-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JKVfzgLgbAWRp0cqfkyJ5+fFowtDpJTEUEhnSieg5wOJ0YG+EYgpQGOeewxN57tf t3kO8dfCzwugtLaxYWKdCA== 0000932214-00-000006.txt : 20000202 0000932214-00-000006.hdr.sgml : 20000202 ACCESSION NUMBER: 0000932214-00-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VASOMEDICAL INC CENTRAL INDEX KEY: 0000839087 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 112871434 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18105 FILM NUMBER: 508001 BUSINESS ADDRESS: STREET 1: 180 LINDEN AVENUE CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 5169974600 MAIL ADDRESS: STREET 1: 150 MOTOR PARKWAY STREET 2: SUITE 408 CITY: HAUPPAUGE STATE: NY ZIP: 11788 FORMER COMPANY: FORMER CONFORMED NAME: FUTURE MEDICAL PRODUCTS INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FUTURE MEDICAL PRODUCTS INC /NY/ DATE OF NAME CHANGE: 19920506 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended November 30, 1999 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to ______________ Commission File Number: 0-18105 VASOMEDICAL, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 11-2871434 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 180 Linden Ave., Westbury, New York 11590 - -------------------------------------------------------------------------------- (Address of principal executive offices) Registrant's Telephone Number (516) 997-4600 -------------- Number of Shares Outstanding of Common Stock, $.001 Par Value, at January 10, 2000 51,590,385 ---------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the 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 [ ] --- -- Vasomedical, Inc. and Subsidiary INDEX PART I - FINANCIAL INFORMATION Item 1 - Financial Statements: Page ---- Consolidated Condensed Balance Sheets as of November 30, 1999 and May 31, 1999 (Unaudited) 3 Consolidated Condensed Statements of Operations for the Six and Three Months Ended November 30, 1999 and 1998 (Unaudited) 4 Consolidated Condensed Statement of Changes in Stockholders' Equity for the Period from June 1, 1999 to November 30, 1999 (Unaudited) 5 Consolidated Condensed Statements of Cash Flows for the Six Months Ended November 30, 1999 and 1998 (Unaudited) 6 Notes to Consolidated Condensed Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II - OTHER INFORMATION 12 Vasomedical, Inc. and Subsidiary CONSOLIDATED CONDENSED BALANCE SHEETS (unaudited)
November 30, May 31, 1999 1999 ---------- ---------- ASSETS CURRENT ASSETS Cash and cash equivalents $1,498,746 $1,678,175 Accounts receivable 2,604,482 1,585,432 Inventories 419,485 594,093 Other current assets 163,270 177,713 ---------- ---------- Total current assets 4,685,983 4,035,413 PROPERTY AND EQUIPMENT, net 466,567 571,368 CAPITALIZED COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED, net 461,728 568,277 OTHER ASSETS 1,038 23,114 ---------- ---------- $5,615,316 $5,198,172 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $677,100 $705,640 Accrued warranty and customer support expenses 434,000 382,000 Accrued professional fees 172,492 271,438 Accrued commissions 311,455 307,951 Dividends payable 216,892 193,610 ---------- ---------- Total current liabilities 1,811,939 1,860,639 ACCRUED WARRANTY COSTS 134,000 114,000 OTHER LONG-TERM LIABILITIES 32,000 70,000 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, $.01 par value; 1,000,000 shares authorized; 135,000 and 175,000 shares at November 30, 1999 and May 31, 1999, respectively, issued and outstanding (liquidation preference of $2,700,000 and $3,500,000 at November 30, 1999 and May 31, 1999, respectively) 1,350 1,750 Common stock, $.001 par value; 110,000,000 shares authorized; 51,296,585 and 50,402,687 shares at November 30, 1999 and May 31, 1999, respectively, issued and outstanding 51,297 50,403 Additional paid-in capital 37,909,201 37,749,483 Accumulated deficit (34,324,471) (34,648,103) ---------- ---------- Total stockholders' equity 3,637,377 3,153,533 ---------- ---------- $5,615,316 $5,198,172 ---------- ---------- The accompanying notes are an integral part of these condensed statements.
