UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended August 31, 2007
[ ] 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 small business issuer as specified in its charter)
Delaware 11-2871434
--------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
180 Linden Ave., Westbury, New York 11590
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(Address of principal executive offices)
Issuer'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 [ ]
--- --
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer.
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ X ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
--- --
Number of Shares Outstanding of Common Stock, $.001 Par Value,
at October 12, 2007 93,618,004
Vasomedical, Inc. and Subsidiaries
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (unaudited)
Consolidated Condensed Balance Sheets as of
August 31, 2007 and May 31, 2007 3
Consolidated Condensed Statements of Operations for the
Three Months Ended August 31, 2007 and 2006 4
Consolidated Condensed Statement of Changes in Stockholders'
Equity for the Period from June 1, 2007 to August 31, 2007 5
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended August 31, 2007 and 2006 6
Notes to Consolidated Condensed Financial Statements 7
Item 2 - Management's Discussion and Analysis or Plan of Operation 13
Item 3 - Controls and Procedures 27
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 28
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 3 - Defaults upon Senior Securities 28
Item 4 - Submission of Matters to a Vote of Security Holders 28
Item 5 - Other Information 28
Item 6 - Exhibits 28
Page 2
ITEM 1. FINANCIAL STATEMENTS
Vasomedical, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
August 31, May 31,
2007 2007
----------------- ----------------
(Unaudited) (Derived from
audited financial
statements)
ASSETS
CURRENT ASSETS
Cash $2,791,016 $850,288
Accounts receivable, net of an allowance for doubtful accounts of
$333,448 at August 31, 2007 and $364,809 at May 31, 2007 442,877 733,655
Inventories, net 1,939,230 2,117,627
Other current assets 237,310 34,761
----------------- ----------------
Total current assets 5,410,433 3,736,331
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $2,136,295
at August 31, 2007 and $2,836,938 at May 31, 2007 145,386 1,286,880
DEFERRED DISTRIBUTOR COSTS, net of accumulated amortization of $25,444
at August 31, 2007 483,432 --
OTHER ASSETS 248,514 260,240
----------------- ----------------
$6,287,765 $5,283,451
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $529,359 $575,793
Current maturities of long-term debt and notes payable -- 65,769
Sales tax payable 140,254 159,542
Deferred revenue 1,244,920 1,286,726
Deferred gain on sale of building 53,245 --
Accrued director fees 23,000 79,000
Accrued warranty and customer support expenses 15,250 15,750
Accrued professional fees 109,374 143,521
Accrued commissions 89,236 89,883
----------------- ----------------
Total current liabilities 2,204,638 2,415,984
LONG-TERM DEBT -- 785,246
DEFERRED REVENUE 374,711 469,626
DEFERRED GAIN ON SALE OF BUILDING 208,545 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 1,000,000 shares authorized; none
issued and outstanding -- --
Common stock, $.001 par value; 110,000,000 shares authorized;
93,618,004 shares issued and outstanding at August 31, 2007 and
65,198,592 at May 31, 2007 93,618 65,198
Additional paid-in capital 48,043,640 46,165,998
Accumulated deficit (44,637,387) (44,618,601)
----------------- ----------------
Total stockholders' equity 3,499,871 1,612,595
----------------- ----------------
$6,287,765 $5,283,451
================= ================
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 3
Vasomedical, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
August 31,
--------------------------------------
2007 2006
----------------- -----------------
Revenues
Equipment sales $493,268 $1,073,216
Equipment rentals and services 846,808 1,008,640
----------------- -----------------
Total revenues 1,340,076 2,081,856
Cost of Sales and Services
Cost of sales, equipment 340,638 609,342
Cost of equipment rentals and services 314,699 355,268
----------------- -----------------
Total cost of sales and services 655,337 964,610
----------------- -----------------
Gross profit 684,739 1,117,246
Operating Expenses
Selling, general and administrative 583,612 1,323,826
Research and development 139,175 328,495
Provision for doubtful accounts (25,456) 1,681
----------------- -----------------
Total operating expenses 697,331 1,654,002
----------------- -----------------
LOSS FROM OPERATIONS (12,592) (536,756)
Other Income (Expense)
Interest and financing costs (16,666) (18,889)
Interest and other income, net 12,331 20,738
Gain on Sale of Fixed Assets 4,437 --
----------------- -----------------
Total other income (expense) 102 1,849
NET LOSS BEFORE INCOME TAXES (12,490) (534,907)
Income tax expense, net 6,296 4,550
----------------- -----------------
NET LOSS AFTER TAXES ATTRIBUTABLE TO COMMON STOCKHOLDERS $(18,786) $(539,457)
================= =================
Net loss per common share
- basic $0.00 $(.01)
================= =================
- diluted $0.00 $(.01)
================= =================
Weighted average common shares outstanding 87,748,778 65,198,592
================= =================
- diluted 87,748,778 65,198,592
================= =================
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 4
Vasomedical, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
-------------- ------------ ---------------- ------------------ -------------
Balance at June 1, 2007 65,198,592 $65,198 $46,165,998 $(44,618,601) $1,612,595
Common stock and warrant issued to
Kerns Manufacturing Corp. for
Securities Purchase Agreement 21,428,572 21,429 1,354,461 -- 1,375,890
Common stock issued to Living Data
Technology Corporation for
distribution and supplier agreement 6,990,840 6,991 461,395 -- 468,386
Stock based compensation -- -- 61,786 -- 61,786
Net loss -- -- -- (18,786) (18,786)
--------------- ------------ ---------------- ------------------ -------------
Balance at August 31, 2007 93,618,004 $93,618 $48,043,640 $(44,637,387) $3,499,871
=============== ============ ================ ================== =============
The accompanying notes are an integral part of this consolidated condensed
financial statement.
Page 5
Vasomedical, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
August 31,
-------------------------------------
2007 2006
---------------- ----------------
Cash flows from operating activities
Net loss $(18,786) $(539,457)
---------------- ----------------
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities
Depreciation and amortization 70,060 94,313
Amortization of deferred gain on sale of building (4,437)
Provision for doubtful accounts (25,456) 1,681
Amortization of deferred distributor costs 25,444 --
Expenses paid for distributor agreement (40,490)
Stock based compensation 61,786 --
Changes in operating assets and liabilities:
Accounts receivable 316,234 (159,269)
Inventories 216,928 308,059
Other current assets (202,549) 23,486
Other assets -- (3,256)
Accounts payable, accrued expenses and other current liabilities (198,823) (87,437)
Other liabilities (94,915) (148,599)
---------------- ----------------
123,782 28,978
---------------- ----------------
Net cash provided by (used in) operating activities 104,996 (510,479)
Cash flows provided by investing activities
Proceeds from the building sale 1,400,000 --
Expenses paid for sale of building (89,143)
---------------- ----------------
Net cash provided by investing activities 1,310,857 --
Cash flows provided by (used in) financing activities
Payments on long term debt and notes payable (851,015) (84,448)
Proceeds from Securities Purchase agreement 1,500,000 --
Expenses paid in relation to Securities Purchase Agreement (124,110) --
---------------- ----------------
Net cash provided by (used in) financing activities 524,875 (84,448)
---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,940,728 (594,927)
Cash and cash equivalents - beginning of period 850,288 2,385,778
---------------- ----------------
Cash and cash equivalents - end of period $2,791,016 $1,790,851
================ ================
Non-cash investing and financing activities were as follows:
Inventories transferred to (from) property and equipment, attributable to
operating leases, net $(38,531) $(3,009)
Issue of note for purchase of insurance policy $-- $192,120
Common stock issued for distributor agreement $468,386 $--
Supplemental Disclosures
Interest paid $16,666 $18,889
Income taxes paid $2,983 $2,825
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 6
Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
August 31, 2007
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. Since 1995, we have been primarily engaged in designing,
manufacturing, marketing and supporting EECP(R) enhanced external
counterpulsation systems based on our unique proprietary technology currently
indicated for use in cases of stable or unstable angina (i.e., chest pain),
congestive heart failure (CHF), acute myocardial infarction (i.e., heart attack,
(MI)) and cardiogenic shock. The EECP(R) therapy system is a non-invasive,
outpatient therapy for the treatment of diseases of the cardiovascular system.
