UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2022 | |
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from _______________ to ______________ |
Commission File Number: 0-18105
VASO CORPORATION | |
(Exact name of registrant as specified in its charter) |
Delaware | 11-2871434 | |
(State or other jurisdiction of | ||
incorporation or organization) | (IRS Employer Identification Number) |
137 Commercial Street,St., Suite 200, Plainview, New York 11803
(Address of principal executive offices)
Registrant’s Telephone Number (516) 997-4600
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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.
Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
Non-accelerated Filer | ☒ | Smaller Reporting Company | ☒ |
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 ☐ No ☒
Securities registered pursuant to Section 12 (b) of the Act: None
Number of Shares Outstanding of Common Stock, $.001 Par Value, at November 9, 2017 – 175,390,196
Vaso Corporation and Subsidiaries
INDEX
3 | ||||
3 | ||||
3 | ||||
4 | ||||
5 | ||||
7 | ||||
8 | ||||
19 | ||||
24 | ||||
25 | ||||
25 |
Table of Contents |
Vaso Corporation and Subsidiaries
(in thousands, except share and per share data)
September 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 5,522 | $ | 7,087 | ||||
Accounts and other receivables, net of an allowance for doubtful | ||||||||
accounts and commission adjustments of $4,710 at September 30, | ||||||||
2017 and $4,159 at December 31, 2016 | 10,944 | 12,741 | ||||||
Receivables due from related parties | 19 | 18 | ||||||
Inventories, net | 2,658 | 2,395 | ||||||
Deferred commission expense | 2,899 | 1,917 | ||||||
Prepaid expenses and other current assets | 1,138 | 925 | ||||||
Total current assets | 23,180 | 25,083 | ||||||
PROPERTY AND EQUIPMENT, net of accumulated depreciation of | ||||||||
$4,723 at September 30, 2017 and $3,835 at December 31, 2016 | 4,777 | 4,021 | ||||||
GOODWILL | 17,407 | 17,280 | ||||||
INTANGIBLES, net | 5,452 | 5,996 | ||||||
OTHER ASSETS, net | 3,898 | 5,001 | ||||||
$ | 54,714 | $ | 57,381 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 5,074 | $ | 5,219 | ||||
Accrued commissions | 1,399 | 2,139 | ||||||
Accrued expenses and other liabilities | 4,617 | 5,275 | ||||||
Sales tax payable | 773 | 718 | ||||||
Income taxes payable | 42 | 30 | ||||||
Deferred revenue - current portion | 12,651 | 7,628 | ||||||
Notes payable and capital lease obligations - current portion | 4,142 | 4,245 | ||||||
Notes payable - related parties - current portion | 127 | - | ||||||
Due to related party | 311 | 396 | ||||||
Total current liabilities | 29,136 | 25,650 | ||||||
LONG-TERM LIABILITIES | ||||||||
Notes payable and capital lease obligations | 4,858 | 4,935 | ||||||
Notes payable - related parties | 380 | 648 | ||||||
Deferred revenue | 9,427 | 11,776 | ||||||
Deferred tax liability | 292 | 112 | ||||||
Other long-term liabilities | 1,114 | 1,349 | ||||||
Total long-term liabilities | 16,071 | 18,820 | ||||||
COMMITMENTS AND CONTINGENCIES (NOTE M) | ||||||||
STOCKHOLDERS' EQUITY | ||||||||
Preferred stock, $.01 par value; 1,000,000 shares authorized; nil shares | ||||||||
issued and outstanding at September 30, 2017 and December 31, 2016 | - | - | ||||||
Common stock, $.001 par value; 250,000,000 shares authorized; | ||||||||
175,387,306 and 173,811,533 shares issued at September 30, 2017 and | ||||||||
December 31, 2016, respectively; 165,079,219 and 163,503,446 shares | ||||||||
outstanding at September 30, 2017 and December 31, 2016, respectively | 175 | 174 | ||||||
Additional paid-in capital | 63,269 | 62,856 | ||||||
Accumulated deficit | (51,724 | ) | (47,790 | ) | ||||
Accumulated other comprehensive loss | (213 | ) | (329 | ) | ||||
Treasury stock, at cost, 10,308,087 shares at September 30, 2017 and December 31, 2016 | (2,000 | ) | (2,000 | ) | ||||
Total stockholders' equity | 9,507 | 12,911 | ||||||
$ | 54,714 | $ | 57,381 |
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
|
| ||
ASSETS | ||||||||
CURRENT ASSETS |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 4,971 |
|
| $ | 6,025 |
|
Short-term investments |
|
| 788 |
|
|
| 629 |
|
Accounts and other receivables, net of an allowance for doubtful accounts and commission adjustments of $6,199 at March 31, 2022 and $5,804 at December 31, 2021 |
|
| 14,681 |
|
|
| 15,393 |
|
Receivables due from related parties |
|
| 346 |
|
|
| 66 |
|
Inventories |
|
| 1,713 |
|
|
| 1,147 |
|
Deferred commission expense |
|
| 3,524 |
|
|
| 3,549 |
|
Prepaid expenses and other current assets |
|
| 842 |
|
|
| 994 |
|
Total current assets |
|
| 26,865 |
|
|
| 27,803 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $9,855 at March 31, 2022 and $10,512 at December 31, 2021 |
|
| 2,058 |
|
|
| 2,172 |
|
Opearting lease right of use assets |
|
| 987 |
|
|
| 915 |
|
Goodwill |
|
| 15,726 |
|
|
| 15,722 |
|
Intangibles, net |
|
| 1,899 |
|
|
| 2,041 |
|
Other assets, net |
|
| 2,873 |
|
|
| 2,446 |
|
Investment in EECP Global |
|
| 1,059 |
|
|
| 1,043 |
|
Deferred tax assets, net |
|
| 219 |
|
|
| 219 |
|
Total assets |
| $ | 51,686 |
|
| $ | 52,361 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 2,584 |
|
| $ | 2,797 |
|
Accrued commissions |
|
| 1,267 |
|
|
| 2,705 |
|
Accrued expenses and other liabilities |
|
| 6,730 |
|
|
| 7,489 |
|
Finance lease liabilities - current |
|
| 208 |
|
|
| 222 |
|
Operating lease liabilities - current |
|
| 510 |
|
|
| 562 |
|
Sales tax payable |
|
| 680 |
|
|
| 719 |
|
Deferred revenue - current portion |
|
| 17,975 |
|
|
| 16,495 |
|
Notes payable - current portion |
|
| 8 |
|
|
| 8 |
|
Due to related party |
|
| 3 |
|
|
| 3 |
|
Total current liabilities |
|
| 29,965 |
|
|
| 31,000 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
Notes payable, net of current portion |
|
| 21 |
|
|
| 23 |
|
Finance lease liabilities, net of current portion |
|
| 172 |
|
|
| 218 |
|
Operating lease liabilities, net of current portion |
|
| 477 |
|
|
| 352 |
|
Deferred revenue, net of current portion |
|
| 8,979 |
|
|
| 8,470 |
|
Other long-term liabilities |
|
| 1,100 |
|
|
| 988 |
|
Total long-term liabilities |
|
| 10,749 |
|
|
| 10,051 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (NOTE M) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 1,000,000 shares authorized; nil shares issued and outstanding at March 31, 2022 and December 31, 2021 |
|
|
|
|
|
|
|
|
Common stock, $.001 par value; 250,000,000 shares authorized; 185,435,965 shares issued at March 31, 2022 and December 31, 2021; 175,127,878 shares outstanding at March 31, 2022 and December 31, 2021 |
|
| 185 |
|
|
| 185 |
|
Additional paid-in capital |
|
| 63,924 |
|
|
| 63,917 |
|
Accumulated deficit |
|
| (51,246 | ) |
|
| (50,902 | ) |
Accumulated other comprehensive income |
|
| 109 |
|
|
| 110 |
|
Treasury stock, at cost, 10,308,087 shares at March 31, 2022 and December 31, 2021 |
|
| (2,000 | ) |
|
| (2,000 | ) |
Total stockholders’ equity |
|
| 10,972 |
|
|
| 11,310 |
|
|
| $ | 51,686 |
|
| $ | 52,361 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 3 |
Table of Contents |
Vaso Corporation and Subsidiaries
(unaudited)
(in thousands, except per share data)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues | ||||||||||||||||
Managed IT systems and services | $ | 10,827 | $ | 9,679 | $ | 31,438 | $ | 29,530 | ||||||||
Professional sales services | 6,305 | 6,583 | 18,181 | 20,289 | ||||||||||||
Equipment sales and services | 909 | 1,282 | 2,649 | 3,481 | ||||||||||||
Total revenues | 18,041 | 17,544 | 52,268 | 53,300 | ||||||||||||
Cost of revenues | ||||||||||||||||
Cost of managed IT systems and services | 6,311 | 5,550 | 18,526 | 17,436 | ||||||||||||
Cost of professional sales services | 1,386 | 1,325 | 3,946 | 4,318 | ||||||||||||
Cost of equipment sales and services | 316 | 519 | 900 | 1,271 | ||||||||||||
Total cost of revenues | 8,013 | 7,394 | 23,372 | 23,025 | ||||||||||||
Gross profit | 10,028 | 10,150 | 28,896 | 30,275 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling, general and administrative | 10,412 | 9,531 | 31,349 | 28,981 | ||||||||||||
Research and development | 235 | 117 | 716 | 369 | ||||||||||||
Total operating expenses | 10,647 | 9,648 | 32,065 | 29,350 | ||||||||||||
