UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20152018
[   ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-18105
 

VASOMEDICAL, INC.VASO CORPORATION
(Exact name of registrant as specified in Its Charter)
 
Delaware11-2871434
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)
  
137 Commercial Street, Plainview, New York11803
(Address of Principal Executive Offices)(Zip Code)
 

Registrant'sRegistrant’s telephone number, including area code:(516) 997-4600
Securities registered under Section 12(b) of the Act:None
Securities registered under Section 12(g) of the Act:

Common Stock, $.001 par value
(Title of Class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   ☐
Yes ☒  No[ ]       

No [ X ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   ☐
Yes ☒ No[ ]        

No [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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[ X ]       
No o[ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files)
Yes x[ X]                No o
[ ]
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o[ ] Accelerated filer o[ ] Non-accelerated filer o [X] Smaller reporting company x[X]

Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o [ ] No x[ X ]

The aggregate market value of common stock held by non-affiliates was approximately $17.1$6.0 million based on the closing sales price of the common stock as quoted on the OTC PK on June 30, 2015.29, 2018.

At March 25, 2016,31, 2019, the number of shares outstanding of the issuer's common stock was 158,441,802.

167,109,200.







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VASOMEDICAL, INC.
VASO CORPORATION
INDEX TO FORM 10-K

 

  Page
   
   
   
   
   
  


EXHIBITS

Exhibit 31 - Certifications Pursuant to Securities Exchange Act Rule 13A-14(A)/15D-14(A)
Exhibit 32 -  Certifications of Periodic Report


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- i -
PART I

ITEMITEM 1 – BUSINESS
Except for historical information contained in this report, the matters discussed are forward-looking statements that involve risks and uncertainties. When used in this report, words such as "anticipates"“anticipates”, "believes"“believes”, "could"“could”, "estimates"“estimates”, "expects"“expects”, "may"“may”, "plans"“plans”, "potential"“potential” and "intends"“intends” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company'sCompany’s management, as well as assumptions made by and information currently available to the Company'sCompany’s management. Among the factors that could cause actual results to differ materially are the following: the effect of business and economic conditions; the effect of the dramatic changes taking place in IT and healthcare; continuation of the GEHC agreements; the impact of competitive technology and products and their pricing; medical insurance reimbursement policies; unexpected manufacturing or supplier problems; unforeseen difficulties and delays in the conduct of clinical trials and other product development programs; the actions of regulatory authorities and third-party payers in the United States and overseas; and the risk factors reported from time to time in the Company'sCompany’s SEC reports. The Company undertakes no obligation to update forward-looking statements as a result of future events or developments.

Unless the context requires otherwise, all references to "we"“we”, "our"“our”, "us"“us”, "Company"“Company”, "registrant"“registrant”, "Vasomedical"“Vaso” or "management"“management” refer to Vasomedical, Inc.Vaso Corporation and its subsidiaries.

General Overview

Vasomedical, Inc.Vaso Corporation principally operates in three distinct business segments in the healthcare equipment and information technology industries. We manage and evaluate our operations, and report our financial results, through these three business segments.

·IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;

IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;
·Professional sales service segment (formerly the sales representation segment), operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for large OEMs into the health provider middle market; and

·Equipment segment, operating through wholly-owned subsidiaries Vasomedical Global Corp. and Vasomedical Solutions, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices.
Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for General Electric Healthcare (“GEHC”) into the health provider middle market; and

Equipment segment, primarily focuses on the design, manufacture, sale and service of proprietary medical devices, operating through a wholly-owned subsidiary VasoMedical, Inc., which in turn operates through Vasomedical Solutions, Inc. for domestic business and Vasomedical Global Corp. for international business, respectively.
VasoTechnology

VasoTechnology, Inc. was formed in May 2015, at the time the Company acquired all of the assets of NetWolves, LLC and its affiliates, including the membership interests in NetWolves Network Services LLC (collectively, "NetWolves"“NetWolves”), to address a major issue facing the healthcare IT industry. It currently consists of a managed network and security service division (NetWolves) and a healthcare IT application VAR (value added reseller) division.division (VasoHealthcare IT). Its current offering includes:

·Managed diagnostic imaging applications (national channel partner of GEHC IT).
·Managed network infrastructure (routers, switches and other core equipment).
Managed diagnostic imaging applications (national channel partner of GEHC IT).
·Managed network transport (FCC licensed carrier reselling 175+ facility partners).
·Managed security services (IBM's first security white label partner).
Managed network infrastructure (routers, switches and other core equipment).

Managed network transport (FCC licensed carrier reselling 175+ facility partners).
Managed security services (partner with major cybersecurity technologies firms including IBM and Palo Alto).
VasoTechnology uses a combination of proprietary technology, methodology and best-in-class third-party applications to deliver its value proposition.
 
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VasoHealthcare

VasoHealthcare commenced operations in 2010, in conjunction with the Company'sCompany’s execution of its exclusive sales representation agreement with General Electric Healthcare ("GEHC"),GEHC, which is the healthcare business division of the General Electric Company ("GE"(“GE”), to exploitfurther the sale of certain healthcaremedical capital equipment in the health provider middle market.domestic market segments. Sales of GEHC equipment by the Company have grown significantly since then.

VasoHealthcare'sVasoHealthcare’s current offering consists of:

·GEHC diagnostic imaging capital equipment.
·GEHC service agreements.
GEHC diagnostic imaging capital equipment.
·GEHC and third party financial services.

GEHC service agreements for the above equipment.
GEHC and third party financial services for the above equipment.
VasoHealthcare has built a team of approximately 90over 80 highly experienced sales professionals who utilize highly focusedproprietary sales management and analytic tools to manage the complete sales process and to increase market penetration.

Vasomedical Global and Vasomedical SolutionsVasoMedical

The proprietary medical equipment business now all under VasoMedical dates back to 1995 when the Company began the external counterpulsation technology in the United States. Vasomedical Global was formed in 2011 to combine and coordinate the various international operations including design, development, manufacturing, and sales operations of medical devices, acquired by the Company.while domestic activities are under Vasomedical Solutions. These devices primarily consist of cardiovascular diagnostic and therapeutic systems. Its current offering consists of:

·Biox™ series Holter monitors and ambulatory blood pressure recorders .
·ARCS™ series analysis, reporting and communication software for physiological signals such as ECG and blood pressure.
Biox™ series Holter monitors and ambulatory blood pressure recorders.
·MobiCare™ multi-parameter wireless vital-sign monitoring system.
·
EECP®  therapy systems, used for non-invasive, outpatient treatment for ischemic heart disease.ARCS™ series analysis, reporting and communication software for physiological signals such as ECG and blood pressure.

MobiCare™ multi-parameter wireless vital-sign monitoring system.
EECP® therapy systems, used for non-invasive, outpatient treatment of ischemic heart disease.
This segment uses its extensive cardiovascular device knowledge coupled with its significant engineering resources to cost effectively create and market its proprietary technology. It works with a global distribution network of channel partners, as well as a global joint venture arrangement,sells and services its products to selldomestic customers directly and sells and/or services its products.products in the international market mainly through independent distributors.

Historical Background

Vasomedical, Inc.Vaso Corporation was incorporated in Delaware in July 1987. For most of its history, the Company primarily was a single-product company designing, manufacturing, marketing and servicing its proprietary Enhanced External Counterpulsaion,Counterpulsation, or EECP®, therapy systems, mainly for the treatment of angina. In 2010 it began to diversify its business operations. The Company changed its name to Vaso Corporation in 2016 to more accurately reflect the diversified nature of its business mixture, and continues to use the original name VasoMedical for its proprietary medical device subsidiary.

In May 2010, the Company launched its Professional Sales Service business through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, which was appointed the exclusive representative for the sale of select General Electric Company ("GE")GE diagnostic imaging equipment to specific market segments in the 48 contiguous states of the United States and the District of Columbia. The original agreement ("(“GEHC Agreement"Agreement”) was for three years ending June 30, 2013; in 2012 it washas been extended to June 30, 2015 and again in 2014 toseveral times with the current extension through December 31, 2018.2022, subject to earlier termination under certain circumstances.


In June 2014, the Company began its IT segment business by concluding the Value Added Reseller Agreement ("(“VAR Agreement"Agreement”) with GEHC to become a national value added reseller of GE Healthcare IT's Radiology PACS (PictureGEHC Digital’s software solutions such as Picture Archiving and Communication System) software solutionsSystem (“PACS”), Radiology Information System (“RIS”), and related services, including implementation, training, management and support. This multiyear VAR Agreement focuses primarily on existing customer segments currently served by VasoHealthcare on behalf of GEHC. A new wholly owned subsidiary, VasoHealthcare IT Corp. ("(“VHC IT"IT”), was formed to conduct the healthcare IT business.
 
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In May 2015, the Company further expanded its IT business segment business by acquiring all of the assets of NetWolves, LLC and its affiliates, including the membership interests in NetWolves Network Services, LLC (collectively, "NetWolves"“NetWolves”), pursuant to an Asset Purchase Agreement.asset purchase agreement. NetWolves designs and delivers efficient and cost-effective multi-network and multi-technology solutions as a managed network provider, and provides a complete single-source solution that includes design, network redundancy, application device management, real-time network monitoring, reporting and support systems as a comprehensive solution.The Company believes there are significant operational synergies between NetWolves'NetWolves’ capabilities and VasoHealthcare IT'sIT’s requirements under its VAR Agreement with GEHC, and is engaged in expanding NetWolves'has expanded NetWolves’ existing services to the healthcare IT market.

The Company'sCompany’s Equipment business also has been significantly expanded from the original EECP®-only operations. In September 2011, the Company acquired FGE, a British Virgin Islands company, which owns or controls two Chinese operating companies - Life Enhancement Technology Ltd. ("LET"(“LET”) based in Foshan, China, and Biox Instruments Co. Ltd. ("Biox"(“Biox”) based in Wuxi, China, respectively - to expand its technical and manufacturing capabilities and to enhance its distribution network, technology, and product portfolio. Biox is a variable interest entity (“VIE”) controlled by FGE through certain contracts and an option to acquire all the shares of Biox. In August 2014, the Company acquired all of the outstanding shares of Genwell Instruments Co. Ltd. ("Genwell"(“Genwell”), located in Wuxi, China, through its wholly owned subsidiary Wuxi Gentone Instruments Co. Ltd. ("Gentone").China. Genwell was formed in China in 2010 with the assistance of a government grant to develop the MobiCare™ wireless multi-parameter patient monitoring system and holds intellectual property rights for this system.As a result, the Company has now expanded its equipment products portfolio to include Biox™ series ambulatory patient monitoring systems, ARCS™ series software for ECG and blood pressure analysis, and the MobiCare™ patient monitoring device. In 2017, as an effort to further reduce engineering and production cost of its EECP® products, the Company moved the operations of LET from Foshan, China to Biox in Wuxi, China, and closed LET in 2018.

In April 2014, the Company entered into ana cooperation agreement with Chongqing PSK-Health Sci-Tech Development Co., Ltd. ("PSK"(“PSK”) of Chongqing, China, the leading manufacturer of external counter pulsation, or ECP, therapy systems in China, to form a joint venture company, VSK Medical Limited ("VSK"(“VSK”), a Cayman Islands company, for the global marketing, sale and advancement of ECP therapy technology. The Company owns 49.9% of VSK, which commenced operations in January 2015. In March 2018, the Company terminated the cooperation agreement with PSK and sold its shares in VSK to PSK. The Company continues to cooperate with VSK by granting it distribution rights for EECP®systems in certain geographic territories of the world.
 
Management

The Company currently bases its headquarters in Plainview, Long Island, NY and maintains an office in Manhattan, NY. Reporting to the Board of Directors, corporate officers of the Company include the President and Chief Executive Officer ("CEO"(“CEO”), Chief Financial Officer ("CFO"(“CFO”), Chief Operating Officer ("COO"(“COO”), and Vice President of Finance and Treasurer.

The management of ourthe Company’s IT segment including its sales and marketing efforts is led by the COO of the Company, who is also the President of VasoTechnology and NetWolves, which is based in Tampa, FL. Our VasoHealthcare IT VAR business is organized as a part of VasoTechnology and is also led by the General Manager of the business unit andCOO, supported by several software solution sales and implementation specialists.specialists, based in Nashville, TN. The business unit works with our VasoHealthcare diagnostic imaging equipment sales team to generate leads and potential clients for the software solutions products and works with NetWolves sales and technical teams for comprehensive IT product and service offerings.


In the professional sales services segment, we sell GEHC diagnostic imaging products to our assigned market through a nationwide team of approximately 65 sales employees led by severalits executive team and nine regional managers who report to the Vice President of National Sales as well as to the President of VasoHealthcare. The operation is also supported by in-house administrative, analytic and other support staff, as well as applicable GEHC employees.

The equipment segment is directly supervised byunder the direct supervision of the CEO of the Company. Sales and marketing efforts in the domestic market are led by a vice presidentVice President of national sales and service at Vasomedical Solutions, and the managers of our China subsidiaries are in charge of the development and production of all our proprietary products and marketing and sales in the international markets. We historically have marketed our EECP® systems internationally through distributors, including VSK Medical, in various countries throughout Europe, the Middle East, Africa, Asia and Latin America. This distribution structure has been realigned with our partner's via the joint venture VSK Medical.  We sell our Biox™ series ambulatory monitoring systems and relatedother products in China by a group of sales managers as well as through distributors covering various regions of China and other international geographies.
 
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Competition

In the U.S. diagnostic imaging market where we sell GE products, our main competitors areinclude Siemens, Philips, Toshiba,Canon, and Hologic. Key competitive factors in the market include price, quality, finance availability, delivery speed, service and support, innovation, distribution network, breadth of product and service offerings and brand name recognition. GEHC is a leading competitor in this market.

In the IT segment, our primary competitors in the healthcare IT VAR business are Agfa Healthcare, McKesson, Philips, Carestream Health and other independent software providers. Key competitive factors are brand recognition, quality, radiology workflow solutions, scalability and service and support capability. We are able to capitalize on the brand recognition of GEHC, a leader in healthcare software solutions. In the managed network services business our primary competition includes, but is not limited to, organizations whomwho have a presence in most of the major markets for the following products and services;services: network services, managed services, security services and healthcare applications. Several of those competitors, are;many of which are our vendors, are: Verizon, AT&T, CenturyLink, IBM and Cisco Resellers, Siemens, Epic, small regional IT integrators and large company internal IT departments.

Though we believe that we are the industry leader of external counterpulsation technology, our competitors in ourthe EECP®business are Renew Group Pte. Ltd, and Scottcare Cardiovascular Solutions in the United States, and internationally PSK-Health Sci-Tech Development Co., Ltd., with which we have formed a joint venturepartnered to co-market external counterpulsation market our EECP®products in the international market.

In the ambulatory monitoring system business, there are numerous competitors of various size and strength. The Biox™ series is among the few from China with CE Mark certification for Europe, CFDA approval for China, US FDA clearances as well as Health Canada listing,Brazilian Agencia Nacional de Vigilancia Sanitaria (ANVISA) approval, which are among the most important qualifications to market and sell the products around the world.

Regulations on Medical Devices
 
As a medical device manufacturer and marketer, we are subject to extensive regulation by numerous government regulatory agencies, including the U. S.US FDA and similar foreign agencies. We are required to comply with applicable laws, regulations and standards governing the development, preclinical and clinical testing, manufacturing, quality testing, labeling, promotion, import, export, and distribution of our medical devices.

Compliance with Regulations in the United States

The Company has received appropriate US FDA premarket notification (510(k)) clearance for all its products marketed and sold in the United States, including all EECP® therapy systems and Biox™ ambulatory monitoring systems and analysis and report software. We continue to seek US FDA clearance or approval for new products prior to their introduction to the US market.

We are subject to other US FDA regulations that apply prior to and after a product is commercially released. We also are subject to periodic and random inspections by the US FDA for compliance with the current Good Manufacturing Practice, or cGMP, requirements and Quality System Regulation. The US FDA also enforces post-marketing controls that include the requirement to submit medical device reports to the agency when a manufacturer becomes aware of information suggesting that any adverse events are related to its marketed products. The FDA relies on medical device reports to identify product problems and utilizes these reports to determine, among other things, whether it should exercise its enforcement powers. The FDA also may require post-market surveillance studies for specified devices.

We are subject to the Federal Food, Drug, and Cosmetic Act's,Act’s, or FDCA's,FDCA’s, general controls, including establishment registration, device listing, and labeling requirements.

The sales and advertising of our products is subject to regulation by the Federal Trade Commission, or FTC. The FTC Act prohibits unfair or deceptive acts or practices in or affecting commerce. Violations of the FTC Act, such as failure to have substantiation for product claims, would subject us to a variety of enforcement actions, including compulsory process, cease and desist orders and injunctions, which can require, among other things, limits on advertising, corrective advertising, consumer redress and restitution, as well as substantial fines or other penalties.
 
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As a medical device sales channel partner and product reseller to healthcare facilities, we are subject to various federal, state and local laws targeting fraud and abuse in the healthcare industry, including anti-kickback and false claims laws.

Foreign Regulation

In most countries to which we seek to export our medical devices, a local regulatory clearance must be obtained. The regulatory review process varies from country to country and can be complex, costly, uncertain, and time-consuming. Vasomedical'sOur medical devices, including EECP® systems and Biox™ series products, are all manufactured in accordance with ISO 13485 (Medical device – Quality management systems – Requirement for regulatory purpose), an internationally agreed standard that sets out the international standardrequirements for a quality management system specific to the medical devices.devices industry. All our current medical devices have obtained necessary clearances or approvals prior to their release in the appropriate jurisdictions, including CE marking certification for European Union countries, China FDA (CFDA) approval for mainland China, Korean FDA (KFDA) approval for South Korea, AgenciaAgência Nacional de Vigilancia SanitariaVigilância Sanitária (ANVISA) approval for Brazil, Taiwan FDA (TFDA) for Taiwan, and Health Canada licensethe Saudi SFDA (MDMA) for Canada.the Kingdom of Saudi Arabia.

We are also subject to audits by organizations authorized by foreign countries to determine compliance with laws, regulations and standards that apply to the commercialization of our products in those markets. Examples include auditing by a European Union Notified Body organization (authorized by a member state'sstate’s Competent Authority) to determine conformity with the Medical Device Directives (MDD) and by an organization authorized by the CanadianBrazilian government to determine conformity with the Canadian Medical Devices Regulations (CMDR).ANVISA requirement.
 
Patient Privacy

Federal and state laws protect the confidentiality of certain patient health information, including patient records, and restrict the use and disclosure of that protected information. The U.S. Department of Health and Human Services (HHS) published patient privacy rules under the Health Insurance Portability and Accountability Act of 1996 (HIPAA privacy rule) and the regulation was finalized in October 2002. Currently, the HIPAA privacy rule affects us only indirectly in that patient data that we access, collect and analyze may include protected health information. Additionally, we have signed some Business Associate Agreements with Covered Entities that contractually bind us to protect private health information, consistent with the HIPAA privacy rule'srule’s requirements. We do not expect the costs and impact of the HIPAA privacy rule to be material to our business.


Regulations in the IT Business

As a reseller of telecommunication services and network solutions provider, our products and services are subject to federal, state and local regulations. These regulations govern, in part, our rates and the way we conduct our business, including the requirement to offer telecommunications services pursuant to nondiscriminatory rates, terms, and conditions, the obligation to safeguard the confidentiality of customer proprietary network information, as well as the obligation to maintain specialized records and file reports with the Federal Communications Commission  and state regulatory authorities. While we believe we are in compliance with laws and regulations in jurisdictions where we do business, we must continue to monitor and assess our compliance.
 
The Federal Communications Commission ("FCC"(“FCC”) exercises jurisdiction over services and regulates interstate and international communications in all 50 states, the District of Columbia and U.S territories. As an independent U.S. government agency overseen by Congress, the commission is the United States' primary authority for communications laws, regulation and technological innovation.
 
We maintain Certificates of Public Convenience and Necessity in all 50 states, which enable us to provide services within each state. We are therefore subject to regulation from the Public Utility Commissions in each state.
 
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Strategic Plan and Objectives
Our short- and long-term plans for the growth of the Company and to increase stockholder value are:
·Continue to expand our product and service offerings as well as market penetration of our healthcare IT business.
·Expand our managed network services business into the healthcare market through our healthcare IT business and through the introduction of additional functionality to our existing capabilities.
·
Build our brand name in the healthcare provision middle market with the goal of establishing our technology platform and managed services methodology as the standard for secure, efficient use of equipment and applications ecosystems.
·Maintain and improve business performance in our professional sales service segment by increasing market penetration of the GE Healthcare product modalities we represent, and possibly building new teams to represent other vendors.
·Maintain and grow our equipment business by continuing to align the cost structure with revenue growth and increasing our efforts to grow international sales of all our device offerings.
·Continue to seek partnership and acquisition opportunities.

The above-listed strategic objectives are forward-looking statements.  We review, modify and change our strategic objectives from time to time based upon changing business conditions.  There can be no assurance that we will be able to achieve our strategic objectives and, even if these results are achieved, risks and uncertainties could cause actual results to differ materially from anticipated results.  Financial resource availability may reduce our ability to achieve these strategic objectives.  Please see the section of this Form 10-K entitled "Risk Factors" for a description of certain risks, among others that may cause our actual results to vary from the forward-looking statements.
Intellectual Properties

In addition to other methods of protecting our proprietary technology, know-how and show-how as well as trade secrets, we pursue a policy of seeking patent protection, both in the US and abroad, for our proprietary technologies including those in EECP®, Biox™ and MobiCare™ products.

We own elevenfour US patents including eight utility patents and three design patents that expire at various times through 2023. We will from time to time file other patent applications regarding specific enhancements to the current EECP® models, future generation products, and methods of treatment in the future. Moreover, trademarks have been registered for the names "EECP"“Vaso”, "AngioNew"“EECP”, "Natural Bypass"“AngioNew”, "Vasomedical"“Natural Bypass”, "Vasomedical EECP"“Vasomedical”, "VasoGlobal"“Vasomedical EECP”, "VasoSolutions"“VasoGlobal”, "VasoHealthcare"“VasoSolutions”, “VasoHealthcare”.

Through our China-based subsidiaries, we own fourteensixteen invention and utility and design patents in China that expire at various timetimes through 2024,2028, as well as twelvefourteen software copyright certificates in China related to ECG and blood pressureproprietary technologies in physiological data acquisition, analysis and reporting.  We also have eight registered trademarks in China for our products.

Through our Netwolves subsidiary we hold a patent for Secure and Remote Monitoring Management ("SRM"(“SRM”) and we hold trademarks "NetWolves"“NetWolves”, "SRM"“SRM”, and "Wolfpac"“Wolfpac”.

There can be no assurance that our patents will not be violated or that any issued patents will provide protection that has commercial significance. As with any patented technology, litigation could be necessary to protect our patent position. Such litigation can be costly and time-consuming, and there can be no assurance that we will be successful.

Employees

As of December 31, 2015,2018, we employed 281317 full-time persons, of which 1715 are employed through our facility in Plainview, New York, 8288 through VasoHealthcare, 1015 through VasoHealthcare IT, 103137 through our Netwolves operations, and 6962 in our China operations. None of our employees are represented by a labor union. We believe that our employee relations are good.
 
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The Company also uses several part-time employees and consultants from time to time for various purposes.


Manufacturing

The Company conducts its manufacturing activities primarily through LET andits Biox facilities in China, while maintaining certain manufacturing capability in the Plainview, NY location to satisfy certain domestic and international needs for the EECP® systems. LET manufacturesThe Biox facilities manufacture EECP® systems, and Biox manufactures ambulatory monitoring devices and other medical devices.

All manufacturing operations are conducted under the cGMP requirements as set forth in the FDA Quality System Regulation as well as ISO 13485 (Medical device – Quality management systems – Requirement for regulatory purpose), an internationally agreed standard that sets out the internationalrequirements for a quality standard formanagement system specific to the medical device manufacturers.devices industry. We are also certified to conform to full quality assurance system requirements of the EU Medical Device Directive (MDD 93/42/EEC Annex II) and can apply CE marking to all of our current product models. Lastly, we are certified to comply with the requirements of the Canadian Medical Device Regulations (CMDR)Brazilian Agência Nacional de Vigilância Sanitária (ANVISA). All these regulations and standards subject us to inspections to verify compliance and require us to maintain documentation and controls for the manufacturing and quality activities.

We believe our manufacturing capacity and warehouse facility are adequate to meet the current and immediately foreseeable future demand for the production of our medical devices. We believe our suppliers of the other medical devices we distribute or represent are capable of meeting our demand for the foreseeable future.

IITEMTEM 1A - RISK FACTORS
Investing in our common stock involves risk.
You should carefully consider the following information about these risks and uncertainties described below, together with the other information containedincluded elsewhere in this Annual Report on Form 10-K. If any10K. The risks and uncertainties described below are those we have identified as material, but are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that affect many other companies, such as market conditions, geopolitical events, changes in laws or accounting rules, fluctuation in interest rates, terrorism, wars or conflicts, major health concerns, natural disasters or other disruptions of the followingexpected economic or business conditions. Additional risks actually occur,and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, could be harmed. This could cause the priceincluding our results of our stock to decline,operations, liquidity and you may lose part or all of your investment.financial position.

Financial Risks

Achieving profitable operations is dependent on several factors.

Our abilityAbility to achieve profitability and sustain profitability is dependent on many factors,meet obligations as they come due
We have reported a net loss of $3,734,000 for the year ended December 31, 2018 as compared to a net loss of $4,539,000 for the year ended December 31, 2017. These losses were primarily being the sufficientattributable to operating losses in our IT segment and timely generation and recognitionlower volume of revenueproducts delivered by our partner in our professional sales servicesservice segment attainingsince we cannot recognize revenue until the underlying products of orders we booked are actually delivered to customers. We maintain lines of credit from a lending institution which will require further extensions after their current June 28, 2019 maturity date. These events raise substantial doubt about our ability to continue as a going concern. Our ability to continue operating as a going concern is dependent upon achieving profitability, in our  IT segment,extending the successmaturity date of our marketing, salesexisting lines of credit, or through additional debt or equity financing. Achieving profitability is largely dependent on our ability to reduce operating costs and cost reduction effortsto maintain or increase our current revenue. While we believe we will continue to maintain or increase our gross revenue and are in the equipment segment, as well asprocess of reducing operating costs, and while historically we have received extensions of the successmaturity dates of our other strategic initiatives, includinglines of credit, failure to achieve these objectives could cast doubt on our China acquisitions.ability to continue as a going concern.


Risks Related to Our Business

We currently derive a significant amount of our revenue and segment operating income from our agreement with GEHC.

On May 19, 2010, we signed a sales representation agreement with GEHC. Under the GEHC Agreement, we have been appointed the exclusive representative for these products to specific market segments in the 48 contiguous states of the United States and the District of Columbia. The GEHC Agreement had an initial term of three years commencing July 1, 2010 and in 2012 was extended for two additional years to June 30, 2015. In December 2014, the agreement was extended again through December 31, 2018, subject to earlier termination under certain circumstances2018. In December 2017, the agreement was further extended through December 31, 2022, including the right by GEHC to terminate without cause with certain conditions on or after July 1, 2017.conditions.

A significant amount of our revenue and netsegment operating income arise from activities under this contract.agreement. Moreover, our growth depends partially on the territories, customer segments and product modalities assigned to us by GEHC, and thus relies on our ability to demonstrate our added value as a channel partner, and maintaining a positive relationship with GEHC. There is no assurance that the agreement will not be renewed before it expires or terminated prior to its expiration pursuant to its termination provisions.provisions, or will not extended beyond the current expiry. Should GEHC terminate or not renew the agreement, it would have a material adverse effect on our financial condition and results of operations.
 
8


We face competition from other companies and technologies.

In all segments of our business we compete with other companies that market technologies, products and services in the global marketplace. We do not know whether these companies, or other potential competitors who may succeed in developing technologies, products or services that are more efficient or effective than those offered by us, and that would render our technology and existing products obsolete or non-competitive. Potential new competitors may also have substantially greater financial, manufacturing and marketing resources than those possessed by us. In addition, other technologies or products may be developed that have an entirely different approach or means of accomplishing the intended purpose of our products. Accordingly, the life cycles of our products are difficult to estimate. To compete successfully, we must keep pace with technological advancements, respond to evolving consumer requirements and achieve market acceptance.
 
We depend on management and other key personnel.

We are dependent on a limited number of key management and technical personnel. The loss of one or more of our key employees may harm our business if we are unable to identify other individuals to provide us with similar services. We do not maintain "key person"“key person” insurance on any of our employees. In addition, our success depends upon our ability to attract and retain additional highly qualified management, sales, IT, manufacturing and research and development personnel in our various operations. The competition for IT personnel is intense.

We may not continue to receive necessary FDA clearances or approvals, which could hinder our ability to market and sell certain products.

If we modify our medical devices and the modifications significantly affect safety or effectiveness, or if we make a change to the intended use, we will be required to submit a new premarket notification (510(k)) or premarket approval (PMA) application to the FDA. We would not be able to market the modified device in the U.S. until the FDA issues a clearance for the 510(k).

If we offer new products that require 510(k) clearance or a PMA, we will not be able to commercially distribute those products until we receive such clearance or approval. Regulatory agency approval or clearance for a product may not be received or may entail limitations on the device'sdevice’s indications for use that could limit the potential market for the product. Delays in receipt of, or failure to obtain or maintain, regulatory clearances and approvals, could delay or prevent our ability to market or distribute our products. Such delays could have a material adverse effect on our equipment business.

If we are unable to comply with applicable governmental regulations, we may not be able to continue certain of our operations.

As a reseller of telecommunication services and network solutions provider, our products and services are subject to federal, state and local regulations. These regulations govern, in part, our rates and the way we conduct our business, including the requirement to offer telecommunications services pursuant to nondiscriminatory rates, terms, and conditions, the obligation to safeguard the confidentiality of customer proprietary network information, as well as the obligation to maintain specialized records and file reports with the Federal Communications Commission and state regulatory authorities. While we believe we are in compliance with laws and regulations in jurisdictions where we do business, we must continue to monitor and assess our compliance.
We also must comply with current Good Manufacturing Practice requirements as set forth in the Quality System Regulation to receive US FDA approval to market new products and to continue to market current products. Most states also have similar regulatory and enforcement authority for medical devices.

Our operations in China are also subject to the laws of the People'sPeople’s Republic of China with which we must be in compliance in order to conduct these operations.

We are subject to various federal, state and local laws targeting fraud and abuse in the healthcare industry, including anti-kickback and false claims laws.

We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we predict what effect additional governmental regulations or administrative orders, either domestically or internationally, when and if promulgated, would have on our business in the future. We may be slow to adapt, or we may never adapt to changes in existing requirements or adoption of new requirements or policies. We may incur significant costs to comply with laws and regulations in the future or compliance with laws or regulations may create an unsustainable burden on our business.
 
9


We have foreign operations and are subject to the associated risks of doing business in foreign countries.

The Company continues to have operations in China. Operating internationally involves additional risks relating to such things as currency exchange rates, different legal and regulatory environments, political, economic risks relating to the stability or predictability of foreign governments, differences in the manner in which different cultures do business, difficulties in staffing and managing foreign operations, differences in financial reporting, operating difficulties, and other factors. The occurrence of any of these risks, if severe enough, could have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.