The therapy serves to increase circulation in areas of the heart with less than
adequate blood supply and helps to restore systemic vascular function. The
therapy also increases blood flow and oxygen supply to the heart muscle and
other organs and decreases the heart's workload and need for oxygen, while also
improving function of the endothelium, the lining of blood vessels throughout
the body, lessening resistance to blood flow. We provide hospitals, clinics and
physician private practices with EECP(R) equipment, treatment guidance, and a
staff training and equipment maintenance program designed to provide optimal
patient outcomes. EECP(R) is a registered trademark for Vasomedical's enhanced
external counterpulsation systems. For more information visit
www.vasomedical.com.
We have Food and Drug Administration (FDA) clearance to market our EECP(R)
therapy for use in the treatment of stable and unstable angina, congestive heart
failure, acute myocardial infarction, and cardiogenic shock, however, our
current marketing efforts are limited to the treatment of chronic stable angina
and congestive heart failure. Medicare and other third-party payers currently
reimburse for the treatment of angina symptoms in patients with moderate to
severe symptoms who are refractory to medication and not candidates for invasive
procedures. Patients with primary diagnoses of heart failure, diabetes,
peripheral vascular disease, etc. are also reimbursed under the same criteria,
provided the primary indication for treatment with EECP(R) therapy is angina
symptoms.
During the last two fiscal years ended May 31, 2007 and 2006 we incurred
large operating losses. The Company has attempted to achieve profitability by
reducing operating costs and halting the trend of declining revenue, to reduce
cash usage through bringing its cost structure more into alignment with current
revenues by engaging in restructurings during January 2006, March 2007 and April
2007 to substantially reduce personnel and spending on sales, marketing and
development projects. In addition, the Company was seeking to obtain a strategic
alliance within the sales and marketing areas and/or to raise additional capital
through public or private equity or debt financings.
During the first quarter of fiscal 2008 the following events took place
which allowed us to raise additional capital through a private equity financing
and by the sale of our facility under a leaseback agreement.
o On June 21, 2007 we entered into a Securities Purchase Agreement with
Kerns Manufacturing Corp. ("Kerns"). Concurrently with our entry into
the Securities Purchase Agreement, we also entered into a Distribution
Agreement and a Supplier Agreement with Living Data Technology
Corporation ("Living Data"), an affiliate of Kerns.
o We sold to Kerns, pursuant to the Securities Purchase Agreement,
21,428,572 shares of our common stock at $.07 per share for an
aggregate of $1,500,000 as well a five-year warrant to purchase
4,285,714 shares of our common stock at an initial exercise price of
$.08 per share (the "Warrant"). We also have an option to sell an
additional $1 million of our common stock to Kerns. The agreement
further provided for the appointment to our Board of Directors of two
representatives of Kerns. In furtherance thereof, Mr. Jun Ma and Mr.
Simon Srybnik, Chairman of both Kerns and Living Data, have been
appointed members of our Board of Directors. On July 10, 2007, Mr.
Page 7
Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
August 31, 2007
Benham Movaseghi, Treasurer of Kerns, was also appointed to our Board
of Directors. Pursuant to the Distribution Agreement, we have become
the exclusive distributor in the United States of the AngioNew ECP
systems manufactured by Living Data. As additional consideration for
such agreement, we agreed to issue an additional 6,990,840 shares of
our common stock to Living Data. Pursuant to the Supplier Agreement,
Living Data now will be the exclusive supplier to us of the ECP
therapy systems that we market under the registered trademark EECP(R).
The Distribution Agreement and the Supplier Agreement each have an
initial term extending through May 31, 2012.
o Pursuant to a Registration Rights Agreement, we granted to Kerns and
Living Data, subject to certain restrictions, "piggyback registration
rights" covering the shares sold to Kerns as well as the shares
issuable upon exercise of the Warrant and the shares issued to Living
Data.
o On August 15, 2007 we sold our facility under a five-year leaseback
agreement for $1.4 million. The net proceeds from the sale was
approximately $425,000 after payment in full of the two secured notes
on our facility, brokers fees, closing costs, and the opening of a
certificate of deposit in accordance with the provisions of the new
lease.
NOTE B - STOCK-BASED COMPENSATION
As of June 1, 2006 the Company has adopted Statement of Financial Standards
No. 123 (revised 2004), Share-Based Payment ("SFAS No. 123 (R)"), which is a
revision of SFAS No. 123. SFAS No. 123 (R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends FASB Statement No. 95,
Statement of Cash Flows. Generally, the approach to accounting for share-based
payments in SFAS No. 123(R) is similar to the approach described in SFAS No.
123. However, SFAS No. 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial
statements based on their fair values. Pro forma disclosure of the fair value of
share-based payments is no longer an alternative to financial statement
recognition.
Prior to first quarter of fiscal 2007 the Company accounted for stock-based
compensation using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations ("APB No. 25") and adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." Under APB No. 25, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. Accordingly, no compensation expense has
been recognized in the consolidated financial statements in connection with
employee stock option grants prior to fiscal 2007.
During the three-month period ended August 31, 2007, the Board of Directors
granted non-qualified stock options under the 2004 Stock Option/Stock Issuance
Plan to four directors to purchase an aggregate of 600,000 shares of common
stock, at an exercise price of $0.12 per share, which represented the fair
market value of the underlying common stock at the time of the respective
grants. These options vest immediately, and expire ten years from the date of
grant.
Stock-based compensation expense recognized under SFAS 123(R) for the
quarter ended August 31, 2007 was $61,786. For purposes of estimating the fair
value of each option on the date of grant, the Company utilized the
Black-Scholes option-pricing model. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options and because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
Page 8
Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
August 31, 2007
Equity instruments issued to non-employees in exchange for goods, fees and
services are accounted for under the fair value-based method of SFAS No. 123(R).
The fair value of the Company's stock-based awards was estimated assuming
the following weighted-average assumptions for the three months ended August 31,
2007:
Expected life (years) 5
Expected volatility 108.9%
Risk-free interest rate 4.95%
Expected dividend yield 0.0%
During the three-month period ended August 31, 2007, options to purchase
1,195,625 shares of common stock at an exercise price of $0.20 - $3.96 were
cancelled.
NOTE C -LOSS PER COMMON SHARE
Basic loss per share is based on the weighted average number of common
shares outstanding without consideration of potential common shares. Diluted
loss per share is based on the weighted number of common and potential common
shares outstanding. The calculation takes into account the shares that may be
issued upon the exercise of stock options and warrants, reduced by the shares
that may be repurchased with the funds received from the exercise, based on the
average price during the period, plus conversion of convertible preferred stock
into common shares based upon the most advantageous conversion rate during the
period.
The following table sets forth the computation of basic and diluted loss
per common share:
Three months ended
August 31,
--------------------------------------
2007 2006
----------------- -----------------
Numerator:
Net income/(loss) $(18,876) $(539,457)
----------------- -----------------
Denominator:
Basic - weighted average common shares 87,748,778 65,198,592
Stock options -- --
Warrants -- --
----------------- -----------------
Diluted - weighted average common shares 87,748,778 65,198,592
================= =================
Basic and diluted loss per common share $0.00 $(0.01)
Options, warrants, and convertible preferred stock, in accordance with the
following table, were excluded from the computation of diluted loss per share
for the three months ended August 31, 2007 and 2006, respectively, because the
effect of their inclusion would be antidilutive.
Page 9
Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
August 31, 2007
Three months ended
August 31,
--------------------------------------
2007 2006
----------------- -----------------
Options to purchase common stock 5,996,710 7,878,508
Warrants to purchase common stock 6,540,252 2,454,538
----------------- -----------------
12,536,962 10,333,046
================= =================
NOTE D - INVENTORIES, NET
Inventories, net consist of the following:
August 31, May 31,
2007 2007
----------------- -----------------
Raw materials $745,236 $794,188
Work in process 932,109 915,744
Finished goods 261,885 407,695
----------------- -----------------
$1,939,230 $2,117,627
================= =================
At August 31, 2007 and May 31, 2007, the Company has recorded reserves for
excess and obsolete inventory of $677,166.