Operating (loss) income | (619 | ) | 502 | (3,169 | ) | 925 | ||||||||||
Other income (expense) | ||||||||||||||||
Interest and financing costs | (166 | ) | (162 | ) | (506 | ) | (474 | ) | ||||||||
Interest and other income, net | 63 | 91 | 55 | 140 | ||||||||||||
Total other expense, net | (103 | ) | (71 | ) | (451 | ) | (334 | ) | ||||||||
(Loss) income before income taxes | (722 | ) | 431 | (3,620 | ) | 591 | ||||||||||
Income tax expense | (94 | ) | (103 | ) | (314 | ) | (154 | ) | ||||||||
Net (loss) income | (816 | ) | 328 | (3,934 | ) | 437 | ||||||||||
Other comprehensive (loss) income | ||||||||||||||||
Foreign currency translation gain (loss) | 25 | 34 | 116 | (58 | ) | |||||||||||
Comprehensive (loss) income | $ | (791 | ) | $ | 362 | $ | (3,818 | ) | $ | 379 | ||||||
(Loss) income per common share | ||||||||||||||||
- basic and diluted | $ | (0.00 | ) | $ | 0.00 | $ | (0.02 | ) | $ | 0.00 | ||||||
Weighted average common shares outstanding | ||||||||||||||||
- basic | 163,307 | 160,268 | 161,817 | 158,730 | ||||||||||||
- diluted | 163,307 | 161,675 | 161,817 | 159,479 |
|
| Three months ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Revenues |
|
|
|
|
| |||
Managed IT systems and services |
| $ | 10,003 |
|
| $ | 11,253 |
|
Professional sales services |
|
| 6,607 |
|
|
| 4,655 |
|
Equipment sales and services |
|
| 399 |
|
|
| 611 |
|
Total revenues |
|
| 17,009 |
|
|
| 16,519 |
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
Cost of managed IT systems and services |
|
| 5,869 |
|
|
| 6,847 |
|
Cost of professional sales services |
|
| 1,301 |
|
|
| 990 |
|
Cost of equipment sales and services |
|
| 72 |
|
|
| 123 |
|
Total cost of revenues |
|
| 7,242 |
|
|
| 7,960 |
|
Gross profit |
|
| 9,767 |
|
|
| 8,559 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 9,999 |
|
|
| 8,954 |
|
Research and development |
|
| 122 |
|
|
| 144 |
|
Total operating expenses |
|
| 10,121 |
|
|
| 9,098 |
|
Operating loss |
|
| (354 | ) |
|
| (539 | ) |
|
|
|
|
|
|
|
|
|
Other (expense) income |
|
|
|
|
|
|
|
|
Interest and financing costs |
|
| (24 | ) |
|
| (135 | ) |
Interest and other income, net |
|
| 48 |
|
|
| 49 |
|
Loss on disposal of fixed assets |
|
| (2 | ) |
|
| 0 |
|
Total other (expense) income, net |
|
| 22 |
|
|
| (86 | ) |
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
| (332 | ) |
|
| (625 | ) |
Income tax expense |
|
| (12 | ) |
|
| (18 | ) |
Net loss |
|
| (344 | ) |
|
| (643 | ) |
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
Foreign currency translation loss |
|
| (1 | ) |
|
| (21 | ) |
Comprehensive loss |
| $ | (345 | ) |
| $ | (664 | ) |
|
|
|
|
|
|
|
|
|
Loss per common share |
|
|
|
|
|
|
|
|
- basic and diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
- basic and diluted |
|
| 172,328 |
|
|
| 170,836 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 4 |
Table of Contents |
Vaso Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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, 2021 |
|
| 185,244 |
|
| $ | 185 |
|
|
| (10,308 | ) |
|
| (2,000 | ) |
| $ | 63,886 |
|
| $ | (57,002 | ) |
| $ | 16 |
|
| $ | 5,085 |
|
Share-based compensation |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 9 |
|
|
| 0 |
|
|
| 0 |
|
|
| 9 |
|
Foreign currency translation loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (21 | ) |
|
| (21 | ) |
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (643 | ) |
|
| 0 |
|
|
| (643 | ) |
Balance at March 31, 2021 (unaudited) |
|
| 185,244 |
|
| $ | 185 |
|
|
| (10,308 | ) |
| $ | (2,000 | ) |
| $ | 63,895 |
|
| $ | (57,645 | ) |
| $ | (5 | ) |
| $ | 4,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2022 |
|
| 185,436 |
|
| $ | 185 |
|
|
| (10,308 | ) |
|
| (2,000 | ) |
| $ | 63,917 |
|
| $ | (50,902 | ) |
| $ | 110 |
|
| $ | 11,310 |
|
Share-based compensation |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 7 |
|
|
| 0 |
|
|
| 0 |
|
|
| 7 |
|
Foreign currency translation loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1 | ) |
|
| (1 | ) |
Net loss |
|
| - |
|
|
| 0 |
|
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| (344 | ) |
|
| 0 |
|
|
| (344 | ) |
Balance at March 31, 2022 (unaudited) |
|
| 185,436 |
|
| $ | 185 |
|
|
| (10,308 | ) |
| $ | (2,000 | ) |
| $ | 63,924 |
|
| $ | (51,246 | ) |
| $ | 109 |
|
| $ | 10,972 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 5 |
Table of Contents |
Vaso Corporation and Subsidiaries
(unaudited)
(in thousands)
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Paid-in- | Accumulated | Comprehensive | Stockholders' | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||||||||
Balance at December 31, 2015 | 168,750 | $ | 168 | (10,308 | ) | $ | (2,000 | ) | $ | 62,263 | $ | (48,610 | ) | $ | (80 | ) | $ | 11,741 | ||||||||||||||
Share-based compensation | 3,949 | 4 | - | - | 424 | - | - | 428 | ||||||||||||||||||||||||
Shares issued to settle liability | 1,113 | 2 | - | - | 176 | - | - | 178 | ||||||||||||||||||||||||
Shares not issued for employee tax liability | - | - | - | - | (7 | ) | - | - | (7 | ) | ||||||||||||||||||||||
Foreign currency translation loss | - | - | - | - | - | - | (249 | ) | (249 | ) | ||||||||||||||||||||||
Net income | - | - | - | - | - | 820 | - | 820 | ||||||||||||||||||||||||
Balance at December 31, 2016 | 173,812 | $ | 174 | (10,308 | ) | $ | (2,000 | ) | $ | 62,856 | $ | (47,790 | ) | $ | (329 | ) | $ | 12,911 | ||||||||||||||
Share-based compensation | 1,576 | 1 | - | - | 416 | - | - | 417 | ||||||||||||||||||||||||
Shares not issued for employee tax liability | - | - | - | - | (3 | ) | - | - | (3 | ) | ||||||||||||||||||||||
Foreign currency translation gain | - | - | - | - | - | - | 116 | 116 | ||||||||||||||||||||||||
Net loss | - | - | - | - | - | (3,934 | ) | - | (3,934 | ) | ||||||||||||||||||||||
Balance at September 30, 2017 (unaudited) | 175,388 | $ | 175 | (10,308 | ) | $ | (2,000 | ) | $ | 63,269 | $ | (51,724 | ) | $ | (213 | ) | $ | 9,507 | ||||||||||||||
. |
|
| Three months ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (344 | ) |
| $ | (643 | ) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 453 |
|
|
| 596 |
|
Gain from investment in EECP Global |
|
| (16 | ) |
|
| (13 | ) |
Provision for doubtful accounts and commission adjustments |
|
| 151 |
|
|
| 263 |
|
Share-based compensation |
|
| 7 |
|
|
| 9 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts and other receivables |
|
| 563 |
|
|
| 4,979 |
|
Inventories |
|
| (563 | ) |
|
| 234 |
|
Deferred commission expense |
|
| 25 |
|
|
| (157 | ) |
Prepaid expenses and other current assets |
|
| 153 |
|
|
| 86 |
|
Other assets, net |
|
| (423 | ) |
|
| 171 |
|
Accounts payable |
|
| (213 | ) |
|
| (171 | ) |
Accrued commissions |
|
| (1,174 | ) |
|
| (1,124 | ) |
Accrued expenses and other liabilities |
|
| (1,026 | ) |
|
| 720 |
|
Sales tax payable |
|
| (40 | ) |
|
| (77 | ) |
Deferred revenue |
|
| 1,989 |
|
|
| 781 |
|
Due to related party |
|
| (279 | ) |
|
| (128 | ) |
Other long-term liabilities |
|
| 112 |
|
|
| (51 | ) |
Net cash (used in) provided by operating activities |
|
| (625 | ) |
|
| 5,475 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchases of equipment and software |
|
| (195 | ) |
|
| (59 | ) |
Purchases of short-term investments |
|
| (158 | ) |
|
| 0 |
|
Net cash used in investing activities |
|
| (353 | ) |
|
| (59 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Repayment on revolving lines of credit |
|
| 0 |
|
|
| (1,525 | ) |
Repayment of notes payable and finance lease obligations |
|
| (62 | ) |
|
| (1,276 | ) |
Net cash used in financing activities |
|
| (62 | ) |
|
| (2,801 | ) |
Effect of exchange rate differences on cash and cash equivalents |
|
| (14 | ) |
|
| (2 | ) |
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
| (1,054 | ) |
|
| 2,613 |
|
Cash and cash equivalents - beginning of period |
|
| 6,025 |
|
|
| 6,819 |
|
Cash and cash equivalents - end of period |
| $ | 4,971 |
|
| $ | 9,432 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION |
|
|
|
|
|
|
|
|
Interest paid |
| $ | 19 |
|
| $ | 168 |
|
Income taxes paid |
| $ | 0 |
|
| $ | 16 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Initial recognition of operating lease right of use asset and liability |
| $ | 238 |
|
| $ | 131 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 6 |
