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Delaware
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11-2871434
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(State or other jurisdiction of
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(IRS Employer Identification Number)
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incorporation or organization)
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3
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3
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4
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5
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6
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16
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21
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22
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August 31, 2011
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May 31, 2011
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|||||||
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ASSETS
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(unaudited)
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(audited)
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||||||
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CURRENT ASSETS
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||||||||
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Cash and cash equivalents
|
$ | 6,274,740 | $ | 8,130,031 | ||||
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Short-term investments
|
110,148 | 109,709 | ||||||
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Accounts and other receivables, net of an allowance for doubtful
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||||||||
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accounts and commission adjustments of $1,317,125 at August 31, 2011,
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||||||||
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and $1,296,947 at May 31, 2011
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4,451,658 | 4,018,572 | ||||||
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Inventories, net
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1,941,223 | 1,786,057 | ||||||
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Financing receivables, net
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18,821 | 18,425 | ||||||
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Deferred commission expense
|
2,855,776 | 2,532,048 | ||||||
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Deferred related party consulting expense - current portion
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510,000 | 510,000 | ||||||
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Other current assets
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316,938 | 267,235 | ||||||
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Total current assets
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16,479,304 | 17,372,077 | ||||||
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PROPERTY AND EQUIPMENT, net of accumulated depreciation of
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||||||||
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$1,635,356 at August 31, 2011, and $1,633,290 at May 31, 2011
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383,335 | 366,199 | ||||||
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DEFERRED DISTRIBUTOR COSTS, net of accumulated amortization of
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||||||||
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$588,876 at August 31, 2011, and $464,402 at May 31, 2011
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- | 124,474 | ||||||
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FINANCING RECEIVABLES, net
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22,277 | 27,133 | ||||||
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DEFERRED RELATED PARTY CONSULTING EXPENSE
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255,000 | 382,500 | ||||||
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OTHER ASSETS
|
300,066 | 282,162 | ||||||
| $ | 17,439,982 | $ | 18,554,545 | |||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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||||||||
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CURRENT LIABILITIES
|
||||||||
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Accounts payable
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$ | 324,294 | $ | 480,661 | ||||
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Accrued commissions
|
2,165,054 | 1,963,826 | ||||||
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Accrued expenses and other liabilities
|
974,594 | 632,374 | ||||||
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Sales tax payable
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164,226 | 160,321 | ||||||
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Deferred revenue - current portion
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10,999,294 | 10,917,732 | ||||||
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Deferred gain on sale-leaseback of building - current portion
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48,808 | 53,245 | ||||||
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Accrued professional fees
|
143,443 | 61,550 | ||||||
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Trade payable due to related party
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3,359 | 265,863 | ||||||
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Total current liabilities
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14,823,072 | 14,535,572 | ||||||
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LONG-TERM LIABILITIES
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||||||||
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Deferred revenue
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1,129,068 | 1,004,483 | ||||||
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Accrued rent expense
|
- | 3,001 | ||||||
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Deferred gain on sale-leaseback of building
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- | 8,874 | ||||||
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Other long-term liabilities
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151,385 | 94,835 | ||||||
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Total long-term liabilities
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1,280,453 | 1,111,193 | ||||||
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COMMITMENTS AND CONTINGENCIES (NOTE N)
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||||||||
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STOCKHOLDERS' EQUITY
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||||||||
