VASO CORP
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X]
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2020
[
]
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission File No.
0-18105
VASO
CORPORATION
(Exact name of registrant as specified in Its Charter)
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Delaware
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11-2871434
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(State or other jurisdiction of
incorporation or organization)
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(IRS
Employer
Identification No.)
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137
Commercial Street, Plainview, New York
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11803
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s telephone number, including
area code:
(516)
997-4600
Securities
registered under Section 12(b) of the Act:
None
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Title of each class
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Trading Symbol
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Name of each exchange on which registered
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Securities
registered under Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.
Yes [
]
No [ X ]
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes [
]
No [ X ]
Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days.
Yes [ X
]
No [ ]
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)
Yes [
X] No [ ]
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
"large accelerated filer," "accelerated filer," "smaller reporting
company," and "emerging growth company" in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer
[X] Smaller reporting company [X]
Emerging growth
company [ ]
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [ X ]
The
aggregate market value of common stock held by non-affiliates was
approximately $1.9 million based on the closing sales price of the
common stock as quoted on the OTC PK on June 28, 2020.
At
April 23, 2021, the number of shares outstanding of the issuer's
common stock was 174,936,212.
{THIS PAGE LEFT INTENTIONALLY BLANK}
VASO CORPORATION
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EXHIBITS
P
ART I
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; the effect of the dramatic
changes taking place in IT and healthcare; continuation of the GEHC
agreement; the impact of competitive technology 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; and the risk factors reported from time to time in the
Company’s SEC reports. The Company undertakes no obligation
to update forward-looking statements as a result of future events
or developments.
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
Vaso
Corporation principally operates in three distinct business
segments in the healthcare equipment and information technology
industries. We manage and evaluate our operations, and report our
financial results, through these three business
segments.
●
IT segment,
operating through a wholly-owned subsidiary VasoTechnology, Inc.,
primarily focuses on healthcare IT and managed network technology
services;
●
Professional sales
service segment, operating through a wholly-owned subsidiary Vaso
Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the
sale of healthcare capital equipment for General Electric
Healthcare (“GEHC”) into the health provider middle
market; and
●
Equipment segment,
primarily focuses on the design, manufacture, sale and service of
proprietary medical devices, operating through a wholly-owned
subsidiary VasoMedical, Inc., which in turn operates through
Vasomedical Solutions, Inc. for domestic business and Vasomedical
Global Corp. for international business, respectively.
VasoTechnology
VasoTechnology,
Inc.
was formed in May
2015, at the time the Company acquired
all of the assets of NetWolves, LLC and its
affiliates, including the membership interests in NetWolves Network
Services LLC (collectively, “NetWolves”)
. It
currently consists of a managed network and security service
division (NetWolves) and a healthcare IT application VAR (value
added reseller) division (VasoHealthcare IT). Its current offering
includes:
●
Managed diagnostic
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 175+ facility
partners).
●
Managed security
services.
VasoTechnology uses
a combination of proprietary technology, methodology and
best-in-class third-party applications to deliver its value
proposition.
VasoHealthcare
VasoHealthcare
commenced operations in 2010, in conjunction with the
Company’s execution of its exclusive sales representation
agreement with GEHC, which is the healthcare business division of
the General Electric Company (“GE”), to further the
sale of certain medical capital equipment in certain domestic
market segments.
1
VasoHealthcare’s
current offering consists 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 for the above
equipment.
VasoHealthcare has
built a team of over 80 highly experienced sales professionals who
utilize proprietary sales management and analytic tools to manage
the complete sales process and to increase market
penetration.
VasoMedical
The
proprietary medical equipment business now all under VasoMedical
dates back to 1995 when the Company began the proprietary Enhanced
External Counterpulsation (EECP
®
) technology in
the United States and has since diversified to include other
medical hardware and software. Vasomedical Global was formed in
2011 to combine and coordinate the various international operations
including design, development, manufacturing, and sales of medical
devices, while domestic activities are under Vasomedical Solutions.
These devices primarily consist of cardiovascular diagnostic and
therapeutic systems, including:
●
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 engineering resources to cost effectively create and
market its proprietary technology. It sells and services its
products to domestic customers directly and sells and/or services
its products in the international market mainly through independent
distributors.
Historical Background
Vaso
Corporation was incorporated in Delaware in July 1987. For most of
its history, the Company primarily was a single-product company
designing, manufacturing, marketing and servicing its proprietary
Enhanced External Counterpulsation, or EECP
®
,
therapy systems, mainly for the treatment of angina. In 2010 it
began to diversify its business operations. The Company changed its
name to Vaso Corporation in 2016 to more accurately reflect the
diversified nature of its business, and continues to use the
original name VasoMedical for its proprietary medical device
subsidiary.
In May
2010, the Company launched its Professional Sales Service business
through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a
VasoHealthcare, which was appointed the exclusive representative
for the sale of select GE diagnostic imaging equipment to specific
market segments in the 48 contiguous states of the United States
and the District of Columbia. The original agreement (“GEHC
Agreement”) was for three years ending June 30, 2013; it has
been extended several times with the current extension through
December 31, 2022, subject to earlier termination under certain
conditions.
In June
2014, the Company began its IT segment business by concluding the
Value Added Reseller Agreement (“VAR Agreement”) with
GEHC
to become a national value added
reseller of GEHC Digital’s software solutions such as Picture
Archiving and Communication System (“PACS”), Radiology
Information System (“RIS”), and related services,
including implementation, training, management and support. This
business focuses primarily on customer segments currently served by
VasoHealthcare. A new wholly owned subsidiary, VasoHealthcare IT
Corp. (“VHC IT”), was formed to conduct the healthcare
IT business.
In
May 2015, the Company further expanded its IT business segment by
acquiring all of the assets of NetWolves, LLC and its affiliates,
including the membership interests in NetWolves Network Services,
LLC (collectively, “NetWolves”), pursuant to an asset
purchase agreement. NetWolves designs and delivers efficient and
cost-effective multi-network and multi-technology solutions as a
managed network provider, as well as provides a complete
single-source solution that includes design, network redundancy,
application device management, real-time network monitoring,
reporting and support systems as a comprehensive
solution.
2
The
Company’s Equipment business also has been significantly
expanded from the original EECP
®
-only
operations. In September 2011, the Company acquired FGE, a British
Virgin Islands company, which owned or controlled two Chinese
operating companies - Life Enhancement Technology Ltd.
(“LET”) based in Foshan, China, and Biox Instruments
Co. Ltd. (“Biox”) based in Wuxi, China, respectively -
to expand its technical and manufacturing capabilities and to
enhance its distribution network, technology, and product
portfolio. Biox was a variable interest entity (“VIE”)
controlled by FGE through certain contracts and an option to
acquire all the shares of Biox by FGE’s wholly owned
subsidiary Gentone, and in March 2019 Gentone exercised its option
to acquire all of the shares of Biox.
In August 2014, the Company through Gentone
acquired all of the outstanding shares of Genwell Instruments Co.
Ltd. (“Genwell”), located in Wuxi, China. Genwell was
formed in China in 2010 with the assistance of a local government
grant to develop the MobiCare™ wireless multi-parameter
patient monitoring system and holds intellectual property rights
for this system.
As a result, the Company has now expanded
its equipment products portfolio to include Biox™ series
ambulatory patient monitoring systems, ARCS™ series software
for ECG and blood pressure analysis, and the MobiCare™
patient monitoring device.
In
April 2014, the Company entered into a cooperation agreement with
Chongqing PSK-Health Sci-Tech Development Co., Ltd.
(“PSK”) of Chongqing, China, the leading manufacturer
of external counter pulsation, or ECP, therapy systems in China, to
form a joint venture company, VSK Medical Limited
(“VSK”), a Cayman Islands company, for the global
marketing, sale and advancement of ECP therapy technology. The
Company owned 49.9% of VSK, which commenced operations in January
2015. In March 2018, the Company terminated the cooperation
agreement with PSK and sold its shares in VSK to PSK. On May 20,
2020, the Company closed on the sale of 51% of the capital stock of
its wholly-owned subsidiary EECP Global Corporation (“EECP
Global”) to PSK for $1,150,000. EECP Global was formed in
September 2019 to hold all the assets and liabilities of its EECP
business. Concurrently with the closing of the transaction, the
Company signed a three-year Management Service Agreement with EECP
Global to provide management service for the business and operation
of EECP Global in the United States. Pursuant to the agreement,
EECP Global reimburses the Company all direct expenses and pays a
management fee starting April 1, 2020, the effective date of the
sale.
Management
The
Company currently bases its headquarters in Plainview, Long Island,
NY pursuant to a lease which expires in September 2022. Reporting
to the Board of Directors, corporate officers of the Company
include the President and Chief Executive Officer
(“CEO”), Co-Chief Financial Officer and Secretary,
Chief Operating Officer (“COO”), and Co-Chief Financial
Officer and Treasurer.
The
management of the Company’s IT segment is led by the COO of
the Company, who is also the President of VasoTechnology and
NetWolves, which is based in Tampa, FL. Our VasoHealthcare IT VAR
business is organized as a part of VasoTechnology and is also led
by the COO, supported by several software solution sales and
implementation specialists, based in Nashville, TN. The business
unit works with our VasoHealthcare diagnostic imaging equipment
sales team to generate leads and potential clients for the software
solutions products and works with NetWolves sales and technical
teams for comprehensive IT product and service
offerings.
In the
professional sales services segment, we sell GEHC diagnostic
imaging products to our assigned market through a nationwide team
of approximately 65 sales employees led by several regional
managers and an executive team who report to the President of
VasoHealthcare. The operation is also supported by in-house
administrative, analytic and other support staff, as well as
applicable GEHC employees.
The
equipment segment is under the direct supervision of the CEO of the
Company. Sales and marketing efforts in the domestic market are led
by a Vice President of national sales and service at Vasomedical
Solutions, and the managers of our China subsidiaries are in charge
of the development and production of all our proprietary products
and marketing and sales in the international markets. We sell our
Biox™ series and other products in China by a group of sales
managers as well as through distributors covering various regions
of China and other international geographies.
Competition
In the
U.S. diagnostic imaging market where we sell GEHC products, our
main competitors include Siemens, Philips, Canon, and Hologic. Key
competitive factors in the market include price, quality, finance
availability, delivery speed, service and support, innovation,
distribution network, breadth of product and service offerings and
brand name recognition. GEHC is a leading competitor in this
market.
In the
IT segment, our primary competitors in the healthcare IT VAR
business are Agfa Healthcare, McKesson, Philips, Carestream Health
and other independent software providers. Key competitive factors
are brand recognition, quality, radiology workflow solutions,
scalability and service and support capability. In the managed
network services business our primary competition includes, but is
not limited to, organizations who have a presence in most of the
major markets for the following products and services: network
services, managed services, security services and healthcare
applications. Several of those competitors, many of which are our
vendors, are: Verizon, AT&T, CenturyLink, IBM and Cisco
Resellers, Siemens, Epic, small regional IT integrators and large
company internal IT departments.
3
In the
ambulatory monitoring system business, there are numerous
competitors of various size and strength. The Biox™ series is
among the few from China with CE Mark certification for Europe,
CFDA approval for China, US FDA clearances as well as Brazilian
Agencia Nacional de Vigilancia Sanitaria (ANVISA) approval, which
are among the most important qualifications to market and sell the
products around the world.
Regulations on Medical Devices
As a
medical device manufacturer and marketer, we are subject to
extensive regulation by numerous government regulatory agencies,
including the US FDA and similar foreign agencies. We are required
to comply with applicable laws, regulations and standards governing
the development, preclinical and clinical testing, manufacturing,
quality testing, labeling, promotion, import, export, and
distribution of our medical devices.
Compliance with Regulations in the United States
The
Company has received appropriate US FDA premarket notification
(510(k)) clearance for all its products marketed and sold in the
United States, including EECP
®
therapy systems
and Biox™ ambulatory monitoring systems and analysis and
report software. We continue to seek US FDA clearance or approval
for new products prior to their introduction to the US
market.
We are
subject to other US FDA regulations that apply prior to and after a
product is commercially released. We also are subject to periodic
and random inspections by the US FDA for compliance with the
current Good Manufacturing Practice, or cGMP, requirements and
Quality System Regulation. The US FDA also enforces post-marketing
controls that include the requirement to submit medical device
reports to the agency when a manufacturer becomes aware of
information suggesting that any adverse events are related to its
marketed products. The FDA relies on medical device reports to
identify product problems and utilizes these reports to determine,
among other things, whether it should exercise its enforcement
powers. The FDA also may require post-market surveillance studies
for specified devices.
We are
subject to the Federal Food, Drug, and Cosmetic Act’s, or
FDCA’s, general controls, including establishment
registration, device listing, and labeling
requirements.
The
sales and advertising of our products is subject to regulation by
the Federal Trade Commission, or FTC. The FTC Act prohibits unfair
or deceptive acts or practices in or affecting commerce. Violations
of the FTC Act, such as failure to have substantiation for product
claims, would subject us to a variety of enforcement actions,
including compulsory process, cease and desist orders and
injunctions, which can require, among other things, limits on
advertising, corrective advertising, consumer redress and
restitution, as well as substantial fines or other
penalties.
As a
medical device sales channel partner and product reseller to
healthcare facilities, we are subject to various federal, state and
local laws targeting fraud and abuse in the healthcare industry,
including anti-kickback and false claims laws.
Foreign Regulation
In most
countries where we seek to export our medical devices, a local
regulatory clearance must be obtained. The regulatory review
process varies from country to country and can be complex, costly,
uncertain, and time-consuming. Our medical devices are all
manufactured in accordance with ISO 13485 (Medical device –
Quality management systems – Requirement for regulatory
purpose), an internationally agreed standard that sets out the
requirements for a quality management system specific to the
medical devices industry. All our current medical devices have
obtained necessary clearances or approvals prior to their release
in the appropriate jurisdictions, including CE marking
certification for European Union countries, China FDA (CFDA)
approval for mainland China, Korean FDA (KFDA) approval for South
Korea, Agência Nacional de Vigilância Sanitária
(ANVISA) approval for Brazil, Taiwan FDA (TFDA) for Taiwan, and the
Saudi SFDA (MDMA) for the Kingdom of Saudi Arabia.
We are
also subject to audits by organizations authorized by foreign
countries to determine compliance with laws, regulations and
standards that apply to the commercialization of our products in
those markets. Examples include auditing by a European Union
Notified Body organization (authorized by a member state’s
Competent Authority) to determine conformity with the Medical
Device Directives (MDD) and by an organization authorized by the
Brazilian government to determine conformity with the ANVISA
requirement.
Patient Privacy
Federal
and state laws protect the confidentiality of certain patient
health information, including patient records, and restrict the use
and disclosure of that protected information. The U.S. Department
of Health and Human Services (HHS) published patient privacy rules
under the Health Insurance Portability and Accountability Act of
1996 (HIPAA privacy rule) and the regulation was finalized in
October 2002. Currently, the HIPAA privacy rule affects us only
indirectly in that patient data that we access, collect and analyze
may include protected health information. Additionally, we have
signed some Business Associate Agreements with Covered Entities
that contractually bind us to protect private health information,
consistent with the HIPAA privacy rule’s requirements. We do
not expect the costs and impact of the HIPAA privacy rule to be
material to our business.
4
Regulations in the IT Business
As a
reseller of telecommunication services and network solutions
provider, our products and services are subject to federal, state
and local regulations. These regulations govern, in part, our rates
and the way we conduct our business, including the requirement to
offer telecommunications services pursuant to nondiscriminatory
rates, terms, and conditions, the obligation to safeguard the
confidentiality of customer proprietary network
information, as well as the obligation to maintain specialized
records and file reports with the Federal Communications
Commission and state regulatory authorities. While we believe
we are in compliance with laws and regulations in jurisdictions
where we do business, we continue to monitor and assess our
compliance.
The
Federal Communications Commission (“FCC”) exercises
jurisdiction over services and regulates interstate and
international communications in all 50 states, the District of
Columbia and U.S territories. As an independent U.S. government
agency overseen by Congress, the commission is the United States'
primary authority for communications laws, regulation and
technological innovation.
We
maintain Certificates of Public Convenience and Necessity in all 50
states, which enable us to provide services within each state. We
are therefore subject to regulation from the Public Utility
Commissions in each state.
Intellectual Properties
In
addition to other methods of protecting our proprietary technology,
know-how and show-how as well as trade secrets, we pursue a policy
of seeking patent protection, both in the US and abroad, for our
proprietary technologies including those in Biox™ and
MobiCare™ products. Moreover, trademarks have been registered
for the names “Vaso”, “Vasomedical”,
“VasoGlobal”, “VasoSolutions”,
“VasoHealthcare”.
Through
our China-based subsidiaries, we own
thirty invention and utility patents in China that
expire at various times through 2032, as well as fourteen
software copyright certificates in China related
to proprietary technologies in physiological data acquisition,
analysis and reporting. We also maintain five registered
trademarks in China for our products.
Through
our NetWolves subsidiary we hold a patent for Secure and Remote
Monitoring Management (“SRM”) and we hold trademarks
“NetWolves”, “SRM”, and
“Wolfpac”.
There
can be no assurance that our patents will not be violated or that
any issued patents will provide protection that has commercial
significance. As with any patented technology, litigation could be
necessary to protect our patent position. Such litigation can be
costly and time-consuming, and there can be no assurance that we
will be successful.
Employees
As of
December 31, 2020, we employed 268 full-time persons, of which 15
are employed through our facility in Plainview, New York; 81
through VasoHealthcare; 8 through VasoHealthcare IT; 109 through
our NetWolves operations; and 55 in our China operations. None of
our employees are represented by a labor union. We believe that our
employee relations are good.
The
Company also uses several part-time employees and consultants from
time to time for various purposes.
Manufacturing
The
Company conducts manufacturing activities primarily through its
Biox facilities in China, while maintaining certain manufacturing
capability in the Plainview, NY location to satisfy certain
domestic and international needs for the EECP
®
systems. The
Biox facilities manufacture ambulatory monitoring devices and other
medical devices.
All
manufacturing operations are conducted under the cGMP requirements,
as set forth in the FDA Quality System Regulation, as well as ISO
13485 (Medical device – Quality management systems –
Requirement for regulatory purpose), an internationally agreed
standard that sets out the requirements for a quality management
system specific to the medical devices industry. We are also
certified to conform to full quality assurance system requirements
of the EU Medical Device Directive (MDD 93/42/EEC Annex II) and can
apply CE marking to all of our current product models. Lastly, we
are certified to comply with the requirements of the Brazilian
Agência Nacional de Vigilância Sanitária (ANVISA).
All these regulations and standards subject us to inspections to
verify compliance and require us to maintain documentation and
controls for the manufacturing and quality activities.
5
We
believe our manufacturing capacity and warehouse facility are
adequate to meet the current and immediately foreseeable future
demand for the production of our medical devices. We believe our
suppliers of the other medical devices we distribute or represent
are capable of meeting our demand for the foreseeable
future.
Subsequent Event
In
March 2021, the Company made principal payments aggregating $1.5
million on its lines of credit and $1.2 million on its MedTech
Notes, and extended the maturity dates of its remaining line of
credit and its MedTech Notes to June 30, 2022. The extensions
require subsequent principal payments of $50,000 per quarter
beginning June 30, 2021 through March 31, 2022 under both the line
of credit and the MedTech Notes. No change was made to the interest
rates in effect at the time of extensions.
I
TEM 1A - RISK FACTORS
You should carefully consider the risks and uncertainties described
below, together with the information included elsewhere in this
Report on Form 10K. The risks and uncertainties described below are
those we have identified as material, but are not the only risks
and uncertainties facing us. Our business is also subject to
general risks and uncertainties that affect many other companies,
such as market conditions, geopolitical events, changes in laws or
accounting rules, fluctuation in interest rates, terrorism, wars or
conflicts, major health concerns, natural disasters or other
disruptions of economic or business conditions, including the
current COVID-19 pandemic. Additional risks and uncertainties not
currently known to us or that we currently believe are immaterial
also may impair our business, including our results of operations,
liquidity and financial position.
Risks Related to the COVID-19 Pandemic
The
impact of the COVID-19 pandemic on our markets and financial
condition is difficult to predict and manage.
The
pandemic has adversely affected, and is expected to continue to
adversely affect, certain elements of our business, primarily
customer orders in our IT and professional sales service segments
and accounts receivable collections in our IT segment. The COVID-19
pandemic has caused us to modify our business practices, and we may
take further actions as required by government authorities, our
customers or as determined to be in the best interests of our
associates, customers and business partners. There is no certainty
that these measures will be sufficient to mitigate the risks posed
by the virus and our ability to execute our business plans could be
impacted. The magnitude and duration of the disruption and
resulting decline in business activity is uncertain.
Financial Risks
Achieving
profitable operations is dependent on several factors
We
achieved profitability in the years ended December 31, 2020 after
having incurred net losses from operations for the years ended
December 31, 2019 and 2018. However, we still maintain a line of
credit from a lending institution
and debts from
another party, all of which mature June 30, 2022. Our ability to
sustain profitability is dependent on many factors, primarily being
the sufficient and timely generation of cash, as well as attaining
and maintaining profitability in our IT and equipment segments, as
well as the success of our other strategic
initiatives.
In
March 2021, a payment of principal was made to the lending
institution; as a result, one line of credit was paid off in full
and closed and the other line of credit was paid down and extended
to June 30, 2022. A separate payment of principal was made to
MedTech and the remaining balance on the MedTech note was extended
to mature on June 30, 2022.
Risks Related to Our Business
We
currently derive a significant amount of our revenue and operating
income from our agreement with GEHC.
On May
19, 2010, we signed a sales representation agreement with GEHC.