Table of Contents |
Vaso Corporation and Subsidiaries
Nine months ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities | ||||||||
Net (loss) income | $ | (3,934 | ) | $ | 437 | |||
Adjustments to reconcile net (loss) income to | ||||||||
net cash provided by operating activities | ||||||||
Depreciation and amortization | 1,781 | 1,584 | ||||||
Deferred income taxes | 287 | 135 | ||||||
Loss from interest in joint venture | 30 | 29 | ||||||
Provision for doubtful accounts and commission adjustments | 145 | 96 | ||||||
Amortization of debt issue costs | 24 | 24 | ||||||
Share-based compensation | 417 | 342 | ||||||
Provision for allowance for loss on loan receivable | - | 412 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts and other receivables | 1,671 | 2,214 | ||||||
Receivables due from related parties | (96 | ) | 396 | |||||
Inventories, net | (235 | ) | (374 | ) | ||||
Deferred commission expense | (982 | ) | 448 | |||||
Prepaid expenses and other current assets | (211 | ) | (422 | ) | ||||
Other assets, net | 861 | (285 | ) | |||||
Accounts payable | (153 | ) | 74 | |||||
Accrued commissions | (763 | ) | (613 | ) | ||||
Accrued expenses and other liabilities | (658 | ) | (488 | ) | ||||
Sales tax payable | 52 | (27 | ) | |||||
Income taxes payable | 11 | (164 | ) | |||||
Deferred revenue | 2,674 | (100 | ) | |||||
Deferred tax liability | 180 | - | ||||||
Other long-term liabilities | (235 | ) | 38 | |||||
Net cash provided by operating activities | 866 | 3,756 | ||||||
Cash flows from investing activities | ||||||||
Purchases of equipment and software | (1,981 | ) | (1,412 | ) | ||||
Redemption of short-term investments | - | 38 | ||||||
Investment in VSK | - | (422 | ) | |||||
Net cash used in investing activities | (1,981 | ) | (1,796 | ) | ||||
Cash flows from financing activities | ||||||||
Net borrowings on revolving line of credit | 78 | 2,124 | ||||||
Debt issuance costs | - | (130 | ) | |||||
Payroll taxes paid by withholding shares | (3 | ) | (6 | ) | ||||
Repayment of notes payable and capital lease obligations | (288 | ) | (211 | ) | ||||
Proceeds from note payable - related party | - | 300 | ||||||
Payments on notes payable - related parties | (170 | ) | (566 | ) | ||||
Net cash (used in) provided by financing activities | (383 | ) | 1,511 | |||||
Effect of exchange rate differences on cash and cash equivalents | (67 | ) | 64 | |||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (1,565 | ) | 3,535 | |||||
Cash and cash equivalents - beginning of period | 7,087 | 2,160 | ||||||
Cash and cash equivalents - end of period | $ | 5,522 | $ | 5,695 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION | ||||||||
Interest paid | $ | 483 | $ | 589 | ||||
Income taxes paid | $ | 35 | $ | 474 | ||||
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
Inventories transferred to property and equipment, net | $ | - | $ | 149 | ||||
Equipment acquired through capital lease | $ | - | $ | 387 | ||||
Liability settled through issuance of common stock | $ | - | $ | 178 |
Vaso Corporation was incorporated in Delaware in July 1987. Unless the context requires otherwise, all references to "we"“we”, "our"“our”, "us"“us”, "Company"“Company”, "registrant"“registrant”, "Vaso"“Vaso” or "management"“management” refer to Vaso Corporation and its subsidiaries. The Company changed its name from Vasomedical, Inc. to Vaso Corporation in November 2016 at its annual shareholders meeting. The name was changed because the Company in the several years prior to the name change had substantially diversified its business and the original name, Vasomedical, Inc., no longer portrayed the nature of its overall business. In addition, the Company retained the name of VasoMedical, Inc. and now uses it exclusively for its proprietary medical device business, as the name originally represented.
Overview
Vaso Corporation principally operates in three distinct business segments in the healthcare and information technology ("IT"(“IT”) 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; | |
· | 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 healthcare provider middle market; and | |
· | Equipment segment, operating through a wholly-owned subsidiary VasoMedical, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices and software. |
VasoTechnology
VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;
· | Managed radiology and imaging applications (channel partner of select vendors of healthcare IT products). | |
· | Managed network infrastructure (routers, switches and other core equipment). | |
· | Managed network transport (FCC licensed carrier reselling over 175 facility partners). | |
· | Managed security services. |
VasoTechnology uses a combination of proprietary technology, methodology and 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 ("(“GEHC Agreement"Agreement”) with GEHC, which is the healthcare business division of the General Electric Company (“GE”), to further the sale of certain healthcare capital equipment in the healthcare provider middle market. Sales of GEHC equipment by the Company have grown significantly since then.
VasoHealthcare’s current offerings consist of:
· | GEHC diagnostic imaging capital equipment. | |
· | GEHC service agreements for the above equipment. | |
· | GEHC training services for use of the above equipment. | |
· | GEHC and third party financial services. |
Page 7 |
Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
VasoMedical
VasoMedical is the Company'sCompany’s business division for its proprietary medical device operations, including the design, development, manufacturing, sales and service of various medical devices in the domestic and international markets and includes the Vasomedical Global and Vasomedical Solutions business units. These devices are primarily for cardiovascular monitoring diagnostic and therapeuticdiagnostic systems. Its current offerings consist of:
· | Biox™ series Holter monitors and ambulatory blood pressure recorders. | |
· | ARCS® series analysis, reporting and communication software for |
· | MobiCare™ multi-parameter wireless vital-sign monitoring system. | |
· | EECP® therapy |
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, to sell its products. It also provides engineering and OEM services to other medical device companies.
NOTE B - BASIS OF– INTERIM STATEMENT PRESENTATION AND CRITICAL ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("(“U.S. GAAP"GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the "SEC"“SEC”). for interim financial information. Certain information and disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in connectionconjunction with the audited consolidated financial statements and related notes thereto included in the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2016,2021, as filed with the SEC on March 30, 2017.
These unaudited condensed consolidated financial statements include the accounts of the companies over which we exercise control. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of interim results for the Company. The results of operations for any interim period are not necessarily indicative of results to be expected for any other interim period or the full year.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities in the unaudited condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenues, expenses and cash flows during the periods presented. Actual amounts and results could differ from those estimates. The estimates and assumptions the Company makes are based on historical factors, current circumstances and the experience and judgment of the Company'sCompany’s management. The Company evaluates its estimates and assumptions on an ongoing basis.
Significant Accounting Policies and Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how we determine our allowance for estimated uncollectible receivables. In November 2019, the FASB issued ASU 2019-10, which changed the effective date of ASU 2016-13 for smaller reporting companies as defined by the SEC from first quarter of 2020 to the first quarter of 2023, with early adoption permitted. We are currently evaluating the effect that ASU 2016-13 will have on our consolidated financial statements and related disclosures.
