0001201800-16-000035.txt : 20160815 0001201800-16-000035.hdr.sgml : 20160815 20160815160229 ACCESSION NUMBER: 0001201800-16-000035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 64 CONFORMED PERIOD OF REPORT: 20160630 FILED AS OF DATE: 20160815 DATE AS OF CHANGE: 20160815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VASOMEDICAL, INC CENTRAL INDEX KEY: 0000839087 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 112871434 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18105 FILM NUMBER: 161832521 BUSINESS ADDRESS: STREET 1: 180 LINDEN AVENUE CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 516-997-4600 MAIL ADDRESS: STREET 1: 180 LINDEN AVENUE CITY: WESTBURY STATE: NY ZIP: 11590 FORMER COMPANY: FORMER CONFORMED NAME: VASOMEDICAL INC DATE OF NAME CHANGE: 19950517 FORMER COMPANY: FORMER CONFORMED NAME: FUTURE MEDICAL PRODUCTS INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FUTURE MEDICAL PRODUCTS INC /NY/ DATE OF NAME CHANGE: 19920506 10-Q 1 vaso10q-june2016.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


FORM 10-Q


[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June30, 2016

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

Commission File Number: 0-18105
 
 
VASOMEDICAL, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
11-2871434
(State or other jurisdiction of
(IRS Employer Identification Number)
incorporation or organization)
 

137 Commercial Street, Suite 200, Plainview, New York  11803
(Address of principal executive offices)

Registrant’s Telephone Number
(516) 997-4600


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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x      Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
 
Large Accelerated Filer o
Accelerated Filer o
Non-Accelerated Filer o
Smaller Reporting Company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o   No x
 
Number of Shares Outstanding of Common Stock, $.001 Par Value, at August 9, 2016 – 163,461,353
Page 1

Vasomedical, Inc. and Subsidiaries

INDEX
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 2

PART I – FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS
Vasomedical, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
   
June 30, 2016
   
December 31, 2015
 
   
(unaudited)
       
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
 
$
5,622
   
$
2,160
 
Short-term investments
   
-
     
38
 
Accounts and other receivables, net of an allowance for doubtful
               
accounts and commission adjustments of $3,798 at June 30,
               
2016 and $3,863 at December 31, 2015
   
8,945
     
11,620
 
Receivables due from related parties
   
100
     
209
 
Inventories, net
   
1,671
     
1,963
 
Deferred commission expense
   
2,161
     
2,252
 
Prepaid expenses and other current assets
   
510
     
512
 
 Total current assets
   
19,009
     
18,754
 
                 
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
               
$2,963 at June 30, 2016 and $2,976 at December 31, 2015
   
3,354
     
2,888
 
GOODWILL
   
17,412
     
17,484
 
INTANGIBLES, net
   
6,488
     
6,977
 
OTHER ASSETS, net
   
3,813
     
4,315
 
   
$
50,076
   
$
50,418
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
CURRENT LIABILITIES
               
Accounts payable
 
$
4,150
   
$
4,037
 
Accrued commissions
   
1,550
     
2,031
 
Accrued expenses and other liabilities
   
4,050
     
4,511
 
Sales tax payable
   
718
     
671
 
Income taxes payable
   
-
     
202
 
Deferred revenue - current portion
   
9,613
     
9,480
 
Notes payable - current portion
   
2,600
     
1,485
 
Due to related party
   
32
     
33
 
Total current liabilities
   
22,713
     
22,450
 
                 
LONG-TERM LIABILITIES
               
Notes payable
   
4,768
     
4,886
 
Notes payable due to related party
   
1,166
     
963
 
Deferred revenue
   
8,170
     
9,036
 
Deferred tax liability
   
112
     
112
 
Other long-term liabilities
   
1,150
     
1,230
 
Total long-term liabilities
   
15,366
     
16,227
 
                 
COMMITMENTS AND CONTINGENCIES (NOTE N)
               
                 
STOCKHOLDERS' EQUITY
               
Preferred stock, $.01 par value; 1,000,000 shares authorized; nil shares
               
 issued and outstanding at June 30, 2016, and December 31, 2015
   
-
     
-
 
Common stock, $.001 par value; 250,000,000 shares authorized;
               
170,169,440 and 168,749,889 shares issued at June 30, 2016
               
and December 31, 2015, respectively; 159,861,353 and 158,441,802
               
shares outstanding at June 30, 2016 and December 31, 2015, respectively
   
170
     
168
 
Additional paid-in capital
   
62,500
     
62,263
 
Accumulated deficit
   
(48,501
)
   
(48,610
)
Accumulated other comprehensive loss
   
(172
)
   
(80
)
Treasury stock, at cost, 10,308,087 shares at June 30, 2016 and December 31, 2015
   
(2,000
)
   
(2,000
)
Total stockholders' equity
   
11,997
     
11,741
 
   
$
50,076
   
$
50,418
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 3

Vasomedical, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands, except per share data)
 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
Revenues
                       
Professional sales services
 
$
6,860
   
$
7,036
   
$
13,706
   
$
13,427
 
Managed IT systems and services
   
10,124
     
2,811
     
19,851
     
2,811
 
Equipment sales and services
   
1,230
     
996
     
2,199
     
2,059
 
Total revenues
   
18,214
     
10,843
     
35,756
     
18,297
 
                                 
Cost of revenues
                               
Cost of professional sales services
   
1,582
     
1,524
     
2,993
     
3,047
 
Cost of managed IT systems and services
   
6,165
     
1,613
     
11,886
     
1,613
 
Cost of equipment sales and services
   
354
     
378
     
752
     
741
 
Total cost of revenues
   
8,101
     
3,515
     
15,631
     
5,401
 
Gross profit
   
10,113
     
7,328
     
20,125
     
12,896
 
                                 
Operating expenses
                               
Selling, general and administrative
   
9,744
     
6,985
     
19,450
     
12,704
 
Research and development
   
105
     
137
     
252
     
272
 
Total operating expenses
   
9,849
     
7,122
     
19,702
     
12,976
 
Operating income (loss)
   
264
     
206
     
423
     
(80
)
                                 
Other income (expense)
                               
Interest and financing costs
   
(170
)
   
(89
)
   
(341
)
   
(117
)
Interest and other income (expense), net
   
68
     
80
     
78
     
147
 
Total other income (expense), net
   
(102
)
   
(9
)
   
(263
)
   
30
 
                                 
Income (loss) before income taxes
   
162
     
197
     
160
     
(50
)
Income tax benefit (expense)
   
51
     
(6
)
   
(51
)
   
(12
)
Net income (loss)
   
213
     
191
     
109
     
(62
)
                                 
Other comprehensive income
                               
Foreign currency translation (loss) gain
   
(130
)
   
24
     
(92
)
   
31
 
Comprehensive income (loss)
 
$
83
   
$
215
   
$
17
   
$
(31
)
                                 
Income (loss) per common share
                               
- basic and diluted
 
$
0.00
   
$
0.00
   
$
0.00
   
$
(0.00
)
                                 
Weighted average common shares outstanding
                               
- basic
   
158,513
     
156,258
     
157,952
     
156,102
 
- diluted
   
158,704
     
156,566
     
158,373
     
156,102
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 4

Vasomedical, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
 
 
 
   
(in thousands)
 
 
Common Stock
Treasury Stock
   
Additional
   
Accumulated
   
Accumulated
Other
Comprehensive
   
Total
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Paid-in-Capital
   
Deficit
   
Income (Loss)
   
Equity
 
Balance at December 31, 2014
   
166,435
   
$
166
     
(10,308
)
 
$
(2,000
)
 
$
61,924
   
$
(52,433
)
 
$
94
   
$
7,751
 
Share-based compensation
   
2,315
     
2
     
-
     
-
     
340
     
-
     
-
     
342
 
Shares not issued for employee
tax liability
   
-
     
-
     
-
     
-
     
(1
)
   
-
     
-
     
(1
)
Foreign currency translation
loss
   
-
     
-
     
-
     
-
     
-
     
-
     
(174
)
   
(174
)
Net income
   
-
     
-
     
-
     
-
     
-
     
3,823
     
-
     
3,823
 
Balance at December 31, 2015
   
168,750
   
$
168
     
(10,308
)
 
$
(2,000
)
 
$
62,263
   
$
(48,610
)
 
$
(80
)
 
$
11,741
 
Share-based compensation
   
306
     
-
     
-
     
-
     
67
     
-
     
-
     
67
 
Shares issued to settle liability
   
1,113
     
2
     
-
     
-
     
176
 
   
-
     
-
     
178
 
Shares not issued for employee
tax liability
     -        -       -       -       (6 )     -       -       (6 )
Foreign currency translation
loss
   