Commercial law is still developing in China and there are limited legal precedents to follow in commercial transactions. There are many tax jurisdictions each of which may have changing tax laws. Applicable taxes include value added taxes ("VAT"(“VAT”), corporateenterprise income tax (“EIT”), and social (payroll) taxes. Regulations are often unclear. Tax declarations (reports) are subject to review and taxing authorities may impose fines, penalties and interest. These facts create risks for our operations in China.

We depend on several suppliers for the supply of certain products.

As a GEHC channel partner, we could be negatively impacted by interruptions or delays to equipment installations, production and quality issues, and any customer concerns related to GEHC. With respect to our proprietary medical products we now manufacture our ownproducts primarily through our China based facilities, and we depend on certain independent suppliers for parts, components and certain finished goods.


We may not have adequate intellectual property protection.

Our patents and proprietary technology may not be able to prevent competition by others. The validity and breadth of claims in technology patents involve complex legal and factual questions. Future patent applications may not be issued, the scope of any patent protection may not exclude competitors, and our patents may not provide competitive advantages to us. Our patents may be found to be invalid and other companies may claim rights in or ownership of the patents and other proprietary rights held or licensed by us. Also, our existing patents may not cover products that we develop in the future. Moreover, when our patents expire, the inventions will enter the public domain. There can be no assurance that our patents will not be violated or that any issued patents will provide protection that has commercial significance. Litigation may be necessary to protect our patent position. Such litigation may be costly and time-consuming, and there can be no assurance that we will be successful in such litigation.

The loss or violation of certain of our patents and trademarks could have a material adverse effect upon our business.

Since patent applications in the United States are maintained in secrecy until such patent applications are issued, our current product development may infringe patents that may be issued to others. If our products were found to infringe patents held by competitors, we may have to modify our products to avoid infringement, and it is possible that our modified products would not be commercially successful.

Risks Related to Our Industries

Our growth could suffer if the markets into which we sell products decline, do not grow as anticipated or experience cyclicality.

Our growth depends in part on the growth of the IT and healthcare markets which we serve, inserve. In our professional sales services segment, our quarterly sales and profits depend signifcantlysignificantly on the volume and timing of delivery of the underlying equipment of the orders installedwe booked during the quarter, and the installationdelivery of such ordersproducts is difficult to forecast.forecast since it is largely dependent on GEHC. Product demand is dependent upon the customer'scustomer’s capital spending budget as well as government funding policies, and matters of public policy as well as product and economic cycles that can affect the spending decisions of these entities. These factors could adversely affect our growth, financial position, and results of operations.
 
10


Technological change is difficult to predict and to manage.

We face the challenges that are typically faced by companies in the IT and medical device fields. Our products and services may require substantial development efforts and compliance with governmental clearance or approval requirements. We may encounter unforeseen technological or scientific problems that force abandonment or substantial change in the development of a specific product or process.

We are subject to product liability claims and product recalls that may not be covered by insurance.

The nature of our manufacturing operations exposes us to risks of product liability claims and product recalls. Medical devices as complex as ours frequently experience errors or failures, especially when first introduced or when new versions are released.

We currently maintain product liability insurance at $5,000,000$8,000,000 per occurrence and $6,000,000$8,000,000 in the aggregate. Our product liability insurance may not be adequate. In the future, insurance coverage may not be available on commercially reasonable terms, or at all. In addition, product liability claims or product recalls could damage our reputation even if we have adequate insurance coverage.

We do not know the effects of healthcare reform proposals.

The healthcare industry is undergoing fundamental changes resulting from political, economic and regulatory influences. In the United States, the Affordable Care Act (“ACA”) is designed to provide increased access to healthcare for the uninsured, control the escalation of healthcare expenditures within the economy and use healthcare reimbursement policies to balance the federal budget.

The United States Congress already has changed the ACA. We expect that there could be more changes or even a repeal of the United States Congress and state legislatures will continue to review and assess the Affordable Care Act as well as various healthcare reform proposals, and public debate of these issues will likely continue. There have been, andACA. In any event, we expectanticipate that there will continue to be a number of federal and state proposals to constrain expenditures for medical products and services, which may affect payments for products such as ours. We cannot predict which, if any of such reform proposals will be adopted and when they might be effective, or the effect these proposals may have on our business. Other countries also are considering health reform. Significant changes in healthcare systems could have a substantial impact on the manner in which we conduct our business and could require us to revise our strategies.

Risks Related to our Securities

The application of the "penny stock" rules could adversely affect the market price of our common stock and increase your transaction costs to sell those shares.

As long as the trading price of our common shares is below $5 per share, the open-market trading of our common shares will be subject to the "penny stock" rules. The "penny stock" rules impose additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser's written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule prescribed by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. These additional burdens imposed on broker-dealers restrict the ability and decrease the willingness of broker-dealers to sell our common shares, which may resultwe believe results in decreased liquidity for our common shares andas well as increased transaction costs for sales and purchases of our common shares as compared to other securities.
 
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Our common stock is subject to price volatility.

The market price of our common stock historically has been and may continue to be highly volatile. Our stock price could be subject to wide fluctuations in response to various factors beyond our control, including, but not limited to:

·medical reimbursement;
·quarterly variations in operating results;
medical reimbursement;
·announcements of technological innovations, new products or pricing by our competitors;
·the timing of patent and regulatory approvals;
actual or anticipated fluctuations in our operating results;
·the timing and extent of technological advancements;
·the sales of our common stock by affiliates or other shareholders with large holdings; and
announcements of technological innovations, new products or pricing by our competitors;
·general market conditions.

the timing of patent and regulatory approvals;
the timing and extent of technological advancements;
the sales of our common stock by affiliates or other shareholders with large holdings;
overall market fluctuations and domestic and worldwide economic conditions; and
other factors described in the “Risk Factors” and elsewhere in this Report.
Our future operating results may fall below the expectations of securities industry analysts or investors. Any such shortfall could result in a significant decline in the market price of our common stock. In addition, the stock market has experienced significant price and volume fluctuations that have affected the market price of the stock of many medical device companies and that often have been unrelated to the operating performance of such companies. These broad market fluctuations may directly influence the market price of our common stock.

We do not intend to pay dividends in the foreseeable future.

We do not intend to pay any cash dividends on our common stock in the foreseeable future.


Additional Information

We are subject to the reporting requirements under the Securities Exchange Act of 1934 and are required to file reports and information with the Securities and Exchange Commission (SEC), including reports on the following forms: annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports files or furnished pursuant to Section 13(a) or 15(d) of the Securities Act of 1934.

IITEMTEM 2 – PROPERTIES

In September 2015, we relocated ourThe Company leases its headquarters toat an 8,700 square foot facility at 137 Commercial Street, Plainview, New York 11803, under a lease with a term that expires on September 15, 2022 and with a base annual rental of approximately $65,000.$69,000. The Company'sCompany’s NetWolves unit leases an 11,700a 16,200 square foot facility in Tampa, Florida, under a lease expiring in May 20162020 with an annual rental of approximately $119,000.$174,000. VHC-IT leases a 3,500 square foot facility in Nashville, Tennessee pursuant to a one-year lease expiring April 2019 with an annual rental of $49,000. The Company is evaluating possible renewal options and believes sufficient space is available at similar cost in the area.Nashville. We believe that our current facilities are adequate for foreseeable current and future needs.

We also lease approximately 1,500 square feet of office space in New York City under a lease that expires on May 31, 2017.2020. The annual base rent and utility charge for this lease is approximately $41,000.$58,000.

We lease our engineering and production facilities in China. Specifically, we lease approximately 12,75020,400 square feet under a leaseleases expiring in September 2019, August 2020, September 2020, and December 2020 at an aggregate annual cost of approximately $54,000$75,000 in Wuxi, China and approximately 11,000 square feet under a lease that expires in April 2016 at an annual cost of approximately $33,000 in Foshan, China. BothSuch leases are renewable upon expiration.
 

 
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PART II

I
ITEM 5 –MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
TEM 5 – 
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock currently trades on the OTC Market under the symbol VASO. The number of record holders of common stock as of March 25, 2016,31, 2019, was approximately 930,900, which does not include approximately 8,500 beneficial owners of shares held in the name of brokers or other nominees. The table below sets forth the range of high and low trade prices of the common stock for the fiscal periods specified.
 
    Year ended December 31, 2015       Year ended December 31, 2014 
 
Year ended December 31, 2018
 
 
Year ended December 31, 2017 
 
 High  Low  High  Low 
 
High
 
 
Low
 
 
High
 
 
Low
 
First quarter $0.20  $0.16  $0.49  $0.31 
 $0.07 
 $0.05 
 $0.14 
 $0.09 
Second quarter $0.20  $0.16  $0.36  $0.25 
 $0.06 
 $0.04 
 $0.11 
 $0.09 
Third quarter $0.22  $0.16  $0.32  $0.16 
 $0.05 
 $0.03 
 $0.09 
 $0.07 
Fourth quarter $0.20  $0.16  $0.25  $0.16 
 $0.05 
 $0.02 
 $0.08 
 $0.05 
 

The last bid price of the Company's common stock on March 25, 2016,29, 2019, was $0.18$0.04 per share.

Dividend Policy

We have never paid any cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable future.

I
ITEM 7 –MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
TEM 7 – 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations contains descriptions of our expectations regarding future trends affecting our business. These forward looking statements and other forward-looking statements made elsewhere in this document are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Please read the section titled "Risk Factors"“Risk Factors” in "Item“Item One – Business"Business” to review certain conditions, among others, which we believe could cause results to differ materially from those contemplated by the forward-looking statements.
 
Except for historical information contained in this report, the matters discussed are forward-looking statements that involve risks and uncertainties. When used in this report, words such as "anticipates"“anticipates”, "believes"“believes”, "could"“could”, "estimates"“estimates”, "expects"“expects”, "may"“may”, "plans"“plans”, "potential"“potential” and "intends"“intends” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company'sCompany’s management, as well as assumptions made by and information currently available to the Company'sCompany’s management. Among the factors that could cause actual results to differ materially are the following: the effect of business and economic conditions; the effect of the dramatic changes taking place in IT and healthcare; continuation of the GEHC agreements; the impact of competitive technology and products and their pricing; medical insurance reimbursement policies; unexpected manufacturing or supplier problems; unforeseen difficulties and delays in the conduct of clinical trials and other product development programs; the actions of regulatory authorities and third-party payers in the United States and overseas; and the risk factors reported from time to time in the Company'sCompany’s SEC reports. The Company undertakes no obligation to update forward-looking statements as a result of future events or developments.
 
The following discussion should be read in conjunction with the financial statements and notes thereto included in this Annual Report on Form 10-K.


Overview

Vaso Corporation (formerly Vasomedical, Inc.)("Vasomedical" (“Vaso”) was incorporated in Delaware in July 1987.We principally operate in three distinct business segments in the healthcare equipment and information technology industries. We manage and evaluate our operations, and report our financial results, through these three business segments.
 
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IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;

·IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;

Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for General Electric Healthcare (GEHC) into the health provider middle market; and
·Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for large OEMs into the health provider middle market; and

·Equipment segment, operating through wholly-owned subsidiaries Vasomedical Global Corp. and Vasomedical Solutions, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices.
Equipment segment, primarily focuses on the design, manufacture, sale and service of proprietary medical devices, operating through a wholly-owned subsidiary VasoMedical, Inc., which in turn operates through Vasomedical Solutions, Inc. for domestic business and Vasomedical Global Corp. for international business, respectively.

.
VasoTechnology

VasoTechnology, Inc. was formed in May 2015, at the time the Company acquired all of the assets of NetWolves, LLC and its affiliates, including the membership interests in NetWolves Network Services LLC (collectively, "NetWolves"“NetWolves”), to address a major issue facing the healthcare IT industry. It currently consists of a managed network and security service division (NetWolves) and a healthcare IT application VAR (value added reseller) division.division (VasoHealthcare IT). Its current offering includes:

·Managed diagnostic imaging applications (national channel partner of GEHC IT).
·Managed network infrastructure (routers, switches and other core equipment).
Managed diagnostic imaging applications (national channel partner of GEHC IT).
·Managed network transport (FCC licensed carrier reselling 175+ facility partners).
·Managed security services (IBM's first security white label partner).
Managed network infrastructure (routers, switches and other core equipment).

Managed network transport (FCC licensed carrier reselling 175+ facility partners).
Managed security services (partner with major cybersecurity technologies firms including IBM and Palo Alto).
VasoTechnology uses a combination of proprietary technology, methodology and best-in-class third-party applications to deliver its value proposition.

VasoHealthcare

VasoHealthcare commenced operations in 2010, in conjunction with the Company'sCompany’s execution of its exclusive sales representation agreement with General Electric Healthcare ("GEHC"),GEHC, which is the healthcare business division of the General Electric Company ("GE"(“GE”), to exploitfurther the sale of certain healthcaremedical capital equipment in the health provider middle market.domestic market segments. Sales of GEHC equipment by the Company have grown significantly since then.

VasoHealthcare'sVasoHealthcare’s current offering consists of:

·GEHC diagnostic imaging capital equipment.
·GEHC service agreements.
GEHC diagnostic imaging capital equipment.
·GEHC and third party financial services.

GEHC service agreements for the above equipment.
GEHC and third party financial services for the above equipment.
VasoHealthcare has built a team of approximately 90over 80 highly experienced sales professionals who utilize highly focused sales management and analytic tools to manage the complete sales process and to increase market penetration.

Vasomedical Global and Vasomedical Solutions

VasoMedical
The proprietary medical equipment business now all under VasoMedical traces back to 1995 when the Company began the external counterpulsation technology in the United States. Vasomedical Global was formed in 2011 to combine and coordinate the various international operations including design, development, manufacturing, and sales operations of medical devices, acquired by the Company.while domestic activities are under Vasomedical Solutions. These devices primarily consist of cardiovascular diagnostic and therapeutic systems. Its current offering consists of:

·Biox™ series Holter monitors and ambulatory blood pressure recorders .
·ARCS™ series analysis, reporting and communication software for physiological signals such as ECG and blood pressure.
Biox™ series Holter monitors and ambulatory blood pressure recorders.
·MobiCare™ multi-parameter wireless vital-sign monitoring system.
·
EECP® therapy systems, used for non-invasive, outpatient treatmentARCS™ series analysis, reporting and communication software for physiological signals such as ECG and blood pressure.
MobiCare™ multi-parameter wireless vital-sign monitoring system.
EECP® therapy systems, used for non-invasive, outpatient treatment of ischemic heart disease.
 

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This segment uses its extensive cardiovascular device knowledge coupled with its significant engineering resources to cost effectively create and market its proprietary technology. It works withsells and services its products to domestic customers directly and sells and/or services its products in the international market mainly through independent distributors.
Going concern assessment
We have incurred net losses from operations for the years ended December 31, 2018 and 2017, and we maintain lines of credit from a global distribution networklending institution and these lines of channel partners, as wellcredit will require further extensions after their current June 28, 2019 maturity date. These events raise substantial doubt about our ability to continue as a global joint venture arrangement,going concern. Our ability to sell its products.continue operating as a going concern is dependent upon achieving profitability, extending the maturity date of our existing lines of credit, or through additional debt or equity financing. Achieving profitability is largely dependent on our ability to reduce operating costs and to maintain or increase our current revenue. While we believe we will continue to maintain or increase our gross revenue and are in the process of reducing operating costs, and while historically we have received extensions of the maturity dates of our lines of credit, failure to achieve these objectives could cast doubt on our ability to continue as a going concern.
 
Strategic Plan and Objectives
Our short- and long-term plans for the growth of the Company and to increase stockholder value are:
·Continue to expand our product and service offerings as well as market penetration of our healthcare IT business.
·Expand our managed network services business into the healthcare market through our healthcare IT business and through the introduction of additional functionality to our existing capabilities.
·
Build our brand name in the healthcare provision middle market with the goal of establishing our technology platform and managed services methodology as the standard for secure, efficient use of equipment and applications ecosystems.Continue engaging in effectively reducing operating costs.
·Maintain and improve business performance in our professional sales service segment by increasing market penetration of the GE Healthcare product modalities we represent, and possibly building new teams to represent other vendors.
·Maintain and grow our equipment business by continuing to align the cost structure with revenue growth and increasing our efforts to grow international sales of all our device offerings.
Continue to expand our product and service offerings as well as market penetration in our healthcare IT business and managed network services business.
·Continue to seek partnership and acquisition opportunities.
Build our brand name in the healthcare provision middle market with the goal of establishing our technology platform and managed services methodology as the standard for secure, efficient use of equipment and applications ecosystems.
Maintain and improve business performance in our professional sales service segment by increasing market penetration of the GE Healthcare product modalities we represent, and possibly building new teams to represent other vendors.
Maintain and grow our equipment business by aligning the cost structure with revenue growth.
Continue to seek accretive partnership and acquisition opportunities.
 
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Results of Operations – For the Years Ended December 31, 20152018 and 20142017

Total revenues increased by $22,128,000,$1,192,000, or 63%2%, to $57,082,000$73,980,000 in the year ended December 31, 2015,2018, from $34,954,000$72,788,000 in the year ended December 31, 2014.2017. We reported a net incomeloss of $3,823,000$3,734,000 for the year ended December 31, 20152018 as compared to a net incomeloss of $1,128,000$4,539,000 for the year ended December 31, 2014, an increase2017, a decrease in loss of $2,695,000 or 239%.$805,000. The decrease in net loss was primarily due to higher gross profit, the gain on sale of our investment in the VSK joint venture, and the change from income tax expense to income tax benefit. Our net incomeloss was $0.02 and $0.03 per basic and diluted common share for the yearyears ended December 31, 2015 as compared to net income of $0.01 per basic2018 and diluted common share2017, respectively.

Revenues
Revenue in the IT segment was $44,228,000 for the year ended December 31, 2014.

Revenues2018 as compared to $42,581,000 for the prior year, an increase of $1,647,000, or 4%, of which $1,372,000 was attributable to growth in NetWolves revenues, and $275,000 to growth in VHC-IT revenues. At December 31, 2018 VHC-IT had an order backlog exceeding $13.5 million.
 
Commission revenues in the professional sales service segment (formerly the "sales representation" segment) increaseddecreased by $1,348,000,$932,000, or 4%, to $31,584,000$25,511,000 in the year ended December 31, 2015,2018, as compared to $30,236,000$26,443,000 in the year ended December 31, 2014.2017. The increasedecrease was primarily due to higherlower volume of GEHC equipment deliverydelivered in 2015, partially offset2018, as well as by lower blended commission rates for the equipment delivered in 2015.2018. As discussed in Note B to the financial statements, the Company defers recognition of commission revenue until the underlying equipment is delivered. As of December 31, 2015,2018, the Company recorded on its Consolidated Balance Sheet $17,369,000consolidated balance sheet for this segment a decrease of $5,028,000, or 23%, in deferred commission revenue to $17,098,000, of which $8,525,000$7,200,000 is long-term, compared to $21,155,000$22,126,000 of deferred commission revenue at December 31, 2014,2017, of which $12,006,000$7,115,000 was long-term, a decrease of $3,786,000 or 18%.  The decrease in deferred revenue is due principally to the increase in equipment deliveries and lower total orders booked during the year.
Revenue in the IT segment was $21,149,000 for the year ended December 31, 2015 as compared to $48,000 for the prior year, an increase of $21,101,000, of which $20,661,000 was attributable to the inclusion of seven months of NetWolves operations, which was acquired on May 29, 2015, and $440,000 year-over-year growth in VHC-IT revenues.  At December 31, 2015 VHC-IT had an order backlog exceeding $3,000,000, which we expect to be substantially delivered in 2016 and 2017.
Revenue in our equipment segment decreased 7% to $4,349,000 for the year ended December 31, 2015 from $4,670,000 for the year ended December 31, 2014.  Equipment segment revenue from equipment sales decreased by $272,000, or 8%, to $2,961,000 for the year ended December 31, 2015 as compared to $3,233,000 for the year ended December 31, 2014. The decrease in equipment sales is due primarily to a $255,000 decrease in EECP® sales, caused by lower deliveries and lower average selling prices.  We anticipate that EECP® sales will improve in foreign markets as our VSK joint venture, which began operations in 2015, expands into new international markets.  As of December 31, 2015, the Company recorded on its Consolidated Balance Sheet $1,147,000 of deferred revenue, of which $511,000 is long-term, compared to $1,377,000 of deferred revenue at December 31, 2014, of which $644,000 was long-term, a decrease of $230,000 or 17%.long-term. The decrease in deferred revenue is due principally to lower volume of service contracts soldtotal orders booked during the year.year, partially offset by the decrease in equipment deliveries over the same period.
 
EquipmentRevenue in our equipment segment revenueincreased 13% to $4,241,000 for the year ended December 31, 2018 from $3,764,000 for the year ended December 31, 2017, as a result of an increase in equipment sales of $491,000, or 18%, to $3,151,000 for the year ended December 31, 2018, as compared to $2,660,000 for the year ended December 31, 2017, and a decrease in equipment rentals and services decreased 3%revenue of $14,000, or 1%, to $1,388,000$1,090,000 in the year ended December 31, 20152018 from $1,437,000$1,104,000 in the year ended December 31, 2014.  Revenue2017. The increase in equipment sales is due primarily to increased deliveries at our China operations, as well as an 8% increase in sales in our U.S. operations, resulting from equipment rentals and services represented 32% of total Equipment segment revenue in the year ended December 31, 2015 and 31% in the year ended December 31, 2014.higher software deliveries. The decrease in revenue generated from equipment rentals and services is due primarily to decreased contract product development andlower recognition of service contract revenues, partially offset byrevenues. As of December 31, 2018, the Company recorded on its consolidated balance sheet for this segment $988,000 of deferred revenue, of which $503,000 is long-term, compared to $941,000 of deferred revenue at December 31, 2017, of which $411,000 was long-term, an increase of $47,000 or 5%. The increase in deferred revenue is due principally to a higher fieldmix of multi-year service revenues.contracts sold during the year.
 
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Gross Profit

The Company recorded gross profit of $35,367,000,$41,124,000, or 62%56% of revenue, for the year ended December 31, 20152018, compared to $25,192,000,$40,731,000, or 72%56% of revenue, for the year ended December 31, 2014.2017. The increase of $10,175,000,$393,000, or 40%1%, was due primarily to a $8,592,000$756,000 increase in the IT segment arising mainly from the inclusion of seven months of NetWolves operations, and a $2,281,000$102,000 increase in the equipment segment resulting primarily from higher revenues, partially offset by a $465,000 decrease in the professional sales service segment.
IT segment driven bygross profit increased to $18,379,000, or 42% of segment revenues, for the year ended December 31, 2018 as compared to $17,623,000, or 41% of segment revenues, in the prior year, an increase of $756,000, of which $513,000 was attributable to VHC-IT resulting from both higher revenues and gross profit rates, partially offset by $698,000 lower gross profit in the equipment segment resulting from a mix of lower revenues and higher gross profit rates.rate, and $243,000 was attributable to NetWolves, resulting from increased revenues.

Professional sales service segment gross profit was $24,532,000,$20,165,000, or 78%79% of professional sales servicethe segment revenues, for the year ended December 31, 2015, an increase2018, a decrease of $2,281,000,$465,000, or 10%2%, from segment gross profit of $22,251,000,$20,630,000, or 74%78% of the segment revenue, for the year ended December 31, 2014.2017. The increasedecrease in gross profit was due primarily to higherlower recognized revenue in 20152018 as a result of an increasea decrease in equipment delivery volume partially offsetand by lower blended commission rates.rates on the equipment delivered during the year. Cost of commissions decreased by $933,000,$467,000, or 12%8%, to $7,052,000$5,346,000 for the year ended December 31, 2015,2018, as compared to cost of commissions of $7,985,000$5,813,000 in 2014.2017. The decrease is also due primarily to lower commission expense rates.delivery volume. Cost of commissions reflects commission expense associated with recognized commission revenues. Commission expense associated with deferred revenue is recorded as deferred commission expense until the related commission revenue is earned.

ITEquipment segment gross profit increased to $8,613,000,$2,580,000, or 41% of segment revenues,  for the year ended December 31, 2015 as compared to $21,000 in the prior year, an increase of $8,592,000, of which $8,539,000 was attributable to the inclusion of seven months of NetWolves operations and $74,000 was attributable to VHC-IT.
Equipment segment gross profit decreased to $2,222,000, or 51%61% of equipment segment revenues, for the year ended December 31, 20152018 compared to $2,920,000,$2,478,000, or 63%66% of equipment segment revenues, for the year ended December 31, 20142017, due to lowerhigher sales volume, partially offset by lower average selling prices and write-off of excess inventory, partially offset by the favorable impact on gross profit margins of our China-based operations.prices. Equipment segment gross profits are dependent on a number of factors including the mix of products sold, their respective models and average selling prices, the ongoing costs of servicing EECP® systems, as well as certain fixed period costs, including facilities, payroll and insurance.


 
Operating IncomeLoss

Operating incomeloss was $3,939,000$3,724,000 for the year ended December 31, 20152018 compared to $1,063,000operating loss of $3,832,000 for the year ended December 31, 2014, an2017, a decrease in loss of $108,000. The improvement of $2,876,000, or 271%.  The increase was primarily attributable to the increasedecrease in operating incomeloss in the professional sales serviceequipment segment from $5,997,000$1,066,000 in the year ended December 31, 20142017 to $10,024,000 in that segment$812,000 in the year ended December 31, 2015.2018, due to higher gross profit and lower operating expenses in the segment. The 20152018 professional sales service segment operating income reflected the impact of both higher$1,958,000 was essentially flat as compared to 2017 operating income of $1,954,000, as reductions in gross profit and lower operatingwere largely matched by reductions in SG&A costs. IT segment operating loss increased to $1,930,000$3,748,000 for the year ended December 31, 20152018 from $539,000$3,375,000 for the prior year, an increase of $1,391,000.$373,000. The increase was primarily attributable to $1,282,000a $408,000 higher operating losses in the VHC IT VAR business,loss at NetWolves primarily due to increased spending on infrastructure and engineering efforts, and to higher sales expenses incurred in building its order backlog for future delivery.delivery, partially offset by a $35,000 lower operating loss at VHC-IT due to higher gross profit. The healthcare IT VAR business is stillcontinues to grow as reflected in its early stages of growth; however,the significant increase in order volume and backlog, which we anticipate that as the backlog increasesto continue to grow and convertsconvert to revenue, we will see significantresulting in improvement in operating performance.  Equipment segment operating loss in the year ended December 31, 2015 was $2,444,000, as compared to an operating loss of $2,828,000 in the year ended December 31, 2014.  The decrease in the equipment segment operating loss was primarily due to lower operating expenses resulting from our cost reduction efforts, partially offset by lower gross profit.  We continue to implement additional cost reductions in the equipment segment.
 
Selling, general and administrative (SG&A) expenses for the years ended December 31, 20152018 and 20142017 were $30,913,000,$43,962,000, or 54%59% of revenues, and $23,326,000,$43,618,000, or 67%60% of revenues, respectively, reflecting an increase of $7,587,000$344,000 or approximately 33%less than 1%. The increase in SG&A expenditures in the year ended December 31, 20152018 resulted primarily from a $9,981,000$1,336,000 increase in the IT segment of which $8,646,000 was attributabledue to the inclusion of seven months of NetWolvesincreased personnel and bad debt costs, and higher corporate expenses associated with the NetWolves acquisition, partially offset by a $468,000 decrease in the professional sales service segment attributable mainly to lower sales personnel-related cost, and marketing costsa $300,000 decrease in the equipment segment, and professional sales service segments.

17by $223,000 lower corporate expenses.


Research and development (R&D) expenses of $515,000,$886,000, or 1% of revenues, (or 12% of equipment segment revenues), for the year ended December 31, 20152018 decreased by $288,000,$59,000, or 36%6%, from $803,000,$945,000, or 2%1% of revenues, (or 17% of equipment segment revenues), for the year ended December 31, 2014.2017. The decrease is primarily attributable to lower clinical grant and new product submission costs, as well as lower new product development costs.costs in the NetWolves operation.
 
Adjusted EBITDA
 
We define Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure, as net (loss) income, plus net interest expense (income), tax expense, depreciation and amortization, and non-cash expenses for share-based compensation.  Adjusted EBITDA is a metric that is used by the investment community for comparative and valuation purposes. We disclose this metric in order to support and facilitate the dialogue with research analysts and investors.

Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States ("GAAP"(“GAAP”) and should not be considered a substitute for operating income, which we consider to be the most directly comparable GAAP measure. Adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, you should not consider Adjusted EBITDA in isolation, or as a substitute for net income or other consolidated income statement data prepared in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.



A reconciliation of net incomeloss to Adjusted EBITDA is set forth below:

 
  (in thousands) 
 
(in thousands)
 
 
Year ended December 31,
 
 
Year ended December 31,
 
 2015  2014 
 
2018
 
 
2017
 
      
 
 
 
Net income $3,823  $1,128 
Interest (income) expense  160   (207)
Net loss
 $(3,734)
 $(4,539)
Interest expense (income), net
  727 
  651 
Income tax (benefit) expense  (44)  127 
  (385)
  134 
Depreciation and amortization  1,559   467 
  2,522 
  2,426 
Share-based compensation  342   390 
  313 
  514 
Adjusted EBITDA $5,840  $1,905 
 $(557)
 $(814)
 
Adjusted EBITDA increased by $3,935,000, or 205%,$257,000, to $5,840,000$(557,000) in the year ended December 31, 20152018 from $1,905,000$(814,000) in the year ended December 31, 2014.2017. The increase was primarily attributable to higher fixed asset depreciation in the IT segmentlower net loss, partially offset by the change from income tax expense to income tax benefit and amortization of intangibles associated with the NetWolves acquisition in May 2015, higher technology intangible amortization in the equipment segment associated with the Genwell acquisition in August 2014, as well as higher software amortization in the professional sales service segment, minimally offset by lower share-based compensation expense.as compared to the prior year.
 
Other Income (Expense), Net
 
Other income (expense), net for the yearyears ended December 31, 20152018 and 2014,2017, was $(160,000)$(395,000) and $192,000,$(573,000), respectively, an increasea decrease in net expense of $352,000.$178,000. The increasedecrease was due primarily to $429,000the $212,000 gain on sale of our investment in the VSK joint venture and $42,000 higher other income, primarily value-added tax refunds in our China operations, partially offset by $76,000 higher interest expense associated with the note issued in relation to the NetWolves acquisitionon our lines of credit and with NetWolves' debt that the Company assumed through the acquisition.financed equipment purchases.
 
Income Tax Benefit (Expense), Net(Benefit) Expense
 
During the year ended December 31, 2015,2018, we recorded income tax benefit of $44,000,$(385,000), as compared to income tax expense of $127,000$134,000 in the year ended December 31, 2014.2017. The Company utilized $5.0 million and $3.0 inno net operating loss carryforwards for the years ended December 31, 20152018 and 2014, respectively.2017. The change from income tax expense in 20142017 to income tax benefit in 20152018 arose primarily duefrom the impact of the change in the carryforward period for 2018 net operating losses from 20 years to the release of $560,000 in deferred tax asset valuation allowance, partially offset by $226,000 higher tax expense related toindefinitely on deferred tax liabilities arising from goodwill generated by the NetWolves acquisition, as well as higher state income taxes and federal alternative minimum taxes.
Ultimate realization of any or all of the deferred tax assets is not assured due to significant uncertainties and material assumptions associated with estimates of future taxable income during the carry-forward period.acquisition. The Company currently has significant deferred tax assets.  During the year ended December 31, 2015, the Company reviewed previous positive and negative evidence and also reviewed its expected taxable income for future periods and concluded it is more likely than not that approximately $560,000 of the tax benefit related to net operating loss carryforwards will be utilized, and, accordingly, has reduced the valuation allowance by $560,000.    It remains uncertain whether the Company will generate sufficient taxable income to completely utilize its net operating loss carryforwards.

of approximately $46 million at December 31, 2018.
 

