FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended May 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _____
Commission File No. 0-18105
VASOMEDICAL, INC.
(Name of registrant as specified in its charter)
Delaware 11-2871434 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 180 Linden Avenue, Westbury, New York 11590 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (516) 997-4600 |
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by a 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 a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the registrant as of July 31, 2000, based on the average price on that date, was $218,842,000. At July 31, 2000, the number of shares outstanding of the issuer's common stock was 56,339,042.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits are incorporated herein by reference as set forth in Item
13(a)3, Index to Exhibits, in Part IV.
PART I
ITEM ONE - BUSINESS
Except for historical information contained herein, the matters discussed are forward looking statements that involve risks and uncertainties. When used herein, words such as "anticipate", "believe", "estimate", "expect" and "intend" 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 impact of competitive products and pricing; capacity and supply constraints or difficulties; product development, commercialization or technological difficulties; the regulatory and trade environment; 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
Vasomedical, Inc. (the Company), incorporated in Delaware in July 1987, is engaged in the research, development and commercialization of systems and equipment designed to provide non-invasive treatment of patients with cardiovascular disease. The Company's lead product, its Enhanced External Counterpulsation (EECP ) system, is a patented microprocessor-based device that delivers a retrograde arterial pressure wave to the heart, increasing coronary perfusion and reducing ventricular afterload. EECP therapy offers dramatic relief of symptoms to angina sufferers who no longer respond to medication or are poor candidates for invasive revascularization procedures such as bypass surgery or balloon angioplasty. This system is marketed worldwide to hospitals, clinics and other cardiac health care providers. EECP received marketing clearance from the Food and Drug Administration (FDA) under a 510(k) premarket notification in February 1995.
The EECP Enhanced External Counterpulsation System General Discussion
Cardiovascular disease (CVD) is the leading cause of death in the world. CVD claimed 953,110 lives in the United States in 1997 and was responsible for 1 of every 2.4 deaths. The American Heart Association reports in its 2000 Heart and Stroke Statistical Update that, if high blood pressure is included, approximately 60 million Americans suffer from some form of cardiovascular disease. Among these, 12 million have coronary artery disease, 6.2 million of whom suffer from angina pectoris, a painful and often debilitating complication caused by obstruction of the arteries which supply blood to the myocardium or heart muscle. Medications, including vasodilators, are often prescribed to increase blood flow to the coronary arteries. When drugs fail or cease to correct the problem, invasive revascularization procedures such as percutaneous transluminal coronary angioplasty (PTCA), stenting and coronary artery bypass grafting (CABG) are employed. Despite the success of these procedures in lowering the death rate from cardiovascular disease and allowing many to live longer lives, restenosis or reocclusion of the affected vessels remains a problem. Restenosis rates currently reported in the literature for angioplasty and stenting range from 18%-30%. Half of all vein grafts in coronary artery bypass procedures exhibit localized or diffuse narrowings within approximately ten years.
In February 1995, the Company received 510(k) clearance to market the second generation version of this system, the MC2, which incorporated a number of technological improvements over the original system. The FDA's clearance in both cases was for the use of EECP therapy in the treatment of patients suffering from stable or unstable angina pectoris, acute myocardial infarction and cardiogenic shock.
The Company has, for several years now, focused its resources on the angina market. According to 2000 data published by the American Heart Association, there are approximately 6.2 million patients in the U.S. who suffer from angina with an additional 350,000 new cases seen annually.
Data from the AHA indicates that congestive heart failure (CHF) affects nearly 5 million Americans and is the single most frequent cause of hospitalization among people age 65 and older. The incidence of new cases of heart failure is 400,000 annually and rising. An aging population and an increase in the number of patients who survive heart attacks are the primary engines behind this rise in new cases. For most CHF patients, there are few accepted forms of treatment beyond medical management, though left ventricular assist devices (LVADs) and other implantable devices are continuing to advance, particularly as a bridge to transplant.
The potential annual patient pool for EECP treatments in the U.S. alone is over one million patients. The unrealized opportunity for EECP is significant and could approach $150 - $200 million per annum within five years.
The System
The MC2 is an advanced treatment system utilizing fundamental hemodynamic principles to relieve angina pectoris. Treatment is administered to patients in daily one hour sessions, 5 days per week over seven weeks for a total of 35 treatments.
During EECP therapy, the patient lies on a bed while wearing three sets of inflatable pressure cuffs, resembling oversized blood pressure cuffs, on the calves, the upper and lower thighs and buttocks. The cuffs inflate sequentially -- via computer-interpreted ECG signals -- starting from the calves and proceeding upward during the resting phase of each heartbeat (diastole). When the heart pumps (systole), all three cuffs instantaneously deflate. This sequential "squeezing" of the legs creates a pressure wave that forces blood from the legs to the heart. To coordinate the inflation and deflation of the cuffs with the beating heart, the heart rate and rhythm are monitored constantly. Precise timing means that each wave of blood is delivered to the heart when it will do the most good. This surge of circulation insures that the heart does not have to work as hard to pump large amounts of blood through the body, and that more blood is forced into the coronary arteries supplying energy to the heart muscle or myocardium.
While the precise mechanism of action remains unknown, there is strong hypothetical evidence to suggest that EECP triggers a neuro-hormonal response that induces the production of growth factors and dilates existing blood vessels, thus fostering angiogenisis the development of new collateral blood vessels. These tiny collateral vessels, it is theorized, then bypass current blockages and feed blood to areas of the heart that are receiving an inadequate supply.
Circulation improvement is further induced or reinforced by the fact that a course of EECP treatment represents sustained and moderately vigorous exercise, even though passive in nature, that is much more than the often sedentary patient has been able to attempt previously.
Patients usually begin to experience symptomatic relief of angina after 15 or 20 hours of a 35-hour treatment regimen. Positive effects are sustained between treatments and usually persist years after completion of a full course of therapy. Data reported in the April 2000 issue of Clinical Cardiology showed a five year survival rate for those who respond to EECP therapy of 88%, a rate similar to those seen in contemporary surgical bypass and angioplasty trials, despite the fact that many of the patients who underwent EECP therapy had already failed previous attempts at revascularization. In addition, data collected by the International EECP Patient Registry at the University of Pittsburgh Graduate School of Public Health points to sustained lowering of anginal severity and frequency of attacks at six and twelve months post-treatment.
Clinical Studies
Early experiments with counterpulsation at Harvard in the 1950s demonstrated that this technique markedly reduces the workload, and thus oxygen consumption, of the left ventricle. This basic effect has been demonstrated over the past forty years in both animal experiments and in patients. The clinical benefits of external counterpulsation were not consistently achieved in early studies because the equipment used then lacked some of the features found in the EECP system, such as the computer-controlled operating system that makes sequential cuff inflation possible. As the technology improved, however, it became apparent that both internal (i.e. intra-aortic balloon pumping) and external forms of counterpulsation were capable of improving survival in patients with cardiogenic shock following myocardial infarction. Later, in the 1980s, Dr. Zheng and colleagues in China reported on their extensive experience in treating angina using the newly developed "enhanced" sequentially inflating EECP device that incorporated a third cuff for the buttocks. Not only did a course of treatment with EECP reduce the frequency and severity of anginal symptoms during normal daily functions and also during exercise, but the improvements were sustained for years after therapy.
These results prompted a group of investigators at the state University of New York at Stony Brook (Stony Brook) to undertake a number of open studies with EECP between 1989 and 1996 to reproduce the Chinese results, using both subjective and objective endpoints. These studies, though open and non-randomized, showed statistical improvement in exercise tolerance by patients as evidenced by thallium-stress testing and partial or complete resolution of coronary perfusion defects as evidenced by radionuclide imaging studies. All of these results have been reported in the literature and support the assertion that EECP therapy is an effective and durable treatment for patients suffering from chronic angina pectoris.
In 1995, the Company began a large randomized, controlled and double-blinded multicenter clinical study (MUST-EECP) at four leading university hospitals in the United States to confirm the patient benefits observed in the open studies conducted at Stony Brook and to provide definitive scientific evidence of EECP therapy's effectiveness. Initial participating sites included the University of California San Francisco, Columbia University College of Physicians & Surgeons at the Columbia-Presbyterian Medical Center in New York, Beth Israel Deaconess Hospital, a teaching affiliate of Harvard Medical School, and the Yale University School of Medicine. These institutions were later joined by Loyola University, the University of Pittsburgh and Grant/Riverside Methodist Hospitals. MUST-EECP was completed in July 1997 and the results presented at the annual meetings of the American Heart Association in November 1997 and the American College of Cardiology in March 1998. The results of MUST-EECP were published in the Journal of the American College of Cardiology (JACC), a major peer-review medical journal, in June 1999.
This ground-breaking 139 patient study, which included a placebo control group, showed once and for all that EECP therapy was a safe and effective treatment option for patients suffering from angina pectoris, including those on maximal medication and for whom invasive revascularization procedures were no longer an option. The results of the MUST-EECP study confirmed the clinical benefits described in earlier open trials, namely a decline in anginal frequency, an increase in the ability to exercise and a decrease in exercise-induced signs of myocardial ischemia. Data collected by the International EECP Patient Registry (IEPR) at the University of Pittsburgh Graduate School of Public Health closely mirror the results seen in the MUST-EECP trial.
In fiscal 1999, the Company completed a long-term quality-of-life study with EECP in the same institutions and with the same patients that participated in MUST-EECP. The positive results of this study were presented at major scientific meetings, and a publication in a major peer-review journal is expected during fiscal 2001.
As part of its program to expand the therapy's indications for use beyond the treatment of angina, the Company applied for and received FDA approval in April 1998 to study, under an Investigational Device Exemption (IDE) protocol, the application of EECP in the treatment of congestive heart failure (CHF), a disabling condition affecting nearly 5 million Americans. CHF is the most frequent cause of hospitalization for those over 65 years of age. The study was conducted simultaneously at the University of Pittsburgh, the University of California San Francisco and the Grant/Riverside Methodist Hospitals in Columbus, Ohio, and the results presented at the 49th Scientific Sessions of the American College of Cardiology in March 2000. This pilot study concluded that EECP therapy was beneficial to left ventricular function in heart failure patients and may be a useful adjunct to current medical therapy.
In July 2000, an IDE supplement to proceed with a pivotal study to demonstrate the efficacy of EECP therapy in most types of heart failure patients was approved with conditions by the FDA, to which the Company will agree. This study is scheduled to begin patient enrollment in the fall of 2000, and is expected to take two years to complete. The study will involve up to eighteen centers and enroll approximately 200 patients.
CHF occurs when the heart is unable to pump blood well enough to meet the body's needs. The circulatory system becomes congested when the heart fails to empty its chambers sufficiently, leading to an accumulation in the chest and lower limbs. According to the American Heart Association, 2.5 million men and 2.4 million women in the United States have CHF. About 400,000 new cases of the disease occur each year. The need to find new and effective methods to treat CHF
is pressing, since the prevalence of the disease is growing rapidly as a result of the aging population and the improved survival rate following heart attacks, while deaths caused by the disease increased 116% between 1979 and 1995.
The International EECP Patient Registry at the University of Pittsburgh Graduate School of Public Health was established in January 1998 to track the outcomes of patients who have undergone EECP therapy. As of this publication, eighty centers participate in the Registry and data from over 2,700 patient records has been entered. The IEPR is a vital source of information about the effectiveness of EECP in a real-world environment for the medical community at large. For this reason, the Company will continue to work with the Registry to publicize data which may assist clinicians in delivering optimal care to patients. Recently released data from the IEPR shows that patients continue to receive dramatic benefit at six and twelve months following the completion of their course of EECP therapy.
The Company's Plans
The Company's short- and long-term plans are to:
(a) Increase its penetration of the current angina market through the
initiation of a dramatically stepped-up campaign to market the
benefits of EECP therapy directly to patients and clinicians.
