Vasomedical, Inc. and Subsidiaries
(in thousands, except share data)
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
ASSETS
|
|
(unaudited)
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,899
|
|
|
$
|
11,469
|
|
Short-term investments
|
|
|
111
|
|
|
|
110
|
|
Accounts and other receivables, net of an allowance for doubtful
|
|
|
|
|
|
|
|
|
accounts and commission adjustments of $2,842 at March 31,
|
|
|
|
|
|
|
|
|
2013 and $3,179 at December 31, 2012
|
|
|
4,735
|
|
|
|
9,145
|
|
Receivables due from related parties
|
|
|
20
|
|
|
|
25
|
|
Inventories, net
|
|
|
2,163
|
|
|
|
2,166
|
|
Financing receivables, net
|
|
|
11
|
|
|
|
16
|
|
Deferred commission expense
|
|
|
2,460
|
|
|
|
2,480
|
|
Deferred related party consulting expense
|
|
|
-
|
|
|
|
85
|
|
Other current assets
|
|
|
270
|
|
|
|
220
|
|
Total current assets
|
|
|
22,669
|
|
|
|
25,716
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
|
|
|
|
|
|
|
|
|
$1,212 at March 31, 2013 and $1,161 at December 31, 2012
|
|
|
434
|
|
|
|
473
|
|
GOODWILL
|
|
|
3,234
|
|
|
|
3,212
|
|
OTHER ASSETS, net
|
|
|
2,464
|
|
|
|
2,980
|
|
|
|
$
|
28,801
|
|
|
$
|
32,381
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
455
|
|
|
$
|
342
|
|
Accrued commissions
|
|
|
1,474
|
|
|
|
2,337
|
|
Accrued expenses and other liabilities
|
|
|
4,029
|
|
|
|
4,627
|
|
Sales tax payable
|
|
|
152
|
|
|
|
177
|
|
Deferred revenue - current portion
|
|
|
10,222
|
|
|
|
10,580
|
|
Deferred tax liability, net
|
|
|
112
|
|
|
|
112
|
|
Notes payable due to related party
|
|
|
3
|
|
|
|
3
|
|
Total current liabilities
|
|
|
16,447
|
|
|
|
18,178
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
3,594
|
|
|
|
5,022
|
|
Other long-term liabilities
|
|
|
333
|
|
|
|
171
|
|
Total long-term liabilities
|
|
|
3,927
|
|
|
|
5,193
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (NOTE M)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 1,000,000 shares authorized; nil shares
|
|
|
|
|
|
|
|
|
issued and outstanding at March 31, 2013, and December 31, 2012
|
|
|
-
|
|
|
|
-
|
|
Common stock, $.001 par value; 250,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
163,240,737 and 162,917,996 shares issued and outstanding
|
|
|
|
|
|
|
|
|
at March 31, 2013 and December 31, 2012
|
|
|
163
|
|
|
|
163
|
|
Additional paid-in capital
|
|
|
61,331
|
|
|
|
61,229
|
|
Accumulated deficit
|
|
|
(53,068
|
)
|
|
|
(52,416
|
)
|
Accumulated other comprehensive income
|
|
|
1
|
|
|
|
34
|
|
Total stockholders’ equity
|
|
|
8,427
|
|
|
|
9,010
|
|
|
|
$
|
28,801
|
|
|
$
|
32,381
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Vasomedical, Inc. and Subsidiaries
(Unaudited)
(in thousands, except per share data)
|
|
Three months ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
Revenues
|
|
|
|
|
|
|
Equipment sales
|
|
$
|
877
|
|
|
$
|
1,453
|
|
Equipment rentals and services
|
|
|
407
|
|
|
|
533
|
|
Commissions
|
|
|
6,009
|
|
|
|
4,057
|
|
Total revenues
|
|
|
7,293
|
|
|
|
6,043
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
Cost of sales, equipment
|
|
|
293
|
|
|
|
606
|
|
Cost of equipment rentals and services
|
|
|
242
|
|
|
|
293
|
|
Cost of commissions
|
|
|
1,696
|
|
|
|
963
|
|
Total cost of revenues
|
|
|
2,231
|
|
|
|
1,862
|
|
Gross profit
|
|
|
5,062
|
|
|
|
4,181
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
5,604
|
|
|
|
5,330
|
|
Research and development
|
|
|
140
|
|
|
|
152
|
|
Total operating expenses
|
|
|
5,744
|
|
|
|
5,482
|
|
Operating loss
|
|
|
(682
|
)
|
|
|
(1,301
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
Interest and financing costs
|
|
|
(2
|
)
|
|
|
(3
|
)
|
Interest and other income (expense), net
|
|
|
40
|
|
|
|
(28
|
)
|
Amortization of deferred gain on
|
|
|
|
|
|
|
|
|
sale-leaseback of building
|
|
|
-
|