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Preferred stock, $.01 par value; 1,000,000 shares authorized;
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||||||||
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299,024 issued and outstanding at August 31, 2011 and May 31, 2011
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2,990 | 2,990 | ||||||
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Common stock, $.001 par value; 250,000,000 shares authorized;
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||||||||
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117,253,704 shares at August 31, 2011 and 117,078,704 at
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||||||||
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May 31, 2011 issued and outstanding
|
117,253 | 117,079 | ||||||
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Additional paid-in capital
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55,910,342 | 55,743,295 | ||||||
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Accumulated deficit
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(54,694,128 | ) | (52,955,584 | ) | ||||
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Total stockholders’ equity
|
1,336,457 | 2,907,780 | ||||||
| $ | 17,439,982 | $ | 18,554,545 | |||||
| Three months ended August 31, | ||||||||
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2011
|
2010
|
|||||||
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Revenues
|
||||||||
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Equipment sales
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$ | 274,960 | $ | 724,519 | ||||
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Equipment rentals and services
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486,988 | 543,892 | ||||||
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Commissions
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3,566,488 | 7,436 | ||||||
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Total revenues
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4,328,436 | 1,275,847 | ||||||
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Cost of revenues
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||||||||
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Cost of sales, equipment
|
160,954 | 399,315 | ||||||
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Cost of equipment rentals and services
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238,847 | 236,707 | ||||||
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Cost of commissions
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1,102,108 | 1,950 | ||||||
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Total cost of revenues
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1,501,909 | 637,972 | ||||||
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Gross profit
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2,826,527 | 637,875 | ||||||
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Operating expenses
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||||||||
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Selling, general and administrative
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4,374,885 | 3,104,679 | ||||||
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Research and development
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135,129 | 110,389 | ||||||
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Total operating expenses
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4,510,014 | 3,215,068 | ||||||
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Operating loss
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(1,683,487 | ) | (2,577,193 | ) | ||||
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Other income (expenses)
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||||||||
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Interest and financing costs
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(2,260 | ) | (3,643 | ) | ||||
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Interest and other income, net
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21,185 | 3,532 | ||||||
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Amortization of deferred gain on
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||||||||
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sale-leaseback of building
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13,311 | 13,311 | ||||||
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Total other income, net
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32,236 | 13,200 | ||||||
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Loss before income taxes
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(1,651,251 | ) | (2,563,993 | ) | ||||
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Income tax expense, net
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(1,800 | ) | (5,830 | ) | ||||
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Net loss
|
(1,653,051 | ) | (2,569,823 | ) | ||||
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Preferred stock dividends
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(85,493 | ) | (27,708 | ) | ||||
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Net loss applicable to common stockholders
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$ | (1,738,544 | ) | $ | (2,597,531 | ) | ||
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Loss per common share
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||||||||
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- basic and diluted
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$ | (0.01 | ) | $ | (0.02 | ) | ||
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Weighted average common shares outstanding
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||||||||
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- basic and diluted
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116,986,095 | 110,271,131 | ||||||
| Three months ended August 31, | ||||||||
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2011
|
2010
|
|||||||
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Cash flows from operating activities
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||||||||
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Net loss
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$ | (1,653,051 | ) | $ | (2,569,823 | ) | ||
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Adjustments to reconcile net loss to net cash used in operating activities
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||||||||
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Depreciation and amortization of property and equipment
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40,113 | 37,737 | ||||||