Under the GEHC Agreement, we have been appointed the exclusive
representative for these products to specific market segments in
the 48 contiguous states of the United States and the District of
Columbia. The GEHC Agreement had an initial term of three years
commencing July 1, 2010 and in 2012 was extended for two additional
years to June 30, 2015. In December 2014, the agreement was
extended again through December 31, 2018. In December 2017, the
agreement was further extended through December 31, 2022, including
GEHC’s right to terminate without cause with certain
conditions.
A
significant amount of our revenue and operating income arise from
activities under this agreement. Moreover, our performance and
growth in the professional sales service segment depends partially
on the territories, customer accounts and product modalities
assigned to us by GEHC, and thus relies on our ability to
demonstrate our added value as a channel partner, and on
maintaining a positive relationship with GEHC. There is no
assurance that the agreement will not be terminated prior to its
expiration pursuant to its termination provisions or will be
extended beyond the current expiration date. Should GEHC terminate
the agreement, it would have a material adverse effect on our
financial condition and results of operations.
6
We
face competition from other companies and
technologies.
In all
segments of our business we compete with other companies that
market technologies, products and services in the global
marketplace. We do not know whether these companies, or other
potential competitors who may succeed in developing technologies,
products or services that are more efficient or effective than
those offered by us, and that would render our technology and
existing products obsolete or non-competitive. Potential new
competitors may also have substantially greater financial,
manufacturing and marketing resources than those possessed by us.
In addition, other technologies or products may be developed that
have an entirely different approach or means of accomplishing the
intended purpose of our products. Accordingly, the life cycles of
our products are difficult to estimate. To compete successfully, we
must keep pace with technological advancements, respond to evolving
consumer requirements and achieve market acceptance.
We
depend on management and other key personnel.
We are
dependent on a limited number of key management and technical
personnel. The loss of one or more of our key employees may harm
our business if we are unable to identify other individuals to
provide us with similar services. We do not maintain “key
person” insurance on any of our employees. In addition, our
success depends upon our ability to attract and retain additional
highly qualified management, sales, IT, manufacturing and research
and development personnel in our various operations. The
competition for IT personnel is intense.
We
may not continue to receive necessary FDA clearances or approvals,
which could hinder our ability to market and sell certain
products.
If we
modify our medical devices and the modifications significantly
affect safety or effectiveness, or if we make a change to the
intended use, we will be required to submit a new premarket
notification (510(k)) or premarket approval (PMA) application to
the FDA. We would not be able to market the modified device in the
U.S. until the FDA issues a clearance for the 510(k).
If we
offer new products that require 510(k) clearance or a PMA, we will
not be able to commercially distribute those products until we
receive such clearance or approval. Regulatory agency approval or
clearance for a product may not be received or may entail
limitations on the device’s indications for use that could
limit the potential market for the product. Delays in receipt of,
or failure to obtain or maintain, regulatory clearances and
approvals, could delay or prevent our ability to market or
distribute our products. Such delays could have a material adverse
effect on our equipment business.
If
we are unable to comply with applicable governmental
regulation
s
, we may not be
able to continue certain of our operations.
As a
reseller of telecommunication services and network solutions
provider, our products and services are subject to federal, state
and local regulations. These regulations govern, in part, our rates
and the way we conduct our business, including the requirement to
offer telecommunications services pursuant to nondiscriminatory
rates, terms, and conditions, the obligation to safeguard the
confidentiality of customer proprietary network
information, as well as the obligation to maintain specialized
records and file reports with the Federal Communications
Commission and state regulatory authorities. While we believe
we are in compliance with laws and regulations in jurisdictions
where we do business, we must continue to monitor and assess our
compliance.
We also
must comply with current Good Manufacturing Practice requirements
as set forth in the Quality System Regulation to receive US FDA
approval to market new products and to continue to market current
products. Most states also have similar regulatory and enforcement
authority for medical devices.
Our
operations in China are also subject to the laws of the
People’s Republic of China with which we must be in
compliance in order to conduct these operations.
We are
subject to various federal, state and local laws targeting fraud
and abuse in the healthcare industry, including anti-kickback and
false claims laws.
We
cannot predict the nature of any future laws, regulations,
interpretations, or applications, nor can we predict what effect
additional governmental regulations or administrative orders,
either domestically or internationally, when and if promulgated,
would have on our business in the future. We may be slow to adapt,
or we may never adapt to changes in existing requirements or
adoption of new requirements or policies. We may incur significant
costs to comply with laws and regulations in the future or
compliance with laws or regulations may create an unsustainable
burden on our business.
7
We
have foreign operations and are subject to the associated risks of
doing business in foreign countries.
The
Company continues to have operations in China. Operating
internationally involves additional risks relating to such things
as currency exchange rates, different legal and regulatory
environments, political, economic risks relating to the stability
or predictability of foreign governments, differences in the manner
in which different cultures do business, difficulties in staffing
and managing foreign operations, differences in financial
reporting, operating difficulties, and other factors. The
occurrence of any of these risks, if severe enough, could have an
adverse effect on the consolidated financial position, results of
operations and cash flows of the Company.
Commercial law is
still developing in China and there are limited legal precedents to
follow in commercial transactions. There are many tax jurisdictions
each of which may have changing tax laws. Applicable taxes include
value added taxes (“VAT”), enterprise income tax
(“EIT”), and social (payroll) taxes. Regulations are
often unclear. Tax declarations (reports) are subject to review and
taxing authorities may impose fines, penalties and interest. These
facts create risks for our operations in China.
We
depend on several suppliers for the supply of certain
products.
As a
GEHC channel partner, we could be negatively impacted by
interruptions or delays to equipment installations, production and
quality issues, and any customer concerns related to GEHC. With
respect to our proprietary medical products we now manufacture our
own
products
primarily through our China based facilities, and we depend on
certain independent suppliers for parts, components and certain
finished goods.
We
may not have adequate intellectual property
protection.
Our
patents and proprietary technology may not be able to prevent
competition by others. The validity and breadth of claims in
technology patents involve complex legal and factual questions.
Future patent applications may not be issued, the scope of any
patent protection may not exclude competitors, and our patents may
not provide competitive advantages to us. Our patents may be found
to be invalid and other companies may claim rights in or ownership
of the patents and other proprietary rights held or licensed by us.
Also, our existing patents may not cover products that we develop
in the future. Moreover, when our patents expire, the inventions
will enter the public domain. There can be no assurance that our
patents will not be violated or that any issued patents will
provide protection that has commercial significance. Litigation may
be necessary to protect our patent position. Such litigation may be
costly and time-consuming, and there can be no assurance that we
will be successful in such litigation.
The
loss or violation of certain of our patents and trademarks could
have a material adverse effect upon our business.
Since
patent applications in the United States are maintained in secrecy
until such patent applications are issued, our current product
development may infringe patents that may be issued to others. If
our products were found to infringe patents held by competitors, we
may have to modify our products to avoid infringement, and it is
possible that our modified products would not be commercially
successful.
Risks Related to Our Industries
Our
growth could suffer if the markets into which we sell products
decline, do not grow as anticipated or experience
cyclicality.
Our
growth depends in part on the growth of the IT and healthcare
markets which we serve. In our professional sales services segment,
our quarterly sales and profits depend significantly on the volume
and timing of delivery of the underlying equipment of the orders we
booked during the quarter, and the delivery of such products is
difficult to forecast since it is largely dependent on GEHC.
Product demand is dependent upon the customer’s capital
spending budget as well as government funding policies, and matters
of public policy as well as product cycles and economic downturns
that can affect the spending decisions of these entities. These
factors could adversely affect our growth, financial position, and
results of operations.
Technological
change is difficult to predict and to manage.
We face
the challenges that are typically faced by companies in the IT and
medical device fields. Our products and services may require
substantial development efforts and compliance with governmental
clearance or approval requirements. We may encounter unforeseen
technological or scientific problems that force abandonment or
substantial change in the development of a specific product or
process.
We
are subject to product liability claims and product recalls that
may not be covered by insurance.
The
nature of our manufacturing operations exposes us to risks of
product liability claims and product recalls. Medical devices as
complex as ours frequently experience errors or failures,
especially when first introduced or when new versions are
released.
We
currently maintain product liability insurance at $6,000,000 per
occurrence and $6,000,000 in the aggregate. Our product liability
insurance may not be adequate. In the future, insurance coverage
may not be available on commercially reasonable terms, or at all.
In addition, product liability claims or product recalls could
damage our reputation even if we have adequate insurance
coverage.
8
We
do not know the effects of healthcare reform
proposals.
The
healthcare industry is undergoing fundamental changes resulting
from political, economic and regulatory influences. In the United
States, the Affordable Care Act (“ACA”) is designed to
provide increased access to healthcare for the uninsured, control
the escalation of healthcare expenditures within the economy and
use healthcare reimbursement policies to balance the federal
budget.
The
United States Congress already has changed the ACA. We expect that
there could be more changes or even a repeal of the ACA. In any
event, we anticipate that there will continue to be a number of
federal and state proposals to constrain expenditures for medical
products and services, which may affect payments for products such
as ours. We cannot predict which, if any of such proposals will be
adopted and when they might be effective, or the effect these
proposals may have on our business. Other countries also are
considering health reform. Significant changes in healthcare
systems could have a substantial impact on the manner in which we
conduct our business and could require us to revise our
strategies.
Risks Related to our Securities
The
application of the "penny stock" rules could adversely affect the
market price of our common stock and increase your transaction
costs to sell those shares.
As long
as the trading price of our common shares is below $5 per share,
the open-market trading of our common shares will be subject to the
"penny stock" rules. The "penny stock" rules impose additional
sales practice requirements on broker-dealers who sell securities
to persons other than established customers and accredited
investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with their
spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of
securities and have received the purchaser's written consent to the
transaction before the purchase. Additionally, for any transaction
involving a penny stock, unless exempt, the broker-dealer must
deliver, before the transaction, a disclosure schedule prescribed
by the Securities and Exchange Commission relating to the penny
stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly
statements must be sent disclosing recent price information on the
limited market in penny stocks. These additional burdens imposed on
broker-dealers restrict the ability and decrease the willingness of
broker-dealers to sell our common shares, which we believe results
in decreased liquidity for our common shares as well as increased
transaction costs for sales and purchases of our common shares as
compared to other securities.
Our
common stock is subject to price volatility.
The
market price of our common stock historically has been and may
continue to be highly volatile. Our stock price could be subject to
wide fluctuations in response to various factors beyond our
control, including, but not limited to:
●
actual or
anticipated fluctuations in our operating results;
●
overall market
fluctuations and domestic and worldwide economic
conditions;
●
medical
reimbursement;
●
announcements of
technological innovations, new products or pricing by our
competitors;
●
the timing of
patent and regulatory approvals;
●
the timing and
extent of technological advancements;
●
the sales of our
common stock by affiliates or other shareholders with large
holdings; and
●
other factors
described in the “Risk Factors” and elsewhere in this
Report.
Our
future operating results may fall below the expectations of
securities industry analysts or investors. Any such shortfall could
result in a significant decline in the market price of our common
stock. In addition, the stock market has experienced significant
price and volume fluctuations that have affected the market price
of our stock and that often have been unrelated to the operating
performance of such companies. These broad market fluctuations may
directly influence the market price of our common
stock.
We
do not intend to pay dividends in the foreseeable
future.
We do
not intend to pay any cash dividends on our common stock in the
foreseeable future.
Additional Information
We are
subject to the reporting requirements under the Securities Exchange
Act of 1934 and are required to file reports and information with
the Securities and Exchange Commission (SEC), including reports on
the following forms: annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to those
reports files or furnished pursuant to Section 13(a) or 15(d) of
the Securities Act of 1934.
The
Company leases its headquarters at an 8,700 square foot facility at
137 Commercial Street, Plainview, New York 11803, under a lease
with a term that expires on September 15, 2022 and with a base
annual rental of approximately $74,000. The Company’s
NetWolves unit leases a 16,200 square foot facility in Tampa,
Florida, under a lease expiring in June 2022 with an annual rental
of approximately $180,000. VHC-IT leases a 3,500 square foot
facility in Nashville, Tennessee on a month-to-month basis with an
annual cost of $49,000. The Company is evaluating possible renewal
options and believes sufficient space is available at similar cost
in Nashville. We believe that our current facilities are adequate
for foreseeable current and future needs.
We
lease our engineering and production facilities in China.
Specifically, we lease approximately 14,700 square feet of space in
Wuxi, China under leases expiring in August 2023, September 2023,
and December 2023 at an aggregate annual cost of approximately
$76,000. Such leases are renewable upon expiration.
9
P
ART II
I
TEM 5
–
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our
common stock currently trades on the OTC Market under the symbol
VASO. The number of record holders of common stock as of April 23,
2021, was approximately 900, which does not include approximately
8,500 beneficial owners of shares held in the name of brokers or
other nominees. The table below sets forth the range of high and
low trade prices of the common stock for the fiscal periods
specified.
|
|
Year ended
December 31, 2020
|
Year ended
December 31, 2019
|
||
|
|
High
|
Low
|
High
|
Low
|
|
First
quarter
|
$
0.04
|
$
0.02
|
$
0.04
|
$
0.03
|
|
Second
quarter
|
$
0.04
|
$
0.02
|
$
0.03
|
$
0.02
|
|
Third
quarter
|
$
0.03
|
$
0.02
|
$
0.02
|
$
0.02
|
|
Fourth
quarter
|
$
0.09
|
$
0.02
|
$
0.03
|
$
0.01
|
The
last bid price of the Company's common stock on April 23, 2021, was
$0.09 per share.
Dividend Policy
We have
never paid any cash dividends on our common stock and do not intend
to pay cash dividends in the foreseeable future.
I
TEM 7
–
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
This Management’s Discussion and Analysis of Financial
Condition and Results of Operations contains descriptions of our
expectations regarding future trends affecting our business. These
forward looking statements and other forward-looking statements
made elsewhere in this document are made under the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Please read the section titled “Risk Factors” in
“Item One – Business” to review certain
conditions, among others, which we believe could cause results to
differ materially from those contemplated by the forward-looking
statements.
Except for historical information contained in this report, the
matters discussed are forward-looking statements that involve risks
and uncertainties. When used in this report, words such as
“anticipates”, “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; the effect of the dramatic
changes taking place in IT and healthcare; continuation of the GEHC
agreement; the impact of competitive technology and products and
their pricing; medical insurance reimbursement policies; unexpected
manufacturing or supplier problems; unforeseen difficulties and
delays in the conduct of product development programs; the actions
of regulatory authorities and third-party payers in the United
States and overseas; and the risk factors reported from time to
time in the Company’s SEC reports. The Company undertakes no
obligation to update forward-looking statements as a result of
future events or developments.
The following discussion should be read in conjunction with the
financial statements and notes thereto included in this Annual
Report on Form 10-K.
10
General Overview
COVID-19 pandemic
The
COVID-19 pandemic has had and will continue to have a significant
impact on the United States economy and it is anticipated that its
negative impact to the Company’s financial condition and
results of operations will 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. Equipment orders in our professional sales
service segment have been negatively impacted, and we do anticipate
continued negative impact in all our business at least through the
next few quarters, in particular in our professional sales service
segment for the diagnostic imaging equipment. Moreover, we have
also 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 impact our operations in 2021, 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 are implementing plans to 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 (the “PPP loan”). This loan, substantially
all of which should qualify for forgiveness, has been 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. We have applied for forgiveness of the PPP
loan.
Our Business Segments
Vaso Corporation (formerly Vasomedical,
Inc.)
(“Vaso”)
was
incorporated in Delaware in July 1987.
We principally
operate in three distinct business segments in the healthcare
equipment and information technology industries. We manage and
evaluate our operations, and report our financial results, through
these three business segments.
●
IT segment,
operating through a wholly-owned subsidiary VasoTechnology, Inc.,
primarily focuses on healthcare IT and managed network technology
services;
●
Professional sales
service segment, operating through a wholly-owned subsidiary Vaso
Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the
sale of healthcare capital equipment for General Electric
Healthcare (GEHC) into the health provider middle market;
and
●
Equipment segment,
primarily focuses on the design, manufacture, sale and service of
proprietary medical devices, operating through a wholly-owned
subsidiary VasoMedical, Inc., which in turn operates through
Vasomedical Solutions, Inc. for domestic business and Vasomedical
Global Corp. for international business, respectively.
VasoTechnology
VasoTechnology,
Inc.
was formed in May
2015, at the time the Company acquired
all of the assets of NetWolves, LLC and its
affiliates, including the membership interests in NetWolves Network
Services LLC (collectively, “NetWolves”)
. It
currently consists of a managed network and security service
division (NetWolves) and a healthcare IT application VAR (value
added reseller) division (VasoHealthcare IT). Its current offering
includes:
●
Managed diagnostic
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 175+ facility
partners).
●
Managed security
services.
VasoTechnology uses
a combination of proprietary technology, methodology and
best-in-class third-party applications to deliver its value
proposition.
11
VasoHealthcare
VasoHealthcare
commenced operations in 2010, in conjunction with the
Company’s execution of its exclusive sales representation
agreement with GEHC, which is the healthcare business division of
the General Electric Company (“GE”), to further the
sale of certain medical capital equipment in certain domestic
market segments.
VasoHealthcare’s
current offering consists 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 for the above
equipment.
VasoHealthcare has
built a team of over 80 highly experienced sales professionals who
utilize highly focused sales management and analytic tools to
manage the complete sales process and to increase market
penetration.
VasoMedical
The
proprietary medical equipment business under VasoMedical traces
back to 1995 when the Company began the proprietary Enhanced
External Counterpulsation (EECP
®
) technology in
the United States and has since diversified to include other
medical hardware and software. Vasomedical Global was formed in
2011 to combine and coordinate the various international operations
including design, development, manufacturing, and sales of medical
devices, while domestic activities are under Vasomedical Solutions.
These devices primarily consist of cardiovascular diagnostic and
therapeutic systems, including:
●
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 engineering resources to cost effectively create and
market its proprietary technology. It sells and services its
products to domestic customers directly and sells and/or services
its products in the international market mainly through independent
distributors.
Strategic Plan and Objectives
Our
short- and long-term plans for the growth of the Company and to
increase stockholder value are:
●
Continue to
effectively reduce operating costs.
●
Continue to expand
our product and service offerings as well as market penetration in
the
business of our IT segment.
●
Maintain and
improve business performance in our professional sales service
segment by increasing market penetration of the GE Healthcare
product modalities we represent, and possibly building new teams to
represent other vendors.
●
Maintain and grow
our equipment business by increasing efficiency and exploring new
revenue models.
●
Continue to seek
accretive partnership opportunities.
Revision of prior year financial statements
The
income statement, balance sheet and changes in stockholders’
equity for the year ended December 31, 2019 have been corrected for
immaterial errors as a result of what we believe to be the
misappropriation of funds by a mid-level management employee, who
was not an officer or director of the Company. The correction
includes $190 thousand in additional SG&A expense in the year
ended December 31, 2019 and a beginning balance addition of total
$907 thousand to accumulated deficit at January 1, 2019, of which
$333 thousand represents a charge as of the May 2015 acquisition
date of the subsidiary affected. The effect on net income (loss)
for each of the years ended December 31, 2015 through December 31,
2018 is not material. The individual was suspended on March 29,
2021 and was terminated effective April 1, 2021. Upon additional
examination and comprehensive review, the Company believes that
this was an isolated incident and non-recurring. The Company has
taken immediate steps to implement additional internal control
procedures. See also Item 9A – Controls and
Procedures.
In
addition, the Company noted accounting errors in our IT segment
where certain regulatory fees billed to our customers during the
years 2016 through 2019 were partially recorded as revenue.
Correction of such errors resulted in a $147 thousand addition to
accumulated deficit at January 1, 2019 and the reversal of $231
thousand in revenue in the year ended December 31,
2019.
See Note B for
tabular presentation of selected line items from the Company's
Consolidated Financial Statements illustrating the effect of these
corrections.
12
Results of Operations – For the Years Ended December 31, 2020
and 2019
Total
revenues decreased by $5,665,000, or 7.5%, to $69,850,000 in the
year ended December 31, 2020, from $75,515,000 in the year ended
December 31, 2019. We reported net income (loss) of $358,000 and
$(382,000) for the years ended December 31, 2020 and 2019,
respectively, an improvement of $740,000. The change to net income
from net loss was primarily due to lower operating expenses
partially offset by lower gross profit. Our net income (loss) was
$0.00 and $(0.00) per basic and diluted common share for the years
ended December 31, 2020 and 2019, respectively.
Revenues
Revenue
in the IT segment was $43,894,000 for the year ended December 31,
2020 as compared to $45,505,000 for the prior year, a decrease of
$1,611,000, or 3.5%, of which $1,557,000 was attributable to a
decline in VHC-IT revenues and $54,000 to a decrease in NetWolves
revenues.
Commission revenues
in the professional sales service segment decreased by $3,343,000,
or 12.8%, to $22,865,000 in the year ended December 31, 2020, as
compared to $26,208,000 in the year ended December 31, 2019. The
decrease was primarily due to lower volume of GEHC equipment
delivered in 2020 coupled with a lower blended commission rate for
equipment delivered in 2020. As discussed in Note C to the
financial statements, the Company defers recognition of commission
revenue until the underlying equipment is delivered. As of December
31, 2020, the Company recorded on its consolidated balance sheet
deferred commission revenue of $17,689,000 for this segment (of
which $6,178,000 is long-term), a decrease of $876,000, or 4.7%,
compared to $18,565,000 of deferred commission revenue at December
31, 2019 (of which $6,645,000 was long-term). The decrease in
deferred revenue is due principally to lower total orders booked
during the year, partially offset by the decrease in equipment
deliveries over the same period.