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
August 31, May 31,
2007 2007
---------------- ---------------
Land $-- $ 200,000
Building and improvements -- 1,394,569
Office, laboratory and other equipment 1,372,248 1,436,360
EECP systems under operating leases or under loan
for clinical trials 747,367 813,020
Furniture and fixtures 162,066 162,066
Leasehold improvements -- 117,803
---------------- ---------------
2,281,681 4,123,818
Less: accumulated depreciation and amortization (2,136,295) (2,836,938)
---------------- ---------------
$145,386 $1,286,880
================ ===============
NOTE F - LONG-TERM DEBT
The following table sets forth the computation of long-term debt:
August 31, May 31,
2007 2007
----------------- ---------------
Facility loans (a) $-- $851,015
Less: current portion -- (65,769)
----------------- ---------------
$-- $785,246
================= ===============
(a) The Company purchased its headquarters and warehouse facility with
secured notes of $641,667 and $500,000, respectively, under two
programs sponsored by New York State. These notes, which bore interest
at 7.8% and 6%, respectively, were payable in monthly installments
Page 10
Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
August 31, 2007
consisting of principal and interest payments over fifteen-year terms,
expiring in September 2016 and January 2017, respectively, and were
secured by the building.
On August 15, 2007 we sold our facility for $1.4 million under a sale
with a five-year leaseback agreement. The net proceeds from the sale
was approximately $425,000 after payment in full of the two secured
notes above, brokers fees, closing costs, and the opening of a
certificate of deposit in accordance with the provisions of the new
lease.
NOTE G - DEFERRED REVENUES
The changes in the Company's deferred revenues are as follows:
Three months ended
August 31
--------------------------------------
2007 2006
----------------- -----------------
Deferred revenue at the beginning of the period $1,756,352 $2,322,588
ADDITIONS
Deferred extended service contracts 411,900 390,534
Deferred in-service training 10,000 17,500
Deferred warranty obligations 50,000 52,500
Deferred service contract promotion 4,500 --
RECOGNIZED AS REVENUE
Deferred extended service contracts (566,004) (606,049)
Deferred in-service training (7,500) (20,000)
Deferred warranty obligations (36,167) (91,042)
Deferred service contract promotion (3,450) --
----------------- -----------------
Deferred revenue at end of period 1,619,631 2,066,031
Less: current portion (1,244,920) (1,492,179)
----------------- -----------------
Long-term deferred revenue at end of period $374,711 $573,852
================= =================
NOTE H - SALE-LEASEBACK
In August 2007, the Company sold its warehouse and corporate facility for
$1,400,000. Under the agreement, the Company is leasing back the property from
the purchaser over a period of five years. The Company is accounting for the
leaseback as an operating lease. The gain of $266,226 realized in this
transaction has been deferred and is being amortized to income ratably over the
term of the lease. At August 31, 2007, the unamortized deferred gain of $261,790
is shown as "Deferred gain on sale of building" in the Company's consolidated
condensed balance sheet.
NOTE I - WARRANTY COSTS
The changes in the Company's product warranty liability are as follows:
Three months ended
August 31,
----------------------------------
2007 2006
--------------- ---------------
Warranty liability at the beginning of the period $15,750 $32,000
Expense for new warranties issued 9,000 21,000
Warranty amortization (9,500) (23,000)
--------------- ---------------
Warranty liability at end of period 15,250 30,000
Less: current portion 15,250 29,250
--------------- ---------------
Long-term warranty liability at end of period $-- $750
=============== ===============
Page 11
Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
August 31, 2007
NOTE J - INCOME TAXES
During the three-months ended August 31, 2007 and 2006, state income taxes
were $6,296 and $4,550, respectively.
As of August 31, 2007, the recorded deferred tax assets were $19,589,352,
reflecting no change during the first quarter of fiscal 2008. The deferred tax
asset was offset by a valuation allowance of the same amount.
Ultimate realization of any or all of the deferred tax assets is not
assured, due to significant uncertainties and material assumptions associated
with estimates of future taxable income during the carryforward period. In
February 2006, we concluded that, based upon the weight of available evidence,
it was "more likely than not" that the net deferred tax asset would not be
realized and increased the valuation allowance to bring the net deferred tax
asset carrying value to zero.
At May 31, 2007, the Company had net operating loss carryforwards for
Federal and state income tax purposes of approximately $53,290,050, expiring at
various dates from 2008 through 2027.
NOTE K - COMMITMENTS AND CONTINGENCIES
Leases
On August 15, 2007 we sold our facility under a five-year leaseback
agreement. Future rental payments under the operating lease are as follows:
May 31, 2008 $103,964
May 31, 2009 142,777
May 31, 2010 148,488
May 31, 2011 154,427
May 21, 2012 160,604
May 31, 2013 40,540
-----------------
Total $750,800
=================
Litigation
The Company is currently, and has in the past been, a party to various
routine legal proceedings 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.
Page 12
Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Except for historical information contained in this report, the matters
discussed are forward-looking statements that involve risks and uncertainties.
When used in this report, words such as "anticipates", "believes", "could",
"estimates", "expects", "may", "plans", "potential" and "intends" and similar
expressions, as they relate to the Company or its management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. Among the factors
that could cause actual results to differ materially are the following: the
effect of business and economic conditions; the effect of the dramatic changes
taking place in the healthcare environment; the impact of competitive procedures
and products and their pricing; medical insurance reimbursement policies;
unexpected manufacturing or supplier problems; unforeseen difficulties and
delays in the conduct of clinical trials and other product development programs;
the actions of regulatory authorities and third-party payers in the United
States and overseas; uncertainties about the acceptance of a novel therapeutic
modality by the medical community; and the risk factors reported from time to
time in the Company's SEC reports. The Company undertakes no obligation to
update forward-looking statements as a result of future events or developments.
General Overview
Vasomedical, Inc. was incorporated in Delaware in July 1987. Unless the
context requires otherwise, all references to "we", "our", "us", "Company",
"registrant", "Vasomedical" or "management" refer to Vasomedical Inc. and its
subsidiaries. Since 1995, we have been primarily engaged in designing,
manufacturing, marketing and supporting EECP(R) enhanced external
counterpulsation systems based on our unique proprietary technology currently
indicated for use in cases of stable or unstable angina (i.e., chest pain),
congestive heart failure (CHF), acute myocardial infarction (i.e., heart attack,
(MI)) and cardiogenic shock. The EECP(R) therapy system is a non-invasive,
outpatient therapy for the treatment of diseases of the cardiovascular system.
The therapy serves to increase circulation in areas of the heart with less than
adequate blood supply and helps to restore systemic vascular function. The
therapy also increases blood flow and oxygen supply to the heart muscle and
other organs and decreases the heart's workload and need for oxygen, while also
improving function of the endothelium, the lining of blood vessels throughout
the body, lessening resistance to blood flow. We provide hospitals, clinics and
physician private practices with EECP(R) equipment, treatment guidance, and a
staff training and equipment maintenance program designed to provide optimal
patient outcomes. EECP(R) is a registered trademark for Vasomedical's enhanced
external counterpulsation systems. For more information visit
www.vasomedical.com.
We have Food and Drug Administration (FDA) clearance to market our EECP(R)
therapy for use in the treatment of stable and unstable angina, congestive heart
failure, acute myocardial infarction, and cardiogenic shock, however our current
marketing efforts are limited to the treatment of chronic stable angina and
congestive heart failure. Medicare and other third-party payers currently
reimburse for the treatment of angina symptoms in patients with moderate to
severe symptoms who are refractory to medications and not candidates for
invasive procedures. Patients with primary diagnoses of heart failure, diabetes,
peripheral vascular disease, etc. are also reimbursed under the same criteria,
provided the primary indication for treatment with EECP(R) therapy is angina
symptoms.
During the last two fiscal years ended May 31, 2007 and 2006 we incurred
large operating losses. We attempted to achieve profitability by reducing
operating costs and halting the trend of declining revenue, to reduce cash usage
through bringing our cost structure more into alignment with current revenue by
engaging in restructurings during January 2006, March 2007 and April 2007 to
substantially reduce personnel and spending on sales, marketing and development
projects. In addition, we sought to obtain a strategic alliance within the sales
and marketing areas and/or to raise additional capital through public or private
equity or debt financings.
During the first quarter of fiscal 2008 the following events took place,
which allowed us to raise additional capital through a private equity financing
and by the sale of our facility under a leaseback agreement.
