold through our
Chinese subsidiaries in the third quarter of 2012. In addition, gross profit on EECP®
equipment improved due to lower costs arising from the acquisition of LET, our
primary supplier of certain EECP® systems. Gross profit in the Equipment segment is
dependent on a number of factors, particularly the mix of new and refurbished
EECP® systems and the mix of models sold, their respective average
selling prices, the mix of EECP® units sold, rented or placed during
the period, the ongoing costs of servicing EECP® systems, and
certain fixed period costs, including facilities, payroll and insurance.
Sales Representation segment
gross profit was $3,430,000, or 74%, for the three months ended September 30,
2012 as compared to $4,276,000, or 75%, for the three months ended September 30,
2011. The decrease was due to lower revenue
in this segment, as explained above. Cost
of commissions of $1,229,000 and $1,454,000, for the three months ended
September 30, 2012 and 2011, respectively, reflects commission expense
associated with recognized commission revenues.
Commission expense associated with deferred revenue is recorded as
deferred commission expense until the related commission revenue is
earned.
Operating Income (Loss)
Operating income (loss) was $(2,659,000) for the three
months ended September 30, 2012 as compared to operating income (loss) of $26,000
for the three months ended September 30, 2011, a decrease of $2,685,000. The increase in operating loss was primarily
attributable to lower operating performance in the Sales Representation segment,
where operating loss was $1,358,000 for the third quarter of 2012 compared to
operating income of $1,047,000 in the same quarter of the prior year.
Selling, general and
administrative (“SG&A”) expenses for the third quarter of 2012 and 2011
were $6,591,000, or 115% of revenues, and $4,553,000, or 70% of revenues,
respectively, reflecting an increase of $2,038,000 or approximately 45%. The
increase in SG&A expenditures in the third quarter of 2012 resulted
primarily from increased sales costs in the Sales Representation segment
associated with the extension of the GEHC contract (see Note N), as well as
increased sales, marketing and amortization costs in the Equipment segment
which now includes SG&A costs - including a one-time charge of $300,000 in
incentive compensation for certain key employees - of the recently acquired
Chinese entities, and higher corporate compensation costs.
Research
and development (“R&D”) expenses of $131,000, or 2% of revenues (12% of
Equipment segment revenues), for the third quarter of 2012 decreased by $9,000,
or 6%, from $140,000, or 2% of revenues (18% of Equipment segment revenues),
for the third quarter of 2011. The decrease is primarily attributable to a decrease
in clinical research expenses.
Interest and Financing Costs
No interest and financing costs were
incurred in the third quarter of 2012, as compared to $3,000 incurred in the third
quarter of 2011. Interest and financing
costs for the third quarter of 2011 consisted mainly of interest on related
party trade payables..
Interest and Other Income, Net
Interest and other income
for the third quarters of 2012 and 2011, was $93,000 and $33,000, respectively.
The increase of $60,000 in the third quarter of 2012 is due primarily to value-added
tax refunds recognized by our Chinese subsidiaries, as well as to higher interest
earned on the Company’s cash balances.
Amortization of Deferred Gain on Sale-leaseback of Building
The amortization of the deferred gain on the sale-leaseback of our Westbury, NY facility for
the third quarters of 2012 and 2011 was $4,000 and $13,000, respectively. The deferred gain was fully amortized in the
third quarter of 2012.
Income Tax Expense, Net
During
the third quarter of year 2012 we recorded an income tax benefit of $44,000 as
compared to a provision of $5,000 for the third quarter of 2011. The benefit arose from pre-tax losses at our
Chinese subsidiaries.
Nine months ended September 30, 2012 and September
30, 2011
Total revenue for the nine months ended September 30, 2012
and September 30, 2011, was $19,462,000 and $16,549,000, respectively, an
increase of $2,913,000, or 18%. Net loss
for the nine months ended September 30, 2012 was $3,806,000 compared to a net
loss of $1,358,000 for the nine months ended September 30, 2011. We reported net loss applicable to common
stockholders of $3,806,000 for the first three quarters of 2012 compared to a
net loss applicable to common stockholders of $2,817,000 for the first three quarters
of 2011. The increase in net loss applicable to common stockholders was
primarily attributable to a $4,759,000 increase in selling, general and
administrative (“SG&A”) costs (of which $3,231,000 was attributable to the
Sales Representation segment), partially offset by $2,312,000 increase in gross
profit and $1,459,000 reduction in preferred stock dividends. Our total net loss was $0.02 per basic and
diluted common share for the nine months ended September 30, 2012 and 2011.
Revenues
Revenue in our Equipment segment
increased by $1,600,000, or 53%, to $4,604,000 for the nine-month period ended September
30, 2012 from $3,004,000 for the same period of the prior year. Equipment segment revenue from equipment
sales increased by $1,702,000, or 114%, to $3,197,000 for the nine-month period
ended September 30, 2012 as
compared to $1,495,000 for the same period in the prior year. The increase in
equipment sales is due primarily to an increase of $1,085,000 in equipment
sales generated by our Chinese subsidiaries and an increase in the number of
EECP® units shipped as well as an increase in the sales price per
EECP® unit, partially offset by a decrease in sales of other medical
equipment.