Revenue
in our equipment segment decreased 18.7% to $3,091,000 for the year
ended December 31, 2020 from $3,802,000 for the year ended December
31, 2019, as a result of including EECP operations only for the
first quarter of 2020 in the consolidated financials but for the
full year of 2019, partially offset by a revenue increase in our
China operations. In April 2020, the Company sold 51% of the equity
in its EECP business and does not consolidate these operations
after such date. With EECP revenues all excluded in 2020 and 2019,
equipment segment revenue would be respectively $2,726,000 and
$2,532,000, an increase of $194,000, or 7.7%, mainly a result of
higher revenue in our China operations. As of December 31, 2020,
the Company recorded on its consolidated balance sheet for this
segment $15,000 of deferred revenue, of which $10,000 is long-term,
compared to $778,000 of deferred revenue at December 31, 2019, of
which $354,000 was long-term, a decrease of $763,000 or 98.1%. The
decrease in deferred revenue is due principally to the sale of a
majority equity stake in the EECP business.
Gross Profit
The
Company recorded gross profit of $38,571,000, or 55% of revenue,
for the year ended December 31, 2020, compared to $42,432,000, or
56% of revenue, for the year ended December 31, 2019. The decrease
of $3,861,000, or 9.1%, was due primarily to a $2,679,000 decrease
in the professional sales service segment and a $1,108,000 decrease
in the IT segment, both as a result of lower revenues.
IT
segment gross profit decreased to $17,682,000, or 40% of segment
revenues, for the year ended December 31, 2020 as compared to
$18,790,000, or 41% of segment revenues, in the prior year, a
decrease of $1,108,000, of which $909,000 was attributable to
VHC-IT and $199,000 was attributable to NetWolves, resulting mainly
from lower VHC-IT revenues and higher Netwolves costs.
Professional sales
service segment gross profit was $18,608,000, or 81% of the segment
revenues, for the year ended December 31, 2020, a decrease of
$2,679,000, or 12.6%, from segment gross profit of $21,287,000, or
81% of the segment revenue, for the year ended December 31, 2019.
The decrease in gross profit was due primarily to the decrease in
equipment delivery volume. Cost of commissions decreased by
$664,000, or 13.5%, to $4,257,000 for the year ended December 31,
2020, as compared to cost of commissions of $4,921,000 in 2019. The
decrease is due primarily to the decrease in delivery volume. Cost
of commissions reflects commission expense associated with certain
recognized commission revenues. Commission expense associated with
deferred revenue is recorded as deferred commission expense until
the related commission revenue is earned.
Equipment segment
gross profit decreased to $2,281,000, or 74% of equipment segment
revenues, for the year ended December 31, 2020 compared to
$2,355,000, or 62% of equipment segment revenues, for the year
ended December 31, 2019, due primarily to the inclusion of EECP
operations only for the first quarter of 2020 in the consolidated
financials but for the full year of 2019, partially offset but an
increase in gross profit of our China operations. Excluding EECP
operations from both 2020 and 2019 numbers, gross profit in the
equipment segment would be $2,040,000 (74.8% of segment revenue)
and $1,887,000 (74.5% of segment revenue), respectively,
representing an increase of $153,000 or 8.1%, year over year.
Equipment segment gross profits are dependent on a number of
factors including the mix of products sold, their respective models
and average selling prices, the ongoing costs of training,
maintenance and servicing, as well as certain fixed period costs,
including facilities, payroll and insurance.
13
Operating Income
Operating income
was $772,000 for the year ended December 31, 2020 compared to
operating income of $591,000 for the year ended December 31, 2019,
an increase of $181,000, or 30.6%. The improvement was primarily
attributable to the decrease in operating loss in the equipment
segment to $155,000 for the year ended December 31, 2020 from a
loss of $855,000 for the prior year, an improvement of $700,000,
due to lower operating expenses, partially offset by a decrease in
operating income in the professional sales service segment to
$2,977,000 for the year ended December 31, 2020 from $3,626,000 for
the year ended December 31, 2019, due to lower gross profit
partially offset by reduced operating expenses.
Selling, general
and administrative (SG&A) expenses for the years ended December
31, 2020 and 2019 were $37,054,000, or 53% of revenues, and
$41,028,000, or 54% of revenues, respectively, reflecting a
decrease of $3,974,000 or 10%.
The decrease in SG&A expenditures
in the year ended December 31, 2020 resulted primarily from a
$2,030,000 decrease in the professional sales service segment
attributable mainly to lower sales personnel-related and travel
costs; a $1,090,000 decrease in the IT segment due to lower
personnel, marketing and travel costs; a $646,000 decrease in the
equipment segment due mainly to the deconsolidation of the EECP
business, and by a $208,000 decrease in corporate expenses
reflecting lower legal and accounting fees.
Research and
development (R&D) expenses of $745,000, or 1% of revenues, for
the year ended December 31, 2020 decreased by $68,000, or 8%, from
$813,000, or 1% of revenues, for the year ended December 31, 2019.
The decrease is primarily attributable to lower new product
development costs in our China operations.
Adjusted EBITDA
We
define Adjusted EBITDA (earnings before interest, taxes,
depreciation and amortization), which is a non-GAAP financial
measure, as net (loss) income, plus net interest expense (income),
tax expense, depreciation and amortization, and non-cash expenses
for share-based compensation. Adjusted EBITDA is a metric
that is used by the investment community for comparative and
valuation purposes. We disclose this metric in order to support and
facilitate the dialogue with research analysts and
investors.
Adjusted EBITDA is
not a measure of financial performance under accounting principles
generally accepted in the United States (“GAAP”) and
should not be considered a substitute for operating income, which
we consider to be the most directly comparable GAAP measure.
Adjusted EBITDA has limitations as an analytical tool, and when
assessing our operating performance, you should not consider
Adjusted EBITDA in isolation, or as a substitute for net income or
other consolidated income statement data prepared in accordance
with GAAP. Other companies may calculate Adjusted EBITDA
differently than we do, limiting its usefulness as a comparative
measure.
A
reconciliation of net income (loss) to Adjusted EBITDA is set forth
below:
(in thousands)
|
|
Year ended
December 31,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Net
income (loss)
|
$
358
|
$
(382
)
|
|
Interest
expense (income), net
|
675
|
962
|
|
Income
tax (benefit) expense
|
(1
)
|
111
|
|
Depreciation
and amortization
|
2,462
|
2,681
|
|
Share-based
compensation
|
88
|
141
|
|
Adjusted
EBITDA
|
$
3,582
|
$
3,513
|
Adjusted EBITDA
increased by $69,000, to $3,582,000 in the year ended December 31,
2020 from $3,513,000 in the year ended December 31, 2019. The
increase was primarily attributable to the higher net income,
partially offset by lower interest expense, income tax expense,
depreciation and amortization, and share-based compensation costs,
as compared to the prior year.
14
Other Income (Expense), Net
Other
income (expense), net for the years ended December 31, 2020 and
2019, was $(415,000) and $(862,000), respectively, a decrease in
net expense of $447,000. The decrease was due primarily to lower
interest expense on our lines of credit and other debt instruments,
and by the $110,000 gain on sale of equity in the EECP
business.
Income Tax (Benefit) Expense
During
the year ended December 31, 2020, we recorded income tax benefit of
$1,000, as compared to income tax expense of $111,000 in the year
ended December 31, 2019. The Company utilized $797,000 and $0 in
net operating loss carryforwards for the years ended December 31,
2020 and 2019, respectively. The change to income tax benefit in
2020 arose primarily from lower foreign tax expense due to
write-off of deferred tax liability. The Company has net operating
loss carryforwards of approximately $45 million at December 31,
2020.
Liquidity and Capital Resources
Cash and Cash Flow – For the year ended December 31,
2020
We have
financed our operations and investment activities primarily from
working capital and borrowings. At December 31, 2020, we had cash
and cash equivalents of $6,819,000 and negative working capital of
$9,431,000. $9,162,000 in negative working capital at December 31,
2020 is attributable to the net balance of deferred commission
expense and deferred revenue. These are non-cash expense and
revenue items and have no impact on future cash flows. At April 23,
2021 the Company’s cash and cash equivalents were
approximately $9.5 million.
Cash
provided by operating activities was $5,934,000 during the year
ended December 31, 2020, which consisted of net income after
non-cash adjustments of $3,377,000 and changes in operating assets
and liabilities of $2,557,000. The changes in the account balances
primarily reflect decreases in accounts and other receivables and
deferred commission expenses of $5,050,000 and $407,000,
respectively, partially offset by decreases in accounts payable,
deferred revenue, and accrued commissions of $1,369,000, $870,000,
and $791,000, respectively.
Cash
used in investing activities during the year ended December 31,
2020 was $575,000 consisting of $1,000,000 in purchases of
equipment and software and $725,000 in purchase of short-term
investment, offset by $1,150,000 in proceeds from sale of equity in
EECP Global.
Cash
used in financing activities during the year ended December 31,
2020 was $553,000, primarily attributable to repayment of
$1,375,000 on our lines of credit, and $2,930,000 in payments of
notes and finance leases, partially offset by proceeds of
$3,756,000 from notes payable, including $3,610,900 from a PPP
loan.
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 depending on the duration of the
pandemic and the timing and success of the reopening of the
economy.
Off-Balance Sheet Arrangements
We do
not participate in transactions that generate relationships with
unconsolidated entities or financial partnerships, such as entities
often referred to as structured finance or special purpose entities
(SPES), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes. As of December 31, 2020, we are not
involved in any unconsolidated SPES or other off-balance sheet
arrangements.
Effects of Inflation
We
believe that inflation and changing prices over the past two years
have not had a significant impact on our revenue or on our results
of operations.
15
Critical Accounting Policies and Estimates
Note C
of the Notes to Consolidated Financial Statements includes a
summary of our significant accounting policies and methods used in
the preparation of our financial statements. In preparing these
financial statements, we have made our best estimates and judgments
of certain amounts included in the financial statements, giving due
consideration to materiality. The application of these accounting
policies involves the exercise of judgment and use of assumptions
as to future uncertainties and, as a result, actual results could
differ from these estimates. Our critical accounting policies and
estimates are as follows:
Revenue Recognition
We
account for revenues in accordance with ASC 606, “Revenue
from Contracts with Customers”
,
which was adopted as of January 1,
2018 on a modified retrospective basis.
ASC 606
requires certain judgments and estimates in implementing its
five-step process to be followed in determining the amount and
timing of revenue recognition and related disclosures. Refer to
Note C of the notes to consolidated financial statements for
further discussion regarding significant judgments involved in our
application of ASC 606.
Inventories, net
We
value inventories in the equipment segment at the lower of cost or
net realizable value, with cost being determined on a first-in,
first-out basis. The Company regularly reviews inventory quantities
on hand, particularly raw materials and components, and records a
provision for excess and slow moving inventory based primarily on
existing and anticipated design and engineering changes to its
products as well as forecasts of future product
demand.
In our
IT Segment, we purchase computer hardware and software for specific
customer requirements and value such inventories at the lower of
cost or estimated market, with cost being determined on the
specific identification method.
Goodwill and Intangible Assets
Goodwill represents the excess of
cost over the fair value of net assets of businesses acquired. The
Company accounts for goodwill under the guidance of the ASC Topic
350, “Intangibles: Goodwill and Other”. Goodwill
acquired in a purchase business combination and determined to have
an indefinite useful life is not amortized, but instead tested for
impairment, at least annually, in accordance with this
guidance.
The recoverability of goodwill is subject to an
annual impairment test or whenever an event occurs or circumstances
change that would more likely than not result in an impairment. The
impairment test is based on the estimated fair value of the
underlying businesses and performed in the fourth quarter of each
year.
I
ntangible assets consist of the value of customer
contracts and relationships, patent and technology costs, and
software. The cost of significant customer-related intangibles is
amortized in proportion to estimated total related revenue; cost of
other intangible assets is generally amortized on a straight-line
basis over the asset's estimated economic life, which range
from five to ten years. T
he Company
capitalizes internal use software costs incurred during the
application development stage. Costs related to preliminary project
activities and post implementation activities are expensed as
incurred.
Deferred Revenues
For the
professional sales service segment, amounts billable under the
agreement with GE Healthcare in advance of customer acceptance of
the equipment are recorded initially as deferred revenue, and
commission revenue is subsequently recognized as customer
acceptance of such equipment is reported to us by
GEHC.
For the
equipment segment, we record revenue on extended service contracts
ratably over the term of the related contract period.
Income Taxes
Deferred income
taxes are recognized for temporary differences between financial
statement and income tax bases of assets and liabilities and loss
carry forwards for which income tax benefits are expected to be
realized in future years. A valuation allowance is established,
when necessary, to reduce deferred tax assets to the amount
expected to be realized. In estimating future tax consequences, we
generally consider all expected future events other than an
enactment of changes in the tax laws or rates. Deferred tax assets
are continually evaluated for realizability. To the extent our
judgment regarding the realization of the deferred tax assets
changes, an adjustment to the allowance is recorded, with an
offsetting increase or decrease, as appropriate, in income tax
expense. Such adjustments are recorded in the period in which our
estimate as to the realizability of the assets changed that it is
“more likely than not” that all of the deferred tax
assets will be realized. The “more likely than not”
standard is subjective and is based upon our estimate of a greater
than 50% probability that the deferred tax asset will be
realized.
We also
comply with the provisions of the ASC Topic 740, “Income
Taxes”, which prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax
return. For those benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by taxing
authorities. Based on its analysis, the Company has determined that
it has not incurred any liability for unrecognized tax benefits as
of December 31, 2020 and December 31, 2019. The Company recognizes
accrued interest and penalties related to unrecognized tax benefits
as income tax expense. No amounts were accrued for the payment of
interest and penalties at December 31, 2020 and December 31, 2019.
Management is currently unaware of any issues under review that
could result in significant payments, accruals or material
deviations from its position.
16
Recently Issued Accounting Pronouncements
Note C
of the Notes to Consolidated Financial Statements includes a
description of the Company’s evaluation of recently issued
accounting pronouncements.
The
consolidated financial statements listed in the accompanying Index
to Consolidated Financial Statements are filed as part of this
report.
Report on Disclosure Controls and Procedures
Disclosure controls
and procedures reporting as promulgated under the Exchange Act is
defined as controls and procedures that are designed to ensure that
information required to be disclosed by us in the reports that we
file or submit under the Exchange Act are recorded, processed,
summarized and reported within the time periods specified in the
SEC rules and forms. Disclosure controls and procedures include
without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive
Officer (“CEO”) 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 December 31, 2020 and have
concluded
that the Company’s disclosure controls and
procedures were not effective as a result of a material weakness in
internal controls as of December 31, 2020.
Management’s Report on Internal Control over Financial
Reporting
Management is
responsible for establishing and maintaining adequate internal
control over financial reporting for the Company as defined in Rule
13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial statements for
external purposes in accordance with accounting principles
generally accepted in the United States of America. Internal
control involves maintaining records that accurately represent our
business transactions, providing reasonable assurance that receipts
and expenditures of company assets are made in accordance with
management authorization, and providing reasonable assurance that
unauthorized acquisition, use or disposition of company assets that
could have a material effect on our financial statements would be
detected or prevented on a timely basis.
Because
of its innate limitations, internal control over our financial
statements is not intended to provide absolute guarantee that a
misstatement can be detected or prevented on the statements.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation. Also projections of any
evaluation of effectiveness to future periods are subject to risk
that controls may become inadequate because of changes in
condition, or that the degree of compliance with the policies or
procedures may deteriorate.
Management
conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal
Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 COSO
framework). A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement
of the Company’s annual or interim financial statements will
not be prevented or detected on a timely basis.
Based
on this evaluation and those criteria, the Company’s CEO and
CFO concluded that the Company’s internal control over
financial reporting was not effective as of December 31, 2020, due
to a lack of segregation of duties at one of the Company’s
subsidiaries.
This
report does not include an attestation report of the
Company’s Independent Registered Public Accounting Firm
regarding internal control over financial reporting.
Management’s report was not subject to attestation by the
Company’s Independent Registered Public Accounting Firm
pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only
Management’s report in this Annual Report.
Changes in Internal Control over Financial Reporting
For the
quarter ended December 31, 2020 there were no changes in our
internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
17
Directors of the Registrant
As of
April 23, 2021, the members of our Board of Directors
are:
|
Name of Director
|
Age
|
Principal Occupation
|
Director Since
|
|
Joshua
Markowitz (2)
|
65
|
Chairman
of the Board and Director
|
June,
2015
|
|
David
Lieberman
|
76
|
Vice
Chairman of the Board and Director
|
February,
2011
|
|
Jun
Ma
|
57
|
President,
Chief Executive Officer and Director
|
June,
2007
|
|
Jane
Moen
|
41
|
Director
|
March,
2020
|
|
Behnam
Movaseghi (1) (2)
|
67
|
Director
|
July,
2007
|
|
Edgar
Rios (1)
|
68
|
Director
|
February,
2011
|
(1)
Member of the Audit
Committee
(2)
Member of the
Compensation Committee
The
following is a brief account of the business experience for at
least the past five years of our directors:
Joshua Markowitz
has been a director
since June 2015, and was appointed Chairman of the Board of the
Company in August 2016. Mr. Markowitz has been a practicing
attorney in the State of New Jersey for in excess of 30 years. He
is currently a senior partner in the New Jersey law firm of
Markowitz O'Donnell, LLP. Mr. Markowitz was the brother-in-law of
Mr. Simon Srybnik (deceased), the former Chairman and director of
the Company.
David Lieberman
has been a director of the Company and
the Vice Chairman of the Board, since February 2011. Mr. Lieberman
has been a practicing attorney in the State of New York for more
than 45 years, specializing in corporation and securities law. He
is currently a senior partner at the law firm of Beckman Lieberman
and Associates, LLP, which performs certain legal services for the
Company and its subsidiaries. Mr. Lieberman is a former Chairman of
the Board of Herley Industries, Inc., which was sold in March,
2011.
Jun Ma, PhD
, has been a director since
June 2007 and was appointed President and Chief Executive Officer
of the Company on October 16, 2008. Dr. Ma has held
various positions in academia and business, and prior to becoming
President and CEO of the Company, had provided technology and
business consulting services to several domestic
and international companies in aerospace, automotive,
biomedical, medical device, and other industries, including Kerns
Manufacturing Corp. and Living Data Technology Corp., both of which
are stockholders of our Company. Dr. Ma received his PhD degree in
mechanical engineering from Columbia University, MS degree in
biomedical engineering from Shanghai University, and BS degree in
precision machinery and instrumentation from University of Science
and Technology of China.
Jane Moen
has been a director since
March 2020. Ms. Moen has been President of the Company’s
wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare
since June 2018 following a remarkable career track record at
VasoHealthcare, starting as an Account Manager at the inception of
VasoHealthcare in April 2010 and being promoted to Regional Manager
in January 2012, Director of Product Business Lines in July 2012
and Vice President of Sales in April 2016. Jane Moen has been in
the medical sales industry for over 17 years, having had prior
experience with Ledford Medical Sales, Vital Signs, Inc., Pfizer
Inc. and Ecolab, Inc.
Behnam Movaseghi, CPA
, has been a
director since July 2007. Mr. Movaseghi has been treasurer of Kerns
Manufacturing Corporation since 2000, and controller from 1990 to
2000. For approximately ten years prior thereto Mr. Movaseghi was a
tax and financial consultant. Mr. Movaseghi is a Certified Public
Accountant.
Edgar G. Rios
has been a director of the Company
since February 2011. Mr. Rios currently is President of Edgary
Consultants, LLC. and was appointed a director in conjunction with
the Company’s prior consulting agreement with Edgary
Consultants, LLC. Most recently from 2008 thru the end of 2016, Mr.
Rios was the Co-founder, CEO and Managing Member of SHD Oil &
Gas LLC, an oil and gas exploration and development firm operating
on the reservation of the Three Affiliate Tribes in North Dakota.
Previously, Mr. Rios was a co-founder, Executive Vice President,
General Counsel and Director of AmeriChoice Corporation from its
inception in 1989 through its acquisition by UnitedHealthcare in
2002 and continued as a senior executive with United Healthcare
through 2007. Prior to co-founding AmeriChoice, Mr. Rios was a
senior executive with a number of businesses that provided
technology services and non-technology products to government
purchasers. Over the years, Mr. Rios also has been an investor,
providing seed capital to various technology and nontechnology
start-ups. Mr. Rios serves on the Board of Advisors of Columbia Law
School. Mr. Rios also serves as a member of the Board of Trustees
of Meharry Medical School and the Brookings Institution in
Washington; and as a director of the An-Bryce Foundation and Los
Padres Foundation in Virginia. Mr. Rios holds a J.D. from Columbia
University Law School and an A.B. from Princeton
University.
18
Committees of the Board of Directors
Audit Committee and Audit Committee Financial Expert
The
Board has a standing Audit Committee. The Board has affirmatively
determined that each director who serves on the Audit Committee is
independent, as the term is defined by applicable Securities and
Exchange Commission ("SEC") rules. During the year ended December
31, 2020, the Audit Committee consisted of Edgar Rios, committee
chair, and Behnam Movaseghi. The members of the Audit Committee
have substantial experience in assessing the performance of
companies, gained as members of the Company’s Board of
Directors and Audit Committee, as well as by serving in various
capacities in other companies or governmental agencies. As a
result, they each have an understanding of financial statements.
The Board believes that Behnam Movaseghi fulfills the role of the
financial expert on this committee.
The
Audit Committee regularly meets with our independent registered
public accounting firm without the presence of
management.
The
Audit Committee operates under a charter approved by the Board of
Directors. The Audit Committee charter is available on our
website.
Compensation Committee
Our
Compensation Committee annually establishes, subject to the
approval of the Board of Directors and any applicable employment
agreements, the compensation that will be paid to our executive
officers during the coming year, as well as administers our
stock-based benefit plans. During the year ended December 31, 2020,
the Compensation Committee consisted of Joshua Markowitz, committee
chair, and Behnam Movaseghi. Neither of these persons has been
officers or employees of the Company at the time of his position on
the committee, or, except as otherwise disclosed, had any
relationship requiring disclosure herein.