Vasomedical, Inc. and Subsidiary CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (unaudited)
Six months ended Three months ended ---------------- ------------------ November 30, November 30, ------------ ------------ 1999 1998 1999 1998 ---- ---- ---- ---- Revenues Equipment sales $5,669,175 $550,000 $2,778,995 $200,000 Equipment rentals and services 306,400 242,100 177,100 164,000 ----------- ---------- ---------- ---------- 5,975,575 792,100 2,956,095 364,000 ----------- ---------- ---------- ---------- Costs and expenses Cost of sales and services 1,369,287 573,790 757,017 243,422 Selling, general and administrative 3,348,738 2,648,276 1,606,422 1,377,612 Research and development 646,852 339,763 393,704 150,099 Depreciation and amortization 250,708 201,709 129,101 108,626 Interest and financing costs 3,562 7,337 1,550 2,128 Interest and other income - net (41,447) (84,065) (21,425) (31,851) ----------- ---------- ---------- ---------- 5,577,700 3,686,810 2,866,369 1,850,036 ----------- ---------- ---------- ---------- NET EARNINGS (LOSS) 397,875 (2,894,710) 89,726 (1,486,036) Deemed dividend on preferred stock - (864,000) - (203,000) Preferred stock dividend requirement (74,243) (108,071) (35,780) (53,315) ----------- ---------- ---------- ---------- EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $323,632 $(3,866,781) $53,946 $(1,742,351) ----------- ---------- ---------- ---------- Earnings (loss) per common share (basic and diluted) $.01 $(.08) $.00 $(.04) ----------- ---------- ---------- ---------- Weighted average common shares outstanding Basic 50,971,701 48,730,338 51,092,875 48,800,910 ----------- ---------- ---------- ---------- Diluted 55,848,051 48,730,338 55,488,074 48,800,910 ----------- ---------- ---------- ---------- The accompanying notes are an integral part of these condensed statements.
Vasomedical, Inc. and Subsidiary CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
Total Additional Accum- stock- Preferred Stock Common stock paid-in ulated holders' Shares Amount Shares Amount capital deficit equity ------ ------ ------ ------ ---------- ------- ------- Balance at June 1, 1999 175,000 $1,750 50,402,687 $50,403 $37,749,483 $(34,648,103) $3,153,533 Conversion of preferred stock (40,000) (400) 773,338 774 (374) - Preferred stock dividend requirement (74,243) (74,243) Common stock issued in lieu of preferred stock dividends 50,385 50 50,912 50,962 Exercise of options and warrants 70,175 70 51,180 51,250 Stock options granted for services 58,000 58,000 Net earnings 397,875 397,875 ------- ------ ---------- ------- ----------- ------------ ---------- Balance at November 30, 1999 135,000 $1,350 51,296,585 $51,297 $37,909,201 $(34,324,471) $3,637,377 ------- ------ ---------- ------- ----------- ------------ ---------- The accompanying notes are an integral part of this condensed statement.