(b) Engage in educational campaigns designed to highlight the
cost-effectiveness and quality-of-life advantages of EECP therapy to
State Welfare (Medicaid) agencies, commercial insurance companies, and
managed care organizations.
(c) Initiate a pivotal multicenter study for the use of EECP in CHF in
fiscal 2001.
(d) Continue product development efforts to improve the EECP system, seek
additional patents and initiate in-house assembly during fiscal 2001.
(e) Publish the results of its long-term quality-of-life outcomes study in
a major peer-review medical journal in fiscal 2001.
(f) Continue to work with the International EECP Patient Registry at the
University of Pittsburgh Graduate School of Public Health to publicize
key information relating to patient outcomes.
(g) Pursue additional clinical indications for EECP therapy.
(h) Establish a distribution network in international markets.
(i) Continue to establish and support academic reference centers in the
United States and overseas in order to accelerate the growth and
prestige of EECP therapy and to increase the number and diversity of
clinical and mode-of-action studies, as well as the number of
presentations, publications, speakers and advocates.
Glossary of Terms
Acute Myocardial Infarction - heart attack
Angina Pectoris - literally "chest pain"
Cardiogenic shock - severe reduction in blood pressure owing to weak pumping
action of the heart
Collateral circulation - the use (recruitment) of small supplemental, usually
unused channels through which blood can be made to flow when normal blood
supply is impeded because of obstructions in coronary arteries
Congestive Heart Failure or CHF-A condition in which the heart is unable to pump
blood efficiently enough to meet the body's demands. The circulatory
systems of CHF patients become congested when the heart fails to empty its
chambers sufficiently, leading to an accumulation in the chest and lower
limbs
Coronary Artery Bypass Graft or CABG - a surgical transplant of a vein to
connect the aorta with an obstructed coronary artery
Coronary arteries - those that supply blood to the heart muscle
Diastole - rest period during which the heart chambers fill with blood and the
heart muscle receives most of its supply of oxygen and other nutrients
Enhanced External Counterpulsation or EECP - "Enhanced" describes the Company's
proprietary system which increases the level of diastolic augmentation by
40-50% over that of earlier devices
Ischemia - lack of blood supply
Occlusion - blockage of blood vessels
Percutaneous Transluminal Coronary Angioplasty or PTCA - insertion of a wire
into a coronary artery to which a balloon or other instrument is attached
for the purpose of widening a narrowed vessel
Stenosis - the narrowing of a blood vessel's diameter
Systole - contracting period during which the heart is pumping blood to the rest
of the body
Thallium - an imaging medium used to detect areas of ischemia within the heart
muscle
Sales and Marketing
Domestic Operations
The Company sells its EECP systems to treatment providers in the United States through a direct sales force that is supported by an in-house service organization. The Company's sales force has tripled since January 2000 and is now comprised of sixteen sales representatives and two area directors. The sales team will continue to grow at a pace necessary to achieve its growth objectives. Independent representatives, who have been employed to extend the reach of the Company's sales effort in the past, will be phased out as sufficient geographic coverage is achieved by the Company's direct sales force. The efforts of the Company's sales organization is further supported by a field-based staff of six clinical educators who are responsible for the on-site training and certification of physicians and therapists as new centers are established. Training generally takes three days. These centers are closely monitored and their charts reviewed for several weeks following the initial training of the center's clinicians to ensure treatment guidelines are being appropriately followed. This clinical group is also responsible for training and certification of new personnel at each site as well as for updating providers on new clinical developments relating to EECP therapy.
The expanded sales force will allow the Company to focus more intently on sales to National Accounts and in a somewhat more formal manner. The Company will continue to develop its relationships with such major U.S. hospital groups as Tenet Healthcare, Amerinet, Kaiser Permanente, Health South, Columbia HCA, the Veterans Administration and with other cardiac care operations that have plans for nationwide expansion.
Vasomedical's continued transformation from a research and development organization to a more commercial, market-driven company will be reflected in its marketing activities planned for 2001. Included among these activities are a national media campaign and a WEB-based promotional program designed to accelerate patient-driven demand for the therapy while heightening awareness among clinicians. Additional activities will include journal advertising, publication of EECP-related newsletters, support of physician education programs, exhibition at national, international and regional medical conferences, as well as sponsorship of seminars at professional association meetings. All of these programs are designed to support the Company's field sales organization.
The Company employs service technicians responsible for the installation of EECP systems and, in many instances, on-site training of a customer's biomedical engineering personnel. The Company provides a one-year warranty that includes parts and labor. The Company intends to offer extended service to its customers under annual service contracts or on a fee-for-service basis.
International Operations
The Company's key objective is to appoint distributors in exchange for exclusive marketing rights to EECP in their respective countries. The Company currently has distribution agreements for Canada, Japan, the Middle East, Greece, the United Kingdom and Italy. Each distribution agreement contains a number of requirements that must be met for the distributor to retain exclusivity, including minimum performance standards. In most cases, distributors must either obtain an FDA-equivalent marketing clearance or establish confirmation clinical evaluations conducted by local opinion leaders in cardiology. Each distributor is responsible for obtaining any required approvals. In July 2000, the Company received its medical device license to market its EECP system in Canada. However, there can be no assurance that all of the Company's distributors will be successful in obtaining proper approvals for the EECP system in their respective countries or that these distributors will be successful in their marketing efforts. The Company plans to enter into additional distribution agreements to enhance its international distribution base. There can be no assurance that the Company will be successful in entering into any additional distribution agreements.
To date, revenues from international operations have not been significant. International sales may be subject to certain risks, including export/import licenses, tariffs, other trade regulations and local medical regulations. Tariff and trade policies, domestic and foreign tax and economic policies, exchange rate fluctuations and international monetary conditions have not significantly affected the Company's business to date.
Competition
Presently, Vasomedical is aware of only one competitor with an external counterpulsation device on the market. While the Company believes that this competitor's involvement in the market is limited, there can be no assurance that this company will not become a significant competitive factor. Further, there can be no assurance that other companies will not enter the market intended for EECP systems. Such companies may have substantially greater financial, manufacturing and marketing resources and technological expertise than those possessed by the Company and may, therefore, succeed in developing technologies or products that are more efficient than those offered by the Company and that would render the Company's technology and existing products obsolete or noncompetitive.
Government Regulations
The EECP system is subject to extensive regulation by the FDA. Pursuant to the Federal Food, Drug and Cosmetic Act, as amended, the FDA regulates and must approve the clinical testing, manufacture, labeling, distribution and promotion of medical devices in the United States.
If a medical device manufacturer can establish that a newly developed device is "substantially equivalent" to a device that was legally marketed prior to May 28, 1976, the date on which the Medical Device Amendments of 1976 was enacted, the manufacturer may seek marketing clearance from the FDA to market the device by filing a 510(k) premarket notification. The 510(k) premarket notification must be supported by appropriate data establishing the claim of substantial equivalence to the satisfaction of the FDA. Pursuant to recent amendments to the law, the FDA can now require clinical data or other evidence of safety and effectiveness. The FDA may have authority to deny marketing clearance if the device is not shown to be safe and effective even if the device is "substantially equivalent" to a device marketed prior to May 28, 1976. The Company's EECP system can be marketed in the United States based on the FDA's determination of substantial equivalence. There can be no assurance that the Company's EECP system will not be reclassified in the future by the FDA and subject to additional regulatory requirements.
If substantial equivalence cannot be established or if the FDA determines that more extensive efficacy and safety data are in order, the FDA will require the manufacturer to submit a premarket application (PMA) for full review and approval. Management does not believe that the EECP system will ultimately require PMA approval for continued commercialization under its present labeling; however, the Company so designed the protocol for MUST- EECP as to be able to generate some of the data needed in the event that a PMA is required at some future date. The Company received notice in June 2000 that its EECP system, when used to treat congestive heart failure patients, will be classified by FDA as a Class III PMA device. This classification has important strategic implications for the Company and could provide a significant competitive advantage and a barrier to entry for would-be competitors over the course of the next several years.
In most countries to which the Company seeks to export the EECP system, it must first obtain documentation from the local medical device regulatory authority stating that the marketing of the device is not in violation of that country's medical device laws. The regulatory review process varies from country to country. Presently, the Company is in the process of obtaining regulatory approval of the EECP system overseas.
There can be no assurance that all the necessary FDA clearances, including approval of any PMA required, and overseas approvals will be granted for EECP, its future-generation upgrades or newly developed products, on a timely basis or at all. Delays in receipt of or failure to receive such clearances could have a material adverse effect on the Company's financial condition and results of operations.
In June 1998, the EECP system was awarded the CE Mark, which satisfies the regulatory provisions for marketing in all 15 countries of the European Union. The CE Mark was awarded by DGM of Denmark, an official notified regulatory body, under the European Council Directive concerning medical devices. The CE Mark, in combination with the ISO 9001 certification awarded by Underwriter's Laboratories (UL) in February 1998, places the Company in full compliance with requirements for the marketing of the EECP system in the countries of the European Union. The ISO 9001 Certificate covers the Company's design and manufacturing operation for the EECP system and recognizes that the Company has established and operates a world-class quality system. In addition, in July 2000, the Company received its license for Level II devices from the Canadian Health authority.
Compliance with current Good Manufacturing Practices (GMP) regulations is necessary to receive FDA approval to market new products and to continue to market current products. The Company's manufacturing (including its contract manufacturer), quality control and quality assurance procedures and documentation are currently in compliance, but will be inspected and evaluated periodically in the future by the FDA.
Third-Party Reimbursements
Health care providers, such as hospitals and physicians, that purchase or lease medical devices, such as the EECP system, for use on their patients generally rely on third-party payers, principally Medicare, Medicaid and private health insurance plans, to reimburse all or part of the costs and fees associated with the procedures performed with these devices. Even if a device has FDA approval, Medicare and other third-party payers may deny reimbursement if they conclude that the device is not cost-effective, is experimental or is used for an unapproved indication.
In February 1999, the Health Care Financing Administration (HCFA), the federal agency that administers the Medicare program for more than 38 million beneficiaries, issued a national coverage policy for the use of the EECP system for patients with disabling angina pectoris who, in the opinion of a cardiologist or cardiothoracic surgeon, are not readily amenable to surgical interventions, such as balloon angioplasty and cardiac bypass. In July 1999, HCFA communicated payment instructions for the EECP therapy to its contractors around the country, stipulating coverage for services provided on or after July 1, 1999. In January 2000, a national Medicare payment level was established. In July 2000, the American Medical Association's Relative Value Update Committee (RUC), which periodically reviews Medicare reimbursement levels, proposed a 20% increase in payment to Medicare-sponsored healthcare providers of EECP therapy. If approved by HCFA, the proposed change would increase the national average payment from $127.42 to $153.49 per session effective January 1, 2001.
Beginning August 1, 2000 Medicare coverage will be extended to include EECP treatment received on an outpatient basis at hospitals and clinics under the new APC (Ambulatory Payment Classification) system. The national average payment rate is $149.83 per session.
Some private insurance carriers continue to adjudicate EECP claims on a case-by-case basis. Since the establishment of reimbursement by the federal government, however, an increasing number of these private carriers now routinely pay for use of EECP for the treatment of angina. Over 150 private insurers are reimbursing for EECP today and the Company expects increasing third-party reimbursement.
The Company is continuing its dialogue with several large commercial health care payers for the establishment of positive coverage policies. The Company believes that its discussions with these third-party payers will, as a minimum, continue to define circumstances that justify reimbursement on a case-by-case basis and create a pathway for rapid review of patient data and determination of medical necessity. To date, there have been many such reimbursements. In anticipation of receiving approval for broad-based coverage, the Company intends to pursue, through the cardiology profession, the establishment of a Current Procedural Code (CPT) specific to the EECP procedure. Although such code is not essential and although there is no assurance that a new code will be established, the Company believes that having a CPT code specifically assigned to EECP will accelerate the processing of reimbursement claims.
