VASO 10-Q
VASO Corp (VASO)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the quarterly period ended |
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| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the transition period from _______________ to ______________ |
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| Commission File Number: |
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(Exact name of registrant as specified in its charter) |
| ||
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification Number) |
(Address of principal executive offices)
(
Registrant’s Telephone Number
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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. 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 | ☐ | 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
Securities registered pursuant to Section 12 (b) of the Act: None
Number of Shares Outstanding of Common Stock, $.001 Par Value, at November 11, 2022 –
Vaso Corporation and Subsidiaries
INDEX
| Page 2 |
| Table of Contents |
PART I – FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Vaso Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
|
| September 30, 2022 |
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| December 31, 2021 |
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| (unaudited) |
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ASSETS |
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| CURRENT ASSETS |
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Cash and cash equivalents |
| $ |
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| $ |
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Short-term investments |
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Accounts and other receivables, net of an allowance for doubtful accounts and commission adjustments of $ |
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Receivables due from related parties |
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Inventories, net |
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Deferred commission expense |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net of accumulated depreciation of $ |
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Operating lease right of use assets |
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Goodwill |
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Intangibles, net |
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Other assets, net |
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Investment in EECP Global |
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Deferred tax assets, net |
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Total assets |
| $ |
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| $ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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| CURRENT LIABILITIES |
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Accounts payable |
| $ |
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| $ |
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Accrued commissions |
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Accrued expenses and other liabilities |
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Finance lease liabilities - current |
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Operating lease liabilities - current |
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Sales tax payable |
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Deferred revenue - current portion |
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Notes payable - current portion |
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Due to related party |
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Total current liabilities |
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| LONG-TERM LIABILITIES |
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Notes payable, net of current portion |
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Finance lease liabilities, net of current portion |
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Operating lease liabilities, net of current portion |
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Deferred revenue, net of current portion |
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Other long-term liabilities |
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Total long-term liabilities |
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COMMITMENTS AND CONTINGENCIES (NOTE N) |
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STOCKHOLDERS' EQUITY |
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Preferred stock, $.01 par value; |
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Common stock, $.001 par value; |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive income |
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Treasury stock, at cost, |
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| ( | ) |
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Total stockholders equity |
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| $ |
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| $ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| Page 3 |
| Table of Contents |
Vaso Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
|
| Three months ended September 30, |
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| Nine months ended September 30, |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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| Revenues |
| (unaudited) |
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| (unaudited) |
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| (unaudited) |
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| (unaudited) |
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Managed IT systems and services |
| $ |
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| $ |
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| $ |
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Professional sales services |
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Equipment sales and services |
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Total revenues |
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| Cost of revenues |
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Cost of managed IT systems and services |
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Cost of professional sales services |
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Cost of equipment sales and services |
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Total cost of revenues |
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Gross profit |
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| Operating expenses |
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Selling, general and administrative |
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Research and development |
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Total operating expenses |
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Operating income (loss) |
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| ( | ) | |||
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| Other (expense) income |
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Interest and financing costs |
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| ( | ) |
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Interest and other income, net |
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Gain on forgiveness of PPP loan |
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Loss on disposal of fixed assets |
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| ( | ) |
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Total other income, net |
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| Income before income taxes |
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Income tax expense |
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| ( | ) |
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| ( | ) |
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| ( | ) |
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| ( | ) |
Net income |
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| Other comprehensive income |
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| Foreign currency translation gain (loss) |
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| ( | ) |
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| ( | ) |
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Comprehensive income |
| $ |
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| $ |
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| $ |
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| Income per common share |
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- basic and diluted |
| $ |
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| $ |
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| $ |
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| Weighted average common shares outstanding |
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- basic |
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- diluted |
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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)
|
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| Accumulated |
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| Additional |
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| Other |
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| Total |
| ||||||||||||
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| Common Stock |
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| Treasury Stock |
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| Paid-in- |
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| Accumulated |
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| Comprehensive |
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| Stockholders |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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| Loss |
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| Equity |
| ||||||||
Balance at January 1, 2021 |
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| $ |
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| ( | ) |
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| ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| |||||
Share-based compensation |
|
| - |
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| - |
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| ||||||