Vasomedical, Inc. and Subsidiary CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
Six months ended November 30, ----------------------------- 1999 1998 ---- ---- Cash flows from operating activities Net earnings (loss) $397,875 $(2,894,710) ---------- ----------- Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities Depreciation and amortization 250,708 201,709 Stock options granted for services 58,000 Changes in operating assets and liabilities Accounts receivable (1,019,050) 558,296 Inventories 166,164 (511,353) Other current assets 14,443 64,247 Other assets 22,076 402 Accounts payable, accrued expenses and other current liabilities (71,982) (146,280) Other liabilities (18,000) (106,500) ---------- ----------- (597,641) 60,521 ---------- ----------- Net cash used in operating activities (199,766) (2,834,189) ---------- ----------- Cash flows from investing activities Purchase of property and equipment (30,913) (24,795) ---------- ----------- Net cash used in investing activities (30,913) (24,795) ---------- ----------- Cash flows from financing activities Proceeds from exercise of options and warrants 51,250 - ---------- ----------- Net cash provided by financing activities 51,250 - ---------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (179,429) (2,858,984) Cash and cash equivalents - beginning of period 1,678,175 4,367,986 ---------- ----------- Cash and cash equivalents - end of period $1,498,746 $1,509,002 ---------- ----------- Non-cash investing and financing activities were as follows: Deemed dividend on preferred stock $864,000 Issuance of common stock in lieu of preferred dividends $50,962 19,911 Inventories transferred to (from) property and equipment, attributable to operating leases - net 8,444 224,000 The accompanying notes are an integral part of these condensed statements.
Vasomedical, Inc. and Subsidiary NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS November 30, 1999 (unaudited) NOTE A - BASIS OF PRESENTATION The consolidated condensed balance sheet as of November 30, 1999 and the related consolidated condensed statements of operations for the six- and three-month periods ended November 30, 1999 and 1998, changes in stockholders' equity for the six-month period ended November 30, 1999 and cash flows for the six-month periods ended November 30, 1999 and 1998 have been prepared by Vasomedical, Inc. and Subsidiary (the "Company") without audit. In the opinion of management, all adjustments (which include only normal, recurring accrual adjustments) necessary to present fairly the financial position and results of operations as of November 30, 1999 and for all periods presented have been made. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended May 31, 1999. Results of operations for the periods ended November 30, 1999 and 1998 are not necessarily indicative of the operating results expected or reported for the full year. NOTE B - STOCKHOLDERS' EQUITY In January 1999, the Company's 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) contingent upon meeting certain performance criteria. The stock options were fair-valued at $87,000. The Company recorded a charge to operations of $58,000 in June 1999, commensurate with the partial satisfaction of the performance criteria defined therein. 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. In addition, the Board of Directors granted stock options under its 1997 and 1999 Plans to certain officers and employees to purchase an aggregate of 175,000 shares and 150,000 shares of common stock, respectively, at an exercise price of $1.69 per share, and to an employee to purchase 30,000 shares of common stock at an exercise price of $1.53 per share (which represented the fair market value of the underlying common stock at the time of the respective grants). In the first quarter of fiscal 2000, 28,000 shares of preferred stock were converted into 477,912 shares of common stock. In addition, options and warrants to purchase 70,175 shares of common stock were exercised, aggregating $51,250 in proceeds to the Company. In the second quarter of fiscal 2000, 12,000 shares of preferred stock were converted into 295,426 shares of common stock. In January 2000, the Board of Directors granted stock options under the 1999 Plan to its newly appointed President and CEO and another officer to purchase an aggregate of 660,000 shares of common stock at an exercise price of $1.21 per share (which represented the fair market value of the underlying common stock at the time of the respective grants), subject to certain vesting provisions as defined in the agreements. NOTE C - EARNINGS PER COMMON SHARE Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share are based on the weighted number of common and potential common shares outstanding. The calculation takes into account the shares that may be issued upon the exercise of stock options and warrants, reduced by the shares that may be repurchased with the funds received from the exercise, based on the average price during the period, and convertible preferred stock, assuming conversion at the beginning of the period. Potential common shares were excluded from the diluted calculation for the six and three months ended November 30, 1998, as their effects were anti-dilutive. Vasomedical, Inc. and Subsidiary NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) November 30, 1999 (unaudited) NOTE C - EARNINGS PER COMMON SHARE (continued) The following table sets forth the computation of basic and diluted earnings per share for the six and three months ended November 30, 1999:
