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
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
180 Linden Ave., Westbury, New York 11590
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(Address of principal executive offices)
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 [ ]
--- --
<PAGE>
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
<PAGE>
Vasomedical, Inc. and Subsidiary
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
November 30, May 31,
1999 1999
---------- ----------
<S> <C> <C>
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
---------- ----------
<FN>
The accompanying notes are an integral part of these condensed statements.
</FN>
</TABLE>
<PAGE>
Vasomedical, Inc. and Subsidiary
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
---------------- ------------------
November 30, November 30,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
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
----------- ---------- ---------- ----------
<FN>
The accompanying notes are an integral part of these condensed statements.
</FN>
</TABLE>
<PAGE>
Vasomedical, Inc. and Subsidiary
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Total
Additional Accum- stock-
Preferred Stock Common stock paid-in ulated holders'
Shares Amount Shares Amount capital deficit equity
------ ------ ------ ------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
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
------- ------ ---------- ------- ----------- ------------ ----------
<FN>
The accompanying notes are an integral part of this condensed statement.
</FN>
</TABLE>
<PAGE>
Vasomedical, Inc. and Subsidiary
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended November 30,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
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
<FN>
The accompanying notes are an integral part of these condensed statements.
</FN>
</TABLE>
<PAGE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Six months ended Three months ended
November 30, 1999 November 30, 1999
----------------- ------------------
<S> <C> <C>
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
----- -----
</TABLE>
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:
<TABLE>
<CAPTION>
Twelve months ended November 30, Amount
-------------------------------- ------
<S> <C> <C>
2000 $590,000
2001 178,000
2002 23,000
--------
$791,000
--------
</TABLE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
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.
<PAGE>
(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.
<PAGE>
(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
<PAGE>
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.
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> NOV-30-1999
<CASH> 1,498,746
<SECURITIES> 0
<RECEIVABLES> 2,604,482
<ALLOWANCES> 0
<INVENTORY> 419,485
<CURRENT-ASSETS> 4,685,983
<PP&E> 1,051,336
<DEPRECIATION> (584,769)
<TOTAL-ASSETS> 5,615,316
<CURRENT-LIABILITIES> 1,811,939
<BONDS> 0
0
1,350
<COMMON> 51,297
<OTHER-SE> 3,584,730
<TOTAL-LIABILITY-AND-EQUITY> 5,615,316
<SALES> 5,975,575
<TOTAL-REVENUES> 5,975,575
<CGS> 1,369,287
<TOTAL-COSTS> 1,369,287
<OTHER-EXPENSES> 4,204,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,562
<INCOME-PRETAX> 397,875
<INCOME-TAX> 0
<INCOME-CONTINUING> 397,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 397,875
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