Foreign currency translation loss |
|
| - |
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| - |
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| ( | ) |
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| ( | ) | ||||
Net loss |
|
| - |
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| - |
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| ( | ) |
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| ( | ) | ||||
Balance at March 31, 2021 (unaudited) |
|
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|
| $ |
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|
| ( | ) |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||
Share-based compensation |
|
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| - |
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| |||||||
Foreign currency translation gain |
|
| - |
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| - |
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| ||||||
Net income |
|
| - |
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| - |
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Balance at June 30, 2021 (unaudited) |
|
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| $ |
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| ( | ) |
| $ | ( | ) |
| $ |
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| $ | ( | ) |
| $ |
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| $ |
| |||||
Share-based compensation |
|
| - |
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| - |
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| ||||||
Foreign currency translation gain |
|
| - |
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| - |
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Net income |
|
| - |
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| - |
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Balance at September 30, 2021 (unaudited) |
|
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| $ |
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| ( | ) |
| $ | ( | ) |
| $ |
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| $ | ( | ) |
| $ |
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| $ |
| |||||
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Balance at January 1, 2022 |
|
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| $ |
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| ( | ) |
|
| ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| |||||
Share-based compensation |
|
| - |
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| - |
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| ||||||
Foreign currency translation loss |
|
| - |
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| - |
|
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|
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|
|
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|
|
| ( | ) |
|
| ( | ) | ||||
Net loss |
|
| - |
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| - |
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| ( | ) |
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| ( | ) | ||||
Balance at March 31, 2022 (unaudited) |
|
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|
| $ |
|
|
| ( | ) |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| |||||
Share-based compensation |
|
| - |
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| - |
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| ||||||
Foreign currency translation loss |
|
| - |
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| - |
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| ( | ) |
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| ( | ) | ||||
Net income |
|
| - |
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| - |
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| ||||||
Balance at June 30, 2022 (unaudited) |
|
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|
| $ |
|
|
| ( | ) |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||
Share-based compensation |
|
| - |
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| - |
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| ||||||
Foreign currency translation loss |
|
| - |
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| - |
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| ( | ) |
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| ( | ) | ||||
Net income |
|
| - |
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| - |
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| ||||||
Balance at September 30, 2022 (unaudited) |
|
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|
| $ |
|
|
| ( | ) |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| Page 5 |
| Table of Contents |
Vaso Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| Nine months ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities |
| (unaudited) |
|
| (unaudited) |
| ||
Net income |
| $ |
|
| $ |
| ||
Adjustments to reconcile net income to net cash provided by operating activities |
|
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Depreciation and amortization |
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Loss from investment in EECP Global |
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Gain on forgiveness of PPP loan |
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| ( | ) | |
Provision for doubtful accounts and commission adjustments |
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Write-down of inventory |
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Share-based compensation |
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Changes in operating assets and liabilities: |
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Accounts and other receivables |
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| ||
Due from related parties |
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| ( | ) |
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| ( | ) |
Inventories |
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| ( | ) |
|
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| |
Deferred commission expense |
|
| ( | ) |
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| ( | ) |
Prepaid expenses and other current assets |
|
| ( | ) |
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| |
Other assets, net |
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| ( | ) |
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| |
Accounts payable |
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| ( | ) | |
Accrued commissions |
|
| ( | ) |
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| |
Accrued expenses and other liabilities |
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| ||
Sales tax payable |
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| ( | ) | |
Deferred revenue |
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| ||
Due to related party |
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| ( | ) | ||
Other long-term liabilities |
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| ||
Net cash provided by operating activities |
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Cash flows from investing activities |
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|
Purchases of equipment and software |
|
| ( | ) |
|
| ( | ) |
Purchases of short-term investments |
|
| ( | ) |
|
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| |
Redemption of short-term investments |
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Net cash used in investing activities |
|
| ( | ) |
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| ( | ) |
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Cash flows from financing activities |
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Repayment on revolving lines of credit |
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|
| ( | ) | |
Repayment of notes payable and finance lease obligations |
|
| ( | ) |
|
| ( | ) |
Net cash used in financing activities |
|
| ( | ) |
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| ( | ) |
Effect of exchange rate differences on cash and cash equivalents |
|
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| ( | ) | |
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|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
|
|
| ( | ) | |
Cash and cash equivalents - beginning of period |
|
|
|
|
|
| ||
Cash and cash equivalents - end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION |
|
|
|
|
|
|
|
|
Interest paid |
| $ |
|
| $ |
| ||
Income taxes paid |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Initial recognition of operating lease right of use asset and liability |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| Page 6 |
| Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE A - ORGANIZATION AND PLAN OF OPERATIONS
Vaso Corporation was incorporated in Delaware in July 1987. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Vaso” or “management” refer to Vaso Corporation and its subsidiaries.
Overview
Vaso Corporation principally operates in three distinct business segments in the healthcare and information technology (“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
Vaso Technology, 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”). It currently consists of a managed network and security service division and a healthcare IT application division. Its current offerings include:
| · | 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
Vaso Healthcare commenced operations in 2010, in conjunction with the Company’s execution of its exclusive sales representation agreement (“GEHC 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
Vaso Medical is the Company’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 and diagnostic systems. Its current offerings consist of:
| · | Biox™ series Holter monitors and ambulatory blood pressure recorders. |
| · | ARCS® series analysis, reporting and communication software for ECG and blood pressure signals. |
| · | MobiCare™ multi-parameter wireless vital-sign monitoring system. |
| · | EECP® therapy systems 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 to sell its products. It also provides engineering and OEM services to other medical device companies.
NOTE B – INTERIM STATEMENT PRESENTATION
Basis of Presentation and Use of Estimates
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”) 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 conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 31, 2022.
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’s management. The Company evaluates its estimates and assumptions on an ongoing basis.