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Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
o On June 21, 2007 we entered into a Securities Purchase Agreement with
Kerns Manufacturing Corp. ("Kerns"). Concurrently with our entry into
the Securities Purchase Agreement, we also entered into a Distribution
Agreement and a Supplier Agreement with Living Data Technology
Corporation, an affiliate of Kerns ("Living Data").
We sold to Kerns, pursuant to the Securities Purchase Agreement,
21,428,572 shares of our common stock at $.07 per share for an
aggregate of $1,500,000 as well a five-year warrant to purchase
4,285,714 shares of our common stock at an initial exercise price of
$.08 per share (the "Warrant"). We also have an option to sell an
additional $1 million of our common stock to Kerns. The agreement
further provided for the appointment to our Board of Directors of two
representatives of Kerns. In furtherance thereof, Mr. Jun Ma and Mr.
Simon Srybnik, Chairman of both Kerns and Living Data, have been
appointed members of our Board of Directors. On July 10, 2007, Mr.
Benham Movaseghi, Treasurer of Kerns, was also appointed to our Board
of Directors. Pursuant to the Distribution Agreement, we have become
the exclusive distributor in the United States of the AngioNew ECP
systems manufactured by Living Data. As additional consideration for
such agreement, we agreed to issue an additional 6,990,840 shares of
our common stock to Living Data. Pursuant to the Supplier Agreement,
Living Data now will be the exclusive supplier to us of the ECP
therapy systems that we market under the registered trademark EECP(R).
The Distribution Agreement and the Supplier Agreement each have an
initial term extending through May 31, 2012.
Pursuant to a Registration Rights Agreement, we granted to Kerns and
Living Data, subject to certain restrictions, "piggyback registration
rights" covering the shares sold to Kerns as well as the shares
issuable upon exercise of the Warrant and the shares issued to Living
Data.
o On August 15, 2007 we sold our facility under a five-year leaseback
agreement for $1.4 million. The net proceeds from the sale was
approximately $425,000 after payment in full of the two secured notes
on our facility, brokers fees, closing costs, and the opening of a
certificate of deposit in accordance with the provisions of the new
lease.
We sponsored a pivotal, randomized clinical trial to demonstrate the
efficacy of EECP(R) therapy in the most prevalent types of heart failure
patients. This trial, known as PEECH(TM) (Prospective Evaluation of EECP(R) in
Congestive Heart Failure), was intended to provide additional evidence of the
safety and efficacy of EECP(R) therapy in the treatment of mild-to-moderate
heart failure and to support our application for expansion of the Medicare
national reimbursement coverage policy to include mild-to-moderate heart failure
as a primary indication. The PEECH(TM) trial was a positive clinical trial,
having met the statistical requirement of meeting at least one of its co-primary
endpoints, a significant difference in the proportion of patients satisfying a
pre-specified threshold of improvement in exercise duration. The trial also
demonstrated significant improvements in favor of EECP(R) therapy on several
important secondary endpoints, including exercise duration and improvement in
symptom status and quality of life. Measures of change in peak oxygen
consumption were not statistically significant in the overall study population,
though a trend favoring EECP(R) therapy was present in early follow-up. Patients
in the trial who had an ischemic etiology, i.e. pre-existing coronary artery
disease, demonstrated a greater response to EECP(R) therapy than those who had
an idiopathic (non-ischemic) etiology.
The preliminary results of the PEECH trial were presented at the American
College of Cardiology scientific sessions in March 2005. On June 20, 2005, the
Centers for Medicare and Medicaid Services (CMS) accepted our application for
expansion of reimbursement coverage of EECP(R) therapy to include patients with
New York Heart Association (NYHA) Class II/III stable heart failure symptoms
with an ejection fraction of less than or equal to 35%, i.e. chronic, stable,
mild-to-moderate systolic heart failure as a primary indication, as well as
patients with Canadian Cardiovascular Society Classification (CCSC) II, i.e.
chronic, stable mild angina.
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Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
On June 23, 2005, CMS also received a request from a competing manufacturer
of external counterpulsation therapy equipment, to reconsider the reimbursement
coverage policy. They requested expansion of coverage to include 1) treatment of
congestive heart failure, to include NYHA Class II, III with a left ventricular
ejection fraction (LVEF) less than or equal to 40%, and acute heart failure; 2)
treatment of stable angina to include CCSC II angina; 3) treatment of acute
myocardial infarction; 4) treatment of cardiogenic shock. On September 15, 2005,
they amended their request to include NYHA Class IV heart failure.
On March 20, 2006, the Centers for Medicare and Medicaid Services (CMS)
issued their Decision Memorandum regarding this reconsideration with the opinion
"that the evidence is not adequate to conclude that external counterpulsation
therapy is reasonable and necessary for the treatment of:
o Canadian Cardiovascular Society Classification (CCSC) II angina
o Heart Failure
o New York Heart Association Class II/III stable heart failure symptoms
with an ejection fraction of less than or equal to 35%
o New York Heart Association Class II/III stable heart failure symptoms
with an ejection fraction of less than or equal to 40%
o New York Heart Association Class IV heart failure
o Acute heart failure
o Cardiogenic shock
o Acute myocardial infarction."
They commented in their decision memorandum that they were not able to
apply full weight to the evidence generated by the PEECH(TM) trial, as it had
not yet been published in a peer-reviewed medical journal by the time they were
required to issue a final decision on this application. Moreover, they did not
opine on whether they would consider the results of the trial when published to
be sufficient evidence to conclude that external counterpulsation therapy is
reasonable and necessary for the treatment of New York Heart Association Class
II/III stable heart failure symptoms with an ejection fraction of less than or
equal to 35%. They did, however, reiterate in the decision memorandum that
"Current coverage as described in Section 20.20 of the Medicare National
Coverage Determination (NCD) manual will remain in effect.", for refractory
angina patients.
On August 25, 2006 the results of the trial were initially published on
line by the Journal of the American College of Cardiology (JACC), and in print
in its September 19, 2006 issue. JACC is the official journal of the American
College of Cardiology.
In the November-December issue of the journal Congestive Heart Failure, a
second report of results from the PEECH(TM) trial was published, focusing on the
results of a pre-specified subgroup analysis in trial patients age 65 and over.
This analysis demonstrated a statistically positive response on both co-primary
endpoints of the trial in patients receiving EECP(R) therapy versus those who
did not, i.e. a significantly larger proportion of patients undergoing EECP(R)
therapy met or exceeded pre-specified thresholds of improvement in exercise
duration and peak oxygen consumption. Moreover, the patients age 65 and older
who received EECP(R) therapy demonstrated the greatest differences in exercise
duration, peak oxygen consumption and functional class (symptom status) compared
with those who did not receive EECP(R) therapy.
The above 2 papers have been submitted to CMS for reconsideration of our
application. We had met with representatives of CMS on February 28, 2007 and
presented our case. CMS has requested more data from us. We will continue to
gather the data and continue our dialogue with CMS to obtain coverage for heart
failure patients. However, there is no assurance that the Company will have
sufficient resources to gather the necessary data to be sufficient to support
expansion of the Medicare national coverage policy for EECP(R) treatment for
NYHA class II and III heart failure patients.
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Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
We will continue to educate the marketplace that EECP(R) therapy is a
therapy for ischemic cardiovascular disease and that patients with a primary
diagnosis of heart failure, diabetes, peripheral vascular disease, etc. are also
eligible for reimbursement under the current coverage policy, provided the
primary indication for treatment with EECP(R) therapy is angina or angina
equivalent symptoms and the patient satisfies other listed criteria.
Critical Accounting Policies
Financial Reporting Release No. 60, which was released by the Securities
and Exchange Commission, or SEC, in December 2001, requires all companies to
include a discussion of critical accounting policies or methods used in the
preparation of financial statements. Note B of the Notes to Consolidated
Financial Statements included in our Annual Report on Form 10-KSB for the year
ended May 31, 2007, includes a summary of our significant accounting policies
and methods used in the preparation of our financial statements. In preparing
these financial statements, we have made our best estimates and judgments of
certain amounts included in the financial statements, giving due consideration
to materiality. The application of these accounting policies involves the
exercise of judgment and use of assumptions as to future uncertainties and, as a
result, actual results could differ from these estimates. Our critical
accounting policies are as follows:
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred or service has been rendered, the price is fixed
or determinable and collectibility is reasonably assured. In the United States,
we recognize revenue from the sale of our EECP(R) systems in the period in which
we deliver the system to the customer. Revenue from the sale of our EECP(R)
systems to international markets is recognized upon shipment of the product to a
common carrier, as are supplies, accessories and spare parts delivered to both
domestic and international customers. Returns are accepted prior to the
in-service and training subject to a 10% restocking charge or for normal
warranty matters, and we are not obligated for post-sale upgrades to these
systems. In addition, we use the installment method to record revenue based on
cash receipts in situations where the account receivable is collected over an
extended period of time and in our judgment the degree of collectibility is
uncertain.