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Amortization of deferred gain on sale-leaseback of building
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(13,311 | ) | (13,311 | ) | ||||
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Provision for doubtful accounts
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20,178 | 74,564 | ||||||
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Amortization of deferred distributor costs
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124,474 | 31,396 | ||||||
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Share-based compensation
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58,788 | 92,506 | ||||||
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Amortization of deferred consulting expense
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181,089 | - | ||||||
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Changes in operating assets and liabilities:
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||||||||
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Accounts and other receivables
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(453,264 | ) | (1,138,349 | ) | ||||
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Inventories, net
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(187,224 | ) | 226,510 | |||||
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Finance receivables
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4,460 | - | ||||||
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Deferred commission expense
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(323,728 | ) | (163,753 | ) | ||||
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Other current assets
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(60,417 | ) | (72,404 | ) | ||||
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Other assets
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(26,951 | ) | (3,955 | ) | ||||
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Accounts payable
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(156,367 | ) | 213,435 | |||||
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Accrued commissions
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201,228 | 147,775 | ||||||
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Accrued expenses and other liabilities
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322,285 | 221,688 | ||||||
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Sales tax payable
|
3,905 | 9,130 | ||||||
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Deferred revenue
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206,147 | 706,335 | ||||||
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Accrued rent expense
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(3,001 | ) | 57 | |||||
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Accrued professional fees
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81,893 | (40,887 | ) | |||||
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Trade payable due to related party
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(262,504 | ) | - | |||||
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Other long-term liabilities
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56,550 | - | ||||||
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Net cash used in operating activities
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(1,838,708 | ) | (2,241,349 | ) | ||||
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Cash flows from investing activities
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||||||||
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Purchases of property and equipment
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(16,144 | ) | (103,220 | ) | ||||
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Purchases of short-term investments
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(439 | ) | - | |||||
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Net cash used in investing activities
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(16,583 | ) | (103,220 | ) | ||||
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Cash flows from financing activities
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||||||||
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Proceeds from preferred stock
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- | 2,340,000 | ||||||
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Net cash provided by financing activities
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- | 2,340,000 | ||||||
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NET DECREASE IN CASH AND CASH EQUIVALENTS
|
(1,855,287 | ) | (4,569 | ) | ||||
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Cash and cash equivalents - beginning of period
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8,130,031 | 481,679 | ||||||
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Cash and cash equivalents - end of period
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$ | 6,274,740 | $ | 477,110 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
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||||||||
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Interest paid
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$ | 2,260 | $ | 722 | ||||
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Income taxes paid
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$ | 3,666 | $ | 2,200 | ||||
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
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||||||||
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Inventories transferred to property and equipment, attributable to operating leases, net
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$ | 32,058 | $ | 70,128 | ||||
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Conversion of notes payable to preferred stock
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$ | - | $ | 1,250,000 | ||||
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Accrued preferred stock dividends
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$ | (85,493 | ) | $ | (27,708 | ) | ||
| As of or for the three months ended August 31, 2011 | ||||||||||||||||
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Equipment Segment
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Sales Representation Segment
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Corporate
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Consolidated
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|||||||||||||
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Revenues from external customers
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$ | 761,948 | $ | 3,566,488 | $ | - | $ | 4,328,436 | ||||||||
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Operating loss