Significant Accounting Policies and Recent Accounting Pronouncements
Recent Accounting Pronouncements Not Yet Adopted
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)
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 September 30, 2022 (unaudited) |
|
| Three Months Ended September 30, 2021 (unaudited) |
| ||||||||||||||||||||||||||
|
|
|
|
| Professional sales |
|
|
|
|
|
|
|
|
|
| Professional sales |
|
|
|
|
|
| ||||||||||
|
|
|
|
| service |
|
| Equipment |
|
|
|
|
|
|
|
| service |
|
| Equipment |
|
|
|
| ||||||||
|
| IT segment |
|
| segment |
|
| segment |
|
| Total |
|
| IT segment |
|
| segment |
|
| segment |
|
| Total |
| ||||||||
| Network services |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
| Software sales and support |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Commissions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Medical equipment sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Medical equipment service |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
| Nine Months Ended September 30, 2022 (unaudited) |
|
| Nine Months Ended September 30, 2021 (unaudited) |
| ||||||||||||||||||||||||||
|
|
|
| Professional sales |
|
|
|
|
|
|
|
| Professional sales |
|
|
|
|
| ||||||||||||||
|
|
|
|
| service |
|
| Equipment |
|
|
|
|
|
|
|
| service |
|
| Equipment |
|
|
|
| ||||||||
|
| IT segment |
|
| segment |
|
| segment |
|
| Total |
|
| IT segment |
|
| segment |
|
| segment |
|
| Total |
| ||||||||
| Network services |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
| Software sales and support |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Commissions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Medical equipment sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Medical equipment service |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
| Page 9 |
| Table of Contents |
|
| Three Months Ended September 30, 2022 (unaudited) |
|
| Three Months Ended September 30, 2021 (unaudited) |
| ||||||||||||||||||||||||||
|
|
|
|
| Professional sales |
|
|
|
|
|
|
|
|
|
| Professional sales |
|
|
|
|
|
| ||||||||||
|
|
|
|
| service |
|
| Equipment |
|
|
|
|
|
|
|
| service |
|
| Equipment |
|
|
|
| ||||||||
|
| IT segment |
|
| segment |
|
| segment |
|
| Total |
|
| IT segment |
|
| segment |
|
| segment |
|
| Total |
| ||||||||
| Revenue recognized over time |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
| Revenue recognized at a point in time |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
|
| Nine Months Ended September 30, 2022 (unaudited) |
|
| Nine Months Ended September 30, 2021 (unaudited) |
| ||||||||||||||||||||||||||
|
|
|
|
| Professional sales |
|
|
|
|
|
|
|
|
|
| Professional sales |
|
|
|
|
|
| ||||||||||
|
|
|
|
| service |
|
| Equipment |
|
|
|
|
|
|
|
| service |
|
| Equipment |
|
|
|
| ||||||||
|
| IT segment |
|
| segment |
|
| segment |
|
| Total |
|
| IT segment |
|
| segment |
|
| segment |
|
| Total |
| ||||||||
| Revenue recognized over time |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
| Revenue recognized at a point in time |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||
Transaction Price Allocated to Remaining Performance Obligations
As of September 30, 2022, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $
|
| (in thousands) |
| |||||||||||||
|
| Fiscal years of revenue recognition (unaudited) |
| |||||||||||||
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| Thereafter |
| ||||
| Unfulfilled performance obligations |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Contract Liabilities
Contract liabilities arise in our healthcare IT, VasoHealthcare, and VasoMedical businesses. In our healthcare IT 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 $
In our VasoHealthcare business, we bill amounts for certain milestones in advance of customer acceptance of the underlying equipment. Such amounts aggregated approximately $
| Page 10 |
| Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
In our Vaso Medical business, we bill amounts for post-delivery services and varying duration service contracts in advance of performance. Such amounts aggregated approximately $
During the three and nine months ended September 30, 2022, we recognized approximately $
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 segment 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 end. We base our estimate of variable consideration on historical results of previous years’ achievement under the GEHC agreement. Such estimate is reviewed each quarter and adjusted as necessary. In addition, the Company records commissions for arranging financing at an estimated rate which is subject to later revision based on certain factors.
The Company also records commission adjustments to contract liabilities in its professional sales service segment based on estimates of future order cancellations.
NOTE D – 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 Vaso Technology, 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 Vaso Healthcare, 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 Vaso Medical, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices. |
| Page 11 |
| Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The chief operating decision maker is the Company’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 September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
| ||||
| Revenues from external customers |
|
|
|
|
|
|
|
|
|
|
|
| ||||
IT |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Professional sales service |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenues |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IT |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Professional sales service |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total gross profit |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IT |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Professional sales service |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |
Corporate |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Total operating income (loss) |
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IT |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Professional sales service |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total depreciation and amortization |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IT |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Professional sales service |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total cash capital expenditures |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
| (in thousands) |
| |||||
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
| |||
| Identifiable Assets |
|
|
|
|
|
| ||
IT |
| $ |
|
| $ |
| ||
Professional sales service |
|
|
|
|
|
| ||
Equipment |
|
|
|
|
|
| ||
Corporate |
|
|
|
|
|
| ||
Total assets |
| $ |
|
| $ |
| ||
| Page 12 |
| Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
GE Healthcare accounted for
NOTE E –NET INCOME PER COMMON SHARE
Basic earnings per common share is computed as earnings applicable to common stockholders divided by the weighted-average number of common shares outstanding for the period. Diluted earnings 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.