|
|
|
13
|
|
Total other income (expenses), net
|
|
|
38
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(644
|
)
|
|
|
(1,319
|
)
|
Income tax expense
|
|
|
(8
|
)
|
|
|
(25
|
)
|
Net loss
|
|
|
(652
|
)
|
|
|
(1,344
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
Foreign currency translation loss
|
|
|
(34
|
)
|
|
|
(22
|
)
|
Comprehensive loss
|
|
$
|
(686
|
)
|
|
$
|
(1,366
|
)
|
|
|
|
|
|
|
|
|
|
Loss per common share
|
|
|
|
|
|
|
|
|
- basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
- basic and diluted
|
|
|
162,117
|
|
|
|
154,377
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
condensed consolidated
financial statements.
Vasomedical, Inc. and Subsidiaries
(Unaudited)
(in thousands)
|
|
Three months ended
|
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(652
|
)
|
|
$
|
(1,344
|
)
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
91
|
|
|
|
49
|
|
Amortization of deferred gain on sale-leaseback of building
|
|
|
-
|
|
|
|
(13
|
)
|
Provision for doubtful accounts and commission adjustments
|
|
|
17
|
|
|
|
(74
|
)
|
Share-based compensation
|
|
|
137
|
|
|
|
129
|
|
Amortization of deferred consulting expense
|
|
|
86
|
|
|
|
152
|
|
Changes in operating assets and liabilities:
|
|
|
-
|
|
|
|
|
|
Accounts and other receivables
|
|
|
4,359
|
|
|
|
14,640
|
|
Receivables due from related parties
|
|
|
5
|
|
|
|
158
|
|
Inventories, net
|
|
|
4
|
|
|
|
226
|
|
Deferred commission expense
|
|
|
21
|
|
|
|
(472
|
)
|
Other current assets
|
|
|
(45
|
)
|
|
|
(91
|
)
|
Other assets
|
|
|
477
|
|
|
|
287
|
|
Accounts payable
|
|
|
113
|
|
|
|
89
|
|
Accrued commissions
|
|
|
(863
|
)
|
|
|
(1,969
|
)
|
Accrued expenses and other liabilities
|
|
|
(604
|
)
|
|
|
(278
|
)
|
Sales tax payable
|
|
|
(25
|
)
|
|
|
43
|
|
Income taxes payable
|
|
|
-
|
|
|
|
(177
|
)
|
Deferred revenue
|
|
|
(1,786
|
)
|
|
|
(447
|
)
|
Deferred tax liability
|
|
|
-
|
|
|
|
(1
|
)
|
Other long-term liabilities
|
|
|
162
|
|
|
|
115
|
|
Net cash provided by operating activities
|
|
|
1,497
|
|
|
|
11,022
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(12
|
)
|
|
|
(113
|
)
|
Purchases of short-term investments
|
|
|
(40
|
)
|
|
|
-
|
|
Redemption of short-term investments
|
|
|
40
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(12
|
)
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrant
|
|
|
-
|
|
|
|
343
|
|
Repayment of notes payable due to related party
|
|
|
-
|
|
|
|
(190
|
)
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
153
|
|
Effect of exchange rate differences on cash and cash equivalents
|
|
|
(55
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
1,430
|
|
|
|
11,037
|
|
Cash and cash equivalents - beginning of period
|
|
|
11,469
|
|
|
|
2,294
|
|
Cash and cash equivalents - end of period
|
|
$
|
12,899
|
|
|
$
|
13,331
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
2
|
|
Income taxes paid
|
|
$
|
24
|
|
|
$
|
186
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
Inventories transferred to property and equipment,
|
|
|
|
|
|
|
|
|
attributable to operating leases, net
|
|
$
|
2
|
|
|
$
|
12
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Vasomedical, Inc. and Subsidiaries
NOTE A - ORGANIZATION AND PLAN OF OPERATIONS
Vasomedical, Inc. was incorporated in Delaware in July 1987. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Vasomedical” or “management” refer to Vasomedical, Inc. and its subsidiaries. Until 2010, we were primarily engaged in designing, manufacturing, marketing and supporting EECP
®