18

Liquidity and Capital Resources

Cash and Cash Flow – For the year ended December 31, 20152018
 
We have financed our operations including the NetWolves acquisition,and investment activities primarily from working capital and the proceeds from notes issued to MedTechnology Investments, LLC ("MedTech", see Item 13).additional borrowings. At December 31, 2015,2018, we had cash and cash equivalents of $2,160,000, short-term investments of $38,000$2,668,000 and negative working capital of $3,696,000.  $7,228,000$16,179,000. $7,797,000 in negative working capital at December 31, 20152018 is attributable to the net balance of deferred commission expense and deferred revenue. These are non-cash expense and revenue items and have no impact on future cash flows. At March 26, 201531, 2019 the Company'sCompany’s cash and cash equivalents were approximately $5.1$2.0 million.
 
Cash providedused by operating activities was $6,520,000$1,453,000 during the year ended December 31, 2015,2018, which consisted of net incomeloss after non-cash adjustments of $5,492,000$984,000 and cash providedused by changes in operating assets and liabilities of $1,028,000.$469,000. The changes in the account balances primarily reflect decreases in accountsdeferred revenue and other receivablesaccrued commissions of $4,981,000 and other assets of $4,977,000 and $1,793,000,$599,000, respectively, partially offset by decreases in deferred revenue and accrued expensesaccounts and other liabilitiesreceivables and deferred commission expense of $4,016,000$1,725,000 and $1,401,000,$1,174,000, respectively.  These changes in account balances are due mainly to the operations of our Professional Sales Service segment. 
 
Cash used in investing activities during the year ended December 31, 20152018 was $18,258,000, of which $17,267,000, net of cash acquired, was used for the acquisition of NetWolves, $100,000 was invested in the VSK joint venture, and $893,000 was used$2,586,000 for the purchase of equipment and software.software, partially offset by $311,000 in proceeds from the sale of our investment in the VSK joint venture.

Cash provided by financing activities during the year ended December 31, 20152018 was $4,800,000, through the issuance of notes$1,141,000, primarily attributable to MedTech and $47,000$778,000 in additional borrowings on our linelines of credit, a $21,000 note issued to purchase equipment, and $500,000 in notes issued to related parties, partially offset by $146,000$156,000 in repayments of notes issued for equipment purchases.note and capital lease payments.

Liquidity
 
We expecthave incurred net losses from operations for the years ended December 31, 2018 and 2017, and we maintain lines of credit from a lending institution which will require further extensions after their current June 28, 2019 maturity date. These events raise substantial doubt about our ability to continue as a going concern. Our ability to be profitable and generate positive cash flow throughcontinue operating as a going concern is dependent upon achieving profitability, extending the maturity date of our existing operations.  Welines of credit, or through additional debt or equity financing. Achieving profitability is largely dependent on our ability to reduce operating costs and to maintain or increase our current revenue. While we believe we will continue to pursue acquisitionsmaintain or increase our gross revenue and partnership opportunitiesare in the internationalprocess of reducing costs, and domestic markets and will lookwhile historically we have received extensions of the maturity dates of our lines of credit, failure to expandachieve these objectives could cast doubt on our business in all segments.ability to continue as a going concern.
 
Off-Balance Sheet Arrangements

We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPES), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of December 31, 2015,2018, we are not involved in any unconsolidated SPES or other off-balance sheet arrangements.

Effects of Inflation

We believe that inflation and changing prices over the past two years have not had a significant impact on our revenue or on our results of operations.

Critical Accounting Policies and Estimates

Note B of the Notes to Consolidated Financial Statements includes a summary of our significant accounting policies and methods used in the preparation of our financial statements. In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Our critical accounting policies and estimates are as follows:

Revenue and Expense Recognition for the Professional Sales Service Segment

We recognize commission revenue in the professional sales service segment 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 Consolidated Balance Sheets.  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.
 
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Revenue and Expense Recognition for the IT Segment
The Company currently derives its revenues in the IT segment from two sources: (1) telecommunication and managed network services, which are comprised primarily of fixed monthly fees and variable usage charges; and (2) the resale to diagnostic imaging service providers of GEHC's PACS software solutions, which is comprised of software from GEHC and other vendors, hardware, related solution implementation services, and post-implementation customer support ("PCS").  We offer our customers the option to purchase our software solutions or to subscribe our solutions under a monthly Software as a Service ("SaaS") fee basis.  Customers that purchase our software solutions may elect to purchase PCS, comprised of software license updates and product support contracts, which provide our customers with rights to unspecified product upgrades and maintenance releases issued during the support period, as well as technical support assistance and remote network monitoring.
Revenue Recognition for Multiple-Element Arrangements - Arrangements with Software and Non-software Elements

We enter into multiple-element arrangements that may include a combination of our various software related and non-software related products and services offerings including new software licenses, hardware, implementation services, PCS and monthly subscription-based SaaS solutions. In such arrangements, we first allocate the total arrangement consideration based on the relative selling prices of the software group of elements as a whole and to the non-software elements. We then further allocate consideration within the software group to the respective elements within that group following the guidance in ASC 985-605, "Software-Revenue Recognition" and allocate consideration within the non-software group to the respective elements within that group following the guidance in ASC 605-25, "Revenue Recognition, Multiple-Element Arrangements". After the arrangement consideration has been allocated to the elements, we account for each respective element in the arrangement as described below.

Revenue Recognition for Multiple-Element Arrangements - Software Products and Software Related Services (Software Arrangements)

We enter into arrangements with customers that purchase both software related products and software related services from us at the same time, or within close proximity of one another (referred to as software related multiple-element arrangements). Such software related multiple-element arrangements include the sale of our software products, implementation services, and PCS, whereby software license delivery is followed by the subsequent or contemporaneous delivery of the other elements. For those software related multiple-element arrangements, we have applied the residual method to determine the amount of new software license revenues to be recognized pursuant to ASC 985-605. Under the residual method, if fair value exists for undelivered elements in a multiple-element arrangement, such fair value of the undelivered elements is deferred with the remaining portion of the arrangement consideration generally recognized upon delivery of the software license. We allocate the fair value of each element of a software related multiple-element arrangement based upon its fair value as determined by our vendor specific objective evidence ("VSOE" as described further below), with any remaining amount allocated to the software license.

The basis for our software license revenue recognition is substantially governed by the accounting guidance contained in ASC 985-605. We exercise judgment and use estimates in connection with the determination of the amount of software and software related services revenues to be recognized in each accounting period.  We recognize new software licenses revenues when: (1) we enter into a legally binding arrangement with a customer for the license of software; (2) we deliver the products; (3) the sale price is fixed or determinable and free of contingencies or significant uncertainties; and (4) collection is probable. Revenues that are not recognized at the time of sale because the foregoing conditions are not met, are recognized when those conditions are subsequently met.  Our software license arrangements do not include acceptance provisions.

The vast majority of our software license arrangements include PCS, which is ordered at the customer's option and is recognized ratably over the term of the arrangement, typically three to five years. PCS provides customers with rights to unspecified software product upgrades, maintenance releases and patches released during the term of the support period, as well as remote network monitoring and technical support. PCS is generally priced as a percentage of the net new software licenses fees.
20

Revenue Recognition for Multiple-Element Arrangements – SaaS, Hardware and Implementation services (Non-software Arrangements)

We enter into arrangements with customers that purchase multiple non-software related products and services from us within close proximity of one another (referred to as non-software multiple-element arrangements). Each element within a non-software multiple-element arrangement is accounted for as a separate unit of accounting provided the services have value to the customer on a standalone basis. We consider a deliverable to have standalone value if the service is sold separately by us or another vendor or could be resold by the customer.

For our non-software multiple-element arrangements, we allocate revenue to each element based on a selling price hierarchy at the arrangement's inception. The selling price for each element is based upon the following selling price hierarchy: VSOE if available, third party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE nor TPE are available.  When possible, we establish VSOE of selling price for deliverables in software and nonsoftware multiple-element arrangements using the price charged for a deliverable when sold separately.  TPE is established by evaluating similar and interchangeable competitor products or services in standalone arrangements with similarly situated customers. If we are unable to determine the selling price because VSOE or TPE does not exist, we determine ESP for the purposes of allocating the arrangement by reviewing several other external and internal factors including, but not limited to: historical transactions; pricing practices including discounting; and competition. The determination of ESP is made through consultation with and approval by our management, taking into consideration our pricing model and go-to-market strategy. As these strategies evolve, we may modify our pricing practices in the future, which could result in changes to our determination of VSOE, TPE and ESP. As a result, our future revenue recognition for multiple-element arrangements could differ materially from our results in the current period.

Our revenue recognition policy for non-software deliverables including SaaS and implementation services is based upon the accounting guidance contained in ASC 605-25, and we exercise judgment and use estimates in connection with the determination of the amount of SaaS and implementation service revenues to be recognized in each accounting period.
Revenues from the sales of our non-software elements are recognized when: (1) persuasive evidence of an arrangement exists; (2) we perform the services or deliver the product; (3) the sale price is fixed or determinable; and (4) collection is reasonably assured. Revenues that are not recognized at the time of sale because the foregoing conditions are not met are recognized when those conditions are subsequently met.  Our arrangements are documented in a written contract signed by the customer, are non-cancelable, do not contain refund-type provisions, and do not include acceptance provisions.

Our SaaS offerings provide deployment of our software and hardware and related network monitoring infrastructure including PCS for a stated term that is hosted at our data center facilities or physically on-premises at customer facilities for a monthly subscription fee.  Revenues for these SaaS offerings are generally recognized ratably over the contract term commencing with the date the service is made available to customers and all other revenue recognition criteria have been satisfied.  The Company recognizes revenue for hardware upon delivery and for implementation services rendered when related milestones are complete.

Revenue and Expense Recognition for the Equipment Segment

In the United States,first quarter of 2018, we recognize revenue from the sale of our medical equipment in the period in which we deliver the product to the customer.adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09, as amended, replaced most existing revenue recognition guidance in U.S. GAAP.
This new guidance requires certain judgments and estimates in implementing its five-step process to be followed in determining the saleamount and timing of our medical equipmentrevenue recognition and related disclosures. Refer to international markets is recognized upon shipmentNote B of the productnotes to a common carrier, as are supplies, accessories and spare parts delivered to both domestic and international customers.consolidated financial statements for further discussion regarding significant judgments involved in our application of ASC 606.

In most cases, revenue from domestic EECP® system sales is generated from multiple-element arrangements that require judgment in the areas of customer acceptance, collectability, the separability of units of accounting, and the fair value of individual elements.  We follow the ASC 605-25 which outlines a framework for recognizing revenue from multi-deliverable arrangements.  We determined that the domestic sale of our EECP® systems includes a combination of three elements that qualify as separate units of accounting:
21


(1)
EECP® equipment sale;
(2)provision of in-service and training support consisting of equipment set-up and training provided at the customer's facilities; and
(3)a service arrangement (usually one year), consisting of: service by factory-trained service representatives, material and labor costs, emergency and remedial service visits,  software upgrades, technical phone support and preferred response times.

Each of these elements represent individual units of accounting as the delivered item has value to a customer on a stand-alone basis, objective and reliable evidence of fair value exists for undelivered items, and arrangements normally do not contain a general right of return relative to the delivered item.  We determine fair value based on the price of the deliverable when it is sold separately, or based on third-party evidence, or based on estimated selling price.  Assuming all other criteria for revenue recognition have been met, we recognize equipment sales and services revenue for:

(1)
EECP® equipment sales, when title transfers upon delivery;
(2)in-service and training, following documented completion of the training; and
(3)service arrangement, ratably over the service period, which is generally one year.

The Company also recognizes revenue generated from servicing EECP® systems that are no longer covered by the service arrangement, or by providing sites with additional training, in the period that these services are provided.  Revenue related to future commitments under separately priced extended service agreements on our EECP® system are deferred and recognized ratably over the service period, generally ranging from one year to four years.  Costs associated with the provision of in-service and training, service arrangements, and separately priced extended service agreements, including salaries, benefits, travel and spare parts, and equipment, are recognized in cost of equipment sales and services as incurred. Amounts billed in excess of revenue recognized are included as deferred revenue in the consolidated balance sheets.

Inventories, net

We value inventoryinventories in the equipment segment at the lower of cost or estimated market,net realizable value, with cost being determined on a first-in, first-out basis. The Company oftenoccasionally places EECP® systems and other medical device products at various field locations for demonstration, training, evaluation, and other similar purposes at no charge. The cost of these EECP® systems and other products is transferred to property and equipment and is amortized over the next two to five years. The Company records the cost of refurbished components of EECP® systems and critical components at cost plus the cost of refurbishment. The Company regularly reviews inventory quantities on hand, particularly raw materials and components, and records a provision for excess and slow moving inventory based primarily on existing and anticipated design and engineering changes to its products as well as forecasts of future product demand.

We complyIn our IT Segment, we purchase computer hardware and software for specific customer requirements and value such inventories at the lower of cost or estimated market, with the provisions of ASC Topic 330, "Inventory". The statement clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overheads to inventory basedcost being determined on the normal capacity of the production facilities.specific identification method.
 
22

Goodwill and Intangible Assets

Goodwill represents the excess of cost over the fair value of net assets of businesses acquired. The Company accounts for goodwill under the guidance of the ASC Topic 350, "Intangibles:“Intangibles: Goodwill and Other"Other”. Goodwill acquired in a purchase business combination and determined to have an indefinite useful life is not amortized, but instead tested for impairment, at least annually, in accordance with this guidance.The recoverability of goodwill is subject to an annual impairment test or whenever an event occurs or circumstances change that would more likely than not result in an impairment. The impairment test is based on the estimated fair value of the underlying businesses and performed in the fourth quarter of each year.Intangible assets consist of the value of customer contracts and relationships, patent and technology costs, and software. The cost of significant customer-related intangibles is amortized in proportion to estimated total related revenue; cost of other intangible assets is generally amortized on a straight-line basis over the asset's estimated economic life, which range from five to ten years. TheThe Company capitalizes internal use software costs incurred during the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred.

Deferred Revenues

For the professional sales service segment, amounts billable under the agreement with GE Healthcare in advance of customer acceptance of the equipment are recorded initially as deferred revenue, and commission revenue is subsequently recognized as customer acceptance of such equipment is reported to us by GEHC.

For the equipment segment, we record revenue on extended service contracts ratably over the term of the related contract period. In accordance with the provisions of ASC Topic 605,606, we defer revenue related to EECP® system sales for the fair value of installation and in-service training to the period when the services are rendered and for warranty obligations ratably over the service period, which is generally one year.

Income Taxes
 
Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities and loss carry forwards for which income tax benefits are expected to be realized in future years. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized. In estimating future tax consequences, we generally consider all expected future events other than an enactment of changes in the tax laws or rates. Deferred tax assets are continually evaluated for realizability. To the extent our judgment regarding the realization of the deferred tax assets changes, an adjustment to the allowance is recorded, with an offsetting increase or decrease, as appropriate, in income tax expense. Such adjustments are recorded in the period in which our estimate as to the realizability of the assets changed that it is "more“more likely than not"not” that all of the deferred tax assets will be realized. The "more“more likely than not"not” standard is subjective and is based upon our estimate of a greater than 50% probability that the deferred tax asset will be realized.
 
The Company early adopted ASU 2015-17 (Topic 740), "Balance Sheet Classification of Deferred Taxes", which requires the presentation of deferred tax liabilities and assets as noncurrent within a classified statement of financial position.

We also comply with the provisions of the ASC Topic 740, "Income Taxes"“Income Taxes”, which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of December 31, 20152018 and December 31, 2014.2017. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at December 31, 20152018 and December 31, 2014.2017. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.


Recently Issued Accounting Pronouncements

Note B of the Notes to Consolidated Financial Statements includes a description of the Company'sCompany’s evaluation of recently issued accounting pronouncements.
 
23

IITEMTEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements are filed as part of this report.

IITEMTEM 9A - CONTROLS AND PROCEDURES
Report on Disclosure Controls and Procedures

Disclosure controls and procedures reporting as promulgated under the Exchange Act is defined as controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer ("CEO"(“CEO”) and Chief Financial Officer ("CFO"(“CFO”), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our CEO and our CFO have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 20152018 and have concluded that the Company'sCompany’s disclosure controls and procedures were effective as of December 31, 2015.2018.

Management'sManagement’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule 13a-15(f) and 15d-15(f)of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control involves maintaining records that accurately represent our business transactions, providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization, and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be detected or prevented on a timely basis.

Because of its innate limitations, internal control over our financial statements is not intended to provide absolute guarantee that a misstatement can be detected or prevented on the statements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 COSO framework). A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company'sCompany’s annual or interim financial statements will not be prevented or detected on a timely basis.

Based on this evaluation and those criteria, the Company'sCompany’s CEO and CFO concluded that the Company'sCompany’s internal control over financial reporting was effective as of December 31, 2015.2018.

This report does not include an attestation report of the Company'sCompany’s Independent Registered Public Accounting Firm regarding internal control over financial reporting. Management'sManagement’s report was not subject to attestation by the Company'sCompany’s Independent Registered Public Accounting Firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only Management'sManagement’s report in this Annual Report.

Changes in Internal Control over Financial Reporting

For the quarter ended December 31, 20152018 there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
24ITEM 9B – OTHER INFORMATION

The Company held its annual meeting of stockholders on November 16, 2018. At the meeting, the Company’s shareholders voted to approve the following proposals:
(1)
The election of two directors in Class I – Joshua Markowitz and Edgar Rios - to hold office until the 2021 Annual Meeting of Stockholders; and,
(2)
The appointment of Marcum LLP as our independent registered public accountants for the year ending December 31, 2018.
The following table presents the voting results on these proposals:
Approved Proposals
 
Shareholder votes cast
 
 
 
For
 
 
Withheld
 
 
Against
 
 
Abstain
 
Election of Directors
 
 
 
 
 
 
 
 
 
 
 
 
Joshua Markowitz
  84,816,356 
  10,892,995 
  - 
  - 
Edgar Rios
  85,085,870 
  10,623,481 
  - 
  - 
 
    
    
    
    
Appointment of public accountants
  125,903,793 
  - 
  18,634,570 
  77,882 

PART III


IITEMTEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors of the Registrant

As of March 25, 2016,31, 2019, the members of our Board of Directors are:
 
Name of Director
Age
Principal Occupation
Director Since
Simon SrybnikJoshua Markowitz (2)9963Chairman of the Board and DirectorJune, 20072015
David Lieberman (1)7174Vice Chairman of the Board and DirectorFebruary, 2011
Jun Ma5255President, Chief Executive Officer and DirectorJune, 2007
Peter C. Castle (1)4750
Chief Operating Officer and DirectorAugust, 2010
Randy Hill69Chief Executive Officer of VasoHealthcare and DirectorApril, 2013
Joshua Markowitz (3)60DirectorJune, 2015
Behnam Movaseghi (1) (2) (3)6265DirectorJuly, 2007
Edgar Rios (2)(1)6366DirectorFebruary, 2011
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of Compensation Committee
 
(1)
Member of the Audit Committee
(2)
Member of the Compensation Committee

The following is a brief account of the business experience for at least the past five years of our directors:

Simon Srybnik Joshua Markowitzhas been a director since June 20072015, and Chairman of the Board since June 2010.   He is thewas appointed Chairman of the Board of Kerns Manufacturing Corp.the Company in August 2016. Mr. Markowitz has been a practicing attorney in the State of New Jersey for in excess of 30 years. He is currently a senior partner in the New Jersey law firm of Markowitz O'Donnell, LLP. Mr. Markowitz was the brother-in-law of Mr. Simon Srybnik (deceased), the former Chairman and Living Data Technology Corp., both of which are shareholdersdirector of the Company.   A lifetime entrepreneur and industrialist, Mr. Srybnik has founded and managed many companies in various industries including machinery and process equipment, aerospace and defense, biotechnology and healthcare.

David Liebermanhas been a director of the Company and the Vice Chairman of the Board, since February 2011. Mr. Lieberman has been a practicing attorney in the State of New York for more than 40 years, specializing in corporation and securities law. He is currently a senior partner at the law firm of Beckman, Lieberman & Barandes, LLP, which firm performs certain legal services for the Company and its subsidiaries. Mr. Lieberman is a former Chairman of the Board of Herley Industries, Inc., which was sold in March, 2011.

Jun Ma, PhD, has been a director since June 2007 and was appointed President and Chief Executive Officer of the Company on October 16, 2008.   Dr. Ma has held various positions in academia and business, and prior to becoming President and CEO of the Company, had provided technology and business consulting services to several domestic and international companies in aerospace, automotive, biomedical, medical device, and other industries, including Kerns Manufacturing Corp. and Living Data Technology Corp., both of which are stockholders of our Company. Dr. Ma received his PhD degree in mechanical engineering from Columbia University, MS degree in biomedical engineering from Shanghai University, and BS degree in precision machinery and instrumentation from University of Science and Technology of China.

Peter Castle has been a director since August 2010 and was appointed the Chief Operating Officer of the Company after the NetWolves acquisition in June 2015. Prior to the acquisition, Mr. Castle was the President and Chief OperatingExecutive Officer of NetWolves Network Services, LLC, where he has been employed since 1998. At NetWolves, Mr. Castle also held the position of Chief Financial Officer from 2001 until October 2009, Vice President of Finance since January 2000, Controller from August 1998 until December 1999 and Treasurer and Secretary from August 1999.

25


Randy Hill joined the Company as Senior Vice President of Vasomedical and Chief Executive Officer of VasoHealthcare on July 30, 2012 and served in that position through December 31, 2015.  Prior to joining Vasomedical, Mr. Hill was, until May 2011, interim Chief Executive Officer of Siemens Healthcare USA, the U.S. organization of the healthcare sector of Siemens AG (NYSE:SI), a German multinational conglomerate. For several years prior to that, Mr. Hill was Chief Operating Officer of Siemens Healthcare USA. In addition to his career at Siemens Healthcare spanning several decades in a wide range of roles with many different responsibilities, Mr. Hill, as a recognized leader in the medical imaging business, is also former Chair of the Board of Medical Imaging & Technology Alliance (MITA), the leading organization and collective voice of medical imaging equipment manufacturers, innovators, and product developers.

Joshua Markowitz has been a director since June 2015 and has been a practicing attorney in the State of New Jersey for in excess of 30 years.  He is currently a senior partner in the New Jersey law firm of Markowitz O'Donnell, LLP.  Mr. Markowitz is the brother-in-law of the Company's Chairman, Mr. Simon Srybnik.

Behnam Movaseghi, CPA, has been a director since July 2007. Mr. Movaseghi has been treasurer of Kerns Manufacturing Corporation since 2000, and controller from 1990 to 2000. For approximately ten years prior thereto Mr. Movaseghi was a tax and financial consultant. Mr. Movaseghi is a Certified Public Accountant.

Edgar G. Rios has been a director of the Company since February 2011. Mr. Rios currently is President of Edgary Consultants, LLC. and was appointed a director in conjunction with the Company'sCompany’s prior consulting agreement with Edgary Consultants, LLC. Most recently from 2008 thru the end of 2016, Mr. Rios is co-founderwas the Co-founder, CEO and managing directorManaging Member of Wenzi Capital Partners, a venture capitalSHD Oil & Gas LLC, an oil and private equity firm.gas exploration and development firm operating on the reservation of the Three Affiliate Tribes in North Dakota. Previously, Mr. Rios was a co-founder, Executive Vice President, General Counsel Secretary, and Director of AmeriChoice Corporation from its inception in 1989 through its acquisition byacquisitionby UnitedHealthcare in 2002 after its annual revenues grew to $675 million.and continued as a senior executive with United Healthcare through 2007. Prior to co-founding AmeriChoice, Mr. Rios was a co-founder ofsenior executive with a number of businesses that provided technology services and non-technology products to government purchasers. Over the years, Mr. Rios also has been an investor, providing seed capital to various technology and nontechnology start-ups. Mr. Rios serves on the Board of Advisors of Columbia Law School. Mr. Rios also serves as a member of the Board of Trustees of Meharry Medical School and the Brookings Institution in Washington; and as a director and secretary of the An-Bryce Foundation.Foundation and Los Padres Foundation in Virginia. Mr. Rios holds a J.D. from Columbia University Law School and an A.B. from Princeton University.
 
Committees of the Board of Directors

Executive Committee
The primary purpose of the Executive Committee is to function when the Board of Directors is not in session.  During the intervals between meetings of the Board, the Committee shall have and may exercise the powers of the Board, except as limited by Delaware statute.  It will also take such other action and do such other things as may be referred to it from time to time by the Board.

Audit Committee and Audit Committee Financial Expert
 
The Board has a standing Audit Committee. The Board has affirmatively determined that each director who serves on the Audit Committee is independent, as the term is defined by applicable Securities and Exchange Commission ("SEC") rules. During the year ended December 31, 2015,2018, the Audit Committee consisted of Peter Castle, who has served as theEdgar Rios, committee chair, until the NetWolves acquisition in May 2015 and was then replaced by Edgar Rios, and Behnam Movaseghi, who joined the committee in November 2011.Movaseghi. The members of the Audit Committee have substantial experience in assessing the performance of companies, gained as members of the Company'sCompany’s Board of Directors and Audit Committee, as well as by serving in various capacities in other companies or governmental agencies. As a result, they each have an understanding of financial statements. The Board believes that Behnam Movaseghi fulfills the role of the financial expert on this committee.

 
26


The Audit Committee regularly meets with our independent registered public accounting firm outsidewithout the presence of management.
 
The Audit Committee operates under a charter approved by the Board of Directors. The Audit Committee charter is available on our website.

Compensation Committee
 
Our Compensation Committee annually establishes, subject to the approval of the Board of Directors and any applicable employment agreements, the compensation that will be paid to our executive officers during the coming year, as well as administers our stock-based benefit plans. During the year ended December 31, 2015,2018, the Compensation Committee consisted of Behnam Movaseghi, who served as theJoshua Markowitz, committee chair, until June 2015 at which time Joshua Markowitz assumed the role, and Peter Castle until the NetWolves acquisition in June 2015, at which time he stepped down from his position on the committee.Behnam Movaseghi. None of these persons have been officers or employees of the Company at the time of their position on the committee, or, except as otherwise disclosed, had any relationship requiring disclosure herein.
 
The Compensation Committee operates under a charter approved by the Board of Directors. The Compensation Committee charter is available on our website.

MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES

During the year ended December 31, 20152018 there were:
2 meetings of the Board of Directors
4 meetings of the Audit Committee
2 meetings of the Compensation Committee

·5 meetings of the Board of Directors

·4 meetings of the Audit Committee
·2 meetings of the Executive Committee
·3 meeting of the Compensation Committee

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires directors, executive officers and persons who beneficially own more than 10% of our common stock (collectively, "Reporting Persons"“Reporting Persons”) to file initial reports of ownership and reports of changes in ownership of our common stock with the SEC. Reporting Persons are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. To our knowledge, based solely on our review of the copies of such reports received or written representations from certain Reporting Persons that no other reports were required, we believe that during the year ended December 31, 20152018 all Reporting Persons timely complied with all applicable filing requirements.

Corporate Governance - Code of Ethics

We have adopted a Corporate Code of Business Ethics (the "Code") that applies to all employees, including our principal executive officer, principal financial officer, and directors of the Company. A copy of the Code can be found on our website, www.vasomedical.com.www.vasocorporation.com. The Code is broad in scope and is intended to foster honest and ethical conduct, including accurate financial reporting, compliance with laws and the like. If any substantive amendments are made to the Code or if there is any grant of waiver, including any implicit waiver, from a provision of the Code to our Chief Executive Officer or Chief Financial Officer, we will disclose the nature of such amendment or waiver in a Current Report on Form 8-K.
 
27


Executive Officers of the Registrant

As of March 25, 201631, 2019 our executive officers are:
 
Name of Officer
Age
Position held with the Company
Jun Ma, PhD 5255 President, Chief Executive Officer
Peter C. Castle 4750
 Chief Operating Officer
Randy Hill69Senior Vice President
Michael J. Beecher 7174 Chief Financial Officer and Secretary
Jonathan P. Newton 5558 Vice President of Finance and Treasurer

Michael J. Beecher, CPA, joined the Company as Chief Financial Officer in September 2011. Prior to joining Vasomedical, Mr. Beecher was Chief Financial Officer of Direct Insite Corp., a publicly held company, from December 2003 to September 2011.  Prior to his position at Direct Insite, Mr. Beecher was Chief Financial Officer and Treasurer of FiberCore, Inc., a publicly held company in the fiber-optics industry. From 1989 to 1995 he was Vice-President Administration and Finance at the University of Bridgeport. Mr. Beecher began his career in public accounting with Haskins & Sells, an international public accounting firm. He is a graduate of the University of Connecticut, a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.

Jonathan P. Newton served as Chief Financial Officer of the Company from September 1, 2010 to September 8, 2011, and is currently Vice President of Finance and Treasurer.  From June 2006 to August 2010, Mr. Newton was Director of Budgets and Financial Analysis for Curtiss-Wright Flow Control.   Prior to his position at Curtiss-Wright Flow Control, Mr. Newton was Vasomedical'sVasomedical’s Director of Budgets and Analysis from August 2001 to June 2006. Prior positions included Controller of North American Telecommunications Corp., Accounting Manager for Luitpold Pharmaceuticals, positions of increasing responsibility within the internal audit function of the Northrop Grumman Corporation and approximately three and one half years as an accountant for Deloitte Haskins & Sells, during which time Mr. Newton became a Certified Public Accountant.  Mr. Newton holds a B.S. in Accounting from SUNY at Albany, and a B.S. in Mechanical Engineering from Hofstra University.
 

IITEMTEM 11 - EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation of our Chief Executive Officer and each of our most highly compensated officers and employees who were serving as executive officers or employees at the end of the last completed fiscal year for services rendered for the years ended December 31, 20152018 and 2014.2017.