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$ | (668,556 | ) | $ | (723,769 | ) | $ | (291,162 | ) | $ | (1,683,487 | ) | ||||
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Total assets
|
$ | 4,110,025 | $ | 6,997,842 | $ | 6,332,115 | $ | 17,439,982 | ||||||||
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Accounts and other receivables, net
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$ | 682,551 | $ | 3,769,107 | $ | - | $ | 4,451,658 | ||||||||
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Deferred commission expense
|
$ | - | $ | 3,073,315 | $ | - | $ | 3,073,315 | ||||||||
|
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As of or for the three months ended August 31, 2010 | |||||||||||||||
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Equipment Segment
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Sales Representation Segment
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Corporate
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Consolidated
|
|||||||||||||
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Revenues from external customers
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$ | 1,268,411 | $ | 7,436 | $ | - | $ | 1,275,847 | ||||||||
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Operating loss
|
$ | (80,956 | ) | $ | (2,362,240 | ) | $ | (133,997 | ) | $ | (2,577,193 | ) | ||||
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Total assets
|
$ | 3,406,537 | $ | 1,006,057 | $ | 557,821 | $ | 4,970,415 | ||||||||
|
Accounts and other receivables, net
|
$ | 761,480 | $ | 776,183 | $ | - | $ | 1,537,663 | ||||||||
|
Deferred commission expense
|
$ | - | $ | 163,753 | $ | - | $ | 163,753 | ||||||||
| Three months ended August 31, | ||||||||
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2011
|
2010
|
|||||||
|
Stock options
|
1,809,776 | 2,698,776 | ||||||
|
Warrants
|
4,285,714 | 4,285,714 | ||||||
|
Convertible preferred stock
|
30,668,500 | 22,610,677 | ||||||
|
Common stock grants
|
2,795,000 | 3,750,000 | ||||||
| 39,558,990 | 33,345,167 | |||||||
|
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Balance
as of
August 31,
2011
|
|||||||||||||
|
Assets
|
||||||||||||||||
|
Cash equivalents invested in money market funds (included in cash and cash equivalents)
|
$ | 21,246 | $ | - | $ | - | $ | 21,246 | ||||||||
|
Investment in certificates of deposit (included in short-term investments)
|
110,148 | - | - | 110,148 | ||||||||||||
| $ | 131,394 | $ | - | $ | - | $ | 131,394 | |||||||||
|
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Balance
as of
May 31,
2011
|
|||||||||||||
|
Assets
|
||||||||||||||||
|
Cash equivalents invested in money market funds (included in cash and cash equivalents)
|
$ | 21,245 | $ | - | $ | - | $ | 21,245 | ||||||||
|
Investment in certificates of deposit (included in short-term investments)
|
109,709 | - | - | 109,709 | ||||||||||||
| $ | 130,954 | $ | - | $ | - | $ | 130,954 | |||||||||
|
August 31, 2011
|
May 31, 2011
|
|||||||
|
Trade receivables
|
$ | 5,576,415 | $ | 5,194,953 | ||||
|
Due from employees
|
192,368 | 120,566 | ||||||
|
Allowance for doubtful accounts and
|
||||||||
|
commission adjustments
|
(1,317,125 | ) | (1,296,947 | ) | ||||
| $ | 4,451,658 | $ | 4,018,572 | |||||
|
August 31, 2011
|
May 31, 2011
|
||
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Raw materials
|
$ 501,806
|
$ 514,387
|
|
|
Work in process
|
468,740
|
484,798
|
|
|
Finished goods
|
970,677
|
786,872
|
|
|
$ 1,941,223
|
$ 1,786,057
|
| For the three months ended August 31, | ||||||||
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2011
|
2010
|
|||||||
|
Deferred revenue at the beginning of the period
|
$ | 11,922,215 | $ | 1,027,348 | ||||
|
Additions:
|
||||||||
|
Deferred extended service contracts
|
283,329 | 353,613 | ||||||
|
Deferred in-service and training
|
5,000 | 7,500 | ||||||
|
Deferred service arrangements
|
10,000 | 15,000 | ||||||
|
Deferred commission revenues
|
3,296,082 | 678,514 | ||||||
|
Recognized as revenue:
|
||||||||
|
Deferred extended service contracts
|
(277,487 | ) | (323,464 | ) | ||||
|
Deferred in-service and training
|
(10,000 | ) | (2,500 | ) | ||||
|
Deferred service arrangements
|
(19,911 | ) | (14,892 | ) | ||||
|
Deferred commission revenues
|
(3,080,866 | ) | (7,436 | ) | ||||
|
Deferred revenue at end of period
|
12,128,362 | 1,733,683 | ||||||
|
Less: current portion
|
10,999,294 | 1,637,549 | ||||||
|
Long-term deferred revenue at end of period
|
$ | 1,129,068 | $ | 96,134 | ||||
|
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.
|
|
i.
|
Face Amount. The face amount per share of the Series E Preferred is $16.00.
|
|
ii.
|
Dividends. Cumulative dividends will accrue at a rate of 5% per annum, payable semi-annually in additional shares of the Series E Preferred. Dividends on the Series E Preferred will be paid in preference to any dividends paid to the holders of the Company’s Common Stock or any other series of the Company’s preferred stock made junior to the Series E Preferred.
|
|
iii.
|
Liquidation Preference. On any liquidation, dissolution or winding-up of the Company, the holders of the Series E Preferred will receive payment of twice the aggregate face amount thereof, plus all accrued and unpaid dividends, before any payments or distributions are paid or provided for the Company’s common stock or any other series of the Company’s preferred stock made junior to the Series E Preferred. In the event of a sale of all or substantially all the Company’s stock or assets, the holders of the Series E Preferred will receive payment of 1.2 times the aggregate face amount thereof, plus all accrued and unpaid dividends, before any payments or distributions are paid or provided for the Company’s
common stock or any other series of the Company’s preferred stock made junior to the Series E Preferred.
|
|
iv.
|
Conversion Rights. Each share of the Series E 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. Notwithstanding the foregoing, the Series E Preferred shall be automatically converted into common stock on June 1, 2015.
|
|
v.
|
Voting Rights. Investors in the Series E Preferred will have voting rights in the ratio of 100 votes for each share of Series E Preferred and shall vote together with the common stock as a single class.
|
|
vi.
|
Anti-Dilution Adjustments. The 100-to-1 conversion ratio of the Series E Preferred will be subject to proportional adjustment for stock dividends, stock splits and other similar changes in capitalization. If the Company issues or sells shares of its capital stock for consideration of a price of less than the lesser of its then current market price or the applicable Conversion Price, the Conversion Price shall be adjusted to be such lower price at which the Company issued or sold shares of its capital stock; provided, however, that the Company shall have the right to issue shares and options under its option plans.