enhanced external counterpulsation systems based on our unique proprietary technology currently indicated in the United States for use in cases of stable or unstable angina (i.e., chest pain), congestive heart failure (“CHF”), acute myocardial infarction (i.e., heart attack, "MI") and cardiogenic shock. In May 2010, the Company, through its wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, expanded into the sales representation business via its agreement with GE Healthcare (“GEHC”), the healthcare business unit of General Electric Company (NYSE: GE), to be GEHC’s exclusive sales representative for the sale of select GEHC diagnostic imaging products in specific market segments in the 48 contiguous states of the United States and the District of Columbia. In June 2012, the Company entered into an amendment, effective July 1, 2012, of the sales representative agreement (“GEHC Agreement”) extending the initial term of three years commencing July 1, 2010 to five years through June 30, 2015, subject to earlier termination under certain circumstances.
In September 2011, the Company acquired Fast Growth Enterprises Limited (FGE), a British Virgin Islands company which, through its subsidiaries, owns and controls two Chinese operating companies - Life Enhancement Technologies Ltd. and Biox Instruments Co. Ltd., respectively – to expand its technical and manufacturing capabilities and to enhance its distribution network, technology, and product portfolio. Also in September 2011, the Company restructured to further align its business management structure and long-term growth strategy and now operates through three wholly-owned subsidiaries. Vaso Diagnostics d/b/a VasoHealthcare continues as the operating subsidiary for the sales representation of GE Healthcare diagnostic imaging products; Vasomedical Global Corp. operates the Company’s Chinese companies; and Vasomedical Solutions, Inc. manages and coordinates our EECP
®
therapy business as well as other medical equipment operations.
We report the operations of Vasomedical Global Corp. and Vasomedical Solutions, Inc. under our Equipment segment. VasoHealthcare activities are included under our Sales Representation segment (See Note C).
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 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, 2012, as filed with the SEC. These 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 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.
Vasomedical, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Significant Accounting Policies
Note B of the Notes to Consolidated Financial Statements, included in the Annual Report on Form 10-K for the year ended December 31, 2012, includes a summary of the significant accounting policies used in the preparation of the condensed consolidated financial statements.
Revenue and Expense Recognition for VasoHealthcare
The Company recognizes commission revenue in its Sales Representation segment (see Note C) when persuasive evidence of an arrangement exists, service has been rendered, the price is fixed or determinable and collectability is reasonably assured. These conditions are deemed to be met when the underlying equipment has been accepted at the customer site in accordance with the specific terms of the sales agreement. Consequently, amounts billable under the agreement with GE Healthcare in advance of the customer acceptance of the equipment are recorded as accounts receivable and deferred revenue in the condensed consolidated balance sheets. Similarly, commissions payable to our sales force related to such billings are recorded as deferred commission expense when the associated deferred revenue is recorded. Commission expense is recognized when the corresponding commission revenue is recognized. Cost of commissions includes commission expense and, beginning in 2013, costs associated with the medical device excise tax imposed by the Affordable Care Act.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform with the current period presentation.