-
     
-
     
-
     
-
     
-
   
-
     
(92
)
   
(92
)
Net income
   
-
     
-
     
-
     
-
     
-
   
109
     
-
     
109
 
Balance at June 30, 2016 (unaudited)
   
170,169
   
$
170
     
(10,308
)
 
$
(2,000
)
 
$
62,500
   
$
(48,501
)
 
$
(172
)
 
$
11,997
 




The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 5



Vasomedical, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
(in thousands)

   
Six months ended
 
   
June 30,
 
   
2016
   
2015
 
Cash flows from operating activities
           
Net income (loss)
 
$
109
   
$
(62
)
Adjustments to reconcile net income (loss) to net cash
               
  provided by operating activities
               
Depreciation and amortization
   
1,043
     
482
 
Deferred income taxes
   
41
     
-
 
Loss from interest in joint venture
   
77
     
-
 
Provision for doubtful accounts and commission adjustments
   
75
     
61
 
Amortization of debt issue costs
   
16
      1  
Share-based compensation
   
67
     
260
 
Provision for allowance for loss on loan receivable
   
412
     
-
 
Changes in operating assets and liabilities:
               
Accounts and other receivables
   
2,596
     
10,429
 
Receivables due from related parties
   
108
     
1
 
Inventories, net
   
132
     
(354
)
Deferred commission expense
   
90
     
(207
)
Other current assets
   
-
     
(115
)
Other assets, net
   
377
     
1,859
 
Accounts payable
   
194
     
(43
)
Accrued commissions
   
(481
)
   
(1,092
)
Accrued expenses and other liabilities
   
(198
)
   
(1,243
)
Sales tax payable
   
48
     
(32
)
Income taxes payable
   
(202
)
   
(25
)
Deferred revenue
   
(734
)
   
(2,918
)
Notes payable due to related party
   
-
     
31
 
Other long-term liabilities
   
(22
)
   
(199
)
Net cash provided by operating activities
   
3,748
     
6,834
 
                 
Cash flows from investing activities
               
Purchases of equipment and software
   
(907
)
   
(188
)
Purchases of short-term investments
   
-
     
(38
)
Redemption of short-term investments
   
38
     
40
 
Acquisition of Netwolves
   
-
     
(18,000
)
Cash acquired through purchase of Netwolves
   
-
     
733
 
Investment in VSK
   
(422
)
   
(100
)
Net cash used in investing activities
   
(1,291
)
   
(17,553
)
                 
Cash flows from financing activities
               
Net borrowings on revolving line of credit
   
994
     
-
 
Debt issuance costs
   
(130
)
   
-
 
Payroll taxes paid by withholding shares
   
(6
)
   
-
 
Repayment of notes payable
   
(89
)
   
(21
)
Proceeds from notes payable
   
-
     
4,550
 
Proceeds from note payable due to related party
   
300
         
Payments on notes payable due to related party
   
(72
)
   
-
 
Net cash provided by financing activities
   
997
     
4,529
 
Effect of exchange rate differences on cash and cash equivalents
   
8
     
(7
)
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
3,462
     
(6,197
)
Cash and cash equivalents - beginning of period
   
2,160
     
9,128
 
Cash and cash equivalents - end of period
 
$
5,622
   
$
2,931
 
                 
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
               
Interest paid
 
$
436
   
$
15
 
Income taxes paid
 
$
310
   
$
66
 
                 
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
               
Inventories transferred to property and equipment,
               
attributable to operating leases, net
 
$
144
   
$
3
 
Liability settled through issuance of common stock   $ 178     $ -  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 6

Vasomedical, Inc. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
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. 

Overview

Vasomedical, Inc. principally operates in three distinct business segments in the healthcare equipment and information technology ("IT") industries.  We manage and evaluate our operations, and report our financial results, through these three business segments.

·
IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;

·
Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for General Electric Healthcare ("GEHC") into the health provider middle market; and

·
Equipment segment, operating through wholly-owned subsidiaries Vasomedical Global Corp. and Vasomedical Solutions, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices.

VasoTechnology

VasoTechnology, Inc. was formed in May 2015, at the time the Company acquired all of the assets of NetWolves, LLC and its affiliates, including the membership interests in NetWolves Network Services, LLC (collectively, "NetWolves").  It currently consists of a managed network and security service division and a healthcare IT application VAR (value added reseller) division.  Its current offerings include:

·
Managed diagnostic imaging applications (national channel partner of GEHC IT).
·
Managed network infrastructure (routers, switches and other core equipment).
·
Managed network transport (FCC licensed carrier reselling 175+ facility partners).
·
Managed security services.

VasoTechnology uses a combination of proprietary technology, methodology and third-party applications to deliver its value proposition.

VasoHealthcare

VasoHealthcare commenced operations in 2010, in conjunction with the Company's execution of its exclusive sales representation agreement with GEHC, which is the healthcare business division of the General Electric Company ("GE"), to exploit the sale of certain healthcare capital equipment in the health provider middle market.  Sales of GEHC equipment by the Company have grown significantly since then.

VasoHealthcare's current offerings consist of:

·
GEHC diagnostic imaging capital equipment.
·
GEHC service agreements.
·
GEHC and third party financial services.

 
Page 7

Vasomedical, Inc. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)

VasoHealthcare has built a team of approximately 90 highly experienced sales professionals who utilize highly focused sales management and analytic tools to manage the complete sales process and to increase market penetration.
 
Vasomedical Global and Vasomedical Solutions

Vasomedical Global was formed in 2011 to combine and coordinate the various design, development, manufacturing, and sales of medical devices by the Company.  These devices primarily consist of cardiovascular diagnostic and therapeutic systems.  Its current offerings consist of:

·
Biox™ series Holter monitors and ambulatory blood pressure recorders.
·
ARCS™ series analysis, reporting and communication software for physiological signals such as ECG and blood pressure.
·
MobiCare™ multi-parameter wireless vital-sign monitoring system.
·
EECP® therapy system for non-invasive, outpatient treatment of ischemic heart disease.

This segment uses its extensive cardiovascular device knowledge coupled with its significant engineering resources to cost-effectively create and market its proprietary technology. It works with a global distribution network of channel partners, as well as a global joint venture arrangement, to sell its products.

NOTE B - BASIS OF PRESENTATION AND CRITICAL ACCOUNTING POLICIES

Basis of Presentation and Use of Estimates

The accompanying condensed consolidated 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 unaudited condensed consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in connection with the audited consolidated financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on March 30, 2016.

These unaudited condensed consolidated financial statements include the accounts of the companies over which we exercise control. In the opinion of management, the accompanying condensed consolidated 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 condensed consolidated financial statements, the disclosure of contingent assets and liabilities in the unaudited condensed consolidated 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.

 
 
Page 8

Vasomedical, Inc. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
Significant Accounting Policies and Recent Accounting Pronouncements

During the first quarter of 2016, we adopted Accounting Standards Update ("ASU") No. 2015-16, Simplifying the Accounting for Measurement-period Adjustments, and ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, neither of which had a material impact on our reported financial position or results of operations and cash flows.  There have been no other significant changes in our reported financial position or results of operations and cash flows as a result of the adoption of new accounting pronouncements or to our significant accounting policies that were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 that have had a significant impact on our consolidated financial statements or notes thereto.
 
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which adds further guidance on identifying performance obligations and improves the operability and understanding of the licensing implementation guidance.  The standard is effective for fiscal periods beginning after December 15, 2017, including interim periods therein.  Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.  The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

Variable Interest Entities

The Company follows the guidance of accounting for variable interest entities, which requires certain variable interest entities to be consolidated by the primary beneficiary of the entities.  Biox is a Variable Interest Entity ("VIE").

Liabilities recognized as a result of consolidating this VIE do not represent additional claims on the Company's general assets. The financial information of Biox, which is included in the accompanying condensed consolidated financial statements, is presented as follows:
 
     (in thousands)     
 
 
As of June 30, 2016
   
As of December 31, 2015
 
   
(unaudited)
       
Cash and cash equivalents
 
$
43
   
$
104
 
Total assets
 
$
1,281
   
$
1,168
 
Total liabilities
 
$
974
   
$
1,007
 
                 

 
        (in  thousands)  
 
 
Three months ended June 30,
   
Six months ended June 30,
 
   
2016
   
2015
   
2016
   
2015
 
   
(unaudited)
   
(unaudited)
   
(unaudited)
   
(unaudited)
 
Total net revenue
 
$
566
   
$
454
   
$
914
   
$
825
 
                                 
Net income (loss)
 
$
162
   
$
(87
)
 
$
160
   
$
(223
)
                                 


 
Page 9

Vasomedical, Inc. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
Reclassifications
Certain reclassifications have been made to prior period amounts to conform with the current period presentation.