|
|
Vehicles
|
Facilities
|
Total
|
||||||||||
|
2012
|
$ | 186,000 | $ | 158,000 | $ | 344,000 | ||||||
|
2013
|
247,000 | 89,000 | 336,000 | |||||||||
|
2014
|
227,000 | - | 227,000 | |||||||||
|
2015
|
21,000 | - | 21,000 | |||||||||
|
Total
|
$ | 681,000 | $ | 247,000 | $ | 928,000 | ||||||
|
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.
|
|
|
President & Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
Chief Financial Officer
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Vasomedical, Inc. and subsidiaries (the “registrant”);
|
|
2.
|
Based on my knowledge, this 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 report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
|
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
|
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
|
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Vasomedical, Inc. and subsidiaries (the “registrant”);
|
|
2.
|
Based on my knowledge, this 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 report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
|
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
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b.
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c.
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
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a.
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
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b.
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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CONSOLIDATED CONDENSED BALANCE SHEETS (unaudited) (Parenthetical) (USD $) | Aug. 31, 2011 | May 31, 2011 |
|---|---|---|
| CURRENT ASSETS | ||
| Accounts and other receivables, allowance for doubtful accounts | $ 1,317,125 | $ 1,296,947 |
| PROPERTY AND EQUIPMENT, accumulated depreciation | 1,635,356 | 1,633,290 |
| DEFERRED DISTRIBUTOR COSTS, accumulated amortization | $ 588,876 | $ 464,402 |
| STOCKHOLDERS' EQUITY | ||
| Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Preferred stock, shares authorized (in shares) | 1,000,000 | 1,000,000 |
| Preferred stock, shares issued (in shares) | 299,024 | 299,024 |
| Preferred stock, shares outstanding (in shares) | 299,024 | 299,024 |
| Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized (in shares) | 250,000,000 | 250,000,000 |
| Common stock, shares issued (in shares) | 117,253,704 | 117,078,704 |
| Common stock, shares outstanding (in shares) | 117,253,704 | 117,078,704 |
Document And Entity Information (USD $) | 3 Months Ended | ||
|---|---|---|---|
Aug. 31, 2011 | Oct. 07, 2011 | Aug. 22, 2011 | |
| Entity Registrant Name | VASOMEDICAL INC | ||
| Entity Central Index Key | 0000839087 | ||
| Current Fiscal Year End Date | --05-31 | ||
| Entity Well-known Seasoned Issuer | No | ||
| Entity Voluntary Filers | No | ||
| Entity Current Reporting Status | Yes | ||
| Entity Filer Category | Smaller Reporting Company | ||
| Entity Public Float | $ 22,065,523 | ||
| Entity Common Stock, Shares Outstanding | 151,791,304 | ||
| Document Fiscal Year Focus | 2011 | ||
| Document Fiscal Period Focus | Q1 | ||
| Document Type | 10-Q | ||
| Amendment Flag | false | ||
| Document Period End Date | Aug. 31, 2011 |
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FAIR VALUE MEASUREMENTS | 3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FAIR VALUE MEASUREMENTS [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FAIR VALUE MEASUREMENTS | NOTE G – 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 August 31, 2011 and May 31, 2011:
The fair values of the Company's cash equivalents invested in money market funds are determined through market, observable and corroborated sources. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RELATED-PARTY TRANSACTIONS | 3 Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2011 | |||||||||||
| RELATED-PARTY TRANSACTIONS [Abstract] | |||||||||||
| RELATED-PARTY TRANSACTIONS | NOTE L – RELATED-PARTY TRANSACTIONS On June 21, 2007, we entered into a Securities Purchase Agreement with Kerns Manufacturing Corp. (“Kerns”). Concurrently with our entry into the Securities Purchase Agreement, we also entered into a Distribution Agreement and a Supplier Agreement with Living Data Technology Corporation (“Living Data”), an affiliate of Kerns. 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 P), 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, totaling $93,077, in the quarter ended August 31, 2011. Pursuant to the Supplier Agreement, Living Data became our exclusive supplier of the external counterpulsation therapy systems that we market under the registered trademark EECP®. On February 28, 2010, the Supplier Agreement was terminated and, in connection with the termination, the Company purchased Living Data's remaining inventory at cost ($469,450), which was paid in 7,824,167 shares of common stock valued at the closing price on the termination date. Prior to termination, the Company purchased in fiscal 2010 additional EECP® therapy systems for $40,000 from Living Data. Payment terms on certain purchases prior to 2010, plus $3,359 in commissions for sales of certain BIOX products, leave a balance of $3,359 and $265,863 in Trade Payable due to Related Party on the accompanying consolidated condensed balance sheets as of August 31, 2011 and May 31, 2011, respectively. The payable balance due Living Data included interest charges of $23,603 at May 31, 2011 and was satisfied through a cash payment in August 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 $109,000 were billed by the firm through the three months ending August 31, 2011, at which date $75,000 was outstanding. Mr. Rios currently is President of Edgary Consultants, LLC, and was appointed a director in conjunction with the Company's consulting agreement with Edgary Consultants, LLC. The consulting agreement (the “Agreement”) between the Company and Edgary Consultants, LLC (“Consultant”) commenced on March 1, 2011 and terminates on February 28, 2013. 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:
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 August 31, 2011 and May 31, 2011. During the first quarter of fiscal 2012, two directors performed consulting services for the Company aggregating approximately $54,000, and the Company accrued dividends of $14,734 on Series E Preferred Stock (see Note M) to directors, management, and other related parties of the Company. |
LIQUIDITY | 3 Months Ended |
|---|---|
Aug. 31, 2011 | |
| LIQUIDITY [Abstract] | |
| LIQUIDITY | NOTE C - LIQUIDITY During the last several years, the Company has incurred operating losses. We have sought to achieve profitability by launching the VasoHealthcare business, and by expanding our U.S. market product portfolio to include ambulatory monitoring devices (the BIOX series ECG Holter recorders, ambulatory blood pressure monitors and analysis software) and patient management devices (the EZ ECG and EZ O2 products). In fiscal 2011, the Company issued Series E convertible preferred stock (see Note N) to finance the initial operation of its Sales Representation segment and ultimately generated in excess of $4.1 million in operating cash flow by fiscal year end. While we expect to continue to generate significant operating cash flows in fiscal 2012, the progressive nature of the GEHC Agreement can cause related cash inflows to vary widely during the fiscal year. In addition, under the terms of our agreement with GEHC, we are entitled to commissions on certain undelivered sales orders received by GEHC prior to our agreement and transferred to us from GEHC as of September 30, 2010. These transferred orders, though subject to various risks including potential cancellation and changes in credit worthiness and availability, as well as the Company's continued compliance under the GEHC Agreement, generated commission revenue of $2.8 million from October 2010 to August 2011, and $0.5 million for the three months ended August 31, 2011, and are expected to generate additional commission revenues estimated to range from $1.9 million to $2.3 million over approximately one or more years. Based on our current operations through August 31, 2011, we believe internally generated funds from our Equipment and Sales Representation segments will be sufficient for the Company to continue operations through at least September 1, 2012. |
INVENTORIES, NET | 3 Months Ended | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2011 | |||||||||||||||||||||||||
| INVENTORIES, NET [Abstract] | |||||||||||||||||||||||||
| INVENTORIES, NET | NOTE I – INVENTORIES, NET Inventories, net of reserves, consist of the following:
At August 31, 2011 and May 31, 2011, the Company had reserves for excess and obsolete inventory of $393,907 and $409,490, respectively. |
COMMITMENTS AND CONTINGENCIES | 3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COMMITMENTS AND CONTINGENCIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COMMITMENTS AND CONTINGENCIES | NOTE N – COMMITMENTS AND CONTINGENCIES Sales representation agreement The GEHC Agreement is for an initial term of three years commencing July 1, 2010, subject to extension and also 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. Facility Leases On August 15, 2007, we sold our facility in Westbury, New York under a five-year leaseback agreement. VasoHealthcare also leases facilities in Greensboro, North Carolina pursuant to a lease which expires in May 2013. Vehicle Lease Agreement In June 2011, the Company began taking deliveries under a closed-end master lease agreement for the provision of vehicles to the sales team of its Sales Representation segment. Vehicles obtained under the terms of the agreement are leased generally for a 36 month term, and payments are fixed for each year of the agreement, subject to readjustment at the beginning of the second and third year. Future rental payments under these operating leases aggregate approximately as follows: For the years ended May 31:
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FINANCING RECEIVABLES, NET | 3 Months Ended |
|---|---|
Aug. 31, 2011 | |
| FINANCING RECEIVABLES, NET [Abstract] | |
| FINANCING RECEIVABLES, NET | NOTE J – FINANCING RECEIVABLES, NET At August 31, 2011, the Company had financing receivables of $41,097, net of unearned interest of $3,903. These financing receivables were generated by a sales-type lease of our EECP® equipment in our Equipment Segment for a term of three years ending September 1, 2013. At August 31, 2011, there were no past due amounts on these financing receivables and the Company has consequently made no provision for credit loss. At May 31, 2011, the Company had financing receivables of $45,558, net of unearned interest of $4,842. |