NOTE C – SEGMENT REPORTING AND CONCENTRATIONS
The Company views its business in two segments – the Equipment segment and the Sales Representation segment. The Equipment segment is engaged in designing, manufacturing, marketing and supporting EECP
®
enhanced external counterpulsation systems both domestically and internationally, as well as the development, production, marketing and supporting of other medical devices. The Sales Representation segment operates through the VasoHealthcare subsidiary and is currently engaged solely in the fulfillment of the Company’s responsibilities under our agreement with GEHC. The Company evaluates segment performance based on operating income. Administrative functions such as finance, human resources, and information technology are centralized and related expenses allocated to each segment. Other costs not directly attributable to operating segments, such as audit, legal, director fees, investor relations, and others, as well as certain assets – primarily cash balances – are reported in the Corporate entity below. There are no intersegment revenues. Summary financial information for the segments is set forth below:
Vasomedical, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
|
|
(in thousands)
|
|
|
|
As of or for the three months ended March 31, 2013
|
|
|
|
Equipment Segment
|
|
Sales Representation Segment
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
1,284
|
|
|
$
|
6,009
|
|
|
$
|
-
|
|
|
$
|
7,293
|
|
Operating (loss) income
|
|
$
|
(643
|
)
|
|
$
|
362
|
|
|
$
|
(401
|
)
|
|
$
|
(682
|
)
|
Total assets
|
|
$
|
7,529
|
|
|
$
|
8,485
|
|
|
$
|
12,783
|
|
|
$
|
28,797
|
|
Accounts and other receivables, net
|
|
$
|
618
|
|
|
$
|
4,117
|
|
|
$
|
-
|
|
|
$
|
4,735
|
|
Deferred commission expense
|
|
$
|
-
|
|
|
$
|
4,032
|
|
|
$
|
-
|
|
|
$
|
4,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the three months ended March 31, 2012
|
|
|
Equipment Segment
|
|
Sales Representation Segment
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
1,986
|
|
|
$
|
4,057
|
|
|
$
|
-
|
|
|
$
|
6,043
|
|
Operating loss
|
|
$
|
(157
|
)
|
|
$
|
(796
|
)
|
|
$
|
(348
|
)
|
|
$
|
(1,301
|
)
|
Total assets
|
|
$
|
9,227
|
|
|
$
|
8,381
|
|
|
$
|
13,010
|
|
|
$
|
30,618
|
|
Accounts and other receivables, net
|
|
$
|
1,224
|
|
|
$
|
4,313
|
|
|
$
|
-
|
|
|
$
|
5,537
|
|
Deferred commission expense
|
|
$
|
-
|
|
|
$
|
3,399
|
|
|
$
|
-
|
|
|
$
|
3,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2013 and 2012, GE Healthcare accounted for 82% and 67% of revenue, respectively. Also, GE Healthcare accounted for $4.0 million, or 84%, and $8.1 million, or 89%, of accounts and other receivables at March 31, 2013 and December 31, 2012, respectively.
NOTE D – SHARE-BASED COMPENSATION
The Company complies with ASC Topic 718 “Compensation – Stock Compensation” (“ASC 718”), which requires all share-based awards to employees, including grants of employee stock options, to be recognized in the condensed consolidated financial statements based on their estimated fair values.
During the three month period ended March 31, 2013, the Company granted 60,000 restricted shares of common stock to employees. The shares vested immediately and were valued at $10,800. During the three months ended March 31, 2012, the Company granted 500,000 shares of restricted common stock, valued at $120,000, to an officer, of which half vested immediately and the remainder during the quarter ended March 31, 2013.
During the three-month periods ended March 31, 2013 and 2012, the Company did not grant any stock options.
Share-based compensation expense recognized for the three months ended March 31, 2013 and 2012 was $137,000 and $129,000, respectively. These expenses are included in cost of revenues; selling, general, and administrative expenses; and research and development expenses in the condensed consolidated statements of operations. Expense for share-based arrangements was $86,000 and $152,000 for the three months ended March 31, 2013 and 2012, respectively. Unrecognized expense related to existing share-based compensation and arrangements is approximately $253,000 at March 31, 2013 and will be recognized through July 2014.
Vasomedical, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE E – LOSS PER COMMON SHARE
Basic loss per common share is computed as earnings applicable to common stockholders divided by the weighted-average number of common shares outstanding for the period. Diluted loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted to common stock.