Page 8 |
Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
We are currently evaluating the effect that ASU 2016-13 will have on our consolidated financial statements and Recent Accounting Pronouncements
NOTE C – REVENUE RECOGNITION
Disaggregation of Revenue
The following tables present revenues disaggregated by our business operations and timing of revenue recognition:
|
| (in thousands) |
| |||||||||||||||||||||||||||||
|
| Three Months Ended March 31, 2022 (unaudited) |
|
| Three Months Ended March 31, 2021 (unaudited) |
| ||||||||||||||||||||||||||
|
|
|
| Professional sales |
|
| Equipment |
|
|
|
|
|
| Professional sales |
|
| Equipment |
|
|
| ||||||||||||
|
| IT segment |
|
| service segment |
|
| segment |
|
| Total |
|
| IT segment |
|
| service segment |
|
| segment |
|
| Total |
| ||||||||
Network services |
| $ | 9,028 |
|
| $ | - |
|
| $ | - |
|
| $ | 9,028 |
|
| $ | 10,118 |
|
| $ | - |
|
| $ | - |
|
| $ | 10,118 |
|
Software sales and support |
|
| 975 |
|
|
| - |
|
|
| - |
|
|
| 975 |
|
|
| 1,135 |
|
|
| - |
|
|
| - |
|
|
| 1,135 |
|
Commissions |
|
| - |
|
|
| 6,607 |
|
|
| - |
|
|
| 6,607 |
|
|
| - |
|
|
| 4,655 |
|
|
| - |
|
|
| 4,655 |
|
Medical equipment sales |
|
| - |
|
|
| - |
|
|
| 368 |
|
|
| 368 |
|
|
| - |
|
|
| - |
|
|
| 577 |
|
|
| 577 |
|
Medical equipment service |
|
| - |
|
|
| - |
|
|
| 31 |
|
|
| 31 |
|
|
| - |
|
|
| - |
|
|
| 34 |
|
|
| 34 |
|
|
| $ | 10,003 |
|
| $ | 6,607 |
|
| $ | 399 |
|
| $ | 17,009 |
|
| $ | 11,253 |
|
| $ | 4,655 |
|
| $ | 611 |
|
| $ | 16,519 |
|
|
| Three Months Ended March 31, 2022 (unaudited) |
|
| Three Months Ended March 31, 2021 (unaudited) |
| ||||||||||||||||||||||||||
|
|
|
| Professional sales |
|
| Equipment |
|
|
|
|
|
| Professional sales |
|
| Equipment |
|
|
| ||||||||||||
|
| IT segment |
|
| service segment |
|
| segment |
|
| Total |
|
| IT segment |
|
| service segment |
|
| segment |
|
| Total |
| ||||||||
Revenue recognized over time |
| $ | 9,234 |
|
| $ | - |
|
| $ | 64 |
|
| $ | 9,298 |
|
| $ | 10,025 |
|
| $ | - |
|
| $ | 30 |
|
| $ | 10,055 |
|
Revenue recognized at a point in time |
|
| 769 |
|
|
| 6,607 |
|
|
| 335 |
|
|
| 7,711 |
|
|
| 1,228 |
|
|
| 4,655 |
|
|
| 581 |
|
|
| 6,464 |
|
|
| $ | 10,003 |
|
| $ | 6,607 |
|
| $ | 399 |
|
| $ | 17,009 |
|
| $ | 11,253 |
|
| $ | 4,655 |
|
| $ | 611 |
|
| $ | 16,519 |
|
Transaction Price Allocated to Remaining Performance Obligations
As of March 31, 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 companiesaggregate amount of transaction price allocated 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 allowsthat are unsatisfied (or partially unsatisfied) for either full retrospective or modified retrospective adoption. 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. In 2016, the FASB issued additional ASUs that clarify the implementation guidance on principal versus agent considerations (ASU 2016-08), on identifying performance obligations and licensing (ASU 2016-10), on narrow-scope improvements and practical expedients (ASU 2016-12), and on the revenue recognition criteria and other technical corrections (ASU 2016-20). The Company plans to adopt the ASU using the modified retrospective method. Such method provides that the cumulative effect from prior periods upon applying the new guidance is recognized in our consolidated balance sheets asexecuted contracts approximates $87 million, of the date of adoption, including an adjustment to retained earnings. Prior periods will not be retrospectively adjusted. We have determined the only significant incremental costs incurred to obtain contracts with customers within the scope of ASC 606 are certain sales commissions paid to associates. Under current U.S. GAAP, we recognize sales commissions as incurred. Under the new guidance,which we expect to record sales commissionsrecognize revenue as an asset, and amortize to expense over the related contract performance period. At the date of adoption of this new guidance, we expect to record an assetfollows:
|
| (in thousands) |
| |||||||||||||
|
| Fiscal years of revenue recognition (unaudited) |
| |||||||||||||
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| Thereafter |
| ||||
Unfulfilled performance obligations |
| $ | 42,620 |
|
| $ | 24,352 |
|
| $ | 7,020 |
|
| $ | 13,053 |
|
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 $544,000 and $407,000 at March 31, 2022 and December 31, 2021, respectively, and are included in accrued expenses and other liabilities in our condensed consolidated balance sheets for the amount of unamortized sales commissions for prior periods, as calculated under the new guidance. Such amount will subsequently be amortized to expense over the remaining performance periods of the related contracts with remaining performance obligations. Our analysis and evaluation of the new standard will continue through the effective date on January 1, 2018.
Page 9 |
Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands) | ||||||||
As of September 30, 2017 | As of December 31, 2016 | |||||||
(unaudited) | ||||||||
Cash and cash equivalents | $ | 35 | $ | 13 | ||||
Total assets | $ | 1,443 | $ | 1,451 | ||||
Total liabilities | $ | 1,700 | $ | 1,133 |
(in thousands) | ||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Total net revenue | $ | 318 | $ | 399 | $ | 1,049 | $ | 1,314 | ||||||||
Net (loss) income | $ | (90 | ) | $ | 84 | $ | (626 | ) | $ | 244 | ||||||
In our VasoHealthcare business, we bill amounts for certain milestones in advance of customer acceptance of the underlying equipment. Such amounts aggregated approximately $26,945,000 and $24,955,000 at March 31, 2022 and December 31, 2021, respectively, and are classified in our condensed consolidated balance sheets as either current or long-term deferred revenue. In addition, we record a contract liability for amounts expected to prior periodbe repaid to GEHC due to customer order reductions. Such amounts to conform withaggregated approximately $2,197,000 and $1,518,000 at March 31, 2022 and December 31, 2021, respectively, and are included in accrued expenses and other liabilities in our condensed 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 $8,000 and $9,000 at March 31, 2022 and December 31, 2021, respectively, and are classified in our condensed consolidated balance sheets as either current or long-term deferred revenue.
During the current period presentation.
NOTE CD – SEGMENT REPORTING AND CONCENTRATIONS
Vaso Corporation principally operates in three distinct business segments in the healthcare and information technology industries. We manage and evaluate our operations, and report our financial results, through these three reportable segments.
· | 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 GEHC into the healthcare provider middle market; and | |
· | Equipment segment, operating through a wholly-owned subsidiary VasoMedical, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices. |
Page 10 |
Table of Contents |
Vaso Corporation and managed network technology services;
Notes to Condensed Consolidated Financial Statements (unaudited)
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 (net income (loss), plus interest expense (income), net; tax expense; depreciation and amortization; and non-cash stock-based compensation). Administrative functions such as finance, human resources, and information technology are centralized and related expenses allocated to each segment. Other costs not directly attributable to operating segments, such as audit, legal, director fees, investor relations, and others, as well as certain assets – primarily cash balances – are reported in the Corporate entity below. There are no intersegment revenues. Summary financial information for the segments is set forth below:
|
| (in thousands) |
| |||||
|
| Three Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (unaudited) |
|
| (unaudited) |
| ||
Revenues from external customers |
|
|
|
|
|
| ||
IT |
| $ | 10,003 |
|
| $ | 11,253 |
|
Professional sales service |
|
| 6,607 |
|
|
| 4,655 |
|
Equipment |
|
| 399 |
|
|
| 611 |
|
Total revenues |
| $ | 17,009 |
|
| $ | 16,519 |
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
IT |
| $ | 4,134 |
|
| $ | 4,406 |
|
Professional sales service |
|
| 5,306 |
|
|
| 3,665 |
|
Equipment |
|
| 327 |
|
|
| 488 |
|
Total gross profit |
| $ | 9,767 |
|
| $ | 8,559 |
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
IT |
| $ | (139 | ) |
| $ | 69 |
|
Professional sales service |
|
| 237 |
|
|
| (336 | ) |
Equipment |
|
| (79 | ) |
|
| 13 |
|
Corporate |
|
| (373 | ) |
|
| (285 | ) |
Total operating income (loss) |
| $ | (354 | ) |
| $ | (539 | ) |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
IT |
| $ | 375 |
|
| $ | 486 |
|
Professional sales service |
|
| 11 |
|
|
| 38 |
|
Equipment |
|
| 67 |
|
|
| 72 |
|
Corporate |
|
| - |
|
|
| - |
|
Total depreciation and amortization |
| $ | 453 |
|
| $ | 596 |
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
IT |
| $ | 151 |
|
| $ | 24 |
|
Professional sales service |
|
| 33 |
|
|
| - |
|
Equipment |
|
| 10 |
|
|
| 35 |
|
Corporate |
|
| 1 |
|
|
| - |
|
Total cash capital expenditures |
| $ | 195 |
|
| $ | 59 |
|
|
| (in thousands) |
| |||||
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
|
| ||
Identifiable Assets |
|
|
|
|
|
| ||
IT |
| $ | 23,325 |
|
| $ | 23,144 |
|
Professional sales service |
|
| 19,094 |
|
|
| 18,718 |
|
Equipment |
|
| 7,357 |
|
|
| 7,144 |
|
Corporate |
|
| 1,910 |
|
|
| 3,355 |
|
Total assets |
| $ | 51,686 |
|
| $ | 52,361 |
|
Page 11 |
Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands) | ||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Revenues from external customers | ||||||||||||||||
IT | $ | 10,827 | $ | 9,679 | $ | 31,438 | $ | 29,530 | ||||||||
Professional sales service | 6,305 | 6,583 | 18,181 | 20,289 | ||||||||||||
Equipment | 909 | 1,282 | 2,649 | 3,481 | ||||||||||||
Total revenues | $ | 18,041 | $ | 17,544 | $ | 52,268 | $ | 53,300 | ||||||||
Gross Profit | ||||||||||||||||
IT | $ | 4,516 | $ | 4,129 | $ | 12,912 | $ | 12,094 | ||||||||
Professional sales service | 4,919 | 5,258 | 14,235 | 15,971 | ||||||||||||
Equipment | 593 | 763 | 1,749 | 2,210 | ||||||||||||
Total gross profit | $ | 10,028 | $ | 10,150 | $ | 28,896 | $ | 30,275 | ||||||||
Operating (loss) income | ||||||||||||||||
IT | $ | (555 | ) | $ | (785 | ) | $ | (2,186 | ) | $ | (2,379 | ) | ||||
Professional sales service | 488 | 1,606 | 806 | 5,015 | ||||||||||||
Equipment | (273 | ) | 10 | (805 | ) | (700 | ) | |||||||||
Corporate | (279 | ) | (329 | ) | (984 | ) | (1,011 | ) | ||||||||
Total operating (loss) income | $ | (619 | ) | $ | 502 | $ | (3,169 | ) | $ | 925 | ||||||
Capital expenditures | ||||||||||||||||
IT | $ | 641 | $ | 446 | $ | 1,830 | $ | 1,187 | ||||||||
Professional sales service | 3 | 57 | 117 | 168 | ||||||||||||
Equipment | - | 2 | 21 | 57 | ||||||||||||
Corporate | 13 | - | 13 | - | ||||||||||||
Total cash capital expenditures | $ | 657 | $ | 505 | $ | 1,981 | $ | 1,412 |
(in thousands) | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
Identifiable Assets | ||||||||
IT | $ | 28,512 | $ | 27,724 | ||||
Professional sales service | 12,572 | 14,611 | ||||||
Equipment | 7,728 | 7,446 | ||||||
Corporate | 5,902 | 7,600 | ||||||
Total assets | $ | 54,714 | $ | 57,381 |
GE Healthcare accounted for 39% and 28% of 2016, the Company revised its method for allocating certain corporate expenses to its reportable segments resulting in lower amounts allocated to the IT segment and higher amounts allocated to the professional sales service and equipment segments. Consequently, due primarily to the change in allocation method, as well as to a $102,000 decrease in total corporate costs allocated, the IT segment received $177,000 lower allocations, and the professional sales service segment received $75,000 higher allocations, respectively,revenue for the three months ended September 30, 2017 as compared to the corresponding period of the prior year. Similarly, for the nine months ended September 30, 2017, total corporate costs allocated decreased $85,000, the IT segment received $430,000 lower allocations,March 31, 2022 and the professional sales service segment and equipment segment received $334,000 and $11,000 higher allocations, respectively, as compared to the corresponding period of the prior year.