ACCOUNTS AND OTHER RECEIVABLES, NET | 3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCOUNTS AND OTHER RECEIVABLES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCOUNTS AND OTHER RECEIVABLES, NET | NOTE H – ACCOUNTS AND OTHER RECEIVABLES, NET The following table presents information regarding the Company's accounts and other receivables as of August 31, 2011 and May 31, 2011:
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 primarily reflects commission advances made to sales personnel. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ORGANIZATION AND PLAN OF OPERATIONS | 3 Months Ended |
|---|---|
Aug. 31, 2011 | |
| ORGANIZATION AND PLAN OF OPERATIONS [Abstract] | |
| ORGANIZATION AND PLAN OF OPERATIONS | 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 (See Note P). Since 1995, we have been 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 April 2010, the Company, through a wholly-owned subsidiary Vaso Diagnostics d/b/a VasoHealthcare, organized a group of medical device sales professionals in anticipation of entering into the sales and representation business for other equipment manufacturers. On May 19, 2010, VasoHealthcare signed a sales representative agreement with GE Healthcare (the “GEHC Agreement”), the healthcare business unit of General Electric Company (NYSE: GE), for the sale of select GE Healthcare Diagnostic Imaging products. Under the GEHC Agreement, VasoHealthcare has been appointed the exclusive representative for these products to specific market segments in the 48 contiguous states of the United States and the District of Columbia. The GEHC Agreement has an initial term of three years commencing July 1, 2010, subject to extension and also subject to earlier termination under certain circumstances. We now report VasoHealthcare activities under our Sales Representation reportable segment and EECP® and other medical device operations under our Equipment reportable segment (See Note D). |
SEGMENT REPORTING AND CONCENTRATIONS | 3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT REPORTING AND CONCENTRATIONS [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT REPORTING AND CONCENTRATIONS | NOTE D – 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 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. There are no intersegment revenues. Summary financial information for the segments is set forth below:
For the three months ended August 31, 2011 and 2010, GE Healthcare accounted for 82% and 1% of revenue, respectively. Also, GE Healthcare accounted for $3,596,106, or 81%, and $2,990,978, or 74%, of accounts and other receivables at August 31, 2011 and May 31, 2011, respectively. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHARE-BASED COMPENSATION | 3 Months Ended |
|---|---|
Aug. 31, 2011 | |
| SHARE-BASED COMPENSATION [Abstract] | |
| SHARE-BASED COMPENSATION | NOTE E – 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-month period ended August 31, 2011, the Company's Board of Directors granted 50,000 restricted shares of common stock, valued at $23,500 to an outside director. During the three-month period ended August 31, 2010, the Company's Board of Directors granted, under the 2010 Stock Plan (see Note M), 3,750,000 restricted shares of common stock valued at $712,500 to non-officer employees and consultants. Shares valued at $65,550 vested immediately with the remainder vesting over three years. During the three-month period ended August 31, 2011 and 2010, the Company's Board of Directors did not grant any non-qualified stock options Share-based compensation expense recognized for the three months ended August 31, 2011 and 2010 was $58,788 and $92,506, 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 $181,089 for the three months ended August 31, 2011 and $0 for the three months ending August 31, 2010. Unrecognized expense related to existing share-based arrangements is approximately $1.3 million at August 31, 2011 and will be recognized ratably through July 2013. |
STOCKHOLDERS EQUITY | 3 Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2011 | |||||||||||||
| STOCKHOLDERS EQUITY [Abstract] | |||||||||||||
| STOCKHOLDERS EQUITY | 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 a bonus 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 August 31, 2011, 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 August 31, 2011, 405,000 shares have been forfeited. In September 2010, 650,000 restricted shares of common stock were granted under the 2010 Plan to officers of the Company. No options were issued under the 2010 Plan during the three months ended August 31, 2011 and 2010. In September 2011, 475,000 shares of restricted common stock were granted under the 2010 Plan to an officer, of which 100,000 vest immediately with the remainder vesting over a three year period. Also, during September 2011, the Company issued 5 million shares of restricted common stock as partial consideration for the acquisition of Fast Growth Enterprises Ltd (see Note P). 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 following is a summary of the powers, designations, preferences and other rights of the Series E Preferred.