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) |
| |||||||||||||
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
| ||||
| Basic weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Dilutive effect of unvested restricted shares |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Diluted weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
| ||||
The following table represents common stock equivalents that were excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2022 and 2021, because the effect of their inclusion would be anti-dilutive.
|
| (in thousands) | ||||||||||||||
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
| ||||
| Restricted common stock grants |
|
| - |
|
|
| - |
|
|
|
|
|
| - |
| |
NOTE F – SHORT-TERM INVESTMENTS AND FINANCIAL INSTRUMENTS
The Company’s short-term investments consist of bank deposits with yields based on underlying debt and equity securities and six-month US Treasury bills. The bank deposits are carried at fair value and are classified as available-for-sale. Realized gains or losses are included in net income. The US Treasury bills, yielding
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.
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.
| Page 13 |
| Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
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
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The carrying amounts shown of the Company’s financial instruments including cash and cash equivalents and accounts payable approximate fair value due to the short-term maturities of these instruments.
| Page 14 |
| Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table presents information about the Company’s assets measured at fair value as of September 30, 2022 and December 31, 2021:
|
| Quoted Prices |
|
| Significant |
|
|
|
|
| ||||||
|
| in Active |
|
| Other |
|
| Significant |
|
| Balance |
| ||||
|
| Markets for |
|
| Observable |
|
| Unobservable |
|
| as of |
| ||||
|
| Identical Assets |
|
| Inputs |
|
| Inputs |
|
| September 30, |
| ||||
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| 2022 |
| ||||
| Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash equivalents invested in money market funds |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Bank deposits (included in short term investments) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
| Quoted Prices |
|
| Significant |
|
|
|
|
| ||||||
|
| in Active |
|
| Other |
|
| Significant |
|
| Balance |
| ||||
|
| Markets for |
|
| Observable |
|
| Unobservable |
|
| as of |
| ||||
|
| Identical Assets |
|
| Inputs |
|
| Inputs |
|
| December 31, |
| ||||
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| 2021 |
| ||||
| Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash equivalents invested in money market funds |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Bank deposits (included in short term investments) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
NOTE G – ACCOUNTS AND OTHER RECEIVABLES, NET
The following table presents information regarding the Company’s accounts and other receivables as of September 30, 2022 and December 31, 2021:
|
| (in thousands) |
| |||||
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
| |||
| Trade receivables |
| $ |
|
| $ |
| ||
| Unbilled receivables |
|
|
|
|
|
| ||
| Allowance for doubtful accounts and |
|
|
|
|
|
|
|
|
commission adjustments |
|
| ( | ) |
|
| ( | ) |
| Accounts and other receivables, net |
| $ |
|
| $ |
| ||
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 recorded – 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.
| Page 15 |
| Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE H – INVENTORIES, NET
Inventories, net of reserves, consist of the following:
|
| (in thousands) |
| |||||
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
| |||
| Raw materials |
| $ |
|
| $ |
| ||
| Work in process |
|
|
|
|
|
| ||
| Finished goods |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
The Company maintained reserves for slow moving inventories of $
NOTE I – GOODWILL AND OTHER INTANGIBLES
Goodwill of $
|
| (in thousands) |
| |||||
|
| Nine months ended |
|
| Year ended |
| ||
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
| |||
| Beginning of period |
| $ |
|
| $ |
| ||
Foreign currency translation adjustment |
|
| ( | ) |
|
|
| |
| End of period |
| $ |
|
| $ |
| ||
| Page 16 |
| Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The Company’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, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
|
| ||
| Customer-related |
|
|
|
|
|
| ||
Costs |
| $ |
|
| $ |
| ||
Accumulated amortization |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| Patents and Technology |
|
|
|
|
|
|
|
|
Costs |
|
|
|
|
|
| ||
Accumulated amortization |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Software |
|
|
|
|
|
|
|
|
Costs |
|
|
|
|
|
| ||
Accumulated amortization |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
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’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 $
Amortization of intangibles for the next five years is:
|
| (in thousands) |
| |
Years ending December 31, |
| (unaudited) |
| |
Remainder of 2022 |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
|
| $ |
| |
| Page 17 |
| Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE J – OTHER ASSETS, NET
Other assets, net consist of the following at September 30, 2022 and December 31, 2021:
|
| (in thousands) |
| |||||
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
|
| ||
| Deferred commission expense - noncurrent |
| $ |
|
| $ |
| ||
| Trade receivables - noncurrent |
|
|
|
|
|
| ||
| Other, net of allowance for loss on loan receivable of |
|
|
|
|
|
|
|
|
| $412 at September 30, 2022 and December 31, 2021 |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
NOTE K – ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following at September 30, 2022 and December 31, 2021:
|
| (in thousands) |
| |||||
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
|
| (unaudited) |
|
|
|
| ||
| Accrued compensation |
| $ |
|
| $ |
| ||
| Accrued expenses - other |
|
|
|
|
|
| ||
| Other liabilities |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
| Page 18 |
| Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE L - DEFERRED REVENUE
The changes in the Company’s deferred revenues are as follows:
|
| (in thousands) |
| |||||||||||||
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
| ||||
| Deferred revenue at beginning of period |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| Net additions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred extended service contracts |
|
|
|
|
|
|
|
|
|
|
| ( | ) | |||