Six months ended Three months ended November 30, 1999 November 30, 1999 ----------------- ------------------ Numerator: Basic earnings $323,632 $53,946 Preferred stock dividends 74,243 35,780 ---------- ---------- Diluted earnings $397,875 $89,726 ---------- ---------- Denominator: Basic - weighted average shares 50,971,701 51,092,875 Stock options 621,009 388,907 Warrants 1,178,631 1,056,337 Convertible preferred stock 3,076,710 2,949,955 ---------- ---------- Diluted - weighted average shares 55,848,051 55,488,074 ---------- ---------- Basic and diluted earnings per share $0.01 $0.00 ----- -----
NOTE D - COMMITMENTS AND CONTINGENCIES Employment Agreements - --------------------- 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. Such employment agreement provides, 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 or upon any other termination of such employment in breach of the agreement, 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 November 30, 1999 (reflecting January 2000 revisions) are summarized as follows:
Twelve months ended November 30, Amount -------------------------------- ------ 2000 $590,000 2001 178,000 2002 23,000 -------- $791,000 --------
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. Vasomedical, Inc. and Subsidiary NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) November 30, 1999 (unaudited) NOTE D - COMMITMENTS AND CONTINGENCIES (continued) 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. 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 November 30, 1999, the Company had outstanding purchase commitments of $486,000. The Company believes that VAMED will be able to meet the Company's needs for EECP systems. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF - -------------------------------------------------------------------------- OPERATIONS - ---------- Results of Operations - --------------------- Six and Three Months Ended November 30, 1999 and 1998 - ----------------------------------------------------- The Company generated revenues from the sale and lease of EECP systems of $5,976,000 and $792,000 for the six-month periods ended November 30, 1999 and 1998, respectively, and $2,956,000 and $364,000 for the three-month periods ended November 30, 1999 and 1998, respectively. The Company generated earnings of $398,000 and $90,000 (before deducting $74,000 and $36,000 in preferred stock dividend requirements) for the six and three months ended November 30, 1999. For the comparable prior-year periods, the Company incurred net losses of $2,895,000 and $1,486,000 (before deducting $864,000 and $203,000, respectively, in deemed dividends on preferred stock, which represented the discount resulting from the allocation of proceeds to the beneficial conversion feature and the fair value of the underlying warrants, and $108,000 and $53,000, respectively, in preferred stock dividend requirements, in connection with 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 for the second quarter of fiscal 2000 was, however, 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. Management expects the aforementioned events to provide a strong foundation for accelerated growth in fiscal 2000. Revenues for fiscal 1999, particularly for the first two fiscal quarters, were adversely affected by the nature of the commercial arrangements under which those units were placed. The Company expects, especially as a result of HCFA's recent establishment of a standard reimbursement rate for Medicare beneficiaries effective January 1, 2000, that placements made in the past under rental or fee-for-use arrangements will continue to convert to financed leases or outright sales in fiscal 2000, although there can be no assurance that this will occur. 