Current demand for EECP®
systems will likely remain soft until there is greater clinical acceptance for
the use of EECP® therapy in treating patients with angina or angina
equivalent symptoms who meet the current reimbursement guidelines, or a
favorable change in current reimbursement policies by CMS or third party payers
to consider EECP therapy as a first-line treatment option for angina or cover
some or all Class II & III heart failure patients. Patients with angina or
angina equivalent symptoms eligible for reimbursement under current policies
include many with serious comorbidities, such as heart failure, diabetes,
peripheral vascular disease and/or others.
As described in Note L, we are pursuing initiatives to expand
reimbursement that we expect should ultimately increase overall market demand
for our EECP® systems.
Equipment segment revenue from
equipment rental and services decreased 7% to $1,407,000 in the first nine
months of 2012 from $1,509,000 in the first nine months of 2011. Revenue from
equipment rental and services represented 31% and 50% of total Equipment
segment revenue in the first nine months of 2012 and 2011, respectively. The decrease in revenue generated from
equipment rentals and services is due primarily to decreased service revenue
and lower accessory shipments.
Commission revenues in the Sales
Representation segment were $14,858,000 in the first nine months of 2012, as
compared to $13,545,000 in the first nine months of 2011, an increase of 10%. The increase in commission revenue in the
first nine months of 2012 is due to increased volume of equipment
delivered. The Company recognizes
revenue when the underlying equipment has been accepted at the customer site in
accordance with the specific terms of the sales agreement. Consequently, amounts billable under the
agreement with GE Healthcare prior to customer acceptance of the equipment are
recorded as deferred revenue in the Consolidated Condensed Balance Sheet. Due to the nature of our commission structure
under the GEHC Agreement, wherein the Company earns progressively higher
commission rates retroactively as calendar year targets are met, revenues
earned in the first and fourth fiscal quarters typically reflect a higher
blended commission rate than revenues earned in the second and third fiscal
quarters. As of September 30, 2012, $13,689,000
in deferred commission revenue was recorded in the Company’s consolidated
condensed balance sheet, of which $4,378,000 is long-term. At September 30, 2011, $12,417,000 in
deferred commission revenue was recorded in the Company’s consolidated
condensed balance sheet, of which $3,106,000 was long-term.
Gross Profit
The Company had a gross profit
of $13,774,000 in the first nine months of 2012 compared to $11,462,000 in the
first nine months of the prior year, an increase of 20%. Equipment segment gross profit increased to $2,601,000,
or 56% of Equipment segment revenues, for the first nine months of 2012
compared to $1,420,000 or 47% of Equipment segment revenues, for the first nine
months of 2011. Equipment segment gross
profit was favorably impacted both in absolute dollars and gross profit
percentage by the $1,181,000 in sales of other medical equipment sold through
our Chinese subsidiaries in the first nine months of 2012. In addition, gross profit on EECP®
equipment improved due to lower costs arising from the acquisition of LET, our
primary supplier of certain EECP® systems. Gross profit in the Equipment segment is
dependent on a number of factors, particularly the mix of new and refurbished
EECP® systems and the mix of models sold, their respective average
selling prices, the mix of EECP® units sold, rented or placed during
the period, the ongoing costs of servicing EECP® systems, and
certain fixed period costs, including facilities, payroll and insurance.
Sales Representation segment
gross profit was $11,173,000 for the nine months ended September 30, 2012 as compared
to $10,042,000 for the nine months ended September 30, 2011. Cost of commissions of $3,685,000 and $3,503,000,
for the nine months ended September 30, 2012 and 2011, respectively, reflects
commission expense associated with recognized commission revenues. Commission expense associated with deferred
revenue is recorded as deferred commission expense until the related commission
revenue is earned.
Operating Loss
Operating loss increased by $2,468,000, or 174%, to $3,885,000
for the nine months ended September 30, 2012 as compared to an operating loss
of $1,417,000 for the nine months ended September 30, 2011. The increase in operating loss was primarily
attributable to lower operating performance in the Sales Representation
segment, where operating loss was $1,473,000 for the first nine months of 2012
compared to operating income of $628,000 in the same period of 2011. The decreased operating performance in the
Sales Representation segment was driven mainly by $3,231,000 higher SG&A
costs, partially offset by $1,131,000 higher gross profit.
Selling, general and
administrative (“SG&A”) expenses for the first nine months of 2012 and 2011
were $17,256,000, or 89% of revenues, and $12,497,000, or 76% of revenues,
respectively, reflecting an increase of $4,759,000 or approximately 38%. The increase in SG&A expenditures in the first
nine months of 2012 resulted primarily from increased sales costs in the Sales
Representation segment associated with the extension of the GEHC contract, as
well as increased sales, marketing and amortization costs in the Equipment
segment which now includes SG&A costs - including a one-time charge of
$300,000 in incentive compensation for certain key employees - of the recently
acquired Chinese entities, and higher corporate compensation costs.