The following table represents common stock equivalents that were excluded from the computation of diluted earnings per share for the three months ended March 31, 2013 and 2012, because the effect of their inclusion would be anti-dilutive.
|
|
(in thousands)
|
|
|
|
For the three months ended
|
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
Stock options
|
|
|
1,780
|
|
|
|
1,810
|
|
Warrants
|
|
|
1,500
|
|
|
|
1,500
|
|
Contingently issuable shares
|
|
|
-
|
|
|
|
2,000
|
|
Common stock grants
|
|
|
2,188
|
|
|
|
2,948
|
|
|
|
|
5,468
|
|
|
|
8,258
|
|
NOTE F – FAIR VALUE MEASUREMENTS
The Company complies with the provisions of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”). Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
Vasomedical, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The following tables present information about the Company’s assets measured at fair value as of March
31, 2013 and December 31, 2012:
|
|
(in thousands)
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Balance
as of
March 31,
2013
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Cash equivalents invested in money market funds
(included in cash and cash equivalents)
|
|
$
|
11,641
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,641
|
|
Investment in certificates of deposit
(included in short-term investments)
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
$
|
11,752
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
Balance
as of
December 31,
2012
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents invested in money market funds
(included in cash and cash equivalents)
|
|
$
|
9,124
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,124
|
|
Investment in certificates of deposit
(included in short-term investments)
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
$
|
9,234
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,234
|
|
The fair values of the Company’s cash equivalents invested in money market funds are determined through market, observable and corroborated sources.
NOTE G – ACCOUNTS AND OTHER RECEIVABLES, NET
The following table presents information regarding the Company’s accounts and other receivables as of March 31, 2013 and December 31, 2012:
|
|
(in thousands)
|
|
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
(unaudited)
|
|
|
|
|
Trade receivables
|
|
$
|
7,432
|
|
|
$
|
12,193
|
|
Due from employees
|
|
|
145
|
|
|
|
131
|
|
Allowance for doubtful accounts and
|
|
|
|
|
|
|
|
|
commission adjustments
|
|
|
(2,842
|
)
|
|
|
(3,179
|
)
|
Accounts and other receivables, net
|
|
$
|
4,735
|
|
|
$
|
9,145
|
|
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 H – INVENTORIES, NET
Inventories, net of reserves, consist of the following:
|
|
(in thousands)
|
|
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
(unaudited)
|
|
|
|
|
Raw materials
|
|
$
|
795
|
|
|
$
|
909
|
|
Work in process
|
|
|
612
|
|
|
|
483
|
|
Finished goods
|
|
|
756
|
|
|
|
774
|
|
|
|
$
|
2,163
|
|
|
$
|
2,166
|
|
At March 31, 2013 and December 31, 2012, the Company maintained reserves for excess and obsolete inventory of $576,000.
NOTE I – GOODWILL AND OTHER INTANGIBLES
Goodwill aggregating $3,234,000 and $3,212,000 was recorded on the Company’s condensed consolidated balance sheets at March 31, 2013 and December 31, 2012, respectively, pursuant to the acquisition of FGE in September 2011. All of the goodwill was 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, 2012
|
|
$
|
3,212
|
|
Foreign currency translation
|
|
|
22
|
|
Balance at March 31, 2013
|
|
$
|
3,234
|
|
The Company’s other intangible assets consist of capitalized patent costs, customer lists and software costs, as follows:
Vasomedical, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
|
|
(in thousands)
|
|
|
|
March 31, 2013
|
|
|
December 31, 2012
|
|
|
|
(unaudited)
|
|
|
|
|
Patents
|
|
|
|
|
|
|
Costs
|
|
$
|
469
|
|
|
$
|
469
|
|
Accumulated amortization
|
|
|
(442
|
)
|
|
|
(438
|
)
|
|
|
|
27
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Customer lists
|
|
|
|
|
|
|
|
|
Costs
|
|
|
800
|
|
|
|
800
|
|
Accumulated amortization
|
|
|
(181
|
)
|
|
|
(152
|
)
|
|
|
|
619
|
|
|
|
648
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
|
|
|
|
|
|
Costs
|
|
|
543
|
|
|
|
541
|
|
Accumulated amortization
|
|
|
(395
|
)
|
|
|
(386
|
)
|
|
|
|
148
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
794
|
|
|
$
|
834
|
|
Patents, customer lists, and software are included in other assets in the accompanying condensed consolidated balance sheets and are amortized on a straight line basis over their estimated useful lives of ten, seven, and five years, respectively. Amortization expense amounted to $42,000 and $7,000 for the three months ended March 31, 2013 and 2012, respectively.