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 six months ended November 30, 1999 and 1998 were approximately $3,349,000 and $2,648,000, respectively, and $1,606,000 and $1,378,000, respectively, for the three months ended November 30, 1999 and 1998. The increases in SGA expenses of $701,000 and $228,000 from the comparable prior-year fiscal periods resulted primarily from increases in sales and marketing personnel, commissions and other selling expenses related to increased revenues. Research and development (R&D) expenses in the six and three months ended November 30, 1999 increased by $307,000 and $244,000 from the comparable prior-year periods. Current period expenses relate to the long-term follow-up phase of the multicenter clinical study, i.e., a quality-of-life outcomes study, the expansion of the International EECP Patient Registry at the University of Pittsburgh, the development of an upgraded model of the EECP system, and the ongoing feasibility study in congestive heart failure, all of which, to varying degrees, are expected to 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 November 30, 1999, the Company had a cash balance of $1,499,000 and working capital of $2,874,000, 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 $200,000 and $2,834,000 for the six months ended November 30, 1999 and 1998, respectively. Net cash used during the six months ended November 30, 1999 consisted primarily of earnings from operations, decreases in inventories and other current assets, offset by increases in accounts receivable and decreases in accounts payable and accrued expenses. Investing activities used net cash of $31,000 and $25,000 during the six months ended November 30, 1999 and 1998, respectively. The principal uses were for the purchase of property and equipment. At November 30, 1999, the Company did not have any material commitments for capital expenditures. Financing activities provided cash of $51,000 during the six months ended November 30, 1999. Financing activities during fiscal 2000 consisted primarily from the sale of common stock and receipt of cash proceeds upon the exercise of Company common stock warrants by officers and directors. 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 have been, and are expected to be, 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. As of November 30, 1999, 40,000 shares of Series C preferred stock, representing 23% of the total outstanding, were converted into approximately 773,000 shares of the Company's common stock. Management believes that its working capital position at November 30, 1999, along with the ongoing commercialization of the EECP system (including, but not limited to, the conversion of current units under rental or use arrangements to outright sales or financed leases), 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 the next twelve months. Except for historical information contained herein, the matters discussed are forward-looking statements that involve risks and uncertainties. When used in this report, 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 the dramatic changes taking place in the healthcare environment; the impact of competitive procedures and products and their pricing; unexpected manufacturing problems in foreign supplier facilities; unforeseen difficulties and delays in the conduct of clinical trials and other product development programs; the actions of regulatory authorities and third-party payers in the United States and overseas; uncertainties about the acceptance of a novel therapeutic modality by the medical community; and the risk factors reported from time to time in the Company's SEC reports. The Company undertakes no obligation to update forward-looking statements as a result of future events or developments. VASOMEDICAL, INC. AND SUBSIDIARY -------------------------------- PART II - OTHER INFORMATION --------------------------- ITEM 1 - LEGAL PROCEEDINGS: Previously reported. ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS: None ITEM 3 - DEFAULTS UPON SENIOR SECURITIES: None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A. The registrant held its Annual Meeting of Stockholders on October 6, 1999. B. Not applicable. C. Three directors were elected at the Annual Meeting to serve in Class I until the Annual Meeting of Stockholders for fiscal 2002. They are E. Donald Shapiro, Anthony Viscusi and Zhen-sheng Zheng. The minimum number of votes cast in favor of their elections was 36,308,338. The other matter voted upon was the ratification of the appointment of Grant Thornton LLP as the Company's independent certified public accountants for the fiscal year ended May 31, 2000. The votes cast are as follows: Votes For: 36,253,028; Votes Against: 144,830; Votes Abstained: 76,535 ITEM 5 - OTHER INFORMATION: None ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K: Exhibits: No. 10 Employment Agreement dated January 6, 2000 between the Registrant and D. Michael Deignan No. 27 Financial Data Schedule Reports on Form 8-K: None In accordance with to the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VASOMEDICAL, INC. By: /s/ D. Michael Deignan ------------------------------------------ D. Michael Deignan President, Chief Executive Officer and Director (Principal Executive Officer) /s/ Joseph A. Giacalone ------------------------------------------ Joseph A. Giacalone Chief Financial Officer (Principal Financial and Accounting Officer) Date: January 13, 2000 EX-10 2 Exhibit 10 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT dated as of the 6th day of January 2000 by and between VASOMEDICAL, INC., a Delaware corporation (hereinafter the "Company") and D. Michael Deignan, an individual residing at 6 Wax Myrtle Court, Hilton Head Island, South Carolina 29926 (hereinafter called "Deignan"). W I T N E S S E T H: WHEREAS, the Company desires to enter into an Employment Agreement with Deignan; and WHEREAS, Deignan desires to enter into an Employment Agreement with the Company; NOW, THEREFORE, it is agreed as follows: 1. Prior Agreements Superseded. This Agreement supersedes any employment, consulting or other agreements, oral or written, entered into between Deignan and the Company prior to the date of this Agreement. 