The
Compensation Committee operates under a charter approved by the
Board of Directors. The Compensation Committee charter is available
on our website.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During
the year ended December 31, 2020 there were:
●
4 meetings of the
Board of Directors
●
4 meetings of the
Audit Committee
●
1 meeting of the
Compensation Committee
Section 16(a) Beneficial Ownership Reporting
Compliance
Section
16(a) of the Exchange Act requires directors, executive officers
and persons who beneficially own more than 10% of our common stock
(collectively, “Reporting Persons”) to file initial
reports of ownership and reports of changes in ownership of our
common stock with the SEC. Reporting Persons are required by SEC
regulations to furnish us with copies of all Section 16(a) reports
they file. To our knowledge, based solely on our review of the
copies of such reports received or written representations from
certain Reporting Persons that no other reports were required, we
believe that during the year ended December 31, 2020 all Reporting
Persons timely complied with all applicable filing
requirements.
Corporate Governance - Code of Ethics
We have
adopted a Corporate Code of Business Ethics (the "Code") that
applies to all employees, including our principal executive
officer, principal financial officer, and directors of the Company.
A copy of the Code can be found on our website,
www.vasocorporation.com. The Code is broad in scope and is intended
to foster honest and ethical conduct, including accurate financial
reporting, compliance with laws and the like. If any substantive
amendments are made to the Code or if there is any grant of waiver,
including any implicit waiver, from a provision of the Code to our
Chief Executive Officer or Chief Financial Officer, we will
disclose the nature of such amendment or waiver in a Current Report
on Form 8-K.
19
Executive Officers of the Registrant
As of
April 23, 2021 our executive officers are:
|
Name of Officer
|
Age
|
Position held with the Company
|
|
Jun Ma,
PhD
|
57
|
President,
Chief Executive Officer
|
|
Peter
C. Castle
|
52
|
Chief
Operating Officer
|
|
Michael
J. Beecher
|
76
|
Co-Chief
Financial Officer and Secretary
|
|
Jonathan
P. Newton
|
60
|
Co-Chief
Financial Officer and Treasurer
|
Peter Castle
was a director from August
2010 to December 2019 and was appointed the Chief Operating Officer
of the Company after the NetWolves acquisition in June 2015. Prior
to the acquisition, Mr. Castle was the President and Chief
Executive Officer of NetWolves Network Services, LLC, where he has
been employed since 1998. At NetWolves, Mr. Castle also held the
position of Chief Financial Officer from 2001 until October 2009,
Vice President of Finance since January 2000, Controller from
August 1998 until December 1999 and Treasurer and Secretary from
August 1999.
Michael J. Beecher, CPA
,
was Chief Financial Officer of the
Company from September 2011 and Co-Chief Financial Officer since
December 10, 2019. Prior to joining Vasomedical in 2011, Mr.
Beecher was Chief Financial Officer of Direct Insite Corp., a
publicly held company, from December 2003 to September
2011. Prior to his position at Direct Insite, Mr.
Beecher was Chief Financial Officer and Treasurer of FiberCore,
Inc., a publicly held company in the fiber-optics industry. From
1989 to 1995 he was Vice-President Administration and Finance at
the University of Bridgeport. Mr. Beecher began his career in
public accounting with Haskins & Sells, an international public
accounting firm. He is a graduate of the University of Connecticut,
a Certified Public Accountant and a member of the American
Institute of Certified Public Accountants.
Jonathan P. Newton
served as Chief
Financial Officer of the Company from September 1, 2010 to
September 8, 2011, Vice President of Finance and Treasurer until
December 10, 2019, and is currently Co-Chief Financial Officer and
Treasurer. From June 2006 to August 2010, Mr. Newton was
Director of Budgets and Financial Analysis for Curtiss-Wright Flow
Control. Prior to his position at Curtiss-Wright
Flow Control, Mr. Newton was Vasomedical’s Director of
Budgets and Analysis from August 2001 to June 2006. Prior positions
included Controller of North American Telecommunications Corp.,
Accounting Manager for Luitpold Pharmaceuticals, positions of
increasing responsibility within the internal audit function of the
Northrop Grumman Corporation and approximately three and one half
years as an accountant for Deloitte Haskins & Sells, during
which time Mr. Newton became a Certified Public
Accountant. Mr. Newton holds a B.S. in Accounting from
SUNY at Albany, and a B.S. in Mechanical Engineering from Hofstra
University.
The
following table sets forth the annual and long-term compensation of
our Chief Executive Officer and each of our most highly compensated
officers and employees who were serving as executive officers or
employees at the end of the last completed fiscal year for services
rendered for the years ended December 31, 2020 and
2019.
20
Summary Compensation Table
|
Name and Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock Awards ($)
(1)
|
Option Awards
($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Nonqualified
Deferred Compensation Earnings ($)
|
All Other
Compensation ($) (2)
|
Total
($)
|
|
Jun Ma,
PhD
|
2020
|
500,000
|
75,000
|
|
|
|
|
59,548
|
634,548
|
|
Chief Executive
Officer
|
2019
|
447,917
|
|
100,000
|
|
|
|
33,767
|
581,684
|
|
Peter C.
Castle
|
2020
|
343,437
|
52,500
|
|
|
|
|
13,950
|
409,887
|
|
Chief Operating
Officer
|
2019
|
350,000
|
|
|
|
|
|
15,308
|
365,308
|
|
Jane
Moen
|
2020
|
275,000
|
74,250
|
20,000
|
|
|
|
11,450
|
380,700
|
|
President of
VasoHealthcare
|
2019
|
275,000
|
165,000
|
|
|
|
|
7,114
|
447,114
|
|
Michael J.
Beecher
|
2020
|
120,000
|
12,600
|
|
|
|
|
3,360
|
135,960
|
|
Co-Chief Financial
Officer and Secretary
|
2019
|
167,500
|
|
|
|
|
|
5,218
|
172,718
|
|
Jonathan P.
Newton
|
2020
|
190,000
|
30,000
|
|
|
|
|
8,722
|
228,722
|
|
Co-Chief Financal
Officer and Treasurer
|
2019
|
175,000
|
|
15,000
|
|
|
|
7,084
|
197,084
|
(1)
Represents fair
value on the date of grant. See Note C to the Consolidated
Financial Statements included in our Form 10–K for the year
ended December 31, 2020 for a discussion of the relevant
assumptions used in calculating grant date fair value.
(2)
Represents tax
gross-ups, lodging and vehicle allowances, Company-paid life
insurance, and amounts matched in the Company’s 401(k)
Plan.
Outstanding Equity Awards at Last Fiscal Year End
The
following table provides information concerning outstanding
options, unvested stock and equity incentive plan awards for our
named executive officers at December 31, 2020:
|
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
|
|
NameNumber of
Securities Underlying Unexercised Options -
Exercisable
|
Number of
Securities Underlying Unexercised Options -
Unexercisable
|
Equity Incentive
Plan Awards: Number of Underlying Unexercised Unearned
OptionsOption Exercise Price
|
Option Expiration
Date
|
Number of Shares
or Units of Stock That Have Not Vested
|
Market Value of
Shares or Units of Stock That Have Not Vested
|
Equity Incentive
Plan Awards: Number of Unearned Shares, Units or Other Rights That
Have Not Vested
|
Equity Incentive
Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
|
|
Jun Ma,
PhD
|
|
|
|
3,000,000
|
270,000
|
-
|
-
|
|
|
|
|
|
|
|||
|
Jane
Moen
|
|
|
|
800,000
|
72,000
|
-
|
-
|
|
|
|
|
|
|
|||
|
Jonathan P.
Newton
|
|
|
|
400,000
|
36,000
|
-
|
-
|
21
The
future vesting dates of the above stock awards are:
|
Name
|
Number of Shares or
Units of Stock That Have Not Vested
|
Vesting
Date
|
|
Jun Ma,
PhD
|
1,000,000
|
6/1/2021
|
|
|
1,000,000
|
6/1/2022
|
|
|
1,000,000
|
6/1/2023
|
|
|
|
|
|
|
|
|
|
Jane
Moen
|
200,000
|
4/1/2021
|
|
|
200,000
|
4/1/2022
|
|
|
200,000
|
4/1/2023
|
|
|
200,000
|
4/1/2024
|
|
|
|
|
|
|
|
|
|
Jonathan P.
Newton
|
100,000
|
1/1/2021
|
|
|
100,000
|
1/1/2022
|
|
|
100,000
|
1/1/2023
|
|
|
100,000
|
1/1/2024
|
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.
On June
1, 2015, the Company entered into an Employment Agreement with Mr.
Peter Castle to be its Chief Operating Officer. The agreement
provides for a three-year term ending on June 1, 2018 and shall
extend for additional one-year periods annually commencing June 1,
2018, unless earlier terminated by the Company, but in no event can
extend beyond June 1, 2021. The Employment Agreement currently
provides for annual compensation of $350,000. Mr. Castle shall be
eligible to receive a bonus for each fiscal year thereafter during
the employment term. The amount and the occasion for payment of
such bonus, if any, shall be at the discretion of the Board of
Directors. Mr. Castle shall also be eligible for an award under any
long-term incentive compensation plan and grants of options and
awards of shares of the Company’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.
401(k) Plan
The
Company maintains a defined contribution plan to provide retirement
benefits for its employees - the Vaso Corporation 401(k) Plan
adopted in April 1997. As allowed under Section 401(k) of the
Internal Revenue Code, the plan provides tax-deferred salary
deductions for eligible employees. Employees are eligible to
participate in the next quarter enrollment period after employment
under the Vaso Corporation Plan. Participants may make voluntary
contributions to the plan up to 80% of their compensation under the
Vaso Corporation Plan. In the years ended December 31, 2020 and
2019 the Company made discretionary contributions of approximately
$114,000 and $118,000, respectively, to match a percentage of
employee contributions.
22
Director's Compensation
Non-employee
directors receive a fee of $2,500 for each Board of Directors and
Committee meeting attended. Committee chairs receive an annual fee
of $5,000. Non-employee directors also receive an annual fee of
$30,000. These fees have been paid in cash.
|
|
Fees Earned or
Paid in Cash
|
Stock
Awards
|
Option
Awards
|
Non-equity
Incentive Plan Compensation
|
Nonqualified
Deferred Compensation Earnings
|
All Other
Compensation (1)
|
Total
|
|
Name
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
|
David
Lieberman
|
40,000
|
-
|
-
|
-
|
-
|
22,961
|
62,961
|
|
Joshua
Markowitz
|
50,000
|
-
|
-
|
-
|
-
|
-
|
50,000
|
|
Behnam
Movaseghi
|
55,000
|
-
|
-
|
-
|
-
|
-
|
55,000
|
|
Edgar
Rios
|
55,000
|
-
|
-
|
-
|
-
|
-
|
55,000
|
(1)
Represents health
benefit premiums.
Compensation Committee Interlocks and Insider
Participation
During
the year ended December 31, 2020, the Compensation Committee
consisted of Joshua Markowitz, committee chair, and Behnam
Movaseghi. Neither of these persons were officers or employees of
the Company during the time they held positions on the committee,
or, except as otherwise disclosed, had any relationship requiring
disclosure herein.
I
TEM
12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The
following table sets forth the beneficial ownership of shares of
our common stock as of April 23, 2021 of (i) each person known by
us to beneficially own 5% or more of the shares of outstanding
common stock, based solely on filings with the SEC, (ii) each of
our executive officers and directors, and (iii) all of our
executive officers and directors as a group. Except as otherwise
indicated, all shares are beneficially owned, and investment and
voting power is held by the persons named as owners. To our
knowledge, except under community property laws or as otherwise
noted, the persons and entities named in the table have sole voting
and sole investment power over their shares of our common stock.
Unless otherwise indicated, each beneficial owner listed below
maintains a mailing address of c/o Vaso Corporation, 137 Commercial
Street, Plainview, New York 11803.
|
Name of
Beneficial Owner
|
Common Stock
Beneficially Owned (1)
|
% of Common
Stock (2)
|
|
Joshua
Markowitz ** (3) .
|
56,088,318
|
32.06%
|
|
Jun Ma,
PhD **
|
10,298,146
|
5.89%
|
|
Peter
Castle **
|
3,125,000
|
1.79%
|
|
Edgar
Rios ** ..
|
1,625,000
|
*
|
|
David
Lieberman **
|
1,599,200
|
*
|
|
Jane
Moen **…
|
1,438,421
|
*
|
|
Jonathan
Newton ** .
|
1,275,000
|
*
|
|
Michael
J. Beecher ** .
|
1,240,400
|
*
|
|
Behnam
Movaseghi ** .
|
1,189,404
|
*
|
|
|
|
|
|
**
Directors and executive officers as a group
|
|
|
|
(9
persons).….…...….…..…...….
|
77,878,889
|
44.52%
|
*Less
than 1% of the Company's common stock
(1)
No officer or
director owns more than one percent of the issued and outstanding
common stock of the Company unless otherwise
indicated.
(2)
Applicable
percentages are based on 174,936,212 shares of common stock
outstanding as of April 23, 2021, adjusted as required by rules
promulgated by the SEC.
(3)
Joshua Markowitz is
the record holder of 350,000 shares of our common stock.
Additionally, he has voting power and dispositive power over
55,738,318 shares of our common stock in his capacity as executor
of the estate of Simon Srybnik (the “Estate”),
comprised of the following: 25,714,286 shares of common stock owned
by Kerns Manufacturing, of which the Estate is the majority
shareholder; 17,815,007 shares of common stock owned by Living Data
Technology Corp, of which the Estate is the majority shareholder;
and 12,209,025 shares of common stock owned by the
Estate.
23
Equity Compensation Plan Information
We
maintain various stock plans under which stock options and stock
grants are awarded at the discretion of our Board of Directors or
its Compensation Committee. The purchase price of the shares under
the plans and the shares subject to each option granted is not less
than the fair market value on the date of the grant. The term of
each option is generally five years and is determined at the time
of the grant by our board of directors or the compensation
committee. The participants in these plans are officers, directors,
employees, and consultants of the Company and its subsidiaries and
affiliates.
|
Plan category
|
(a) Number of securities to be
issued upon exercise of outstanding options, warrants and
rights
|
(b) Weighted-average exercise price
of outstanding options, warrants and rights
|
(c) Number of securities remaining
available for future issuance under equity compensation plans
(excluding securities reflected in column (a))
|
|
|
|
|
|
|
Equity
Compensation
|
|
|
|
|
plans approved
by
|
|
|
|
|
security
holders
|
-
|
$
0.00
|
-
|
|
|
|
|
|
|
Equity
Compensation
|
|
|
|
|
plans not
approved
|
|
|
|
|
by security holders
(1)
|
191,666
|
$
0.00
|
11,005,580
|
|
|
|
|
|
|
Total
|
191,666
|
|
11,005,580
|
(1)
Includes 25,000 and 166,666 shares of restricted
common stock granted, but unissued, under the 2013 Plan and 2016
Plan, respectively. The exercise price for the stock grants is
zero. 805,580 shares, 1,700,000 shares, and 8,500,000 shares remain
available for future grants under the 2013 Plan, 2016 Plan, and
2019 Plan, respectively
.
See
Note Q to the Consolidated Financial Statements for description of
the material features of our current stock plans not approved by
stockholders.
One of
the Company’s officers, Peter Castle, was the Chief Executive
Officer and President of NetWolves Network Services, LLC, which we
acquired in May 2015. One of the Company’s directors, David
Lieberman, was a director of NetWolves Network Services, LLC. Of
the $18,000,000 purchase price paid for the acquisition,
$14,200,000 was from the Company’s cash on hand and the
remaining $3,800,000 was raised from the sale of a Subordinated
Secured Note to MedTechnology Investments, LLC
(“MedTech”).
On May
29, 2015, the Company entered into a Note Purchase Agreement with
MedTech pursuant to which it issued MedTech a secured subordinated
promissory note (“Note”) for $3,800,000 for the
purchase of NetWolves. In June 2015, a second Note for $750,000 was
issued to MedTech for working capital purposes; in July 2015, an
additional $250,000 was borrowed under the Note Purchase Agreement.
MedTech was formed to acquire the Notes, and of the total
$4,800,000 Notes it acquired, $2,200,000 was provided by our
directors and officers and a relative of a director.
24
The
Notes bear interest at an annual rate of 6%, mature on June 30,
2022 (see Note U), may be prepaid without penalty, and are
subordinated to any current or future Senior Debt as defined in the
Subordinated Security Agreement. The Subordinated Security
Agreement secures payment and performance of the Company’s
obligations under the Notes and as a result, MedTech was granted a
subordinated security interest in the Company’s assets. As
set forth in the following table, three directors and an officer of
the Company provided funds in excess of $120,000 through Medtech
during 2015. Principal and interest payments for the year ended
December 31, 2020 and amounts payable at December 31, 2020 to these
four parties are as indicated in the table below:
|
|
Principal Paid
|
Principal
Outstanding
|
Interest Paid
|
Interest Payable
|
|
Peter C.
Castle
|
$
187,500
|
$
562,500
|
$
55,438
|
$
8,625
|
|
David
Lieberman
|
$
175,000
|
$
525,000
|
$
51,742
|
$
8,050
|
|
Jun Ma,
PhD
|
$
75,000
|
$
225,000
|
$
22,175
|
$
3,450
|
|
Edgar
Rios
|
$
62,500
|
$
187,500
|
$
18,479
|
$
2,875
|
In
2020, the Company extended the maturity date of notes issued in
2019 to a director and an officer in excess of $120,000. Principal
and interest payments for the year ended December 31, 2020 and
amounts payable at December 31, 2020 to these two parties are as
indicated in the table below:
|
|
Principal Paid
|
Principal
Outstanding
|
Interest Paid
|
Interest Payable
|
|
Edgar
Rios
|
$
300,000
|
$
-
|
$
17,496
|
$
-
|
|
Peter C.
Castle
|
$
250,000
|
$
-
|
$
18,671
|
$
-
|
David
Lieberman, a practicing attorney in the State of New York, serves
as Vice Chairman of the Board of Directors. He is currently a
senior partner at the law firm of Beckman Lieberman and Associates,
LLP, which performs certain legal services for the Company. Fees of
approximately $227,000 were billed by the firm for the year ended
December 31, 2020 at which date no amount was
outstanding.
Director Independence
We have
adopted the NASDAQ Stock Market’s standards for determining
the independence of directors. Under these standards, an
independent director means a person other than an executive officer
or one of our employees or any other individual having a
relationship which, in the opinion of the Board of Directors, would
interfere with the exercise of independent judgment in carrying out
the responsibilities of a director. In addition, the following
persons shall not be considered independent:
●
a director who is,
or at any time during the past three years was, employed by
us;
●
a director who
accepted or who has a family member who accepted any compensation
from us in excess of $100,000 during any period of twelve
consecutive months within the three years preceding the
determination of independence, other than the
following:
o
compensation for
service on the Board of Directors or any committee
thereof;
o
compensation paid
to a family member who is one of our employees (other than an
executive officer); or
o
under a
tax-qualified retirement plan, or non-discretionary
compensation;
●
a director who is a
family member of an individual who is, or at any time during the
past three years was, employed by us as an executive
officer;
●
a director who is,
or has a family member who is, a partner in, or a controlling
stockholder or an executive officer of, any organization to which
we made, or from which we received, payments for property or
services in the current or any of the past three fiscal years that
exceed 5% of the recipient's consolidated gross revenues for that
year, or $200,000, whichever is more, other than the
following:
o
payments arising
solely from investments in our securities; or
o
payments under
non-discretionary charitable contribution matching
programs;
●
a director who is,
or has a family member who is, employed as an executive officer of
another entity where at any time during the past three years any of
our executive officers served on the compensation committee of such
other entity; or
●
a director who is,
or has a family member who is, a current partner of our outside
auditor, or was a partner or employee of our outside auditor who
worked on our audit at any time during any of the past three
years.
25
For
purposes of the NASDAQ independence standards, the term
“family member” means a person's spouse, parents,
children and siblings, whether by blood, marriage or adoption, or
anyone residing in such person's home.
The
Board of Directors has assessed the independence of each
non-employee director under the independence standards of the
NASDAQ Stock Market set forth above, and has affirmatively
determined that three of our non-employee directors (Mr. Rios, Mr.
Markowitz and Mr. Movaseghi) are independent.
We
expect each director to attend every meeting of the Board and the
committees on which he serves as well as the annual meeting. In the
year ended December 31, 2020, all directors attended both the
annual meeting and at least 75% of the meetings of the Board and
the committees on which they served.
MaloneBailey, LLP,
as our current independent registered public accounting firm,
performed the audits of our consolidated financial statements for
the years ended December 31, 2020 and 2019, respectively. The
following table sets forth all fees for such periods:
|
|
2020
|
2019
|
|
Audit
fees
|
$
260,000
|
$
202,472
|
|
Tax
fees
|
-
|
-
|
|
All other
fees
|
-
|
-
|
|
|
|
|
|
Total
|
$
260,000
|
$
202,472
|
The
Audit Committee has adopted a policy that requires advance approval
of all audit, audit-related, tax services, and other services
performed by the Company’s independent auditor. Accordingly,
the Audit Committee must approve the permitted service before the
independent auditor is engaged to perform it. In accordance with
such policies, the Audit Committee approved 100% of the services
relative to the above fees.
26
Financial Statements and Financial Statement Schedules
(1)
See Index to
Consolidated Financial Statements on page F-1 at beginning of
attached financial statements.