In most cases, revenue from domestic EECP(R) system sales is generated from
multiple-element arrangements that require judgment in the areas of customer
acceptance, collectibility, the separability of units of accounting, and the
fair value of individual elements. Effective September 1, 2003, we adopted the
provisions of Emerging Issues Task Force, or EITF, Issue No. 00-21, "Revenue
Arrangements with Multiple Deliverables", ("EITF 00-21"), on a prospective
basis. The principles and guidance outlined in EITF 00-21 provide a framework to
determine (a) how the arrangement consideration should be measured (b) whether
the arrangement should be divided into separate units of accounting, and (c) how
the arrangement consideration should be allocated among the separate units of
accounting. We determined that the domestic sale of our EECP(R) systems includes
a combination of three elements that qualify as separate units of accounting:
i. EECP(R) equipment sale,
ii. provision of in-service and training support consisting of equipment
set-up and training provided at the customer's facilities, and
iii. a service arrangement (usually one year), consisting of: service by
factory-trained service representatives, material and labor costs,
emergency and remedial service visits, software upgrades, technical
phone support and preferred response times.
Each of these elements represent individual units of accounting as the
delivered item has value to a customer on a stand-alone basis, objective and
reliable evidence of fair value exists for undelivered items, and arrangements
normally do not contain a general right of return relative to the delivered
item. We determine fair value based on the price of the deliverable when it is
sold separately or based on third-party evidence. In accordance with the
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Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
guidance in EITF 00-21, we use the residual method to allocate the arrangement
consideration when it does not have fair value of the EECP(R) system sale. Under
the residual method, the amount of consideration allocated to the delivered item
equals the total arrangement consideration less the aggregate fair value of the
undelivered items. Assuming all other criteria for revenue recognition have been
met, we recognize revenue for:
i. EECP(R) equipment sales, when delivery and acceptance occurs based on
delivery and acceptance documentation received from independent
shipping companies or customers,
ii. in-service and training, following documented completion of the
training, and
iii. the service arrangement, ratably over the service period, which is
generally one year.
In-service and training generally occurs within a few weeks of shipment and
our return policy states that no returns will be accepted after in-service and
training has been completed. The amount related to in-service and training is
recognized as service revenue at the time the in-service and training is
completed and the amount related to service arrangements is recognized ratably
as service revenue over the related service period, which is generally one year.
Costs associated with the provision of in-service and training and the service
arrangement, including salaries, benefits, travel, spare parts and equipment,
are recognized in cost of equipment sales as incurred.
The Company also recognizes revenue generated from servicing EECP(R)
systems that are no longer covered by the service arrangement, or by providing
sites with additional training, in the period that these services are provided.
Revenue related to future commitments under separately priced extended service
agreements on our EECP(R) system are deferred and recognized ratably over the
service period, generally ranging from one year to four years. Costs associated
with the provision of service and maintenance, including salaries, benefits,
travel, spare parts and equipment, are recognized in cost of sales as incurred.
Amounts billed in excess of revenue recognized are included as deferred revenue
in the consolidated balance sheets.
Revenues from the sale of EECP(R) systems through our international
distributor network are generally covered by a one-year warranty period. For
these customers we accrue a warranty reserve for estimated costs to provide
warranty parts when the equipment sale is recognized.
The Company has also entered into lease agreements for our EECP(R) systems,
generally for terms of one year or less, that are classified as operating
leases. Revenues from operating leases are generally recognized, in accordance
with the terms of the lease agreements, on a straight-line basis over the life
of the respective leases. For certain operating leases in which payment terms
are determined on a "fee-per-use" basis, revenues are recognized as incurred
(i.e., as actual usage occurs). The cost of the EECP(R) system utilized under
operating leases is recorded as a component of property and equipment and is
amortized to cost of sales over the estimated useful life of the equipment, not
to exceed five years. There were no significant minimum rental commitments on
these operating leases at May 31, 2007.
Accounts Receivable, Net
The Company's accounts receivable - trade are due from customers engaged in
the provision of medical services. Credit is extended based on evaluation of a
customer's financial condition and, generally, collateral is not required.
Accounts receivable are generally due 30 to 90 days from shipment and are stated
at amounts due from customers net of allowances for doubtful accounts, returns,
term discounts and other allowances. Accounts that remain outstanding longer
than the contractual payment terms are considered past due. Estimates are used
in determining the allowance for doubtful accounts based on the Company's
historical collections experience, current trends, credit policy and a
percentage of its accounts receivable by aging category. In determining these
percentages, we look at historical write-offs of our receivables. The Company
also looks at the credit quality of its customer base as well as changes in its
credit policies. The Company continuously monitors collections and payments from
our customers. While credit losses have historically been within expectations
and the provisions established, the Company cannot guarantee that it will
continue to experience the same credit loss rates that it has in the past.
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Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Inventories, net
The Company values inventory at the lower of cost or estimated market, cost
being determined on a first-in, first-out basis. The Company often places
EECP(R) systems at various field locations for demonstration, training,
evaluation, and other similar purposes at no charge. The cost of these EECP(R)
systems is transferred to property and equipment and is amortized over the next
two to five years. The Company records the cost of refurbished components of
EECP(R) systems and critical components at cost plus the cost of refurbishment.
The Company regularly reviews inventory quantities on hand, particularly raw
materials and components, and record a provision for excess and obsolete
inventory based primarily on existing and anticipated design and engineering
changes to its products as well as forecasts of future product demand.
Effective June 1, 2005, we adopted the provisions of Statement of Financial
Accounting Standards No. 151, "Inventory Costs", on a prospective basis. The
statement clarifies that abnormal amounts of idle facility expense, freight,
handling costs, and wasted materials (spoilage) should be recognized as
current-period charges and requires the allocation of fixed production overheads
to inventory based on the normal capacity of the production facilities.
Deferred Revenues
The Company records revenue on extended service contracts ratably over the
term of the related contract period. Effective September 1, 2003, we
prospectively adopted the provisions of EITF 00-21. Upon adoption of the
provisions of EITF 00-21 we began to defer revenue related to EECP(R) system
sales for the fair value of installation and in-service training to the period
when the services are rendered and for warranty obligations ratably over the
service period, which is generally one year.
Warranty Costs
Equipment sold is generally covered by a warranty period of one year.
Effective September 1, 2003, the Company adopted the provisions of EITF 00-21 on
a prospective basis. Under EITF 00-21, for certain arrangements, a portion of
the overall system price attributable to the first year service arrangement is
deferred and recognized as revenue over the service period. As such, we no
longer accrue warranty costs upon delivery but rather recognize warranty and
related service costs as incurred.
Equipment sold to international customers through our distributor network
is generally covered by a one-year warranty period. For these customers the
Company accrues a warranty reserve for estimated costs of providing a parts only
warranty when the equipment sale is recognized.
The factors affecting our warranty liability include the number of units
sold and historical and anticipated rates of claims and costs per claim.
Net Loss per Common Share
Basic loss per share is based on the weighted average number of common
shares outstanding without consideration of potential common stock. Diluted loss
per share is based on the weighted number of common and potential dilutive
common shares outstanding. The calculation takes into account the shares that
may be issued upon the exercise of stock options and warrants, reduced by the
shares that may be repurchased with the funds received from the exercise, based
on the average price during the period.