Limited availability of third-party coverage or the inadequacy of the reimbursement level for treatment procedures using the EECP system would adversely affect the Company's business, financial condition and results of operations. Moreover, the Company is unable to forecast what additional legislation or regulation, if any, relating to the health care industry or Medicare coverage and payment level may be enacted in the future or what effect such legislation or regulation would have on the Company.
Patents and Trademarks
The Company owns three US Patents that issued in June 1988, October 1996 and December 1999 which expire in 2005, 2013 and 2017, respectively. In addition, several international patents have issued which expire in 2013 and the Company expects additional international patents to issue during fiscal 2001. Such patents cover several specific enhancements to the current EECP model. The Company has filed for a continuation in part on one patent and is pursuing additional patent applications.
Moreover, trademarks have been registered for the names "EECP" and "Natural Bypass", and in 1999 the Company filed for registration of additional trademarks.
The Company pursues a policy of seeking patent protection, both in the United States and abroad, for its proprietary technology. There can be no assurance that the Company's patents will not be violated or that any issued patents will provide protection that has commercial significance. Litigation may be necessary to protect the Company's patent position. Such litigation may be costly and time-consuming, and there can be no assurance that the Company will be successful in such litigation. The loss or violation of the Company's EECP patents and trademarks could have a material adverse effect upon the Company's business.
Employees
As of July 20, 2000, the Company employed fifty-three full-time persons with nineteen in sales and sales support, seven in clinical applications, thirteen in manufacturing and technical service, three in marketing, two in engineering and nine in administration (including its four executive officers). None of the Company's employees are represented by a labor union. The Company believes that its employee relations are satisfactory.
Manufacturing
The Company currently contracts for the manufacture of its current EECP system with VAMED Medical Instrument Company Ltd. ("VAMED"), a Chinese company, subject to certain performance standards, as defined. The Company believes that VAMED will be able to meet the Company's needs for EECP systems.
ITEM TWO - PROPERTIES
The Company maintains its office and warehouse at 180 Linden Avenue, Westbury, New York 11590, where approximately 18,000 square feet of space is leased from a non-affiliated landlord through October 31, 2000 at an annual cost of approximately $130,000. Upon the expiration of the lease, the Company, at its option, may renew the lease for an additional five-year period or purchase the facility at fair market value, as defined. In April 2000, the Company exercised its option under the lease to purchase the building and is presently negotiating the purchase price. The purchase price, including improvements, is estimated at $1,300,000, which the Company intends to finance with a mortgage lender. In the event the Company is unsuccessful in its negotiations, it has the right to renew the aforementioned lease through October 2005. Management believes that the Company's facilities are adequate to meet its current needs and should continue to be adequate for the foreseeable future.
ITEM THREE - LEGAL PROCEEDINGS
Litigation
In May 1996, an action was commenced in the Supreme Court of the State of New York, Nassau County, against the Company, its directors and certain of its officers and employees for the alleged breach of an agreement to appoint a non-affiliated party as its exclusive distributor of EECP systems. The complaint sought damages in the approximate sum of $50,000,000, declaratory relief and punitive damages. The Company denied the existence of any agreement, and contended that the complaint was frivolous and without merit. The Company also asserted substantial counterclaims. In August 1999, a motion for summary judgment to dismiss the complaint in its entirety was granted. This decision has been appealed.
In May 1998, an action was commenced in the New York Supreme Court, Suffolk County, against the Company and other parties. The action seeks damages in the sum of $5,000,000 based upon alleged injuries resulting from the alleged negligence of the defendants in the use of the Company's product. The Company and its insurer believe that the complaint is frivolous and without merit and are vigorously defending the claims. Furthermore, management believes that the damages sought under the complaint are fully covered by insurance. This matter is in its preliminary stages and the Company is unable to establish the likelihood of an unfavorable outcome or the existence or amount of any potential loss.
In February 1999, an action was commenced in the Massachusetts Superior Court, Essex County, against the Company. The action seeks damages in the sum of $1,000,000 based upon an alleged breach of a sales contract. The Company believes that the complaint is frivolous and without merit and is vigorously defending the claims. This matter is in its preliminary stages and the Company is unable to establish the likelihood of an unfavorable outcome or the existence or amount of any potential loss.
ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year.
PART II
ITEM FIVE - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's Common Stock trades on the Nasdaq SmallCap Market tier of The Nasdaq Stock MarketSM under the symbol VASO. The approximate number of record holders of Common Stock as of July 21, 2000 was 872, which does not include approximately 44,400 beneficial owners of shares held in the name of brokers or other nominees. The table below sets forth the range of high and low trade prices of the Common Stock as reported by the Nasdaq SmallCap Market tier of The Nasdaq Stock MarketSM for the fiscal periods specified.
Fiscal 2000 Fiscal 1999
----------------------- -----------------------
High Low High Low
---- --- ---- ---
First Quarter $ 2.000 $ 1.219 $1.688 $ .750
Second Quarter $ 1.688 $ .813 $1.210 $ .625
Third Quarter $ 3.375 $ .781 $2.063 $ .656
Fourth Quarter $ 14.188 $ 2.500 $1.500 $ 1.000
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The last bid price of the Company's Common Stock on July 31, 2000 was $4.0625 per share. The Company has never paid any cash dividends on its Common Stock. While the Company does not intend to pay cash dividends in the foreseeable future, payment of cash dividends, if any, will be dependent upon the earnings and financial position of the Company, investment opportunities and such other factors as the Board of Directors deems pertinent. Stock dividends, if any, also will be dependent on such factors as the Board of Directors deems pertinent.
ITEM SIX - SELECTED FINANCIAL DATA
The following table summarizes selected financial data for each of the five years ended May 31, 2000 as derived from the Company's audited consolidated financial statements. These data should be read in conjunction with the consolidated financial statements of the Company, related notes and other financial information.
Year ended May 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Statement of Operations
Revenues $13,673,632 $6,024,263 $5,225,064 $2,096,562 $2,683,128
----------- ---------- ---------- ---------- ----------
Cost of sales and services 3,060,765 1,833,238 1,543,849 1,020,047 609,136
Selling, general & administrative
expenses 7,118,836 5,946,405 5,689,704 4,155,552 3,738,789
Research and development expenses 1,411,503 706,934 1,595,970 1,045,184 364,455
Depreciation and amortization 483,627 463,859 363,101 333,482 269,443
Provision for losses 400,000 225,000
Interest and financing costs 7,302 11,880 4,057 8,511 515,451
Interest and other income, net (99,317) (115,064) (169,422) (174,810) (171,001)
----------- ---------- ---------- ---------- ----------
12,382,716 8,847,252 9,027,259 6,612,966 5,326,273
----------- ---------- ---------- ---------- ----------
Net earnings (loss) before tax benefit 1,290,916 (2,822,989) (3,802,195) (4,516,404) (2,643,145)
Income tax benefit 400,000 - - - -
----------- ---------- ---------- ---------- ----------
Net earnings (loss) 1,690,916 (2,822,989) (3,802,195) (4,516,404) (2,643,145)
Deemed dividend on preferred stock - (864,000) (1,132,000) - -
Preferred stock dividend requirement (94,122) (205,163) (96,717) - -
----------- ---------- ---------- ---------- ----------
Earnings (loss) applicable to
common stock $1,596,794 $(3,892,152) $(5,030,912)$(4,516,404) $(2,643,145)
========== =========== =========== =========== ===========
Net earnings (loss) per common share
(basic and diluted) $.03 $(.08) $(.11) $(.10) $(.07)
========== =========== =========== =========== ===========
Weighted average common shares
outstanding - basic 52,580,623 49,371,574 47,873,711 46,297,142 39,226,258
========== =========== =========== =========== ===========
Weighted average common shares
outstanding - diluted 57,141,949 49,371,574 47,873,711 46,297,142 39,226,258
========== =========== =========== =========== ===========
Balance Sheet
Working capital $7,380,236 $2,174,774 $5,046,202 $1,981,331 $4,958,973
Total assets $10,588,962 $5,198,172 $7,345,246 $4,175,021 $8,246,151
Long-term debt $0 $0 $0 $0 $3,725,000
Stockholders' equity (1) $7,943,770 $3,153,533 $5,752,993 $3,020,962 $3,091,094
-------------------
(1) No cash dividends were declared during any of the above periods.
|
ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal Years Ended May 31, 2000 and 1999
The Company generated revenues from the sale and lease of EECP systems of $13,674,000 and $6,024,000 for the years ended May 31, 2000 and 1999, respectively. The Company reported net earnings of $1,691,000 for fiscal 2000 versus a net loss $2,823,000 for fiscal 1999 (before deducting $864,000 in deemed dividends on preferred stock representing the discount resulting from the allocation of proceeds to the beneficial conversion feature and the fair value of underlying warrants in fiscal 1999, and $94,000 and $205,000 in fiscal 2000 and 1999, respectively, in dividend requirements related to the Company's April 1998 and June 1997 financings).
The number of cardiology practices and hospitals interested in becoming providers of enhanced external counterpulsation (EECP) has increased following the announcement by the Health Care Financing Administration (HCFA) in February 1999 of its decision to extend Medicare coverage nationally to the Company's noninvasive, outpatient treatment for coronary artery disease. HCFA is the federal agency that administers the Medicare program for approximately 38 million beneficiaries. In addition, the results of the Company's multicenter, prospective, randomized, blinded, controlled clinical study of EECP (MUST-EECP) were published in the June 1999 issue of the Journal of the American College of Cardiology. Interest in EECP therapy has also been spurred by the announcement of the results of the Company's one-year follow-up quality-of-life outcomes study at the American Heart Association (AHA) annual meetings in November 1999 and 1998, at the American College of Cardiology (ACC) annual meeting in March 1999 and other scientific meetings.
Revenue growth in fiscal 2000 was initially hindered because local Medicare contractors established inappropriate payment levels that did not take into account the full value of the resources health care providers must deploy to deliver EECP therapy. Consequently, in November 1999, HCFA created a specific code for external counterpulsation therapy and established a nationally applicable allowable charge, effective on January 1, 2000. The allowable charge under the new code was based upon a preliminary determination of Relative Value Units (RVUs) assigned by HCFA to the resources needed for the administration of the therapy. Certain patients may require additional services, such as evaluation and management, which may be billed separately. The Company estimates the standard national charge to approximate $130 per session of EECP therapy, which may be adjusted by certain geographic indices. This would result in a standard charge of $4,550 for a full course of therapy, which typically involves 35 one-hour outpatient sessions. The assigned code will allow EECP providers to bill Medicare electronically, substantially reducing the process for receiving reimbursement. Moreover, in light of the new payment instructions, local Medicare contractors will no longer have the responsibility of establishing reimbursement rates. These events led to revenue growth in the latter fiscal quarters, aided by the conversion to financed leases or outright sales of units previously placed under rental or fee-for-use arrangements. In July 2000, the American Medical Association's Relative Value Update Committee (RUC), which periodically reviews Medicare reimbursement levels, proposed a 20% increase in payment to Medicare- sponsored healthcare providers of EECP therapy. If approved by HCFA, the proposed change would increase the national average payment from $127.42 to $153.49 per session effective January 1, 2001. Management expects the aforementioned events to provide a strong foundation for accelerated growth in fiscal 2001.
Revenues in fiscal 1999, particularly in the first two fiscal quarters, were adversely affected by the nature of the commercial arrangements under which those units were placed. The overall increase in Company revenues in fiscal 1999 were primarily attributable to fourth quarter sales of $3,500,000, which were aided by the HCFA decision described above, as well as some placements made in the past under rental or fee-for-use arrangements that began to convert to financed leases or outright sales.
Gross margins are dependent on a number of factors, particularly the mix of EECP units sold and rented during the period, the ongoing costs of servicing such units, and certain fixed period costs, including facilities, payroll and insurance. Gross margins are furthermore affected by the location of the Company's customers (including non- domestic business or distributorship arrangements which, for discounted equipment purchase prices, co-invest in establishing a market for EECP equipment) and the amount and nature of training and other initial costs required to place the EECP system in service for customer use. Consequently, the gross margin realized during the current period may not be indicative of future margins.