(a)
Exhibits
(3)(i)
(a)
Restated
Certificate of Incorporation (2)
(b)
Certificate of
Designations of Preferences and Rights of Series E Convertible
Preferred Stock (3)
(c)
Certificate of
Amendment to Certificate of Incorporation (11)
(3)(ii)
By-Laws (1)
(4)
(a)
Specimen
Certificate for Common Stock (1)
(b)
Specimen
Certificate for Series E Convertible Preferred Stock
(5)
(c)
Secured
Subordinated Note, dated as of May 29, 2015, between Vasomedical,
Inc. and MedTechnology Investments LLC(9)
(10)
(a)
Form of Stock Purchase Agreement (3)
(b)
Redacted Sales
Representative Agreement between GE Healthcare Division of General
Electric Company and Vaso Diagnostics, Inc. d/b/a VasoHealthcare, a
subsidiary of Vasomedical, Inc. dated as of May 19, 2010
(4).
(c)
2010 Stock Plan
(5).
(d)
Employment
Agreement entered into as of March 21, 2011 between Vasomedical,
Inc. and Jun Ma, as amended. (8)
(e)
Stock Purchase
Agreement dated as of August 19, 2011 among Vasomedical, Inc., Fast
Growth Enterprises Limited (FGE) and the FGE Shareholders
(6)
(f)
Amendment to Sales
Representative Agreement between GE Healthcare Division of General
Electric Company and Vaso Diagnostics, Inc. d/b/a VasoHealthcare, a
subsidiary of Vasomedical, Inc. dated as of June 20, 2012
(7)
(g)
2013 Stock Plan
(12)
(h)
Asset Purchase and
Sale Agreement, dated as of May 29, 2015, by and among Vasomedical,
Inc., VasoTechnology, Inc., NetWolves, LLC and NetWolves
Corporation (9)
(i)
Subordinated
Security Agreement dated as of May 29, 2015 by and between
Vasomedical, Inc. and MedTechnology Investments LLC
(9)
(j)
Employment
Agreement dated as of June 1, 2015 between Vasomedical, Inc. and
Peter C. Castle (10)
(k)
2016 Stock Plan
(13)
(l)
2019 Stock Plan
(14)
(21) Subsidiaries
of the Registrant
|
Name
|
State of
Incorporation
|
Percentage Owned by
Company
|
|
Vaso Diagnostics,
Inc.
|
New
York
|
100%
|
|
VasoMedical,
Inc.
|
Delaware
|
100%
|
|
Vasomedical Global
Corp.
|
New
York
|
100%
|
|
Vasomedical
Solutions, Inc.
|
New
York
|
100%
|
|
VasoHealthcare IT
Corp.
|
Delaware
|
100%
|
|
VasoTechnology,
Inc.
|
Delaware
|
100%
|
|
NetWolves Network
Services LLC
|
Florida
|
100%
|
|
EECP Global
Corporation
|
New
York
|
49%
|
|
Fast Growth
Enterprises Limited
|
British Virgin
Islands
|
100%
|
(31)
Certification
Reports pursuant to Securities Exchange Act Rule 13a -
14
(32)
Certification Reports pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
__________________________
(1)
Incorporated by
reference to Registration Statement on Form S-18, No.
33-24095.
(2)
Incorporated by
reference to Registration Statement on Form S-1, No. 33-46377
(effective 7/12/94).
(3)
Incorporated by
reference to Report on Form 8-K dated June 21, 2010.
(4)
Incorporated by
reference to Report on Form 8-K/A dated May 19, 2010 and filed
November 9, 2010.
(5)
Incorporated by
reference to Report on Form 10-K for the fiscal year ended May 31,
2010.
(6)
Incorporated by
reference to Report on Form 10-K for the fiscal year ended May 31,
2011.
(7)
Incorporated by
reference to Report on Form 8-K dated June 20, 2012.
(8)
Incorporated by
reference to Report on Form 8-K dated March 21, 2011.
(9)
Incorporated by
reference to Report on Form 8-K dated May 29, 2015.
(10)
Incorporated by
reference to Report on Form 8-K dated October 8, 2015.
(11)
Incorporated by
reference to Report on Form 10-Q for the quarter ended September
30, 2016.
(12)
Incorporated by
reference to Report on Form 10-Q for the quarter ended September
30, 2013.
(13)
Incorporated by
reference to Report on Form 10-Q for the quarter ended June 30,
2016.
(14)
Incorporated by
reference to Report on Form 10-K for the year ended December 31,
2019.
27
S
IGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, we have duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 4
th
day of May
2021.
|
|
VASO
CORPORATION
|
|
|
|
|
|
|
|
|
Date
|
By:
|
/s/
Jun Ma
|
|
|
|
|
Jun Ma |
|
|
|
|
President, Chief
Executive Officer,
and Director
(Principal Executive Officer)
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on May 4, 2021, by the following
persons in the capacities indicated:
|
/s/ Jun
Ma
|
President, Chief
Executive Officer
and Director
(Principal Executive Officer)
|
|
Jun Ma
|
|
|
|
|
|
/s/
Michael Beecher
|
Chief Financial Officer (Principal Financial Officer) |
|
Michael
Beecher
|
|
|
|
|
|
/s/
Joshua Markowitz
|
Chairman of the
Board
|
|
Joshua
Markowitz
|
|
|
|
|
|
/s/
David Lieberman
|
Vice Chairman of
the Board
|
|
David
Lieberman
|
|
|
|
|
|
/s/ Jane Moen
|
Director
|
|
Jane
Moen
|
|
|
|
|
|
/s/ Edgar
Rios
|
Director
|
|
Edgar
Rios
|
|
|
|
|
|
/s/ Behnam
Movaseghi
|
Director
|
|
Behnam
Movaseghi
|
|
28
Vaso
Corporation and Subsidiaries
I
NDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
For the
years ended December 31, 2020 and 2019
|
|
Page
|
|
Report of
Independent Registered Public Accounting Firm
|
F-2
|
|
Financial
Statements
|
|
|
Consolidated Balance Sheets as of December 31, 2020 and
2019
|
F-3
|
|
Consolidated Statements of Operations and Comprehensive Income
(Loss)
|
F-4
|
|
for the years ended December 31, 2020 and
2019
|
|
|
Consolidated Statements of Changes in Stockholders’
Equity
|
F-5
|
|
for the years ended December 31, 2020 and
2019
|
|
|
Consolidated Statements of Cash Flows
|
F-6
|
|
for the years ended December 31, 2020 and
2019
|
|
|
Notes to Consolidated Financial Statements
|
F-7-F-33
|
F-1
R
EPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Stockholders and Board of Directors of
Vaso
Corporation
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of Vaso
Corporation and its subsidiaries (collectively, the
“Company”) as of December 31, 2020 and 2019, and the
related consolidated statements of operations, stockholders’
equity, and cash flows for the years then ended, and the related
notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2020 and 2019, and the results of
their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express
no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The
critical audit matters communicated below are matters arising from
the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
Revenue recognized from commission sales with General Electric
Healthcare (GEHC)
Description of the Matter
As
discussed in Notes A and C to the consolidated financial
statements, the Company, through its wholly-owned subsidiary
VasoHealthcare (VHC), was appointed the exclusive representative
for the sale of GEHC diagnostics imaging equipment to specific
market segments and recognized commission revenue when the
underlying equipment/services have been delivered/completed by
GEHC. VHC has a total commission revenue of $22,865 (in thousands)
for the year ended December 31, 2020, and 100% of it is with
GEHC.
F-2
We
identified the testing of commission revenue generated from GEHC as
a critical audit matter. Specifically, the commission revenue is
calculated through complicated formula including order data from
various files obtained from GEHC monthly and is stored in a excel
file and based on the one master agreement and various subsequent
amendments between GEHC and the Company. The audit of the excel
file requires significant efforts from auditors due to the volume
of data, the size of the file, and the complexity of the formulas
inside of the file.
How We Addressed the Matter in Our Audit
During
the audit, we obtained an understanding of the design and
implementation of the internal control over the revenue recognition
process including certain general computer controls, applications
controls and monitor controls and tested access control of the
master excel worksheet. For selected orders based on our judgment,
we inspected the Company’s master file, traced the data
source to the various files that are further directly confirmed
with GEHC, tested the formula for its accuracy and reasonableness
and agreed the commission rates and incentives to the agreements
between GEHC and further confirmed with GEHC on the incentives as
to which sales region achieved the incentive target.
/s/
Malone Bailey LLP
www.malonebaily.com
We have
served as the Company’s auditor since June 2019.
Houston,
Texas
May 4,
2021
F-3
V
aso Corporation and Subsidiaries
(in thousands, except share and per share data)
|
|
December
31,
2020
|
December
31,
2019
|
|
|
|
|
|
ASSETS
|
|
|
|
CURRENT
ASSETS
|
|
|
|
Cash
and cash equivalents
|
$
6,819
|
$
2,124
|
|
Short-term
investments
|
766
|
-
|
|
Accounts
and other receivables, net of an allowance for
doubtful
|
|
|
|
accounts
and commission adjustments of $4,208 at December 31,
2020
|
|
|
|
and
$4,285 at December 31, 2019
|
9,776
|
15,852
|
|
Receivables
due from related parties
|
18
|
18
|
|
Inventories
|
1,384
|
1,941
|
|
Deferred
commission expense
|
2,354
|
2,785
|
|
Prepaid
expenses and other current assets
|
1,151
|
1,339
|
|
Total
current assets
|
22,268
|
24,059
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net of accumulated depreciation of
|
|
|
|
$8,833
at December 31, 2020 and $7,560 at December 31, 2019
|
3,885
|
4,954
|
|
OPERATING
LEASE RIGHT OF USE ASSETS
|
1,009
|
870
|
|
GOODWILL
|
15,688
|
17,271
|
|
INTANGIBLES,
net
|
3,949
|
4,301
|
|
OTHER
ASSETS, net
|
2,190
|
2,586
|
|
INVESTMENT
IN EECP GLOBAL
|
1,116
|
-
|
|
DEFERRED
TAX ASSETS, net
|
271
|
323
|
|
Total
assets
|
$
50,376
|
$
54,364
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
Accounts
payable
|
$
6,285
|
$
7,654
|
|
Accrued
commissions
|
1,474
|
2,102
|
|
Accrued
expenses and other liabilities
|
4,867
|
5,344
|
|
Finance
lease liabilities - current
|
190
|
170
|
|
Operating
lease liabilities - current
|
540
|
549
|
|
Sales
tax payable
|
621
|
887
|
|
Deferred
revenue - current portion
|
11,516
|
12,345
|
|
Notes
payable - current portion
|
5,970
|
2,700
|
|
Notes
payable - related parties - current portion
|
-
|
1,233
|
|
Due
to related party
|
236
|
19
|
|
Total
current liabilities
|
31,699
|
33,003
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
Notes
payable, net of current portion
|
5,779
|
8,121
|
|
Notes
payable - related parties, net of current portion
|
-
|
20
|
|
Finance
lease liabilities, net of current portion
|
246
|
437
|
|
Operating
lease liabilities, net of current portion
|
469
|
321
|
|
Deferred
revenue, net of current portion
|
6,188
|
6,998
|
|
Deferred
tax liability
|
-
|
124
|
|
Other
long-term liabilities
|
910
|
1,026
|
|
Total
long-term liabilities
|
13,592
|
17,047
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES (NOTE S)
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
Preferred
stock, $.01 par value; 1,000,000 shares authorized; nil
shares
|
|
|
|
issued
and outstanding at December 31, 2020 and December 31,
2019
|
-
|
-
|
|
Common
stock, $.001 par value; 250,000,000 shares authorized;
|
|
|
|
185,244,299
and 183,744,376 shares issued at December 31, 2020 and December 31,
2019;
|
|
|
|
174,936,212
and 173,436,289 shares outstanding at December 31, 2020 and
December 31, 2019
|
185
|
184
|
|
Additional
paid-in capital
|
63,886
|
63,803
|
|
Accumulated
deficit
|
(57,002
)
|
(57,360
)
|
|
Accumulated
other comprehensive income (loss)
|
16
|
(313
)
|
|
Treasury
stock, at cost, 10,308,087 shares at December 31, 2020 and December
31, 2019
|
(2,000
)
|
(2,000
)
|
|
Total
stockholders’ equity
|
5,085
|
4,314
|
|
|
$
50,376
|
$
54,364
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
V
aso Corporation and Subsidiaries
(in thousands, except per share data)
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2020
|
2019
|
|
Revenues
|
|
|
|
Managed
IT systems and services
|
$
43,894
|
$
45,505
|
|
Professional
sales services
|
22,865
|
26,208
|
|
Equipment
sales and services
|
3,091
|
3,802
|
|
Total
revenues
|
69,850
|
75,515
|
|
|
|
|
|
Cost
of revenues
|
|
|
|
Cost
of managed IT systems and services
|
26,212
|
26,715
|
|
Cost
of professional sales services
|
4,257
|
4,921
|
|
Cost
of equipment sales and services
|
810
|
1,447
|
|
Total
cost of revenues
|
31,279
|
33,083
|
|
Gross
profit
|
38,571
|
42,432
|
|
|
|
|
|
Operating
expenses
|
|
|
|
Selling,
general and administrative
|
37,054
|
41,028
|
|
Research
and development
|
745
|
813
|
|
Total
operating expenses
|
37,799
|
41,841
|
|
Operating
income
|
772
|
591
|
|
|
|
|
|
Other
(expense) income
|
|
|
|
Interest
and financing costs
|
(701
)
|
(993
)
|
|
Interest
and other income, net
|
176
|
131
|
|
Gain
on sale of equity in EECP Global
|
110
|
-
|
|
Total
other (expense) income, net
|
(415
)
|
(862
)
|
|
|
|
|
|
Income
(loss) before income taxes
|
357
|
(271
)
|
|
Income
tax benefit (expense)
|
1
|
(111
)
|
|
Net
income (loss)
|
358
|
(382
)
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
Foreign
currency translation gain
|
142
|
2
|
|
Comprehensive
income (loss)
|
$
500
|
$
(380
)
|
|
|
|
|
|
Earnings
(loss) per common share
|
|
|
|
-
basic
|
$
0.00
|
$
(0.00
)
|
|
-
diluted
|
$
0.00
|
$
(0.00
)
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
-
basic
|
169,932
|
167,843
|
|
-
diluted
|
170,846
|
167,843
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
V
aso Corporation and Subsidiaries
(in thousands)
|
|
Common
Stock
|
Treasury
Stock
|
Additional
|
|
Accumulated
Other
|
Total
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Paid-in-Capital
|
Accumulated
Deficit
|
Comprehensive
Loss
|
Stockholders’
Equity
|
|
Balance at January 1, 2019
|
177,417
|
$
178
|
(10,308
)
|
(2,000
)
|
$
63,672
|
$
(56,978
)
|
$
(315
)
|
$
4,557
|
|
Share-based compensation
|
6,327
|
6
|
-
|
-
|
135
|
-
|
-
|
141
|
|
Shares withheld for employee tax liability
|
-
|
-
|
-
|
-
|
(4
)
|
-
|
-
|
(4
)
|
|
Foreign currency translation gain
|
-
|
-
|
-
|
-
|
-
|
-
|
2
|
2
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(382
)
|
|
(382
)
|
|
Balance at December 31, 2019
|
183,744
|
$
184
|
(10,308
)
|
$
(2,000
)
|
$
63,803
|
$
(57,360
)
|
$
(313
)
|
$
4,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2020
|
183,744
|
$
184
|
(10,308
)
|
(2,000
)
|
$
63,803
|
$
(57,360
)
|
$
(313
)
|
$
4,314
|
|
Share-based compensation
|
1,500
|
1
|
-
|
-
|
87
|
-
|
-
|
88
|
|
Shares withheld for employee tax liability
|
-
|
-
|
-
|
-
|
(4
)
|
-
|
-
|
(4
)
|
|
Reclassify accumulated translation loss (see Note N)
|
-
|
-
|
-
|
-
|
-
|
-
|
187
|
187
|
|
Foreign currency translation gain
|
-
|
-
|
-
|
-
|
-
|
-
|
142
|
142
|
|
Net income
|
-
|
-
|
-
|
-
|
-
|
358
|
-
|
358
|
|
Balance at December 31, 2020
|
185,244
|
$
185
|
(10,308
)
|
$
(2,000
)
|
$
63,886
|
$
(57,002
)
|
$
16
|
$
5,085
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
V
aso Corporation and Subsidiaries
(in thousands)
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2020
|
2019
|
|
Cash flows
from operating activities
|
|
|
|
Net income
(loss)
|
$
358
|
$
(382
)
|
|
Adjustments to
reconcile net income (loss) to net
|
|
|
|
cash
provided by (used in) operating activities
|
|
|
|
Depreciation
and amortization
|
2,462
|
2,681
|
|
Deferred
income taxes
|
(73
)
|
52
|
|
Gain from
investment in EECP Global
|
(11
)
|
-
|
|
Gain on sale
of equity in EECP Global
|
(110
)
|
-
|
|
Provision for
doubtful accounts and commission adjustments
|
663
|
507
|
|
Amortization
of debt issue costs
|
-
|
14
|
|
Share-based
compensation
|
88
|
141
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Accounts and
other receivables
|
5,050
|
(5,301
)
|
|
Due from
related parties
|
55
|
10
|
|
Inventories
|
6
|
31
|
|
Deferred
commission expense
|
407
|
(200
)
|
|
Prepaid
expenses and other current assets
|
193
|
(450
)
|
|
Other assets,
net
|
350
|
449
|
|
Accounts
payable
|
(1,369
)
|
316
|
|
Accrued
commissions
|
(791
)
|
(56
)
|
|
Accrued
expenses and other liabilities
|
(333
)
|
(261
)
|
|
Sales tax
payable
|
(243
)
|
(131
)
|
|
Deferred
revenue
|
(870
)
|
1,258
|
|
Due to related
party
|
218
|
-
|
|
Other
long-term liabilities
|
(116
)
|
(11
)
|
|
Net cash
provided by (used in) operating activities
|
5,934
|
(1,333
)
|
|
|
|
|
|
Cash flows
from investing activities
|
|
|
|
Purchases of equipment
and software
|
(1,000
)
|
(1,205
)
|
|
Sale of fixed
assets
|
-
|
22
|
|
Purchases of
short-term investments
|
(725
)
|
-
|
|
Proceeds from
sale of equity in EECP Global
|
1,150
|
-
|
|
Net cash used
in investing activities
|
(575
)
|
(1,183
)
|
|
|
|
|
|
Cash flows
from financing activities
|
|
|
|
Net
(repayment) borrowings on revolving lines of
credit
|
(1,375
)
|
1,550
|
|
Proceeds from
note payable
|
3,756
|
-
|
|
Payroll taxes
paid by withholding shares
|
(4
)
|
(4
)
|
|
Repayment of
notes payable and finance lease obligations
|
(1,674
)
|
(367
)
|
|
Proceeds from
notes payable
|
-
|
300
|
|
Proceeds from
notes payable - related parties
|
-
|
930
|
|
Repayment of
notes payable - related parties
|
(1,256
)
|
(500
)
|
|
Net cash (used
in) provided by financing activities
|
(553
)
|
1,909
|
|
Effect of
exchange rate differences on cash and cash
equivalents
|
(111
)
|
63
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
|
4,695
|
(544
)
|
|
Cash and cash
equivalents - beginning of period
|
2,124
|
2,668
|
|
Cash and cash
equivalents - end of period
|
$
6,819
|
$
2,124
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
|
|
|
|
Interest
paid
|
$
702
|
$
784
|
|
Income taxes
paid
|
$
70
|
$
62
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
|
|
|
|
Initial
recognition of operating lease right of use asset and
liability
|
$
791
|
$
1,107
|
|
Equipment
acquired through note payable
|
$
42
|
$
-
|
|
Equipment
acquired through finance lease
|
$
-
|
$
229
|
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
O CONSOLIDATED FINANCIAL STATEMENTS
N
OTE A – DESCRIPTION OF BUSINESS
Vaso Corporation was incorporated in Delaware in
July 1987.
For most of its history, the Company was a
single-product company designing, manufacturing, marketing and
servicing its proprietary Enhanced External Counterpulsation, or
EECP
®
,
therapy systems, mainly for the treatment of angina. In 2010 it
began to diversify its business operations. The Company changed its
name to Vaso Corporation in 2016 to more accurately reflect the
diversified nature of its business mixture, and continues to use
the original name VasoMedical for its proprietary medical device
subsidiary.
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 equipment and information technology
industries. We manage and evaluate our operations, and report our
financial results, through these three business
segments.
●
IT segment,
operating through a wholly-owned subsidiary VasoTechnology, Inc.,
primarily focuses on healthcare IT and managed network technology
services;
●
Professional sales
service segment, operating through a wholly-owned subsidiary Vaso
Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the
sale of healthcare capital equipment for General Electric
Healthcare (“GEHC”) into the health provider middle
market; and
●
Equipment segment,
primarily focuses on the design, manufacture, sale and service of
proprietary medical devices, operating through a wholly-owned
subsidiary VasoMedical, Inc., which in turn operates through
Vasomedical Solutions, Inc. for domestic business and Vasomedical
Global Corp. for international business, respectively.
VasoTechnology
VasoTechnology,
Inc.
was formed in May
2015, at the time the Company acquired
all of the assets of NetWolves, LLC and its
affiliates, including the membership interests in NetWolves Network
Services, LLC (collectively, “NetWolves”)
. It
currently consists of a managed network and security service
division, NetWolves, and a healthcare IT application VAR (value
added reseller) division, VasoHealthcare IT.
In June
2014, the Company began its IT segment business by executing the
Value Added Reseller Agreement (“VAR Agreement”) with
GEHC
to become a national value added
reseller of GEHC Digital’s software solutions such as Picture
Archiving and Communication System (“PACS”), Radiology
Information System (“RIS”), and related services,
including implementation, training, management and support. This
business focuses primarily on customer segments currently served by
VasoHealthcare on behalf of GEHC. A new wholly owned subsidiary,
VasoHealthcare IT Corp. (“VHC IT”), was formed to
conduct the healthcare IT business.
