Vasomedical, Inc. and Subsidiaries
(Unaudited)
(in thousands)
|
|
Three months ended
|
|
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,044
|
)
|
|
$
|
(652
|
)
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
99
|
|
|
|
91
|
|
Provision for doubtful accounts and commission adjustments
|
|
|
(8
|
)
|
|
|
17
|
|
Share-based compensation and arrangements
|
|
|
153
|
|
|
|
223
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts and other receivables
|
|
|
8,194
|
|
|
|
4,359
|
|
Receivables due from related parties
|
|
|
-
|
|
|
|
5
|
|
Inventories, net
|
|
|
(225
|
)
|
|
|
4
|
|
Deferred commission expense
|
|
|
(7
|
)
|
|
|
21
|
|
Other current assets
|
|
|
3
|
|
|
|
(45
|
)
|
Other assets
|
|
|
(184
|
)
|
|
|
477
|
|
Accounts payable
|
|
|
147
|
|
|
|
113
|
|
Accrued commissions
|
|
|
(461
|
)
|
|
|
(863
|
)
|
Accrued expenses and other liabilities
|
|
|
(1,449
|
)
|
|
|
(604
|
)
|
Sales tax payable
|
|
|
(33
|
)
|
|
|
(25
|
)
|
Deferred revenue
|
|
|
(1,014
|
)
|
|
|
(1,786
|
)
|
Other long-term liabilities
|
|
|
25
|
|
|
|
162
|
|
Net cash provided by operating activities
|
|
|
4,196
|
|
|
|
1,497
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of property, equipment and software
|
|
|
(136
|
)
|
|
|
(12
|
)
|
Purchases of short-term investments
|
|
|
(40
|
)
|
|
|
(40
|
)
|
Redemption of short-term investments
|
|
|
40
|
|
|
|
40
|
|
Net cash used in investing activities
|
|
|
(136
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate differences on cash and cash equivalents
|
|
|
(12
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
4,048
|
|
|
|
1,430
|
|
Cash and cash equivalents - beginning of period
|
|
|
7,961
|
|
|
|
11,469
|
|
Cash and cash equivalents - end of period
|
|
$
|
12,009
|
|
|
$
|
12,899
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes paid
|
|
$
|
13
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
Inventories transferred to property and equipment,
|
|
|
|
|
|
|
|
|
attributable to operating leases, net
|
|
$
|
-
|
|
|
$
|
2
|
|
Common shares issued for prepaid directors' fees
|
|
$
|
175
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Vasomedical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Vasomedical, Inc. was incorporated in Delaware in July 1987. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Vasomedical” or “management” refer to Vasomedical, Inc. and its subsidiaries. The Company since 2010 has been operating in two distinct business segments, the Sales Representation segment and the Equipment segment. In May 2010, the Company, through its wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, expanded into the sales representation business via its agreement with GE Healthcare (“GEHC”), the healthcare business unit of General Electric Company (NYSE: GE), to be GEHC’s exclusive sales representative for the sale of select GEHC diagnostic imaging products in specific market segments in the 48 contiguous states of the United States and the District of Columbia. In June 2012, the Company entered into an amendment, effective July 1, 2012, of the sales representative agreement (“GEHC Agreement”) extending the initial term of three years commencing July 1, 2010 to five years through June 30, 2015, subject to earlier termination under certain circumstances. In the Equipment segment we design, manufacture, market and support certain medical devices. Our principal products in this segment are Enhanced External Counterpulsation (EECP
®
) systems, which are non-invasive heart therapy devices based on our unique proprietary technology, and currently indicated in the United States for use in cases of refractory angina and congestive heart failure (“CHF”). In addition we develop, manufacture and market certain ambulatory patient monitoring systems including recorders and analysis software.
In September 2011, the Company acquired Fast Growth Enterprises Limited (FGE), a British Virgin Islands company which owns and controls two Chinese operating companies - Life Enhancement Technologies Ltd. (“LET”) and Biox Instruments Co. Ltd. (“Biox”), respectively – to expand its technical and manufacturing capabilities and to enhance its distribution network, technology, and product portfolio.