Selling, general and administrative (SGA) expenses for the years ended May 31, 2000 and 1999 were approximately $7,119,000 and $5,946,000, respectively. The $1,173,000 increase in SGA expenses for the comparable fiscal year resulted primarily from an increase in sales and marketing personnel (including non-recurring recruiting expenses), sales commissions and other selling expenses related to increased revenues.
Research and development (R&D) expenses in the year ended May 31, 2000 increased by $705,000 from the prior fiscal year. The increase relates primarily to the expansion of the International EECP Patient Registry at the University of Pittsburgh, continued product design and development costs, and the feasibility study in heart failure.
Fiscal Years Ended May 31, 1999 and 1998
The Company generated revenues from the sale and lease of EECP systems of $6,024,000 and $5,225,000 for the years ended May 31, 1999 and 1998, respectively. The Company incurred net losses of $2,823,000 and $3,802,000 for fiscal 1999 and 1998, respectively (before deducting $864,000 and $1,132,000, respectively, in deemed dividends on preferred stock representing the discount resulting from the allocation of proceeds to the beneficial conversion feature and the fair value of underlying warrants, and $205,000 and $97,000, respectively, in dividend requirements, in connection with the Company's April 1998 and June 1997 financings).
Revenues in fiscal 1999, particularly in the first two fiscal quarters, were adversely affected by the nature of the commercial arrangements under which those units were placed. The overall increase in Company revenues in fiscal 1999 were attributable to fourth quarter sales of $3,500,000, which were aided by the HCFA's reimbursement decision.
Gross margins are dependent on a number of factors, particularly the mix of EECP units sold and rented during the period, the ongoing costs of servicing such units, and certain fixed period costs, including facilities, payroll and insurance. Gross margins are furthermore affected by the location of the Company's customers and the amount and nature of training and other initial costs required to place the EECP system in service for customer use. Accordingly, the gross margin realized during the current period may not be indicative of future margins.
Selling, general and administrative (SGA) expenses for the years ended May 31, 1999 and 1998 were approximately $5,946,000 and $5,690,000, respectively. The $256,000 increase in SGA expenses for the comparable fiscal year resulted primarily from an increase in marketing personnel, commissions and other selling expenses related to increased revenues.
Research and development (R&D) expenses in the year ended May 31, 1999 decreased by $889,000 from the prior fiscal year. The decrease is related to significant prior year expenses for the completion of the Company's multicenter clinical study of EECP (completed in July 1997) and the front-loaded expenses for the development of an upgraded EECP system. Current period expenses relate to the long-term follow-up phase of the multicenter clinical study, i.e., a quality-of-life outcomes study (completed in July 1998), the expansion of the International EECP Patient Registry at the University of Pittsburgh, and the ongoing feasibility study in congestive heart failure, all of which, to some extent, will further affect operating results in fiscal 2000.
Liquidity and Capital Resources
The Company has financed its fiscal 2000 operations primarily from working capital and operating results. For the past two fiscal years, the Company's operations were primarily funded from the proceeds of equity financings in fiscal 1998 (described below). At May 31, 2000, the Company had a cash balance of $3,058,000 and working capital of $7,380,000, compared to a cash balance of $1,678,000 and working capital of $2,175,000 at May 31, 1999. The Company's operating activities used cash of $1,159,000 and $3,028,000 for fiscal 2000 and 1999, respectively. Net cash used during fiscal 2000 consisted primarily of earnings from operations, increases in accounts payable and accrued expenses, offset by increases in accounts receivable, inventories and other current assets.
Investing activities used net cash of $279,000 and $17,000 during fiscal 2000 and 1999, respectively. The principal uses were for the purchase of property and equipment. At May 31 2000, the Company is in the negotiation process for the purchase of its present facilities. The purchase price, including improvements, is estimated at $1,300,000, which the Company intends to finance with a mortgage lender.
Financing activities provided cash of $2,819,000 and $355,000 during fiscal 2000 and 1999, respectively. Financing activities during fiscal 2000 and fiscal 1999 consisted primarily from the sale of common stock and receipt of cash proceeds upon the exercise of Company common stock warrants by officers, directors, employees and consultants. Subsequent to May 31, 2000, the Company received additional cash proceeds of $868,000 from the exercise of Company common stock options and warrants.
In fiscal 1998, the Company issued an aggregate of 325,000 shares of newly created 5% Series B and 5% Series C Convertible Preferred Stock to one accredited investor at a price of $20 per share, realizing net cash proceeds of $6,112,000. Dividends due on such preferred stock were paid in shares of the Company's common stock. By February 1999, all of the Series B preferred stock (150,000 shares) had been converted into 2,135,946 shares of the Company's common stock. By February 29, 2000, all of the Series C preferred stock (175,000 shares) had been converted into 3,095,612 shares of the Company's common stock.
Management believes that its working capital position at May 31, 2000, along with the ongoing commercialization of the EECP system and possible further proceeds from the exercise of options and warrants, will make it possible for the Company to support its internal overhead expenses and to implement its business plans for at least the next twelve months.
ITEM EIGHT - FINANCIAL STATEMENTS
The consolidated financial statements listed in the accompanying Index to
Consolidated Financial Statements are filed as part of this report.
ITEM NINE - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM TEN - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item will be included in the Company's definitive Proxy Statement, which will be filed with the Securities and Exchange Commission in connection with the Company's 2000 Annual Meeting of Stockholders, and is incorporated herein by reference.
ITEM ELEVEN - EXECUTIVE COMPENSATION
The information required by this Item will be included in the Company's definitive Proxy Statement, which will be filed with the Securities and Exchange Commission in connection with the Company's 2000 Annual Meeting of Stockholders, and is incorporated herein by reference.
ITEM TWELVE - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be included in the Company's definitive Proxy Statement, which will be filed with the Securities and Exchange Commission in connection with the Company's 2000 Annual Meeting of Stockholders, and is incorporated herein by reference.
ITEM THIRTEEN - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be included in the Company's definitive Proxy Statement, which will be filed with the Securities and Exchange Commission in connection with the Company's 2000 Annual Meeting of Stockholders, and is incorporated herein by reference.
ITEM FOURTEEN-EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Percentage
Name State of Incorporation Owned by Company
---- ---------------------- ----------------
Viromedics, Inc. Delaware 61%
(23) Consent of Grant Thornton LLP (13)
Financial Data Schedule (13)
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 31st day of July, 2000.
VASOMEDICAL, INC.
By: /s/ D. Michael Deignan
-------------------------------------------
D. Michael Deignan
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on July 31, 2000 by the following persons in the capacities indicated:
---------------------- Director Alexander G. Bearn /s/ David S. Blumenthal Director ----------------------- David S. Blumenthal /s/ Abraham E. Cohen Chairman of the Board ----------------------- Abraham E. Cohen /s/ D. Michael Deignan President, Chief Executive Officer and Director ----------------------- (Principal Executive Officer) D. Michael Deignan /s/ Joseph A. Giacalone Chief Financial Officer (Principal Financial and ----------------------- Accounting Officer) Joseph A. Giacalone /s/ John C.K. Hui Senior Vice President, R&D and Manufacturing and ----------------------- Director John C.K. Hui /s/ Photios T. Paulson Director ----------------------- Photios T. Paulson /s/ Kenneth W. Rind Director ----------------------- Kenneth W. Rind /s/ E. Donald Shapiro Director ----------------------- E. Donald Shapiro /s/ Anthony Viscusi Director ----------------------- Anthony Viscusi /s/ Forrest R. Whittaker Director ----------------------- Forrest R. Whittaker /s/ Zhen-sheng Zheng Director ----------------------- Zhen-sheng Zheng |
Vasomedical, Inc. and Subsidiary
Schedule II - Valuation and Qualifying Accounts
Column A Column B Column C Column D Column E
Additions
---------------------------------------------------------------------------------------------------------
(1) (2)
Balance at Charged to Charged Balance at
beginning costs and to other end of
of period expenses accounts Deductions period
---------- ---------- -------- ---------- ----------
Year ended May 31, 2000
Allowance for doubtful
accounts (a) $- $400,000 $400,000
==========================================================================
Year ended May 31, 1999
Allowance for doubtful
accounts (a) $- $-
==========================================================================
Year ended May 31, 1998
Allowance for doubtful
accounts (a) $- $-
==========================================================================
(a) Deducted from accounts receivable.
|
Vasomedical, Inc. and Subsidiary
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets as of May 31, 2000 and 1999 F-3
Consolidated Statements of Operations for the
years ended May 31, 2000, 1999 and 1998 F-4
Consolidated Statement of Changes in Stockholders'
Equity for the years ended May 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the
years ended May 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7 - F-15
|
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Vasomedical, Inc.
We have audited the accompanying consolidated balance sheets of Vasomedical, Inc. and Subsidiary (the "Company") as of May 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three fiscal years in the period ended May 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of May 31, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for each of the three fiscal years in the period ended May 31, 2000, in conformity with generally accepted accounting principles.
We have also audited Schedule II Valuation and Qualifying Accounts for each of the three years in the period ended May 31, 2000. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein.
GRANT THORNTON LLP
Melville, New York
July 20, 2000
Vasomedical, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
May 31,
2000 1999
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $3,058,367 $1,678,175
Accounts receivable, net of an allowance for doubtful
accounts of $400,000 at May 31, 2000 4,832,810 1,585,432
Inventories 906,984 594,093
Deferred income taxes 400,000
Other current assets 479,267 177,713
----------- ----------
Total current assets 9,677,428 4,035,413
PROPERTY AND EQUIPMENT, net 548,316 571,368
CAPITALIZED COST IN EXCESS OF FAIR
VALUE OF NET ASSETS ACQUIRED, net of accumulated
amortization of $1,136,517 and $923,421 at May 31,
2000 and 1999, respectively 355,181 568,277
OTHER ASSETS 8,037 23,114
----------- ----------
$10,588,962 $5,198,172
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,219,803 $705,640
Accrued warranty and customer support expenses 258,000 382,000
Accrued professional fees 276,000 271,438
Accrued commissions 543,389 307,951
Dividends payable 193,610
----------- ----------
Total current liabilities 2,297,192 1,860,639
ACCRUED WARRANTY COSTS 129,000 114,000
OTHER LONG-TERM LIABILITIES 16,000 70,000
DEFERRED REVENUES 203,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 1,000,000
shares authorized; 175,000 shares at May 31,
1999, issued and outstanding (liquidation preference
of $3,500,000 at May 31, 1999) 1,750
Common stock, $.001 par value; 110,000,000 shares authorized;
55,921,330 and 50,402,687 shares at May 31, 2000 and 1999,
respectively, issued and outstanding 55,921 50,403
Additional paid-in capital 40,939,158 37,749,483
Accumulated deficit (33,051,309) (34,648,103)
----------- ----------
7,943,770 3,153,533
----------- ----------
$10,588,962 $5,198,172
=========== ==========
The accompanying notes are an integral part of these statements.