In
May 2015, the Company further expanded its IT segment business by
acquiring NetWolves. NetWolves designs and delivers multi-network
and multi-technology solutions as a managed network provider, and
provides a complete single-source solution that includes design,
network redundancy, application device management, real-time
network monitoring, reporting and support systems as a
comprehensive solution.
VasoHealthcare
In May
2010, the Company launched its Professional Sales Service business
through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a
VasoHealthcare, which was appointed the exclusive representative
for the sale of select GEHC diagnostic imaging equipment to
specific market segments in the 48 contiguous states of the United
States and the District of Columbia. The original agreement
(“GEHC Agreement”) has been extended several times and
currently expires
December 31, 2022,
subject to earlier termination
.
F-8
VasoMedical
The
proprietary medical equipment business under VasoMedical traces
back to 1995 when the Company began the proprietary Enhanced
External Counterpulsation (EECP
®
) technology in
the United States and has since diversified to include other
medical hardware and software. Vasomedical Global was formed in
2011 to combine and coordinate the various international operations
including design, development, manufacturing, and sales of medical
devices, while domestic activities are under Vasomedical
Solutions.
Over
the last decade the Company’s Equipment business has been
significantly expanded from the original EECP
®
-only
operations. In September 2011, the Company acquired FGE, a British
Virgin Islands company, which owned or controlled two Chinese
operating companies - Life Enhancement Technology Ltd.
(“LET”) based in Foshan, China, and Biox Instruments
Co. Ltd. (“Biox”) based in Wuxi, China, respectively -
to expand its technical and manufacturing capabilities and to
enhance its distribution network, technology, and product
portfolio. Biox was a variable interest entity (“VIE”)
controlled by FGE through certain contracts and an option to
acquire all the shares of Biox by FGE’s wholly owned
subsidiary Gentone, and in March 2019 Gentone exercised its option
to acquire all of the shares of Biox.
In August 2014, the Company through Gentone
acquired all of the outstanding shares of Genwell Instruments Co.
Ltd. (“Genwell”), located in Wuxi, China. Genwell was
formed in China in 2010 with the assistance of a local government
grant to develop the MobiCare™ wireless multi-parameter
patient monitoring system and holds intellectual property rights
for this system.
As a result, the Company has now expanded
its equipment products portfolio to include Biox™ series
ambulatory patient monitoring systems, ARCS™ series software
for ECG and blood pressure analysis, and the MobiCare™
patient monitoring device.
In
April 2014, the Company entered into a cooperation agreement with
Chongqing PSK-Health Sci-Tech Development Co., Ltd.
(“PSK”) of Chongqing, China, the leading manufacturer
of external counter pulsation, or ECP, therapy systems in China, to
form a joint venture company, VSK Medical Limited
(“VSK”), a Cayman Islands company, for the global
marketing, sale and advancement of ECP therapy technology. The
Company owned 49.9% of VSK, which commenced operations in January
2015. In March 2018, the Company terminated the cooperation
agreement with PSK and sold its shares in VSK to PSK. On May 20,
2020, the Company closed on the sale of 51% of the capital stock of
its wholly-owned subsidiary EECP Global Corporation (“EECP
Global”) to PSK for $1,150,000. EECP Global was formed in
September 2019 to hold all the assets and liabilities of its EECP
business. Concurrently with the closing of the transaction, the
Company signed a three-year Management Service Agreement with EECP
Global to provide management service for the business and operation
of EECP Global in the United States. Pursuant to the agreement,
EECP Global reimburses the Company all direct expenses and pays a
management fee starting April 1, 2020, the effective date of the
sale.
NOTE B
– REVISIONS
The
income statement, balance sheet and changes in stockholders’
equity for the year ended December 31, 2019 have been corrected for
immaterial errors as a result of what we believe to be the
misappropriation of funds by a mid-level management employee, who
was not an officer or director of the Company. The correction
includes $190 thousand in additional SG&A expense in the year
ended December 31, 2019 and a beginning balance addition of total
$907 thousand to accumulated deficit at January 1, 2019, of which
$333 thousand represents a charge as of the May 2015 acquisition
date of the subsidiary affected. The effect on net income (loss)
for each of the years ended December 31, 2015 through December 31,
2018 is not material. The individual was suspended on March 29,
2021 and was terminated effective April 1, 2021. Upon additional
examination and comprehensive review, the Company believes that
this was an isolated incident and non-recurring. The Company has
taken immediate steps to implement additional internal control
procedures. See also Item 9A – Controls and
Procedures.
In addition, the
Company noted accounting errors in our IT segment where certain
regulatory fees billed to our customers during the years 2016
through 2019 were partially recorded as revenue. Correction of such
errors resulted in a $147 thousand addition to accumulated deficit
at January 1, 2019 and the reversal of $231 thousand in revenue in
the year ended December 31, 2019.
F-9
The
Company assessed the materiality of these misstatements on prior
periods’ financial statements in accordance with SEC Staff
Accounting Bulletin ("SAB") No. 99, Materiality, codified in ASC
250 ("ASC250"), Presentation of Financial Statements, and concluded
that these misstatements were not material to any prior annual or
interim periods. Accordingly, in accordance with ASC 250 (SAB No.
108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements),
the Consolidated Financial Statements as of December 31, 2019, and
the year then ended, which are presented herein, have been revised.
The following are selected line items from the Company's
Consolidated Financial Statements illustrating the effect of these
corrections:
|
|
Consolidated Statement of Operations and Comprehensive Income
(Loss)
|
||
|
|
Year ended December 31,
2019
|
||
|
(in thousands, except per share data)
|
As
Reported
|
Adjustment
|
As
Revised
|
|
Revenues
|
|
|
|
|
Managed
IT systems and services
|
$
45,736
|
$
(231
)
|
$
45,505
|
|
|
|
|
|
|
Gross
Profit
|
42,663
|
(231
)
|
42,432
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
Selling,
general and administrative
|
40,838
|
190
|
41,028
|
|
Operating
income
|
$
1,012
|
$
(421
)
|
$
591
|
|
|
|
|
|
|
Net
income (loss)
|
$
39
|
$
(421
)
|
$
(382
)
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
$
41
|
$
(421
)
|
$
(380
)
|
|
|
|
|
|
|
Earnings
(loss) per common share
|
|
|
|
|
-
basic
|
$
0.00
|
$
(0.00
)
|
$
(0.00
)
|
|
-
diluted
|
$
0.00
|
$
(0.00
)
|
$
(0.00
)
|
|
|
Consolidated
Balance Sheet
|
||
|
|
As of December 31,
2019
|
||
|
(in thousands)
|
As
Reported
|
Adjustment
|
As
Revised
|
|
Accounts
payable
|
$
6,179
|
$
1,475
|
$
7,654
|
|
Accumulated
deficit
|
$
(55,885
)
|
$
(1,475
)
|
$
(57,360
)
|
|
|
Consolidated
Statement of Cash Flows
|
||
|
|
Year ended December
31, 2019
|
||
|
(in thousands)
|
As
Reported
|
Adjustment
|
As
Revised
|
|
Net
income (loss)
|
$
39
|
$
(421
)
|
$
(382
)
|
|
Accounts
payable
|
$
(105
)
|
$
421
|
$
316
|
|
|
Consolidated
Statement of Changes in Stockholders' Equity
|
|||||
|
|
Accumulated
Deficit
|
Total Shareholders'
Equity
|
||||
|
(in thousands)
|
As
Reported
|
Adjustment
|
As
Revised
|
As
Reported
|
Adjustment
|
As
Revised
|
|
Balance at January 1, 2019
|
$
(55,924
)
|
$
(1,054
)
|
$
(56,978
)
|
$
5,611
|
$
(1,054
)
|
$
4,557
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
39
|
$
(421
)
|
$
(382
)
|
$
39
|
$
(421
)
|
$
(382
)
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2019
|
$
(55,885
)
|
$
(1,475
)
|
$
(57,360
)
|
$
5,789
|
$
(1,475
)
|
$
4,314
|
F-10
NOTE C
- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A
summary of the significant accounting policies consistently applied
in the preparation of the consolidated financial statements are as
follows:
Principles of Consolidation
The
consolidated financial statements include the accounts of Vaso
Corporation, its wholly-owned subsidiaries, and the accounts of the
companies over which we exercise control. Significant intercompany
balances and transactions have been eliminated.
Use of Estimates
The
preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of
America (“U.S. GAAP”) requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes.
Significant estimates and assumptions relate to estimates of
collectibility of accounts receivable, the realizability of
deferred tax assets, stock-based compensation, values and lives
assigned to acquired intangible assets, fair value of reporting
units in connection with goodwill impairment test, the adequacy of
inventory reserves, variable consideration, and allocation of
contract transaction price to performance obligations. Actual
results could differ from those estimates.
Revenue Recognition
In May
2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers (Topic 606). Under the standard, revenue is recognized
when a customer obtains control of promised goods or services in an
amount that reflects the consideration the entity expects to
receive in exchange for those goods or services. ASU 2014-09
replaced most existing revenue recognition guidance in U.S. GAAP.
The new standard introduces a five-step process to be followed in
determining the amount and timing of revenue recognition. It also
provides guidance on accounting for costs incurred to obtain or
fulfill contracts with customers, and establishes disclosure
requirements which are more extensive than those required under
prior U.S. GAAP. Generally, we recognize revenue under Topic 606
for each of our performance obligations either over time
(generally, the transfer of a service) or at a point in time
(generally, the transfer of a good) as follows:
●
VasoTechnology
Revenue
relating to recurring managed network and voice services provided
by NetWolves are recognized as provided on a monthly basis
(“over time”). Non-recurring charges related to the
provision of such services are recognized in the period provided
(“point in time”). In the IT VAR business, software
system installations are recognized upon verification of
installation and expiration of an acceptance period (“point
in time”). Monthly post-implementation customer support
provided under such installations as well as software solutions
offered under a monthly Software as a Service (“SaaS”)
fee basis are recognized monthly over the contract term
(“over time”).
●
VasoHealthcare
Commission revenue
is recognized when the underlying equipment has been delivered by
GEHC and accepted at the customer site in accordance with the terms
of the specific sales agreement (“point in
time”).
●
VasoMedical
In the
United States, we recognized revenue from the sale of our medical
equipment in the period in which we deliver the product to the
customer (“point in time”). Revenue from the sale of
our medical equipment to international markets is recognized upon
shipment of the product to a common carrier, as are supplies,
accessories and spare parts delivered in both domestic and
international markets (“point in time”). The Company
also recognizes revenue from the maintenance of its medical
products either on a time and material as-billed basis
(“point in time”) or through the sale of a service
contract, where revenue is recognized ratably over the contract
term (“over time”).
F-11
Disaggregation of Revenue
The
following tables present revenues disaggregated by our business
operations and timing of revenue recognition:
(in
thousands)
|
|
Year
Ended December 31, 2020
|
Year
Ended December 31, 2019
|
||||||
|
|
|
Professional
sales
|
|
|
|
Professional
sales
|
|
|
|
|
IT
segment
|
service
segment
|
Equipment
segment
|
Total
|
IT
segment
|
service
segment
|
Equipment
segment
|
Total
|
|
Network
services
|
$
39,908
|
$
-
|
$
-
|
$
39,908
|
$
39,962
|
$
-
|
$
-
|
$
39,962
|
|
Software
sales and support
|
3,986
|
-
|
-
|
3,986
|
5,543
|
-
|
-
|
5,543
|
|
Commissions
|
-
|
22,865
|
-
|
22,865
|
-
|
26,208
|
-
|
26,208
|
|
Medical
equipment sales
|
-
|
-
|
2,789
|
2,789
|
-
|
-
|
2,778
|
2,778
|
|
Medical
equipment service
|
-
|
-
|
302
|
302
|
-
|
-
|
1,024
|
1,024
|
|
|
$
43,894
|
$
22,865
|
$
3,091
|
$
69,850
|
$
45,505
|
$
26,208
|
$
3,802
|
$
75,515
|
|
|
Year Ended December 31,
2020
|
Year Ended December 31,
2019
|
||||||
|
|
|
Professional
sales
|
|
|
|
Professional
sales
|
|
|
|
|
IT
segment
|
service
segment
|
Equipment
segment
|
Total
|
IT
segment
|
service
segment
|
Equipment
segment
|
Total
|
|
Revenue
recognized over time
|
$
40,660
|
$
-
|
$
234
|
$
40,894
|
$
40,628
|
$
-
|
$
595
|
$
41,223
|
|
Revenue
recognized at a point in time
|
3,234
|
22,865
|
2,857
|
28,956
|
4,877
|
26,208
|
3,207
|
34,292
|
|
|
$
43,894
|
$
22,865
|
$
3,091
|
$
69,850
|
$
45,505
|
$
26,208
|
$
3,802
|
$
75,515
|
Transaction Price Allocated to Remaining Performance
Obligations
As of
December 31, 2020, the aggregate amount of transaction price
allocated to performance obligations that are unsatisfied (or
partially unsatisfied) for executed contracts approximates $71
million, of which we expect to recognize revenue as
follows:
(in thousands)
|
|
Fiscal years of revenue
recognition (unaudited)
|
|||
|
|
2021
|
2022
|
2023
|
Thereafter
|
|
Unfulfilled
performance obligations
|
$
38,686
|
$
17,825
|
$
5,657
|
$
8,631
|
F-12
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 $553,000 and $568,000 at
December 31, 2020 and 2019, respectively, and are included in
accrued expenses and other liabilities in our consolidated balance
sheets.
In our
VasoHealthcare business, we bill a portion of commissions on the
orders we booked in advance of delivery of the underlying
equipment. Such amounts aggregated approximately $17,689,000 and
$18,565,000 at December 31, 2020 and 2019, respectively, and are
classified in our consolidated balance sheets into current or
long-term deferred revenue. In addition, we record a contract
liability for amounts expected to be credited back to GEHC due to
customer order reductions. Such amounts aggregated approximately
$1,118,000 and $1,270,000 at December 31, 2020 and 2019,
respectively, and are included in accrued expenses and other
liabilities in our consolidated balance sheets.
In our
VasoMedical business, we bill amounts for post-delivery services
and varying duration service contracts in advance of performance.
Such amounts aggregated approximately $15,000 and $778,000 at
December 31, 2020 and 2019, respectively, and are classified in our
consolidated balance sheets as either current or long-term deferred
revenue.
During
the year ended December 31, 2020, we recognized approximately $4.9
million of revenues that were included in our contract liability
balance at the beginning of such period.
Costs to Obtain or Fulfill a Contract
Topic
606 requires that incremental costs of obtaining a contract are
recognized as an asset and amortized to expense in a pattern that
matches the timing of the revenue recognition of the related
contract. We have determined the only significant incremental costs
incurred to obtain contracts with customers within the scope of
Topic 606 are certain sales commissions paid to associates. In
addition, the Company elected the practical expedient to recognize
the incremental costs of obtaining a contract when incurred for
contracts where the amortization period for the asset the Company
would otherwise have recognized is one year or less.
Under
Topic 606, sales commissions applicable to service contracts
exceeding one year have been capitalized and amortized ratably over
the term of the contract. In our IT VAR business, commissions
allocable to multi-year subscription contracts or multi-year
post-contract support performance obligations are amortized to
expense ratably over the terms of the multi-year periods. IT VAR
commissions allocable to other elements are charged to expense at
go-live or customer acceptance. In our professional sales services
segment, commissions paid to our sales force are deferred until the
underlying equipment is accepted by the customer.
At
December 31, 2020, our consolidated balance sheet includes
approximately $4,037,000 in capitalized sales commissions to be
expensed in future periods, of which $2,354,000 is recorded in
deferred commission expense and $1,683,000, representing the
long-term portion, is included in other assets.
Significant Judgments when Applying Topic 606
Contract
transaction price is allocated to performance obligations using
estimated stand-alone selling price. Judgment is required in
estimating stand-alone selling price for each distinct performance
obligation. We determine stand-alone selling price maximizing
observable inputs such as stand-alone sales when they exist or
substantive renewal price charged to clients. In instances where
stand-alone selling price is not observable, we utilize an estimate
of stand-alone selling price based on historical pricing and
industry practices.
Certain
revenue we record in our professional sales service 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 will be 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 recognized increases in
revenue associated with revisions to variable consideration for
previously completed performance obligations of $5,000 for the year
ended December 31, 2020.
F-13
Shipping and Handling Costs
All
shipping and handling expenses are charged to cost of sales.
Amounts billed to customers related to shipping and handling costs
are included as a component of sales.
Research and Development
Research and
development costs attributable to development are expensed as
incurred.
Share-Based Compensation
The
Company complies with ASC Topic 718, “Compensation –
Stock Compensation” (“ASC 718”), which requires
all companies to recognize the cost of services received in
exchange for equity instruments to be recognized in the financial
statements based on their grant date fair values. The Company
applies an estimated forfeiture rate to the grant date fair value
to determine the annual compensation cost of share-based payment
arrangements with employees. The forfeiture rate is estimated based
primarily on job title and prior forfeiture experience. The Company
did not grant any awards to non-employees during the years ended
December 31, 2020 and 2019.
During
the year ended December 31, 2020, the Company granted 1,000,000
restricted shares of common stock valued at $20,000 to an employee.
20% of the shares vested at approximate grant date and the
remaining 80% vest over four years from the grant date. The total
fair value of shares vested during the year ended December 31, 2020
was $23,000 for officers and $63,000 for employees. The weighted
average grant date fair value of shares granted during the year
ended December 31, 2020 was $0.02 per share.
During
the year ended December 31, 2019, the Company granted 5,500,000
restricted shares of common stock valued at $115,000 to officers.
The shares vest over four years from the grant date. The total fair
value of shares vested during the year ended December 31, 2019 was
$65,000 for officers and $113,000 for employees. The weighted
average grant date fair value of shares granted during the year
ended December 31, 2019 was $0.02 per share.
The
Company did not grant any stock options during the years ended
December 31, 2020 or 2019, nor were any options exercised during
such periods. No options were outstanding at December 31, 2020 or
2019.
Share-based
compensation expense recognized for the years ended December 31,
2020 and 2019 was $88,000 and $141,000, respectively, and is
recorded in selling, general, and administrative expense in the
consolidated statements of operations and comprehensive loss.
Unrecognized expense related to existing share-based compensation
and arrangements is approximately $76,000 at December 31, 2020 and
will be recognized over a weighted-average period of approximately
16 months.
Cash and Cash Equivalents
Cash
and cash equivalents represent cash and short-term, highly liquid
investments either in certificates of deposit, treasury bills,
money market funds, or investment grade commercial paper issued by
major corporations and financial institutions that generally have
maturities of three months or less from the date of
acquisition.
Short term investments
The
Company's short-term investments consist of bank deposits with
yields based on underlying debt and equity securities.
F-14
Accounts Receivable, net
The
Company’s accounts receivable are due from customers to whom
we sell our products and services, distributors engaged in the
distribution of our products and from GEHC. Credit is extended
based on evaluation of a customer’s financial condition and,
generally, collateral is not required. Accounts receivable are
generally due 30 to 90 days from shipment and services provided and
are stated at amounts due from customers net of allowances for
doubtful accounts, returns, term discounts and other allowances.
Accounts that are outstanding longer than the contractual payment
terms are considered past due. Estimates are used in determining
the allowance for doubtful accounts based on the Company’s
historical collections experience, current trends, credit policy
and a percentage of its accounts receivable by aging category. In
determining these percentages, the Company reviews historical
write-offs of their receivables. The Company also looks at the
credit quality of their customer base as well as changes in their
credit policies. The Company continuously monitors collections and
payments from our customers, and writes off receivables when all
efforts at collection have been exhausted. While credit losses have
historically been within expectations and the provisions
established, the Company cannot guarantee that it will continue to
experience the same credit loss rates that they have in the
past.
The
changes in the Company’s allowance for doubtful accounts and
commission adjustments are as follows:
(in
thousands)
|
|
Year ended December
31,
|
|
|
|
2020
|
2019
|
|
Beginning
Balance
|
$
4,285
|
$
3,994
|
|
Provision
for losses on accounts receivable
|
663
|
507
|
|
Direct
write-offs, net of recoveries
|
(542
)
|
(528
)
|
|
Commission
adjustments
|
(186
)
|
312
|
|
Deconsolidate
EECP Global (see Note N)
|
(12
)
|
-
|
|
Ending
Balance
|
$
4,208
|
$
4,285
|
Concentrations of Credit Risk
We
market our equipment and IT software solutions principally to
hospitals, diagnostic imaging centers and physician private
practices. We perform credit evaluations of our customers’
financial condition and, as a result, believe that our receivable
credit risk exposure is limited. For the years ended December 31,
2020 and 2019, no customer in our equipment or IT segment accounted
for 10% or more of revenues or accounts receivable. In our
professional sales service segment, 100% of our revenues and
accounts receivable are with GEHC; however, we believe this risk is
acceptable based on GEHC’s financial position and our long
history of doing business with GEHC.
The
Company maintains cash balances in certain U.S. financial
institutions, which, at times, may exceed the Federal Depository
Insurance Corporation (“FDIC”) coverage of
$250,000. The Company has not experienced any losses on these
accounts and believes it is not subject to any significant credit
risk on these accounts. In addition, the FDIC does not insure the
Company’s foreign bank balances, which aggregated
approximately $582,000 and $352,000 at December 31, 2020 and 2019,
respectively.
Inventories
The
Company values inventories in the equipment segment at the lower of
cost or net realizable value, with cost being determined on a
first-in, first-out basis. The Company regularly reviews inventory
quantities on hand, particularly raw materials and components, and
records a provision for excess and slow moving inventory based
primarily on existing and anticipated design and engineering
changes to its products as well as forecasts of future product
demand.