NOTE D – (LOSS) EARNINGSE –LOSS PER COMMON SHARE
Basic (loss) earningsloss per common share is computed as (loss) earningsloss applicable to common stockholders divided by the weighted-average number of common shares outstanding for the period. Diluted (loss) earningsloss per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted to common stock.
(in thousands) | ||||||||||||||||
For the three months ended | For the nine months ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Basic weighted average shares outstanding | 163,307 | 160,268 | 161,817 | 158,730 | ||||||||||||
Dilutive effect of options and unvested restricted shares | - | 1,407 | - | 749 | ||||||||||||
Diluted weighted average shares outstanding | 163,307 | 161,675 | 161,817 | 159,479 | ||||||||||||
The following table represents common stock equivalents that were excluded from the computation of diluted earningsloss per share for the three and nine months ended September 30, 2017March 31, 2022 and 2016,2021, because the effect of their inclusion would be anti-dilutive.
(in thousands) | ||||||||||||||||
For the three months ended | For the nine months ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Restricted common stock grants | 4,613 | 2,246 | 4,613 | 500 |
|
| (in thousands) |
| |||||
|
| Three months ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (unaudited) |
|
| (unaudited) |
| ||
Restricted common stock grants |
|
| 2,247 |
|
|
| 3,691 |
|
NOTE EF – ACCOUNTS AND OTHER RECEIVABLES, NET
The following table presents information regarding the Company'sCompany’s accounts and other receivables as of September 30, 2017March 31, 2022 and December 31, 2016:
(in thousands) | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
Trade receivables | $ | 15,549 | $ | 16,470 | ||||
Due from employees | 105 | 430 | ||||||
Allowance for doubtful accounts and | ||||||||
commission adjustments | (4,710 | ) | (4,159 | ) | ||||
Accounts and other receivables, net | $ | 10,944 | $ | 12,741 |
|
| (in thousands) |
| |||||
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
|
| ||
Trade receivables |
| $ | 19,890 |
|
| $ | 21,197 |
|
Unbilled receivables |
|
| 990 |
|
|
| - |
|
Allowance for doubtful accounts and commission adjustments |
|
| (6,199 | ) |
|
| (5,804 | ) |
Accounts and other receivables, net |
| $ | 14,681 |
|
| $ | 15,393 |
|
Contract receivables under Topic 606 consist of trade receivables and unbilled receivables. Trade receivables include amounts due for shipped products and services rendered. Unbilled receivables represent variable consideration recognized in accordance with Topic 606 but not yet billable. Amounts currently duerecorded – billed and unbilled - under the GEHC Agreement are subject to adjustment in subsequent periods should the underlying sales order amount, upon which the receivable is based, change.
Allowance for doubtful accounts and commission adjustments include estimated losses resulting from the inability of our customers to make required payments, and adjustments arising from subsequent changes in sales order amounts that may reduce the amount the Company will ultimately receive under the GEHC Agreement. Due from employees is primarily commission advances made to sales personnel.
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Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE FG – INVENTORIES, NET
Inventories, net of reserves, consist of the following:
(in thousands) | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
Raw materials | $ | 553 | $ | 501 | ||||
Work in process | 536 | 727 | ||||||
Finished goods | 1,569 | 1,167 | ||||||
$ | 2,658 | $ | 2,395 | |||||
|
| (in thousands) |
| |||||
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
|
| ||
Raw materials |
| $ | 763 |
|
| $ | 744 |
|
Work in process |
|
| 37 |
|
|
| 4 |
|
Finished goods |
|
| 913 |
|
|
| 399 |
|
|
| $ | 1,713 |
|
| $ | 1,147 |
|
The Company maintained reserves for slow moving inventories of $810,000$164,000 and $827,000,$165,000 at March 31, 2022 and December 31, 2021, respectively.
NOTE GH – GOODWILL AND OTHER INTANGIBLES
Goodwill aggregating $17,407,000 and $17,280,000 was recorded on the Company's condensed consolidated balance sheets at September 30, 2017 and December 31, 2016, respectively, of which $14,375,000 is allocated to the IT segment, resulted from the acquisition of NetWolves in May 2015.segment. The remaining $3,032,000$1,351,000 of goodwill is allocatedattributable to the Company's equipmentFGE reporting unit within the Equipment segment. The NetWolves and FGE reporting units had negative net asset carrying amounts at March 31, 2022 and December 31, 2021. The components of the change in goodwill are as follows:
|
| (in thousands) |
| |||||
|
| Three months ended |
|
| Year ended |
| ||
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
|
| ||
Beginning of period |
| $ | 15,722 |
|
| $ | 15,688 |
|
Foreign currency translation adjustment |
|
| 4 |
|
|
| 34 |
|
End of period |
| $ | 15,726 |
|
| $ | 15,722 |
|
Page 13 |
Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands) | ||||
Carrying Amount | ||||
Balance at December 31, 2016 | $ | 17,280 | ||
Foreign currency translation adjustment | 127 | |||
Balance at September 30, 2017 (unaudited) | $ | 17,407 | ||
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:
(in thousands) | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
Customer-related | ||||||||
Costs | $ | 5,831 | $ | 5,831 | ||||
Accumulated amortization | (2,318 | ) | (1,768 | ) | ||||
3,513 | 4,063 | |||||||
Patents and Technology | ||||||||
Costs | 2,363 | 2,363 | ||||||
Accumulated amortization | (1,238 | ) | (1,061 | ) | ||||
1,125 | 1,302 | |||||||
Software | ||||||||
Costs | 1,720 | 1,394 | ||||||
Accumulated amortization | (906 | ) | (763 | ) | ||||
814 | 631 | |||||||
$ | 5,452 | $ | 5,996 | |||||
|
| (in thousands) |
| |||||
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
| |||
Customer-related |
|
|
|
|
|
| ||
Costs |
| $ | 5,831 |
|
| $ | 5,831 |
|
Accumulated amortization |
|
| (4,347 | ) |
|
| (4,279 | ) |
|
|
| 1,484 |
|
|
| 1,552 |
|
|
|
|
|
|
|
|
|
|
Patents and Technology |
|
|
|
|
|
|
|
|
Costs |
|
| 1,894 |
|
|
| 1,894 |
|
Accumulated amortization |
|
| (1,807 | ) |
|
| (1,754 | ) |
|
|
| 87 |
|
|
| 140 |
|
|
|
|
|
|
|
|
|
|
Software |
|
|
|
|
|
|
|
|
Costs |
|
| 2,351 |
|
|
| 3,459 |
|
Accumulated amortization |
|
| (2,023 | ) |
|
| (3,110 | ) |
|
|
| 328 |
|
|
| 349 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,899 |
|
| $ | 2,041 |
|
Patents and technology are amortized on a straight-line basis over their estimated useful lives of ten and eight years, respectively. 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'sasset’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 $279,000$151,000 and $284,000$214,000 for the three months ended September 30, 2017March 31, 2022 and 2016, respectively, and $870,000 and $847,000 for the nine months ended September 30, 2017 and 2016,2021, respectively.