2. Employment. The Company hereby agrees to employ Deignan and Deignan hereby agrees to serve as President and Chief Executive Officer of the Company with responsibility for the overall supervision, direction and administration of all activities and affairs of the Company and performance of such other executive duties on behalf of the Company as the Board of Directors may determine. Deignan's duties shall also include general supervision and control over all subsidiaries of the Company, if any. Deignan's employment hereunder shall be on a full-time basis and Deignan shall not engage in any other business, including directorships, except with the prior approval of the Board of Directors of the Company. Deignan shall serve in similar capacities of such of the subsidiary corporations of the Company as may be selected by the Board of Directors without additional compensation. Notwithstanding the foregoing, it is understood that the duties of Deignan during the performance of employment shall not be inconsistent with his position and title as President and Chief Executive Officer of the Company. 3. Term. Subject to earlier termination on the terms and conditions hereinafter provided, the term of this Employment Agreement shall end on December 31, 2000. The Company shall have the right to extend the term of this Employment Agreement for additional one-year periods upon written notification to Deignan on or before November 30, 2000 and on or before November 30 of subsequent years for additional one-year extensions of employment. 4. Compensation. For all services rendered by Deignan under this Agreement, compensation shall be paid to Deignan as follows: (a) Deignan shall be paid a per annum base salary of One Hundred Eighty Thousand ($180,000) Dollars for the contract year January 6, 2000 through December 31, 2000, such amount to be payable in equal periodic installments in accordance with the Company's regular payroll procedures for its executive employees. For the year January 1, 2001 through December 31, 2001, and subsequent years, if employment is extended, Deignan's per annum base salary may be increased based upon merit and increased responsibilities as determined by the Company's Board of Directors consistent with its salary administration guidelines. (b) During the period of employment Deignan shall be eligible to participate in the Company's stock option and stock purchase plans to the extent determined in the discretion of the Board of Directors of the Company or committee thereof. (c) The Company shall forthwith issue to Deignan non-qualified stock options to purchase an aggregate of six hundred thousand (600,000) shares of the Company's Common Stock at the closing price per share on the Nasdaq exchange on January 6, 2000 (the "Options"). The Options shall be vested and exercisable in accordance with the following schedule: 150,000 shares on January 1, 2001, 100,000 shares on January 1, 2002, 100,000 shares on January 1, 2003, 100,000 shares on January 1, 2004 and 150,000 on January 1, 2005; provided that the Options shall vest only in the event Deignan is a full-time employee of the Company at the time of vesting. The time within which the Options may be exercised shall be ten (10) years from January 6, 2000. (d) Deignan shall be entitled to participate in any short-term or long-term incentive plan which the Company has in existence or which may be adopted. (e) During the period of employment, Deignan shall be furnished with office space and secretarial service and facilities commensurate with his position and adequate for the performance of his duties. (f) Deignan shall be entitled to fully participate in all benefit programs available to executive employees of the Company throughout the term of this Agreement. (g) Deignan shall be entitled to four (4) weeks of vacation and sick leaves consistent with current practice of the Company. 5. Expenses. Deignan shall be reimbursed for all out-of-pocket expenses reasonably incurred by him in the performance of his duties hereunder. Expense reports, with receipts and justifications, must be submitted to the Chairman of the Board for approval. Moreover, Deignan is entitled to a relocation allowance up to a total of Thirty Thousand ($30,000) Dollars payable upon submission of supporting documentation. 