In our
IT Segment, we purchase computer hardware and software for specific
customer requirements and value such inventories using the specific
identification method.
F-15
Property and Equipment
Property and
equipment, including assets under finance leases, are stated at
cost less accumulated depreciation and amortization. Major
improvements are capitalized and minor replacements, maintenance
and repairs are charged to expense as incurred. Upon retirement or
disposal of assets, the cost and related accumulated depreciation
are removed from the consolidated balance sheets. Depreciation is
expensed over the estimated useful lives of the assets, which range
from two to eight years, on a straight-line basis. Accelerated
methods of depreciation are used for tax purposes. We amortize
leasehold improvements over the useful life of the related
leasehold improvement or the life of the related lease, whichever
is less.
Goodwill and Intangible Assets
Goodwill represents
the excess of cost over the fair value of net assets of businesses
acquired. The Company accounts for goodwill under the guidance of
the ASC Topic 350, “Intangibles: Goodwill and Other”.
Goodwill acquired in a purchase business combination is not
amortized, but instead tested for impairment, at least annually, in
accordance with this guidance.
The recoverability of goodwill is
subject to an annual impairment test or whenever an event occurs or
circumstances change that would more likely than not result in an
impairment.
The Company tests goodwill for impairment at the
reporting unit level on an annual basis as of December 31 and
between annual tests when an event occurs or circumstances change
that could indicate that the asset might be impaired. In any year,
the Company may elect to perform a qualitative assessment to
determine whether it is more likely than not that the fair value of
a reporting unit is in excess of its carrying value. If the Company
cannot determine qualitatively that the fair value is in excess of
the carrying value, or the Company decides to bypass the
qualitative assessment, the Company proceeds to the quantitative
goodwill impairment test, which compares the fair value of each
reporting unit to its carrying amount, including goodwill. If the
fair value of each reporting unit exceeds its carrying amount,
goodwill is not considered to be impaired. If the carrying amount
of a reporting unit exceeds its fair value, an impairment loss is
recognized for an amount equal to that excess, limited to the total
amount of goodwill allocated to that reporting unit. No impairment
loss was recorded as of December 31, 2020 and 2019.
I
ntangible assets consist of the value of customer
contracts and relationships, patent and technology costs, and
software. The cost of significant customer-related intangibles is
amortized in proportion to estimated total related revenue; cost of
other intangible assets is generally amortized on a straight-line
basis over the asset's estimated economic life, which range
from five to ten years. T
he Company
capitalizes internal use software development costs incurred during
the application development stage. Costs related to preliminary
project activities, training, data conversion, and post
implementation activities are expensed as incurred. The Company
capitalized $541,000 and $494,000 in software development costs for
the years ended December 31, 2020 and 2019,
respectively.
Impairment of Long-lived Assets
The
Company reviews the recoverability of all long-lived assets,
including the related useful lives, whenever events or changes in
circumstances indicate that the carrying amount of a long-lived
asset might not be recoverable. If required, the Company compares
the estimated fair value determined by either the undiscounted
future net cash flows or appraised value to the related
asset’s carrying value to determine whether there has been an
impairment. If an asset is considered impaired, the asset is
written down to fair value, which is based either on discounted
cash flows or appraised values in the period the impairment becomes
known. No assets were determined to be impaired as of
December 31, 2020 and 2019
.
Deferred Revenue
Amounts
billable under the agreement with GEHC in advance of delivery of
the underlying equipment are recorded initially as deferred
revenue, and commission revenue is subsequently recognized as
customer acceptance of such equipment is reported to us by GEHC.
Similarly, commissions payable to our sales force related to such
billings are recorded as deferred commission expense when the
associated deferred revenue is recorded. Commission expense is
recognized when the corresponding commission revenue is
recognized.
We
record revenue on extended service contracts ratably over the term
of the related service contracts. Under the provisions of ASC 606,
we defer revenue related to EECP
®
system sales
for the fair value of installation and in-service training to the
period when the services are rendered and for service obligations
ratably over the service period, which is generally one year. (See
Note J)
F-16
Income Taxes
Deferred income
taxes are recognized for temporary differences between financial
statement and income tax bases of assets and liabilities and loss
carry-forwards for which income tax benefits are expected to be
realized in future years. A valuation allowance is established,
when necessary, to reduce deferred tax assets to the amount
expected to be realized. In estimating future tax consequences, we
generally consider all expected future events other than an
enactment of changes in the tax laws or rates. Deferred tax assets
are continually evaluated for the expected realization. To the
extent our judgment regarding the realization of the deferred tax
assets changes, an adjustment to the allowance is recorded, with an
offsetting increase or decrease, as appropriate, in income tax
expense. Such adjustments are recorded in the period in which our
estimate as to the realization of the assets changed that it is
“more likely than not” that all of the deferred tax
assets will be realized. The “realization” standard is
subjective and is based upon our estimate of a greater than 50%
probability that the deferred tax asset can be
realized.
The
Company also complies with the provisions of ASC Topic 740,
“Income Taxes”, which prescribes a recognition
threshold and a measurement attribute for the financial statement
recognition and measurement of tax positions taken or expected to
be taken in a tax return. For those benefits to be recognized, a
tax position must be more-likely-than-not to be sustained upon
examination by the relevant taxing authority based on the technical
merits. The tax benefit recognized is measured as the largest
amount of benefit that has a greater than fifty percent likelihood
of being realized upon ultimate settlement with the relevant taxing
authority. Derecognition of a tax benefit previously recognized
results in the Company recording a tax liability that reduces
ending retained earnings. Based on its analysis, the Company has
determined that it has not incurred any liability for unrecognized
tax benefits as of
December 31, 2020
and 2019
. The Company recognizes accrued interest and
penalties related to unrecognized tax benefits as income tax
expense. No amounts were accrued for the payment of interest and
penalties at
December 31, 2020 and
2019
. Generally, the Company is no longer subject to income
tax examinations by major domestic taxing authorities for years
before 2017. According to the China tax regulatory framework, there
is no statute of limitations on examination of tax filings by tax
authorities. However, the general practice is going back five
years. Management is currently unaware of any issues under review
that could result in significant payments, accruals or material
deviations from its position.
Foreign Currency Translation Gain (Loss) and Comprehensive Income
(Loss)
In
countries in which the Company operates, and the functional
currency is other than the U.S. dollar, assets and liabilities are
translated using published exchange rates in effect at the
consolidated balance sheet date. Equity accounts are
translated at historical rates except for the changes in
accumulated deficit during the year as the result of the income
statement translation process. Revenues and expenses and cash flows
are translated using a weighted average exchange rate for the
period. Resulting translation adjustments are recorded
as a component of accumulated other comprehensive loss on the
accompanying consolidated balance sheets. For the years
ended
December 31, 2020 and
2019
, other comprehensive income includes gains of $142,000
and $2,000, respectively, which were entirely from foreign currency
translation.
Net Income (Loss) Per Common Share
Basic
income per common share is based on the weighted average number of
common shares outstanding without consideration of potential common
stock. Diluted earnings per common share is based on the weighted
average number of common and potential dilutive common shares
outstanding.
Diluted earnings per share were computed based on the weighted
average number of shares outstanding plus all potentially dilutive
common shares. A reconciliation of basic to diluted shares
used in the earnings per share calculation is as
follows:
(in thousands)
|
|
Year ended December
31,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
169,932
|
167,843
|
|
Dilutive
effect of unvested restricted shares
|
914
|
-
|
|
Diluted
weighted average shares outstanding
|
170,846
|
167,843
|
F-17
The
following table represents common stock equivalents that were
excluded from the computation of diluted earnings per share for the
years ended December 31, 2020 and 2019, because the effect of their
inclusion would be anti-dilutive.
(in
thousands)
|
|
Year ended December
31,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Restricted
common stock grants
|
76
|
1,267
|
Recently Adopted Accounting Pronouncements
Effective January 1, 2019, the Company adopted Accounting Standards
Codification (“ASC”) Topic 842, "Leases." See Note N
for further details.
Recently Issued Accounting Pronouncements
The
Company continually assesses any new accounting pronouncements to
determine their applicability to the Company. Where it is
determined that a new accounting pronouncement affects the
Company’s financial reporting, the Company undertakes a study
to determine the consequence of the change to its financial
statements and assures that there are proper controls in place to
ascertain that the Company’s consolidated financial
statements properly reflect the change. New pronouncements assessed
by the Company recently are discussed below:
Credit Losses on Financial instruments
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.
NOTE D
– SEGMENT REPORTING
The Company views its business in three segments
– the IT segment, the professional sales service segment, and
the equipment segment. The IT segment includes the operations of
NetWolves and VasoHealthcare IT Corp. The professional sales
service segment operates through the Vaso Diagnostics subsidiary
and is currently engaged solely in the fulfillment of the
Company’s responsibilities under our agreement with GEHC. The
equipment segment is engaged in designing, manufacturing, marketing
and supporting EECP
®
enhanced external counterpulsation
systems (see Note O) both domestically and internationally, as well
as the development, production, marketing and supporting of other
medical devices.
F-18
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
(earnings before interest, taxes,
depreciation and amortization – defined as net (loss) income,
plus net interest expense (income), tax expense, depreciation and
amortization, and non-cash expenses for share-based compensation).
Administrative functions such as
finance and human resources 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)
|
|
Year ended December
31,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Revenues
from external customers
|
|
|
|
IT
|
$
43,894
|
$
45,505
|
|
Professional
sales service
|
22,865
|
26,208
|
|
Equipment
|
3,091
|
3,802
|
|
Total
revenues
|
$
69,850
|
$
75,515
|
|
|
|
|
|
Gross
Profit
|
|
|
|
IT
|
$
17,682
|
$
18,790
|
|
Professional
sales service
|
18,608
|
21,287
|
|
Equipment
|
2,281
|
2,355
|
|
Total
gross profit
|
$
38,571
|
$
42,432
|
|
|
|
|
|
Operating
income (loss)
|
|
|
|
IT
|
$
(1,247
)
|
$
(1,170
)
|
|
Professional
sales service
|
2,977
|
3,626
|
|
Equipment
|
(155
)
|
(855
)
|
|
Corporate
|
(803
)
|
(1,010
)
|
|
Total
operating income (loss)
|
$
772
|
$
591
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
IT
|
$
2,010
|
$
2,213
|
|
Professional
sales service
|
161
|
170
|
|
Equipment
|
291
|
298
|
|
Corporate
|
-
|
-
|
|
Total
depreciation and amortization
|
$
2,462
|
$
2,681
|
|
|
|
|
|
Capital
expenditures
|
|
|
|
IT
|
$
960
|
$
1,149
|
|
Professional
sales service
|
26
|
-
|
|
Equipment
|
12
|
54
|
|
Corporate
|
2
|
2
|
|
Total
cash capital expenditures
|
$
1,000
|
$
1,205
|
|
|
December 31,
2020
|
December 31,
2019
|
|
|
|
|
|
Identifiable
Assets
|
|
|
|
IT
|
$
28,110
|
$
30,079
|
|
Professional
sales service
|
9,171
|
16,257
|
|
Equipment
|
6,668
|
6,370
|
|
Corporate
|
6,427
|
1,658
|
|
Total
assets
|
$
50,376
|
$
54,364
|
F-19
For the
years ended December 31, 2020 and 2019, GEHC accounted for 33% and
35% of revenue, respectively. Also, GEHC accounted for $5.1
million, or 52%, and $10.9 million, or 69%, of accounts and other
receivables at December 31, 2020 and 2019,
respectively.
Our
revenues were derived from the following geographic
areas:
(in thousands)
|
|
Year ended December
31,
|
|
|
|
2020
|
2019
|
|
Domestic
(United States)
|
$
67,184
|
$
73,019
|
|
Non-domestic
(foreign)
|
2,666
|
2,496
|
|
|
$
69,850
|
$
75,515
|
NOTE E
– ACCOUNTS AND OTHER RECEIVABLES
The
following table presents information regarding the Company’s
accounts and other receivables as of December 31, 2020 and
2019:
(in
thousands)
|
|
December 31,
2020
|
December 31,
2019
|
|
|
|
|
|
Trade
receivables
|
$
13,960
|
$
20,110
|
|
Due
from employees
|
24
|
27
|
|
Allowance
for doubtful accounts and
|
|
|
|
commission
adjustments
|
(4,208
)
|
(4,285
)
|
|
Accounts
and other receivables, net
|
$
9,776
|
$
15,852
|
Trade
receivables include amounts due for shipped products and services
rendered. Amounts currently due under the GEHC Agreement are
subject to adjustment in subsequent periods should the underlying
sales order amount, upon which the receivable is based,
change.
Allowance for
doubtful accounts and commission adjustments include estimated
losses resulting from the inability of our customers to make
required payments, and adjustments arising from estimated future
changes in sales order amounts that may reduce the amount the
Company will ultimately receive under the GEHC Agreement. Due from
employees primarily reflects commission advances made to sales
personnel.
F-20
NOTE F
– INVENTORIES
Inventories, net of
reserves, consisted of the following:
(in
thousands)
|
|
December 31,
2020
|
December 31,
2019
|
|
|
|
|
|
Raw
materials
|
$
669
|
$
650
|
|
Work
in process
|
4
|
181
|
|
Finished
goods
|
711
|
1,110
|
|
|
$
1,384
|
$
1,941
|
At
December 31, 2020 and 2019, the Company maintained reserves for
slow moving inventories of $167,000 and $390,000,
respectively.
NOTE G
– PROPERTY AND EQUIPMENT
Property and
equipment is summarized as follows:
(in
thousands)
|
|
December 31,
2020
|
December 31,
2019
|
|
|
|
|
|
Office,
laboratory and other equipment
|
$
2,328
|
$
2,476
|
|
Equipment
furnished for customer
|
|
|
|
or
clinical uses
|
9,176
|
8,796
|
|
Right
of use assets - finance leases
|
1,115
|
1,115
|
|
Furniture
and fixtures
|
99
|
127
|
|
|
12,718
|
12,514
|
|
Less:
accumulated depreciation and amortization
|
(8,833
)
|
(7,560
)
|
|
Property
and equipment, net
|
$
3,885
|
$
4,954
|
Accumulated
amortization of right of use (“ROU”) assets under
finance leases aggregated approximately $636,000 and $438,000 at
December 31, 2020 and 2019, respectively. Depreciation expense
amounted to approximately $1,556,000 and $1,738,000 for the years
ended December 31, 2020 and 2019, respectively. Amortization of ROU
assets under finance leases is included in depreciation
expense.
NOTE H
– GOODWILL AND OTHER INTANGIBLES
Goodwill of
$14,375,000 is attributable to the NetWolves reporting unit within
the IT segment. The remaining $1,313,000 of goodwill is
attributable to the FGE reporting unit within the Equipment
segment. The NetWolves and FGE reporting units had negative net
asset carrying amounts at December 31, 2020 and 2019. The changes
in the carrying amount of goodwill are as follows:
(in
thousands)
|
|
Year
ended
|
Year
ended
|
|
|
December 31,
2020
|
December 31,
2019
|
|
|
|
|
|
Beginning
of period
|
$
17,271
|
$
17,309
|
|
Foreign
currency translation adjustment
|
82
|
(38
)
|
|
Sale
of equity in EECP Global
|
(1,665
)
|
-
|
|
End
of period
|
$
15,688
|
$
17,271
|
F-21
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 table:
(in
thousands)
|
|
December 31,
2020
|
December 31,
2019
|
|
|
|
|
|
Customer-related
|
|
|
|
Costs
|
$
5,831
|
$
5,831
|
|
Accumulated
amortization
|
(3,947
)
|
(3,553
)
|
|
|
1,884
|
2,278
|
|
|
|
|
|
Patents
and Technology
|
|
|
|
Costs
|
1,894
|
2,363
|
|
Accumulated
amortization
|
(1,521
)
|
(1,752
)
|
|
|
373
|
611
|
|
|
|
|
|
Software
|
|
|
|
Costs
|
3,394
|
2,840
|
|
Accumulated
amortization
|
(1,702
)
|
(1,428
)
|
|
|
1,692
|
1,412
|
|
|
|
|
|
|
$
3,949
|
$
4,301
|
The
Company owns, through our Chinese subsidiaries, thirty invention
and utility patents that expire at various times through 2032, as
well as fourteen software copyright certificates in China related
to proprietary technologies in physiological data acquisition,
analysis and reporting. The Company also holds one patent for
secure and remote monitoring management through its NetWolves
subsidiary. Costs incurred for submitting the applications to the
United States Patent and Trademark Office and other foreign
authorities for these patents have been capitalized. Patent and
technology costs are being amortized using the straight-line method
over 10-year and 8-year lives, respectively. The Company begins
amortizing patent costs once a filing receipt is received stating
the patent serial number and filing date from the Patent Office or
other foreign authority. Due to the sale of equity in the EECP
business, the Company deconsolidated approximately $469,000 in
gross patent assets and related accumulated amortization.
The cost
of significant customer-related intangibles is amortized in
proportion to estimated total related revenue; cost of other
customer-related intangible assets is amortized on a straight-line
basis over the asset's estimated economic life of seven
years
. Software costs are amortized on a straight-line basis
over its expected useful life of five years.
Amortization
expense amounted to approximately $906,000 and $943,000 for the
years ended December 31, 2020 and 2019, respectively. Amortization
of intangibles for the next five years is:
(in thousands)
|
Years
ending December 31,
|
|
|
2021
|
1,064
|
|
2022
|
768
|
|
2023
|
543
|
|
2024
|
474
|
|
2025
|
408
|
|
|
$
3,257
|
F-22
NOTE I
– OTHER ASSETS
Other
assets consist of the following:
(in
thousands)
|
|
December 31,
2020
|
December 31,
2019
|
|
|
|
|
|
Deferred
commission expense - noncurrent
|
$
1,683
|
$
1,770
|
|
Trade
receivables - noncurrent
|
448
|
631
|
|
Other,
net of allowance for loss on loan receivable of
|
|
|
|
$412
at December 31, 2020 and 2019
|
59
|
185
|
|
|
$
2,190
|
$
2,586
|
NOTE J
– DEFERRED REVENUE
The
changes in the Company’s deferred revenues are as
follows:
(in
thousands)
|
|
Year ended December
31,
|
|
|
|
2020
|
2019
|
|
|
|
|
|
Deferred
revenue at beginning of period
|
$
19,343
|
$
18,086
|
|
Deconsolidate
EECP Global (see Note O)
|
(769
)
|
-
|
|
Net
additions:
|
|
|
|
Deferred
extended service contracts
|
144
|
363
|
|
Deferred
in-service and training
|
3
|
13
|
|
Deferred
service arrangements
|
5
|
25
|
|
Deferred
commission revenues
|
7,752
|
11,366
|
|
Recognized
as revenue:
|
|
|
|
Deferred
extended service contracts
|
(140
)
|
(566
)
|
|
Deferred
in-service and training
|
-
|
(15
)
|
|
Deferred
service arrangements
|
(5
)
|
(30
)
|
|
Deferred
commission revenues
|
(8,629
)
|
(9,899
)
|
|
Deferred
revenue at end of period
|
17,704
|
19,343
|
|
Less:
current portion
|
11,516
|
12,345
|
|
Long-term
deferred revenue at end of period
|
$
6,188
|
$
6,998
|
F-23
NOTE K
– ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued
expenses and other liabilities consist of the
following:
(in
thousands)
|
|
December 31,
2020
|
December 31,
2019
|
|
|
|
|
|
Accrued
compensation
|
$
1,044
|
$
1,509
|
|
Accrued
expenses - other
|
1,854
|
1,818
|
|
Other
liabilities
|
1,969
|
2,017
|
|
|
$
4,867
|
$
5,344
|
NOTE L
– RELATED-PARTY TRANSACTIONS
The
Company recorded interest charges aggregating approximately
$287,000 and $467,000 for the years ended December 31, 2020 and
2019, respectively, payable to MedTechnology Investments, LLC
(“MedTech”) pursuant to its promissory notes
(“Notes”). The MedTech Notes were used in 2015 to
partially fund the purchase of NetWolves. $2,300,000 of the
$4,800,000 provided by MedTech was provided by directors of the
Company, or by family members. The Notes bore interest, payable
quarterly, at an annual rate of 9% through their original maturity
date of May 29, 2019. In August 2018, MedTech agreed to extend, if
necessary, the maturity date of $3,600,000 of the Notes an
additional year from May 29, 2019 to May 29, 2020, provided that a
minimum of $1,200,000 of the principal was paid on or before
December 31, 2019 and the annual interest rate for the balance
increased to 10% during the extension. The $1,200,000 principal
payment was waived pursuant to MedTech’s consent to the bank
line of credit maturity extension to September 30, 2020. The Notes
may be prepaid without penalty, and are subordinated to any current
or future Senior Debt as defined in the Subordinated Security
Agreement. The Subordinated Security Agreement secures payment and
performance of the Company’s obligations under the Notes. In
April 2020, $1.2 million in principal was repaid and the maturity
date of $3.6 million of the Notes were extended through April 30,
2021 at a new interest rate of 6% per annum. The maturity date was
extended again in March 2021 to June 30, 2022, provided $1.2
million is paid prior to April 1, 2021, and $50,000 is paid
quarterly beginning June 30, 2021 (see Note U). The interest rate
remains at 6% per annum. Approximately $1.4 million of the $3.6
million outstanding balance of the MedTech Notes is included in
current liabilities in the Company’s consolidated balance
sheet as of December 31, 2020. Interest charges aggregating
approximately $55,000 were outstanding at December 31, 2020 and
paid on January 4, 2021.
David
Lieberman, a practicing attorney in the State of New York, serves
as Vice Chairman of the Board of Directors. He is
currently a senior partner at the law firm of Beckman Lieberman and
Associates, LLP, which performs certain legal services for the
Company. Fees of approximately $227,000 and $280,000 were billed by
the firm for the years ended December 31, 2020 and 2019,
respectively, at which dates no amounts were
outstanding.