Also in September 2011, the Company restructured to further align its business management structure and long-term growth strategy and now operates through three wholly-owned subsidiaries. Vaso Diagnostics d/b/a VasoHealthcare continues as the operating subsidiary for the sales representation of GE Healthcare diagnostic imaging products; Vasomedical Global Corp. operates the Company’s Chinese companies; and Vasomedical Solutions, Inc. manages and coordinates our EECP
®
therapy business as well as other medical equipment operations.
We report the operations of Vasomedical Global Corp. and Vasomedical Solutions, Inc. under our Equipment segment. VasoHealthcare activities are included under our Sales Representation segment (See Note C).
NOTE B - BASIS OF PRESENTATION AND CRITICAL ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and disclosures normally included in the condensed consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in connection with the audited consolidated financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC. These condensed consolidated financial statements include the accounts of the companies over which we exercise control. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of interim results for the Company. The results of operations for any interim period are not necessarily indicative of results to be expected for any other interim period or the full year.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities in the condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenues, expenses and cash flows during the periods presented. Actual amounts and results could differ from those estimates. The estimates and assumptions the Company makes are based on historical factors, current circumstances and the experience and judgment of the Company's management. The Company evaluates its estimates and assumptions on an ongoing basis.
Vasomedical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Significant Accounting Policies
Note B of the Notes to Consolidated Financial Statements, included in the Annual Report on Form 10-K for the year ended December 31, 2013, includes a summary of the significant accounting policies used in the preparation of the condensed consolidated financial statements.
Revenue and Expense Recognition for VasoHealthcare
The Company recognizes commission revenue in its Sales Representation segment (see Note C) when persuasive evidence of an arrangement exists, service has been rendered, the price is fixed or determinable and collectability is reasonably assured. These conditions are deemed to be met when the underlying equipment has been delivered and accepted at the customer site in accordance with the specific terms of the sales agreement. Consequently, amounts billable under the agreement with GE Healthcare in advance of the customer acceptance of the equipment are recorded as accounts receivable and deferred revenue in the condensed consolidated balance sheets. Under our agreement with GE Healthcare (“GEHC”), GEHC pays the Company a commission. In accordance with the agreement GEHC pays the Company fifty percent of the commission at the time the order is received and fifty percent of the commission when the order is completed by delivery and acceptance to their customer. At the time the order is received therefore, the Company records a receivable for the fifty percent of the commission and offsets this to deferred revenue. At the time the order is completed the Company records a receivable for the remaining fifty percent commission and records this as recognized revenue including the amount previously deferred.
Similarly, commissions payable to our sales force related to such billings are recorded as deferred commission expense when the associated deferred revenue is recorded. Commission expense is recognized when the corresponding commission revenue is recognized. Cost of commissions includes commission expense and costs associated with the medical device excise tax imposed by the Affordable Care Act.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform with the current period presentation.
NOTE C – SEGMENT REPORTING AND CONCENTRATIONS
The Company views its business in two segments – the Equipment segment and the Sales Representation segment. The Equipment segment is engaged in designing, manufacturing, marketing and supporting EECP
®