28

Summary Compensation Table
 
Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($) (1) Option Awards ($) (1) Non-Equity Incentive Plan Compensation ($) Nonqualified Deferred Compensation Earnings ($) All Other Compensation ($) (2) Total ($) 
Jun Ma, PhD 2015  333,333  125,000  40,000        56,364  554,697 
Chief Executive Officer 2014  275,000  -  87,500        7,200  369,700 
Peter C. Castle                        
Chief Operating Officer (1) 2015  204,167  80,000  270,000        40,863  595,030 
Michael J. Beecher 2015  185,000  30,000  25,000        16,393  256,393 
Chief Financial Officer 2014  185,000  -           14,122  199,122 
Randy Hill 2015  400,000  80,000  17,000        8,400  505,400 
Senior Vice President 2014  400,000  200,000  35,000        81,032  716,032 
Jonathan P. Newton 2015  160,000  20,000  15,000        20,808  215,808 
Vice President of Finance and Treasurer (4) 2014  160,000  -  35,000        13,174  208,174 
                         

1.Mr. Castle has served as Chief Operating Officer since June 2015.
2.Represents fair value on the date of grant.  See Note B to the Consolidated Financial Statements included in our Form 10–K for the year ended December 31, 2015 for a discussion of the relevant assumptions used in calculating grant date fair value.
3.Represents tax gross-ups, vehicle allowances, Company-paid life insurance, and amounts matched in the Company's 401(k) Plan.
Name and Principal Position Year
 
Salary ($)
 
 
Bonus ($)
 
 
Stock Awards ($) (1)
 
 Option Awards ($)
 
Non-Equity Incentive Plan Compensation ($)
 
 
Nonqualified Deferred Compensation Earnings ($)
 
 
All Other Compensation ($) (2)
 
 
Total ($)
 
Jun Ma, PhD 2018
  375,000 
  - 
  - 
 
 
 
 
 
 
 
  32,476 
  407,476 
Chief Executive
Officer
 2017
  375,000 
  45,000 
  18,000 
 
   
 
   
 
  61,870 
  499,870 
Peter C. Castle 2018
  350,000 
  - 
  - 
 
    
    
  24,472 
  374,472 
Chief Operating
Officer
 2017
  350,000 
  20,000 
  18,000 
 
    
    
  45,341 
  433,341 
Jane Moen 2018
  254,167 
  13,500 
  25,000 
 
    
    
  7,891 
  300,558 
President of VasoHealthcare 2017
  200,000 
  60,000 
  - 
 
    
    
  8,837 
  268,837 
Michael J. Beecher 2018
  215,000 
  - 
  - 
 
    
    
  10,288 
  225,288 
Chief Financial Officer and Secretary 2017
  215,000 
  15,000 
  4,500 
 
    
    
  14,564 
  249,064 
Jonathan P. Newton 2018
  175,000 
  - 
  - 
 
    
    
  11,585 
  186,585 
Vice President of Finance and Treasurer 2017
  175,000 
  10,000 
  3,000 
 
    
    
  15,652 
  203,652 
 
(1)
Represents fair value on the date of grant. See Note B to the Consolidated Financial Statements included in our Form 10–K for the year ended December 31, 2018 for a discussion of the relevant assumptions used in calculating grant date fair value.
(2)
Represents tax gross-ups, vehicle allowances, Company-paid life insurance, and amounts matched in the Company’s 401(k) Plan.

Outstanding Equity Awards at Last Fiscal Year End

The following table provides information concerning outstanding options, unvested stock and equity incentive plan awards for our Named Executive Officersnamed executive officers at December 31, 2015:2018:
 
       Option Awards       
 
Stock Awards
 
 
Option Awards
 
 
Stock Awards
 
Name Number of Securities Underlying Unexercised Options - Exercisable  Number of Securities Underlying Unexercised Options - Unexercisable  Equity Incentive Plan Awards: Number of Underlying Unexercised Unearned Options  Option Exercise Price Option Expiration Date Number of Shares or Units of Stock That Have Not Vested  Market Value of Shares or Units of Stock That Have Not Vested  Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested  Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested 
 
Number of Securities Underlying Unexercised Options - Exercisable
 
 
Number of Securities Underlying Unexercised Options - Unexercisable
 
 
Equity Incentive Plan Awards: Number of Underlying Unexercised Unearned Options
 
 
Option Exercise Price
 
 
Option Expiration Date
 
 
Number of Shares or Units of Stock That Have Not Vested
 
 
Market Value of Shares or Units of Stock That Have Not Vested
 
 
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
 
 
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
 
Jun Ma, PhD  150,000   -   -  $0.12 7/25/2017  -   -   -   - 
                   125,000   43,750   -   - 
Peter C. Castle                   1,000,000   180,000   -   - 
  - 
  250,000 
  7,500 
  - 
                                 
 
29


The future vesting dates of the above stock awards are:
 
Name
Number of Shares or Units of Stock That Have Not Vested
Vesting Date
Jun Ma, PhD125,0002/7/2016
Peter C. Castle
250,000
6/15/2016
250,0006/15/2017
250,0006/15/2018
250,0006/15/2019
19

Employment Agreements

On March 21, 2011, the Company entered into an Employment Agreement with its President and Chief Executive Officer, Dr. Jun Ma, for a three-year term ending on March 14, 2014. The agreement was amended in 2013 and again in 2015 to provide for a continuing three-year term, unless earlier terminated by the Company, but in no event can extend beyond March 14, 2021. The Employment Agreement currently provides for annual compensation of $375,000. Dr. Ma shall be eligible to receive a bonus for each fiscal year thereafter during the employment term. The amount and the occasion for payment of such bonus, if any, shall be at the discretion of the Board of Directors. Dr. Ma shall also be eligible for an award under any long-term incentive compensation plan and grants of options and awards of shares of the Company'sCompany’s stock, as determined at the Board of Directors'Directors’ discretion. The Employment Agreement further provides for reimbursement of certain expenses, and certain severance benefits in the event of termination prior to the expiration date of the Employment Agreement.
 
On June 1, 2015, the Company entered into an Employment Agreement with Mr. Peter Castle to be its Chief Operating Officer. The agreement provides for a three-year term ending on June 1, 2018 and shall extend for additional one-year periods annually commencing June 1, 2018, unless earlier terminated by the Company, but in no event can extend beyond June 1, 2021. The Employment Agreement currently provides for annual compensation of $350,000. Mr. Castle shall be eligible to receive a bonus for each fiscal year thereafter during the employment term. The amount and the occasion for payment of such bonus, if any, shall be at the discretion of the Board of Directors. Mr. Castle shall also be eligible for an award under any long-term incentive compensation plan and grants of options and awards of shares of the Company'sCompany’s stock, as determined at the Board of Directors'Directors’ discretion. The Employment Agreement further provides for reimbursement of certain expenses, and certain severance benefits in the event of termination prior to the expiration date of the Employment Agreement.

401(K)401(k) Plan
The Company maintains twoa defined contribution plansplan to provide retirement benefits for its employees - the Vasomedical, Inc.Vaso Corporation 401(k) Plan adopted in April 1997, and the NetWolves Network Services, LLC 401(k) Plan adopted in January 2015.1997. As allowed under Section 401(k) of the Internal Revenue Code, the plan provides tax-deferred salary deductions for eligible employees. Employees are eligible to participate in the next quarter enrollment period after employment under the Vasomedical Plan and after six months employment under the NetWolves Plan. Participants may make voluntary contributions to the plan up to 80% of their compensation under the Vasomedical Plan, or up to the maximum allowed by law under the NetWolves Plan. In the years ended December 31, 20152018 and 20142017 the Company made discretionary contributions of approximately $95,000$96,000 and $85,000,$116,000, respectively, to match a percentage of employee contributions.
 

30

Director's Compensation

Non-employee directors receive a fee of $2,500 for each Board of Directors and Committee meeting attended. Committee chairs receive an annual fee of $5,000. Non-employee directors also receive an annual fee of $30,000. These fees are either paid in cash, or common stock valued at the fair market value of the common stock on the date of grant, which is the meeting date.
 
  Fees Earned or Paid in Cash  Stock Awards  Option Awards  Non-equity Incentive Plan Compensation  Nonqualified Deferred Compensation Earnings  All Other Compensation (1)  Total 
Name ($)  ($)  ($)  ($)  ($)  ($)  ($) 
Simon Srybnik  100,000   -   -   -   -   -   100,000 
David Lieberman  46,500   -   -   -   -   -   46,500 
Jun Ma, PhD  -   -   -   -   -   -   - 
Randy Hill  -   -   -   -   -   -   - 
Peter Castle  46,500   -   -   -   -   -   46,500 
Joshua Markowitz  30,000   30,000   -   -   -   10,000   70,000 
Behnam Movaseghi  64,000   -   -   -   -   -   64,000 
Edgar Rios  47,500   -   -   -   -   -   47,500 

(1)   Represents tax gross-up.
 
 
Fees Earned or Paid in Cash
 
 
Stock Awards
 
 
Option Awards
 
 
Non-equity Incentive Plan Compensation
 
 
Nonqualified Deferred Compensation Earnings
 
 
All Other Compensation (1)
 
 
Total
 
Name
 
($)
 
 
($)
 
 
($)
 
 
($)
 
 
($)
 
 
($)
 
 
($)
 
David Lieberman
  35,000 
  - 
  - 
  - 
  - 
  19,528 
  54,528 
Jun Ma, PhD
  - 
  - 
  - 
  - 
  - 
  - 
  - 
Randy Hill
  30,000 
  - 
  - 
  - 
  - 
  75,000 
  105,000 
Peter Castle
  - 
  - 
  - 
  - 
  - 
  - 
  - 
Joshua Markowitz
  45,000 
  - 
  - 
  - 
  - 
  564 
  45,564 
Behnam Movaseghi
  50,000 
  - 
  - 
  - 
  - 
  564 
  50,564 
Edgar Rios
  50,000 
  - 
  - 
  - 
  - 
  564 
  50,564 
 

(1) 
Represents tax gross-up, health benefit premiums, and consulting fees.
Compensation Committee Interlocks and Insider Participation
 
During the year ended December 31, 2015,2018, the Compensation Committee consisted of Joshua Markowitz, who joined the committee and assumed the committee chair, in June 2015;and Behnam Movaseghi, who served as the committee chair until June 2015, at which time the chair was transferred to Joshua Markowitz; and Peter Castle, who served on the committee until his employment with Vasomedical began in June 2015.  NoneMovaseghi. Neither of these persons were officers or employees of the Company during the time they held positions on the committee, our officers or employees during the year ended December 31, 2015 or, except as otherwise disclosed, had any relationship requiring disclosure herein.


IITEMTEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth the beneficial ownership of shares of our common stock as of March 25, 201631, 2019 of (i) each person known by us to beneficially own 5% or more of the shares of outstanding common stock, based solely on filings with the SEC, (ii) each of our executive officers and directors, and (iii) all of our executive officers and directors as a group. Except as otherwise indicated, all shares are beneficially owned, and investment and voting power is held by the persons named as owners. To our knowledge, except under community property laws or as otherwise noted, the persons and entities named in the table have sole voting and sole investment power over their shares of our common stock. Unless otherwise indicated, each beneficial owner listed below maintains a mailing address of c/o Vasomedical, Inc.,Vaso Corporation, 137 Commercial Street, Plainview, New York 11803.
 
31
Name of Beneficial Owner
 
Common Stock Beneficially Owned (1)
 
 
% of Common Stock (2)
 
Estate of Simon Srybnik (3)
  55,738,318 
  33.35%
Jun Ma, PhD ** 
  5,298,146 
  3.17%
Peter Castle ** 
  3,125,000 
  1.87%
Edgar Rios ** 
  1,625,000 
  * 
David Lieberman ** 
  1,599,200 
  * 
Michael J. Beecher ** 
  1,240,400 
  * 
Behnam Movaseghi ** 
  1,189,404 
  * 
Jonathan Newton ** 
  775,000 
  * 
Joshua Markowitz ** 
  350,000 
  * 
 
    
    
** Directors and executive officers as a group
    
    
(8 persons)
  15,202,150 
  9.10%

Name of Beneficial Owner Common Stock Beneficially Owned (1)  % of Common Stock (2) 
Michael J. Beecher **  640,400   * 
Peter Castle **  1,825,000   1.15%
Randy Hill **  800,000   * 
David Lieberman **  1,449,200   * 
Jun Ma, PhD **  3,259,841   2.06%
Joshua Markowitz **  200,000   * 
Benham Movaseghi **  1,189,404   * 
Jonathan Newton **  375,000   * 
Edgar Rios **  1,475,000   * 
Simon Srybnik (3) (4) **  55,738,318   35.15%
Estate of Louis Srybnik (3) (4)  45,165,993   28.51%
         
** Directors and executive officers as a group        
(10 persons)  66,952,163   42.14%

*Less than 1% of the Company's common stock
(1)
No officer or director owns more than one percent of the issued and outstanding common stock of the Company unless otherwise indicated.
(2)
Applicable percentages are based on 167,109,200 shares of common stock outstanding as of March 31, 2019, adjusted as required by rules promulgated by the SEC.
(3)
As the sole shareholder of Kerns Manufacturing Corp., the estate of Simon Srybnik has voting and dispositive powers over the 25,714,286 shares held by Kerns. The reporting person also has voting and dispositive powers over the 17,815,007 shares of common stock owned by Living Data Technology Corp. Furthermore, the estate of Simon Srybnik also owns and holds sole dispositive power over 12,209,025 additional shares of common stock.

1.No officer or director owns more than one percent of the issued and outstanding common stock of the Company unless otherwise indicated.  Includes beneficial ownership of the following numbers of shares that may be acquired within 60 days of March 25, 2016 pursuant to stock options awarded under our stock plans:

 
Jun Ma, PhD150,000
Behnam Movaseghi150,000
Simon Srybnik150,000
Directors and executive
officers as a group450,000
1.Applicable percentages are based on 158,441,802 shares of common stock outstanding as of March 25, 2016, adjusted as required by rules promulgated by the SEC.
2.Simon Srybnik and the estate of his brother Louis Srybnik are the sole shareholders of Kerns, which is the record holder of 25,714,286 shares. The reporting persons, accordingly, share voting and dispositive powers over the 25,714,286 shares held by Kerns. As a result, they may be deemed to be the co-beneficial owners of an aggregate of 25,714,286 shares.  Mr. Simon Srybnik also holds sole dispositive power over 150,000 shares underlying the option he was granted upon being appointed to the Board of Directors, 598,125 shares of common stock awarded him as of December 31, 2015, as well as 11,460,900 additional shares of common stock.  The estate of Louis Srybnik holds sole dispositive power over 1,636,700 shares of common stock.
3.Simon Srybnik and the estate of Louis Srybnik also each own 35% of the outstanding shares of Living Data Technology Corporation ("Living Data").  The reporting persons, accordingly, share voting and dispositive powers over the 17,815,007 shares of our common stock owned by Living Data and, as a result, may be deemed to be the co-beneficial owners thereof.

32

Equity Compensation Plan Information

We maintain various stock plans under which stock options and stock grants are awarded at the discretion of our Board of Directors or its Compensation Committee. The purchase price of the shares under the plans and the shares subject to each option granted is not less than the fair market value on the date of the grant. The term of each option is generally five years and is determined at the time of the grant by our board of directors or the compensation committee. The participants in these plans are officers, directors, employees, and consultants of the Company and its subsidiaries and affiliates.
 
Plan category
 
(a)
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
 
(b)
Weighted-average exercise price of outstanding options, warrants and rights
 
 
(c)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
 
 
 
 
 
 
 
 
 
 
Equity Compensation
 
 
 
 
 
 
 
 
 
plans approved by
 
 
 
 
 
 
 
 
 
security holders
  - 
 $0.00 
  - 
 
    
    
    
Equity Compensation
    
    
    
plans not approved
    
    
    
by security holders (1)
  2,137,500 
 $0.00 
  1,901,817 
 
    
    
    
Total
  2,137,500 
    
  1,901,817 
Plan category 
(a)
Number of securities to be issued upon exercise of outstanding options, warrants and rights
  
(b)
Weighted-average exercise price of outstanding options, warrants and rights
  
(c)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
          
Equity Compensation         
plans approved by         
security holders  700,000  $0.13   - 
             
Equity Compensation            
plans not approved            
by security holders (1)  320,000  $0.22   3,504,215 
             
Total  1,020,000       3,504,215 
             
 
(1)
(1)Includes 200,000 shares issuable upon exercise of options and 60,000 shares of restricted common stock granted, but unissued, under both the 2010 Plan and the 2013 Plan.  The weighted average exercise price of the options and warrants is $0.22, and the exercise price for the stock grants is zero.  5,059 and 3,499,156 shares remain available for future grants under the 2010 Plan and 2013 Plan, respectively.
Includes 1,637,500 and 500,000 shares of restricted common stock granted, but unissued, under the 2013 Plan and 2016 Plan, respectively. The exercise price for the stock grants is zero. 15,059 shares, 186,758 shares, and 1,700,000 shares remain available for future grants under the 2010 Plan, 2013 Plan, and 2016 Plan, respectively.

See Note ON to the Consolidated Financial Statements for description of the material features of our current stock plans not approved by stockholders.

IITEMTEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
One of the Company'sCompany’s directors, Peter Castle, was the Chief Executive Officer and President of NetWolves Network Services, LLC.LLC, which we acquired in May 2015. Another of the Company'sCompany’s directors, David Lieberman, was a director of NetWolves Network Services, LLC. Mr. Castle and Mr. Lieberman owned of record approximately 10.4% and 5.7%, respectively, of the membership interests of NetWolves LLC. Mr. Lieberman may also be deemed to have owned beneficially up to an additional 13.5% of such membership interests. The Company'sCompany’s board of directors negotiated the purchase price on an arm'sarm’s length basis, and both Mr. Castle and Mr. Lieberman abstained from the vote approving the Asset Purchase Agreement.
 
The Company obtained an opinion regarding the fairness of the purchase price for the NetWolves entities from a reputable, independent third-party investment banking firm. Of the $18,000,000 purchase price paid for the acquisition, $14,200,000 was from the Company'sCompany’s cash on hand and the remaining $3,800,000 was raised from the sale of a Subordinated Secured Note to MedTechnology Investments, LLC ("MedTech"(“MedTech”).

 
33

On May 29, 2015, the Company entered into a Note Purchase Agreement with MedTech pursuant to which it issued MedTech a secured subordinated promissory note ("Note"(“Note”) for $3,800,000 for the purchase of NetWolves. MedTech was formed to acquire the Note, and $1,950,000 of the aggregate funds used to acquire the Note was provided by six of our directors. An additional $100,000 was provided by Joshua Markowitz prior to his joining the board of directors. In June 2015, a second Note for $750,000 was issued to MedTech for working capital purposes, $250,000 of which was provided by a director and a director'sdirector’s relative. In July 2015, an additional $250,000 was borrowed under the Note Purchase Agreement.

The Notes bear interest at an annual rate of 9%, mature on May 29, 2019, may be prepaid without penalty, and are subordinated to any current or future Senior Debt as defined in the Subordinated Security Agreement. The Subordinated Security Agreement secures payment and performance of the Company'sCompany’s obligations under the Notes and as a result, MedTech was granted a subordinated security interest in the Company'sCompany’s assets. As set forth in the following table, three directors of the Company provided funds in excess of $120,000 through Medtech.Medtech during 2015. No principal payments have made for the year ended December 31, 20152018 and interest payments made during the periodyear ended December 31, 2018 to these three directors are as indicated in the table below:

  Principal  Interest 
  Outstanding  Paid 
Peter C. Castle $750,000  $22,388 
David Lieberman $700,000  $21,163 
Jun Ma, PhD $300,000  $9,375 

 
 
 Principal
 
 
Interest
 
 
 
 Outstanding
 
 
Paid
 
Peter C. Castle
 $750,000 
 $68,438 
David Lieberman
 $700,000 
 $63,875 
Jun Ma, PhD
 $300,000 
 $27,375 
David Lieberman, a practicing attorney in the State of New York, serves as Vice Chairman of the Board of Directors. 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 $304,000$340,000 were billed by the firm for the year ended December 31, 20152018 at which date no amounts wereapproximately $28,000 was outstanding.
 
Director Independence
 
We have adopted the NASDAQ Stock Market'sMarket’s standards for determining the independence of directors. Under these standards, an independent director means a person other than an executive officer or one of our employees or any other individual having a relationship which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In addition, the following persons shall not be considered independent:
 
·a director who is, or at any time during the past three years was, employed by us;
·a director who accepted or who has a family member who accepted any compensation from us in excess of $100,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than the following:
a director who is, or at any time during the past three years was, employed by us;
ocompensation for service on the Board of Directors or any committee thereof;
ocompensation paid to a family member who is one of our employees (other than an executive officer); or
a director who accepted or who has a family member who accepted any compensation from us in excess of $100,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than the following:
o
under a tax-qualified retirement plan, or non-discretionary compensation;
·a director who is a family member of an individual who is, or at any time during the past three years was, employed by us as an executive officer;
compensation for service on the Board of Directors or any committee thereof;
·a director who is, or has a family member who is, a partner in, or a controlling stockholder or an executive officer of, any organization to which we made, or from which we received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more, other than the following:
o
opayments arising solely from investments in our securities; or
compensation paid to a family member who is one of our employees (other than an executive officer); or
o
payments under non-discretionary charitable contribution matching programs;
·a director who is, or has a family member who is, employed as an executive officer of another entity where at any time during the past three years any of our executive officers served on the compensation committee of such other entity; or
under a tax-qualified retirement plan, or non-discretionary compensation;
·a director who is, or has a family member who is, a current partner of our outside auditor, or was a partner or employee of our outside auditor who worked on our audit at any time during any of the past three years.
a director who is a family member of an individual who is, or at any time during the past three years was, employed by us as an executive officer;
a director who is, or has a family member who is, a partner in, or a controlling stockholder or an executive officer of, any organization to which we made, or from which we received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more, other than the following:
o
payments arising solely from investments in our securities; or
o
payments under non-discretionary charitable contribution matching programs;
a director who is, or has a family member who is, employed as an executive officer of another entity where at any time during the past three years any of our executive officers served on the compensation committee of such other entity; or
a director who is, or has a family member who is, a current partner of our outside auditor, or was a partner or employee of our outside auditor who worked on our audit at any time during any of the past three years.
 
For purposes of the NASDAQ independence standards, the term “family member” means a person's spouse, parents, children and siblings, whether by blood, marriage or adoption, or anyone residing in such person's home.
34



 
The Board of Directors has assessed the independence of each non-employee director under the independence standards of the NASDAQ Stock Market set forth above, and has affirmatively determined that twothree of our non-employee directors (Mr. Rios, Mr. Markowitz and Mr. Movaseghi) are independent.

We expect each director to attend every meeting of the Board and the committees on which he serves as well as the annual meeting. In the year ended December 31, 2015,2018, all directors except Simon Srybnik attended both the annual meeting and at least 75% of the meetings of the Board and the committees on which they served.
IITEMTEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES

Marcum, LLP is our independent registered public accounting firm and performed the audits of our consolidated financial statements for the years ended December 31, 20152018 and 2014.2017. The following table sets forth all fees for such periods:
 
 2015  2014 
 
2018
 
 
2017
 
Audit fees $238,937  $20,400 
 $255,440 
 $261,445 
Tax fees  -   - 
  - 
All other fees  211,117   - 
  - 
        
    
Total $450,054  $20,400 
 $255,440 
 $261,445 
        
The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax services, and other services performed by the Company'sCompany’s independent auditor. Accordingly, the Audit Committee must approve the permitted service before the independent auditor is engaged to perform it. In accordance with such policies, the Audit Committee approved 100% of the services relative to the above fees.

Marcum, LLP rendered other non-audit services related to the Company's acquisition of NetWolves LLC during the year ended December 31, 2015.

Rothstein, Kass & Company, P.C., ("Rothstein Kass") who was acquired by KPMG during 2014, was our principal accountant for part of the year ended December 31, 2014.  Their fees for 2014 are set forth below:

  2014 
Audit fees $232,970 
Tax fees  50,000 
All other fees  45,000 
     
Total $327,970 
     

Rothstein Kass rendered other non-audit services related to the Company's acquisition of Genwell in August 2014 and related to the Company's response to the SEC Comment Letter in 2014.PART IV
 
35


IPART IV

ITEMTEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
Financial Statements and Financial Statement Schedules
(1)
See Index to Consolidated Financial Statements on page F-1 at beginning of attached financial statements.
(a)
Exhibits
(3)(i) 
(a) 
Restated Certificate of Incorporation (2)
(b) 
Certificate of Designations of Preferences and Rights of Series E Convertible Preferred Stock (3)
(c) 
Certificate of Amendment to Certificate of Incorporation (11)
(3)(ii)
(1)  See Index to Consolidated Financial Statements on page F-1 at beginning of attached financial statements.
By-Laws (1)
(a)Exhibits
(4)

(a) 

Specimen Certificate for Common Stock (1)
(2)(a)Restated Certificate of Incorporation (2)
(b)By-Laws (1)
(3.1)Certificate of Designations of Preferences and Rights of Series E Convertible Preferred Stock (9)
(4)(a)Specimen Certificate for Common Stock (1)
(b)Specimen Certificate for Series E Convertible Preferred Stock (11)
(c)
Secured Subordinated Note, dated as of May 29, 2015, between Vasomedical, Inc. and MedTechnology
Investments LLC (16)
(10)(a)1995 Stock Option Plan (3)
(b)Outside Director Stock Option Plan (3)
(c)1997 Stock Option Plan, as amended (4)
(d)1999 Stock Option Plan, as amended (5)
(e)2004 Stock Option/Stock Issuance Plan (6)
(f)Securities Purchase Agreement dated June 21, 2007 between Registrant and Kerns Manufacturing Corp. (7)
(g)Form of Common Stock Purchase Warrant to dated June 21, 2007 (7)
(h)
Registration Rights Agreement dated June 21, 2007 between Registrant, Kerns Manufacturing Corp.
and Living Data Technology Corporation. (7)
(i)Purchase and Sale Agreement dated June 1, 2007 between 180 Linden Avenue Corp and 180 Linden Realty LLC. (8)
(j)Lease Agreement dated August 15, 2007 between 180 Linden Realty LLC and Registrant (8)
(k)Form of Stock Purchase Agreement (9)
(l)
Redacted Sales Representative Agreement between GE Healthcare Division of General Electric
Company and Vaso Diagnostics, Inc. d/b/a VasoHealthcare, a subsidiary of Vasomedical, Inc.
dated as of May 19, 2010 (10).
(m)2010 Stock Plan (11).
(n)Consulting Agreement dated March 1, 2011 between Vasomedical, Inc. and Edgary Consultants, LLC. (12)
(o)
Employment Agreement entered into as of March 21, 2011 between Vasomedical, Inc. and Jun Ma,
as amended. (15)
(p)
Stock Purchase Agreement dated as of August 19, 2011 among Vasomedical, Inc.,
Fast Growth Enterprises Limited (FGE) and the FGE Shareholders (13)
(q)
Amendment to Sales Representative Agreement between GE Healthcare Division of General Electric
Company and Vaso Diagnostics, Inc. d/b/a VasoHealthcare, a subsidiary of Vasomedical, Inc. dated as of
June 20, 2012 (14)
(r)
Asset Purchase and Sale agreement, dated as of May 29, 2015, by and among Vasomedical, Inc.,
VasoTechnology, Inc., NetWolves LLC and NetWolves Corporation (16)
(s)
 Subordinated Security Agreement dated as of May 29, 2015 by and between vasomedical, Inc.
and MedTechnology Investments LLC (16)
(t)  Employment Agreement dated as of June 1, 2015 between Vasomedical, Inc. and Peter C. Castle (17)

36
(NaN)

Specimen Certificate for Series E Convertible Preferred Stock (5)
(NaN)
Secured Subordinated Note, dated as of May 29, 2015, between Vasomedical, Inc. and MedTechnology Investments LLC(9)
(10) 
(a) 
Form of Stock Purchase Agreement (3)

(b)
Redacted Sales Representative Agreement between GE Healthcare Division of General Electric Company and Vaso Diagnostics, Inc. d/b/a VasoHealthcare, a subsidiary of Vasomedical, Inc. dated as of May 19, 2010 (4).
(c)
2010 Stock Plan (5).
(d)
Employment Agreement entered into as of March 21, 2011 between Vasomedical, Inc. and Jun Ma, as amended. (8)
(e)
Stock Purchase Agreement dated as of August 19, 2011 among Vasomedical, Inc., Fast Growth Enterprises Limited (FGE) and the FGE Shareholders (6)
(f)
Amendment to Sales Representative Agreement between GE Healthcare Division of General Electric Company and Vaso Diagnostics, Inc. d/b/a VasoHealthcare, a subsidiary of Vasomedical, Inc. dated as of June 20, 2012 (7)
(g)
2013 Stock Plan (12)
(h)
Asset Purchase and Sale Agreement, dated as of May 29, 2015, by and among Vasomedical, Inc., VasoTechnology, Inc., NetWolves, LLC and NetWolves Corporation (9)
(i)
Subordinated Security Agreement dated as of May 29, 2015 by and between Vasomedical, Inc. and MedTechnology Investments LLC (9)
(j)
Employment Agreement dated as of June 1, 2015 between Vasomedical, Inc. and Peter C. Castle (10)
(k)
2016 Stock Plan (13)

 
(21)                 Subsidiaries of the Registrant

Name
State of Incorporation
Percentage Owned by Company
Viromedics, Inc.Delaware61%
Vaso Diagnostics, Inc.New York100%
VasoMedical, Inc.Delaware100%
Vasomedical Global CorpCorp.New York100%
Vasomedical Solutions, Inc.New York100%
VasoHealthcare IT Corp.Delaware100%
VasoTechnology, Inc.Delaware100%
NetWolves Network Services LLCFlorida100%
Fast Growth Enterprises LimitedBritish Virgin Islands100%
VSK Medical LimitedCayman Islands49.9%
(31)                Certification Reports pursuant to Securities Exchange Act Rule 13a - 14
(32)                Certification Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  __________________________
(1)
Incorporated by reference to Registration Statement on Form S-18, No. 33-24095.
(2)
Incorporated by reference to Registration Statement on Form S-1, No. 33-46377 (effective 7/12/94).
(3)
Incorporated by reference to Report on Form 8-K dated June 21, 2010.
(4)
Incorporated by reference to Report on Form 8-K/A dated May 19, 2010 and filed November 9, 2010.
(5)
Incorporated by reference to Report on Form 10-K for the fiscal year ended May 31, 2010.
(6)
Incorporated by reference to Report on Form 10-K for the fiscal year ended May 31, 2011.
(7)
Incorporated by reference to Report on Form 8-K dated June 20, 2012.
(8)
Incorporated by reference to Report on Form 8-K dated March 21, 2011.
(9)
Incorporated by reference to Report on Form 8-K dated May 29, 2015.
(10)
Incorporated by reference to Report on Form 8-K dated October 8, 2015.
(11)
Incorporated by reference to Report on Form 10-Q for the quarter ended September 30, 2016.
(12)
Incorporated by reference to Report on Form 10-Q for the quarter ended September 30, 2013.
(13)
Incorporated by reference to Report on Form 10-Q for the quarter ended June 30, 2016.


(31)Certification Reports pursuant to Securities Exchange Act Rule 13a - 14
(32)Certification Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

__________________________
(1)Incorporated by reference to Registration Statement on Form S-18, No. 33-24095.
(2)Incorporated by reference to Registration Statement on Form S-1, No. 33-46377 (effective 7/12/94).
(3)Incorporated by reference to Report on Form 8-K dated January 24, 1995.
(4)Incorporated by reference to Report on Form 10-K for the fiscal year ended May 31, 1999
(5)Incorporated by reference to Report on Form 10-K for the fiscal year ended May 31, 2000.
(6)Incorporated by reference to Notice of Annual Meeting of Stockholders dated October 28, 2004.
(7)Incorporated by reference to Report on Form 8-K dated June 21, 2007.
(8)Incorporated by reference to Report on Form 10-KSB for the fiscal year ended May 31, 2007.
(9)Incorporated by reference to Report on Form 8-K dated June 21, 2010.
(10)Incorporated by reference to Report on Form 8-K/A dated May 29, 2010 and filed November 9, 2010.
(11)Incorporated by reference to Report on Form 10-K for the fiscal year ended May 31, 2010.
(12)Incorporated by reference to Report on Form 8-K dated March 4, 2011.
(13)Incorporated by reference to Report on Form 10-K for the fiscal year ended May 31, 2011.
(14)Incorporated by reference to Report on Form 8-K dated June 20, 2012.
(15)
(16)
(17)
Incorporated by reference to Report on Form 10-K for the fiscal year ended December 31, 2013.
Incorporated by reference to Report on Form 8-K dated May 29, 2015.
Incorporated by reference to Report on Form 8-K dated October 8, 2015.