|
Vasomedical, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended May 31,
----------------------------------------------------
2000 1999 1998
---- ---- ----
Revenues
Equipment sales $13,120,144 $5,335,200 $4,958,333
Equipment rentals and services 553,488 689,063 266,731
----------- ---------- ----------
13,673,632 6,024,263 5,225,064
----------- ---------- ----------
Costs and expenses
Cost of sales and services 3,060,765 1,833,238 1,543,849
Selling, general and administrative 7,118,836 5,946,405 5,689,704
Research and development 1,411,503 706,934 1,595,970
Depreciation and amortization 483,627 463,859 363,101
Provision for doubtful accounts 400,000
Interest and financing costs 7,302 11,880 4,057
Interest and other income - net (99,317) (115,064) (169,422)
----------- ---------- ----------
12,382,716 8,847,252 9,027,259
----------- ---------- ----------
NET EARNINGS (LOSS) BEFORE INCOME TAXES 1,290,916 (2,822,989) (3,802,195)
Benefit for income taxes 400,000
----------- ---------- ----------
NET EARNINGS (LOSS) 1,690,916 (2,822,989) (3,802,195)
Deemed dividend on preferred stock (864,000) (1,132,000)
Preferred stock dividend requirement (94,122) (205,163) (96,717)
----------- ---------- ----------
EARNINGS (LOSS) APPLICABLE TO
COMMON STOCK $1,596,794 $(3,892,152) $(5,030,912)
=========== =========== ===========
Net earnings (loss) per common share
(basic and diluted) $.03 $(.08) $(.11)
==== ===== =====
Weighted average common shares
outstanding - basic 52,580,623 49,371,574 47,873,711
=========== =========== ===========
- diluted 57,141,949 49,371,574 47,873,711
=========== =========== ===========
The accompanying notes are an integral part of these statements.
|
Vasomedical, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Total
Additional Accum- stock-
Preferred stock Common stock paid-in ulated holders'
Shares Amount Shares Amount capital deficit equity
------ ------ ------ ------ ------- ------- --------
Balance at June 1, 1997 - - 46,782,003 $46,782 $28,699,219 $(25,725,039) $3,020,962
Issuance of preferred stock 325,000 $3,250 6,108,650 6,111,900
Conversion of preferred stock (99,250) (992) 1,160,064 1,160 (168) -
Exercise of options and warrants 568,406 568 483,895 484,463
Deemed dividend on preferred stock 1,132,000 (1,132,000) -
Preferred stock dividend requirement (96,717) (96,717)
Common stock issued in lieu of
preferred stock dividends 20,805 21 34,559 34,580
Net loss (3,802,195) (3,802,195)
------- ------ ---------- ------ ----------- ------------ ----------
Balance at May 31, 1998 225,750 2,258 48,531,278 48,531 36,458,155 (30,755,951) 5,752,993
Conversion of preferred stock (50,750) (508) 975,882 976 (468) -
Exercise of warrants 825,000 825 354,175 355,000
Deemed dividend on preferred stock 864,000 (864,000) -
Preferred stock dividend requirement (205,163) (205,163)
Common stock issued in lieu of
preferred stock dividends 70,527 71 73,621 73,692
Net loss (2,822,989) (2,822,989)
------- ------ ---------- ------ ----------- ------------ ----------
Balance at May 31, 1999 175,000 1,750 50,402,687 50,403 37,749,483 (34,648,103) 3,153,533
Conversion of preferred stock (175,000) (1,750) 3,095,612 3,096 (1,346) -
Exercise of options and warrants 2,169,831 2,169 2,816,542 2,818,711
Preferred stock dividend requirement (94,122) (94,122)
Common stock issued in lieu of
preferred stock dividends 253,200 253 287,479 287,732
Stock options granted for services 87,000 87,000
Net earnings 1,690,916 1,690,916
------- ------ ---------- ------- ----------- ------------ ----------
Balance at May 31, 2000 - - 55,921,330 $55,921 $40,939,158 $(33,051,309) $7,943,770
======= ====== ========== ======= =========== ============ ==========
The accompanying notes are an integral part of this statement.
|
Vasomedical, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended May 31,
------------------
2000 1999 1998
---- ---- ----
Cash flows from operating activities
Net earnings (loss) $1,690,916 $(2,822,989) $(3,802,195)
---------- ---------- ----------
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities
Depreciation and amortization 483,627 463,859 363,101
Provision for doubtful accounts 400,000
Deferred income taxes (400,000)
Stock options granted for services 87,000
Changes in operating assets and liabilities
Accounts receivable (3,647,378) (609,091) (919,693)
Inventories (281,337) (367,791) 203,096
Other assets (286,478) (12,485) (78,691)
Accounts payable, accrued expenses and
other current liabilities 630,164 587,915 211,687
Other liabilities 164,000 (267,000) 164,370
---------- ---------- ----------
(2,850,402) (204,593) (56,130)
---------- ---------- ----------
Net cash used in operating activities (1,159,486) (3,027,582) (3,858,325)
---------- ---------- ----------
Cash flows from investing activities
Purchase of property and equipment (279,033) (17,229) (123,056)
---------- ---------- ----------
Net cash used in investing activities (279,033) (17,229) (123,056)
---------- ---------- ----------
Cash flows from financing activities
Proceeds from exercise of options and warrants 2,818,711 355,000 484,463
Proceeds from issuance of preferred stock, net 6,111,900
---------- ---------- ----------
Net cash provided by financing activities 2,818,711 355,000 6,596,363
---------- ---------- ----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,380,192 (2,689,811) 2,614,982
Cash and cash equivalents - beginning of year 1,678,175 4,367,986 1,753,004
---------- ---------- ----------
Cash and cash equivalents - end of year $3,058,367 $1,678,175 $4,367,986
========== ========== ==========
Non-cash investing and financing activities were
as follows:
Deemed dividend on preferred stock $864,000 $1,132,000
Issuance of common stock in lieu of preferred
dividends $94,122 73,692 34,580
Inventories transferred to property and equipment,
attributable to operating leases - net 31,554 452,000 71,647
The accompanying notes are an integral part of these statements.
|
Vasomedical, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2000, 1999 and 1998
NOTE A - BUSINESS ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated in Delaware in July 1987. During fiscal 1996, the Company commenced the commercialization of its EECP enhanced external counterpulsation system ("EECP"), a microprocessor-based medical device for the noninvasive, atraumatic treatment of patients with cardiovascular disease. EECP is marketed worldwide to hospitals, clinics and other cardiac health care providers. To date, substantially all of the Company's revenues have been generated from customers in the United States.
A summary of the significant accounting policies consistently applied in the preparation of the consolidated financial statements follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its majority-owned subsidiary. Significant intercompany accounts and transactions have been eliminated.
Inventories
Inventories are stated at the lower of cost or market; cost is determined using the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided over the estimated useful lives of the assets, which range from three to seven years, on a straight-line basis. Accelerated methods of depreciation are used for tax purposes. Leasehold improvements are amortized over the shorter of the useful life of the related leasehold improvement or the life of the related lease, whichever is less.
Capitalized Cost in Excess of Fair Value of Net Assets Acquired
The capitalized cost in excess of the fair value of the net assets acquired (goodwill) is being amortized on a straight-line basis over a period of seven years. On an ongoing basis, management reviews the valuation and amortization of goodwill to determine possible impairment by considering current operating results and comparing the carrying value to the anticipated undiscounted future cash flows of the related assets.
Revenue Recognition
The Company recognizes revenue from the sale of its EECP system in the period in which the Company fulfills its obligations under the sale agreement, including delivery and customer acceptance. The Company has also entered into lease agreements for its EECP system that are classified as operating leases. Revenues from operating leases are recognized on a straight-line basis over the life of the respective leases. Revenues from the sale of extended warranties on the EECP system are recognized on a straight-line basis over the life of the extended warranty, ranging from one year to four years. Deferred revenues relate to extended warranty fees which have been paid by customers prior to the performance of extended warranty services.
In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin No. 101 ("SAB 101"),"Revenue Recognition in Financial Statements." The Company will adopt the provisions of SAB 101 in the first quarter of fiscal 2001 and anticipates that such adoption will not have a material impact on the Company's financial statements.
Concentrations of Credit Risk
The Company markets the EECP system principally to hospitals, clinics and other cardiac health care providers. The Company performs credit evaluations of its customers' financial condition and, as a consequence, believes that its receivable credit risk exposure is limited. Receivables are generally due within 60-90 days.
Warranty Costs
The Company provides for a warranty period on its EECP system. The Company accounts for estimated warranty costs at the time the related revenue is earned. As the Company's experience with respect to the commercial use of the EECP system is limited, revisions to the Company's warranty cost estimates may be necessary in the future.
Research and Development
Research and development costs are expensed as incurred.
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 has been established to offset the deferred tax assets as it is more likely than not that all, or some portion, of such deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Net Earnings (Loss) Per Common Share
Basic earnings (loss) per common share are computed by dividing net earnings (loss) available to common stockholders by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock. Potential common shares from stock options, warrants and convertible preferred stock are excluded in computing basic and diluted net loss per share for fiscal 1999 and 1998 as their effects would be antidilutive.
Stock Compensation
The Company measures stock-based awards using the intrinsic value method.
As described in Note E, pro forma disclosure of the effect on net earnings
(loss) and net earnings (loss) per common share has been computed as if the fair
value-based method had been applied in measuring compensation expense.
Statements of Cash Flows
The Company considers highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist principally of money market funds. The market value of the cash equivalents approximates cost.
NOTE B - INVENTORIES
May 31,
-------
Inventories consist of the following: 2000 1999
---- ----
Raw materials $545,924 $79,174
Finished goods 361,060 514,919
-------- --------
$906,984 $594,093
======== ========
|
NOTE C - PROPERTY AND EQUIPMENT
May 31,
------
Property and equipment is summarized as follows: 2000 1999
---- ----
Office, laboratory and other equipment $413,070 $273,354
EECP units under operating leases 416,000 624,000
Furniture and fixtures 81,232 81,232
Construction in progress 139,317
Leasehold improvements 95,610 95,610
--------- ---------
1,145,229 1,074,196
Less accumulated depreciation and amortization (596,913) (502,828)
--------- ---------
$ 548,316 $ 571,368
========= =========
|
NOTE D - STOCKHOLDERS' EQUITY AND WARRANTS
Fiscal 1998
On June 25, 1997, the Company issued 150,000 shares of newly created 5%
Series B Cumulative Convertible Preferred Stock, $.01 par value, to one
accredited investor pursuant to Regulation D under the Securities Act of 1933 at
a price of $20 per share, for net cash proceeds of $2,818,000. The convertible
preferred stock had no voting rights and was convertible into common stock of
the Company at an effective conversion price of the lower of (i) $2.18 per share
or (ii) 85% of the average closing bid of the Company's common stock for the
five (5) trading days immediately preceding the conversion date, as defined in
the Certificate of Designation of the convertible preferred stock. In addition,
the investor was granted five-year warrants to purchase 405,405 shares of common
stock at an exercise price of $2.18 per share. The Company recorded a deemed
dividend of $857,000 in the first quarter of fiscal 1998, representing the
discount resulting from the allocation of proceeds to the beneficial conversion
feature and the fair value of the underlying warrants. Such deemed dividend was
recognized from the date of issuance through the date such preferred stock was
first convertible. In connection with this transaction, the Company issued
five-year warrants to the broker/finder to purchase 150,000 shares of common
stock at an exercise price of $2.18 per share. These warrants were fair valued
at $123,000. During fiscal 1998, 99,250 shares of Series B preferred stock were
converted into 1,160,064 shares of common stock.
On April 30, 1998, the Company completed a second tranche of financing with the same accredited investor and issued 175,000 shares of newly created 5% Series C Cumulative Convertible Preferred Stock, $.01 par value, pursuant to Regulation D under the Securities Act of 1933 at a price of $20 per share, for net cash proceeds of $3,294,000. The convertible preferred stock has no voting rights and is convertible into common stock of the Company at an effective conversion price of the lower of (i) $2.08 per share or (ii) 85% of the average closing bid of the Company's common stock for the five (5) trading days immediately preceding the conversion date (the "Average Closing Price"), as defined in the Certificate of Designation of the convertible preferred stock. In addition, the investor was granted five-year warrants to purchase 413,712 shares of common stock at an exercise price of $2.08 per share. The Company has estimated the value of the deemed dividend, representing the discount resulting from the allocation of proceeds to the beneficial conversion feature and the fair value of the underlying warrants, to approximate $936,000. Such deemed dividend was recognized from the date of issuance through the date such preferred stock was first convertible (on or about August 15, 1998). Accordingly, the Company recognized a deemed dividend of $275,000 in the fourth quarter of fiscal 1998 and the $661,000 remaining deemed dividend in the first quarter of fiscal 1999. In connection with this transaction, the Company issued five-year warrants to the broker/finder to purchase 175,000 shares of common stock at an exercise price of $2.08 per share. These warrants were fair valued at $135,000.