6. Severance Benefits. Deignan shall be entitled to the severance benefits provided for in this section in the event of the termination of his employment by the Company without cause or in the event of a voluntary termination of employment by Deignan for good reason. In such event, Deignan shall have no duty to mitigate damages hereunder. Deignan and the Company acknowledge that the foregoing provisions of this paragraph 6 are reasonable and are based upon the facts and circumstances of the parties at the time of entering into this Agreement, and with this Agreement, and with due regard to future expectations. (a) The term "cause" shall mean: (i) Deignan's willful and continued failure to substantially perform his duties under this Agreement (other than any such failure resulting from his incapacity due to physical or mental illness) after demand for substantial performance is delivered to Deignan by the Chairman of the Board of the Company which specifically identifies the manner in which the Board believes Deignan has not substantially performed his duties. (ii) Deignan's failure to refuse to follow directions from the Company's Board of Directors provided that (a) Deignan is provided written notice of such directions and a reasonable period in which to comply and (b) Deignan's compliance with any such direction would not be illegal or unlawful. (iii) Any act or fraud, embezzlement or theft committed by Deignan whether or not in connection with his duties or in the course of his employment. (iv) Any willful disclosure by Deignan of confidential information or trade secrets of the Company or its affiliates. For purposes of this paragraph, no act or failure to act on Deignan's part shall be considered "willful" unless done, or omitted to be done, by Deignan not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, Deignan shall not be deemed to have been terminated for cause unless and until there shall have been delivered to him a copy of a notice of termination from the Chairman of the Board of the Company after reasonable notice to Deignan and an opportunity for Deignan with his counsel to be heard before the Board of Directors of the Company finding that in the good faith opinion of such Board of Directors Deignan was guilty of the conduct set forth in clauses (i), (ii) or (iii) of this paragraph and specifying the particulars thereof in detail. (b) For these purposes, Deignan shall have "good reason" to terminate this Agreement if: (i) the Company removes Deignan from the position of President and Chief Executive Officer at any time during the term of this Agreement; (ii) Deignan's place of employment is moved beyond a hundred-mile radius, as the crow flies, from 180 Linden Avenue, Westbury, New York 11590 (or the Company's then current business address) as a direct result of an event described in Section 14(a) or (b) hereof. (c) The severance benefits under this section shall consist of the continued payment to Deignan, for the balance of the term of this Agreement, of the annual salary provided in Section 4(a) hereof plus the immediate vesting of the options that would normally vest in that year. 7. Death. In the event of Deignan's death during the term of this Agreement, Deignan's legal representative shall be entitled to receive his per annum base salary as provided in paragraph 4(a) of this Agreement to the last day of the calendar quarter following the calendar quarter in which Deignan's death shall have occurred and thereafter to receive one-half (1/2) of the base salary provided in paragraph 4(a) of this Agreement for the balance of the period covered by this Employment Agreement. 8. Non-Competition. (a) Deignan agrees that, during the term of this Agreement, he will not, without the prior written approval of the Board of Directors of the Company, directly or indirectly, through any other individual or entity, (a) become an officer or employee of, or render any services [including consulting services] to, any competitor of the Company, (b) solicit, raid, entice or induce any customer of the Company to cease purchasing goods or services from the Company or to become a customer of any competitor of the Company, and Deignan will not approach any customer for any such purpose or authorize the taking of any such actions by any other individual or entity, or (c) solicit, raid, entice or induce any employee of the Company, and Deignan will not approach any such employee for any such purpose or authorize the taking of any such action by any other individual or entity. However, nothing contained in this paragraph 8 shall be construed as preventing Deignan from investing his assets in such form or manner as will not require him to become an officer or employee of, or render any services (including consulting services) to, any competitor of the Company. (b) During the term hereof and at all times thereafter, Deignan shall not disclose to any person, firm or corporation other than the Company any trade secrets, trade information, techniques or other confidential information of the business of the Company, its methods of doing business or information concerning its customers learned or acquired by Deignan during Deignan's relationship with the Company and shall not engage in any unfair trade practices with respect to the Company. 