NOTE J - DEFERRED REVENUE
The changes in the Company’s deferred revenues are as follows:
|
|
(in thousands)
|
|
|
|
For the three months ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Deferred revenue at the beginning of the period
|
|
$
|
15,602
|
|
|
$
|
15,227
|
|
Additions:
|
|
|
|
|
|
|
|
|
Deferred extended service contracts
|
|
|
150
|
|
|
|
327
|
|
Deferred in-service and training
|
|
|
5
|
|
|
|
5
|
|
Deferred service arrangements
|
|
|
10
|
|
|
|
25
|
|
Deferred commission revenues
|
|
|
1,008
|
|
|
|
1,350
|
|
Recognized as revenue:
|
|
|
|
|
|
|
|
|
Deferred extended service contracts
|
|
|
(260
|
)
|
|
|
(275
|
)
|
Deferred in-service and training
|
|
|
(1
|
)
|
|
|
(3
|
)
|
Deferred service arrangements
|
|
|
(19
|
)
|
|
|
(22
|
)
|
Deferred commission revenues
|
|
|
(2,679
|
)
|
|
|
(1,853
|
)
|
Deferred revenue at end of period
|
|
|
13,816
|
|
|
|
14,781
|
|
Less: current portion
|
|
|
10,222
|
|
|
|
10,620
|
|
Long-term deferred revenue at end of period
|
|
$
|
3,594
|
|
|
$
|
4,161
|
|
NOTE K – RELATED-PARTY TRANSACTIONS
On June 21, 2007, we entered into a Securities Purchase Agreement with Kerns Manufacturing Corp. (”Kerns”). Pursuant to this agreement, a five-year warrant to purchase 4,285,714 shares of our common stock at an initial exercise price of $0.08 per share was issued to Kerns. In March 2012, Kerns exercised its warrant and purchased 4,285,714 shares of common stock.
Vasomedical, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
On February 28, 2011, David Lieberman and Edgar Rios were appointed by the Board of Directors as directors of the Company. Mr. Lieberman, a practicing attorney in the State of New York, was also appointed to serve as the Vice Chairman of the Board. He is currently a senior partner at the law firm of Beckman, Lieberman & Barandes, LLP, which performs certain legal services for the Company. Fees of approximately $60,000 and $67,000 were billed by the firm through the three months ended March 31, 2013 and 2012, respectively, at which date no amounts were outstanding.
Mr. Rios currently is President of Edgary Consultants, LLC, and was appointed a director in conjunction with the Company’s consulting agreement with Edgary Consultants, LLC. The consulting agreement (the “Agreement”) between the Company and Edgary Consultants, LLC (“Consultant”) commenced on March 1, 2011 and was for a two year term and expired on February 28, 2013. The Agreement provided for the engagement of Consultant to assist the Company in seeking broader reimbursement coverage of EECP
®
therapy.
In consideration for the services to be provided by Consultant under the Agreement, the Company agreed to issue to Consultant or its designees, up to 18,500,000 shares of restricted common stock of the Company, 3,000,000 of which were issued in March 2011 and the balance was to be earned on performance. Mr. Lieberman received 600,000 of these restricted shares. The Company recorded the fair value of the shares issued to Consultant as a prepaid expense and amortized the cost ratably over the two year agreement. The unamortized value is reported as deferred related party consulting expense in our accompanying condensed consolidated balance sheets as of December 31, 2012. No performance-based shares were issued and no further compensation is expected to be paid in conjunction with the agreement.
During the three months ended March 31, 2012, a director performed consulting services for the Company aggregating approximately $10,000.
Through the Company’s acquisition of FGE in September 2011, it assumed the liability for $288,000 in unsecured notes payable to the President of LET and his spouse, of which $95,000 was repaid in December 2011, and $190,000, bearing interest at 6% per annum, was paid in March 2012. In addition, receivables due from FGE management aggregating $5,000 and $158,000 were collected during the three months ended March 31, 2013 and 2012, respectively.