Deferred commission revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Recognized as revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred extended service contracts |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Deferred commission revenues |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
| Deferred revenue at end of period |
|
| 26,892 |
|
|
|
|
|
|
|
|
| 20,185 |
| ||
Less: current portion |
|
|
|
|
| 13,365 |
|
|
| 17,525 |
|
|
|
| ||
| Long-term deferred revenue at end of period |
| $ | 9,367 |
|
| $ |
|
| $ |
|
| $ | 6,820 |
| ||
NOTE M – RELATED-PARTY TRANSACTIONS
The Company recorded interest charges aggregating approximately $
The Company uses the equity 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 Income (Expense) on its condensed consolidated statements of operations. For the three months ended September 30, 2022 and 2021, the Company’s share of EECP Global’s loss was approximately $
| Page 19 |
| Table of Contents |
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE N – 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 October 2021, the Company concluded an amendment of the GEHC Agreement with GEHC, originally signed on May 19, 2010 and previously extended in 2012, 2015 and 2017. The amendment further extended the term of the agreement through December 31, 2026. Under the agreement, VasoHealthcare is the exclusive representative for the sale of select GE Healthcare diagnostic imaging products to certain customer segments/accounts in the
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 $
| Page 20 |
| Table of Contents |
ITEM 2 - MANAGEMENT’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”, “believes”, “could”, “estimates”, “expects”, “may”, “plans”, “potential” and “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’s management, as well as assumptions made by and information currently available to the Company’s management. Among the factors that could cause actual results to differ materially are the following: the effect of business and economic conditions, including the current COVID-19 pandemic which has already adversely affected operating results; the effect of the dramatic changes taking place in 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 product development programs; the actions of regulatory authorities and third-party payers in the United States and overseas; continuation of the GEHC agreement and the risk factors reported from time to time in the Company’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”, “our”, “us”, “Company”, “registrant”, “Vaso” or “management” refer to Vaso Corporation and its subsidiaries
General Overview
COVID-19 pandemic
The COVID-19 pandemic has had and may continue to have a significant impact on the economy of the United States and the world until all major economies resume to normal, and as such, its 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. For Vaso Corporation, we believe that significant uncertainty will continue to remain in all our businesses for the remainder of 2022 and beyond.
We have taken significant steps in our efforts to protect our workforce and our clients. Many of our employees have been working remotely and we are implementing plans to fully reopen our work sites consistent with the guidelines promulgated by the CDC and respective state governments. In addition, the Company received a $3.6 million loan under the Paycheck Protection Program of the CARES Act. This loan was used to principally cover our payroll costs for a period of time as specified by the rules, thereby allowing us to maintain our workforce and continue to provide services and solutions to our clients. In June 2021, the loan, as well as accrued interest, was forgiven in its entirety by the Small Business Administration.
Our Business Segments
Vaso Corporation (“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, operating through a wholly-owned subsidiary VasoMedical, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices. |
| Page 21 |
| Table of Contents |
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”). 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”, as they are both most important to the financial statement presentation and require management’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 Note B to the condensed consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 31, 2022.
Results of Operations – For the Three Months Ended September 30, 2022 and 2021
Revenues
Total revenue for the three months ended September 30, 2022 and 2021 was $20,035,000 and $18,429,000, respectively, representing an increase of $1,606,000, or 9% year-over-year. On a segment basis, revenue in the professional sales services and equipment segments increased by $2,193,000 and $157,000, respectively, while revenue in the IT segment decreased by $744,000.
Revenue in the IT segment for the three months ended September 30, 2022 was $9,836,000 compared to $10,580,000 for the three months ended September 30, 2021, a decrease of $744,000, or 7%, of which $394,000 resulted from lower network services revenue by NetWolves and $350,000 from lower revenues in the healthcare IT business. Our monthly recurring revenue in the IT segment accounted for $9,220,000 or 94% of the segment revenue in the third quarter of 2022, and $9,561,000 or 90% of the segment revenue for the same quarter last year (see Note C).
Commission revenues in the professional sales service segment were $9,439,000 in the third quarter of 2022, an increase of $2,193,000, or 30%, as compared to $7,246,000 in the same quarter of 2021. The increase in commission revenues was due primarily to both an increase in the volume of underlying equipment delivered by GEHC during the period and 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, 2022, $26,886,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $9,366,000 was long-term. As of September 30, 2021, $20,174,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $6,814,000 was long-term. The increase in deferred revenue is principally due to an increase in new orders booked.
Revenue in the equipment segment increased by $157,000, or 26%, to $760,000 for the three-month period ended September 30, 2022 from $603,000 for the same period of the prior year, principally due to higher deliveries in our China operations partially offset by losses in foreign currency exchange.
| Page 22 |
| Table of Contents |
Gross Profit
Gross profit for the three months ended September 30, 2022 and 2021 was $12,536,000, or 63% of revenue, and $10,260,000, or 56% of revenue, respectively, representing an increase of $2,276,000, or 22% year-over-year. On a segment basis, gross profit in the professional sales service and equipment segments increased $2,315,000, or 42%, and $105,000, or 23%, respectively, while gross profit in the IT segment decreased $144,000, or 3%.