Fiscal 1999
Based upon negotiations between the Company and the holder of the Series C
preferred stock in December 1998 relating to the delayed effectiveness of a
registration statement covering the underlying shares of common stock, the
conversion price with respect to the Series C preferred stock has been reduced
to the lower of (i) $2.00 per share or (ii) 81% of the Average Closing Price.
The Company has estimated the incremental value of the deemed dividend,
representing the additional discount resulting from the allocation of proceeds
to the beneficial conversion feature, to approximate $203,000. Accordingly, the
Company recognized this incremental deemed dividend in the second quarter of
fiscal 1999. In fiscal 1999, the remaining balance of 50,750 shares of Series B
preferred stock were converted into 975,882 shares of common stock.
Fiscal 2000
In fiscal 2000, all 175,000 shares of Series C preferred stock were converted
into 3,095,612 shares of common stock. In addition, warrants to purchase
1,435,000 shares of common stock were exercised (net of 101,910 shares offered
in payment in lieu of cash), aggregating $1,272,000 in proceeds to the Company.
Subsequent to May 31, 2000, warrants to purchase 413,712 shares of common stock
were exercised, aggregating $861,000 in proceeds to the Company.
Warrants
Warrant activity for the years ended May 31, 1998, 1999 and 2000 is
summarized as follows:
Non-employee
Directors Employees Consultants Total Price Range
------------ --------- ----------- ----- -----------
Balance at June 1, 1997 1,175,000 1,950,000 1,218,001 4,343,001 $.25 - $1.50
Issued - - 1,144,117 1,144,117 $2.08 - $2.18
Exercised (50,000) (30,000) (483,406) (563,406) $.25 - $2.18
Canceled/retired - - (50,000) (50,000) $1.50
--------- --------- --------- --------- ---- -----
Balance at May 31, 1998 1,125,000 1,920,000 1,828,712 4,873,712 $.38 - $2.18
Exercised (300,000) (525,000) - (825,000) $.38 - $.45
Canceled/retired (425,000) (120,000) (450,000) (995,000) $.91 - $1.50
--------- --------- --------- --------- ---- -----
Balance at May 31, 1999 400,000 1,275,000 1,378,712 3,053,712 $.38 - $2.18
Exercised (400,000) (525,000) (510,000) (1,435,000) $.38 - $2.18
--------- --------- --------- --------- ---- -----
Balance at May 31, 2000 - 750,000 868,712 1,618,712 $.45 - $2.08
========= ========= ========= ========= ==== =====
Number of shares exercisable - 750,000 868,712 1,618,712 $.45 - $2.08
========= ========= ========= ========= ==== =====
|
The weighted-average fair value of warrants granted during fiscal 1998 was $.80.
The following table summarizes information about warrants outstanding and exercisable at May 31, 2000:
Warrants Outstanding and Exercisable
Weighted
Number Average
Outstanding and Remaining Weighted
Exercisable at Contractual Life Average
Range of Exercise Prices May 31, 2000 (yrs.) Exercise Price
------------------------ ------------ ---------------- --------------
$.45 750,000 2.1 $.45
$.91 200,000 6.4 $.91
$1.44 100,000 .8 $1.44
$2.08 568,712 2.1 $2.08
--------- --- -----
1,618,712 2.5 $1.14
========= === =====
|
NOTE E - OPTION PLANS
1995 Stock Option Plan
In May 1995, the Company's stockholders approved the 1995 Stock Option Plan for officers and employees of the Company, for which the Company reserved an aggregate of 1,500,000 shares of common stock. In December 1997, the Company's Board of Directors terminated the 1995 Stock Option Plan.
Outside Director Stock Option Plan
In May 1995, the Company's stockholders approved an Outside Director Stock Option Plan for non-employee directors of the Company, for which the Company reserved an aggregate of 300,000 shares of common stock. In December 1997, the Company's Board of Directors terminated the Outside Director Stock Option Plan.
1997 Stock Option Plan
In December 1997, the Company's stockholders approved the 1997 Stock Option Plan (the "1997 Plan") for officers, directors, employees and consultants of the Company, for which the Company has reserved an aggregate of 1,800,000 shares of common stock. The 1997 Plan provides that it will be administered by a committee of the Board of Directors of the Company and that the committee will have full authority to determine the identity of the recipients of the options and the number of shares subject to each option. Options granted under the 1997 Plan may be either incentive stock options or non-qualified stock options. The option price shall be 100% of the fair market value of the common stock on the date of the grant (or in the case of incentive stock options granted to any individual principal stockholder who owns stock possessing more than 10% of the total combined voting power of all voting stock of the Company, 110% of such fair market value). The term of any option may be fixed by the committee but in no event shall exceed ten years from the date of grant. Options are exercisable upon payment in full of the exercise price, either in cash or in common stock valued at fair market value on the date of exercise of the option. The term for which options may be granted under the 1997 Plan expires August 6, 2007.
In January 1999, the Company's Board of Directors increased the number of shares authorized for issuance under the 1997 Plan by 1,000,000 shares to 2,800,000 shares. In addition, the Board of Directors granted stock options under the 1997 Plan to a consultant to purchase 150,000 shares of common stock at an exercise price of $.875 per share (which represented the fair market value of the underlying common stock at the time of grant). The stock options granted to the consultant were contingent upon meeting certain performance criteria. The stock options were fair-valued at $87,000 for which the Company recorded a charge to operations in fiscal 2000, commensurate with the satisfaction of the performance criteria defined therein.
1999 Stock Option Plan
In July 1999, the Company's Board of Directors approved the 1999 Stock Option Plan (the "1999 Plan"), for which the Company reserved an aggregate of 2,000,000 shares of common stock. The 1999 Plan provides that it will be administered by a committee of the Board of Directors of the Company and that the committee will have full authority to determine the identity of the recipients of the options and the number of shares subject to each option. Options granted under the 1999 Plan may be either incentive stock options or non-qualified stock options. The option price shall be 100% of the fair market value of the common stock on the date of the grant (or in the case of incentive stock options granted to any individual principal stockholder who owns stock possessing more than 10% of the total combined voting power of all voting stock of the Company, 110% of such fair market value). The term of any option may be fixed by the committee but in no event shall exceed ten years from the date of grant. Options are exercisable upon payment in full of the exercise price, either in cash or in common stock valued at fair market value on the date of exercise of the option. The term for which options may be granted under the 1999 Plan expires July 12, 2009. Subsequent to May 31, 2000, the Board of Directors granted stock options under the 1999 Plan to employees and a consultant to purchase an aggregate of 191,500 shares and 30,000 shares of common stock, respectively, at exercise prices ranging from $4.28 to $4.94 per share (which represented the fair market value of the underlying common stock at the time of the respective grants). The stock options issued to the consultant were fair-valued at $126,000 for which the Company will record a charge to operations in the periods that the options vest, as defined.
In July 2000, the Company's Board of Directors increased the number of shares authorized for issuance under the 1999 Plan by 1,000,000 shares to 3,000,000 shares.
Activity under all the plans for the years ended May 31, 1998, 1999 and 2000 is summarized as follows:
Outstanding Options
----------------------------------------------
Shares Available Number of Exercise Weighted Average
for Grant Shares Price per Share Exercise Price
---------------- --------- --------------- ----------------
Balance at June 1, 1997 798,907 1,026,093 $.78 - $3.44 $2.97
Shares authorized 1,800,000 - - -
Plans terminated (699,357) - - -
Options granted (1,054,050) 1,054,050 $1.77 - $2.44 $1.91
Options exercised - (5,000) $1.03 $1.03
Options canceled 10,000 (15,000) $1.91 - $3.44 $2.42
---------- --------- ---------------- -----
Balance at May 31, 1998 855,500 2,060,143 $.78 - $3.44 $2.44
Shares authorized 1,000,000
Options granted (1,853,500) 1,853,500 $.75 - $.88 $.87
Options canceled 38,500 (58,500) $.88 - $1.91 $1.36
---------- --------- ---------------- -----
Balance at May 31, 1999 40,500 3,855,143 $.75 - $3.44 $1.70
Shares authorized 2,000,000
Options granted (1,270,000) 1,270,000 $1.22 - $5.15 $1.95
Options exercised - (836,741) $.75 - $3.44 $1.85
Options canceled 134,668 (144,668) $.88 - $1.91 $1.47
---------- --------- ---------------- -----
Balance at May 31, 2000 905,168 4,143,734 $.78 - $5.15 $1.76
========== ========= =============== =====
|
The following table summarizes information about stock options outstanding and exercisable at May 31, 2000:
Options Outstanding Options Exercisable
-------------------------------------------------- -------------------
Weighted
Average Weighted
Number Remaining Weighted Number Average
Outstanding at Contractual Life Average Exercisable at Exercise
Range of Exercise Prices May 31, 2000 (yrs.) Exercise Price May 31, 2000 Price
------------------------ -------------- ---------------- -------------- -------------- --------
$.75 - $.88 1,514,515 6.1 $.86 1,061,846 $.87
$1.22 - $1.78 973,900 9.3 $1.37 33,900 $1.77
$1.91 - $2.44 839,319 7.7 $1.93 534,981 $1.94
$3.44 - $5.15 816,000 7.2 $3.69 621,000 $3.60
--------- --- ----- --------- -----
4,143,734 7.4 $1.76 2,251,727 $1.89
========= === ===== ========= =====
|
As permitted under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company has elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") in accounting for stock-based awards. Pursuant to APB 25, the Company generally recognizes no compensation expense with respect to such awards. Pro forma information regarding net income and earnings per share is required for awards granted as if the Company had accounted for its stock-based awards under the fair value method of SFAS No. 123. The fair value of the Company's stock- based awards was estimated using the Black-Scholes option valuation model. The fair value of the Company's stock-based awards was estimated assuming no expected dividends and the following weighted-average assumptions:
Fiscal year ended May 31, 2000 1999 1998 ------------------------- ---- ---- ---- Expected life (years) 5 5 5 Expected volatility 80% 80% 85% Risk-free interest rate 6.0% 4.4% 5.7% |
The following are the pro forma net earnings (loss) and net earnings (loss) per share - basic and diluted amounts for fiscal 2000, 1999 and 1998, as if compensation expense for stock-based awards had been determined based on their estimated fair value at the date of grant:
2000 1999 1998
---- ---- ----
Pro forma net earnings (loss) $576,435 $(5,534,569) $(5,702,635)
Pro forma net earnings (loss) per share
- basic and diluted $.01 $(.11) $(.12)
|
The weighted-average fair value of options granted during fiscal 2000, 1999 and 1998 was $2.75, $.58 and $1.34, respectively. At May 31, 2000, there were approximately 16,400,000 remaining authorized shares of common stock after reserves for all stock option plans, stock warrants and shareholders' rights.
NOTE F EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
For the fiscal year ended May 31,
--------------------------------
2000 1999 1998
---- ---- ----
Numerator:
Basic earnings (loss) $1,690,916 $(2,822,989) $(3,802,195)
Preferred stock dividends (94,122) (1,069,163) (1,228,717)
---------- ----------- -----------
Diluted earnings (loss) $1,596,794 $(3,892,152) $(5,030,912)
========== =========== ===========
Denominator:
Basic - weighted average shares 52,580,623 49,371,574 47,873,711
Stock options 1,389,607 - -
Warrants 1,428,678 - -
Convertible preferred stock 1,743,041 - -
---------- ----------- -----------
Diluted - weighted average shares 57,141,949 49,371,574 47,873,711
========== =========== ===========
Basic and diluted earnings (loss) per
share $0.03 $(.08) $(.11)
===== ===== =====
|
NOTE G - REVENUE CONCENTRATIONS
In fiscal 1999, the Company had sales to one customer, accounting for 21% of the Company's revenues. No single customer accounted for greater than 10% of the Company's revenues in fiscal 1998 and 2000.