37SIGNATURES


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 3015th day of March 2016.April 2019.

 
 VASO CORPORATIONVASOMEDICAL, INC.
  
DateBy:  
/s/ Jun Ma
  Jun Ma
  
President, Chief Executive Officer,

and Director (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 30, 2016,April 15, 2019, by the following persons in the capacities indicated:


/s/ Jun Ma
President, Chief Executive Officer and Director
Jun Ma(Principal Executive Officer)
  
/s/ Michael BeecherChief Financial Officer (Principal Financial Officer)
Michael Beecher 
   
 /s/ Peter C. Castle Chief Operating Officer and Director
 Peter C. Castle 
   
/s/ Simon SrybnikJoshua MarkowitzChairman of the Board
Simon SrybnikJoshua Markowitz 
   
/s/ David LiebermanVice Chairman of the Board
David Lieberman 
 
/s/ Randy HillSenior Vice President and Director
Randy Hill
   
/s/ Edgar RiosDirector
Edgar Rios 
   
/s/ Behnam MovaseghiDirector
Behnam Movaseghi 
 /s/ Joshua MarkowitzDirector
 Joshua Markowitz 
  
 
 

38

Vaso Corporation and Subsidiaries
 

Vasomedical, Inc. and Subsidiaries

IINDEXNDEX TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 20152018 and 20142017
 

For the years ended December 31, 2017 and 2016
 
Page
  
Report of Independent Registered Public Accounting FirmF-2
  
Financial Statements 
Consolidated Balance Sheets as of December 31, 20152018 and 20142017F-3
  
Consolidated Statements of IncomeOperations and Comprehensive IncomeLoss
 
for the years ended December 31, 20152018 and 20142017F-4
  
Consolidated Statements of Changes in Stockholders' Equity 
for the years ended December 31, 20152018 and 20142017F-5
  
Consolidated Statements of Cash Flows 
for the years ended December 31, 20152018 and 20142017F-6
  
Notes to Consolidated Financial StatementsF-7 – F-37F-38


F-1F-1

RREPORTEPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Audit Committee of the
Stockholders and Board of Directors and Stockholdersof
of Vasomedical, Inc.Vaso Corporation

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Vasomedical, Inc.Vaso Corporation and Subsidiaries (the "Company"“Company”) as of December 31, 20152018 and 2014, and2017, the related consolidated statements of incomeoperations and comprehensive income, changes in stockholders'loss, stockholders’ equity and cash flows for each of the two years then ended.in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note A, the Company has incurred significant losses and needs to extend the maturity dates of its lines of credit to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note A. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vasomedical, Inc. and Subsidiaries, as of December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Marcum LLP
Marcum llpLLP
We have served as the Company’s auditor since 2014.
Melville, NY
April 15, 2019

March 30, 2016
 
Vaso Corporation and Subsidiaries
F-2

Vasomedical, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
 
December 31,
2018
 
 
December 31,
2017
 
 December 31, 2015  December 31, 2014 
 
 
 
ASSETS      
 
 
 
CURRENT ASSETS      
 
 
 
Cash and cash equivalents $2,160  $9,128 
 $2,668 
 $5,245 
Short-term investments  38   111 
Accounts and other receivables, net of an allowance for doubtful        
    
accounts and commission adjustments of $3,863 at December 31,        
2015 and $4,571 at December 31, 2014  11,620   15,273 
accounts and commission adjustments of $3,994 at December 31,
    
2018 and $4,872 at December 31, 2017
  11,028 
  13,225 
Receivables due from related parties  209   21 
  20 
Inventories, net  1,963   1,898 
  1,983 
  2,355 
Deferred commission expense  2,252   2,200 
  2,585 
  3,649 
Prepaid expenses and other current assets  512   363 
  890 
  993 
Total current assets  18,754   28,994 
  19,174 
  25,487 
        
    
PROPERTY AND EQUIPMENT, net of accumulated depreciation of        
    
$2,976 at December 31, 2015 and $1,397 at December 31, 2014
  2,888   266 
$6,370 at December 31, 2018 and $4,980 at December 31, 2017
  5,809 
  4,719 
GOODWILL  17,484   3,288 
  17,309 
  17,471 
INTANGIBLES, net  6,977   2,826 
  4,740 
  5,254 
OTHER ASSETS  4,315   5,617 
OTHER ASSETS, net
  3,067
 
  3,847 
DEFERRED TAX ASSETS, net
  375
 
  -
 
 $50,418  $40,991 
 $50,474 
 $56,778 
        
    
LIABILITIES AND STOCKHOLDERS' EQUITY        
    
CURRENT LIABILITIES        
    
Accounts payable $4,037  $462 
 $6,284 
 $5,423 
Accrued commissions  2,031   2,247 
  2,116 
  2,467 
Accrued expenses and other liabilities  4,511   5,583 
  5,655 
  5,337 
Sales tax payable  671   247 
  1,020 
  787 
Income taxes payable  202   44 
Deferred revenue - current portion  9,480   9,882 
  10,382 
  15,540 
Notes payable - current portion  1,485   163 
Notes payable and capital lease obligations - current portion
  9,304
 
  3,674 
Notes payable - related parties - current portion
  582
 
  86 
Due to related party  33   1,039 
  10 
  390 
Total current liabilities  22,450   19,667 
  35,353 
  33,704 
        
    
LONG-TERM LIABILITIES        
    
Notes payable  4,886   - 
Notes payable due to related party  963   - 
Deferred revenue  9,036   12,650 
Notes payable and capital lease obligations, net of current portion
  400 
  4,834 
Notes payable - related parties, net of current portion
  245 
  259 
Deferred revenue, net of current portion
  7,704 
  7,526 
Deferred tax liability  112   112 
  124 
  220 
Other long-term liabilities  1,230   811 
  1,037 
  1,083 
Total long-term liabilities  16,227   13,573 
  9,510 
  13,922 
        
    
COMMITMENTS AND CONTINGENCIES (NOTE R)        
COMMITMENTS AND CONTINGENCIES (NOTE P)
    
        
    
STOCKHOLDERS' EQUITY        
    
Preferred stock, $.01 par value; 1,000,000 shares authorized; nil shares        
    
issued and outstanding at December 31, 2015, and December 31, 2014  -   - 
issued and outstanding at December 31, 2018 and 2017
  - 
Common stock, $.001 par value; 250,000,000 shares authorized;        
    
168,749,889 and 166,435,370 shares issued at December 31, 2015        
and December 31, 2014, respectively; 158,441,802 and        
156,127,283 shares outstanding at December 31, 2015 and        
December 31, 2014, respectively  168   166 
177,417,287 and 175,741,970 shares issued at December 31, 2018
    
and 2017, respectively; 167,109,200 and 165,433,883 shares
    
outstanding at December 31, 2018 and 2017, respectively
  178 
  176 
Additional paid-in capital  62,263   61,924 
  63,672 
  63,363 
Accumulated deficit  (48,610)  (52,433)
  (55,924)
  (52,329)
Accumulated other comprehensive income  (80)  94 
Treasury stock, at cost, 10,308,087 shares at December 31, 2015 and December 31, 2014  (2,000)  (2,000)
Total stockholders' equity  11,741   7,751 
Accumulated other comprehensive loss
  (315)
  (58)
Treasury stock, at cost, 10,308,087 shares at December 31, 2018 and 2017
  (2,000)
Total stockholders’ equity
  5,611 
  9,152 
 $50,418  $40,991 
 $50,474 
 $56,778 
See Note B for Variable Interest Entity disclosures
 
The accompanying notes are an integral part of these consolidated financial statementsstatements.
 
F-3


 
Vasomedical, Inc.Vaso Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS AND COMPREHENSIVE INCOMELOSS
(in thousands, except per share data)
 
 
  Year ended
 
 
Year Ended December 31,
 
 
 December 31,
 
 2015  2014 
 
2018
 
 
2017
 
Revenues      
 
 
 
Managed IT systems and services
 $44,228 
 $42,581 
Professional sales services $31,584  $30,236 
  25,511 
  26,443 
Managed IT systems and services  21,149   48 
Equipment sales and services  4,349   4,670 
  4,241 
  3,764 
Total revenues  57,082   34,954 
  73,980 
  72,788 
        
    
Cost of revenues        
    
Cost of managed IT systems and services
  25,849 
  24,958 
Cost of professional sales services  7,052   7,985 
  5,346 
  5,813 
Cost of managed IT systems and services  12,536   27 
Cost of equipment sales and services  2,127   1,750 
  1,661 
  1,286 
Total cost of revenues  21,715   9,762 
  32,856 
  32,057 
Gross profit  35,367   25,192 
  41,124 
  40,731 
        
    
Operating expenses        
    
Selling, general and administrative  30,913   23,326 
  43,962 
  43,618 
Research and development  515   803 
  886 
  945 
Total operating expenses  31,428   24,129 
  44,848 
  44,563 
Operating income  3,939   1,063 
Operating loss
  (3,724)
  (3,832)
        
    
Other income (expense)        
    
Interest and financing costs  (472)  (43)
  (750)
  (674)
Interest and other income, net  312   250 
  143 
  101 
Loss on disposal of fixed assets  -   (15)
Total other income (expense), net  (160)  192 
Gain on sale of investment in VSK
  212 
  - 
Total other expense, net
  (395)
  (573)
        
    
Income before income taxes  3,779   1,255 
Income tax expense  44   (127)
Net income  3,823   1,128 
Loss before income taxes
  (4,119)
  (4,405)
Income tax benefit (expense)
  385 
  (134)
Net loss
  (3,734)
  (4,539)
        
    
Other comprehensive income        
Foreign currency translation loss  (174)  (14)
Comprehensive income $3,649  $1,114 
Other comprehensive loss
    
Foreign currency translation (loss) gain
  (257)
  271 
Comprehensive loss
 $(3,991)
 $(4,268)
        
    
Income per common share        
- basic $0.02  $0.01 
- diluted $0.02  $0.01 
Loss per common share
    
- basic and diluted
 $(0.02)
 $(0.03)
        
    
Weighted average common shares outstanding        
    
- basic  156,707   155,362 
- diluted  157,189   156,032 
- basic and diluted
  165,420 
  162,213 

The accompanying notes are an integral part of these consolidated financial statements.

F-4Vaso Corporation and Subsidiaries

Vasomedical, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
 
                    Accumulated    
                    Other  Total 
  Common Stock  Treasury Stock  Additional  Accumulated  Comprehensive  Stockholders' 
  Shares  Amount  Shares  Amount  Paid-in-Capital  Deficit  Income  Equity 
Balance at December 31, 2013  164,705   165   (9,481)  (1,755)  61,508   (53,561)  108   6,465 
Repurchase of shares  -   -   (827)  (245)  -   -   -   (245)
Share-based
compensation
  1,280   1   -   -   389   -   -   390 
Shares not issued for
employee tax liability
  -   -   -   -   (9)  -   -   (9)
Exercise of stock options  450   -   -   -   36   -   -   36 
Foreign currency
translation loss
  -   -   -   -   -   -   (14)  (14)
Net income  -   -   -   -   -   1,128   -   1,128 
Balance at December 31, 2014  166,435  $166   (10,308) $(2,000) $61,924  $(52,433) $94  $7,751 
Share-based
compensation
  2,315   2   -   -   340   -   -   342 
Shares not issued for
employee tax liability
  -   -   -   -   (1)  -   -   (1)
Foreign currency
translation loss
  -   -   -   -   -   -   (174)  (174)
Net income  -   -   -   -   -   3,823   -   3,823 
Balance at December 31, 2015  168,750  $168   (10,308) $(2,000) $62,263  $(48,610) $(80) $11,741 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
Other
 
 
Total
 
 
 
Common Stock
 
 
Treasury Stock
 
 
Paid-in
 
 
Accumulated
 
 
Comprehensive
 
 
 Stockholders’
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
 Loss
 
 
Equity
 
Balance at January 1, 2017
  173,812 
 $174 
  (10,308)
 $(2,000)
 $62,856 
 $(47,790)
 $(329)
 $12,911 
Share-based compensation
  1,930 
  2 
  - 
  - 
  512 
  - 
  - 
  514 
Shares not issued for employee tax liability
  - 
  - 
  - 
  - 
  (5)
  - 
  - 
  (5)
Foreign currency translation gain
  - 
  - 
  - 
  - 
  - 
  - 
  271 
  271 
Net loss
  - 
  - 
  - 
  - 
  - 
  (4,539)
  - 
  (4,539)
Balance at December 31, 2017
  175,742 
 $176 
  (10,308)
 $(2,000)
 $63,363 
 $(52,329)
 $(58)
 $9,152 
Share-based compensation
  1,675 
  2 
  - 
  - 
  311 
  - 
  - 
  313 
Adoption of new accounting standard (*)
  - 
  - 
  - 
  - 
  - 
  139 
  - 
  139 
Shares not issued for employee tax liability
  - 
  - 
  - 
  - 
  (2)
  - 
  - 
  (2)
Foreign currency translation loss
  - 
  - 
  - 
  - 
  - 
  - 
  (257)
  (257)
Net loss
  - 
  - 
  - 
  - 
  - 
  (3,734)
  - 
  (3,734)
Balance at December 31, 2018
  177,417 
 $178 
  (10,308)
 $(2,000)
 $63,672 
 $(55,924)
 $(315)
 $5,611 
 

(*) Accounting Standards Codification Topic 606, Revenue from Contracts with Customers.
The accompanying notes are an integral part of these consolidated financial statements.

F-5Vaso Corporation and Subsidiaries


Vasomedical, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
  Year ended December 31, 
  2015  2014 
Cash flows from operating activities      
Net income $3,823  $1,128 
Adjustments to reconcile net income to net cash        
  provided by operating activities        
Depreciation and amortization  1,540   467 
Deferred income taxes  (334)  - 
Loss on disposal of fixed assets  -   15 
Provision for doubtful accounts and commission adjustments  102   (40)
Amortization of debt issue costs  19   - 
Share-based compensation and arrangements  342   390 
Changes in operating assets and liabilities:        
Accounts and other receivables  4,977   (1,671)
Receivables due from related parties  (178)  - 
Inventories, net  (201)  (294)
Deferred commission expense  (51)  112 
Other current assets  20   (25)
Other assets  1,793   (2,505)
Accounts payable  347   (135)
Accrued commissions  (263)  86 
Accrued expenses and other  liabilities  (1,401)  18 
Sales tax payable  7   18 
Income taxes payable  158   44 
Deferred revenue  (4,016)  4,513 
Notes payable due to related party  (24)  20 
Other long-term liabilities  (140)  453 
Net cash provided by operating activities  6,520   2,594 
         
Cash flows from investing activities        
Purchases of equipment and software  (893)  (389)
Sale of fixed assets  -   24 
Purchases of short-term investments  (38)  (111)
Redemption of short-term investments  40   111 
Acquisition of Genwell  -   (1,136)
Cash acquired through purchase of Genwell  -   113 
Acquisition of Netwolves  (18,000)  - 
Cash acquired through purchase of Netwolves  733   - 
Investment in VSK  (100)  - 
Net cash used in investing activities  (18,258)  (1,388)
         
Cash flows from financing activities        
Net borrowings on revolving line of credit  47   - 
Proceeds from exercise of stock options  -   36 
Repurchase of common stock  -   (245)
Repayment of notes payable  (146)  - 
Proceeds from note payable  4,800   163 
Net cash provided by (used in) financing activities  4,701   (46)
Effect of exchange rate differences on cash and cash equivalents  69   7 
         
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS  (6,968)  1,167 
Cash and cash equivalents - beginning of year  9,128   7,961 
Cash and cash equivalents - end of year $2,160  $9,128 
         
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION        
Interest paid $196  $1 
Income taxes paid $130  $48 
         
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES        
Inventories transferred to property and equipment,        
attributable to operating leases, net $102  $6 
Note issued for acquisition $-  $1,017 
Debt issuance cost in accrued expenses $130      
Fair value of assets acquired $23,350   $2,038  
Fair value of liabilities assumed $6,083   $ 
         
 
 
 Year ended
 
 
 
December 31,
 
 
 
2018
 
 
2017
 
Cash flows from operating activities
 
 
 
 
 
 
Net loss
 $(3,734)
 $(4,539)
Adjustments to reconcile net loss to net
    
    
  cash (used in) provided by operating activities
    
    
Depreciation and amortization
  2,522 
  2,426 
Deferred income taxes
  (374)
  216 
Loss from interest in joint venture
  9 
  20 
Gain on sale of investment in VSK
  (212)
  - 
Loss on disposal of property and equipment
  - 
  3 
Provision for doubtful accounts and commission adjustments
  460
  271 
Amortization of debt issue costs
  32 
  33 
Share-based compensation
  313 
  514 
Changes in operating assets and liabilities:
    
    
Accounts and other receivables
  1,725
  (737)
Receivables due from related parties
  - 
  (25)
Inventories, net
  329 
  87 
Deferred commission expense
  1,174 
  (1,732)
Prepaid expenses and other current assets
  98 
  (66)
Other assets, net
  223 
  1,036 
Accounts payable
  864 
  197 
Accrued commissions
  (599)
  296 
Accrued expenses and other liabilities
  602 
  27 
Sales tax payable
  239 
  67 
Deferred revenue
  (4,981)
  3,663 
Deferred tax liability
  (97)
  108 
Other long-term liabilities
  (46)
  (266)
Net cash (used in) provided by operating activities
  (1,453)
  1,599 
 
    
    
Cash flows from investing activities
    
    
Purchases of equipment and software
  (2,586)
  (2,374)
Proceeds from sale of investment in VSK
  311 
  - 
Net cash used in investing activities
  (2,275)
  (2,374)
 
    
    
Cash flows from financing activities
    
    
Net borrowings (repayments) on revolving line of credit
  778 
  (384)
Payroll taxes paid by withholding shares
  (2)
  (5)
Proceeds from note payable
  21 
  - 
Repayment of notes payable and capital lease obligations
  (156)
  (328)
Proceeds from (payments on) notes payable - related parties
  500 
  (335)
Net cash provided by (used in) financing activities
  1,141 
  (1,052)
Effect of exchange rate differences on cash and cash equivalents
  10 
  (15)
 
    
    
NET DECREASE IN CASH AND CASH EQUIVALENTS
  (2,577)
  (1,842)
Cash and cash equivalents - beginning of year
  5,245 
  7,087 
Cash and cash equivalents - end of year
 $2,668 
 $5,245 
 
    
    
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
    
    
Interest paid
 $701 
 $639 
Income taxes paid
 $79 
 $58 
 
    
    
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
    
    
Equipment acquired through capital lease
 $529 
 $- 

The accompanying notes are an integral part of these consolidated financial statementsstatements.ES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
 
F-6

Vasomedical, Inc.Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the Years Ended December 31, 2018 and 2017
 
NNOTEOTE A – DESCRIPTION OF BUSINESS AND GOING CONCERN ASSESSMENT

Vasomedical, Inc.Vaso Corporation was incorporated in Delaware in July 1987.For most of its history, the Company was a single-product company designing, manufacturing, marketing and servicing its proprietary Enhanced External Counterpulsaion, or EECP®, therapy systems, mainly for the treatment of angina. In 2010 it began to diversify its business operations. The Company changed its name to Vaso Corporation in 2016 to more accurately reflect the diversified nature of its business mixture, and continues to use the original name VasoMedical for its proprietary medical device subsidiary. Unless the context requires otherwise, all references to "we"“we”, "our"“our”, "us"“us”, "Company"“Company”, "registrant"“registrant”, "Vasomedical"“Vaso” or "management"“management” refer to Vasomedical, Inc.Vaso Corporation and its subsidiaries.

Overview

Vasomedical, Inc.Vaso Corporation principally operates in three distinct business segments in the healthcare equipment and information technology industries. We manage and evaluate our operations, and report our financial results, through these three business segments.

·IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;

IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;
·Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for large OEMs into the health provider middle market; and

·Equipment segment, operating through wholly-owned subsidiaries Vasomedical Global Corp. and Vasomedical Solutions, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices.
Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for General Electric Healthcare (“GEHC”) into the health provider middle market; and

Equipment segment, primarily focuses on the design, manufacture, sale and service of proprietary medical devices, operating through a wholly-owned subsidiary VasoMedical, Inc., which in turn operates through Vasomedical Solutions, Inc. for domestic business and Vasomedical Global Corp. for international business, respectively.
VasoTechnology

VasoTechnology, Inc. was formed in May 2015, at the time the Company acquired all of the assets of NetWolves, LLC and its affiliates, including the membership interests in NetWolves Network Services, LLC (collectively, "NetWolves"“NetWolves”). It currently consists of a managed network and security service division, NetWolves, and a healthcare IT application VAR (value added reseller) division.division, VasoHealthcare IT.

In June 2014, the Company began its IT segment business by executing the Value Added Reseller Agreement ("(“VAR Agreement"Agreement”) with GEHC to become a national value added reseller of GE Healthcare IT's Radiology PACS (PictureGEHC Digital’s software solutions such as Picture Archiving and Communication System) software solutionsSystem (“PACS”), Radiology Information System (“RIS”), and related services, including implementation, training, management and support. This multiyear VAR Agreement focuses primarily on existing customer segments currently served by VasoHealthcare on behalf of GEHC. A new wholly owned subsidiary, VasoHealthcare IT Corp. ("(“VHC IT"IT”), was formed to conduct the healthcare IT business.

In May 2015, the Company further expanded its IT segment business by acquiring NetWolves. NetWolves designs and delivers multi-network and multi-technology solutions as a managed network provider, and provides a complete single-source solution that includes design, network redundancy, application device management, real-time network monitoring, reporting and support systems as a comprehensive solution.The Company believes there are significant operational synergies between NetWolves' capabilities

F-7
Vaso Corporation and VasoHealthcare IT's requirements under its VAR Agreement with GEHC,Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and is engaged in expanding NetWolves' existing services to the healthcare IT market.2017

VasoHealthcare

In May 2010, the Company launched its Professional Sales Service business through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, which was appointed the exclusive representative for the sale of select General Electric Company ("GE")GEHC diagnostic imaging equipment to specific market segments in the 48 contiguous states of the United States and the District of Columbia. The original agreement ("(“GEHC Agreement"Agreement”) was for three years ending June 30, 2013; in 2012 it washas been extended to June 30, 2015several times and again in 2014 to currently expires December 31, 2018,2022, subject to earlier termination under certain circumstancesand termination without cause on or after July 1, 2017.

F-7.

Vasomedical, Inc. and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VasoMedical
 
Vasomedical Global and Vasomedical Solutions

The proprietary medical equipment business now all under VasoMedical traces back to 1995 when the Company began the external counterpulsation technology in the United States. Vasomedical Global was formed in 2011 to combine and coordinate the various international operations including design, development, manufacturing, and sales operations of medical devices, acquired by the Company.while domestic activities are under Vasomedical Solutions.

The Company'sCompany’s Equipment business also has been significantly expanded from the original EECP®-only operations. In September 2011, the Company acquired Fast Growth Enterprises Ltd. ("FGE"),FGE, a British Virgin Islands company, which owns or controls two Chinese operating companies - Life Enhancement Technology Ltd. ("LET"(“LET”) based in Foshan, China, and Biox Instruments Co. Ltd. ("Biox"(“Biox”) based in Wuxi, China, respectively - to expand its technical and manufacturing capabilities and to enhance its distribution network, technology, and product portfolio. Biox is a variable interest entity (“VIE”) controlled by FGE through certain contracts and an option to acquire all the shares of Biox. In August 2014, the Company acquired all of the outstanding shares of Genwell Instruments Co. Ltd. ("Genwell"(“Genwell”), located in Wuxi, China, through its wholly owned subsidiary Wuxi Gentone Instruments Co. Ltd. ("Gentone").China. Genwell was formed in China in 2010 with the assistance of a government grant to develop the MobiCare™ wireless multi-parameter patient monitoring system and holds intellectual property rights for this system.As a result, the Company has now expanded its equipment products portfolio to include Biox™ series ambulatory patient monitoring systems, ARCS™ series software for ECG and blood pressure analysis, and the MobiCare™ patient monitoring device. In 2017, as an effort to further reduce engineering and production cost of its EECP® products, the Company moved the operations of LET from Foshan, China to Biox in Wuxi, China, and closed LET in 2018.

In April 2014, the Company entered into ana cooperation agreement with Chongqing PSK-Health Sci-Tech Development Co., Ltd. ("PSK"(“PSK”) of Chongqing, China, the leading manufacturer of external counter pulsation, or ECP, therapy systems in China, to form a joint venture company, VSK Medical Limited ("VSK"(“VSK”), a Cayman Islands company, for the global marketing, sale and advancement of ECP therapy technology. The Company ownsowned 49.9% of VSK, which commenced operations in January 2015. In March 2018, the Company terminated the cooperation agreement with PSK and sold its shares in VSK to PSK (see Note K).
 
Going concern assessment
We have incurred net losses from operations for the years ended December 31, 2018 and 2017, and we maintain lines of credit from a lending institution and these lines of credit will require further extensions after their current June 28, 2019 maturity date. These events raise substantial doubt about our ability to continue as a going concern. Our ability to continue operating as a going concern is dependent upon achieving profitability, extending the maturity date of our existing lines of credit, or through additional debt or equity financing. Achieving profitability is largely dependent on our ability to reduce operating costs and to maintain or increase our current revenue. While we believe we will continue to maintain or increase our gross revenue and are in the process of reducing operating costs, and while historically we have received extensions of the maturity dates of our lines of credit, failure to achieve these objectives could cast doubt on our ability to continue as a going concern.

F-8
Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in the preparation of the consolidated financial statements are as follows:

Principles of Consolidation

The consolidated financial statements include the accounts of Vasomedical, Inc.,Vaso Corporation, its wholly-owned subsidiaries, and the variable interest entitiesentity where the Company is the primary beneficiary. Significant intercompany accountsbalances and transactions have been eliminated.  The Company's minority interest in the VSK joint venture is accounted for using the equity method of accounting and is included in other assets on the consolidated balance sheet.

Variable Interest Entity

Basic Information

The Company follows the guidance of accounting for variable interest entities, which requires certain variable interest entities to be consolidated by the primary beneficiary of the entities.

Biox is a Variable Interest Entity (VIE)(“VIE”). Laws and regulations of the Peoples Republic of China (PRC)(“PRC”) prohibit or restrict companies with foreign ownership from certain activities and benefits including eligibility for certain government grants and certain rebates related to commercial activities. To provide the Company the expected residual returns of the VIE, the Company, through its wholly-owned subsidiary Gentone, entered into a series of contractual arrangements with Biox and its registered shareholders to enable the Company, to:

·exercise effective control over the VIE;
·receive substantially all of the economic benefits and residual returns, and absorb substantially all the risks of the VIE as if they were their sole shareholders; and
exercise effective control over the VIE;
·have an exclusive option to purchase all of the equity interests in the VIE.

receive substantially all of the economic benefits and residual returns, and absorb substantially all the risks of the VIE as if they were their sole shareholders; and
have an exclusive option to purchase all of the equity interests in the VIE.
The Company'sCompany’s management evaluated the relationships between the Company and Biox, and the economic benefits flow of the applicable contractual arrangements. The Company concluded that it is the primary beneficiary of Biox. As a result, the results of operations, assets and liabilities of Biox have been included in the Company'sCompany’s consolidated financial statements.
 
F-8

Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The significant agreements through which the Company exercises effective control over Biox are:
the Exclusive Technical Consulting Services Agreement between Biox and Gentone;
the Option Agreement on Purchase of the Equity Interest executed by and among the shareholders of Biox and Gentone;
the Equity Pledge Agreement executed by and among the shareholders of Biox and Gentone; and
the Powers of Attorney issued by the shareholders of Biox.

·the Exclusive Technical Consulting Services Agreement between Biox and Gentone;
·the Option Agreement on Purchase of the Equity Interest executed by and among the shareholders of Biox and Gentone;
F-9
·the Equity Pledge Agreement executed by and among the shareholders of Biox and Gentone; and
·the Powers of Attorney issued by the shareholders of Biox.

Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Financial Information of VIE

Liabilities recognized as a result of consolidating this VIE do not represent additional claims on the Company'sCompany’s general assets. VIE assets can be used to settle obligations of the primary beneficiary. The financial information of Biox, which was included in the accompanying consolidated financial statements, is presented as follows:
 
 
(in thousands)
 
 
As of December 31,
 
 (in thousands) 
 
2018
 
 
2017
 
 As of December 31, 2015  As of December 31, 2014 
 
 
 
Cash and cash equivalents $104  $159 
 $97 
 $41 
Total assets $1,168  $1,047 
 $1,641 
 $1,599 
Total liabilities $1,007  $878 
 $1,662 
 $1,745 
        
 

   (in thousands) 
  Year ended December 31, 
  2015  2014 
       
Total net revenue $1,715  $1,741 
         
Net loss $(35) $(373)
         
 
 
(in thousands)
 
 
 
Year ended December 31,
 
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Total net revenue
 $2,294 
 $1,597 
 
    
    
Net income (loss)
 $111 
 $(524)
 
Use of Estimates
 
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("(“U.S. GAAP"GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates and assumptions relate to estimates of collectibility of accounts receivable, the realizability of deferred tax assets, stock-based compensation, values and lives assigned to acquired intangible assets, fair value of reporting units in connection with goodwill impairment test, the adequacy of inventory and warranty reserves, variable consideration, and allocation of fair value among the elements of the multi-deliverable arrangements. Additionally, significant estimates and assumptions impact the Company's accounting relativecontract transaction price to its business combination.performance obligations. Actual results could differ from those estimates.

Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. ASU 2014-09 replaced most existing revenue recognition guidance in U.S. GAAP. The new standard introduces a five-step process to be followed in determining the amount and Expense Recognitiontiming of revenue recognition. It also provides guidance on accounting for costs incurred to obtain or fulfill contracts with customers, and establishes disclosure requirements which are more extensive than those required under prior U.S. GAAP. Generally, we recognize revenue under Topic 606 for each of our performance obligations either over time (generally, the Professional Sales Service Segmenttransfer of a service) or at a point in time (generally, the transfer of a good) as follows:

The Company recognizes commission revenue
VasoTechnology
Revenue relating to recurring managed network and voice services provided by NetWolves are recognized as provided on a monthly basis (“over time”). Non-recurring charges related to the provision of such services are recognized in its professional sales service segment (see Note C) when persuasive evidencethe period provided (“point in time”). In the IT VAR business, software system installations are recognized upon verification of installation and expiration of an arrangement exists, service has been rendered,acceptance period (“point in time”). Monthly post-implementation customer support provided under such installations as well as software solutions offered under a monthly Software as a Service (“SaaS”) fee basis are recognized monthly over the pricecontract term (“over time”).