enhanced external counterpulsation systems both domestically and internationally, as well as the development, production, marketing and supporting of other medical devices. The Sales Representation segment operates through the VasoHealthcare subsidiary and is currently engaged solely in the fulfillment of the Company’s responsibilities under our agreement with GEHC. The Company evaluates segment performance based on operating income. Administrative functions such as finance, human resources, and information technology are centralized and related expenses allocated to each segment. Other costs not directly attributable to operating segments, such as audit, legal, director fees, investor relations, and others, as well as certain assets – primarily cash balances – are reported in the Corporate entity below. There are no intersegment revenues. Summary financial information for the segments is set forth below:
Vasomedical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
(in thousands)
|
|
|
|
As of or for the three months ended March 31, 2014
|
|
|
|
Equipment Segment
|
|
Sales Representation Segment
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
850
|
|
|
$
|
6,241
|
|
|
$
|
-
|
|
|
$
|
7,091
|
|
Operating (loss) income
|
|
$
|
(1,082
|
)
|
|
$
|
523
|
|
|
$
|
(531
|
)
|
|
$
|
(1,090
|
)
|
Total assets
|
|
$
|
7,728
|
|
|
$
|
10,209
|
|
|
$
|
11,986
|
|
|
$
|
29,923
|
|
Accounts and other receivables, net
|
|
$
|
846
|
|
|
$
|
4,535
|
|
|
$
|
-
|
|
|
$
|
5,381
|
|
Deferred commission expense
|
|
$
|
-
|
|
|
$
|
4,066
|
|
|
$
|
-
|
|
|
$
|
4,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the three months ended March 31, 2013
|
|
|
|
Equipment Segment
|
|
Sales Representation Segment
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
1,284
|
|
|
$
|
6,009
|
|
|
$
|
-
|
|
|
$
|
7,293
|
|
Operating (loss) income
|
|
$
|
(643
|
)
|
|
$
|
362
|
|
|
$
|
(401
|
)
|
|
$
|
(682
|
)
|
Total assets
|
|
$
|
7,533
|
|
|
$
|
8,485
|
|
|
$
|
12,783
|
|
|
$
|
28,801
|
|
Accounts and other receivables, net
|
|
$
|
618
|
|
|
$
|
4,117
|
|
|
$
|
-
|
|
|
$
|
4,735
|
|
Deferred commission expense
|
|
$
|
-
|
|
|
$
|
4,032
|
|
|
$
|
-
|
|
|
$
|
4,032
|
|
For the three months ended March 31, 2014 and 2013, GE Healthcare accounted for 88% and 82% of revenue, respectively, and $4.4 million or 81%, and $12.5 million or 92%, of accounts and other receivables at March 31, 2014 and December 31, 2013, respectively.
NOTE D – SHARE-BASED COMPENSATION
The Company complies with ASC Topic 718 “Compensation – Stock Compensation” (“ASC 718”), which requires all share-based awards to employees, including grants of employee stock options, to be recognized in the condensed consolidated financial statements based on their estimated fair values.
During the three months ended March 31, 2014, the Company granted 450,000 restricted shares of common stock valued at $157,500 to officers and 50,000 restricted shares of common stock valued at $15,500 to employees. The 450,000 shares granted to officers vest at various times through February 2016 and the 50,000 shares granted to employees vested immediately. In the first quarter of 2014, the Company also granted 500,000 restricted shares of common stock to directors. The shares were valued at $175,000 and vested immediately.
During the three months ended March 31, 2013, the Company granted 60,000 restricted shares of common stock to employees. The shares were valued at $10,800 and vested immediately.
During the three-month periods ended March 31, 2014 and 2013, the Company did not grant any stock options.
Share-based compensation expense recognized for the three month periods ended March 31, 2014 and 2013 was $110,000 and $137,000, respectively. These expenses are included in selling, general, and administrative expenses in the condensed consolidated statements of operations in 2014, and in cost of revenues; selling, general, and administrative expenses; and research and development expenses in the condensed consolidated statements of operations in 2013. Expense for share-based arrangements with non-employees was $43,000 and $86,000 for the three months ended March 31, 2014 and 2013, respectively. Unrecognized expense related to existing share-based compensation and arrangements is approximately $293,000 at March 31, 2014 and will be recognized through February 2016.
Vasomedical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE E – LOSS PER COMMON SHARE
Basic loss per common share is computed as earnings applicable to common stockholders divided by the weighted-average number of common shares outstanding for the period. Diluted loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted to common stock.
The following table represents common stock equivalents that were excluded from the computation of diluted earnings per share for the three months ended March 31, 2014 and 2013, because the effect of their inclusion would be anti-dilutive.