9. Enforcement. (a) The necessity for protection of the Company and its subsidiaries against Deignan's competition, as well as the nature and scope of such protection, has been carefully considered by the parties hereto in light of the uniqueness of Deignan's talent and his importance to the Company. Accordingly, Deignan agrees that, in addition to any other relief to which the Company may be entitled, the Company shall be entitled to seek and obtain injunctive relief (without the requirement of any bond) for the purpose of restraining Deignan from any actual or threatened breach of the covenants contained in paragraph 8 of this Agreement. (b) If for any reason a court determines that the restrictions under paragraph 8 of this Agreement are not reasonable or that consideration therefor in adequate, the parties expressly agree and covenant that such restrictions shall be interpreted, modified or rewritten by such court to include as much of the duration and scope identified in paragraph 8 as will render the restrictions valid and enforceable. 10. Notices. Any notice to be given to the Company or Deignan hereunder shall be deemed given if delivered personally, telefaxed or mailed by certified or registered mail, postage prepaid, to the other party hereto at the following addresses: To the Company: Vasomedical, Inc. 180 Linden Avenue Westbury, New York 11590 To Deignan: D. Michael Deignan 6 Wax Myrtle Court Hilton Head Island, South Carolina 29926 Either party may change the address to which notice may be given hereunder by giving notice to the other party as provided herein. 11. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns, and upon Deignan, his heirs, executors, administrators and legal representatives. 12. Entire Agreement. This Agreement constitutes the entire agreement between the parties except as specifically otherwise indicated herein. 13. Governing Law. This Agreement shall be construed in accordance with the laws of the State of New York. 14. In the event (a) the Company has been consolidated or merged into or with any other corporation or all or substantially all of the assets of the Company have been sold to another corporation, with or without the consent of Employee, in his sole discretion; or (b) the Company undergoes a Change of Control, as hereinafter defined below, without prior Board approval; then Employee is entitled to the following settlement benefits: (i) a lump-sum payment for the greater of (A) twelve (12) months of the annual salary provided in section 4(a) hereof or (B) the balance of compensation for the term of this Employment Agreement; and (ii) any and all stock options and warrants held by Employee shall become immediately vested and exercisable; if (A) Employee voluntarily and unilaterally resigns his position with the Company within 30 days of an event described in Section 14(a) or (b) hereof, or (B) Employee is given notice of termination directly as a result of such Change in Control within six (6) months of an event described in Section 14(a) or (b) hereof, or (C) Employee's place of employment is moved beyond a hundred-mile radius, as the crow flies, from 180 Linden Avenue, Westbury, New York 11590 (or the Company's then current business address) as a direct result of an event described in Section 14(a) or (b) hereof. A "Change of Control" of the Company, or in any person directly or indirectly controlling the Company, shall mean: (i) a change of control as such term is presently defined in Regulation 240.12b-2 under the Securities Exchange Act of 1934 (the "Exchange Act"); (ii) if during the Term of employment 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 Employment Agreement is a director or officer of the Company, becomes the "beneficial owner" (as defined in Rule 13(d)03 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% of the voting power of the Company's then outstanding securities; or (iii) if during the Term of employment the individuals who at the beginning of such period constitute the Board cease for any reason other than death, disability or retirement to constitute at least a majority thereof." IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the day and year first above written. VASOMEDICAL, INC. By: /s/ Abraham E. Cohen ----------------------------- Abraham E. Cohen Chairman of the Board /s/ D. Michael Deignan ----------------------------- D. Michael Deignan Employee EX-27 3
5 The schedule contains summary financial information extracted from the consolidated condensed financial statements for the six-months ended November 30, 1999 and is qualified in its entirety by reference to such statements. 6-MOS MAY-31-2000 NOV-30-1999 1,498,746 0 2,604,482 0 419,485 4,685,983 1,051,336 (584,769) 5,615,316 1,811,939 0 0 1,350 51,297 3,584,730 5,615,316 5,975,575 5,975,575 1,369,287 1,369,287 4,204,851 0 3,562 397,875 0 397,875 0 0 0 397,875 .01 .01
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