Income Taxes
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities and loss
carryforwards for which income tax benefits are expected to be realized in
future years. A valuation allowance is established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. In estimating future
tax consequences, we generally consider all expected future events other than an
Page 18
Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
enactment of changes in the tax laws or rates. The deferred tax asset is
continually evaluated for realizability. To the extent our judgment regarding
the realization of the deferred tax assets changes, an adjustment to the
allowance is recorded, with an offsetting increase or decrease, as appropriate,
in income tax expense. Such adjustments are recorded in the period in which our
estimate as to the realizability of the asset changed that it is "more likely
than not" that the deferred tax assets will be realized. The "more likely than
not" standard is subjective, and is based upon our estimate of a greater than
50% probability that our long range business plan can be realized.
Stock-based Employee Compensation
In December 2004, the FASB issued Statement of Financial Standards No. 123
(revised 2004), Share-Based Payment ("SFAS No. 123 (R)"), which is a revision of
SFAS No. 123. SFAS No. 123 (R) supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash
Flows. Generally, the approach to accounting for share-based payments in SFAS
No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS
No. 123(R) requires all share-based payments to employees including grants of
employee stock options, to be recognized in the financial statements based on
their fair values. Pro forma disclosure of the fair value of share-based
payments is no longer an alternative to financial statement recognition. The
Company has five stock-based employee compensation plans.
Prior to fiscal 2007 the Company accounted for stock-based compensation
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations ("APB No. 25") and adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." Under APB No. 25, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. Accordingly, no compensation expense was
recognized in the consolidated financial statements in connection with employee
stock option grants prior to fiscal 2007.
As new stock options are issued, this may have a material effect on the
quarterly and annual financial statements in the form of additional compensation
expense. It is not possible to precisely determine the expense impact of
adoption since a portion of the ultimate expense that is recorded will likely
relate to awards that have not yet been granted. The expense associated with
these future awards can only be determined based on factors such as the price
for the Company's common stock, volatility of the Company's stock price and risk
free interest rates as measured at the grant date.
For purposes of estimating the fair value of each option on the date of
grant, the Company utilized the Black-Scholes option-pricing model.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
measure of the fair value of its employee stock options.
Equity instruments issued to non-employees in exchange for goods, fees and
services are accounted for under the fair value-based method of SFAS No. 123
(R).
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Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements.
This Statement applies under other accounting pronouncements that require or
permit fair value measurements, the Board having previously concluded in those
accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
However, for some entities, the application of this Statement will change
current practice. This Statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. Earlier application is encouraged, provided that the
reporting entity has not yet issued financial statements for that fiscal year,
including financial statements for an interim period within that fiscal year.
The Company does not expect that SFAS 157 will have any significant effect on
future financial statements.
Statement of Financial Accounting Standards No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities - Including an Amendment to FASB
Statement No. 115. This Statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This Statement is expected to expand the use of fair value
measurement, which is consistent with the Board's long-term measurement
objectives for accounting for financial instruments. This Statement is effective
as of the beginning of an entity's first fiscal year that begins after November
15, 2007, and interim periods within those fiscal years. Early adoption is
permitted as of the beginning of a fiscal year that begins on or before November
15, 2007, provided the entity also elects to apply the provisions of FASB
Statement No. 157, Fair Value Measurements. The Company does not expect that
SFAS 159 will have any significant effect on future financial statements.
The FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes--an Interpretation of FASB Statement No. 109 (FIN 48) in June 2006. This
Interpretation primarily relates to tax positions taken or expected to be taken
in a tax return and clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements. Under this Interpretation
the effects of a tax position would be recognized or derecognized depending on
what outcome is more likely than not to occur with respect to the position. The
Interpretation also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and transition. It
requires that all tax positions be evaluated using the more-likely-than-not
recognition threshold, and that the enterprise should presume that the position
will be examined by the appropriate taxing authority that would have full
knowledge of all relevant information for recognition, derecognition, and
measurement using consistent criteria. Disclosures are required about the effect
of unrecognized tax benefits related to tax positions as well as information
about the nature of the uncertainties related to tax positions where it is
reasonably possible that changes in the tax provision will occur in the next 12
months of this Interpretation will provide more information about the
uncertainty in income tax assets and liabilities. This Interpretation is
effective for fiscal years beginning after December 15, 2006. The Company does
not expect that FIN 48 will have any significant effect on future financial
statements.
EITF Issue 05-1, Accounting for the Conversion of an Instrument That Became
Convertible upon the Issuer's Exercise of a Call Option. The Task Force reached
a consensus that the issuance of equity securities to settle a debt instrument
(pursuant to the instrument's original conversion terms) that became convertible
upon the issuer's exercise of a call option should be accounted for as a
conversion if the debt instrument contained a substantive conversion feature as
of its issuance date, as defined herein. That is, no gain or loss should be
recognized related to the equity securities issued to settle the instrument. The
issuance of equity securities to settle a debt instrument that became
convertible upon the issuer's exercise of a call option should be accounted for
as a debt extinguishment if the debt instrument did not contain a substantive
conversion feature as of its issuance date. That is, the fair value of the
equity securities issued should be considered a component of the reacquisition
price of the debt. This Issue applies to all conversions within the scope of
this Issue that result from the exercise of call options and is effective in
interim or annual reporting periods beginning after June 28, 2006 (the Board
ratification date of the consensus), irrespective of whether the instrument was
entered into prior or subsequent to Board ratification of this Issue. For
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Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
instruments issued prior to the effective date of this consensus, the assessment
as to whether a substantive conversion feature exists at issuance should be
based only on assumptions, considerations, and/or marketplace information
available as of the issuance date. The Company does not expect that
pronouncement EITF Issue 05-1 will have any significant effect on future
financial statements.
EITF Issue 06-1, Accounting for Consideration Given by a Service Provider
to a Manufacturer or Reseller of Equipment Necessary for an End-Customer to
Receive Service from the Service Provider. The Task Force reached a consensus
that if the consideration given by a service provider to a manufacturer or
reseller (that is not a customer of the service provider) can be linked
contractually to the benefit received by the service provider's customer, a
service provider should use the guidance in Issue 01-9 to determine the
characterization of the consideration (that is, "cash consideration" or "other
than cash" consideration). Issue 01-9 presumes that an entity should
characterize "cash consideration" as a reduction of revenue unless an entity
meets the requirements of paragraph 9 of Issue 01-9. Under Issue 01-9, "other
than cash" consideration should be characterized as an expense. In applying that
guidance, the service provider should characterize the consideration given to a
third-party manufacturer or reseller based on the form of consideration directed
by the service provider to be provided to the service provider's customer. If
the form of the consideration is directed to be anything other than "cash
consideration" (as defined in Issue 01-9), then the form of the consideration
should be characterized as "other than cash" consideration. If the service
provider does not control the form of the consideration provided to the service
provider's customer, the consideration should be characterized as "other than
cash" consideration. In reaching this conclusion, Task Force members observed
that consideration paid by a service provider that results in a customer
receiving a reduced price on equipment purchased from a manufacturer or reseller
should be characterized as "other than cash" consideration for purposes of
applying Issue 01-9. The consensus in this Issue is effective for the first
annual reporting period beginning after June 15, 2007. Earlier application is
permitted for financial statements that have not yet been issued. Entities
should recognize the effects of applying the consensus in this Issue as a change
in accounting principle through retrospective application to all prior periods
unless it is impracticable to do so. The Company does not expect that
pronouncement EITF Issue 06-1 will have any significant effect on future
financial statements.
EITF Issue 06-2, Accounting for Sabbatical Leave and Other Similar Benefits
Pursuant to FASB Statement No. 43, "Accounting for Compensated Absences". An
employer may provide its employees with sabbatical leave or other similar
benefits. Sabbatical leave involves an employee receiving time off upon working
at the employer for a specific period of time. When an employer provides
sabbatical leave or another similar benefit, the employer must determine whether
such benefit should be accrued based on the guidance in FASB Statement No. 43,
Accounting for Compensated Absences. The Task Force reached a consensus that an
employee's right to a compensated absence under a sabbatical or other similar
benefit arrangement (a) that requires the completion of a minimum service period
and (b) in which the benefit does not increase with additional years of service
accumulates pursuant to Statement 43 for arrangements in which the individual
continues to be a compensated employee and is not required to perform duties for
the entity during the absence. Therefore, assuming all of the other conditions
of Statement 43 are met, the compensation cost associated with a sabbatical or
other similar benefit arrangement should be accrued over the requisite service
period. This Issue should be effective for fiscal years beginning after December
15, 2006. An entity should apply the consensus reached in this Issue through
either (a) a change in accounting principle through a cumulative-effect
adjustment to retained earnings or to other components of equity or net assets
in the statement of financial position at the beginning of the year of adoption
or (b) a change in accounting principle through retrospective application to all
prior periods. Earlier adoption of this guidance is permitted as of the
beginning of an entity's fiscal year provided that the entity has not yet issued
financial statements, including interim financial statements, for any period of
that fiscal year. The Company does not expect that pronouncement EITF Issue 06-2
will have any significant effect on future financial statements.