NOTE C – SEGMENT REPORTING AND CONCENTRATIONS

Vasomedical, Inc. principally operates in three distinct business segments in the healthcare equipment and information technology industries.  We manage and evaluate our operations, and report our financial results, through these three business segments.
 
 
·
IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;

·
Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for GEHC into the health provider middle market; and
 
·
Equipment segment, operating through wholly-owned subsidiaries Vasomedical Global Corp. and Vasomedical Solutions, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices.
 
 
The chief operating decision maker is the Company's Chief Executive Officer, who, in conjunction with upper management, evaluates segment performance based on operating income and adjusted EBITDA (net income (loss), plus interest expense (income), net; tax expense; depreciation and amortization; and non-cash stock-based compensation).  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:
 
Page 10

Vasomedical, Inc. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
  
   
As of or for the three months ended June 30, 2016 (unaudited)
 
   
Professional Sales Service Segment
   
IT Segment
   
Equipment Segment
   
Corporate
   
Consolidated
 
                               
Revenues from external customers
 
$
6,860
   
$
10,124
   
$
1,229
   
$
-
   
$
18,213
 
Operating income (loss)
 
$
1,422
   
$
(853
)
 
$
(13
)
 
$
(292
)
 
$
264
 
Total assets
 
$
10,565
   
$
25,699
   
$
7,900
   
$
5,912
   
$
50,076
 
Accounts and other receivables, net
 
$
5,393
   
$
2,832
   
$
720
   
$
-
   
$
8,945
 
Deferred commission expense
 
$
2,011
   
$
150
   
$
-
   
$
-
   
$
2,161
 
Other assets, net
 
$
2,644
   
$
265
   
$
79
   
$
825
   
$
3,813
 
                                         
             
As of or for the three months ended June 30, 2015 (unaudited)        
 
   
Professional Sales Service Segment
   
IT Segment
   
Equipment Segment
   
Corporate
   
Consolidated
 
                                         
Revenues from external customers
 
$
7,036
   
$
2,811
   
$
996
   
$
-
   
$
10,843
 
Operating income (loss)
 
$
1,794
   
$
(366
)
 
$
(676
)
 
$
(546
)
 
$
206
 
Total assets
 
$
10,421
   
$
25,205
   
$
9,385
   
$
1,309
   
$
46,320
 
Accounts and other receivables, net
 
$
4,421
   
$
1,399
   
$
500
   
$
-
   
$
6,320
 
Deferred commission expense
 
$
2,388
   
$
19
   
$
-
   
$
-
   
$
2,407
 
Other assets, net
 
$
3,098
   
$
51
   
$
675
   
$
113
   
$
3,937
 
                                         
             
As of or for the six months ended June 30, 2016 (unaudited)        
 
   
Professional Sales Service Segment
   
IT Segment
   
Equipment Segment
   
Corporate
   
Consolidated
 
                                         
Revenues from external customers
 
$
13,706
   
$
19,851
   
$
2,199
   
$
-
   
$
35,756
 
Operating income (loss)
 
$
3,410
   
$
(1,596
)
 
$
(711
)
 
$
(680
)
 
$
423
 
Total assets
 
$
10,565
   
$
25,699
   
$
7,900
   
$
5,912
   
$
50,076
 
Accounts and other receivables, net
 
$
5,393
   
$
2,832
   
$
720
   
$
-
   
$
8,945
 
Deferred commission expense
 
$
2,011
   
$
150
   
$
-
   
$
-
   
$
2,161
 
Other assets, net
 
$
2,644
   
$
265
   
$
79
   
$
825
   
$
3,813
 
                                         
             
As of or for the six months ended June 30, 2015 (unaudited)        
 
   
Professional Sales Service Segment
   
IT Segment
   
Equipment Segment
   
Corporate
   
Consolidated
 
                                         
Revenues from external customers
 
$
13,427
   
$
2,811
   
$
2,059
   
$
-
   
$
18,297
 
Operating income (loss)
 
$
2,880
   
$
(721
)
 
$
(1,311
)
 
$
(928
)
 
$
(80
)
Total assets
 
$
10,421
   
$
25,205
   
$
9,385
   
$
1,309
   
$
46,320
 
Accounts and other receivables, net
 
$
4,421
   
$
1,399
   
$
500
   
$
-
   
$
6,320
 
Deferred commission expense
 
$
2,388
   
$
19
   
$
-
   
$
-
   
$
2,407
 
Other assets, net
 
$
3,098
   
$
51
   
$
675
   
$
113
   
$
3,937
 

 
Page 11

Vasomedical, Inc. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)

For both the three and six months ended June 30, 2016, GE Healthcare accounted for 38% of revenue, and for the three and six months ended June 30, 2015, GE Healthcare accounted for 65% and 73% of revenue, respectively.  GE Healthcare also accounted for $5.0 million or 56%, and $8.1 million or 69%, of accounts and other receivables at June 30, 2016 and December 31, 2015, respectively.

NOTE D – EARNINGS PER COMMON SHARE 

 Basic earnings (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 earnings (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.

Diluted earnings (loss) per share were computed based on the weighted average number of shares outstanding plus all potentially dilutive common shares.  A reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:
                                                                                             
           (in thousands)  
Three months ended June 30,
Six months ended June 30,
2016
2015
2016
2015
  (unaudited)     (unaudited)     (unaudited)     (unaudited)
Basic weighted average shares outstanding
   
158,513
     
156,258
     157,952      156,102  
Dilutive effect of options and unvested restricted shares
   
191
     
308
     421      -  
Diluted weighted average shares outstanding
   
158,704
     
156,566
     
158,373
     
156,102
 

 
The following table represents common stock equivalents that were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2016 and 2015, because the effect of their inclusion would be anti-dilutive.
 
        (in thousands)     
   
For the three months ended
   
For the six months ended
 
   
June 30, 2016
   
June 30, 2015
   
June 30, 2016
   
June 30, 2015
 
   
(unaudited)
   
(unaudited)
   
(unaudited)
   
(unaudited)
 
Stock options
   
-
     
335
     -      935  
Restricted common stock grants
   
2.246
     
125
    500      2,873  
     
2,246
     
460
     
500
     
3,808
 

NOTE E – ACCOUNTS AND OTHER RECEIVABLES, NET

The following table presents information regarding the Company's accounts and other receivables as of June 30, 2016 and December 31, 2015:
    
        (in thousands)  
   
June 30, 2016
   
December 31, 2015
 
   
(unaudited)
       
Trade receivables
 
$
12,317
   
$
15,252
 
Due from employees
   
426
     
231
 
Allowance for doubtful accounts and
               
commission adjustments
   
(3,798
)
   
(3,863
)
Accounts and other receivables, net
 
$
8,945
   
$
11,620
 

 
Page 12

Vasomedical, Inc. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)

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.

NOTE F – INVENTORIES, NET

Inventories, net of reserves, consist of the following:                                   
 
     (in thousands)     
   
June 30, 2016
   
December 31, 2015
 
   
(unaudited)
       
Raw materials
 
$
453
   
$
497
 
Work in process
   
384
     
392
 
Finished goods
   
834
     
1,074
 
   
$
1,671
   
$
1,963
 
                 

 
At June 30, 2016 and December 31, 2015, the Company maintained reserves for slow moving inventories of $830,000 and $861,000, respectively.