NOTE H - INCOME TAXES
In fiscal 2000, the Company recorded a deferred tax benefit of $400,000 resulting from the recognition of a deferred tax asset summarized as follows:
May 31,
------
2000 1999 1998
---- ---- ----
Deferred tax assets
Net operating loss and other carryforwards $14,627,000 $11,913,000 $10,908,000
Accrued compensation 12,500 92,000 120,000
Bad debts 187,000 - -
Other 238,500 247,000 268,000
----------- ----------- -----------
Total gross deferred tax assets 15,065,000 12,252,000 11,296,000
Valuation allowance (14,665,000) (12,252,000) (11,296,000)
----------- ----------- -----------
$ 400,000 $ - $ -
=========== =========== ===========
|
Management has established a valuation allowance for a portion of the deferred tax assets based on uncertainties with respect to the Company's ability to generate future taxable income.
At May 31, 2000, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $42,685,000, expiring at various dates from 2003 through 2020.
The following is a reconciliation of the effective income tax rate to the federal statutory rate:
2000 1999 1998
---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
Federal statutory rate $387,911 34.0 $(959,816) (34.0) $(1,292,746) (34.0)
State taxes, net of federal benefit 83,451 7.3 (275,455) (9.7) (304,175) (8.0)
Permanent differences 89,756 7.8 86,165 3.1 92,611 2.4
Utilization of current year net operating
loss generating no tax benefit (561,118) (49.1) 1,149,106 40.6 1,504,310 39.6
Adjustment of valuation allowance (400,000) (35.0) - - - -
--------- ---- --------- ---- ---------- ----
$(400,000) (35.0) $ - - $ - -
========= ==== ========= ==== ========== ====
|
Under current tax law, the utilization of tax attributes will be restricted if an ownership change, as defined, were to occur. Section 382 of the Internal Revenue Code provides, in general, that if an "ownership change" occurs with respect to a corporation with net operating and other loss carryforwards, such carryforwards will be available to offset taxable income in each taxable year after the ownership change only up to the "Section 382 Limitation" for each year (generally, the product of the fair market value of the corporation's stock at the time of the ownership change, with certain adjustments, and a specified long-term tax-exempt bond rate at such time). The Company's ability to use its loss carryforwards would be limited in the event of an ownership change.
NOTE I - COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company maintains employment agreements with its executive officers, expiring at various dates through January 2002. In January 2000, the Board of Directors appointed a new President and CEO and approved a one-year employment agreement for annual compensation of $180,000, including a grant of non-qualified stock options to purchase 600,000 shares of common stock at $1.21 per share, subject to vesting provisions, as defined. Additionally, all such employment agreements provide, among other things, that in the event there is a change in the control of the Company, as defined therein, or in any person directly or indirectly controlling the Company, as also defined therein, the employee has the option, exercisable within six months of becoming aware of such event, to terminate his employment agreement. Upon such termination, the employee has the right to receive, as a lump-sum payment, certain compensation remaining to be paid for the balance of the term of the agreement.
Approximate aggregate minimum annual compensation obligations under active employment agreements at May 31, 2000, are summarized as follows:
Fiscal Year Amount
----------- ------
2001 $403,000
2002 93,000
--------
$496,000
========
|
Leases
The Company occupies office and warehouse space under a noncancelable operating lease which expires on October 31, 2000. Rent expense was $130,000, $125,000 and $121,000 in fiscal 2000, 1999 and 1998, respectively. In April 2000, the Company exercised its option under the lease to purchase the building and is presently negotiating the purchase price, which it expects to finance through a mortgage lender. In the event the Company is unsuccessful in its negotiations, it has the right to renew the aforementioned lease through October 2005.
Approximate aggregate minimum annual obligations under this lease agreement and other equipment leasing agreements at May 31, 2000 are summarized as follows:
Fiscal Year Amount
----------- ------
2001 $113,000
2002 19,000
2003 16,000
--------
$148,000
========
|
Litigation
In May 1996, an action was commenced in the Supreme Court of the State of New York, Nassau County, against the Company, its directors and certain of its officers and employees for the alleged breach of an agreement to appoint a non- affiliated party as its exclusive distributor of EECP systems. The complaint sought damages in the approximate sum of $50,000,000, declaratory relief and punitive damages. The Company denied the existence of any agreement, and contended that the complaint was frivolous and without merit. The Company also asserted substantial counterclaims. In August 1999, a motion for summary judgment to dismiss the complaint in its entirety was granted. This decision has been appealed.
In May 1998, an action was commenced in the New York Supreme Court, Suffolk County, against the Company and other parties. The action seeks damages in the sum of $5,000,000 based upon alleged injuries resulting from the alleged negligence of the defendants in the use of the Company's product. The Company and its insurer believe that the complaint is frivolous and without merit and are vigorously defending the claims. Furthermore, management believes that the damages sought under the complaint are fully covered by insurance. This matter is in its preliminary stages and the Company is unable to establish the likelihood of an unfavorable outcome or the existence or amount of any potential loss.
In February 1999, an action was commenced in the Massachusetts Superior Court, Essex County, against the Company. The action seeks damages in the sum of $1,000,000 based upon an alleged breach of a sales contract. The Company believes that the complaint is frivolous and without merit and is vigorously defending the claims. This matter is in its preliminary stages and the Company is unable to establish the likelihood of an unfavorable outcome or the existence or amount of any potential loss.
401(k) Plan
In April 1997, the Company adopted the Vasomedical, Inc. 401(k) Plan to provide retirement benefits for its employees. As allowed under Section 401(k) of the Internal Revenue Code, the plan provides tax-deferred salary deductions for eligible employees. Employees are eligible to participate in the next quarter enrollment period after employment. Participants may make voluntary contributions to the plan up to 15% of their compensation. No Company contributions were made for the fiscal years ended May 31, 2000, 1999 and 1998.
Agreement with VAMED
In connection with an acquisition in 1995, the Company assumed commitments under an agreement, expiring November 2008, with VAMED Medical Instrument Company Ltd. ("VAMED"), a Chinese company, for the contract manufacture of its current EECP system, subject to certain performance standards, as defined. At May 31, 2000, the Company had outstanding purchase commitments of $389,000. The Company believes that VAMED will be able to meet the Company's needs for EECP systems.
EXHIBIT INDEX
Exhibit No.
(10) 1999 Stock Option Plan, as amended
(23) Consent of Grant Thornton LLP
(27) Financial Data Schedule
Exhibit 10
The name of this plan is the Vasomedical, Inc. 1999 Stock Option Plan, as amended (hereinafter called the "Plan"). The purpose of the Plan is to enable Vasomedical, Inc. (the "Company") and its subsidiaries and affiliates to foster and promote the interests of the Company by attracting and retaining directors, officers, consultants and employees of the Company who contribute to the Company's success by their ability, ingenuity and industry, to enable such officers and employees of the Company to participate in the long-term success and growth of the Company by giving them a proprietary interest in the Company and to provide incentive compensation opportunities competitive with those of competing corporations.
a. "Affiliate" means any person or entity controlled by or under common control with the Company, by virtue of the ownership of voting securities, by contract or otherwise.
b. "Board" means the Board of Directors of the Company.
c. "Change in Control" means a change of control of the Company, or in any person directly or indirectly controlling the Company, which shall mean:
(a) a change in control as such term is presently defined in Regulation 240.12b-(f) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or
(b) if any "person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act) other than the Company or any "person" who on the date of this Agreement is a director or officer of the Company, becomes the "beneficial owner" (as defined in Rule 13(d)-3 under the Exchange Act) directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the voting power of the Company's then outstanding securities; or
(c) if during any period of two (2) consecutive years during the term of this Plan, individuals who at the beginning of such period constitute the Board of Directors, cease for any reason to constitute at least a majority thereof.
d. "Code" means the Internal Revenue Code of 1986, as amended.
e. "Committee" means the Committee referred to in Section 1.3 of the Plan.
f. "Common Stock" means shares of the Common Stock, par value $.001 per share, of the Company.
g. "Company" means Vasomedical, Inc., a corporation organized under the laws of the State of Delaware (or any successor corporation).
h. "Fair Market Value" means the market price of the Common Stock on the NASDAQ consolidated reporting system on the date of the grant or on any other date on which the Common Stock is to be valued hereunder. If no sale shall have been reported on the NASDAQ consolidated reporting system on such date, Fair Market Value shall be determined by the Committee in accordance with the Treasury Regulations applicable to incentive stock options under Section 422 of the Code.
i. "Incentive Stock Option" means an Incentive Stock Option as described in Section 2.1 of the Plan.
j. "Non-Employee Director" shall have the meaning set forth in Rule 16(b) promulgated by the Securities and Exchange Commission ("Commission").
k. "Non-Qualified Stock Option" means a Non-Qualified Stock Option as described in Section 2.1 of the Plan.
l. "Option" means any option to purchase Common Stock under Section 2 of the plan.
m. "Participant" means any director, officer, consultant or employee of the Company, a Subsidiary or an Affiliate who is selected by the Committee to participate in the Plan.
n. "Subsidiary" means any corporation in which the Company possesses directly or indirectly 50% or more of the combined voting power of all classes of stock of such corporation.
o. "Total Disability" means accidental bodily injury or sickness which wholly and continuously disabled an Optionee. The Committee, whose decisions shall be final, shall make a determination of Total Disability.
The Plan shall be administered by the Committee appointed by the Board consisting of two or more members of the Board all of whom shall be Non-Employee Directors. The Committee shall serve at the pleasure of the Board and shall have such powers as the Board may, from time to time, confer upon it.
Subject to this Section 1.3, the Committee shall have sole and complete authority to adopt, alter, amend or revoke such administrative rules, guidelines and practices governing the operation of the Plan as it shall, from time to time, deem advisable, and to interpret the terms and provisions of the Plan.
The Committee shall keep minutes of its meetings and of action taken by it without a meeting. A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all of the members of the Committee without a meeting, shall constitute the acts of the Committee.
Stock options may be granted only to officers, directors, consultants and employees of the Company or a Subsidiary or Affiliate. Subject to Section 2.3, any person who has been granted any Option may, if he is otherwise eligible, be granted an additional Option or Options.
The aggregate number of shares reserved for issuance pursuant to the Plan shall be 3,000,000 shares of Common Stock, or the number and kind of shares of stock or other securities which shall be substituted for such shares or to which such shares shall be adjusted as provided in Section 1.6. No individual may be granted options to purchase more than an aggregate of 475,000 shares of Common Stock pursuant to the Plan.
The aggregate number of shares may be set aside out of the authorized but unissued shares of Common Stock or out of issued shares of Common Stock acquired for and held in the Treasury of the Company, not reserved for any other purpose. Shares subject to, but not sold or issued under, any Option terminating or expiring for any reason prior to its exercise in full will again be available for Options thereafter granted during the balance of the term of the Plan.
If, at any time, the Company shall take any action, whether by stock dividend, stock split, combination of shares or otherwise, which results in a proportionate increase or decrease in the number of shares of Common Stock theretofore issued and outstanding, the number of shares which are reserved for issuance under the Plan and the number of shares which, at such time, are subject to Options shall, to the extent deemed appropriate by the Committee, be increased or decreased in the same proportion, provided, however, that the Company shall not be obligated to issue fractional shares.
Likewise, in the event of any change in the outstanding shares of Common Stock by reason of any recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other corporate change, the Committee shall make such substitution or adjustments, if any, as it deems to be appropriate, as to the number or kind of shares of Common Stock or other securities which are reserved for issuance under the Plan and the number of shares or other securities which, at such time are subject to Options.