Amortization of intangibles for the next five years is:
(in thousands) | ||||
Years ending December 31, | (unaudited) | |||
Remainder of 2017 | $ | 292 | ||
2018 | 1,015 | |||
2019 | 893 | |||
2020 | 809 | |||
2021 | 737 | |||
Total | $ | 3,746 |
|
| (in thousands) |
| |
Years ending December 31, |
| (unaudited) |
| |
Remainder of 2022 |
| $ | 412 |
|
2023 |
|
| 341 |
|
2024 |
|
| 272 |
|
2025 |
|
| 188 |
|
2026 |
|
| 144 |
|
|
| $ | 1,357 |
|
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Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE HI – OTHER ASSETS, NET
Other assets, net consist of the following at September 30, 2017March 31, 2022 and December 31, 2016:
(in thousands) | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
Deferred commission expense - noncurrent | $ | 2,118 | $ | 2,967 | ||||
Trade receivables - noncurrent | 900 | 1,064 | ||||||
Other, net of allowance for loss on loan receivable of | ||||||||
$412 at September 30, 2017 and December 31, 2016 | 880 | 970 | ||||||
$ | 3,898 | $ | 5,001 |
|
| (in thousands) |
| |||||
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
|
| ||
Deferred commission expense - noncurrent |
| $ | 2,253 |
|
| $ | 2,018 |
|
Trade receivables - noncurrent |
|
| 559 |
|
|
| 368 |
|
Other, net of allowance for loss on loan receivable of $412 at March 31, 2022 and December 31, 2021 |
|
| 61 |
|
|
| 60 |
|
|
| $ | 2,873 |
|
| $ | 2,446 |
|
NOTE IJ – ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following at September 30, 2017March 31, 2022 and December 31, 2016:
(in thousands) | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
Accrued compensation | $ | 840 | $ | 1,133 | ||||
Accrued expenses - other | 1,234 | 1,140 | ||||||
Other liabilities | 2,543 | 3,002 | ||||||
$ | 4,617 | $ | 5,275 | |||||
|
| (in thousands) |
| |||||
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
|
| ||
Accrued compensation |
| $ | 1,252 |
|
| $ | 2,397 |
|
Accrued expenses - other |
|
| 1,265 |
|
|
| 1,799 |
|
Other liabilities |
|
| 4,213 |
|
|
| 3,293 |
|
|
| $ | 6,730 |
|
| $ | 7,489 |
|
Page 15 |
Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE JK - DEFERRED REVENUE
The changes in the Company'sCompany’s deferred revenues are as follows:
(in thousands) | ||||||||||||||||
For the three months ended | For the nine months ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Deferred revenue at beginning of period | $ | 20,692 | $ | 17,783 | $ | 19,404 | $ | 18,516 | ||||||||
Additions: | ||||||||||||||||
Deferred extended service contracts | 118 | 159 | 553 | 488 | ||||||||||||
Deferred in-service and training | 5 | 10 | 13 | 18 | ||||||||||||
Deferred service arrangements | 8 | 20 | 28 | 40 | ||||||||||||
Deferred commission revenues | 4,036 | 3,411 | 10,286 | 8,492 | ||||||||||||
Recognized as revenue: | ||||||||||||||||
Deferred extended service contracts | (159 | ) | (186 | ) | (501 | ) | (584 | ) | ||||||||
Deferred in-service and training | (3 | ) | (3 | ) | (13 | ) | (15 | ) | ||||||||
Deferred service arrangements | (11 | ) | (13 | ) | (34 | ) | (33 | ) | ||||||||
Deferred commission revenues | (2,608 | ) | (2,765 | ) | (7,658 | ) | (8,506 | ) | ||||||||
Deferred revenue at end of period | 22,078 | 18,416 | 22,078 | 18,416 | ||||||||||||
Less: current portion | 12,651 | 7,830 | 12,651 | 7,830 | ||||||||||||
Long-term deferred revenue at end of period | $ | 9,427 | $ | 10,586 | $ | 9,427 | $ | 10,586 |
|
| (in thousands) |
| |||||
|
| Three months ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (unaudited) |
|
| (unaudited) |
| ||
Deferred revenue at beginning of period |
| $ | 24,965 |
|
| $ | 17,704 |
|
Net additions: |
|
|
|
|
|
|
|
|
Deferred extended service contracts |
|
| - |
|
|
| (1 | ) |
Deferred commission revenues |
|
| 4,692 |
|
|
| 2,614 |
|
Recognized as revenue: |
|
|
|
|
|
|
|
|
Deferred extended service contracts |
|
| (1 | ) |
|
| (1 | ) |
Deferred commission revenues |
|
| (2,702 | ) |
|
| (1,832 | ) |
Deferred revenue at end of period |
|
| 26,954 |
|
|
| 18,484 |
|
Less: current portion |
|
| 17,975 |
|
|
| 12,387 |
|
Long-term deferred revenue at end of period |
| $ | 8,979 |
|
| $ | 6,097 |
|
NOTE L – RELATED-PARTY TRANSACTIONS
The Company recorded interest charges aggregating approximately $0 and $54,000 for the Company entered into a Note Purchase Agreement withthree-month periods ended March 31, 2022 and 2021, respectively, payable to MedTechnology Investments, LLC ("MedTech"(“MedTech”) pursuant to which it issuedits promissory notes (“Notes”). The MedTech a secured subordinated promissory note ("Note") for $3,800,000 forNotes were used in 2015 to partially fund the purchase of NetWolves. MedTech was formed to acquire the Note,NetWolves, and, $1,950,000 of the aggregate funds used to acquire the Note was provided by six of our directors. In September 2015, a second Note for $750,000 was issued to MedTech for working capital purposes, of which $250,000 was provided by a directorthrough several principal payments made in 2020 and a director's relative. In July 2015, an additional $250,000 was borrowed under the Note Purchase Agreement. The Notes bear interest, payable quarterly, 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 defined2021, were repaid in the Subordinated Security Agreement. The Subordinated Security Agreement secures payment and performance of the Company's obligations under the Notes and as a result, MedTech was granted a subordinated security interestfull in the Company's assets.
David Lieberman, the Vice Chairman of the Company'sCompany’s Board of Directors, is a practicing attorney in the State of New York and a senior partner at the law firm of Beckman Lieberman & Barandes,Associates LLP, which performs certain legal services for the Company. Fees of approximately $85,000$47,000 were billed by the firm for each ofboth the three monththree-month periods ended September 30, 2017March 31, 2022 and 2016, and fees of approximately $255,000 were billed for each of the nine month periods ended September 30, 2017 and 2016,2021, at which datestimes no amounts were outstanding.
The Company uses the Company made partial principal payments aggregating Chinese yuan RMB1,125,000 (approximately $170,000), plus accruedequity method to account for its interest in EECP Global as it has the ability to exercise significant influence over the entity and reports its share of EECP Global operations in Other (Expense) Income on notes payable to the presidentits condensed consolidated statements of Life Enhancement Technology Ltd. and the president of Biox Instruments Company Ltd. The notes were issued in conjunction with the acquisition of Genwell Instruments Company Ltd in August 2014. The note balance of RMB3,375,000 (approximately $507,000) matures August 26, 2019.
Page 16 |
Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE M – COMMITMENTS AND CONTINGENCIES
Litigation
The Company is currently, and has been in the past, a party to various legal proceedings, primarily employee related matters, incident to its business. The Company believes that the outcome of all pending legal proceedings in the aggregate is unlikely to have a material adverse effect on the business or consolidated financial condition of the Company.
Sales representation agreement
In September 2012,October 2021, the Company concluded an amendment of the GEHC Agreement with GEHC, originally signed on May 19, 2010.2010 and previously extended in 2012, 2015 and 2017. The amendment effective July 1, 2012,further extended the initial term of three years commencing July 1, 2010 to five years through September 30, 2015. In December 2014, the Company concluded an additional amendment, effective January 1, 2015, extending the termagreement through December 31, 2018,2026, subject to earlier termination with or without cause under certain circumstances after timely notice. 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 terminationthe District of Columbia. The agreement may be terminated by GE Healthcare without cause on six months written notice. Thesesubject to certain conditions. The circumstances includeunder which early termination of the agreement may occur with cause include: not materially achieving certain sales goals, not maintaining a minimum number of sales representatives, and not meeting various legal and GEHC policy requirements.
Employment Agreements
On May 10, 2019, the Company modified its Employment Agreement with its President and Chief Executive Officer, Dr. Jun Ma, to provide for a five-year term with extensions, unless earlier terminated by the Company, but in no event can it extend beyond May 31, 2026. The Employment Agreement provides for annual compensation of $500,000. Dr. Ma shall be eligible to receive a bonus for each fiscal year 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’s stock, as determined at the Board of 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.