F-10
Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
VasoHealthcare
Commission revenue is fixed or determinable and collectability is reasonably assured.  These conditions are deemed to be metrecognized when the underlying equipment has been delivered by GEHC and accepted at the customer site in accordance with the specific terms of the specific sales agreement.  Consequently, amounts billable under the agreement with GE Healthcare(“point in advance of the customer acceptance of the equipment are recorded as accounts receivable and deferred revenue in the Consolidated Balance Sheets.  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.time”).
 
F-9

Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VasoMedical

Revenue and Expense Recognition for the IT Segment

The Company currently derives its revenues in the IT segment from two sources: (1) telecommunication and managed network services, which are comprised primarily of fixed monthly fees and variable usage charges; and (2) the resale to diagnostic imaging service providers of GEHC's PACS software solutions, which is comprised of software from GEHC and other vendors, hardware, related solution implementation services, and post-implementation customer support ("PCS").  We offer our customers the option to purchase our software solutions or to subscribe our solutions under a monthly Software as a Service ("SaaS") fee basis.  Customers that purchase our software solutions may elect to purchase PCS, comprised of software license updates and product support contracts, which provide our customers with rights to unspecified product upgrades and maintenance releases issued during the support period, as well as technical support assistance and remote network monitoring.
Revenue Recognition for Multiple-Element Arrangements - Arrangements with Software and Non-software Elements

We enter into multiple-element arrangements that may include a combination of our various software related and non-software related products and services offerings including new software licenses, hardware, implementation services, PCS and monthly subscription-based SaaS solutions. In such arrangements, we first allocate the total arrangement consideration based on the relative selling prices of the software group of elements as a whole and to the non-software elements. We then further allocate consideration within the software group to the respective elements within that group following the guidance in ASC 985-605, "Software-Revenue Recognition" and allocate consideration within the non-software group to the respective elements within that group following the guidance in ASC 605-25, "Revenue Recognition, Multiple-Element Arrangements". After the arrangement consideration has been allocated to the elements, we account for each respective element in the arrangement as described below.
Revenue Recognition for Multiple-Element Arrangements - Software Products and Software Related Services (Software Arrangements)

We enter into arrangements with customers that purchase both software related products and software related services from us at the same time, or within close proximity of one another (referred to as software related multiple-element arrangements). Such software related multiple-element arrangements include the sale of our software products, implementation services, and PCS, whereby software license delivery is followed by the subsequent or contemporaneous delivery of the other elements. For those software related multiple-element arrangements, we have applied the residual method to determine the amount of new software license revenues to be recognized pursuant to ASC 985-605. Under the residual method, if fair value exists for undelivered elements in a multiple-element arrangement, such fair value of the undelivered elements is deferred with the remaining portion of the arrangement consideration generally recognized upon delivery of the software license. We allocate the fair value of each element of a software related multiple-element arrangement based upon its fair value as determined by our vendor specific objective evidence ("VSOE" as described further below), with any remaining amount allocated to the software license.

The basis for our software license revenue recognition is substantially governed by the accounting guidance contained in ASC 985-605. We exercise judgment and use estimates in connection with the determination of the amount of software and software related services revenues to be recognized in each accounting period.  We recognize new software licenses revenues when: (1) we enter into a legally binding arrangement with a customer for the license of software; (2) we deliver the products; (3) the sale price is fixed or determinable and free of contingencies or significant uncertainties; and (4) collection is probable. Revenues that are not recognized at the time of sale because the foregoing conditions are not met are recognized when those conditions are subsequently met.  Our software license arrangements do not include acceptance provisions.

The vast majority of our software license arrangements include PCS, which is ordered at the customer's option and is recognized ratably over the term of the arrangement, typically three to five years. PCS provides customers with rights to unspecified software product upgrades, maintenance releases and patches released during the term of the support period, as well as remote network monitoring and technical support. PCS is generally priced as a percentage of the net new software licenses fees.
F-10

Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition for Multiple-Element Arrangements – SaaS, Hardware and Implementation Services (Non-software Arrangements)

We enter into arrangements with customers that purchase multiple nonsoftware related products and services from us within close proximity of one another (referred to as nonsoftware multiple-element arrangements). Each element within a nonsoftware multiple-element arrangement is accounted for as a separate unit of accounting provided the services have value to the customer on a standalone basis. We consider a deliverable to have standalone value if the service is sold separately by us or another vendor or could be resold by the customer.
For our non-software multiple-element arrangements, we allocate revenue to each element based on a selling price hierarchy at the arrangement's inception. The selling price for each element is based upon the following selling price hierarchy: VSOE if available, third party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE nor TPE are available.  When possible, we establish VSOE of selling price for deliverables in software and non-software multiple-element arrangements using the price charged for a deliverable when sold separately.  TPE is established by evaluating similar and interchangeable competitor products or services in standalone arrangements with similarly situated customers. If we are unable to determine the selling price because VSOE or TPE does not exist, we determine ESP for the purposes of allocating the arrangement by reviewing several other external and internal factors including, but not limited to: historical transactions; pricing practices including discounting; and competition. The determination of ESP is made through consultation with and approval by our management, taking into consideration our pricing model and go-to-market strategy. As these strategies evolve, we may modify our pricing practices in the future, which could result in changes to our determination of VSOE, TPE and ESP. As a result, our future revenue recognition for multiple-element arrangements could differ materially from our results in the current period.
Our revenue recognition policy for nonsoftware deliverables including SaaS and implementation services is based upon the accounting guidance contained in ASC 605-25, and we exercise judgment and use estimates in connection with the determination of the amount of SaaS and implementation service revenues to be recognized in each accounting period.

Revenues from the sales of our non-software elements are recognized when: (1) persuasive evidence of an arrangement exists; (2) we perform the services or deliver the product; (3) the sale price is fixed or determinable; and (4) collection is reasonably assured. Revenues that are not recognized at the time of sale because the foregoing conditions are not met are recognized when those conditions are subsequently met.  Our arrangements are documented in a written contract signed by the customer, are non-cancelable, do not contain refund-type provisions, and do not include acceptance provisions.

Our SaaS offerings provide deployment of our software and hardware and related IT monitoring infrastructure including PCS for a stated term that is hosted at our data center facilities or physically on-premises at customer facilities for a monthly subscription fee.  Revenues for these SaaS offerings are generally recognized ratably over the contract term commencing with the date the service is made available to customers and all other revenue recognition criteria have been satisfied.  The Company recognizes revenue for hardware upon delivery and for implementation services rendered when related milestones are complete.

Revenue and Expense Recognition for the Equipment Segment

In the United States, we recognizerecognized revenue from the sale of our medical equipment in the period in which we deliver the product to the customer.customer (“point in time”). Revenue from the sale of our medical equipment to international markets is recognized upon shipment of the product to a common carrier, as are supplies, accessories and spare parts delivered toin both domestic and international customers.

In most cases,markets (“point in time”). The Company also recognizes revenue from domestic EECP® system salesthe maintenance of EECP® systems either on a time and material as-billed basis (“point in time”) or through the sale of a service contract, where revenue is generatedrecognized ratably over the contract term (“over time”).
Impact of Adoption
Effective January 1, 2018, the Company adopted the requirements of Topic 606 using the modified retrospective method, which provided that the cumulative effect from multiple-element arrangementsprior periods upon applying the new guidance was recognized in our consolidated balance sheets as of the date of adoption, including an adjustment to retained earnings, and that require judgment inprior periods are not retrospectively adjusted. The Company elected to apply the areasmodified retrospective method only to contracts that were not completed at January 1, 2018. A summary and discussion of customer acceptance, collectability, the separability of units of accounting,such cumulative effect adjustment and the fair valueimpact on current period financial statements of individual elements.  We follow the ASC 605-25 which outlines a framework for recognizing revenue from multi-deliverable arrangements.  We determined that the domestic sale of our EECP® systems includes a combination of three elements that qualifyadopting Topic 606 is as separate units of accounting: (1) EECP® equipment sale; (2) provision of in-service and training support consisting of equipment set-up and training provided at the customer's facilities; and (3) a service arrangement (usually one year), consisting of: service by factory-trained service representatives, material and labor costs, emergency and remedial service visits, software upgrades, technical phone support and preferred response times.follows:
 
F-11
 
 
 (in thousands)
 
 
 
Year ended December 31, 2018
 
 
 
prior U.S. GAAP
 
 
Topic 606 impact
 
 
as reported
 
STATEMENT OF OPERATIONS
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
Professional sales services
 $25,511 
 $- 
 $25,511 
Total revenues
  73,980 
  - 
  73,980 
 
    
    
    
Gross Profit
  41,124 
  - 
  41,124 
 
    
    
    
Operating expenses
    
    
    
Selling, general and administrative
  44,083 
  (121)
  43,962 
Operating loss
 $(3,845)
 $121 
 $(3,724)


Vasomedical, Inc.
F-11
Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017

 
 
 (in thousands)
 
 
 
As of December 31, 2018
 
 
 
prior U.S. GAAP
 
 
Topic 606 impact
 
 
as reported
 
ASSETS
 
 
 
 
 
 
 
 
 
Accounts and other receivables, net
 $11,028 
 $- 
 $11,028 
Deferred commission expense
 $2,577 
 $8 
 $2,585 
Other assets, net
 $3,252 
 $190 
 $3,442 
 
    
    
    
LIABILITIES AND STOCKHOLDERS' EQUITY
    
    
    
Deferred revenue - current portion
 $10,382 
 $- 
 $10,382 
Deferred revenue - long term
 $7,704 
 $- 
 $7,704 
Accumulated deficit
 $(56,185)
 $261 
 $(55,924)
Disaggregation of Revenue
The following tables present revenues disaggregated by our business operations and timing of revenue recognition:
 
 
Year ended December 31, 2018
 
 
Year ended December 31, 2017
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Network services
 $40,254 
 
 
 
 
 
 
 $40,254 
 $38,882 
 
 
 
 
 
 
 $38,882 
Software sales and support
  3,974 
 
 
 
 
 
 
  3,974 
  3,699 
 
 
 
 
 
 
  3,699 
Commissions
    
  25,511 
 
 
 
  25,511 
    
  26,443 
 
 
 
  26,443 
Medical equipment sales
    
    
  3,151 
  3,151 
    
    
  2,660 
  2,660 
Medical equipment service
    
    
  1,090 
  1,090 
    
    
  1,104 
  1,104 
 
 $44,228 
 $25,511 
 $4,241 
 $73,980 
 $42,581 
 $26,443 
 $3,764 
 $72,788 
 
 
 
 
Year ended December 31, 2018
 
 
Year ended December 31, 2017
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Revenue recognized over time
 $39,340 
 $- 
 $658 
 $39,998 
 $37,629 
 $- 
 $707 
 $38,336 
Revenue recognized at a point in time
  4,888 
  25,511 
  3,583 
  33,982 
  4,952 
  26,443 
  3,057 
  34,452 
 
 $44,228 
 $25,511 
 $4,241 
 $73,980 
 $42,581 
 $26,443 
 $3,764 
 $72,788 
F-12
Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
 
Transaction Price Allocated to Remaining Performance Obligations
Each
As of these elements represent individual unitsDecember 31, 2018, the aggregate amount of accountingtransaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $82.2 million, of which we expect to recognize revenue as the delivered item has value tofollows:
 
 
Fiscal years of revenue recognition
 
 
 
2019
 
 
2020
 
 
2021
 
 
Thereafter
 
Unfulfilled performance obligations
 $41,271 
 $26,087 
 $8,595 
 $6,278 
Contract Liabilities
Contract liabilities arise in our IT VAR, VasoHealthcare, and VasoMedical businesses. In our IT VAR business, payment arrangements with clients typically include an initial payment due upon contract signing and milestone-based payments based upon product delivery and go-live, as well as post go-live monthly payments for subscription and support fees. Customer payments received, or receivables recorded, in advance of go-live and customer acceptance, where applicable, are deferred as contract liabilities. Such amounts aggregated approximately $344,000 and $371,000 at December 31, 2018 and 2017, respectively, and are included in accrued expenses and other liabilities in our consolidated balance sheets.
In our VasoHealthcare business, we bill a customer on a stand-alone basis, objective and reliable evidenceportion of fair value exists for undelivered items, and arrangements normally do not contain a general right of return relative to the delivered item.  We determine fair value basedcommissions on the priceorders we booked in advance of delivery of the deliverable when it is sold separately,underlying equipment. Such amounts aggregated approximately $17,098,000 and $22,126,000 at December 31, 2018 and 2017, respectively, and are classified in our consolidated balance sheets into current or based on third-party evidence,long-term deferred revenue. In addition, we record a contract liability for amounts expected to be credited back to GEHC due to customer order reductions. Such amounts aggregated approximately $2,315,000 and $1,143,000 at December 31, 2018 and 2017, respectively, and are included in accrued expenses and other liabilities in our consolidated balance sheets.
In our VasoMedical business, we bill amounts for post-delivery services and varying duration service contracts in advance of performance. Such amounts aggregated approximately $988,000 and $941,000 at December 31, 2018 and 2017, respectively, and are classified in our consolidated balance sheets as either current or based on estimated selling price.  Assuming all other criteria forlong-term deferred revenue.
During the year ended December 31, 2018, we recognized approximately $7.3 million of revenues that were included in our contract liability balance at the beginning of such period.
Costs to Obtain or Fulfill a Contract
Topic 606 requires that incremental costs of obtaining a contract are recognized as an asset and amortized to expense in a pattern that matches the timing of the revenue recognition of the related contract. We have determined the only significant incremental costs incurred to obtain contracts with customers within the scope of Topic 606 are certain sales commissions paid to associates. In addition, the Company elected the practical expedient to recognize the incremental costs of obtaining a contract when incurred for contracts where the amortization period for the asset the Company would otherwise have recognized is one year or less.

F-13
Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Under prior U.S. GAAP, we recognized sales commissions in our equipment segment as incurred. Under Topic 606, sales commissions applicable to service contracts exceeding one year have been met, we recognize equipment salescapitalized and services revenue for:  (1) EECP® equipment sales, when title transfers upon delivery; (2) in-service and training, following documented completion of the training; and (3) service arrangement,amortized ratably over the service period, which is generally one year.

The Company also recognizes revenue generated from servicing EECP® systems thatterm of the contract. In our IT VAR business, all commissions paid in advance of go-live were, under prior U.S. GAAP, capitalized as deferred commission expense and charged to expense at go-live or customer acceptance, as applicable. Under Topic 606, IT VAR commissions allocable to multi-year subscription contracts or multi-year post-contract support performance obligations are no longer covered by the service arrangement, or by providing sites with additional training, in the period that these services are provided.  Revenue relatedamortized to future commitments under separately priced extended service agreements on our EECP® system are deferred and recognizedexpense ratably over the terms of the multi-year periods. IT VAR commissions allocable to other elements continue to be charged to expense at go-live or customer acceptance, as was previously done. At the date of adoption of Topic 606, we recorded an asset, and related adjustment to retained earnings, of approximately $139,000 in our consolidated balance sheets for the amount of unamortized sales commissions for prior periods, as calculated under the new guidance. The impact to our financial statements of adopting Topic 606, as it relates to costs to obtain contracts, was a reduction in commission expense of approximately $121,000 for the year ended December 31, 2018, an increase in deferred commission expense of approximately $8,000, and an increase in long term deferred commission expense (recorded in other assets) of approximately $190,000 (inclusive of the beginning balance adjustment of $139,000).
In our professional sales services segment, under both prior U.S. GAAP and Topic 606, commissions paid to our sales force are deferred until the underlying equipment is accepted by the customer.
At December 31, 2018, our consolidated balance sheet includes approximately $4,562,000 in capitalized sales commissions to be expensed in future periods, of which $2,585,000 is recorded in deferred commission expense and $1,977,000, representing the long-term portion, is included in other assets.
Significant Judgments when Applying Topic 606
Contract transaction price is allocated to performance obligations using estimated stand-alone selling price. Judgment is required in estimating stand-alone selling price for each distinct performance obligation. We determine stand-alone selling price maximizing observable inputs such as stand-alone sales when they exist or substantive renewal price charged to clients. In instances where stand-alone selling price is not observable, we utilize an estimate of stand-alone selling price based on historical pricing and industry practices.
Certain revenue we record in our professional sales service period, generally ranging from onesegment contains an estimate for variable consideration. Due to the tiered structure of our commission rate, which increases as annual targets are achieved, under Topic 606 we record revenue and deferred revenue at the rate we expect to be achieved by year to four years.  Costsend. Under prior U.S. GAAP, we recognized revenue at the rate achieved at the applicable reporting date. We base our estimate of variable consideration on historical results of previous years’ achievement under the GEHC agreement. Such estimate will be reviewed each quarter and adjusted as necessary. The Company recognized reductions in revenue associated with revisions to variable consideration for previously completed performance obligations of $165,000 for the provision of in-service and training, service arrangements, and separately priced extended service agreements, including salaries, benefits, travel and spare parts, and equipment, are recognized in cost of equipment sales and services as incurred. Amounts billed in excess of revenue recognized are included as deferred revenue in the consolidated balance sheets.
year ended December 31, 2018.
 
Shipping and Handling Costs

All shipping and handling expenses are charged to cost of sales. Amounts billed to customers related to shipping and handling costs are included as a component of sales.

Research and Development

Research and development costs attributable to development are expensed as incurred. Included in research
F-14
Vaso Corporation and development costs is amortization expense related toSubsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the capitalized cost of EECP® systems under loan for clinical trials.Years Ended December 31, 2018 and 2017

Share-Based Compensation

The Company complies with ASC Topic 718, "Compensation“Compensation – Stock Compensation" ("Compensation” (“ASC 718"718”), and ASC Topic 505, “Equity” (“ASC 505”), which requires all companies to recognize the cost of services received in exchange for equity instruments, to be recognized in the financial statements based on their fair values. For purposes of estimatingemployees and non-employee directors, the fair value of each optionis measured on the grant date and for non-employees, the fair value is measured on the measurement date and re-measured at each reporting period until performance is complete. The Company applies an estimated forfeiture rate to the grant date fair value to determine the annual compensation cost of share-based payment arrangements with employees. The forfeiture rate is estimated based primarily on job title and prior forfeiture experience. The Company did not grant the Company utilizes the Black-Scholes option-pricing model.  Equity instruments issuedany awards to non-employees in exchange for goods, feesduring the years ended December 31, 2018 and services are accounted for under the fair value-based method of ASC Topic 505 "Equity" ("ASC 505").2017.

During the year ended December 31, 2015,2018, the Company granted 1,592,500975,000 restricted shares of common stock valued at $270,700$63,000 to non-officer employees, vesting over the four year period ending June 2019; 2,000,000and 725,000 restricted shares of common stock valued at $367,000$44,000 to officers. The 975,000 shares granted to non-officer employees vest at various times over three to five years from the grant date and the 725,000 shares granted to officers of which 1,000,000 shares vested immediately with the remainder vesting over the four year period ending June 2019; and 150,000 restricted shares of common stock valued at $30,000 to a director, which vested immediately.in April 2018. The total fair value of shares vested during the year ended December 31, 20152018 was $277,000$385,000 for employees. The weighted average grant date fair value of shares granted during the year ended December 31, 2018 was $0.06 per share.
 
F-12

Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended December 31, 2014,2017, the Company granted 230,00050,000 restricted shares of common stock valued at $49,100$6,000 to non-officer employees, vesting at various periods through September 2017; 450,000and 925,000 restricted shares of common stock valued at $157,500$111,000 to officers, vesting at various periods through February 2016; and 500,000 restrictedofficers. The 975,000 shares of common stock valued at $175,000 to directors, whichgranted vested immediately.on April 1, 2017. The total fair value of shares vested during the year ended December 31, 20142017 was $376,000$467,000 for employees. The weighted average grant date fair value of shares granted during the year ended December 31, 2017 was $0.12 per share.

The Company did not grant any stock options during the years ended December 31, 20152018 or 2014.  The intrinsic value of2017, nor were any options exercised during the years endedsuch periods. No options were outstanding at December 31, 2015 and 2014 was $0 and $58,500, respectively.2018 or 2017.

Share-based compensation expense recognized for the years ended December 31, 20152018 and 20142017 was $342,000$313,000 and $390,000, respectively.$514,000, respectively, and is recorded in selling, general, and administrative expense in the consolidated statements of operations and comprehensive loss. Unrecognized expense related to existing share-based compensation and arrangements is approximately $402,000$207,000 at December 31, 20152018 and will be recognized over a weighted-average period of approximately 3.5 years.12 months.

Cash and Cash Equivalents

Cash and cash equivalents represent cash and short-term, highly liquid investments either in certificates of deposit, treasury bills, money market funds, or investment grade commercial paper issued by major corporations and financial institutions that generally have maturities of three months or less from the date of acquisition. Dividend and interest income are recognized when earned. The cost of securities sold is calculated using the specific identification method.

Short-Term Investments

The Company's short-term investments consist of certificates of deposit with original maturities greater than three months and up to one year.
 
Accounts Receivable, net

The Company'sCompany’s accounts receivable are due from customers to whom we sell our products and services, distributors engaged in the distribution of our products and from GEHC. Credit is extended based on evaluation of a customer'scustomer’s financial condition and, generally, collateral is not required. Accounts receivable are generally due 30 to 90 days from shipment and services provided and are stated at amounts due from customers net of allowances for doubtful accounts, returns, term discounts and other allowances. Accounts that are outstanding longer than the contractual payment terms are considered past due. Estimates are used in determining the allowance for doubtful accounts based on the Company'sCompany’s historical collections experience, current trends, credit policy and a percentage of its accounts receivable by aging category. In determining these percentages, the Company reviews historical write-offs of their receivables. The Company also looks at the credit quality of their customer base as well as changes in their credit policies. The Company continuously monitors collections and payments from our customers, and writes off receivables when all efforts at collection have been exhausted. While credit losses have historically been within expectations and the provisions established, the Company cannot guarantee that it will continue to experience the same credit loss rates that they have in the past.

F-15
Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
The changes in the Company'sCompany’s allowance for doubtful accounts and commission adjustments are as follows:
 
  For the year ended  For the year ended 
  December 31, 2015  December 31, 2014 
Beginning Balance $4,571  $3,764 
Provision for losses on accounts receivable  140   11 
Direct write-offs, net of recoveries  (48)  (156)
Commission adjustments  (800)  952 
Ending Balance $3,863  $4,571 
F-13

Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(in thousands)
 
 
 
Year ended December 31,
 
 
 
2018
 
 
2017
 
Beginning Balance
 $4,872 
 $4,159 
Provision for losses on accounts receivable
  460 
  157 
Direct write-offs, net of recoveries
  (268)
  (212)
Commission adjustments
  (1,070)
  768 
Ending Balance
 $3,994 
 $4,872 
 
Concentrations of Credit Risk

We market our equipment and IT software solutions principally to hospitals, diagnostic imaging centers and physician private practices. We perform credit evaluations of our customers'customers’ financial condition and, as a result, believe that our receivable credit risk exposure is limited. For the years ended December 31, 20152018 and 2014,2017, no customer in our equipment or IT segment accounted for 10% or more of revenues or accounts receivable. In our professional sales service segment, 100% of our revenues and accounts receivable are with GEHC; however, we believe this risk is acceptable based on GEHC'sGEHC’s financial position.position and our long history of doing business with GEHC.

The Company maintains cash balances in certain U.S. financial institutions, which, at times, may exceed the Federal Depository Insurance Corporation ("FDIC"(“FDIC”) coverage of $250,000.  The Company has not experienced any losses on these accounts and believes it is not subject to any significant credit risk on these accounts. In addition, the FDIC does not insure the Company'sCompany’s foreign bank balances, which aggregated approximately $317,000$519,000 and $410,000$709,000 at December 31, 20152018 and 2014,2017, respectively.

Inventories, net

The Company values inventoryinventories in the equipment segment at the lower of cost or estimated market,net realizable value, with cost being determined on a first-in, first-out basis. The Company oftenoccasionally places EECP® systems and other medical device products at various field locations for demonstration, training, evaluation, and other similar purposes at no charge. The cost of these EECP® systemsproducts is transferred to property and equipment and is amortized over two to five years. The Company records the cost of refurbished components of EECP® systems and critical components at cost plus the cost of refurbishment. The Company regularly reviews inventory quantities on hand, particularly raw materials and components, and records a provision for excess and slow moving inventory based primarily on existing and anticipated design and engineering changes to its products as well as forecasts of future product demand.

We comply withIn our IT Segment, we purchase computer hardware and software for specific customer requirements and value such inventories using the provisions of ASC Topic 330 "Inventory".  The statement clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overhead to inventory based on the normal capacity of the production facilities.specific identification method.

Property and Equipment

Property and equipment, including assets under capital lease, are stated at cost less accumulated depreciation and amortization. Major improvements are capitalized and minor replacements, maintenance and repairs are charged to expense as incurred. Upon retirement or disposal of assets, the cost and related accumulated depreciation are removed from the consolidated balance sheets. Depreciation is expensed over the estimated useful lives of the assets, which range from two to eight years, on a straight-line basis. Accelerated methods of depreciation are used for tax purposes. We amortize leasehold improvements over the useful life of the related leasehold improvement or the life of the related lease, whichever is less.

F-16
Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Goodwill and Intangible Assets
 
Goodwill represents the excess of cost over the fair value of net assets of businesses acquired. The Company accounts for goodwill under the guidance of the ASC Topic 350, "Intangibles:“Intangibles: Goodwill and Other"Other”. Goodwill acquired in a purchase business combination and determined to have an indefinite useful life is not amortized, but instead tested for impairment, at least annually, in accordance with this guidance. The recoverability of goodwill is subject to an annual impairment test or whenever an event occurs or circumstances change that would more likely than not result in an impairment.The Company tests goodwill for impairment at the reporting unit level on an annual basis as of December 31 and between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired. Commencing in September 2011, in accordance withIn any year, the FASB revised guidance on "Testing of Goodwill for Impairment,"Company may elect to perform a company first has the option to assess qualitative factorsassessment to determine whether it is more likely than not that the fair value of a reporting unit is less thanin excess of its carrying amount.value. If the company decides, as a result of its qualitative assessment, that it is more-likely-than- notCompany cannot determine qualitatively that the fair value is in excess of a reporting unit is less than itsthe carrying amount,value, or the Company decides to bypass the qualitative assessment, the Company proceeds to the quantitative goodwill impairment test, is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a two-step goodwill impairment test. The first stepwhich compares the fair value of each reporting unit to its carrying amount.amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required.impaired. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit's goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for anyan amount equal to that excess, inlimited to the carrying valuetotal amount of goodwill over the implied fair valueallocated to that reporting unit. No impairment loss was recorded as of goodwill.December 31, 2018 and 2017.
 
F-14I

Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets consist of the value of customer contracts and relationships, patent and technology costs, and software. The cost of significant customer-related intangibles is amortized in proportion to estimated total related revenue; cost of other intangible assets is generally amortized on a straight-line basis over the asset's estimated economic life, which range from five to ten years. TheThe Company capitalizes internal use software development costs incurred during the application development stage. Costs related to preliminary project activities, training, data conversion, and post implementation activities are expensed as incurred. In 2015 the Company capitalized $5,031,000 of cost related to customer contracts and relationships, and $14,375,000 in goodwill, resulting from the NetWolves acquisition. The Company capitalized $220,000$527,000 and $263,000$398,000 in software development costs for the years ended December 31, 20152018 and 2014,2017, respectively.
 
Impairment of Long-lived Assets

The Company reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. If required, the Company compares the estimated fair value determined by either the undiscounted future net cash flows or appraised value to the related asset'sasset’s carrying value to determine whether there has been an impairment. If an asset is considered impaired, the asset is written down to fair value, which is based either on discounted cash flows or appraised values in the period the impairment becomes known. No assets were determined to be impaired as of December 31, 20152018 and 2014.2017.

Deferred Revenue

Amounts billable under the agreement with GEHC in advance of customer acceptancedelivery of the underlying equipment are recorded initially as deferred revenue, and commission revenue is subsequently recognized as customer acceptance of such equipment is reported to us by GEHC. 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.

We record revenue on extended service contracts ratably over the term of the related service contracts. Under the provisions of ASC 605,606, we began to defer revenue related to EECP® system sales for the fair value of installation and in-service training to the period when the services are rendered and for service obligations ratably over the service period, which is generally one year. (See Note J)I)

F-17
Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
 
Income Taxes

Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities and loss carry-forwards for which income tax benefits are expected to be realized in future years. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized. In estimating future tax consequences, we generally consider all expected future events other than an enactment of changes in the tax laws or rates. Deferred tax assets are continually evaluated for the expected realization. To the extent our judgment regarding the realization of the deferred tax assets changes, an adjustment to the allowance is recorded, with an offsetting increase or decrease, as appropriate, in income tax expense. Such adjustments are recorded in the period in which our estimate as to the realization of the assets changed that it is "more“more likely than not"not” that all of the deferred tax assets will be realized. The "realization"“realization” standard is subjective and is based upon our estimate of a greater than 50% probability that the deferred tax asset can be realized.
 
The Company early adopted ASU 2015-17 (Topic 740), "Balance Sheet Classification of Deferred Taxes", which requires the presentation of deferred tax liabilities and assets as noncurrent within a classified statement of financial position.
The Company also complies with the provisions of ASC Topic 740, "Income Taxes"“Income Taxes”, which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by the relevant taxing authority based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. Derecognition of a tax benefit previously recognized results in the Company recording a tax liability that reduces ending retained earnings. Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of December 31, 20152018 and December 31, 2014.2017. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at December 31, 20152018 and December 31, 2014.2017. Generally, the Company is no longer subject to income tax examinations by major domestic taxing authorities for years before 2012.2015. According to the China tax regulatory framework, there is no statute of limitations on examination of tax filings by tax authorities. However, the general practice is going back five years. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.
F-15

Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
Foreign Currency Translation Loss(Loss) Gain and Comprehensive IncomeLoss
 
In countries in which the Company operates, and the functional currency is other than the U.S. dollar, assets and liabilities are translated using published exchange rates in effect at the consolidated balance sheet date.  Equity accounts are translated at historical rates except for the changes in retained earningsaccumulated deficit during the year as the result of the income statement translation process. Revenues and expenses and cash flows are translated using a weighted average exchange rate for the period.  Resulting translation adjustments are recorded as a component of accumulated other comprehensive (loss) incomeloss on the accompanying consolidated balance sheet.sheets.  For the years ended December 31, 20152018 and 2014,2017, other comprehensive (loss) incomeloss includes losses(losses) gains of $174,000$(257,000) and $14,000,$271,000, respectively, which were entirely from foreign currency translation.
 
Fair Value of Financial Instruments

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.

In determining fair value, the Company uses various valuation approaches.  ASC 820 establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company.  Unobservable inputs reflect the Company's assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  The fair value hierarchy is categorized into three levels based on the inputs as follows:

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.  Valuation adjustments and block discounts are not applied to Level 1 securities.  Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.

Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturities of the instruments. 

Net IncomeLoss Per Common Share

Basic incomeloss per common share is based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per common share is based on the weighted average number of common and potential dilutive common shares outstanding.
  
F-18
 
F-16

Vasomedical, Inc.Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the Years Ended December 31, 2018 and 2017

Diluted earnings per share were computed based on the weighted average number of shares outstanding plus all potentially dilutive common shares.  A reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:
 (in thousands) 
 Year ended December 31, 
 2015 2014 
Basic weighted average shares outstanding  156,707   155,362 
Dilutive effect of options and unvested restricted shares  482   670 
Diluted weighted average shares outstanding  157,189   156,032 
 
The following table represents common stock equivalents that were excluded from the computation of diluted earnings per share for the years ended December 31, 20152018 and 2014,2017, because the effect of their inclusion would be anti-dilutive.
 