EITF Issue 06-3, How Sales Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That Is,
Gross Versus Net Presentation). The issue concerns whether various non-income
Page 21
Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
taxes assessed by governmental authorities should be presented gross or net in
an entity's income statement. Non-income taxes on which this question has arisen
include sales tax, use tax, excise tax, value added tax, and various taxes
related to specific industries (e.g., the severance tax in the oil and gas
industry and the franchise tax in the cable industry). The Task Force reached a
consensus that the scope of this Issue includes any tax assessed by a
governmental authority that is directly imposed on a revenue-producing
transaction between a seller and a customer and may include, but is not limited
to, sales, use, value added, and some excise taxes. The Task Force also reached
a consensus that the presentation of taxes on either a gross (included in
revenues and costs) or a net (excluded from revenues) basis is an accounting
policy decision that should be disclosed pursuant to Opinion 22. In addition,
for any such taxes that are reported on a gross basis, a company should disclose
the amounts of those taxes in interim and annual financial statements for each
period for which an income statement is presented if those amounts are
significant. The disclosure of those taxes can be done on an aggregate basis.
The consensuses in this Issue should be applied to financial reports for interim
and annual reporting periods beginning after December 15, 2006. Earlier
application is permitted. The Company does not expect that pronouncement EITF
Issue 06-3 will have any significant effect on future financial statements.
EITF Issue 06-4, Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. An
endorsement split-dollar life insurance should be recognized as a liability for
future benefits in accordance with Statement 106 (if, in substance, a
postretirement benefit plan exists) or Opinion 12 (if the arrangement is, in
substance, an individual deferred compensation contract) based on the
substantive agreement with the employee. The consensus in this Issue is
effective for fiscal years beginning after December 15, 2007, with earlier
application permitted. The Company does not expect that pronouncement EITF Issue
06-4 will have any significant effect on future financial statements.
EITF Issue 06-5, Accounting for Purchases of Life Insurance--Determining
the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No.
85-4. A policyholder should consider any additional amounts included in the
contractual terms of the policy in determining the amount that could be realized
under the insurance contract. When it is probable (as is used in FASB Statement
No. 5) that contractual terms would limit the amount that could be realized
under the insurance contract, the Task Force agreed that these contractual
limitations should be considered when determining the realizable amounts. Those
amounts that are recoverable by the policyholder at the discretion of the
insurance company should be excluded from the amount that could be realized
under the insurance contract. The consensus in this Issue is effective for
fiscal years beginning after December 15, 2006. Earlier application is permitted
as of the beginning of a fiscal year for periods in which interim or annual
financial statements have not yet been issued. The Company does not expect that
pronouncement EITF Issue 06-5 will have any significant effect on future
financial statements.
Results of Operations
Three Months Ended August 31, 2007 and 2006
Net revenue from sales, leases and service of our EECP systems for the
three-month periods ended August 31, 2007 and 2006, was $1,340,076 and
$2,081,856, respectively, which represented a decline of $741,780 or 36%. We
reported net loss of $18,786 compared to a net loss of $539,457 for the
three-month periods ended August 31, 2007 and 2006, respectively. Our net loss
per common share was $0.00 for the three-month period ended August 31, 2007
compared to a net loss of $0.01 per share for the three-month period August 31,
2006. The decrease in the net loss per common share was primarily due to the
significant decrease in our operating expenses from the comparative prior
period.
Revenues
Revenue from equipment sales declined approximately 54% to $493,268 for the
three-month period ended August 31, 2007 as compared to $1,073,216 for the same
period for the prior year. The decline in equipment sales is due primarily to a
29% decline in the number of equipment shipments and a 35% decrease in average
Page 22
Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
sales prices. The overall decrease in average sales prices is primarily due to
the decline of equipment sales as well as the reduction in sales price due to
competition in both the domestic and international markets, from the prior
fiscal year.
We believe the decline in domestic units shipped reflects weakened demand
in the refractory angina market as existing capacity is more fully utilized,
coupled with increased direct and indirect competition. We anticipate that
demand for EECP(R) systems will remain soft unless there is greater clinical
acceptance for the use of EECP(R) therapy in treating patients with angina or
angina equivalent symptoms who meet the current reimbursement guidelines or an
expansion of the current CMS national reimbursement policy to include some or
all Class II & III heart failure patients. Patients with angina or angina
equivalent symptoms eligible for reimbursement under current policies include
many with serious co-morbidities, such as heart failure, diabetes, peripheral
vascular disease and/or others. Despite this, many cardiology clinicians appear
to be waiting for approval of reimbursement coverage for heart failure as a
primary indication before they will move forward with the treatment of ischemic
heart failure patients with angina equivalent symptoms. Reluctance to bill for
ischemic heart failure patients under the current coverage guidelines, and
failure to get or maintain adequate reimbursement coverage for angina and heart
failure would adversely affect our business prospects. We anticipate that a
prevailing trend of declining prices will continue in the immediate future as
our competition attempts to capture greater market share through pricing
discounts. The average price of new systems sales declined by 20%, in the three
month period ended August 31,2007, compared to prior year and the average sales
price of used systems declined 46% three month period ended August 31,2007. We
continue to reorganize certain territory responsibilities in our sales
department due to the reduction in our sales force and vacant and/or
unproductive territories.
Our revenue from the sale of EECP(R) systems and related products to
international distributors in the three month period ended August 31,2007
decreased approximately 66% to $155,991 compared to $455,178 in the three month
period ending August 31, 2006 reflecting decreased sales volume.
The decline in revenue was also partially due to a 16% decrease in revenue
from equipment rental and services for the three-month period ended August 31,
2007, from the same three-month period in the prior year. Revenue from equipment
rental and services represented 63% of total revenue in the first quarter of
fiscal 2008 compared to 48% in the first quarter of fiscal 2007. The decrease in
revenue resulted primarily from a 14% decrease in service related revenue and a
97% decline in rental revenue. The decline in rental revenue was due to a
decrease in the rental install base from the prior period ended August 31, 2006.
Gross Profit
The gross profit declined to $684,739 or 47% of revenues for the three
month period ended August 31, 2007, compared to $1,117,246 or 54% of revenues
for the three month period ended August 31, 2006. The decline in gross profit
primarily reflects the reduced sales volume.
Gross profits are dependent on a number of factors, particularly the mix of
EECP(R) models sold domestically and internationally and their respective
average selling prices, the mix of EECP(R) units sold, rented or placed during
the period, the ongoing costs of servicing such units, and certain fixed period
costs, including facilities, payroll and insurance. Gross profit margins are
generally less on non-domestic business due to the use of distributors resulting
in lower selling prices. Consequently, the gross profit realized during the
current period may not be indicative of future margins.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses for the three-months
ended August 31, 2007 and 2006, were $583,612 or 44% of revenues and $1,323,826
or 64% of revenues, respectively reflecting a decrease of $740,214 or
approximately 56%. The decrease in SG&A expenditures in the first quarter of
fiscal 2008 compared to fiscal 2007 resulted primarily from a decrease of
$259,841 due to reduced sales personnel and associated travel plus lower sales
Page 23
Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
commission due to reduced sales volume. Marketing expenses decreased $163,525
due to reduced personnel in the marketing and clinical application support
areas, as well as associated travel, plus lower market research, product
promotion, advertising, and trade show expenses. Administrative expenses
decreased $316,848 as a result of decreased expenditures in professional fees
related to accounting and outside consulting, along with reduced personnel and
their associated costs.
Research and Development
Research and development ("R&D") expenses of $139,175 or 10% of revenues
for the three months ended August 31, 2007, decreased by $189,320 or 58%, from
the prior three months ended August 31 2006, which was $328,495 or 16% of
revenues. The decrease is primarily attributable to fewer engineering personnel,
lower new product development spending, and reduced spending on clinical trials.