|
|
(in thousands)
|
|
|
|
For the three months ended
|
|
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
Stock options
|
|
|
1,754
|
|
|
|
1,780
|
|
Warrants
|
|
|
-
|
|
|
|
1,500
|
|
Common stock grants
|
|
|
875
|
|
|
|
2,188
|
|
|
|
|
2,629
|
|
|
|
5,468
|
|
|
|
|
|
|
|
|
|
|
NOTE F – FAIR VALUE MEASUREMENTS
The Company complies with the provisions of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”). Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
The following tables present information about the Company’s assets measured at fair value as of
March 31, 2014 and December 31, 2013:
|
|
(in thousands)
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Balance
as of
March 31,
2014
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Cash equivalents invested in money market funds
(included in cash and cash equivalents)
|
|
$
|
10,899
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,899
|
|
Investment in certificates of deposit
(included in short-term investments)
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
$
|
11,010
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
Balance
as of
December 31,
2013
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents invested in money market funds
(included in cash and cash equivalents)
|
|
$
|
6,883
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,883
|
|
Investment in certificates of deposit
(included in short-term investments)
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
$
|
6,994
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,994
|
|
Vasomedical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The fair values of the Company’s cash equivalents invested in money market funds are determined through market, observable and corroborated sources.
NOTE G – ACCOUNTS AND OTHER RECEIVABLES, NET
The following table presents information regarding the Company’s accounts and other receivables as of March 31, 2014 and December 31, 2013:
|
|
(in thousands)
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
(unaudited)
|
|
|
|
|
Trade receivables
|
|
$
|
8,758
|
|
|
$
|
17,173
|
|
Due from employees
|
|
|
167
|
|
|
|
161
|
|
Allowance for doubtful accounts and
|
|
|
|
|
|
|
|
|
commission adjustments
|
|
|
(3,544
|
)
|
|
|
(3,764
|
)
|
Accounts and other receivables, net
|
|
$
|
5,381
|
|
|
$
|
13,570
|
|
Trade receivables include amounts due for shipped products and services rendered. Amounts currently due under the GEHC Agreement are subject to adjustment in subsequent periods should the underlying sales order amount, upon which the receivable is based, change.
Allowance for doubtful accounts and commission adjustments include estimated losses resulting from the inability of our customers to make required payments, and adjustments arising from subsequent changes in sales order amounts that may reduce the amount the Company will ultimately receive under the GEHC Agreement. Due from employees is primarily commission advances made to sales personnel.
NOTE H – INVENTORIES, NET
Inventories, net of reserves, consist of the following:
|
|
(in thousands)
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
(unaudited)
|
|
|
|
|
Raw materials
|
|
$
|
766
|
|
|
$
|
790
|
|
Work in process
|
|
|
488
|
|
|
|
291
|
|
Finished goods
|
|
|
579
|
|
|
|
537
|
|
|
|
$
|
1,833
|
|
|
$
|
1,618
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2014 and December 31, 2013, the Company maintained reserves for excess and obsolete inventory of $776,000 and $803,000, respectively.
NOTE I – GOODWILL AND OTHER INTANGIBLES
Goodwill aggregating $3,276,000 and $3,303,000 was recorded on the Company’s condensed consolidated balance sheets at March 31, 2014 and December 31, 2013, respectively, pursuant to the acquisition of FGE in September 2011. All of the goodwill was allocated to the Company’s Equipment segment. The components of the change in goodwill are as follows:
Vasomedical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
(in thousands)
|
|
|
|
Carrying Amount
|
|
|
|
|
|
Balance at December 31, 2013
|
|
$
|
3,303
|
|
Foreign currency translation
|
|
|
(27
|
)
|
Balance at March 31, 2014
|
|
$
|
3,276
|
|
The Company’s other intangible assets consist of capitalized patent costs, customer lists and software costs, as follows:
|
|
(in thousands)
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
(unaudited)
|
|
|
|
|
Patents
|
|
|
|
|
|
|
Costs
|
|
$
|
469
|
|
|
$
|
469
|
|
Accumulated amortization
|
|
|
(457
|
)
|
|
|
(454
|
)
|
|
|
|
12
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Customer lists
|
|
|
|
|
|
|
|
|
Costs
|
|
|
800
|
|
|
|
800
|
|
Accumulated amortization
|
|
|
(295
|
)
|
|
|
(267
|
)
|
|
|
|
505
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
|
|
|
|
|
|
Costs
|
|
|
757
|
|
|
|
696
|
|
Accumulated amortization
|
|
|
(439
|
)
|
|
|
(424
|
)
|
|
|
|
318
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
835
|
|
|
$
|
820
|
|
Patents, customer lists, and software are included in other assets in the accompanying condensed consolidated balance sheets and are amortized on a straight line basis over their estimated useful lives of ten, seven, and five years, respectively. Amortization expense amounted to $46,000 and $42,000 for the three months ended March 31, 2014 and 2013, respectively.