       (in thousands) 
  For the year ended 
  December 31, 2015  December 31, 2014 
       
Stock options  300   52 
         
 
 
(in thousands)
 
 
 
Year ended December 31,
 
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Restricted common stock grants
  2,388 
  4,204 
 
Reclassifications

Certain reclassifications have been made to prior year amounts to conform with the current year presentation.

Recently Issued Accounting Pronouncements
 
The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Company'sCompany’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company'sCompany’s consolidated financial statements properly reflect the change. New pronouncements assessed by the Company recently are discussed below:

In May 2014, the FASB issued ASU 2014-09 "Revenue from Contracts with Customers", a comprehensive new revenue recognition standard which will supersede previous existing revenue recognition guidance. The standard creates a five-step model for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant facts and circumstances. The five-step model includes (1) identifying the contract, (2) identifying the separate performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations and (5) recognizing revenue when each performance obligation has been satisfied. The standard also requires expanded disclosures surrounding revenue recognition. The standard is effective for fiscal periods beginning after December 15, 2016 and allows for either full retrospective or modified retrospective adoption.  In August 2015, FASB issued ASU 2015-14, "Revenue from Contracts with Customers – Deferral of the Effective Date" (Topic 606).  The amendments in this ASU defer the effective date of ASU 2014-09, "Revenue from Contracts with Customers," for all entities by one year.  Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.  Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of the adoption of this standard on its Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-03 "Simplifying the Presentation of Debt Issuance Costs", which changes the presentation of debt issuance costs in financial statements. An entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense.  The standard is effective for fiscal periods beginning after December 31, 2015 and allows for early adoption.  The Company has early adopted this statement for the year ended December 31, 2015, resulting in $130,000 in debt issue costs initially deducted from the MedTechnology Investments LLC ("MedTech") debt and $19,000 amortized to interest expense.

F-17

Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory".  Inventory under ASU 2015-11 is to be measured at the "lower of cost and net realizable value" which would eliminate the other two options that currently exist for "market": (1) replacement cost and (2) net realizable value less an approximately normal profit margin.  ASU 2015-11 defines net realizable value as the "estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation."  ASU 2015-11 is effective for fiscal periods beginning after December 15, 2016 and allows for early adoption. The Company is currently evaluating the impact of the adoption of this standard on its Consolidated Financial Statements.
In September 2015, the FASB issued ASU 2015-16 "Simplifying the Accounting for Measurement-period Adjustments", which require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.  The standard is effective for fiscal periods beginning after December 15, 2015 and allows for early adoption.  The Company does not expect the adoption of this standard to have a material effect on its Consolidated Financial Statements.

In November 2015, the FASB issued ASU 2015-17 (Topic 740), Balance Sheet Classification of Deferred Taxes. This ASU amends existing guidance to require the presentation of deferred tax liabilities and assets as noncurrent within a classified statement of financial position. ASU 2015-17 may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.  The Company early adopted this new standard for the tax year ended December 31, 2015.Leases
 
In February 2016, The FASB issued ASU 2016-02 (Topic 842), "Leases"“Leases”. ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at either the effective date (the “effective date method”) or the beginning of the earliest period presented (the “comparative method”) using a modified retrospective approach. ThisUnder the effective date method, the Company’s comparative period reporting is unchanged. In contrast, under the comparative method, the Company’s date of initial application is the beginning of the earliest comparative period presented, and the Topic 842 transition guidance is then applied to all comparative periods presented. Further, under either transition method, the standard includes certain practical expedients intended to ease the burden of adoption. The Company adopted this new standard would be effective for the Company beginning January 1, 2019 with early adoption permitted.  using the effective date method and elected certain practical expedients allowing the Company not to reassess:
whether expired or existing contracts contain leases under the new definition of a lease;
lease classification for expired or existing leases; and
whether previously capitalized initial direct costs would qualify for capitalization under Topic 842.
The Company doesalso made the accounting policy decision not expectto recognize lease assets and liabilities for leases with a term of 12 months or less. The Company estimates the adoption of this standard on January 1, 2019 will result in the addition to our consolidated balance sheet of approximately $1.1 million in right-of-use assets and lease liabilities. The standard is not expected to have a material effect on the Company’s consolidated statements of cash flows or operations.
F-19
Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Goodwill
In January 2017, the FASB issued ASU 2017-04, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The standard is effective for fiscal periods beginning after December 15, 2019. Early adoption is permitted for interim and annual goodwill impairment testing dates after January 1, 2017. The Company early adopted this standard in December 2018. The adoption did not have a material effect on the Company’s Consolidated Financial Statements.
 
NOTE C – SEGMENT REPORTING

The Company views its business in three segments – the IT segment, the professional sales service segment, and the equipment segment. The IT segment includes the operations of NetWolves and theVasoHealthcare IT segment.Corp. The professional sales service segment operates through the Vaso Diagnostics subsidiary and is currently engaged solely in the fulfillment of the Company'sCompany’s responsibilities under our agreement with GEHC.  The IT segment includes the operations of NetWolves and VasoHealthcare IT Corp.  Operations in the IT segment began in the third quarter of 2014. 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.
 
F-20
Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
The chief operating decision maker is the Company'sCompany’s Chief Executive Officer, who, in conjunction with upper management, evaluates segment performance based on operating income and Adjusted EBITDA(earnings (earnings before interest, taxes, depreciation and amortization – defined as net (loss) income, plus net interest expense (income), tax expense, depreciation and amortization, and non-cash expenses for share-based compensation). Administrative functions such as finance and 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:

 
F-18
 
 
(in thousands)
 
 
 
Year ended December 31,
 
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Revenues from external customers
 
 
 
 
 
 
IT
 $44,228 
 $42,581 
Professional sales service
  25,511 
  26,443 
Equipment
  4,241 
  3,764 
Total revenues
 $73,980 
 $72,788 
 
    
    
Gross Profit
    
    
IT
 $18,379 
 $17,623 
Professional sales service
  20,165 
  20,630 
Equipment
  2,580 
  2,478 
Total gross profit
 $41,124 
 $40,731 
 
    
    
Operating (loss) income
    
    
IT
 $(3,748)
 $(3,375)
Professional sales service
  1,958 
  1,954 
Equipment
  (812)
  (1,066)
Corporate
  (1,122)
  (1,345)
Total operating loss
 $(3,724)
 $(3,832)
 
    
    
Depreciation and amortization
    
    
IT
 $1,968 
 $1,822 
Professional sales service
  187 
  194 
Equipment
  367 
  410 
Corporate
  - 
  - 
Total depreciation and amortization
 $2,522 
 $2,426 
 
    
    
Capital expenditures
    
    
IT
 $2,496 
 $2,185 
Professional sales service
  4 
  127 
Equipment
  82 
  43 
Corporate
  4 
  19 
Total cash capital expenditures
 $2,586 
 $2,374 


Vasomedical, Inc.
F-21
Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the Years Ended December 31, 2018 and 2017

  (in thousands)  
  As of or for the year ended December 31, 2015       
  Professional Sales Service Segment  IT Segment  Equipment Segment  Corporate  Consolidated 
                
Revenues from external customers $31,584  $21,149  $4,349  $-  $57,082 
Operating income (loss) $10,024  $(1,930) $(2,444) $(1,711) $3,939 
Total assets $13,854  $25,278  $8,735  $2,551  $50,418 
Accounts and other receivables, net $8,249  $2,546  $825  $-  $11,620 
Deferred commission expense $2,121  $131  $-  $-  $2,252 
Other assets $2,983  $296  $592  $444  $4,315 
                     
          As of or for the year ended December 31, 2014         
  Professional Sales Service Segment  IT Segment  Equipment Segment  Corporate  Consolidated 
                     
Revenues from external customers $30,236  $48  $4,670  $-  $34,954 
Operating income (loss) $5,997  $(539) $(2,828) $(1,567) $1,063 
Total assets $21,966  $61  $10,012  $8,952  $40,991 
Accounts and other receivables, net $14,306  $52  $915  $-  $15,273 
Deferred commission expense $2,200  $-  $-  $-  $2,200 
Other assets $4,888  $-  $716  $13  $5,617 

 
 
December 31,
2018
 
 
December 31,
2017
 
 
 
 
 
 
 
 
Identifiable Assets
 
 
 
 
 
 
IT
 $28,785 
 $28,320 
Professional sales service
  12,193 
  15,658 
Equipment
  6,992 
  7,830 
Corporate
  2,504 
  4,970 
Total assets
 $50,474 
 $56,778 
 
For the years ended December 31, 20152018 and 2014,2017, GEHC accounted for 55%34% and 87%36% of revenue, respectively. Also, GEHC accounted for $8.1$7.2 million, or 69%66%, and $14.2$8.9 million, or 93%67%, of accounts and other receivables at December 31, 20152018 and December 31, 2014,2017, respectively.
 
Our revenues were derived from the following geographic areas:
 
  (in thousands)    
 
(in thousands)
 
 For the year ended  For the year ended 
 
Year ended December 31,
 
 December 31, 2015  December 31, 2014 
 
2018
 
 
2017
 
Domestic (United States) $53,860  $32,905 
 $71,279 
 $70,719 
Non-domestic (foreign)  3,222   2,049 
  2,701 
  2,069 
 $57,082  $34,954 
 $73,980 
 $72,788 

NOTE D – FAIR VALUE MEASUREMENTS

The Company's assets recorded at fair value have been categorized based upon a fair value hierarchy in accordance with ASC 820.
F-19

Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information about the Company's assets and liabilities measured at fair value as of December 31, 2015:
  (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
December,
2015
 
Assets        
Cash equivalents invested in money market funds (included in cash and cash equivalents) $2  $-  $-  $2 
                 

The following table presents information about the Company's assets measured at fair value as of December 31, 2014:
            (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
December
2014
 
Assets            
Cash equivalents invested in money market funds (included in cash and cash equivalents) $8,149  $-  $-  $8,149 

The fair values of the Company's cash equivalents invested in money market funds are determined through market, observable and corroborated sources. 

NOTE E – ACCOUNTS AND OTHER RECEIVABLES

The following table presents information regarding the Company'sCompany’s accounts and other receivables as of December 31, 20152018 and 2014:2017:
 
 
 
(in thousands)
 
 
 
December 31, 2018
 
 
December 31, 2017
 
 
 
 
 
 
 
 
Trade receivables
 $15,016 
 $18,056 
Due from employees
  6 
  41 
Allowance for doubtful accounts and
    
    
commission adjustments
  (3,994)
  (4,872)
Accounts and other receivables, net
 $11,028 
 $13,225 
         (in thousands) 
  December 31, 2015  December 31, 2014 
       
Trade receivables $15,252  $19,734 
Due from employees  231   110 
Allowance for doubtful accounts and        
commission adjustments  (3,863)  (4,571)
Accounts and other receivables, net $11,620  $15,273 

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.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 estimated future changes in sales order amounts that may reduce the amount the Company will ultimately receive under the GEHC Agreement. Due from employees primarily reflects commission advances made to sales personnel.
 
 
F-20F-22

Vasomedical, Inc.
Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the Years Ended December 31, 2018 and 2017
 
NOTE FE – INVENTORIES, NET

Inventories, net of reserves, consisted of the following:
 
     (in thousands) 
 
(in thousands)
 
 December 31, 2015  December 31, 2014 
 
December 31, 2018
 
 
December 31, 2017
 
      
 
 
 
Raw materials $497  $583 
 $577 
 $530 
Work in process  392   679 
  388 
  449 
Finished goods  1,074   636 
  1,018 
  1,376 
 $1,963  $1,898 
 $1,983 
 $2,355 

At December 31, 20152018 and 2014,2017, the Company maintained reserves for slow moving inventories of $861,000$636,000 and $815,000,$746,000, respectively.

NOTE GF – PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows:
 
 
 
(in thousands)
 
 
 
December 31,
2018
 
 
December 31,
2017
 
Office, laboratory and other equipment
 $3,885 
 $2,953 
Equipment furnished for customer
    
    
or clinical uses
  8,167 
  6,615 
Furniture and fixtures
  127 
  131 
 
  12,179 
  9,699 
Less: accumulated depreciation and amortization
  (6,370)
  (4,980)
   Property and equipment, net
 $5,809 
 $4,719 
      (in thousands) 
  December 31, 2015  December 31, 2014 
Office, laboratory and other equipment $1,586  $1,114 
Equipment furnished for customer        
or clinical uses  3,992   376 
Furniture and fixtures  286   173 
   5,864   1,663 
Less:  accumulated depreciation  (2,976)  (1,397)
   Property and equipment, net $2,888  $266 

Assets under capital lease comprised approximately $855,000 and $387,000 of the office, laboratory and other equipment asset class at December 31, 2018 and 2017, respectively, and approximately $60,000 and $0 of the equipment furnished for customer or clinical use asset class at December 31, 2018 and 2017, respectively. Accumulated amortization of assets under capital lease aggregated approximately $250,000 and $103,000 at December 31, 2018 and 2017, respectively. Depreciation expense amounted to approximately $505,000$1,489,000 and $187,000$1,290,000 for the years ended December 31, 20152018 and 2014,2017, respectively. Amortization of assets under capital lease is included in depreciation expense.

F-23
Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017

NOTE HG – GOODWILL AND OTHER INTANGIBLES

All goodwill at December 31, 2014 was attributable to the Equipment segment.  Goodwill of $14,375,000 generated by the acquisition of NetWolves is attributable to the NetWolves reporting unit within the IT segment. The changeremaining $2,934,000 of goodwill is attributable to the FGE reporting unit within the Equipment segment. The NetWolves and FGE reporting units had negative net asset carrying amounts at December 31, 2018 and 2017. The changes in the carrying amount of goodwill are as follows:
 
   (in thousands) 
    Carrying Amount for the year ended 
  December 31, 2015  December 31, 2014 
Beginning of period $3,288  $3,303 
Foreign currency translation  (179)  (15)
Acquisition of Netwolves  14,375   - 
End of period $17,484  $3,288 
         
F-21

Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(in thousands)
 
 
 
Year ended December 31,
 
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Beginning of year
 $17,471 
 $17,280 
Foreign currency translation adjustment
  (162)
  191 
End of year
 $17,309 
 $17,471 
 
The Company'sCompany’s other intangible assets consist of capitalized customer-related intangibles, patent and technology costs, and software costs, as set forth in the following:following table:
 
     (in thousands) 
 
(in thousands)
 
 December 31, 2015  December 31, 2014 
 
December 31,
2018
 
 
December 31,
2017
 
      
 
 
 
Customer-related      
 
 
 
Costs $5,831  $800 
 $5,831 
Accumulated amortization  (926)  (381)
  (3,083)
  (2,501)
  4,905   419 
  2,748 
  3,330 
        
    
Patents and Technology        
    
Costs $2,423  $2,489 
  2,363 
  2,331 
Accumulated amortization  (806)  (549)
  (1,532)
  (1,260)
  1,617   1,940 
  831 
  1,071 
        
    
Software        
    
Costs  1,182   962 
  2,346 
  1,819 
Accumulated amortization  (727)  (495)
  (1,185)
  (966)
  455   467 
  1,161 
  853 
        
    
 $6,977  $2,826 
 $4,740 
 $5,254 

F-24
Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
The Company owns elevenfour US patents including eight utility and three design patents that expire at various times through 2023, and, through our Chinese subsidiaries, fourteenwe own sixteen invention and utility and  design patents expiringthat expire at various times through 2024.2028, as well as fourteen software copyright certificates in China related to proprietary technologies in physiological data acquisition, analysis and reporting. The Company also holds one patent for secure and remote monitoring management through its NetWolves subsidiary..subsidiary. Costs incurred for submitting the applications to the United States Patent and Trademark Office and other foreign authorities for these patents have been capitalized. Patent and technology costs are being amortized using the straight-line method over 10-year and 8-year lives, respectively. The Company begins amortizing patent costs once a filing receipt is received stating the patent serial number and filing date from the Patent Office or other foreign authority. The cost of significant customer-related intangibles is amortized in proportion to estimated total related revenue; cost of other customer-related intangible assets is amortized on a straight-line basis over the asset's estimated economic life of seven years. Software costs are amortized on a straight-line basis over its expected useful life of five years.

Amortization expense amounted to approximately $1,035,000$1,033,000 and $280,000$1,136,000 for the years ended December 31, 20152018 and 2014,2017, respectively. Amortization of intangibles for the next five years is:

Years ending December 31,
 
(in thousands) 
 
2019
  1,017 
2020
  934 
2021
  858 
2022
  562 
2023
  328 
Total
 $3,699 
NOTE H – OTHER ASSETS
Other assets consist of the following:
 
 
(in thousands)
 
 
 
December 31,
2018
 
 
December 31,
2017
 
 
 
 
 
 
 
 
Deferred commission expense - noncurrent
 $1,978 
 $1,867 
Trade receivables - noncurrent
  630 
  968 
Other, net of allowance for loss on loan receivable of
    
    
  $412 at December 31, 2018 and 2017
 459
  1,012 
 
 $3,067
 $3,847 

               (in thousands) 
  2016  2017  2018  2019  2020 
                
Amortization expense $1,186  $1,084  $929  $807  $682 
                     
F-25
 
F-22

Vasomedical, Inc.Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the Years Ended December 31, 2018 and 2017
 
NOTE I – OTHER ASSETS

Other assets consist of the following at December 31, 2015 and 2014:
             (in thousands) 
  December 31, 2015  December 31, 2014 
       
Deferred commission expense - noncurrent $2,083  2,988 
Trade receivables - noncurrent  1,025  2,171 
Other  1,207  458 
  $4,315  5,617 

NOTE J – DEFERRED REVENUE

The changes in the Company'sCompany’s deferred revenues are as follows:
 (in thousands) 
 
(in thousands)
 
 For the year ended 
 
Year ended December 31,
 
 December 31, 2015  December 31, 2014 
 
2018
 
 
2017
 
      
 
 
 
Deferred revenue at beginning of period $22,532  $18,019 
Additions:        
Deferred revenue at beginning of year
 $23,066 
 $19,404 
Net additions:
    
Deferred extended service contracts  654   912 
  687 
  705 
Deferred in-service and training  18   40 
  8 
  20 
Deferred service arrangements  40   88 
  15 
  43 
Deferred commission revenues  10,674   17,992 
  4,960 
  14,779 
Recognized as revenue:        
    
Deferred extended service contracts  (857)  (869)
  (628)
  (661)
Deferred in-service and training  (15)  (50)
  (5)
  (20)
Deferred service arrangements  (69)  (96)
  (31)
  (45)
Deferred commission revenues  (14,461)  (13,504)
  (9,986)
  (11,159)
Deferred revenue at end of period  18,516   22,532 
Deferred revenue at end of year
  18,086 
  23,066 
Less: current portion  9,480   9,882 
  10,382 
  15,540 
Long-term deferred revenue at end of period $9,036  $12,650 
Long-term deferred revenue at end of year
 $7,704 
 $7,526 
NOTE KJ – ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following atfollowing:
 
 
(in thousands)
 
 
 
December 31,
2018
 
 
December 31,
2017
 
 
 
 
 
 
 
 
Accrued compensation
 $648 
 $1,181 
Accrued expenses - other
  2,092 
  2,207 
Other liabilities
  2,915 
  1,949 
 
 $5,655 
 $5,337 

NOTE K – RELATED-PARTY TRANSACTIONS
In March 2018, the Company sold its interest in the VSK joint venture to PSK for a sales price of $676,000 and executed a distributorship agreement, expiring December 31, 20152020, with VSK for the sale of the Company’s EECP® products in certain international markets. The sale resulted in a gain of approximately $212,000 and 2014:net cash proceeds of approximately $311,000 after satisfaction of deposits and other payables due to VSK aggregating approximately $365,000 at time of sale. Prior to the sale, the Company’s pro-rata share in VSK’s loss from operations approximated $20,000 for the year ended December 31, 2017, and $9,000 for the three months ended March 31, 2018, and is included in interest and other income, net in the accompanying consolidated statements of operations and comprehensive loss.

 
   (in thousands)    
  December 31, 2015  December 31, 2014 
       
Accrued compensation $1,589  $2,915 
Accrued expenses - other  1,414   1,098 
Other liabilities  1,508   1,570 
  $4,511  $5,583 
 
F-26
F-23

Vasomedical, Inc.
Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the Years Ended December 31, 2018 and 2017
NOTE L – RELATED-PARTY TRANSACTIONS

One of the Company's directors, Peter Castle, was the Chief Executive Officer and President of NetWolves Network Services, LLC.  Another of the Company's directors, David Lieberman, was a director of NetWolves Network Services, LLC. Mr. Castle and Mr. Lieberman owned of record approximately 10.4% and 5.7%, respectively of the membership interests of NetWolves LLC.  Mr. Lieberman may also be deemed to have owned beneficially up to an additional 13.5% of such membership interests.  The Company's board of directors negotiated the purchase price on an arm's length basis, and both Mr. Castle and Mr. Lieberman abstained from the vote approving the Asset Purchase Agreement.
The Company obtained an opinion regarding the fairness of the purchase price for the NetWolves entities from a reputable, independent third-party investment banking firm.  Of the $18,000,000 purchase price paid for the acquisition, $14,200,000 was from the Company's cash on hand and the remaining $3,800,000 was raised from the sale of a Subordinated Secured Note to MedTech.  Of the $4,800,000 borrowed from MedTech at December 31, 2015, $2,200,000 was provided by six of our directors or members of their families and an additional $100,000 was provided by Joshua Markowitz prior to his joining the board of directors in June 2015.  The Medtech Notes bear interest at 9% per annum.
In January 2015, operations began under the VSK joint venture.  The Company accounts for its investment in VSK using the equity method.  At December 31, 2015, the Company had contributed $100,000 to VSK, and $189,000 was due from VSK for equipment and services the Company billed to it. VSK earned approximately $394,000 for the year ended December 31, 2015.  Under the terms of the agreement, the Company's accrues no interest in VSK's income in the years ending December 31, 2015, 2016 and 2017 unless certain performance targets are achieved.  For the year ended December 31, 2015 such targets had not been achieved. The Company expects the conditions to be met in 2016 and expects to record its share of income from VSK.

David Lieberman, a practicing attorney in the State of New York, serves as Vice Chairman of the Board of Directors.  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 $304,000 and $240,000$340,000 were billed by the firm for each of the years ended December 31, 20152018 and 2014, respectively,2017, at which dates no amounts$28,000 and $0 were outstanding.outstanding, respectively.

On August 6, 2014 the Company acquired all of the outstanding shares of Genwell Instruments Co. Ltd. ("Genwell"(“Genwell”), located in Wuxi, China through its wholly owned subsidiary Wuxi Gentone Instruments Co. Ltd. ("Gentone") for cash and notes of Chinese Yuan RMB13,250,000 (approximately $2,151,000 at the acquisition date – see Note P)date).  Genwell was formed in China in 2010 with the assistance of a government grant to develop the MobiCareTM wireless multi-parameter patient monitoring system and holds the patents and intellectual property rights for this system.  The president of our subsidiary Life Enhancement Technologies Ltd. and the president and then vice-president of Biox Instruments Co. Ltd. collectively owned 80.9% of Genwell at the time of acquisition.  The President and CEO of the Company was appointed the nominee Chairman of Genwell at its formation for the sole purpose of applying for the government grant available only to overseas Chinese persons.  He has never received any compensation from Genwell nor held any ownership interest in Genwell. The Company has received a fairness opinion for this transaction from an independent certified appraisal firm and a legal opinion from Chinese counsel.The Company issued the RMB6,250,000 note as part of the acquisition payment and, in May 2015, modified the note to change the interest rate from 5% to 9% per annum, effective August 28, 2015, and to extend the maturity date from August 26, 2015 to August 26, 2019. In July 2017 and October 2017, the Company made partial principal payments aggregating RMB2,250,000 (approximately $335,000), plus accrued interest, on notes payable to the president of LET and the president of Biox.Unsecured notes and accrued interest aggregating $993,000,approximately $335,000, and $1,036,000$354,000 was payable to the president of LET and the presidentofficers of Biox at December 31, 20152018 and 2014,2017, respectively.
 
$20,000In November and $21,000 in advances was due from officers of Biox December 2018, the Company issued unsecured notes aggregating $500,000 to certain directors. The notes bore interest at December 31, 201510% per annum and 2014, respectively. $3,000 in unsecured loans was payable to the president of LET at December 31, 2015matured on March 25, 2019. Principal and 2014.  These advances and loans are dueinterest on demand and do not bear interest.
these notes were paid off upon maturity.
 
F-24NOTE L – NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

Notes payable and capital lease obligations consist of the following:
 
 
(in thousands)
 
 
 
December 31,
2018
 
 
December 31,
2017
 
 
 
 
 
 
 
 
Line of credit
 $4,171 
 $3,393 
Unsecured term loan
  145 
  153 
Note payable
  14 
  - 
Notes payable - MedTech (net of $14 and $46 in
    
    
debt issue costs at December 31, 2018 and 2017)
  4,786 
  4,754 
Notes payable - related parties
  827 
  345 
Capital lease obligations
  588 
  208 
Total debt and lease obligations
  10,531 
  8,853 
Less: current portion (including related parties)
  (9,886)
  (3,760)
 
 $645 
 $5,093 

Vasomedical, Inc.
F-27
Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the Years Ended December 31, 2018 and 2017
NOTE M – DEBT

Debt consists of the following:
 
      (in thousands) 
  December 31, 2015  December 31, 2014 
       
Line of Credit $1,076  $- 
Unsecured term loan  154   163 
Notes Payable - DFS  452   - 
Notes Payable - MedTech (net of $111,000 in debt issue costs)  4,689   - 
Notes Payable - related parties  963   1,018 
Subtotal  7,334   1,181 
Less: current portion  (1,485)  (1,181)
  $5,849  $- 

Line of Credit

In July 2015,November 2018, NetWolves' lending institution extended its $2.0$4.0 million line of credit and increased the maximum borrowings to $3.0 million.credit. Advances under the line, which expires on August 26, 2016,June 28, 2019, bear interest at a rate of LIBOR plus 2.25%3% (aggregating 2.68%5.52% at December 31, 2015)2018 and 3.82% at December 31, 2017, based on the rate of LIBOR plus 2.25% in effect at such date) and are secured by substantially all of the assets of NetWolves Network Services, LLC and guaranteed by Vasomedical, Inc.Vaso Corporation. At December 31, 2015,2018, the Company had drawn approximately $1.1$2.9 million against the line.
 
In November 2018, the Company’s lending institution extended its $2.0 million line of credit agreement with the same institution. Advances under the line, which expires on June 28, 2019, bear interest at a rate of LIBOR plus 3% (aggregating 5.52% at December 31, 2018) and are secured by substantially all of the assets of the Company. At December 31, 2018, the Company had drawn approximately $1.25 million against the line. The line of credit agreement includes certain financial covenants. At December 31, 2018 and 2017, the Company was not in compliance with both such covenants, and the lending institution waived the covenants through June 28, 2019.
Unsecured Term Loan

In November 2014,December 2018, Biox entered into anextended its one-year unsecured term loan of Chinese Yuan RMB1,000,000 (approximately $163,000)$145,000) with a Chinese bank.  The loan term was one year and bore interest at 6.72%, payable monthly.  In November 2015, Biox extended the loanbank for an additional year maturing on November 30, 2016 withDecember 6, 2019. The loan bears interest at 5.22%4.79% per year.

Notes Payable

The Company financed certain NetWolvesFGE equipment purchases through notesan interest-free note payable to Dell Financial Services ("DFS").a Chinese bank. The notes,note, which areis secured by the financed equipment, bear interest at a fixed rate of 6.55% per annum and areis payable in 3618 monthly installments.installments ending in December 2019.

On May 29, 2015, the Company entered into a Note Purchase Agreement with MedTechMedTechnology Investments, LLC (“MedTech”) pursuant to which it issued MedTech a secured subordinated promissory note ("Note"(“Note”) for $3,800,000 for the purchase of NetWolves. MedTech was formed to acquire the Note, and $1,950,000 of the aggregate funds used to acquire the Note was provided by six of our directors. In June 2015, a second Note for $750,000 was issued to MedTech for working capital purposes, of which $250,000 was provided by a director and a director'sdirector’s relative. In July 2015, an additional $250,000 was borrowed under the Note Purchase Agreement. The Notes bear interest at an annual rate of 9%, mature on May 29, 2019, may be prepaid without penalty, and are subordinated to any current or future Senior Debt as defined in the Subordinated Security Agreement. The Subordinated Security Agreement secures payment and performance of the Company'sCompany’s obligations under the Notes and as a result, MedTech was granted a subordinated security interest in the Company'sCompany’s assets.
 
F-28
Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Capital lease obligations
In July 2016, the Company entered into two three-year lease agreements for network equipment installed at its Florida data center.  In September 2018, the Company entered into a capital lease, payable quarterly over a 60-month term, for primarily the acquisition of network components in its Florida data center. The fair market value and capital lease liability of the leased equipment at inception was approximately $399,000, of which approximately $78,000 is recorded in current liabilities. In November 2018, the Company entered into an additional capital lease, payable monthly over a 43-month term, for the acquisition of additional network components in its Florida data center. The fair market value and capital lease liability of the leased equipment at inception was approximately $130,000, of which approximately $29,000 is recorded in current liabilities. Assets under capital leases and related accumulated amortization is recorded under property and equipment in the accompanying consolidated balance sheets.  The future minimum lease payments as of December 31, 2018 are set forth in the following table:
Years ending December 31,
 
 
(in thousands)   
 
2019
  231 
2020
  146 
2021
  146 
2022
  120 
2023
  47 
 
  690 
Portion representing interest
  (85)
Portion representing executory costs
  (17)
Total capital lease obligations
 $588 
Total amounts payable by the Company under its various debtnotes payable and capital lease obligations outstanding as of December 31, 2015,  during the next five years2018 are:

 
 
 
 
 
 
 
 
(in thousands)  
 
Years ending December 31,
 
Notes payable
 
 
Capital leases
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
2019
  9,712 
 $188 
 $9,900 
2020
  245 
  116 
  361 
2021
  - 
  126 
  126 
2022
  - 
  112 
  112 
2023
  - 
  46 
  46 
Total
 $9,957 
 $588 
 $10,545 

F-25

F-29
Vasomedical, Inc.
Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the Years Ended December 31, 2018 and 2017





 
   (in thousands) 
Years ending December 31,   
2016 $1,485 
2017  197 
2018  - 
2019  5,763 
Total $7,445 
     


NOTE NM – STOCKHOLDERS' EQUITY

Chinese subsidiaries dividends and statutory reserves

The payment of dividends by entities organized in China is subject to limitations. In particular, regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. Based on People'sPeople’s Republic of China (PRC) accounting standards, our Chinese subsidiaries are also required to set aside at least 10% of after-tax profit each year to their general reserves until the accumulative amount of such reserves reaches 50% of the registered capital. As of December 31, 20152018 and 2014,2017, statutory reserves aggregating approximately $35,000 were recorded in the Company'sCompany’s consolidated balance sheets. These reserves are not distributable as cash dividends. In addition, they are required to allocate a portion of their after-tax profit to their staff welfare and bonus fund at the discretion of their respective boards of directors. Moreover, if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Distribution of dividends from the Chinese operating companies to foreign shareholders is subject to a 10% withholding tax.
 