IT segment gross profit for the three months ended September 30, 2022 was $4,095,000, or 42% of the segment revenue, compared to $4,239,000, or 40% of the segment revenue for the three months ended September 30, 2021. The year-over-year decrease of $144,000, or 3%, was primarily a result of lower sales volume in the NetWolves and healthcare IT businesses, partially offset by a higher margin sales mix in the NetWolves business.
Professional sales service segment gross profit was $7,869,000, or 83% of segment revenue, for the three months ended September 30, 2022 as compared to $5,554,000, or 77% of the segment revenue, for the three months ended September 30, 2021, reflecting an increase of $2,315,000, or 42%. The increase was due to higher commission revenue as a result of a higher blended commission rate and higher volume of GEHC equipment delivered during the third quarter of 2022 than in the same period last year, as well as by lower commission expenses. Cost of commissions in the professional sales service segment of $1,570,000 and $1,692,000, for the three months ended September 30, 2022 and 2021, respectively, reflected commission expense associated with recognized commission revenues.
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 increased to $572,000, or 75% of segment revenues, for the third quarter of 2022 compared to $467,000, or 77% of segment revenues, for the same quarter of 2021. The $105,000, or 23%, increase in gross profit was primarily the result of higher sales during the quarter.
Operating Income (Loss)
Operating income for the three months ended September 30, 2022 was $2,428,000 compared to $636,000 for the same quarter in 2021, representing an increase of $1,792,000, or 282%, as gross profit increased much more than operating costs (below), year-over-year. On a segment basis, the IT segment recorded an operating loss of $474,000 in the third quarter of 2022 as compared to an operating loss of $77,000 in the same period of 2021; the equipment segment recorded operating income of $24,000 in the third quarter of 2022 as opposed to an operating loss of $96,000 in the same period of 2021; and the professional sales service segment recorded operating income of $3,143,000 in the third quarter of 2022 as compared to operating income of $1,091,000 in the same period of 2021.
Operating loss in the IT segment increased to $474,000 for the three-month period ended September 30, 2022 from an operating loss of $77,000 in the same period of 2021, due to lower gross profit and higher SG&A costs, partially offset by lower research and development (“R&D”) costs. Operating income in the professional sales service segment increased by $2,052,000 in the three-month period ended September 30, 2022 as compared to operating income in the same period of 2021, due to higher gross profit partially offset by higher SG&A costs. The equipment segment reported operating income of $24,000 in the third quarter of 2022, compared to an operating loss of $96,000 in the third quarter 2021, an increase of $120,000. The increase was primarily due to higher gross profit.
SG&A costs for the three months ended September 30, 2022 and 2021 were $9,978,000 and $9,501,000, respectively, representing an increase of $477,000, or 5% year-over-year. On a segment basis, SG&A costs in the IT segment increased by $262,000 in the third quarter of 2022 from the same quarter of the prior year due to higher personnel and travel costs; SG&A costs in the professional sales service segment increased $263,000 due mainly to higher personnel costs associated with provision of expanded services; and SG&A costs in the equipment segment decreased $32,000 due mainly to lower amortization costs. Corporate costs not allocated to segments decreased $16,000 due mainly to lower investor relations fees.
| Page 23 |
| Table of Contents |
Research and development expenses were $130,000, or 1% of revenues, for the third quarter of 2022, an increase of $7,000, or 6%, from $123,000, or 1% of revenues, for the third quarter of 2021. The increase is primarily attributable to higher product development expenses in the equipment 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 income to Adjusted EBITDA is set forth below:
|
| (in thousands) |
| |||||
|
| Three months ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (unaudited) |
|
| (unaudited) |
| ||
| Net income |
| $ | 2,498 |
|
| $ | 651 |
|
| Interest expense (income), net |
|
| (34 | ) |
|
| 62 |
|
| Income tax expense |
|
| 12 |
|
|
| 19 |
|
| Depreciation and amortization |
|
| 318 |
|
|
| 624 |
|
| Share-based compensation |
|
| 9 |
|
|
| 8 |
|
| Adjusted EBITDA |
| $ | 2,803 |
|
| $ | 1,364 |
|
Adjusted EBITDA increased by $1,439,000, to $2,803,000 in the quarter ended September 30, 2022 from $1,364,000 in the quarter ended September 30, 2021. The increase was primarily attributable to the increase in net income, partially offset by the decrease in depreciation and amortization.
Interest and Other Income (Expense)
Interest and other income (expense) for the three months ended September 30, 2022 was $82,000 as compared to $34,000 for the corresponding period of 2021. The change in interest and other income (expense) was due primarily to lower interest expense resulting from repayments of notes payable and lines of credit.
Income Tax Expense
For the three months ended September 30, 2022, we recorded income tax expense of $12,000 as compared to $19,000 for the corresponding period of 2021. The $7,000 decrease is due mainly to lower state tax expense.
Net Income
Net income for the three months ended September 30, 2022 was $2,498,000 as compared to net income of $651,000 for the three months ended September 30, 2021, representing an increase of $1,847,000. Income per share of $0.01 and $0.00 was recorded in the three-month periods ended September 30, 2022 and 2021, respectively. The principal cause of the increase in net income is the increase in gross profit, partially offset by the increase in SG&A costs.