Research
and development (“R&D”) expenses of $403,000, or 2% of revenues (9% of
Equipment segment revenues), for the first nine months of 2012 increased by $21,000,
or 5%, from $382,000, or 2% of revenues (13% of Equipment segment revenues),
for the first nine months of 2011. The increase is primarily attributable to an
increase in regulatory costs.
Interest and Financing Costs
Interest and financing costs for
the first nine months of 2012 and 2011 were $3,000 and $28,000,
respectively. Interest and financing
costs for the first nine months of 2012 consisted primarily of interest on the
notes payable to a related party in one of the China subsidiaries. Interest and financing costs for the first nine
months of 2011 consisted of interest on related party trade payables and a
short-term note to finance the Company’s insurance premiums.
Interest and Other Income, Net
Interest and other income
for the first nine months of 2012 and 2011, was $123,000 and $51,000,
respectively. The increase of $72,000 in the first nine months of 2012 is due
primarily to value-added tax refunds recognized by our Chinese subsidiaries, as
well as to higher interest earned on the Company’s cash balances.
Amortization of Deferred Gain on Sale-leaseback of Building
The amortization of the deferred gain on the sale-leaseback of our Westbury, NY facility for
the first nine months of 2012 and 2011 was $31,000 and $40,000, respectively.
Income Tax Expense, Net
During
the first nine months of 2012 we recorded a provision for income taxes of $72,000
as compared to the first nine months of 2011 when we recorded a provision for
income taxes of $4,000. The increase
arose primarily from foreign tax liabilities associated with the acquisition of
FGE.
Liquidity and Capital Resources
Cash and Cash Flow
We have financed our operations
primarily from working capital, and, in the first nine months of 2011, from the
issuance of the Company’s Series E Preferred Stock. At September 30, 2012, we had cash and cash
equivalents of $9,691,000, short-term investments of $110,000 and working
capital of $7,731,000 compared to cash and cash equivalents of $2,294,000,
short-term investments of $110,000 and working capital of $11,354,000 at
December 31, 2011.
Cash provided by operating
activities was $7,578,000 during the first nine months of 2012, which consisted
of a net loss after adjustments to reconcile net loss to net cash of $2,573,000,
offset by cash provided by operating assets and liabilities of $10,151,000. The
changes in the account balances primarily reflect a decrease in accounts and
other receivables of $12,212,000, offset by a decrease in accrued commissions
of $1,945,000 and an increase in deferred commission expense of $525,000. As noted above, under the GEHC Agreement the
Company earns progressively higher commission rates as calendar year targets
are met, which also has a significant impact on our cash flows. As we achieve
these targets the higher commission rates are retroactive to the beginning of
the calendar year, and therefore, the significantly higher commission billings
and recognized revenue generated in the fourth quarter of 2011 resulted in
significant cash inflows in the first quarter of 2012.
Cash used in investing activities during the nine-month
period ended September 30, 2012 was $344,000
for the purchase of property and equipment.
Financing activities during the nine-month
period ended September 30, 2012
provided cash of $153,000, consisting of $343,000 provided from the exercise of
warrants, offset by $190,000 for the repayment of notes payable to a related
party.
Liquidity
The Company will seek to improve
profitability through our recent accretive acquisition of the two Chinese
medical device companies and by expanding our U.S. market product
portfolio. In addition, the Company
plans to actively pursue other accretive acquisitions.
While we expect to generate
positive operating cash flows for 2012, the progressive nature of the
commission rates under the GEHC Agreement can cause related cash inflows to
vary widely during the year.
Evaluation of Disclosure Controls and Procedures
Disclosure
controls and procedures reporting as promulgated under the Exchange Act is
defined as controls and procedures that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act are recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms.
Disclosure controls and procedures include without limitation, controls
and procedures designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is accumulated
and communicated to our management, including our Chief Executive Officer
(“CEO”) and Chief Financial Officer (“CFO”), or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.
Our CEO and our CFO have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of September 30, 2012 and have concluded that the
Company’s disclosure controls and procedures were not effective as of September
30, 2012 due to insufficient controls and management review over the recording
of certain transactions, and to lack of accounting personnel with appropriate
level of knowledge and experience in accounting principles generally accepted
in the United States of America and related accounting systems and the closing
process at our China subsidiaries. The
Company has engaged additional accounting personnel, including an accounting
controller, and is in the process of strengthening its internal controls with
regard to its closing process, related disclosures, and the approval of certain
transactions.
Changes in Internal Control Over Financial Reporting
There
was no change in the Company’s internal control over financial reporting during
the Company’s last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Exhibits
31 Certifications of the Chief Executive
Officer and the Chief Financial Officer pursuant to Rules 13a-14(a) as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certifications of the Chief Executive
Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VASOMEDICAL,
INC.
By: /s/ Jun Ma
Jun Ma
President
and Chief Executive Officer
(Principal
Executive Officer)
/s/ Michael J. Beecher .
Michael
J. Beecher
Chief
Financial Officer and Principal Accounting Officer
Date: November 19, 2012