Vasomedical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE J - DEFERRED REVENUE
The changes in the Company’s deferred revenues are as follows:
|
|
(in thousands)
|
|
|
|
For the three months ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Deferred revenue at the beginning of the period
|
|
$
|
18,019
|
|
|
$
|
15,602
|
|
Additions:
|
|
|
|
|
|
|
|
|
Deferred extended service contracts
|
|
|
237
|
|
|
|
150
|
|
Deferred in-service and training
|
|
|
3
|
|
|
|
5
|
|
Deferred service arrangements
|
|
|
5
|
|
|
|
10
|
|
Deferred commission revenues
|
|
|
1,770
|
|
|
|
1,008
|
|
Recognized as revenue:
|
|
|
|
|
|
|
|
|
Deferred extended service contracts
|
|
|
(227
|
)
|
|
|
(260
|
)
|
Deferred in-service and training
|
|
|
(8
|
)
|
|
|
(1
|
)
|
Deferred service arrangements
|
|
|
(24
|
)
|
|
|
(19
|
)
|
Deferred commission revenues
|
|
|
(2,771
|
)
|
|
|
(2,679
|
)
|
Deferred revenue at end of period
|
|
|
17,004
|
|
|
|
13,816
|
|
Less: current portion
|
|
|
10,294
|
|
|
|
10,222
|
|
Long-term deferred revenue at end of period
|
|
$
|
6,710
|
|
|
$
|
3,594
|
|
NOTE K – RELATED-PARTY TRANSACTIONS
On February 28, 2011, David Lieberman and Edgar Rios were appointed by the Board of Directors as directors of the Company. Mr. Lieberman, a practicing attorney in the State of New York, was also appointed to serve as the Vice Chairman of the Board. He is currently a senior partner at the law firm of Beckman, Lieberman & Barandes, LLP, which performs certain legal services for the Company. Fees of approximately $60,000 were billed by the firm through each of the three month periods ended March 31, 2014 and 2013, at which dates no amounts were outstanding.
Mr. Rios currently is President of Edgary Consultants, LLC, and was appointed a director in conjunction with the Company’s consulting agreement with Edgary Consultants, LLC. The consulting agreement (the “Agreement”) between the Company and Edgary Consultants, LLC (“Consultant”) commenced on March 1, 2011 and was for a two year term and expired on February 28, 2013. The Agreement provided for the engagement of Consultant to assist the Company in seeking broader reimbursement coverage of EECP
®
therapy.
In consideration for the services to be provided by Consultant under the Agreement, the Company agreed to issue to Consultant or its designees, up to 18,500,000 shares of restricted common stock of the Company, 3,000,000 of which were issued in March 2011 and the balance was to be earned on performance. Mr. Lieberman received 600,000 of these restricted shares. The Company recorded the fair value of the shares issued to Consultant as a prepaid expense and amortized the cost ratably over the two year agreement. No performance-based shares were issued and no further compensation is expected to be paid in conjunction with the agreement.
Receivables due from FGE management aggregating $5,000 were collected during the three months ended March 31, 2013.
On March 14, 2014, Biox Instruments Co., Ltd. (Biox) entered into a Manufacturing, Marketing and Licensing Agreement (the “Genwell Agreement”) with Genwell Instruments Co., Ltd. (Genwell), a corporation organized under the People’s Republic of China, where Biox was granted exclusive rights to manufacture and sell Genwell’s MobiCare
TM
wireless multi-parameter patient monitoring systems worldwide. The Genwell Agreement commenced on March 31, 2014 for an initial term of six years. Certain officers of Biox are shareholders of Genwell.