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Results of Operations – For the Nine Months Ended September 30, 2022 and 2021
Revenues
Total revenue for the nine months ended September 30, 2022 and 2021 was $56,547,000 and $51,079,000, respectively, representing an increase of $5,468,000, or 11% year-over-year. On a segment basis, revenue in the professional sales service segment increased $8,028,000, while revenue in the IT and equipment segments decreased $2,417,000 and $143,000, respectively.
Revenue in the IT segment for the nine months ended September 30, 2022 was $29,858,000 compared to $32, 275,000 for the nine months ended September 30, 2021, a decrease of $2,417,000, or 8%, of which $1,965,000 resulted from lower NetWolves revenue and $452,000 resulted from lower healthcare IT revenue. Our monthly recurring revenue in the IT segment accounted for $27,530,000 or 92% of the segment revenue in the first nine months of 2022, and $28,831,000 or 89% of the segment revenue for the same period last year (see Note C).
Commission revenues in the professional sales service segment were $24,900,000 in the first nine months of 2022, an increase of $8,028,000, or 48%, as compared to $16,872,000 in the first nine months of 2021. The increase in commission revenues was due primarily to an increase in the volume of underlying equipment delivered by GEHC during the period, as well as by a higher blended commission rate applicable to such deliveries. The Company 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, 2022, $26,886,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $9,366,000 was long-term. As of September 30, 2021, $20,174,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $6,814,000 was long-term. The increase in deferred revenue is principally due to an increase in new orders booked.
Revenue in the equipment segment decreased by $143,000, or 7%, to $1,789,000 for the nine-month period ended September 30, 2022 from $1,932,000 for the same period of the prior year, principally due to lower deliveries in our China operations and foreign currency exchange losses when converting the revenue from local currency to US dollars, partially offset by higher cloud-based software-as-a-service (“SaaS”) sales in the U.S.
Gross Profit
Gross profit for the nine months ended September 30, 2022 and 2021 was $33,641,000, or 59% of revenue, and $27,459,000, or 54% of revenue, respectively, representing an increase of $6,182,000, or 23% year-over-year. On a segment basis, gross profit in the professional sales service segment increased $7,160,000, or 54%, while gross profit in the IT and equipment segments decreased $833,000, or 7%, and $145,000, or 10%, respectively.
IT segment gross profit for the nine months ended September 30, 2022 was $11,906,000, or 40% of the segment revenue, compared to $12,739,000, or 39% of the segment revenue for the nine months ended September 30, 2021. The year-over-year decrease of $833,000, or 7%, was primarily a result of lower revenue in both the network service business by NetWolves and healthcare IT business, partially offset by higher margin product sales mix in the healthcare IT business.
Professional sales service segment gross profit was $20,355,000, or 82% of segment revenue, for the nine months ended September 30, 2022 as compared to $13,195,000, or 78% of the segment revenue, for the nine months ended September 30, 2021, reflecting an increase of $7,160,000, or 54%. The increase was primarily due to higher commission revenue as a result of a higher volume of GEHC equipment delivered, as well as by a higher blended commission rate during the first nine months of 2022 than in the same period last year. Cost of commissions in the professional sales service segment of $4,545,000 and $3,677,000, for the nine months ended September 30, 2022 and 2021, respectively, reflected commission expense associated with recognized commission revenues.
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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 $1,380,000, or 77% of segment revenues, for the first nine months of 2022 compared to $1,525,000, or 79% of segment revenues, for the same period in 2021. The $145,000, or 10%, decrease in gross profit was primarily the result of lower revenue and lower gross profit margin in our China operations.
Operating Income (Loss)
Operating income (loss) for the nine months ended September 30, 2022 and 2021 was $3,635,000 and ($624,000), respectively, representing an improvement of $4,259,000 as gross profit increased $6,182,000 and operating costs (below) increased $1,923,000, year-over-year. On a segment basis, the IT segment recorded an operating loss of $1,531,000 in the first nine months of 2022 as compared to an operating loss of $254,000 in the same period of 2021; the equipment segment recorded an operating loss of $132,000 in the first nine months of 2022 as compared to an operating loss of $212,000 in the same period of 2021; and operating income in the professional sales service segment increased by $5,424,000, from $709,000 in the first nine months of 2021 to $6,133,000 in the same period of 2022.
Operating loss in the IT segment increased to $1,531,000 for the nine-month period ended September 30, 2022 as compared to an operating loss of $254,000 in the same period of 2021, due primarily to lower gross profit and higher SG&A costs, partially offset by lower R&D costs. Operating income in the professional sales service segment increased $5,424,000 in the nine-month period ended September 30, 2022 as compared to operating income in the same period of 2021, due to higher gross profit partially offset by higher SG&A costs. The equipment segment reported an operating loss of $132,000 in the first nine months of 2022, compared to an operating loss of $212,000 in the first nine months of 2021, an improvement of $80,000. The decrease in loss was due to lower SG&A costs, partially offset by lower gross profit and higher R&D costs.