Dividends totaling $19,935 and $27,308 have been accrued for the three months ended August 31, 2011 and 2010, respectively. Additional dividends totaling $65,558 were recorded in recognition of the embedded beneficial conversion feature associated with the Series E Preferred during the three months ended August 31, 2011. The Series E Preferred was subject to automatic conversion on or after July 1, 2011 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. This condition was met in the 30 trading days ended May 10, 2011. As a result, the Company expects to convert all preferred shares to common stock. As of October 7, 2011, 294,376 shares of Series E Preferred had converted to 29,437,600 shares of common stock. |
LOSS PER COMMON SHARE | 3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LOSS PER COMMON SHARE [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LOSS PER COMMON SHARE | NOTE F – LOSS PER COMMON SHARE Basic loss per common share is computed as loss 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. Basic and diluted loss per common share was $0.01 and $0.02 for the three months ended August 31, 2011 and 2010, respectively. The following table represents common stock equivalents that were excluded from the computation of diluted earnings per share for the three months ended August 31, 2011 and 2010, because the effect of their inclusion would be anti-dilutive.
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SUBSEQUENT EVENTS | 3 Months Ended |
|---|---|
Aug. 31, 2011 | |
| SUBSEQUENT EVENTS [Abstract] | |
| SUBSEQUENT EVENTS | NOTE P – SUBSEQUENT EVENTS Corporate Structure In September 2011, the Company restructured to further align its business management structure and long-term growth strategy and will operate through three wholly-owned subsidiaries. Vaso Diagnostics d/b/a VasoHealthcare will continue as an operating subsidiary for the sales representation of GE Healthcare diagnostic imaging products; Vasomedical Global Corp. will operate the Company's newly-acquired Chinese companies; and Vasomedical Solutions, Inc. has been formed to manage and coordinate its EECP® therapy business as well as other medical equipment operations. Business Combination Effective August 19, 2011, the Company, through its newly formed subsidiary, Vasomedical Global, signed an agreement to purchase Life Enhancement Technology Limited and Biox Instruments Co., Ltd., both of which are based in the People's Republic of China. On September 2, 2011, Vasomedical Global successfully completed the purchase of all the outstanding capital stock of privately-held Fast Growth Enterprises Limited, a British Virgin Islands company that owns Life Enhancement Technology Limited (“LET”) and Biox Instruments Co. Ltd. (“Biox”), as per the stock purchase agreement signed on August 19, 2011. The consideration of this acquisition includes a cash payment of $1 million as well as the issuance of up to 7.4 million restricted shares of the Company's common stock, part of which is performance based, and warrants. LET, based in Foshan, Guangdong, China, has been Vasomedical's supplier for its proprietary Enhanced External Counterpulsation (EECP®) systems, including certain Lumenair systems and all AngioNew® systems. Biox, a leading developer and manufacturer of ambulatory monitoring devices in China, is located in Wuxi, Jiangsu, China, and has been Vasomedical's partner on 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. |
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