Page 17 |
Table of Contents |
Vaso Corporation and Subsidiaries
ITEM 2 - MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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;conditions, including the current COVID-19 pandemic which has already adversely affected operating results; the effect of the dramatic changes taking place in the healthcare environment;IT and healthcare; the impact of competitive procedures 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; continuation of the GEHC agreementsagreement and the risk factors reported from time to time in the Company'sCompany’s SEC reports, including its recent report on Form 10-K. 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”, "Vaso"“Vaso” or "management"“management” refer to Vaso Corporation and its subsidiaries
General Overview
COVID-19 pandemic
The COVID-19 pandemic has had a significant impact on the world economy and it is possible that some negative impact to the Company’s financial condition and results of operations may continue. At this time, we cannot reasonably estimate what the total impact may be. The pandemic has resulted in workforce and travel restrictions and created business disruptions in supply chain, production and demand across many business sectors. The pandemic continues to cause materials shortage and delivery delay in the diagnostic imaging business and our equipment segment. In addition, we have experienced the negative impact in the recurring revenue business in our IT segment as some of our customers have been adversely affected by the shutdown, and new business in this segment appears to be slower as well. The pandemic also may have a negative impact on our cash receipts as some customers request forbearance or a delay in their payments to us.
The pandemic may continue to impact our operations in 2022, depending on the duration of the pandemic and the timing and success of the reopening of the economy.
We have taken significant steps in our efforts to protect our workforce and our clients. Most of our employees have been working at least partially remotely and we have reopened our work sites consistent with the guidelines promulgated by the CDC and respective state governments.
Our Business Segments
Vaso Corporation ("Vaso"(“Vaso”) was incorporated in Delaware in July 1987. We principally operate in three distinct business segments in the healthcare 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; | |
· | 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 GEHC into the healthcare provider middle market; and | |
· | Equipment segment, primarily focuses on the design, manufacture, sale and service of proprietary medical devices and software, 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. |
Page 18 |
Table of Contents |
Vaso Corporation and managed network technology services;
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon the accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("(“U.S. GAAP"GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Although these estimates are based on our knowledge of current events, our actual amounts and results could differ from those estimates. The estimates made are based on historical factors, current circumstances, and the experience and judgment of our management, who continually evaluate the judgments, estimates and assumptions and may employ outside experts to assist in the evaluations.
Certain of our accounting policies are deemed "critical"“critical”, as they are both most important to the financial statement presentation and require management'smanagement’s most difficult, subjective or complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a discussion of our critical accounting policies, see "Management'sNote B to the condensed consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” in our Annual Report on Form 10-K for the year ended December 31, 20162021 as filed with the SEC on March 30, 2017.
Results of Operations – For the Three Months Ended September 30, 2017March 31, 2022 and 2016
Revenues
Total revenue for the three months ended September 30, 2017March 31, 2022 and 20162021 was $18,041,000$17,009,000 and $17,544,000,$16,519,000, respectively, representing an increase of $497,000,$490,000, or 3% year-over-year. On a segment basis, revenue in the ITprofessional sales service segment increased $1,148,000,$1,952,000 while revenue in the professional sales serviceIT and equipment segments decreased $278,000$1,250,000 and $373,000,$212,000, respectively.
Revenue in the IT segment for the three months ended September 30, 2017March 31, 2022 was $10,827,000$10,003,000 compared to $9,679,000$11,253,000 for the three months ended September 30, 2016, an increaseMarch 31, 2021, a decrease of $1,148,000,$1,250,000, or 11%, of which $252,000$1,090,000 resulted from growth in the operations oflower NetWolves revenue, due primarily to lower professional services and $896,000COVID-related customer attrition, and $160,000 from the growth in thelower healthcare IT VAR business,revenue, due primarily to more healthcare IT solutions installations in the third quarter of 2017.lower software sales. Our monthly recurring revenue in the managed network services operations continues to grow month over month as we add new customersIT segment accounted for $9,234,000 or 92% of the segment revenue in the first quarter of 2022, and expand our services to existing customers; at$10,025,000 or 89% of the segment revenue for the same time, the backlog of orders in our healthcare IT operations increased to $10.4 million at September 30, 2017 from $7.4 million at December 31, 2016 and $6.3 million at September 30, 2016, due to growth in orders and clients. We anticipate that as our healthcare IT operations become more developed and the service delivery process accelerated, the backlog will convert to revenue in a more timely fashion and, coupled with continued growth in order volume, profitability will improve in this segment.
Commission revenues in the professional sales servicesservice segment were $6,305,000$6,607,000 in the thirdfirst quarter of 2017, a decrease2022, an increase of 4%$1,952,000, or 42%, as compared to $6,583,000$4,655,000 in the same quarter of 2016.2021. The decreaseincrease in commission revenues was due primarily to a decreasean increase in the volume of underlying equipment delivered by GEHC during the period.period as well as a higher blended commission rate applicable to such deliveries. The Company only recognizes commission revenue when the underlying equipment has been accepted at the customer site in accordance with the specific terms of the sales agreement. Consequently, amounts billable, or billed and received, under the agreement with GE Healthcare prior to customer acceptance of the equipment are recorded as deferred revenue in the condensed consolidated balance sheet. As of September 30, 2017, $21,132,000March 31, 2022, $26,945,000 in deferred commission revenue was recorded in the Company'sCompany’s condensed consolidated balance sheet, of which $9,013,000$8,975,000 was long-term. At September 30, 2016, $17,355,000March 31, 2021, $18,472,000 in deferred commission revenue was recorded in the Company'sCompany’s condensed consolidated balance sheet, of which $10,115,000$6,090,000 was long-term. The increase in deferred revenue is principally due to an increase in new orders booked andin the decrease in deliveries by GEHC.
Revenue in the equipment segment decreased by $373,000,$212,000, or 29%35%, to $909,000$399,000 for the three-month period ended September 30, 2017March 31, 2022 from $1,282,000$611,000 for the same period of the prior year. The decrease wasyear, principally due to lower EECP® deliveries.
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Gross Profit
Gross profit for the three months ended September 30, 2017March 31, 2022 and 20162021 was $10,028,000,$9,767,000, or 56%57% of revenue, and $10,150,000,$8,559,000, or 58%52% of revenue, respectively, representing a decreasean increase of $122,000,$1,208,000, or 1%14% year-over-year. On a segment basis, gross profit in the ITprofessional sales service segment increased $387,000,$1,641,000, or 45%, while gross profit in the professional sales services segmentIT and equipment segmentsegments decreased $339,000$272,000, or 6%; and $170,000,$161,000, or 33%, respectively.
IT segment gross profit for the three months ended September 30, 2017March 31, 2022 was $4,516,000,$4,134,000, or 42%41% of the segment revenue, compared to $4,129,000,$4,406,000, or 43%39% of the segment revenue for the three months ended September 30, 2016, withMarch 31, 2021. The year-over-year decrease of $272,000, or 6%, was primarily a result of lower sales volume at NetWolves partially offset by higher margin product sales mix in the increase primarily resulting from higher sales.
Professional sales servicesservice segment gross profit was $4,919,000,$5,306,000, or 78%80% of segment revenue, for the three months ended September 30, 2017March 31, 2022 as compared to $5,258,000,$3,665,000, or 80%79% of the segment revenue, for the three months ended September 30, 2016,March 31, 2021, reflecting a decreasean increase of $339,000,$1,641,000, or 6%45%. The decreaseincrease in absolute dollars was primarily due to lowerhigher commission revenue as a result of lowerhigher blended commission rate and higher volume of GEHC equipment delivered during the thirdfirst quarter of 20172022 than in the same period last year.
Commission expense associated with short-term deferred revenue is recorded as short-term deferred commission expense, or with long-term deferred revenue as part of other assets, on the balance sheet until the related commission revenue is recognized.
Equipment segment gross profit decreased to $593,000,$327,000, or 65%82% of segment revenues, for the thirdfirst quarter of 20172022 compared to $763,000,$488,000, or 60%80% of segment revenues, for the same quarter of 2016. Gross2021. The $161,000, or 33%, decrease in gross profit decreasedwas the result of lower revenue in our China operations due to lower salesreduced delivery volume andfor the first quarter of 2022, partially offset by higher gross profit margin increased due mainly to a higher proportion of higher margin products inproduct mix during the sales mix in 2017, compared to the third quarter 2016.
Operating Income (Loss)
Operating (loss) incomeloss for the three months ended September 30, 2017March 31, 2022 and 20162021 was $(619,000)$354,000 and $502,000,$539,000, respectively, representing a decreasean improvement of $1,121,000,$185,000, or 34%, due primarily due to higher operating costs and lower gross profit. On a segment basis, operating loss in the IT segment decreased $230,000, while operating income in the professional sales service segment decreased $1,118,000. Operating lossrecorded operating income of $237,000 in the equipment segment was $(273,000) for the thirdfirst quarter of 20172022 as comparedopposed to an operating loss of $336,000 in the same period of 2021; the IT segment recorded an operating loss of $139,000 in the first quarter of 2022 as opposed to operating income of $10,000$69,000 in the same period of 2021; and the equipment segment recorded an operating loss of $79,000 in the first quarter of 2016. In addition, corporate expenses decreased $50,000.