NOTE G – GOODWILL AND OTHER INTANGIBLES

Goodwill aggregating $17,412,000 and $17,484,000 was recorded on the Company's condensed consolidated balance sheets at June 30, 2016 and December 31, 2015, respectively, of which $14,375,000, allocated to the IT segment, resulted from the acquisition of NetWolves in May 2015.  The remaining $3,037,000 of goodwill is allocated to the Company's equipment segment.  The components of the change in goodwill are as follows:

     (In thousands)  
   
Carrying Amount
 
       
Balance at December 31, 2015
 
$
17,484
 
Foreign currency translation
   
(72
)
Balance at June 30, 2016 (unaudited)
 
$
17,412
 

 
Page 13

Vasomedical, Inc. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
The Company's other intangible assets consist of capitalized customer-related intangibles, patent and technology costs, and software costs, as set forth in the following:
 
     (in thousands)     
 
 
June 30, 2016
   
December 31, 2015
 
   
(unaudited)
       
Customer-related
           
Costs
 
$
5,831
   
$
5,831
 
Accumulated amortization
   
(1,347
)
   
(926
)
     
4,484
     
4,905
 
 
               
Patents and Technology
               
Costs
   
2,394
     
2,423
 
Accumulated amortization
   
(934
)
   
(806
)
     
1,460
     
1,617
 
                 
Software
               
Costs
   
1,286
     
1,182
 
Accumulated amortization
   
(742
)
   
(727
)
     
544
     
455
 
 
               
   
$
6,488
   
$
6,977
 

 
Patents and technology, and software, are amortized on a straight-line basis over their estimated useful lives of ten, and five years, respectively.  The cost of significant customer-related intangibles is amortized in proportion to estimated total related revenue; cost of other customer-related intangible assets is amortized on a straight-line basis over the asset's estimated economic life of seven years. Software costs are amortized on a straight-line basis over its expected useful life of five years.

Amortization expense amounted to $283,000 and $164,000 for the three months ended June 30, 2016, and 2015, respectively, and $563,000 and $335,000 for the six months ended June 30, 2016 and 2015, respectively.


Page 14

Vasomedical, Inc. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)

Amortization of intangibles for the next five years is:
 
     (in thousands)  
Years
 
(unaudited)
 
Remainder of 2016
 
$
604
 
2017
   
1,105
 
2018
   
951
 
2019
   
829
 
2020
   
704
 

 
NOTE H – OTHER ASSETS, NET

Other assets, net consist of the following at June 30, 2016 and December 31, 2015:
 
     (in thousands)     
   
June 30, 2016
   
December 31, 2015
 
   
(unaudited)
       
Deferred commission expense - noncurrent
 
$
2,035
   
$
2,083
 
Trade receivables - noncurrent
   
706
     
1,025
 
Other, net of allowance for loss on loan receivable of
               
  $412 at June 30, 2016 and $0 at December 31, 2015
   
1,072
     
1,207
 
   
$
3,813
   
$
4,315
 

 
 
NOTE I – ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following at June 30, 2016 and December 31, 2015:
 
        (in thousands)  
   
June 30, 2016
   
December 31, 2015
 
   
(unaudited)
       
Accrued compensation
 
$
744
   
$
1,589
 
Accrued expenses - other
   
721
     
1,414
 
Other liabilities
   
2,585
     
1,508
 
   
$
4,050
   
$
4,511
 
                 


 
NOTE J - DEFERRED REVENUE

The changes in the Company's deferred revenues are as follows:
Page 15

Vasomedical, Inc. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
        (in thousands)  
   
For the three months ended
   
For the six months ended
 
   
June 30, 2016
   
June 30, 2015
   
June 30, 2016
   
June 30, 2015
 
   
(unaudited)
   
(unaudited)
   
(unaudited)
   
(unaudited)
 
Deferred revenue at beginning of period
 
$
17,903
   
$
21,453
   
$
18,516
   
$
22,532
 
Additions:
                               
Deferred extended service contracts
   
115
     
94
     
328
     
305
 
Deferred in-service and training
   
5
     
3
     
8
     
5
 
Deferred service arrangements
   
10
     
5
     
20
     
15
 
Deferred commission revenues
   
2,785
     
1,481
     
5,083
     
3,330
 
Recognized as revenue:
                               
Deferred extended service contracts
   
(199
)
   
(214
)
   
(398
)
   
(445
)
Deferred in-service and training
   
(8
)
   
(3
)
   
(13
)
   
(10
)
Deferred service arrangements
   
(11
)
   
(20
)
   
(20
)
   
(43
)
Deferred commission revenues
   
(2,817
)
   
(3,185
)
   
(5,741
)
   
(6,075
)
Deferred revenue at end of period
   
17,783
     
19,614
     
17,783
     
19,614
 
Less: current portion
   
9,613
     
11,560
     
9,613
     
11,560
 
Long-term deferred revenue at end of period
 
$
8,170
   
$
8,054
   
$
8,170
   
$
8,054
 


 
NOTE K – EQUITY

On June 15, 2016, the Board of Directors ("Board") approved the 2016 Stock Plan (the "2016 Plan") for officers, directors, and senior employees of the Corporation or any subsidiary of the Corporation.  The stock issuable under the 2016 Plan shall be shares of the Company's authorized but unissued or reacquired common stock.  The maximum number of shares of common stock that may be issued under the 2016 Plan is 7,500,000 shares.

The 2016 Plan consists of a Stock Issuance Program, under which eligible persons may, at the discretion of the Board, be issued shares of common stock directly, as a bonus for services rendered or to be rendered to the Corporation or any subsidiary of the Corporation.

No shares were granted under the 2016 Plan during the six months ended June 30, 2016.  See Note O.

NOTE L – BUSINESS COMBINATION

On May 29, 2015, the Company entered into an agreement for, and completed its purchase of, all of the assets of NetWolves, LLC and its affiliates, including the membership interests in NetWolves Network Services LLC  (collectively, "NetWolves") for $18,000,000 (the "Purchase Price"). The purchase of NetWolves was accomplished pursuant to an Asset Purchase Agreement (the "Purchase Agreement").  As a result, the Company effectively purchased all rights, titles and ownership of all assets held by NetWolves.   The Purchase Price was paid using $14,200,000 in cash on hand and $3,800,000 raised through the issuance of a secured subordinated promissory note ("Note") to MedTechnology Investments, LLC ("MedTech" - see Note M).  The Company believes there are significant operational synergies between NetWolves' capabilities and VasoHealthcare IT's requirements under its VAR contract with GEHC, as well as the opportunity to expand NetWolves' existing services to the healthcare IT market.

In accordance with Accounting Standards Codification 805, Business Combinations, the total purchase consideration is allocated to the net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at May 29, 2015 (the acquisition date).  The following table summarizes the allocation of the assets acquired and liabilities assumed based on their estimated fair values as follows:

Page 16

Vasomedical, Inc. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
 
    (in thousands)  
    May 29, 2015   
Cash and cash equivalents
 
$
733
 
Accounts receivable and other current assets
   
1,535
 
Other assets
   
50
 
Property and equipment
   
2,359
 
Accounts payable and other current liabilities
   
(4,382
)
Long term debt
   
(1,701
)
Goodwill and other intangibles
   
14,375
 
Customer-related intangibles
   
5,031
 
Total
 
$
18,000
 

 
The goodwill is expected to be deductible for tax purposes.

The following unaudited supplemental pro forma information presents the financial results as if the acquisition of NetWolves had occurred January 1, 2014.
 
        (in thousands)  
 
 
Three months ended
   
Six months ended
 
   
June 30, 2015
   
June 30, 2015
 
   
(unaudited)
   
(unaudited)
 
Revenue
 
$
16,088
   
$
31,449
 
                 
Net income
   
580
     
517
 
                 
Earnings per share - basic and diluted
 
$
0.00
   
$
0.00
 
                 

NOTE M – RELATED-PARTY TRANSACTIONS
One of the Company's directors, Peter Castle, was the Chief Executive Officer and President of NetWolves, LLC.  Another of the Company's directors, David Lieberman, was a director of NetWolves Network Services, LLC. Mr. Castle and Mr. Lieberman owned of record approximately 10.4% and 5.7%, respectively of the membership interests of NetWolves LLC.  Mr. Lieberman may also be deemed to have owned beneficially up to an additional 13.5% of such membership interests.  The Company's board of directors negotiated the Purchase Price on an arm's length basis, and both Mr. Castle and Mr. Lieberman abstained from the vote approving the Purchase Agreement (see Note L).

The Company obtained an opinion regarding the fairness of the Purchase Price for NetWolves from a reputable, independent third-party investment banking firm.  $14,200,000 of the Purchase Price was paid for by cash on hand, and the remaining $3,800,000 was raised from the sale of the Note to MedTech.  Of the $4,800,000 borrowed from MedTech, $2,200,000 was provided by six of our directors or members of their families, and an additional $100,000 was provided by an additional director prior to his joining the board of directors in June 2015.   The MedTech Note bears interest at 9% per annum.

David Lieberman, the Vice Chairman of the Company's Board of Directors, is a practicing attorney in the State of New York and a senior partner at the law firm of Beckman, Lieberman & Barandes, LLP, which performs certain legal services for the Company.  Fees of approximately $85,000 and $170,000 were billed by the firm for the three and six months ended June 30, 2016, respectively, at which date no amounts were outstanding.  Fees of approximately $60,000 and $120,000 were billed by the firm through the three and six month periods ended June 30, 2015, respectively, at which date $20,000 was outstanding.
 