NOTE L – STOCKHOLDERS’ EQUITY
Common Stock
See Note K for discussion of common stock issued during the three months ended March 31, 2012 in connection with related party agreements. In addition, during the three months ended March 31, 2013 and 2012, the Company issued 322,741 and 62,500 shares of common stock, respectively, to employees and consultants.
On June 17, 2010 the Board of Directors approved the 2010 Stock Plan (the “2010 Plan”) for officers, directors, employees and consultants of the Company. The stock issuable under the 2010 Plan shall be shares of the Company’s authorized but unissued or reacquired common stock. The maximum number of shares of common stock which may be issued under the 2010 Plan is 5,000,000 shares.
The 2010 Plan is comprised of two separate equity programs, the Options Grant Program, under which eligible persons may be granted options to purchase shares of common stock, and the Stock Issuance Program, under which eligible persons may be issued shares of common stock directly, either through the immediate purchase of such shares or as compensation for services rendered to the Company. The 2010 Plan provides that the Board of Directors, or a committee of the Board of Directors, will administer it with full authority to determine the identity of the recipients of the options or shares and the number of options or shares.
As of March 31, 2013, 3,790,000 restricted shares of common stock were granted under the 2010 Plan to non-officer employees and consultants of the Company. As of March 31, 2013, 935,000 shares have been forfeited. In March 2012, 500,000 restricted shares of common stock were granted under the 2010 Plan to an officer, of which 250,000 vested immediately with the remainder vesting over a one year period. In June 2012, 2,392,500 additional shares, vesting at various times through July 1, 2013, of restricted common stock were granted to non-officer employees in conjunction with the extension of the GEHC Agreement, of which 365,500 shares had been forfeited as of March 31, 2013.
Vasomedical, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
No options were issued under the 2010 Plan during the three months ended March 31, 2013 and 2012.
Preferred Stock
Pursuant to its conversion terms, all Series E preferred stock was deemed automatically converted to common stock effective July 1, 2011. As of December 31, 2011, 712,350 shares of common stock were yet to be issued. 647,600 shares were issued during the three months ended March 31, 2012, and all remaining shares were issued the following quarter.
NOTE M – COMMITMENTS AND CONTINGENCIES
Sales representation agreement
In June 2012, the Company concluded an amendment of the GEHC Agreement with GE Healthcare, originally signed on May 19, 2010. The amendment, effective July 1, 2012, extended the initial term of three years commencing July 1, 2010 to five years through June 30, 2015, subject to earlier termination under certain circumstances. These circumstances include not materially achieving certain sales goals, not maintaining a minimum number of sales representatives, and various legal and GEHC policy requirements. Under the terms of the agreement, the Company is required to lease dedicated computer equipment from GEHC for connectivity to their network.
In conjunction with the extension of the GEHC Agreement, the Company granted VasoHealthcare employees both stock and cash-based performance incentives for the ensuing year. The incentives provide for cash payments of up to $2.4 million and 2.4 million shares of restricted common stock grants and vest at various times through July 1, 2013. A condition of the incentives is that the employees remain continuously employed through the vesting dates. As of March 31, 2013, approximately $0.5 million and 0.5 million shares remain unvested.
NOTE N - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Adoption of New Standards
Other Comprehensive Income: Presentation of Comprehensive Income
In February 2013, new guidance was issued that amends the current comprehensive income guidance. The new guidance requires entities to disclose the effect of each item that was reclassified in its entirety out of accumulated other comprehensive income and into net income on each affected net income line item. For reclassification items that are not reclassified in their entirety into net income, a cross-reference to other required disclosures is required. The new guidance is to be applied prospectively for annual reporting periods beginning after December 15, 2012 and interim periods within those years. The adoption of this new guidance did not have an impact on the Company’s consolidated financial position, results of operations, or cash flows.
NOTE O – SUBSEQUENT EVENT
In April 2013, the Company’s Board of Directors authorized a share repurchase program of up to $1.5 million of the Company’s common stock. As of April 30, 2013, this would represent approximately 5% of the total outstanding shares of Vasomedical common stock and 248,577 shares have been repurchased through such date.
Vasomedical, Inc. and Subsidiaries