Operating loss in the IT segment decreasedwas $139,000 for the three-month period ended March 31, 2022, a net change of $208,000 from operating income of $69,000 in the same period of 2021, due to lower gross profit partially offset by lower selling, general, and administrative (“SG&A”) and research and development (“R&D”) costs. The professional sales service segment reporting operating income of $237,000 in the three-month period ended September 30, 2017March 31, 2022 as compared to an operating loss of $336,000 in the same period of 20162021, an improvement of $573,000. The improvement was due to higher gross profit partially offset by higher research and developmentSG&A costs. Operating incomeThe equipment segment reported an operating loss of $79,000 in the professional sales service segment decreased in the three-month period ended September 30, 2017 asfirst quarter of 2022, compared to operating income of $13,000 in the same periodfirst quarter 2021, a decrease of 2016 due to lower gross profit combined with higher selling, general, and administrative ("SG&A") costs.$92,000. The change from equipment segment operating income in the third quarter of 2016 to operating loss in the third quarter of 2017decrease was due to lower gross profit and higherpartially offset by lower SG&A costs.
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SG&A costs for the three months ended September 30, 2017March 31, 2022 and 20162021 were $10,412,000$9,999,000 and $9,531,000,$8,954,000, respectively, representing an increase of $881,000,$1,045,000, or 9%12% year-over-year. On a segment basis, SG&A costs in the professional sales serviceIT segment increased $778,000 due to increased headcount and other personnel-related costs, and SG&A costsdecreased by $14,000 in the equipment segment increased $127,000 due mainly to higher travel and exhibition costs. SG&A costs in the IT segment increased by $29,000 to $4,941,000 in the thirdfirst quarter of 20172022 from $4,912,000 in the same quarter of the prior year due to increasedreduced third-party commissions partially offset by higher personnel costs; SG&A costs in the IT VAR business.professional sales service segment increased $1,069,000 due mainly to cost of national sales meeting (which was held online last year), and higher travel and personnel costs; and SG&A costs in the equipment segment decreased $97,000 due mainly to lower personnel costs. Corporate costs not allocated to segments decreased by $50,000 from $329,000 forincreased $88,000 to $373,000 in the three months ended September 30, 2016 to $279,000March 31, 2022 from $285,000 for the three months ended September 30, 2017,same period in 2021 due primarilymainly to lower director fees.
Research and development ("(“R&D"&D”) expenses were $235,000,$122,000, or 1% of revenues, for the thirdfirst quarter of 2017, an increase2022, a decrease of $118,000,$22,000, or 101%15%, from $117,000,$144,000, or 1% of revenues, for the thirdfirst quarter of 2016.2021. The increasedecrease is primarily attributable to higher softwarelower product development expenses and a reduction in technical staff in the IT segment.
Adjusted EBITDA
We define Adjusted EBITDA (earnings (loss) before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure, as net income (loss), plus interest expense (income), net; 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 U.S. GAAP and should not be considered a substitute for operating income, which we consider to be the most directly comparable U.S. 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 U.S. 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) | ||||||||
Three months ended September 30, | ||||||||
2017 | 2016 | |||||||
(unaudited) | (unaudited) | |||||||
Net (loss) income | $ | (816 | ) | $ | 328 | |||
Interest expense (income), net | 163 | 166 | ||||||
Income tax expense (benefit) | 94 | 103 | ||||||
Depreciation and amortization | 611 | 549 | ||||||
Share-based compensation | 100 | 275 | ||||||
Adjusted EBITDA | $ | 152 | $ | 1,421 | ||||
|
| (in thousands) |
| |||||
|
| Three months ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (unaudited) |
|
| (unaudited) |
| ||
Net loss |
| $ | (344 | ) |
| $ | (643 | ) |
Interest expense (income), net |
|
| 19 |
|
|
| 121 |
|
Income tax expense |
|
| 12 |
|
|
| 18 |
|
Depreciation and amortization |
|
| 453 |
|
|
| 596 |
|
Share-based compensation |
|
| 7 |
|
|
| 9 |
|
Adjusted EBITDA |
| $ | 147 |
|
| $ | 101 |
|
Adjusted EBITDA decreasedincreased by $1,269,000,$46,000, to $152,000$147,000 in the quarter ended September 30, 2017March 31, 2022 from $1,421,000$101,000 in the quarter ended September 30, 2016.March 31, 2021. The decreaseincrease was primarily attributable to the lowerdecrease in net income and share-based compensation,loss, partially offset primarily by higher fixed assetthe decrease in depreciation in the IT segment.
Interest and Other Income (Expense)
Interest and other income (expense) for the three months ended September 30, 2017March 31, 2022 was $(103,000)$22,000 as compared to $(71,000)$(86,000) for the corresponding period of 2016.2021. The expense increase in interest and other income (expense) was due primarily to lower interest expense due to principal payments against the line of credit and other income for the three months ended September 30, 2017.
For the three months ended September 30, 2017,March 31, 2022, we recorded income tax expense of $94,000$12,000 as compared to $103,000income tax expense of $18,000 for the corresponding period of 2016.2021. The decrease arosewas due mainly from lower state income taxes.
Net (Loss) Income
Net loss for the three months ended September 30, 2017March 31, 2022 was $816,000$344,000 as compared to net income of $328,000$643,000 for the three months ended September 30, 2016,March 31, 2021, representing a decreasean improvement of $1,144,000. Our net loss$299,000, or 47%. Loss per share of $0.00 was $0.00recorded in both the three-month periodperiods ended September 30, 2017, as compared to net income of $0.00 per share in the three-month period ended September 30, 2016.March 31, 2022 and 2021. The principal cause of the decrease in net incomeloss is the decrease in revenue and gross profit in the professional sales service segment resultingchange from lower deliveries, combined with the increase in SG&A costs.
(in thousands) | ||||||||
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
(unaudited) | (unaudited) | |||||||
Net (loss) income | $ | (3,934 | ) | $ | 437 | |||
Interest expense (income), net | 494 | 478 | ||||||
Income tax expense | 314 | 154 | ||||||
Depreciation and amortization | 1,781 | 1,608 | ||||||
Share-based compensation | 417 | 342 | ||||||
Adjusted EBITDA | $ | (928 | ) | $ | 3,019 |
Liquidity and Capital Resources
Cash and Cash Flow
We have financed our operations from working capital. At September 30, 2017,March 31, 2022, we had cash and cash equivalents of $5,522,000$4,971,000 and negative working capital of $5,956,000$3,100,000, compared to cash and cash equivalents of $7,087,000$6,025,000 and negative working capital of $567,000$3,197,000 at December 31, 2016. $9,752,0002021. $14,451,000 in negative working capital at September 30, 2017March 31, 2022 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.
Cash provided byused in operating activities during the three months ended March 31, 2022 was $866,000,$625,000, which consisted of net loss after adjustments to reconcile net loss to net cash of $1,250,000$251,000 and cash providedused by operating assets and liabilities of $2,116,000, during the nine months ended September 30, 2017,$876,000, compared to cash provided by operating activities of $3,756,000$5,475,000 for the same period in 2016.2021. The $6,100,000 decrease in cash provided by operating activities was due to the late arrival of a commission payment of $7,747,000 that was scheduled for March 2022 and the Company received in April 2022. The changes in the account balances primarily reflect decreases in accrued commissions and accrued expenses and other liabilities of $1,174,000 and $1,026,000, respectively, partially offset by an increase in deferred revenue of $1,989,000 and a decrease in accounts and other receivables of $1,671,000 and increase in deferred revenue of $2,674,000, partially offset by decreases in accrued expenses and other liabilities of $658,000 and accrued commissions of $763,000.
Cash used in investing activities during the nine-monththree-month period ended September 30, 2017March 31, 2022 was $1,981,000$195,000 for the purchase of equipment and software.
Cash used in financing activities during the nine-monththree-month period ended September 30, 2017March 31, 2022 was $383,000 primarily as a result of $288,000 in payments of notes and capital leases issued for equipment purchases and $170,000 in$62,000 resulting from repayments of notes payable to related parties.
Liquidity
The Company expects to maintaingenerate sufficient liquidity through its cash on hand, availability of funds under its lines of credit, and internally generated fundsflow from operations to meetsatisfy its obligations as they come due. The Company's profitability for the year will be largely dependentnext twelve months.
It is anticipated that the COVID-19 pandemic may continue to adversely impact our operations during and beyond the remaining quarters of 2022, depending on deliveriesthe duration of product by GEHC in our professional sales service segment since the Company does not recognize revenue in this segment untilpandemic and the equipment is delivered.
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Vaso Corporation and Subsidiaries
Evaluation of 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 September 30, 2017March 31, 2022 and have concluded that the Company'sCompany’s disclosure controls and procedures were effective as of September 30, 2017.
Changes in Internal Control Over Financial Reporting
There waswere no changechanges in the Company'sCompany’s internal control over financial reporting during the Company'sCompany’s fiscal quarter ended September 30, 2017March 31, 2022 that has materially affected, or is reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting.
Exhibits
Vaso Corporation and Subsidiaries
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VASO CORPORATION | |||
By: | /s/ Jun Ma | ||
Jun Ma | |||
President and Chief Executive Officer | |||
(Principal Executive Officer) | |||
/s/ Michael J. Beecher . | |||
Michael J. Beecher | |||
Chief Financial Officer and Principal Accounting Officer |
Date: May 16, 2022
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