Page 17

Vasomedical, Inc. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)

In January 2015, operations began under the VSK joint venture.  The Company accounts for its investment in VSK using the equity method.  On May 31, 2016, the Company, through its FGE subsidiary, borrowed $300,000 through the issuance of a promissory note to VSK, which is included in notes payable due to related party in the accompanying unaudited condensed consolidated balance sheets.  The note matures on May 31, 2018 and bears interest at 1.2% per annum.  At June 30, 2016, the Company had contributed $522,000 to VSK, and $80,000 was due from VSK for equipment and services the Company billed to it.  The Company's pro-rata share in VSK's loss from operations approximated $4,000 and $77,000 for the three and six months ended June 30, 2016, respectively, and is included in interest and other income (expense), net in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).  VSK earned approximately $50,000 and $46,000 for the three and six months ended June 30, 2015, respectively.  Under the terms of the agreement, the Company accrues no interest in VSK's income in the years ending December 31, 2015, 2016 and 2017 until certain performance targets are achieved.  For the year ended December 31, 2015 such targets had not been achieved.
 
NOTE N – COMMITMENTS AND CONTINGENCIES

Litigation

The Company is currently, and has been in the past, a party to various routine legal proceedings, primarily employee related matters, incident to the ordinary course of business. The Company believes that the outcome of all such pending legal proceedings in the aggregate is unlikely to have a material adverse effect on the business or consolidated financial condition of the Company.

Sales representation agreement

In June 2012, the Company concluded an amendment of the GEHC Agreement with GEHC, originally signed on May 19, 2010.  The amendment, effective July 1, 2012, extended the initial term of three years commencing July 1, 2010 to five years through June 30, 2015.  In December 2014, the Company concluded an additional amendment, effective January 1, 2015, extending the term through December 31, 2018, subject to earlier termination under certain circumstances and termination without cause on or after July 1, 2017.  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.

NOTE O – SUBSEQUENT EVENT

In July 2016, the Company granted 3.6 million shares of restricted common stock to directors, officers and key employees under the 2016 Stock Plan.  One-third of the shares vested immediately and the remaining two-thirds vest equally one year and two years from grant date.
 
 

Page 18

Vasomedical, Inc. and Subsidiaries
 
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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; continuation of the GEHC agreements and the risk factors reported from time to time in the Company's SEC reports, including its recent report on Form 10-K.  The Company undertakes no obligation to update forward-looking statements as a result of future events or developments.

Unless the context requires otherwise, all references to "we", "our", "us", "Company", "registrant", "Vasomedical" or "management" refer to Vasomedical, Inc. and its subsidiaries

General Overview

Vasomedical, Inc. ("Vasomedical") was incorporated in Delaware in July 1987.  We principally operate in three distinct business segments in the healthcare equipment and information technology industries.  We manage and evaluate our operations, and report our financial results, through these three business segments.

·
IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;

·
Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for GEHC into the health provider middle market; and

·
Equipment segment, operating through wholly-owned subsidiaries Vasomedical Global Corp. and Vasomedical Solutions, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices.
 
Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon the accompanying unaudited condensed consolidated 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 Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the SEC on March 30, 2016.
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Vasomedical, Inc. and Subsidiaries
 
Results of Operations – For the Three Months Ended June 30, 2016 and 2015

Total revenue for the three months ended June 30, 2016 and 2015 was $18,214,000 and $10,843,000, respectively, representing an increase of $7,371,000, or 68% year-over-year.  The revenue increase was primarily due to $7,313,000 higher revenue in the IT segment, $6,472,000 of which resulted from the operations of NetWolves, that the Company acquired at the end of May 2015 and thus included only one month of operations in the second quarter 2015.  Net income for the three months ended June 30, 2016 was $213,000, compared to $191,000 for the three months ended June 30, 2015, representing a growth of $22,000, or 12%.  Our total net income was $0.00 per basic and diluted common share for the three months ended June 30, 2016 and 2015.
 
Revenues

Commission revenues in the professional sales services segment were $6,860,000 in the second quarter of 2016, a decrease of 3%, as compared to $7,036,000 in the second quarter of 2015.  The decrease in commission revenues in the second quarter of 2016 was due primarily to a decrease in the blended commission rates for equipment delivered by GEHC during the quarter, partially offset by higher delivery volume.  The Company recognizes commission 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 condensed consolidated balance sheet.  As of June 30, 2016, $16,710,000 in deferred commission revenue was recorded in the Company's condensed consolidated balance sheet, of which $7,716,000 was long-term.  At June 30, 2015, $18,410,000 in deferred commission revenue was recorded in the Company's condensed consolidated balance sheet, of which $7,508,000 was long-term.

Revenue in the IT segment for the three months ended June 30, 2016 was $10,124,000 compared to $2,811,000 for the three months ended June 30, 2015, an increase of $7,313,000, of which $6,472,000 resulted from the acquisition of NetWolves in the second quarter 2015, and $841,000 resulted from growth in the healthcare IT VAR business, which is still in its start-up phase.

Revenue in our equipment segment increased by $234,000, or 23%, to $1,230,000 for the three-month period ended June 30, 2016 compared to the same period of the prior year.  The increase was principally due to an increase in EECP® revenues and international sales by our China operations as a result of higher sales volume.

Gross Profit

The Company had a gross profit of $10,113,000, or 56% of revenue, in the second quarter of 2016 compared to $7,328,000, or 68% of revenue, in the second quarter of the prior year, an increase of $2,785,000, or 38%.  The increase is principally due to $2,761,000 higher gross profit in the IT segment, of which $2,672,000 resulted from the acquisition of NetWolves, combined with $258,000 higher gross profit in the equipment segment, partially offset by $234,000 lower gross profit in the professional sales services segment.

Professional sales services segment gross profit was $5,278,000, or 77% of the segment revenue, for the three months ended June 30, 2016 as compared to $5,512,000, or 78% of the segment revenue, for the three months ended June 30, 2015.  The decrease in absolute dollars and margin percentage was due to the lower blended commission rates on GEHC equipment delivered during the second quarter of 2016 than in the same period last year, as well as higher commission expense in the second quarter of 2016.  Cost of commissions of $1,582,000 and $1,524,000, for the three months ended June 30, 2016 and 2015, respectively, reflected commission expense associated with recognized commission revenues.  The increase was due to higher commission expense rates on certain deliveries in the second quarter 2016 compared to the same period in 2015.  Commission expense associated with deferred revenue is recorded as deferred commission expense until the related commission revenue is recognized.
 
IT segment gross profit for the three months ended June 30, 2016 was $3,959,000, or 39% of the segment revenue, compared to $1,198,000, or 43% of the segment revenue for the three months ended June 30, 2015, with the increase primarily resulting from the inclusion of three months of NetWolves operations as compared to one month in the prior year.  Gross profit margin decreased mainly due to a higher mix of healthcare IT VAR sales, which have lower margins, in the second quarter of 2016.
 
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Vasomedical, Inc. and Subsidiaries

Equipment segment gross profit increased to $876,000, or 71% of equipment segment revenues, for the second quarter of 2016 compared to $618,000, or 62% of equipment segment revenues, for the same quarter of 2015.  Gross profit margin in the equipment segment increased due mainly to a higher mix of Biox products and higher average selling prices on EECP® products.

Operating Income

Operating income was $264,000 for the three months ended June 30, 2016, compared to $206,000 for the three months ended June 30, 2015, a growth of $58,000, or 28%. The improvement in operating income is due to the increase in gross profit, partially offset by higher selling, general and administrative, or SG&A, costs.  SG&A costs were 53% of revenue for the three months ended June 30, 2016, compared to 64% of revenue for the three months ended June 30, 2015.
 
Operating income in the professional sales services segment decreased by $372,000 to $1,422,000, compared to $1,794,000 in the second quarter of the prior year, due mainly to a lower gross margin combined with higher SG&A costs.  In addition, operating loss in the equipment segment decreased by $663,000, or 98%, to $13,000 compared to $676,000 in the same quarter of the prior year, due primarily to $258,000 higher gross profit and $374,000 lower SG&A costs in the current year quarter.  Our IT segment had an operating loss of $853,000 in the second quarter of 2016 as compared to an operating loss of $366,000 in the same quarter of the prior year primarily due to an increase of $418,000 attributable to the inclusion of NetWolves.  The results for the three and six months ended June 30, 2015 included only one month of operations of NetWolves.