NOTE ON - OPTION PLANS
 
1999 Stock Option Plan

In July 1999, the Company's Board of Directors approved the 1999 Stock Option Plan ("the 1999 Plan"), for which the Company reserved an aggregate of 2,000,000 shares of common stock. The 1999 Plan provides that a committee of the Board of Directors of the Company will administer it and that the committee will have full authority to determine the identity of the recipients of the options and the number of shares subject to each option. Options granted under the 1999 Plan may be either incentive stock options or non-qualified stock options. The option price shall be 100% of the fair market value of the common stock on the date of the grant (or in the case of incentive stock options granted to any individual principal stockholder who owns stock possessing more than 10% of the total combined voting power of all voting stock of the Company, 110% of such fair market value). The term of any option may be fixed by the committee but in no event shall exceed ten years from the date of grant. Options are exercisable upon payment in full of the exercise price, either in cash or in common stock valued at fair market value on the date of exercise of the option. In July 2000, the Company's Board of Directors increased the number of shares authorized for issuance under the 1999 Plan by 1,000,000 shares to 3,000,000 shares. In December 2001, the Board of Directors of the Company increased the number of shares authorized for issuance under the 1999 Plan by 2,000,000 shares to 5,000,000 shares.

The term for which options may be granted under the 1999 Plan expired July 12, 2009.

During the year ended December 31, 2015, no options to purchase shares of common stock under the 1999 Plan were retired.

F-26

Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2004 Stock Option and Stock Issuance Plan

In October 2004, the Company's stockholders approved the 2004 Stock Option and Stock Issuance Plan ("the 2004 Plan"), for which the Company reserved an aggregate of 2,500,000 shares of common stock. The 2004 Plan is divided into two separate equity programs: (i) the Option Grant Program under which eligible persons ("Optionees") may, at the discretion of the Board of Directors, be granted options to purchase shares of common stock; and (ii) the Stock Issuance Program under which eligible persons ("Participants") may, at the discretion of the Board of Directors, be issued shares of common stock directly, either through the immediate purchase of such shares or as a bonus for services rendered to the Company.

Options granted under the 2004 Plan shall be non-qualified or incentive stock options and the exercise price is the fair market value of the common stock on the date of grant except that for incentive stock options it shall be 110% of the fair market value if the Optionee owns 10% or more of our common stock. The term of any option may be fixed by the Board of Directors or committee but in no event shall exceed ten years from the date of grant. Stock options granted under the 2004 Plan may become exercisable in one or more installments in the manner and at the time or times specified by the committee. Options are exercisable upon payment in full of the exercise price, either in cash or in common stock valued at fair market value on the date of exercise of the option. The term for which options or stock may be granted under the 2004 Plan expired July 12, 2014.

Under the stock issuance program, the purchase price per share shall be fixed by the Board of Directors or committee but cannot be less than the fair market value of the common stock on the issuance date. Payment for the shares may be made in cash or check payable to us, or for past services rendered to us and all shares of common stock issued thereunder shall vest upon issuance unless otherwise directed by the committee. The number of shares issuable is also subject to adjustments upon the occurrence of certain events, including stock dividends, stock splits, mergers, consolidations, reorganizations, recapitalizations, or other capital adjustments.

The 2004 Plan provides that a committee of the Board of Directors of the Company will administer it and that the committee will have full authority to determine and designate the individuals who are to be granted stock options or qualify to purchase shares of common stock under the 2004 Plan, the number of shares to be subject to options or to be purchased and the nature and terms of the options to be granted. The committee also has authority to interpret the 2004 Plan and to prescribe, amend and rescind the rules and regulations relating to the 2004 Plan.

During the year ended December 31, 2015, options to purchase 51,912 shares of common stock under the 2004 Plan at exercise prices ranging from $0.57 to $0.58 were retired.

2010 Stock Option and Stock Issuance Plan

On June 17, 2010 the Board of Directors approved the 2010 Stock Plan (the "2010 Plan"“2010 Plan”) for officers, directors, employees and consultants of the Company. The stock issuable under the 2010 Plan shall be shares of the Company'sCompany’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 a bonus 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. Options granted under the 2010 Plan may be either incentive stock options or non-qualified stock options. The option price shall be 100% of the fair market value of the common stock on the date of the grant ( or(or in the case of incentive stock options granted to any individual stockholder possessing more than 10% of the total combined voting power of all voting stock of the Company, 110% of such fair market value). The term of any option may be fixed by the Board of Directors, or its authorized committee, but in no event shall it exceed five years from the date of grant. Options are exercisable upon payment in full of the exercise price, either in cash or in common stock valued at fair market value on the date of exercise of the option.

No shares or options were granted under the 2010 Plan during the year ended December 31, 2015 and 3,387 shares were withheld for withholding taxes.2018.

F-27

F-30
Vasomedical, Inc.
Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the Years Ended December 31, 2018 and 2017
 
2013 Stock Option and Stock Issuance Plan

On October 30, 2013, the Board of Directors approved the 2013 Stock Plan (the "2013 Plan"“2013 Plan”) for officers, directors, employees and consultants of the Company. The stock issuable under the 2013 Plan shall be shares of the Company'sCompany’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 a bonus 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 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 year ended December 31, 2015, 3,742,500 restricted2018, 475,000 shares of common stock were granted under the 2013 Plan, to employees320,416 shares were forfeited, and directors of the Company, vesting at various times through June 2019, and 1,64470,725 shares were withheld for withholding taxes.

No options were granted under the 2013 Plan during the year ended December 31, 2015.2018.

2016 Stock option activityOption and Stock Issuance Plan
On June 15, 2016, the Board of Directors ("Board") approved the 2016 Stock Plan (the "2016 Plan") for officers, directors, and senior employees of the Corporation or any subsidiary of the Corporation.  The stock issuable under all the plans2016 Plan shall be shares of the Company's authorized but unissued or reacquired common stock.  The maximum number of shares of common stock that may be issued under the 2016 Plan is 7,500,000 shares.
The 2016 Plan consists of a Stock Issuance Program, under which eligible persons may, at the discretion of the Board, be issued shares of common stock directly, as a bonus for services rendered or to be rendered to the Corporation or any subsidiary of the Corporation.
In March 2018, 725,000 restricted shares of common stock under the 2016 Plan were granted to officers. The shares vested in April 2018. In June 2018, the Company granted 500,000 shares of restricted common stock to employees, vesting over a three-year period.
No options were granted under the 2016 Plan during the year ended December 31, 2015 is summarized as follows:2018.

        Outstanding Options    
  Shares Available for Future Issuance  Number of Shares  Range of Exercise Price per Share  Weighted Average Exercise Price 
Balance at December 31, 2014  -   951,912   $0.12 - $0.58  $0.17 
Options granted  -             
Options exercised  -             
Options canceled under 2004 Plan  -   (51,912)     $0.58 
Balance at December 31, 2015  -   900,000   $0.12 - $0.22  $0.15 
                 

 The following table summarizes information about stock options outstanding and exercisable at December 31, 2015:
 
   
Options Outstanding
  Options Exercisable 
   Number Outstanding at December 31, 2015  Weighted Average Remaining Contractual Life (yrs.)  Weighted Average Exercise Price  Number Exercisable at December 31, 2015  Weighted Average Exercise Price 
Range of Exercise Prices                
$0.12 - $0.22   900,000   1.1  $0.15   900,000  $0.15 
                       

F-31
 
F-28

Vasomedical, Inc.Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the Years Ended December 31, 2018 and 2017
 
The aggregate intrinsic value of options outstanding and currently exercisable was $48,000 at December 31, 2015.  The following table summarizes non-vested restricted shares for the year ended December 31, 2015:2018:
 
 
 
Shares Available for Future Issuance
 
 
Unvested shares
 
 
Weighted Average Grant Date Fair Value
 
Balance at December 31, 2016
  4,031,946 
  6,763,125 
 $0.16 
Authorized
  - 
  - 
 $- 
Granted
  (975,000)
  975,000 
 $0.12 
Vested
  - 
  (3,380,437)
 $0.15 
Forfeited
  153,730 
  (153,730)
 $0.16 
Balance at December 31, 2017
  3,210,676 
  4,203,958 
 $0.16 
Authorized
  - 
  - 
 $- 
Granted
  (1,700,000)
  1,700,000 
 $0.06 
Vested
  - 
  (3,125,317)
 $0.14 
Forfeited
  391,141 
  (391,141)
 $0.16 
Balance at December 31, 2018
  1,901,817 
  2,387,500 
 $0.12
 
  Shares Available for Future Issuance  Unvested shares  Weighted Average Grant Date Fair Value 
Balance at December 31, 2014  7,241,234   565,000  $0.27 
Granted  (3,742,500)  3,742,500  $0.18 
Vested      (1,474,519) $0.21 
Forfeited  5,481   (5,481) $0.18 
Balance at December 31, 2015  3,504,215   2,827,500  $0.18 

There were 75,143,39668,543,396 remaining authorized shares of common stock after reserves for all stock option plans.

NOTE P – BUSINESS COMBINATIONO - INCOME TAXES
Genwell Acquisition

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act reduces the maximum U.S. federal corporate tax rate from 35% to 21%, allows net operating losses incurred in 2018 and beyond to be carried forward indefinitely, allows alternative minimum tax carryforwards to be partially refunded, beginning in 2018, and fully refunded by 2021, and creates new taxes on certain foreign sourced earnings.
On August 6, 2014 the Company acquired all of the outstanding shares of Genwell Instruments Co. Ltd. (Genwell), located in Wuxi, China, through its wholly owned subsidiary Wuxi Gentone Instruments Co. Ltd. (Gentone) for cash and notes of Chinese Yuan RMB13,250,000 (approximately $2,151,000 at the acquisition date).  The notes totaling RMB6,250,000 (approximately $1,015,000) were payable one year from the closing date with interest at the rate of 5% per annum, and modified in May 2015 as described in Note L.  Genwell was formed in China in 2010 with the assistance of a government grant to develop the MobiCareTM wireless multi-parameter patient monitoring system and holds the patents and intellectual property rights for this system. The primary purpose of the acquisition was to acquire ownership of the developed product including CFDA clearance as well as these patents and intellectual property.

The operating resultsfollowing is a geographical breakdown of Genwell fromloss before the date of acquisition are included in the accompanying consolidated financial statements.  The following table summarizes the fair values of the net assets acquired:provision for income taxes:
 
   (in thousands) 
Cash and cash equivalents $113 
Accounts receivable and other current assets  2 
Property and equipment  3 
Intangible assets  2,033 
Net assets acquired $2,151 
NetWolves Acquisition
On May 29, 2015, the Company entered into an agreement for, and completed its purchase of, all of the assets of NetWolves, LLC and its affiliates, including the membership interests in NetWolves Network Services, LLC  (collectively, "NetWolves") for $18,000,000 (the "Purchase Price"). The purchase of NetWolves was accomplished pursuant to an Asset Purchase Agreement (the "Purchase Agreement").  As a result, the Company effectively purchased all rights, titles and ownership of all assets held by NetWolves.   The Purchase Price was paid using $14,200,000 in cash on hand and $3,800,000 raised through the issuance of the Note to MedTech (See Note M).  The Company believes there are significant operational synergies between NetWolves' capabilities and VasoHealthcare IT's requirements under its VAR contract with GEHC, as well as the opportunity to expand NetWolves' existing services to the healthcare IT market.

The operating results of NetWolves from May 29, 2015 to December 31, 2015 are included in the accompanying consolidated statements of income and comprehensive income for the year ended December 31, 2015.  The accompanying consolidated balance sheet at December 31, 2015 reflects the acquisition of NetWolves effective May 29, 2015.

 
 
(in thousands)
 
 
 
Year ended December 31,
 
 
 
2018
 
 
2017
 
Domestic
 $(3,967)
 $(4,161)
Foreign
  (152)
  (244)
Loss before provision for income taxes
 $(4,119)
 $(4,405)
 
F-32
 
F-29

Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with Accounting Standards Codification 805, Business Combinations, the total purchase consideration is allocated to the net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at May 29, 2015 (the acquisition date).  The purchase price was initially allocated based on the information then available, and certain amounts were adjusted after revisions of certain preliminary estimates.  The following table summarizes the current allocation of the assets acquired and liabilities assumed based on their preliminary estimated fair values and current measurement period adjustments as follows:
         (in thousands) 
Assets acquired/(liabilities assumed) As initially reported  Measurement period adjustments  As adjusted 
Cash and cash equivalents $733  $-  $733 
Accounts receivable and other current assets  1,638   (103)  1,535 
Other assets  50   -   50 
Property and equipment  2,359   -   2,359 
Accounts payable and other current liabilities  (4,382)  -   (4,382)
Long term debt  (1,701)  -   (1,701)
Goodwill and other intangibles  19,303   (4,928)  14,375 
Customer-related intangibles  -   5,031   5,031 
Total $18,000  $-  $18,000 
During the year ended December 31, 2015, the Company expensed $100,000 of acquisition-related legal costs and incurred $130,000 in debt issue costs.  The legal costs are included in the line item Selling, General & Administrative costs in the accompanying consolidated statements of income and comprehensive income.  The debt issue costs are recorded as a reduction to long term notes payable in the accompanying consolidated balance sheet at December 31, 2015.  The amounts of revenue and net loss of NetWolves included in the Company's consolidated statements of income and comprehensive income for the year ended December 31, 2015 was $20,661,000 and $125,000, respectively.  The goodwill is expected to be deductible for tax purposes.
The following unaudited supplemental pro forma information presents the financial results as if the acquisitions of Genwell and NetWolves had occurred January 1, 2013, and January 1, 2014, respectively.
   (in thousands) 
  
Year ended
 
  December 31, 2015  December 31, 2014 
   (unaudited)   (unaudited) 
       
Revenue $70,234  $64,552 
         
Net income  4,007   152 
         
Basic earnings per share $0.03  $0.00 
         
Diluted earnings per share $0.03  $0.00 

F-30

Vasomedical , Inc.Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
NOTE Q -  INCOME TAXES
The following is a geographical breakdown of income before the provision for income taxes:
   (in thousands) 
  Year ended December 31, 
  2015  2014 
Domestic  4,405   1,642 
Foreign  (626)  (387)
Income before provision for income taxes  3,779   1,255 
 
The provision for income taxes consisted of the following:
 
   (in thousands) 
  
Year ended December 31,
 
  2015  2014 
Current provision (benefit)      
Federal  92   54 
State  208   45 
Foreign  (10)  28 
Total current provision  290   127 
         
Deferred benefit        
Federal  (284)  - 
State  (50)  - 
Foreign  -   - 
Total deferred benefit  (334)  - 
         
Total (benefit) provision for income taxes  (44)  127 
         
Effective income tax rate  -1.16%   10.14% 
         
         


F-31

Vasomedical , Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
 
(in thousands)
 
 
 
Year ended December 31,
 
 
 
2018
 
 
2017
 
Current provision (benefit)
 
 
 
 
 
 
Federal
 $- 
 $(154)
State
  63 
  59 
Foreign
  35 
  13 
Total current provision (benefit)
  98 
  (82)
 
    
    
Deferred provision (benefit)
    
    
Federal
  (376)
  168 
State
  (107)
  48 
Foreign
  - 
  - 
Total deferred provision (benefit)
  (483)
  216 
 
    
    
Total income tax provision (benefit)
 $(385)
 $134 
 
    
    
Effective income tax rate
  9.35%
  -3.04%
 
Income tax benefit for the year ended December 31, 20152018 was $44,000$385,000 due primarily to a $560,000 reduction$483,000 in the valuation allowance for deferred tax assets, partially offset by $226,000 higher tax expensebenefit related to deferred tax liabilities arising from goodwill generated by the NetWolves acquisition as well as higherand $63,000 in state income taxes and federal alternative minimum taxes. The Company recorded income tax expense of $127,000 for the year ended December 31, 2014, which consisted mainly of federal alternative minimum taxes and state taxes.  During the year ended December 31, 2015, the Company reviewed previous positive and negative evidence and also reviewed its expected taxable income for future periods and concluded that it is more likely than not that approximately $560,000 of tax benefits related to net operating loss carryforwards will be utilized in future tax years and, therefore, reduced its valuation allowance during the year ended  December 31, 2015 in accordance with ASC 740.  In addition, the Company expects to provide a valuation  allowance on the remaining future tax benefits until it can sustain a level of profitability that demonstrates its ability to utilize the remaining assets, or other significant positive evidence arises that suggests its ability to utilize the remaining assets.  The Company will continue to re-assess its reserves on deferred income tax assets in future periods on a quarterly basis.
 
The following is a reconciliation of the effective income tax rate to the federal statutory rate:
 
 
For the year ended
 
 
 
December 31, 2018
 
 
December 31, 2017
 
 
 
%
 
 
%
 
Federal statutory rate
  21.00 
  34.00 
State income taxes
  (0.87)
  (1.34)
Change in valuation allowance
    
    
  relating to operations
  (7.75)
  (42.38)
Impact of federal statutory rate change
  - 
  (6.44)
Impact of federal statutory rate change on
    
    
  valuation allowance
  - 
  13.74 
Foreign tax rate differential
  - 
  (2.20)
R&D credit
  (0.22)
  - 
Nondeductible expenses
  (3.09)
  (1.93)
Minimum tax credit refundable
  - 
  3.51 
Other
  0.28 
  - 
 
  9.35 
  (3.04)

F-33
Vaso Corporation and Subsidiaries
 
  For the year ended 
  December 31, 2015  December 31, 2014 
  %  % 
Federal statutory rate  34.00   34.00 
State income taxes  8.99   6.00 
Change in valuation allowance        
  relating to operations  (8.84)  - 
Utilizations of net operating loss carryforward  (42.40)  (40.00)
Foreign taxes  (0.28)  2.28 
Alternative minimum tax  2.37   4.28 
Other  5.00   3.58 
   (1.16)  (10.14)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the Years Ended December 31, 2018 and 2017
The effective tax rate increased mainly due to the effects of adjusting the deferredchange from tax asset valuation allowance for the year ended December 31, 2015expense in 2017 to reflect a changetax benefit in estimate of future taxable income.2018.

As of December 31, 2015,2018, the recorded deferred tax assets were $17,029,000,$14,983,000, reflecting a decreasean increase of $1,515,000$1,868,000 during the year ended December 31, 2015,2018, which was offset by a valuation allowance of $16,170,000,$12,077,000, reflecting a decreasean increase of $2,374,000.$319,000.
 
The components of our deferred tax assets and liabilities are summarized as follows:
 
 
(in thousands)
 
 
 
December 31,
2018
 
 
December 31,
2017
 
Deferred Tax Assets:
 
 
 
 
 
 
Net operating loss carryforwards
 $12,402 
 $10,623 
Amortization
  304 
  262 
Stock-based compensation
  16 
  49 
Allowance for doubtful accounts
  88 
  36 
Reserve for obsolete inventory
  239 
  235 
Tax credits
  429 
  438 
Expense accruals
  392 
  579 
Excess interest carryforwards
  171 
  - 
Deferred revenue
  942 
  893 
Total gross deferred taxes
  14,983 
  13,115 
Valuation allowance
  (12,077)
  (11,758)
Net deferred tax assets
  2,906 
  1,357 
 
    
    
Deferred Tax Liabilities:
    
    
Deferred commissions
  (245)
  (224)
Goodwill
  (927)
  (668)
Differences in timing of revenue recognition
  (124)
  (112)
Depreciation
  (1,360)
  (573)
Total deferred tax liabilities
  (2,656)
  (1,577)
 
    
    
Total deferred tax assets (liabilities)
  250 
  (220)
 
    
    
 
    
    
Recorded as:
    
    
Non-current deferred tax assets
  374 
  - 
Non-current deferred tax liabilities
  (124)
  (220)
Total deferred tax assets (liabilities)
 $250 
 $(220)

F-32F-34

Vasomedical , Inc.
Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
The components of our deferred tax  assets and liabiilties are summarized as follows:
      (in thousands) 
  December 31, 2015  December 31, 2014 
Deferred Tax Assets:      
Net operating loss carryforwards $14,076  $16,014 
Depreciation and amortization  138   219 
Stock-based compensation  59   33 
Allowance for doubtful accounts  53   14 
Reserve for obsolete inventory  364   301 
Tax credits  549   381 
Expense accruals  442   315 
Deferred revenue  1,348   1,267 
Total gross deferred taxes  17,029   18,544 
Valuation allowance  (16,170)  (18,544)
Net deferred tax assets  859   - 
         
Deferred Tax Liabilities:        
Deferred commissions  (299)  - 
Goodwill  (226)  - 
Differences in timing of revenue recognition  (112)  (112)
Total deferred tax liabilities  (637)  (112)
         
Total deferred tax assets (liabilities)  222   (112)
         
         
Recorded as:        
Non-current deferred tax assets (in other assets)  334   - 
Non-current deferred tax liabilities  (112)  (112)
Total deferred tax assets (liabilities) $222  $(112)

The activity in the valuation allowance is set forth below:
 
     (in thousands) 
 
(in thousands)
 
 2015  2014 
 
2018
 
 
2017
 
Valuation allowance, January 1, $18,544  $19,041 
 $11,758 
 $15,695 
Partial release of allowance  (560)  - 
Change in valuation allowance  (1,814)  (497)
  319 
  (3,937)
Valuation allowance, December 31, $16,170  $18,544 
 $12,077 
 $11,758 
        
 
At December 31, 2015,2018, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $35$39 million expiring at various dates from 2020 through 2033.  No net operating loss carryforwards expired in the years ended December 31, 20152037 and 2014.approximately $7 million with no expiration date.

Under current tax law, the utilization of tax attributes will be restricted if an ownership change, as defined, were to occur. Section 382 of the Internal Revenue Code provides, in general, that if an "ownership change"“ownership change” occurs with respect to a corporation with net operating and other loss carryforwards, such carryforwards will be available to offset taxable income in each taxable year after the ownership change only up to the "Section“Section 382 Limitation"Limitation” for each year (generally, the product of the fair market value of the corporation'scorporation’s stock at the time of the ownership change, with certain adjustments, and a specified long-term tax-exempt bond rate at such time). The Company'sCompany’s ability to use its loss carryforwards will be limited in the event of an ownership change.
F-33

Vasomedical , Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Except for earnings that have been previously taxed in the U.S. under the subpart F rules and can be remitted to the U.S., we currently have no intention to remit any undistributed earnings of our foreign subsidiaries in a taxable manner. As of December 31, 2015, we have approximately $7.5 million of foreign undistributed earnings. Should additional amounts of our foreign subsidiaries' undistributed earnings be remitted to the U.S. as taxable dividends, we would expect that this would result in additional U.S. tax at a statutory rate of up to 35% and offset by any potential foreign tax credits. Due to uncertainty surrounding the timing and manner in which such distributions could occur, it is not practicable to estimate the amount of such liability.
 
NOTE RP - COMMITMENTS AND CONTINGENCIES

Sales representation agreement

In June 2012,December 2017, the Company concluded an amendment of the GEHC Agreement with GEHC, originally signed on May 19, 2010. The amendment effective July 1, 2012, extendedextends the initial term of three years commencingthe original agreement, which began on July 1, 2010 to five years through June 30, 2015.  In December 2014, the Company concluded an additional amendment, effective January 1,and was previously extended in 2012 and 2015, extending the term through December 31, 2018,2022, subject to earlierearly termination under certain circumstances, making it the longest extension thus far with a remaining term of five years from December 31, 2017. Under the agreement, VasoHealthcare is the exclusive representative for the sale of select GE Healthcare diagnostic imaging products to specific market segments/accounts in the 48 contiguous states of the United States and the District of Columbia. The circumstances under which early termination without cause on or after July 1, 2017.  These circumstances includeof the agreement may occur include: not materially achieving certain sales goals, not maintaining a minimum number of sales representatives, and not meeting various legal and GEHC policy requirements. The Company did not meet the contractual sales goals in 2018. Under the terms of the agreement, the Company is required to lease dedicated computer equipment from GEHC for connectivity to their network.network and share certain GEHC sales costs.

F-35
Vaso Corporation and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
Facility Leases

Upon expiration of the Westbury, New York lease in September 2015, theThe Company relocated its offices from Westbury toleases a facility in Plainview, New York, under a seven-year agreement expiring in September 2022. The Company also leases offices in New York City under a five-yearthree-year agreement expiring May 2017.2020. NetWolves houses its operations in leased facilities in Tampa, Florida, under an agreement expiring in May 2016.2020. VHC-IT leases a facility in Nashville, Tennessee pursuant to a one-year lease expiring April 2019. The Company is evaluating possible renewal options and believes sufficient space is available at similar cost in Nashville. FGE leases facilities in Wuxi, China, pursuant to leases expiring in DecemberSeptember 2019, August 2020, September 2020, and a facility in Foshan, China, pursuant to a lease that expires in April 2016.  The Company expects to renew itsDecember 2020. Such leases expiring in 2016.are renewable upon expiration.
 
Vehicle Lease Agreement

In June 2011, theThe Company began taking deliveries under a closed-end master lease agreement for the provision ofprovides leased vehicles to the sales team of its Professional Sales Service segment.professional sales service segment under a closed-end master lease agreement. Vehicles obtained under the terms of the agreement are leased generally for a 36-month term, and payments are fixed for each year of the agreement, subject to readjustment at the beginning of the second and third year.

F-34

Vasomedical , Inc. and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Future rental payments under these operating leases aggregate approximately as follows:

For the years endedending December 31,

(in thousands)
 
 
Vehicles
 
 
Facilities
 
 
Total
 
2019
 $289 
 $380 
 $669 
2020
  195 
  230 
  425 
2021
  53 
  76 
  129 
2022
  - 
  55 
  55 
Total
 $537 
 $741
 $1,278
 
            (in thousands) 
  Vehicles  Facilities  Equipment  Total 
2016 $288  $236  $127  $651 
2017  167   139   10   316 
2018  41   123   -   164 
2019  -   125   -   125 
2020  -   127   -   127 
Thereafter  -   130       130 
Total $496  $880  $137  $1,513 


Rental expense for all operating leases totaled approximately $713,000$816,000 and $620,000$770,000 for the years ended December 31, 20152018 and 2014,2017, respectively.

Employment Agreements

On March 21, 2011, the Company entered into an Employment Agreement with its President and Chief Executive Officer, Dr. Jun Ma, for a three-year term ended on March 14, 2014. The agreement was amended in 2013 and again in 2015 to provide for a continuing three-year term, unless earlier terminated by the Company, but in no event can extend beyond March 14, 2021. The Employment Agreement currently provides for annual compensation of $375,000. Dr. Ma shall be eligible to receive a bonus for each fiscal year thereafter during the employment term. The amount and the occasion for payment of such bonus, if any, shall be at the discretion of the Board of Directors. Dr. Ma shall also be eligible for an award under any long-term incentive compensation plan and grants of options and awards of shares of the Company'sCompany’s stock, as determined at the Board of Directors'Directors’ discretion. The Employment Agreement further provides for reimbursement of certain expenses, and certain severance benefits in the event of termination prior to the expiration date of the Employment Agreement.
 
F-36
Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2018 and 2017
On June 1, 2015, the Company entered into an Employment Agreement with Mr. Peter Castle to be its Chief Operating Officer. The agreement provides for a three-year term ending on June 1, 2018 and shall extend for additional one-year periods annually commencing June 1, 2018, unless earlier terminated by the Company, but in no event can extend beyond June 1, 2021. The Employment Agreement currently provides for annual compensation of $350,000. Mr. Castle shall be eligible to receive a bonus for each fiscal year thereafter during the employment term. The amount and the occasion for payment of such bonus, if any, shall be at the discretion of the Board of Directors. Mr. Castle shall also be eligible for an award under any long-term incentive compensation plan and grants of options and awards of shares of the Company'sCompany’s stock, as determined at the Board of Directors'Directors’ discretion. The Employment Agreement further provides for reimbursement of certain expenses, and certain severance benefits in the event of termination prior to the expiration date of the Employment Agreement.


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Vasomedical , Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
Licensing and Support Service Agreement

In 2010, NetWolves executed a licensing and support service agreement for the upgrade of its billing system. The agreement initially was set to expire in December 2014; however, it was extended for a period of two years in June 2013 and accordingly now expires inwith an automatic one-year renewal thereafter. In December 2016.2017, the agreement was renewed for an additional three years, expiring December 2020. The agreement provides for monthly recurring charges based on a percentage of billed revenues using these services, which charges aggregated approximately $195,000 in 2015.$331,000 and $400,000 for the years ended December 31, 2018 and 2017, respectively.

Letters of Credit

At December 31, 20152018 we are contingently liable under two standby letters of credit approximating $270,500 in total. The letters of credit are being maintained as security for debt service payments to two vendors.

Litigation

The Company is currently, and has been in the past, a party to various routine legal proceedings, primarily employee related matters, incident to the ordinary course of business. The Company believes that the outcome of all such pending legal proceedings in the aggregate is unlikely to have a material adverse effect on the business or consolidated financial condition of the Company.

Foreign operations

During the years ended December 31, 20152018 and 2014,2017, the Company had and continues to have operations in China. Operating transactions in China are denominated in the Chinese currency called RMB, which is not freely convertible into foreign currencies.Operating internationally involves additional risks relating to such things as currency exchange rates, different legal and regulatory environments, political, economic risks relating to the stability or predictability of foreign governments, differences in the manner in which different cultures do business, difficulties in staffing and managing foreign operations, differences in financial reporting, operating difficulties, and other factors. The occurrence of any of these risks, if severe enough, could have a material adverse effect on

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Vaso Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the consolidated financial position, results of operationsYears Ended December 31, 2018 and cash flows of the Company.2017

Commercial law is still developing in China and there are limited legal precedents to follow in commercial transactions. There are many tax jurisdictions each of which may have changing tax laws. Applicable taxes include value added taxes (VAT)(“VAT”), corporate income tax,Enterprise Income Tax, and social (payroll) taxes. Regulations are often unclear. Tax declarations (reports) are subject to review and taxing authorities may impose fines, penalties and interest. These facts create risks in China.
 
NOTE Q - 401(k) PLANS
 

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Vasomedical, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE S - 401(K) PLANS
The Company maintains twoa defined contribution plansplan to provide retirement benefits for its employees - the Vasomedical, Inc.Vaso Corporation 401(k) Plan adopted in April 1997, and the NetWolves Network Services, LLC 401(k) Plan adopted in January 2015.1997. As allowed under Section 401(k) of the Internal Revenue Code, the plan provides tax-deferred salary deductions for eligible employees. Employees are eligible to participate in the next quarter enrollment period after employment under the Vasomedical Plan and after six months employment under the NetWolves Plan. Participantsparticipants may make voluntary contributions to the plan up to 80% of their compensation under the Vasomedical Plan, or up to the maximum allowed by law under the NetWolves Plan.compensation. In the years ended December 31, 20152018 and 20142017 the Company made discretionary contributions of approximately $95,000$96,000 and $85,000,$116,000, respectively, to match a percentage of employee contributions.
 
NOTE R – SUBSEQUENT EVENTS
 
In accordance with the original acquisition agreement of Gentone by FGE, in March 2019 the Company’s subsidiary Gentone exercised its option to acquire all of the shares of Biox.
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Subsequent to December 31, 2018, the Company issued notes aggregating $750,000 to certain directors, employees, and a shareholder.   The notes mature at various periods through April 3, 2020 and bear interest at 10% per annum payable quarterly.
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