In the event of a Change in Control, at the option of the Board or Committee, (a) all options outstanding on the date of such Change in Control shall, for a period of sixty (60) days following such Change in Control, become immediately and fully exercisable, and (b) an Optionee will be permitted to surrender for cancellation within sixty (60) days after such Change in Control any option or portion of an option which was granted more than six (6) months prior to the date of such surrender, to the extent not yet exercised, and to receive a cash payment in an amount equal to the excess, if any, of the Fair Market Value (on the date of surrender) of the shares of Common Stock subject to the option or portion thereof surrendered, over the aggregate purchase price for such Shares under the option.
Except as herein specifically provided, no right or unpaid benefit under the Plan shall be subject to alienation, assignment, pledge or charge and any attempt to alienate, assign, pledge or charge the same shall be void. If any Participant or other person entitled to benefits hereunder should attempt to alienate, assign, pledge or charge any benefit hereunder, then such benefit shall, in the discretion of the Committee, cease.
If, at any time, the Company or any Subsidiary or Affiliate is required, under applicable laws and regulations, to withhold, or to make any deduction for any taxes, or take any other action in connection with any Option exercise, the Participant shall be required to pay to the Company or such Subsidiary or Affiliate, the amount of any taxes required to be withheld, or, in lieu thereof, at the option of the Company, the Company or such Subsidiary or Affiliate may accept a sufficient number of shares of Common Stock to cover the amount required to be withheld.
The entire expense of administering the Plan shall be borne by the Company.
a. The Board or the Committee may, from time to time, amend, suspend or
terminate any or all of the provisions of the Plan, provided that,
without the Participant's approval, no change may be made which would
prevent an Incentive Stock Option granted under the Plan from
qualifying as an Incentive Stock Option under Section 422 of the Code
or result in a "modification" of the Incentive Stock Option under
Section 424(h) of the Code or otherwise alter or impair any right
theretofore granted to any Participant ; and further provided that,
without the consent and approval of the holders of a majority of the
outstanding shares of Common Stock of the Company present at a meeting
at which a quorum exists, neither the Board nor the Committee may make
any amendment which (i) changes the class of persons eligible for
options; (ii) increases (except as provided under Section 1.6 above)
the total number of shares or other securities reserved for issuance
under the Plan; (iii) decreases the minimum option prices stated in
Section 2.2 hereof (other than to change the manner of determining
Fair Market Value to conform to any then applicable provision of the
Code or any regulation thereunder); (iv) extends the expiration date
of the Plan, or the limit on the maximum term of Options; or (v)
withdraws the administration of the Plan from a committee consisting
of two or more members, each of whom is a Non-Employee Director.
b. With the consent of the Participant affected thereby, the Committee may amend or modify any outstanding Option in any manner not inconsistent with the terms of the Plan, including, without limitation, and irrespective of the provisions of Sections 2.3(c) and 2.4(b) below, to accelerate the date or dates as of which an installment of an Option becomes exercisable.
c. Nothing contained in the Plan shall prohibit the Company or any Subsidiary or Affiliate from establishing other additional incentive compensation arrangements for employees of the Company or such Subsidiary or Affiliate.
d. Nothing in the Plan shall be deemed to limit, in any way, the right of the Company or any Subsidiary or Affiliate to terminate a Participant's employment with the Company (or such Subsidiary or Affiliate) at any time.
e. Any decision or action taken by the Board or the Committee arising out of or in connection with the construction, administration, interpretation and effect of the Plan shall be conclusive and binding upon all Participants and any person claiming under or through any Participant.
f. No member of the Board or of the Committee shall be liable for any act or action, whether of commission or omission, (i) by such member except in circumstances involving actual bad faith, nor (ii) by any other member or by any officer, agent or employee.
Notwithstanding any other provision of the Plan, the Company shall not be obligated to issue any shares of Common Stock, or grant any Option with respect thereto, unless it is advised by counsel of its selection that it may do so without violation of the applicable Federal and State laws pertaining to the issuance of securities and the Company may require any stock certificate so issued to bear a legend, may give its transfer agent instructions limiting the transfer thereof, and may take such other steps, as in its judgment are reasonably required to prevent any such violation.
The Plan was adopted by the Board on July 13, 1999, and amended on July 13, 2000, and shall terminate on July 12, 2009.
Subject to the provisions of the Plan, the Committee shall have the sole and complete authority to determine (i) the Participants to whom Options shall be granted; (ii) the number of shares to be covered by each Option; and (iii) the conditions and limitations, if any, in addition to those set forth in Sections 2 and 3 hereof, applicable to the exercise of an Option, including without limitation, the nature and duration of the restrictions, if any, to be imposed upon the sale or other disposition of shares acquired upon exercise of an Option.
Stock options granted under the Plan may be of two types: an incentive stock option ("Incentive Stock Option"); and a non-qualified stock option ("Non-Qualified Stock Option").
It is intended that the Incentive Stock Options granted hereunder shall constitute incentive stock options within the meaning of Section 422 of the Code and shall be subject to the tax treatment described in Section 422 of the Code.
Anything in the Plan to the contrary notwithstanding, no provision of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify either the Plan or, without the consent of the Optionee, any Incentive Stock Option under Section 422 of the Code.
The Committee shall have the authority to grant Incentive Stock Options, or to grant Non-Qualified Stock Options, or to grant both types of Options. To the extent that any Option does not qualify as an Incentive Stock Option, in whole or in part, it shall constitute a separate Non-Qualified Stock Option to the extent of such disqualification.
The price of stock purchased upon the exercise of Options granted pursuant to the Plan shall be the Fair Market Value thereof at the time that the Option is granted.
If an employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of the stock of the Company or any parent
corporation of the Company or Subsidiary and an Option granted to such employee
is intended to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code, the exercise price shall be no less than 110% of the
Fair Market Value of the Common Stock on the date the Option is granted. The
purchase price is to be paid in full in cash, certified or bank cashier's check
or, at the option of the Company, Common Stock valued at its Fair Market Value
on the date of exercise, or a combination thereof, when the Option is exercised
and stock certificates will be delivered only against such payment.
Each Incentive Stock Option will be subject to the following provisions:
An Incentive Stock Option will be for a term of not more than ten years from the date of grant, except in the case of an employee described in the second paragraph of Section 2.2 above in which case an Incentive Stock Option will be for a term of not more than five years from the date of the grant.
To the extent the aggregate Fair Market Value of the Common Stock (determined as of the date of grant) with respect to which any options granted hereunder are intended to be designated as Incentive Stock Options under the Plan (or any other incentive stock option plan of the Company or any Subsidiary) which may be exercisable for the first time by the Optionee in any calendar year exceeds $100,000, such options shall not be considered incentive stock options.
Subject to the power of the Committee under Section 1.10(b) above and except in the manner described below upon the death of the Optionee, an Incentive Stock Option may be exercised as follows: up to one-third of the subject shares on or after the first anniversary of the date of grant of such Option; up to two-thirds of the subject shares on or after the second anniversary of the date of grant of such Option and up to all of the subject shares on and after the third such anniversary of the date of the grant of such Option but in no event later than the expiration of the term of the Option.
An Incentive Stock Option shall be exercisable during the Optionee's lifetime only by the Optionee and shall not be exercisable by the Optionee unless, at all times since the date of grant and at the time of exercise, such Optionee is an employee of the Company, any parent corporation of the Company or any Subsidiary, except that, upon termination of all employment (other than by death or by Total Disability followed by death in the circumstances provided below) with the Company, any parent corporation of the Company and any Subsidiary or Affiliate, the Optionee may exercise an Incentive Stock Option at any time within three months thereafter but only to the extent such Option is exercisable on the date of such termination.
Upon termination of all employment by Total Disability, the Optionee may exercise such options at any time within one year thereafter, but only to the extent such options are exercisable on the date of such termination.
If termination of employment is the result of the Optionee having reached normal retirement age, option grants continue to be exercisable for five years after retirement but in no event later than the expiration of the term of the Option.
In the event of the death of an Optionee (i) while an employee of the Company, any parent corporation of the Company or any Subsidiary or Affiliate, or (ii) within three months after termination of all employment with the Company, any parent corporation of the Company and any Subsidiary or Affiliate (other than for Total Disability) or (iii) within one year after termination on account of Total Disability of all employment with the Company, any parent corporation of the Company and any Subsidiary, such Optionee's estate or any person who acquires the right to exercise such option by bequest or inheritance or by reason of the death of the Optionee may exercise such Optionee's Option at any time within the period of three years from the date of death. In the case of clauses (i) and (iii) above, such Option shall be exercisable in full for all the remaining shares covered thereby, but in the case of clause (ii) such Option shall be exercisable only to the extent it was exercisable on the date of such termination.
Notwithstanding the foregoing provisions regarding the exercise of an Option in the event of death, Total Disability or other termination of employment, in no event shall an Option be exercisable in whole or in part after the termination date provided in the Option.
An Incentive Stock Option granted under the Plan shall not be transferable otherwise than by will or by the laws of descent and distribution.
Each Non-Qualified Stock Option will be subject to the following provisions:
A Non-Qualified Stock Option will be for a term of not more than ten years from the date of grant.
The exercise of a Non-Qualified Stock Option shall be subject to the same terms and conditions as provided under Section 2.3(c) above, except that upon termination of all employment by Total Disability, the Optionee may exercise such options at any time within three years after termination on account of Total Disability of all employment with the Company, or any Subsidiary or Affiliate.
A Non-Qualified Stock Option granted under the Plan shall not be transferable otherwise than by will or by the laws of descent and distribution, except as may be permitted by the Board or Committee.
In consideration of any Options granted to a Participant under the Plan, each such Participant shall enter into an Option Agreement with the Company providing, consistent with the Plan, such terms as the Committee may deem
advisable.
Exhibit 23
Consent of Independent Certified Public Accountants
We have issued our report dated July 20, 2000, accompanying the consolidated financial statements and schedule included in the Annual Report of Vasomedical, Inc. and Subsidiary on Form 10-K for the fiscal year ended May 31, 2000. We hereby consent to the incorporation by reference of said report in the Registration Statements of Vasomedical, Inc. and Subsidiary on Forms S-3 (File No. 333-34044, effective April 12, 2000, File No. 333-60341, effective December 28, 1998, File No. 333-33319, effective August 21, 1997, and File No. 33-62329, effective September 18, 1995) and on Forms S-8 (File No. 333-85457, effective August 18, 1999, File No. 333-85455, effective August 18, 1999, File No. 333-60471, effective August 3, 1998, File No. 333-11579, effective September 6, 1996, File No. 333-11581, effective September 6, 1996, and File No. 333- 11583, effective September 6, 1996).
GRANT THORNTON LLP
Melville, New York
July 20, 2000
| ARTICLE 5 |
| The schedule contains summary financial information extracted from the consolidated financial statements for the year ended May 31, 2000 and is qualified in its entirety by reference to such statements. |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | MAY 31 2000 |
| PERIOD END | MAY 31 2000 |
| CASH | 3,058,367 |
| SECURITIES | 0 |
| RECEIVABLES | 5,232,810 |
| ALLOWANCES | (400,000) |
| INVENTORY | 906,984 |
| CURRENT ASSETS | 9,677,428 |
| PP&E | 1,145,229 |
| DEPRECIATION | (596,913) |
| TOTAL ASSETS | 10,588,962 |
| CURRENT LIABILITIES | 2,297,192 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 55,921 |
| OTHER SE | 7,887,849 |
| TOTAL LIABILITY AND EQUITY | 10,588,962 |
| SALES | 13,673,632 |
| TOTAL REVENUES | 13,673,632 |
| CGS | 3,060,765 |
| TOTAL COSTS | 3,060,765 |
| OTHER EXPENSES | 8,914,649 |
| LOSS PROVISION | 400,000 |
| INTEREST EXPENSE | 7,302 |
| INCOME PRETAX | 1,690,916 |
| INCOME TAX | 0 |
| INCOME CONTINUING | 1,690,916 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,690,916 |
| EPS BASIC | .03 |
| EPS DILUTED | .03 |