SG&A costs for the nine months ended September 30, 2022 and 2021 were $29,584,000 and $27,646,000, respectively, representing an increase of $1,938,000, or 7% year-over-year. On a segment basis, SG&A costs in the IT segment increased by $507,000 in the first nine months of 2022 from the same period of the prior year due mainly to higher personnel, accounting and travel costs; SG&A costs in the professional sales service segment increased by $1,735,000 due to higher travel, vehicle and personnel costs; and SG&A costs in the equipment segment decreased by $272,000 due mainly to lower personnel costs. Corporate costs not allocated to segments decreased $32,000 due mainly to lower accounting and investor relations costs, partially offset by higher insurance costs.
Research and development (“R&D”) expenses were $422,000, or 1% of revenues, for the first nine months of 2022, a decrease of $15,000, or 3%, from $437,000, or 1% of revenues, for the first nine months of 2021. The decrease is primarily attributable to lower product development expenses 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.
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A reconciliation of net income to Adjusted EBITDA is set forth below:
|
| (in thousands) |
| |||||
|
| Nine months ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (unaudited) |
|
| (unaudited) |
| ||
| Net income |
| $ | 3,649 |
|
| $ | 2,788 |
|
| Interest expense (income), net |
|
| (10 | ) |
|
| 261 |
|
| Income tax expense |
|
| 42 |
|
|
| 87 |
|
| Depreciation and amortization |
|
| 1,576 |
|
|
| 1,748 |
|
| Share-based compensation |
|
| 22 |
|
|
| 25 |
|
| Adjusted EBITDA |
| $ | 5,279 |
|
| $ | 4,909 |
|
Adjusted EBITDA increased by $370,000 to $5,279,000 in the nine months ended September 30, 2022 from $4,909,000 in the nine months ended September 30, 2021. The increase was primarily attributable to higher net income, partially offset by lower interest expense and lower depreciation and amortization.
Interest and Other Income (Expense)
Interest and other income (expense) for the nine months ended September 30, 2022 was $56,000 as compared to $3,499,000 for the corresponding period of 2021. The decrease in interest and other income was due primarily to the $3.6 million PPP loan forgiveness in the second quarter of 2021 and $229,000 lower interest expense in the nine months ended September 30, 2022.
Income Tax (Expense) Benefit
For the nine months ended September 30, 2022, we recorded income tax expense of $42,000 as compared to income tax expense of $87,000 for the corresponding period of 2021. The decrease was due mainly to lower tax expense in our China operations.
Net Income
Net income for the nine months ended September 30, 2022 was $3,649,000 as compared to $2,788,000 for the nine months ended September 30, 2021, representing an increase of $861,000, or 31%. Income per share of $0.02 was recorded in both of the nine-month periods ended September 30, 2022 and 2021. The principal cause of the improvement is the increase in revenue and gross profit in the sales representation segment, partially offset by higher SG&A cost.
Liquidity and Capital Resources
Cash and Cash Flow
We have financed our operations from working capital. At September 30, 2022, we had cash, cash equivalents and short-term investments of $18,721,000 and working capital of $1,712,000, compared to cash, cash equivalents and short-term investments of $6,654,000 and negative working capital of $3,197,000 at December 31, 2021. The $1,712,000 in working capital at September 30, 2022 includes the negative effect of the net balance of deferred commission expense and deferred revenue of $13,809,000. These are non-cash expense and revenue items and have no impact on future cash flows. Excluding the negative effect of these non-cash items, working capital would be $15,521,000 at September 30, 2022.
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Cash provided by operating activities was $12,676,000, which consisted of net income after adjustments to reconcile net income to net cash of $5,578,000 and cash provided by operating assets and liabilities of $7,098,000, during the nine months ended September 30, 2022, compared to cash provided by operating activities of $5,444,000 for the same period in 2021. The changes in the account balances primarily reflect a decrease in accounts and other receivables of $6,502,000 and increases in accrued expenses and deferred revenue of $849,000 and $1,927,000, respectively, partially offset by an increase in inventories of $697,000.
Cash used in investing activities during the nine-month period ended September 30, 2022 was $5,296,000 attributed to $447,000 used for the purchase of equipment and software and $5,000,000 used in the purchase of short-term investments, offset by $151,000 in redemption of short-term investments.
Cash used in financing activities during the nine-month period ended September 30, 2022 was $177,000 resulting from the repayment of notes payable and finance lease obligations.
Liquidity
The Company expects to generate sufficient cash flow from operations to satisfy its obligations for the next twelve months.
It is anticipated that the COVID-19 pandemic may continue to adversely impact our operations during and beyond the remaining quarter of 2022, depending on the duration of the pandemic and the timing and success of the continued reopening of the economy around the world.
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ITEM 4 - CONTROLS AND PROCEDURES
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”) and Chief Financial Officer (“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, 2022 and have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2022.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
.
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PART II - OTHER INFORMATION
ITEM 6 – EXHIBITS
Exhibits |
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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 | ||
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| Jun Ma |
|
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| President and Chief Executive Officer | |
| (Principal Executive Officer) | |||
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| /s/ Michael J. Beecher. |
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|
| Michael J. Beecher |
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|
| Chief Financial Officer and Principal Accounting Officer |
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Date: November 14, 2022 |
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