SG&A expenses for the second quarter of 2016 and 2015 were $9,744,000, or 53% of revenues, and $6,985,000, or 64% of revenues, respectively, reflecting an increase of $2,759,000 or approximately 39%. The increase in SG&A expenditures in the second quarter of 2016 resulted primarily from $3,248,000 higher costs in the IT segment in 2016 mainly due to the inclusion of three months of NetWolves operations during the second quarter of 2016 as compared to one month of NetWolves operations in the same quarter of the prior year, and higher sales and marketing expenses in the VAR business, partially offset by lower costs in the equipment and corporate segments.

Research and development ("R&D") expenses were $105,000, or 1% of revenues (9% of equipment segment revenues), for the second quarter of 2016, a decrease of $32,000, or 23%, from $137,000, or 1% of revenues (14% of equipment segment revenues), for the second quarter of 2015. The decrease is primarily attributable to lower product submission expenses in the second quarter of 2016.
 
Adjusted EBITDA

We define Adjusted EBITDA (earnings (loss) before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure, as net income (loss), plus interest expense (income), net; tax expense; depreciation and amortization; and non-cash expenses for share-based compensation.  Adjusted EBITDA is a metric that is used by the investment community for comparative and valuation purposes.  We disclose this metric in order to support and facilitate the dialogue with research analysts and investors.

Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States ("GAAP") and should not be considered a substitute for operating income, which we consider to be the most directly comparable GAAP measure. Adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, you should not consider Adjusted EBITDA in isolation, or as a substitute for net income or other consolidated income statement data prepared in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
 
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Vasomedical, Inc. and Subsidiaries
A reconciliation of net income to Adjusted EBITDA is set forth below:
 
     (in thousands)  
   
Three months ended June 30,
 
   
2016
   
2015
 
   
(unaudited)
   
(unaudited)
 
Net income
 
$
213
   
$
191
 
Interest expense (income), net
   
154
     
42
 
Income tax (benefit) expense
   
(51
)
   
6
 
Depreciation and amortization
   
536
     
271
 
Share-based compensation
   
34
     
241
 
Adjusted EBITDA
 
$
886
   
$
751
 
 
Adjusted EBITDA increased by $135,000, or 18%, to $886,000 in the quarter ended June 30, 2016 from $751,000 in the quarter ended June 30, 2015.  The increase was primarily attributable to the higher net income, higher fixed asset depreciation in the IT segment and amortization of intangibles associated with the NetWolves acquisition in May 2015, and higher interest expense arising from the MedTech Note used to partially fund the NetWolves acquisition, partially offset by lower share-based compensation and lower income tax expense.
Interest and Other Income (Expense)

Interest and other income (expense) for the second quarter of 2016 was $(102,000) as compared to $(9,000) for the second quarter of 2015. The increase was due primarily to higher interest expense from debt associated with the NetWolves acquisition.

Income Tax Expense

During the second quarter of 2016 we recorded income tax benefit of $51,000 as compared to income tax expense of $6,000 for the second quarter of 2015.  The change arose from application of alternative minimum tax credits.

Results of Operations – For the Six Months Ended June 30, 2016 and 2015

Total revenue for the six months ended June 30, 2016 and 2015 was $35,756,000 and $18,297,000, respectively, representing an increase of $17,459,000, or 95% year-over-year.  The revenue increase was primarily due to $17,040,000 higher revenue in the IT segment, including $15,711,000 resulting from the inclusion of six months of NetWolves operations in the current year as compared to only one month of operations in the same period of the prior year, and $1,329,000 was attributable to growth in the VAR business.  Net income for the six months ended June 30, 2016 was $109,000 as compared to a loss of $62,000 for the same period of 2015, an improvement of $171,000.  Our total net income (loss) was $0.00 and $(0.00) per basic and diluted common share for the six months ended June 30, 2016 and 2015, respectively.

Revenues

Commission revenues in the professional sales services segment were $13,706,000 in the first half of 2016, an increase of 2% from $13,427,000 in the first half of 2015.  The increase in commission revenue in the first half of 2016 was due to an increase in volume of equipment delivered by GEHC during the period, partially offset by a decrease in the blended commission rate earned.  The Company recognizes commission 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 condensed consolidated balance sheet.

Revenue in the IT segment for the six months ended June 30, 2016 was $19,851,000 compared to $2,811,000 revenue for the six months ended June 30, 2015, an increase of $17,040,000, of which $15,711,000 resulted from the acquisition of NetWolves in the second quarter 2015, and $1,329,000 resulted from growth in the healthcare IT VAR business.

Revenue in our equipment segment increased by $140,000, or 7%, to $2,199,000 for the six-month period ended June 30, 2016 from $2,059,000 for the same period of the prior year.  The change was primarily attributable to higher international sales by our China operations, partially offset by decreases in EECP® revenues as a result of lower sales volume.

 
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Vasomedical, Inc. and Subsidiaries
Gross Profit

The Company had a gross profit of $20,125,000, or 56% of revenue, in the first six months of 2016 compared to $12,896,000, or 70% of revenue, in the first six months of the prior year, an increase of $7,229,000, or 56%.  The increase is principally due to $6,767,000 higher gross profit in the IT segment, of which $6,554,000 resulted from the inclusion of six months of NetWolves operations in 2016 compared to one month of NetWolves operations in the same period of the prior year, and higher gross profit margin in both our professional sales services and equipment segments.
 
Professional sales services segment gross profit was $10,713,000, or 78% of the segment revenue, for the six months ended June 30, 2016 as compared to $10,380,000, or 77% of the segment revenue, for the six months ended June 30, 2015.  The increase in absolute dollars and margin percentage was due to higher equipment deliveries by GEHC, partially offset by a lower blended commission rate, during the first six months of 2016 than in the same period last year, coupled with lower commission expense in the first six months of 2016.  Cost of commissions of $2,993,000 and $3,047,000, for the six months ended June 30, 2016 and 2015, respectively, reflected 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 recognized.
 
IT segment gross profit for the six months ended June 30, 2016 was $7,965,000, or 40% of the segment revenue, compared to $1,198,000, or 43% of the segment revenue, for the six months ended June 30, 2015, with the increase primarily resulting from the inclusion of six months of NetWolves operations as compared to one month last year.
 
Equipment segment gross profit increased to $1,447,000, or 66% of Equipment segment revenues, for the first six months of 2016 compared to $1,318,000, or 64% of Equipment segment revenues, for the same period of 2015.  Gross profit margin in the equipment segment improved due to higher mix of sales by the Chinese operations, which have higher margins.

Operating Income (Loss)

Operating income was $423,000 for the six months ended June 30, 2016 as compared to an operating loss of $80,000 for the six months ended June 30, 2015, an improvement of $503,000.  During the six months ended June 30, 2016, there was a $7,229,000 increase in gross profit, of which $6,554,000 was due to the inclusion of six months of NetWolves operations in the six month period ended June 30, 2016 compared to one month of NetWolves operations included in the same period of the prior year.  Partially offsetting the increase in gross profit was a $6,746,000 increase in SG&A costs, primarily due to $7,322,000 higher NetWolves costs, partially offset by lower equipment and corporate segment SG&A costs.  Operating income in the professional sales services segment increased by $530,000 to $3,410,000 as compared to $2,880,000 in the first half of the prior year, due mainly to higher gross margin combined with lower SG&A costs.  In addition, operating loss in the equipment segment decreased by $600,000, or 46%, to $711,000 compared to $1,311,000 in the same period of the prior year, due primarily to $129,000 higher gross profit and $451,000 lower SG&A costs in the current year period.

SG&A expenses for the first two quarters of 2016 and 2015 were $19,450,000, or 54% of revenues, and $12,704,000, or 69% of revenues, respectively, reflecting an increase of $6,746,000 or approximately 53%. The increase in SG&A expenditures in the first two quarters of 2016 resulted primarily from $7,642,000 higher costs attributable to the IT segment in 2016, partially offset by lower costs in the professional sales services and equipment segments due to reduced headcounts, and lower corporate expenses due to costs incurred in 2015 related to the NetWolves acquisition.

Research and development ("R&D") expenses were $252,000, or 1% of revenues (11% of equipment segment revenues), for the first half of 2016, a decrease of $20,000, or 7%, from $272,000, or 1% of revenues (13% of Equipment segment revenues), for the first half of 2015. The decrease is primarily attributable to lower product submission costs.

Adjusted EBITDA

We define Adjusted EBITDA (earnings (loss) before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure, as net income (loss), plus interest expense (income), net; tax expense; depreciation and amortization; and non-cash expenses for share-based compensation.  Adjusted EBITDA is a metric that is used by the investment community for comparative and valuation purposes.  We disclose this metric in order to support and facilitate the dialogue with research analysts and investors.