Provision for Doubtful Accounts
During the three-month period ended August 31, 2007, the Company reduced
its provision for doubtful accounts by $25,456 and recorded a provision for
doubtful accounts of $1,681, during the three-month period ended August 31,
2006. The change in the provision is a primarily a result of the decrease in
sales volume.
Interest Expense and Financing Costs
Interest expense and financing costs decreased to $16,666 in the
three-month period ended August 31, 2007, from $18,889 for the same period in
the prior year. Interest expense primarily reflects interest on loans secured to
refinance the November 2000 purchase of the Company's headquarters and warehouse
facility. The slight decrease is a result of the loans to finance the cost of
implementation of a new management information system being paid in full during
fiscal 2007.
Interest and Other Income, Net
Interest and other income for the three-month periods ended August 31, 2007
and 2006, were $12,331 and $20,738, respectively. Interest income primarily
reflects interest earned on the Company's cash balances.
Income Tax Expense, Net
During the three-month periods ended August 31, 2007 and 2006, state income
taxes were $6,296 and $4,550, respectively.
As of August 31, 2007, the recorded deferred tax assets were $19,589,352,
reflecting no change during the first quarter of fiscal 2008. The deferred tax
asset was offset by a valuation allowance of the same amount.
Ultimate realization of any or all of the deferred tax assets is not
assured, due to significant uncertainties and material assumptions associated
with estimates of future taxable income during the carryforward period. In
February 2006, we concluded that, based upon the weight of available evidence,
it was "more likely than not" that the net deferred tax asset would not be
realized and increased the valuation allowance to bring the net deferred tax
asset carrying value to zero.
Liquidity and Capital Resources
Page 24
Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cash and Cash Flow
At August 31, 2007, we had cash of $2,791,016 and working capital of
$3,205,795 as compared to cash and cash equivalents of $850,288 and working
capital of $1,320,347 at May 31, 2007. Our cash and cash equivalents increased
$1,940,728 in the first quarter of fiscal year 2008.
Cash provided by operating activities was $104,996 for the three months
ended August 31,2007. The net loss of 18,786 after adjustments for non-cash
items provided cash of $86,907. The changes in the account balances primarily
reflect a decrease in accounts receivable of $316,234, lower inventory of
$216,928, which were partially offset by a increase in other current assets of $
202,549 and a decrease in accounts payable, accrued expenses, and other current
liabilities of $198,822 and a decrease in other liabilities of $94,915. Net
accounts receivable were 33% of revenues for the three-month period ended August
31, 2007, as compared to 48% for the three-month period ended August 31, 2006,
and accounts receivable turnover improved to 8 times for the three-months period
August 31, 2007, as compared to 5 times for the three-months period ended August
31, 2006.
Standard payment terms on our domestic equipment sales are generally net 30
to 90 days from shipment and do not contain "right of return" provisions. We
have historically offered a variety of extended payment terms, including
sales-type leases, in certain situations and to certain customers in order to
expand the market for our EECP(R) products in the US and internationally. Such
extended payment terms were offered in lieu of price concessions, in competitive
situations, when opening new markets or geographies and for repeat customers.
Extended payment terms cover a variety of negotiated terms, including payment in
full - net 120, net 180 days or some fixed or variable monthly payment amount
for a six to twelve month period followed by a balloon payment, if applicable.
During the three-month periods ended August 31, 2007 and 2006, there were no
revenues generated from sales in which initial payment terms were greater than
90 days and we offered no sales-type leases during either period. In general,
reserves are calculated on a formula basis considering factors such as the aging
of the receivables, time past due, and the customer's credit history and their
current financial status. In most instances where reserves are required, or
accounts are ultimately written-off, customers have been unable to successfully
implement their EECP(R) program. As we are creating a new market for the EECP(R)
therapy and recognizing the challenges that some customers may encounter, we
have opted, at times, on a customer-by-customer basis, to recover our equipment
instead of pursuing other legal remedies, which has resulted in our recording of
a reserve or a write-off.
Investing activities provided net cash of $1,310,857 during the three-month
period ended August 31, 2007, which represented proceeds received from the
building sale, net of related costs.
Our financing activities provided net cash of $524,875 during the
three-month period ended August 31, 2007, reflecting proceeds, net of related
expenses, of $1,375,890 from the Securities Purchase Agreement, which was offset
by loan repayments on the building of $851,015.
The following table presents the Company's expected cash requirements for
contractual obligations outstanding as of August 31, 2007.
Due as of Due as of
Due as of 8/31/09 and 8/31/11 and Due
Total 8/31/08 8/31/10 8/31/12 Thereafter
--------------------------------------------------------------------------------------------------------------------
Operating Leases $750,800 $138,618 $294,092 $318,090 $--
-----------------------------------------------------------------------------------
Total Contractual Cash
Obligations $750,800 $138,618 $294,092 $318,090 $--
===================================================================================
Liquidity
During the first quarter of fiscal 2008 the following events took place,
which allowed us to raise additional capital through a private equity financing
and by the sale of our facility under a leaseback agreement.
Page 25
Vasomedical, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
o On June 21, 2007 we entered into a Securities Purchase Agreement with
Kerns Manufacturing Corp. ("Kerns"). Concurrently with our entry into
the Securities Purchase Agreement, we also entered into a Distribution
Agreement and a Supplier Agreement with Living Data Technology
Corporation, an affiliate of Kerns ("Living Data").
We sold to Kerns, pursuant to the Securities Purchase Agreement,
21,428,572 shares of our common stock at $.07 per share for an
aggregate of $1,500,000 as well a five-year warrant to purchase
4,285,714 shares of our common stock at an initial exercise price of
$.08 per share (the "Warrant"). We also have an option to sell an
additional $1 million of our common stock to Kerns. The agreement
further provided for the appointment to our Board of Directors of two
representatives of Kerns. In furtherance thereof, Mr. Jun Ma and Mr.
Simon Srybnik, Chairman of both Kerns and Living Data, have been
appointed members of our Board of Directors. On July 10, 2007, Mr.
Benham Movaseghi, Treasurer of Kerns, was also appointed to our Board
of Directors. Pursuant to the Distribution Agreement, we have become
the exclusive distributor in the United States of the AngioNew ECP
systems manufactured by Living Data. As additional consideration for
such agreement, we agreed to issue an additional 6,990,840 shares of
our common stock to Living Data. Pursuant to the Supplier Agreement,
Living Data now will be the exclusive supplier to us of the ECP
therapy systems that we market under the registered trademark EECP(R).
The Distribution Agreement and the Supplier Agreement each have an
initial term extending through May 31, 2012.
Pursuant to a Registration Rights Agreement, we granted to Kerns and
Living Data, subject to certain restrictions, "piggyback registration
rights" covering the shares sold to Kerns as well as the shares
issuable upon exercise of the Warrant and the shares issued to Living
Data.
o On August 15, 2007 we sold our facility under a five-year leaseback
agreement for $1.4 million. The net proceeds from the sale was
approximately $425,000 after payment in full of the two secured notes
on our facility, brokers fees, closing costs, and the opening of a
certificate of deposit in accordance with the provisions of the new
lease.
Based on our current operations and the amounts received from the above
transactions, we believe that we have sufficient working capital to continue our
operations through at least May 31, 2008.
Effects of Inflation
We believe that inflation and changing prices over the past year have not
had a significant impact on our revenue or on our results of operations.
Page 26
Vasomedical, Inc. and Subsidiaries
ITEM 3 - CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of August 31, 2007, our disclosure controls and procedures
are effective to provide reasonable assurances that such disclosure controls and
procedures satisfy their objectives and that the information required to be
disclosed by us in the reports we file under the Exchange Act is recorded,
processed, summarized and reported within the required time periods. There were
no changes during the fiscal quarter ended August 31, 2007 in our internal
controls or in other factors that could have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Page 27
Vasomedical, Inc. and Subsidiaries
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS
Exhibits
31 Certifications pursuant to Rules 13a-14(a) as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32 Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Page 28
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/ John C.K. Hui
---------------------------
John C.K. Hui
Chief Executive Officer, Director, and
Chief Technology Officer (Principal Executive
Officer)
/s/ Tricia Efstathiou
---------------------------
Tricia Efstathiou
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: October 12, 2007