Vasomedical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE L – STOCKHOLDERS’ EQUITY
Common Stock
On June 17, 2010 the Board of Directors approved the 2010 Stock Plan (the “2010 Plan”) for officers, directors, employees and consultants of the Company. The stock issuable under the 2010 Plan shall be shares of the Company’s authorized but unissued or reacquired common stock. The maximum number of shares of common stock which may be issued under the 2010 Plan is 5,000,000 shares.
The 2010 Plan is comprised of two separate equity programs, the Options Grant Program, under which eligible persons may be granted options to purchase shares of common stock, and the Stock Issuance Program, under which eligible persons may be issued shares of common stock directly, either through the immediate purchase of such shares or as compensation for services rendered to the Company. The 2010 Plan provides that the Board of Directors, or a committee of the Board of Directors, will administer it with full authority to determine the identity of the recipients of the options or shares and the number of options or shares.
During the three months ended March 31, 2014 the Company issued, under the 2010 Plan, 585,000 shares of common stock to employees and officers, and 500,000 shares of common stock to directors. As of March 31, 2014, 91,222 shares were available for issuance under the 2010 Plan.
On October 30, 2013 the Board of Directors approved the 2013 Stock Plan (the “2013 Plan”) for officers, directors, employees and consultants of the Company. The stock issuable under the 2013 Plan shall be shares of the Company’s authorized but unissued or reacquired common stock. The maximum number of shares of common stock which may be issued under the 2013 Plan is 7,500,000 shares.
The 2013 Plan is comprised of two separate equity programs, the Options Grant Program, under which eligible persons may be granted options to purchase shares of common stock, and the Stock Issuance Program, under which eligible persons may be issued shares of common stock directly, either through the immediate purchase of such shares or as compensation for services rendered to the Company. The 2013 Plan provides that the Board of Directors, or a committee of the Board of Directors, will administer the Plan with full authority to determine the identity of the recipients of the options or shares and the number of options or shares. As of March 31, 2014, 7,500,000 shares were available for issuance under the 2013 Plan.
No options were issued under the 2010 Plan or 2013 Plan during the three month period ended March 31, 2014.
In April 2013, the Company’s Board of Directors authorized a share repurchase program of up to $1.5 million, which was subsequently increased in July 2013 to $2.0 million, of the Company’s common stock. As of March 31, 2014, 9,481,401 shares had been repurchased at a cost of $1,755,000, which cost has been recorded as treasury stock in the accompanying condensed consolidated balance sheet as of March 31, 2014.
Vasomedical, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE M – COMMITMENTS AND CONTINGENCIES
Sales representation agreement
In June 2012, the Company concluded an amendment of the GEHC Agreement with GE Healthcare, originally signed on May 19, 2010. The amendment, effective July 1, 2012, extended the initial term of three years commencing July 1, 2010 to five years through June 30, 2015, subject to earlier termination under certain circumstances. These circumstances include: not materially achieving certain sales goals; not maintaining a minimum number of sales representatives; and various legal and GEHC policy requirements. Under the terms of the agreement, the Company is required to lease dedicated computer equipment from GEHC for connectivity to their network.
NOTE N - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
As of March 31, 2014, the Company believes that there are no recently issued accounting pronouncements that will have an impact on the Company’s condensed consolidated financial statements.
NOTE O – SUBSEQUENT EVENT
In April 2014, the Company announced that it entered into an agreement with Chongqing PSK-Health Sci-Tech Development Co., Ltd. ("PSK") of Chongqing, China, the leading manufacturer of ECP therapy systems in China, to form a joint venture company, VSK Medical Limited ("VSK"), for the global marketing, sale and advancement of ECP therapy technology.
The agreement provides for Vasomedical and PSK to appoint the joint venture company as the exclusive distributor to market, distribute and sell EECP and ECP therapy products globally, except for the United States and China. In this regard, the agreement provides for PSK to be the exclusive distributor of Vasomedical's EECP therapy systems in China and for Vasomedical to be the exclusive distributor of PSK's ECP therapy systems in the United States, subject to certain conditions.
We believe that combining the efforts of the two largest global providers of EECP/ECP therapy technology will create greater success than either working independently. The initial focus will be on the efficient use of the combined resources and leveraging areas of market strength.
Vasomedical, Inc. and Subsidiaries