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Vasomedical, Inc. and Subsidiaries
Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States ("GAAP") and should not be considered a substitute for operating income, which we consider to be the most directly comparable GAAP measure. Adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, you should not consider Adjusted EBITDA in isolation, or as a substitute for net income or other consolidated income statement data prepared in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
 
A reconciliation of net income (loss) to Adjusted EBITDA is set forth below:
 
     (in thousands)  
 
 
Six months ended June 30,
 
   
2016
   
2015
 
 
 
(unaudited)
   
(unaudited)
 
Net income (loss)
 
$
109
   
$
(62
)
Interest expense (income), net
   
311
     
36
 
Income tax expense
   
51
     
12
 
Depreciation and amortization
   
1,059
     
483
 
Share-based compensation
   
67
     
260
 
Adjusted EBITDA
 
$
1,597
   
$
729
 

 
Adjusted EBITDA increased by $868,000 to $1,597,000 in the six months ended June 30, 2016 from $729,000 in the same period of 2015.  The increase was primarily attributable to the higher net income, higher fixed asset depreciation in the IT segment and amortization of intangibles associated with the NetWolves acquisition in May 2015, and higher interest expense arising from the MedTech Note used to partially fund the NetWolves acquisition, and higher income tax expense, partially offset by lower share-based compensation.

Interest and Other Income (Expense)

Interest and other income (expense) for the first two quarters of 2016 was $(263,000) as compared to $30,000 for the first two quarters of 2015. The increase in expense was due primarily to higher interest expense associated with the NetWolves acquisition.

Income Tax Expense

During the first two quarters of 2016 we recorded income tax expense of $51,000 as compared to income tax expense of $12,000 for the same period of 2015.  The increase arose from tax amortization associated with the NetWolves acquisition.

Liquidity and Capital Resources

Cash and Cash Flow

We have financed our operations from working capital.  At June 30, 2016, we had cash and cash equivalents of $5,622,000 and negative working capital of $3,704,000 compared to cash and cash equivalents of $2,160,000, short-term investments of $38,000 and negative working capital of $3,696,000 at December 31, 2015.  $7,452,000 in negative working capital at June 30, 2016 is attributable to the net balance of deferred commission expense and deferred revenue.  These are non-cash expense and revenue items and have no impact on future cash flows.

Cash provided by operating activities was $3,748,000 during the first half of 2016, compared to $6,834,000 for the same period in 2015, which consisted of net income after adjustments to reconcile net income to net cash of $1,840,000 and cash provided by operating assets and liabilities of $1,908,000. The changes in the account balances primarily reflect a decrease in accounts and other receivables of $2,596,000, partially offset by decreases in deferred revenue of $734,000, accrued commissions of $481,000, and accrued expenses of $198,000.  Significantly higher commission billings and recognized revenue were generated in the fourth quarter of 2014, resulting in significant cash inflows early in 2015.

 
 
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Vasomedical, Inc. and Subsidiaries
 
Cash used in investing activities during the six-month period ended June 30, 2016 was $1,291,000. We invested $422,000 in the VSK joint venture as part of our capital contribution, and, $907,000 was used for the purchase of equipment and software.  This was partially offset by the redemption of short-term investments of $38,000.

Cash provided by financing activities during the three-month period ended June 30, 2016 was $997,000 as a result of $994,000 in net borrowings on our line of credit and $300,000 received through issuance of a note to VSK, partially offset by $130,000 in debt issuance costs associated with the MedTech note, $89,000 in repayments of notes issued for equipment purchases, $72,000 in payments on related party notes associated with the Genwell acquisition, and $6,000 in payment of payroll taxes where employee shares were withheld for such payments.
 
Liquidity

The Company expects to be profitable for the year ending December 31, 2016 and to continue to generate positive cash flow through its existing professional sales services operations, from the operation of NetWolves, and improved operating efficiency and growth in its China operations and by expanding its market presence and product portfolio.  The Company has reorganized its EECP® business model, both domestically and internationally, including the start of operations of the joint venture VSK Medical, intended to reduce costs and achieve profitability in this business.  The Company will continue to pursue accretive acquisitions and partnership opportunities in the international and domestic markets and will look to expand its professional sales services business.





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Vasomedical, Inc. and Subsidiaries
ITEM 4 - CONTROLS AND PROCEDURES

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 June 30, 2016 and have concluded that the Company's disclosure controls and procedures were effective as of June 30, 2016.

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.



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Vasomedical, Inc. and Subsidiaries

PART II - OTHER INFORMATION



ITEM 6 – EXHIBITS

Exhibits
 
10
2016 Stock Plan
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.



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

 
VASOMEDICAL, INC.
   
 
By:/s/ 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:  August 15, 2016
 
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EX-10 2 vaso10q-june2016ex10.htm
Exhibit 10
VASOMEDICAL, INC.

2016 STOCK PLAN


I.  GENERAL PROVISIONS

A. PURPOSE OF THE PLAN

This 2016 Stock Plan (the "Plan") is intended to promote the interests of VASOMEDICAL, INC., a Delaware corporation ("Corporation"), by providing eligible persons in the employ or service of the Corporation or its affiliates with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to continue in such employ or service.

Unless otherwise defined herein, all capitalized terms shall have the meaning assigned to them in the attached Appendix.

B. STRUCTURE OF THE PLAN

The Plan shall consist of a Stock Issuance Program under which eligible persons ("Participants") may, at the discretion of the Board, be issued shares of common stock directly, as a bonus for services rendered or to be rendered to the Corporation (or any Parent or Subsidiary).

C. ADMINISTRATION OF THE PLAN

The Plan shall be administered by the Corporation's Board of Directors ("Board"), or in the discretion of the Board, a committee consisting of no less than two Non-Employee Directors or persons meeting such other requirements as may be imposed by Rule 16(b) under the 1934 Act ("Committee").

The Board or Committee shall have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Plan and to make such determinations under, and issue such interpretations of, the Plan and any outstanding stock issuances thereunder as it may deem necessary or advisable.  Decisions of the Board shall be final and binding on all parties who have an interest in the Plan or any stock issuance thereunder.

D. ELIGIBILITY

The persons eligible to participate in the Plan are officers, directors and senior employees of the Corporation or any subsidiary of the Corporation; and

The Board or Committee shall have absolute discretion with respect to stock issuances made under the Stock Issuance Program, described in Article III, including who shall be considered a senior employee, which eligible persons are to receive such stock issuances, the time or times when issuances are to be made, the number of shares to be issued to each Participant, and the vesting schedule (if any) applicable to the issued shares.

1

 

E. STOCK SUBJECT TO THE PLAN

The stock issuable under the Plan shall be shares of the Corporation's authorized but unissued or reacquired common stock.  The maximum number of shares of common stock which may be issued under the Plan is 7,500,000 shares.

Any stock issued under the plan which is cancelled prior to vesting shall be added back to the number of shares of common stock reserved for issuance under the Plan.

If there is any change to the common stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding common stock as a class without the Corporation's receipt of consideration, then appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, and (ii) the number and/or class of outstanding securities in effect under the Plan in order to prevent the dilution or enlargement of benefits thereunder.

III.  STOCK ISSUANCE PROGRAM

A. STOCK ISSUANCE TERMS

Shares of common stock may be issued at the discretion of the Board or Committee under the Stock Issuance Program through direct and immediate issuances.  Each such stock issuance shall comply with the terms specified below.

1. Issuances.

Shares of common stock may be issued under the Stock Issuance Program for past or future services rendered or to be rendered to the Corporation (or any Parent or Subsidiary) as the Board may deem appropriate in each individual instance.

2. Vesting Provisions.

a. Shares of common stock issued under the Stock Issuance Program shall vest at the discretion of the Board of Directors or Committee.

b. The Participant shall have full stockholder rights with respect to any Shares issued to the Participant under the Stock Issuance Program, subject to the vesting and transfer provisions of such issuance.  Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.

c. Only Permitted Transfers shall be made by the Participant prior to vesting.

IV.  MISCELLANEOUS

A. ADJUSTMENTS DUE TO STOCK SPLITS, MERGERS, CONSOLIDATION, ETC.

If, at any time, the Corporation shall take any action, whether by stock dividend, stock split, combination of shares or otherwise, which results in a proportionate increase or decrease in the number of shares of common stock theretofore issued and outstanding, the number of shares which are reserved for issuance under the Plan shall, to the extent deemed appropriate by the committee, be increased or decreased in the same proportion, provided, however, that the Corporation shall not be obligated to issue fractional shares.
 
2


Likewise, in the event of any change in the outstanding shares of common stock by reason of any recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other corporate change, the committee shall make such substitution or adjustments, if any, as it deems to be appropriate, as to the number or  kind of shares of common stock or other securities which are reserved for issuance under the Plan.

In the event of a Change of Control or Corporate Transaction all shares of common stock outstanding on the date of such change of control shall become immediately and fully vested.

B. EFFECTIVE DATE AND TERM OF PLAN

1. The Plan shall become effective on June 15, 2016.   The Board may issue shares under the Plan at any time after the effective date of the Plan and before the date fixed herein for termination of the Plan.

2. The Plan shall terminate upon the earliest of (i) the expiration of the ten (10) year period measured from June 15, 2016, (ii) the date on which all shares available for issuance under the Plan shall have been issued and are vested or (iii) the termination of all outstanding shares in connection with a Corporate Transaction.  All unvested stock issuances outstanding at the time of a clause (i) termination event shall continue to have full force and effect in accordance with the provisions of the documents evidencing those issuances.

C. AMENDMENT OF THE PLAN

The Board or Committee shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects, except for those persons ineligible to participate.  However, no such amendment or modification shall adversely affect the rights and obligations with respect to unvested stock issuances at the time outstanding under the Plan unless the Participant consents to such amendment or modification.  In addition, certain amendments may require stockholder approval pursuant to applicable laws and regulations.

D. WITHHOLDING

The Corporation's obligation to deliver shares of common stock under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements.

E. REGULATORY APPROVALS

The implementation of the Plan and the issuance of any shares of common stock under the Stock Issuance Program shall be subject to the Corporation's obtaining all approvals and permits required by regulatory authorities having jurisdiction over the Plan, and the shares of common stock issued pursuant to it.

3


F. NO EMPLOYMENT OR SERVICE RIGHTS

Nothing in the Plan shall confer upon the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause.
4

APPENDIX

The following definitions shall be in effect under the Plan:

Board shall mean the Corporation's Board of Directors.

Change of Control shall mean:

(i)  any person who is not currently such becomes the beneficial owner, directly or indirectly, of securities of the Corporation representing 50% or more of the combined voting power of the Corporation's then outstanding voting securities; or

(ii) three or more directors, whose election or nomination for election is not approved by a majority of the Incumbent Board (as defined in the plan), are elected within any single 12-month period to serve on the board of directors; or

(iii) members of the Incumbent Board cease to constitute a majority of the Board of Directors without the approval of the remaining members of the Incumbent Board; or

(iv) any merger (other than a merger where the Corporation is the survivor and there is no accompanying change in control under subparagraphs (i), (ii) or (iii) of this paragraph (b), consolidation, liquidation or dissolution of the Corporation, or the sale of all or substantially all of the assets of the Corporation.

Code shall mean the Internal Revenue Code of 1986, as amended.

Common Stock shall mean the Corporation's common stock, $.001 par value.

Corporate Transaction shall mean either of the following stockholder-approved transactions to which the Corporation is a party:

(i)  a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or

(ii)  the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation.

Corporation shall mean Vasomedical, Inc., a Delaware corporation.

Disability shall mean the inability of Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and shall be determined by the Plan Administrator on the basis of such medical evidence as the Plan Administrator deems warranted under the circumstances.  Disability shall be deemed to constitute Permanent Disability in the event that such Disability is expected to result in death or has lasted or can be expected to last for a continuous period of twelve (12) months or more.
 
5

 
 
 
Fair Market Value per share of common stock on any relevant date shall be determined in accordance with the following provisions:

(i) If the common stock is at the time traded on the NASDAQ National or SmallCap Market, then the Fair Market Value shall be the closing selling price per share of common stock on the date in question, as the price is reported by the National Association of Securities Dealers on the NASDAQ National or SmallCap Market.  If there is no closing selling price for the common stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(ii) If the common stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of common stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the common stock, as such price is officially quoted in the composite tape of transactions on such exchange.  If there is no closing selling price for the common stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(iii) If the common stock is at the time neither listed on any Stock Exchange nor traded on the NASDAQ National Market, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate.

Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty by the Participant or Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner.  The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Participant, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary).

1934 Act shall mean the Securities Exchange Act of 1934, as amended.

Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

Permitted Transfer shall mean (i) a gratuitous transfer of the Purchased Shares, provided and only if Participant obtains the Corporation's prior written consent to such transfer, or (ii) a transfer of title to the shares effected pursuant to Participant's will or the laws of intestate succession following Participant's death.

Plan shall mean the Corporation's 2016 Stock Plan.

Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

Purchase Agreement shall mean the stock purchase agreement pursuant to the issuance of the Shares.

Senior Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), in a senior capacity as determined by the Board of Directors or Plan Administrator in its sole discretion.

Shares shall mean the number of shares of common stock subject to the stock issuance.
 
 
6


Stock Exchange shall mean the Nasdaq National Market System, American Stock Exchange or the New York Stock Exchange.

Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

Vesting Commencement Date shall mean the date on which the Shares commence to vest as specified in the Grant Notice or agreement with Participant.

Vesting Schedule shall mean the vesting schedule specified in the Grant Notice or agreement with Participant pursuant to which the Participant is to be vested in the Shares in a series of installments over his or her period of Service.

7
EX-31 3 vaso10q-june2016ex31.htm
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13a/15d OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jun Ma, certify that:

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.
 
/s/ Jun Ma                         .
Jun Ma
President and Chief Executive Officer

Date: August 15, 2016


EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULE 13a/15d OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael J. Beecher, certify that:

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.
 
/s/ Michael J. Beecher           .
Michael J. Beecher
Chief Financial Officer

Date: August 15, 2016




EX-32 4 vaso10q-june2016ex32.htm
EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Vasomedical, Inc. and subsidiaries (the "Company") on Form 10-Q for the period ending June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jun Ma, as President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



 
/s/ Jun Ma
 
Jun Ma
 
President and Chief Executive Officer

Dated: August 15, 2016
 
 


 

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Vasomedical, Inc. and subsidiaries (the "Company") on Form 10-Q for the period ending June 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael J. Beecher, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 

 
/s/ Michael J. Beecher
 
Michael J. Beecher
 
Chief Financial Officer
 

Dated: August 15, 2016
 
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POLICIES</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; font-weight: bold; text-align: left;">Basis of Presentation and Use of Estimates</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">The accompanying condensed consolidated 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 unaudited condensed consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in connection with the audited consolidated financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on March 30, 2016.</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">These unaudited condensed consolidated financial statements include the accounts of the companies over which we exercise control. In the opinion of management, the accompanying condensed consolidated 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.</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">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 condensed consolidated financial statements, the disclosure of contingent assets and liabilities in the unaudited condensed consolidated 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.</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; font-weight: bold; text-align: left;">Significant Accounting Policies and Recent Accounting Pronouncements</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">During the first quarter of 2016, we adopted Accounting Standards Update (&#8220;ASU&#8221;) No. 2015-16, <font style="font-size: 10pt; font-family: 'Times New Roman'; font-style: italic;">Simplifying the Accounting for Measurement-period Adjustments,</font> and ASU No. 2016-09, <font style="font-size: 10pt; font-family: 'Times New Roman'; font-style: italic;">Compensation &#8211; Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting</font>, neither of which had a material impact on our reported financial position or results of operations and cash flows.&#160; There have been no other significant changes in our reported financial position or results of operations and cash flows as a result of the adoption of new accounting pronouncements or to our significant accounting policies that were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 that have had a significant impact on our consolidated financial statements or notes thereto.</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">In April 2016, the FASB issued ASU No. 2016-10, <font style="font-size: 10pt; font-family: 'Times New Roman'; font-style: italic;">Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing</font>, which adds further guidance on identifying performance obligations and improves the operability and understanding of the licensing implementation guidance.&#160; The standard is effective for fiscal periods beginning after December 15, 2017, including interim periods therein.&#160; Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.&#160; The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; font-style: italic; text-align: justify;">Variable Interest Entities</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">The Company follows the guidance of accounting for variable interest entities, which requires certain variable interest entities to be consolidated by the primary beneficiary of the entities.&#160; Biox is a Variable Interest Entity (&#8220;VIE&#8221;).</div><div><br /></div><div style="font-size: 10pt; font-family: 'Times New Roman'; text-align: justify; text-indent: 36pt;">Liabilities recognized as a result of consolidating this VIE do not represent additional claims on the Company&#8217;s general assets. 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