On August 6, 2014 the Company acquired all of the
outstanding shares of Genwell Instruments Co. Ltd.
(“Genwell”), located in Wuxi, China for cash and notes
of Chinese Yuan RMB13,250,000 (approximately $2,151,000 at the
acquisition date). In August 2019, the Company
modified the
notes, which had a remaining principal balance of RMB2,250,000, to
change the interest rate from 9% to 10% per annum, effective August
27, 2019, and to extend the maturity date from August 26, 2019 to
February 26, 2020. Unsecured notes and accrued interest aggregating
approximately $339,000 was payable to officers of Biox at December
31, 2019. The notes and accrued interest were repaid in March
2020.
In the
year ended December 31, 2019, the Company issued notes aggregating
$930,000 to third parties, including directors and employees. The
notes matured from January 2020 to July 2020 and bore interest at
10% per annum payable quarterly. In March 2020, the notes were
extended for six months, substantially all of which matured by
November 2020, at a reduced interest rate of 8%, and permitted
prepayment without penalty. In June and July 2020, the Company
repaid the notes and accrued interest.
F-24
NOTE M
– NOTES PAYABLE
Notes
payable consist of the following:
(in thousands)
|
|
December 31,
2020
|
December 31,
2019
|
|
|
|
|
|
Line
of credit
|
$
4,346
|
$
5,721
|
|
Notes
payable
|
3,803
|
300
|
|
Notes
payable - MedTech
|
3,600
|
4,800
|
|
Notes
payable - related parties
|
-
|
1,253
|
|
Total
debt
|
11,749
|
12,074
|
|
Less:
current portion (including related parties)
|
(5,970
)
|
(3,933
)
|
|
|
$
5,779
|
$
8,141
|
Line of Credit
NetWolves
maintains a $4.0 million line of credit with a lending institution.
In December 2019, the line’s expiration date was extended
from December 18, 2019 to September 30, 2020, and the interest rate
was increased 25 basis points to LIBOR plus 3.50%. In April 2020,
the lending institution extended the maturity date to April 30,
2021 and established a minimum LIBOR rate of 0.50%. The maturity
date was extended again in March 2021 to June 30, 2022 provided
$825,000 is paid prior to April 1, 2021, and $50,000 is paid
quarterly beginning June 30, 2021 (see Note U). Advances under the
line are secured by substantially all of the assets of NetWolves
Network Services, LLC and guaranteed by Vaso Corporation. During
the year ended December 31, 2020, $100,000 in draw was repaid. At
December 31, 2020, the Company had drawn approximately $3.7 million
against the line, of which amount $975,000 is included in notes
payable – current portion in the Company’s consolidated
balance sheet at December 31, 2020.
The
Company maintained an additional $2.0 million line of credit with a
lending institution. In December 2019, the line’s expiration
date was extended from December 18, 2019 to September 30, 2020, and
the interest rate was increased 25 basis points to LIBOR plus
3.50%. Advances under the line are secured by substantially all of
the assets of the Company. In April 2020, the lending institution
extended the maturity date to April 30, 2021 and established a
minimum LIBOR rate of 0.50%, and $1.2 million in draw was repaid.
At December 31, 2020, the Company had drawn $675,000 against the
line. In March 2021, the $675,000 balance and accrued interest was
paid off in full and the line was closed (see Note U). The line of
credit agreement includes certain financial covenants, and the
Company was in compliance with such covenants at December 31, 2020.
The $675,000 balance is included in notes payable – current
portion in the Company’s consolidated balance sheet at
December 31, 2020.
Notes Payable
In
August 2019, the Company issued to a private party a $300,000 note
bearing interest at 10% and maturing November 15, 2019. In
November, 2019, the note’s maturity date was extended to
January 15, 2020, and repaid upon maturity.
In
April 2020, the Company’s Biox subsidiary issued a note
RMB1,000,000 (approximately $153,000) with a Chinese bank for
working capital purposes. The note was secured by the assets of
Biox and bore interest at 4.35% per annum. It matured on April 15,
2021 and was repaid upon maturity.
In
August 2020, the Company issued a note for approximately $42,000
for the purchase of equipment. The note is secured by the purchased
equipment, bears interest at 1.9% and is payable in 60 equal
monthly installments maturing August 2025.
F-25
Paycheck Protection Program debt
In
April 2020, the Company received funding of a $3,610,900 Note (the
“PPP Note”) issued by PNC Bank, National Association
(“PNC”) pursuant to the Coronavirus Aid, Relief, and
Economic Security (CARES) Act’s Paycheck Protection Program
(the “Program”).
The
Company accounts for the PPP Note in accordance with Financial
Accounting Standards Board ASC Topic 470, “Debt”, and
Technical Question and Answer (TQA) 3200.18, “Borrower
Accounting for a Forgivable Loan Received Under the Small Business
Administration Paycheck Protection Program”. Under the TQA,
the Company:
●
Initially records
the cash inflow from the PPP loan as a financial liability and
accrues interest in accordance with the interest method under ASC
Subtopic 835-30.
●
Does not impute
additional interest at a market rate.
●
Continues to record
the proceeds from the loan as a liability until either (i) the loan
is partly or wholly forgiven and the debtor has been legally
released or (ii) the debtor pays off the loan.
●
Reduces the
liability by the amount forgiven and records a gain on
extinguishment once the loan is partly or wholly forgiven and legal
release is received.
Amounts
outstanding on the PPP Note are at the annual interest rate of 1%.
During the first six months of the PPP Note, there is no principal
nor interest required to be paid. Thereafter, to the extent the PPP
Note is not forgiven under the Program, the outstanding balance of
the PPP Note converts to an amortizing term loan payable monthly
over an eighteen-month period, which has been updated according to
the Paycheck Protection Program Flexibility Act of 2020
(“Flexibility Act”). The PPP Note can be prepaid at any
time without penalty.
In June
2020, the Flexibility Act was signed into law, which amended the
CARES Act. The Flexibility Act changed key provisions of the PPP,
including, but not limited to, (i) provisions relating to the
maturity of PPP loans, (ii) the deferral period covering of PPP
loan payments and (iii) the process for measurement of loan
forgiveness. More specifically, the Flexibility Act provides a
minimum maturity of five years for all PPP loans made on or after
the date of the enactment of the Flexibility Act (“June 5,
2020”) and permits lenders and borrowers to extend the
maturity date of earlier PPP loans by mutual agreement. As of the
date of this filing, the Company has not approached the lender to
request an extension of the maturity date from two years to five
years. The Flexibility Act also provides that if a borrower does
not apply for forgiveness of a loan within 10 months after the last
day of the measurement period (“covered period”), the
PPP loan is no longer deferred and the borrower must begin paying
principal and interest. In addition, the Flexibility Act extended
the length of the covered period from eight weeks to 24 weeks from
receipt of proceeds, while allowing borrowers that received PPP
loans before June 5, 2020 to determine, at their sole discretion, a
covered period of either 8 weeks or 24 weeks.
After
reviewing the applicable terms and conditions of the Flexibility
Act, the Company elected to extend the length of the covered period
from the lesser of (i) period whereby qualified expenses equal loan
proceeds or (ii) 24 weeks. The Company has performed initial
calculations for the PPP loan forgiveness according to the terms
and conditions of the SBA’s Loan Forgiveness Application
(Revised June 16, 2020) and, based on such calculations, expects
that the PPP loan will be forgiven in full over a period less than
24 weeks. In October 2020, the Company submitted its application to
PNC for forgiveness of the PPP Note in an amount equal to the sum
of the following costs incurred by the Company during the covered
period beginning on the date of first disbursement of the PPP Note
proceeds:
(a)
payroll costs;
(b) any
payment of interest on a covered mortgage obligation;
(c) any
covered rent payment; and
(d) any
covered utility payment.
The
amount of forgiveness is calculated in accordance with the
requirements of the Program. In this regard, no more than 40% of
the amount forgiven can be attributable to non-payroll
costs.
F-26
NOTE N
– LEASES
ASC
842, “Leases”, requires that a lessee recognize the
assets and liabilities that arise from operating leases. A lessee
should recognize in the statement of financial position a liability
to make lease payments (the lease liability) and a right-of-use
asset representing its right to use the underlying asset for the
lease term. For leases with a term of 12 months or less, a lessee
is permitted to make an accounting policy election by class of
underlying asset not to recognize lease assets and lease
liabilities. In transition, lessees and lessors are required to
recognize and measure leases at either the effective date (the
“effective date method”) or the beginning of the
earliest period presented (the “comparative method”)
using a modified retrospective approach. Under the effective date
method, the Company’s comparative period reporting is
unchanged. In contrast, under the comparative method, the
Company’s date of initial application is the beginning of the
earliest comparative period presented, and the Topic 842 transition
guidance is then applied to all comparative periods presented.
Further, under either transition method, the standard includes
certain practical expedients intended to ease the burden of
adoption. The Company adopted ASC 842 January 1, 2019 using the
effective date method and elected certain practical expedients
allowing the Company not to reassess:
●
whether expired or
existing contracts contain leases under the new definition of a
lease;
●
lease
classification for expired or existing leases; and
●
whether previously
capitalized initial direct costs would qualify for capitalization
under Topic 842.
The
Company also made the accounting policy decision not to recognize
lease assets and liabilities for leases with a term of 12 months or
less.
The
Company enters into finance leases, typically with terms of 3 to 5
years, to acquire equipment for its data center. The Company enters
into operating leases for its facilities in New York, Florida, and
China, as well as for vehicles provided to certain employees in the
professional sales services segment. The operating lease terms
range from 2 to 7 years. The Company excluded the renewal option on
its applicable facility leases from the calculation of its
right-of-use assets and lease liabilities.
Finance
and operating lease liabilities consist of the
following:
(in thousands)
|
|
December 31,
2020
|
December 31,
2019
|
|
|
|
|
|
Lease
liabilities - current
|
|
|
|
Finance
leases
|
$
190
|
$
170
|
|
Operating
leases
|
540
|
549
|
|
|
$
730
|
$
719
|
|
Lease
liabilities - net of current portion
|
|
|
|
Finance
leases
|
$
246
|
$
437
|
|
Operating
leases
|
469
|
321
|
|
|
$
715
|
$
758
|
A
reconciliation of undiscounted cash flows to finance and operating
lease liabilities recognized in the consolidated balance sheet at
December 31, 2020 is set forth below:
(in thousands)
|
Years
ending December 31,
|
Finance
leases
|
Operating
leases
|
Total
|
|
2021
|
227
|
613
|
840
|
|
2022
|
200
|
374
|
574
|
|
2023
|
62
|
98
|
160
|
|
Undiscounted
lease payments
|
489
|
1,085
|
1,574
|
|
Amount
representing interest
|
(53
)
|
(76
)
|
(129
)
|
|
Discounted
lease liabilities
|
436
|
1,009
|
1,445
|
F-27
Additional
disclosures of lease data are set forth below:
(in thousands)
|
|
Year ended December 31, 2020
|
|
|
|
|
Lease costs:
|
|
|
Finance
lease costs:
|
|
|
Amortization
of right-of-use assets
|
$
198
|
|
Interest
on lease liabilities
|
56
|
|
|
254
|
|
Operating
lease costs:
|
712
|
|
Short-term
lease costs:
|
82
|
|
Total
lease cost
|
$
1,048
|
|
|
|
|
Other information:
|
|
|
Cash
paid for amounts included in the
|
|
|
measurement
of lease liabilities:
|
|
|
Operating
cash flows from finance leases
|
$
56
|
|
Operating
cash flows from operating leases
|
712
|
|
Financing
cash flows from finance leases
|
171
|
|
|
$
939
|
|
|
December 31, 2020
|
|
|
|
|
Weighted-average
remaining lease term - finance leases (months)
|
29
|
|
Weighted-average
remaining lease term - operating leases (months)
|
23
|
|
|
|
|
Weighted-average
discount rate - finance leases
|
12.1
%
|
|
Weighted-average
discount rate - operating leases
|
8.6
%
|
The
Company used the rate implicit in the lease, where known, or its
incremental borrowing rate as the rate used to discount the future
lease payments.
F-28
NOTE O
– SALE OF EQUITY IN THE EECP BUSINESS
On May
20, 2020, the Company closed on the sale of 51% of the capital
stock of its wholly-owned subsidiary EECP Global Corporation
(“EECP Global”) to Chongqing PSK-Health Sci-Tech
Development Co. Ltd, a China-based company, for $1,150,000. EECP
Global was formed in September 2019 to hold all the assets and
liabilities of its EECP business. Concurrently with the closing of
the transaction, the Company signed a three-year Management Service
Agreement with EECP Global to provide management service for the
business and operation of EECP Global in the United States.
Pursuant to the agreement, EECP Global reimburses the Company all
direct expenses and pays a management fee starting April 1, 2020,
the effective date of the sale.
Due to
the Company’s now minority ownership of EECP Global, it
deconsolidated the EECP Global operations effective April 1, 2020
and recorded a gain on sale of approximately $110,000, of which
approximately $54,000 resulted from the gain related to the
remeasurement of the retained noncontrolling investment in EECP
Global to fair value. The gain on sale includes the effect of the
reclassification of approximately $187,000 in accumulated
translation losses from accumulated other comprehensive
loss.
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 year ended December 31, 2020, the
Company’s share of EECP Global’s income was
approximately $11,000. At December 31, 2020, the Company recorded a
net payable to related parties of approximately $233,000 on its
consolidated balance sheet for amounts due to EECP Global for
receivables collected on its behalf net of amounts due from EECP
Global for fees and cost reimbursements.
NOTE P
– STOCKHOLDERS' EQUITY
Chinese subsidiaries dividends and statutory reserves
The
payment of dividends by entities organized in China is subject to
limitations. In particular, regulations in China currently permit
payment of dividends only out of accumulated profits as determined
in accordance with PRC accounting standards and regulations. Based
on People’s Republic of China (PRC) accounting standards, our
Chinese subsidiaries are also required to set aside at least 10% of
after-tax profit each year to their general reserves until the
accumulative amount of such reserves reaches 50% of the registered
capital. As of December 31, 2020 and 2019, statutory reserves
aggregating approximately $35,000 were recorded in the
Company’s consolidated balance sheets. These reserves are not
distributable as cash dividends. In addition, they are required to
allocate a portion of their after-tax profit to their staff welfare
and bonus fund at the discretion of their respective boards of
directors. Moreover, if any of our PRC subsidiaries incurs debt on
its own behalf in the future, the instruments governing the debt
may restrict its ability to pay dividends or make other
distributions to us. Distribution of dividends from the Chinese
operating companies to foreign shareholders is subject to a 10%
withholding tax.
NOTE Q
- OPTION PLANS
2010 Stock Option and Stock Issuance Plan
On June
17, 2010 the Board of Directors approved the 2010 Stock Plan (the
“2010 Plan”) for officers, directors, employees and
consultants of the Company. The stock issuable under the 2010 Plan
shall be shares of the Company’s authorized but unissued or
reacquired common stock. The maximum number of shares of common
stock which may be issued under the 2010 Plan is 5,000,000
shares.
The
2010 Plan is comprised of two separate equity programs, the Options
Grant Program, under which eligible persons may be granted options
to purchase shares of common stock, and the Stock Issuance Program,
under which eligible persons may be issued shares of common stock
directly, either through the immediate purchase of such shares or
as a bonus for services rendered to the Company.
F-29
The
2010 Plan provides that the Board of Directors, or a committee of
the Board of Directors, will administer it with full authority to
determine the identity of the recipients of the options or shares
and the number of options or shares. Options granted under the 2010
Plan may be either incentive stock options or non-qualified stock
options. The option price shall be 100% of the fair market value of
the common stock on the date of the grant (or in the case of
incentive stock options granted to any individual stockholder
possessing more than 10% of the total combined voting power of all
voting stock of the Company, 110% of such fair market value). The
term of any option may be fixed by the Board of Directors, or its
authorized committee, but in no event shall it exceed five years
from the date of grant. Options are exercisable upon payment in
full of the exercise price, either in cash or in common stock
valued at fair market value on the date of exercise of the
option.
No
shares or options were granted under the 2010 Plan during the year
ended December 31, 2020. In June 2020, the 2010 Plan terminated
with 15,059 ungranted authorized shares.
2013 Stock Option and Stock Issuance Plan
On
October 30, 2013, the Board of Directors approved the 2013 Stock
Plan (the “2013 Plan”) for officers, directors,
employees and consultants of the Company. The stock issuable under
the 2013 Plan shall be shares of the Company’s authorized but
unissued or reacquired common stock. The maximum number of shares
of common stock which may be issued under the 2013 Plan is
7,500,000 shares.
The
2013 Plan is comprised of two separate equity programs, the Options
Grant Program, under which eligible persons may be granted options
to purchase shares of common stock, and the Stock Issuance Program,
under which eligible persons may be issued shares of common stock
directly, either through the immediate purchase of such shares or
as a bonus for services rendered to the Company. The 2013 Plan
provides that the Board of Directors, or a committee of the Board
of Directors, will administer it with full authority to determine
the identity of the recipients of the options or shares and the
number of options or shares.
During
the year ended December 31, 2020, no shares of common stock were
granted under the 2013 Plan, 251,250 shares were forfeited, and
77,369 shares were withheld for withholding taxes.
No
shares of common stock or options were granted under the 2013 Plan
during the year ended December 31, 2020.
2016 Stock Option and Stock Issuance Plan
On
June 15, 2016, the Board of Directors ("Board") approved the 2016
Stock Plan (the "2016 Plan") for officers, directors, and senior
employees of the Corporation or any subsidiary of the
Corporation. The stock issuable under the 2016 Plan shall be
shares of the Company's authorized but unissued or reacquired
common stock. The maximum number of shares of common stock
that may be issued under the 2016 Plan is 7,500,000
shares.
The
2016 Plan consists of a Stock Issuance Program, under which
eligible persons may, at the discretion of the Board, be issued
shares of common stock directly, as a bonus for services rendered
or to be rendered to the Corporation or any subsidiary of the
Corporation.
No
shares of common stock or options were granted under the 2016 Plan
during the year ended December 31, 2020.
2019 Stock Option and Stock Issuance Plan
In May
2019, the Board of Directors ("Board") approved the 2019 Stock Plan
(the "2019 Plan") for officers, directors, and senior employees of
the Corporation or any subsidiary of the Corporation. The stock
issuable under the 2019 Plan shall be shares of the Company's
authorized but unissued or reacquired common stock. The maximum
number of shares of common stock that may be issued under the 2019
Plan is 15,000,000 shares.
The
2019 Plan consists of a Stock Issuance Program, under which
eligible persons may, at the discretion of the Board, be issued
shares of common stock directly, as a bonus for services rendered
or to be rendered to the Corporation or any subsidiary of the
Corporation.
F-30
During
the year ended December 31, 2020, 1,000,000 shares were granted
under the 2019 Plan.
The
following table summarizes non-vested restricted shares under all
plans for the year ended December 31, 2020:
(in
thousands)
|
|
Shares Available for
Future Issuance
|
Unvested
shares
|
Weighted Average Grant
Date Fair Value
|
|
Balance
at December 31, 2018
|
1,901,817
|
2,387,500
|
$
0.12
|
|
Authorized
|
15,000,000
|
-
|
$
-
|
|
Granted
|
(5,500,000
)
|
5,500,000
|
$
0.02
|
|
Vested
|
-
|
(2,077,089
)
|
$
0.08
|
|
Forfeited
|
290,203
|
(290,203
)
|
$
0.14
|
|
Balance
at December 31, 2019
|
11,692,020
|
5,520,208
|
$
0.03
|
|
Authorized
|
-
|
-
|
$
-
|
|
Granted
|
(1,000,000
)
|
1,000,000
|
$
0.02
|
|
Vested
|
-
|
(1,799,923
)
|
$
0.05
|
|
Forfeited
|
328,619
|
(328,619
)
|
$
0.10
|
|
Expired
|
(15,059
)
|
-
|
$
-
|
|
Balance
at December 31, 2020
|
11,005,580
|
4,391,666
|
$
0.02
|
There
were 53,558,455 remaining authorized shares of common stock after
reserves for all stock option plans.
NOTE R
- INCOME TAXES
The
following is a geographical breakdown of income (loss) before the
provision for income taxes:
(in thousands)
|
|
Year ended December
31,
|
|
|
|
2020
|
2019
|
|
Domestic
|
$
(74
)
|
$
(152
)
|
|
Foreign
|
431
|
(119
)
|
|
Income
(loss) before provision for income taxes
|
$
357
|
$
(271
)
|
F-31
The
provision for income taxes consisted of the following:
(in thousands)
|
|
Year ended December
31,
|
|
|
|
2020
|
2019
|
|
Current
provision (benefit)
|
|
|
|
Federal
|
$
-
|
$
-
|
|
State
|
78
|
43
|
|
Foreign
|
(7
)
|
16
|
|
Total
current provision (benefit)
|
71
|
59
|
|
|
|
|
|
Deferred
provision (benefit)
|
|
|
|
Federal
|
41
|
41
|
|
State
|
11
|
11
|
|
Foreign
|
(124
)
|
-
|
|
Total
deferred provision (benefit)
|
(72
)
|
52
|
|
|
|
|
|
Total
income tax (benefit) provision
|
$
(1
)
|
$
111
|
|
|
|
|
|
Effective
income tax rate
|
-0.28
%
|
-41.02
%
|
Income
tax benefit for the year ended December 31, 2020 was $1,000 due
primarily to a $124,000 reduction in foreign deferred tax
liability, partially offset by $78,000 in state income taxes. The
income tax provision of $111,000 for the year ended December 31,
2019 was due primarily to $43,000 in state income taxes and a
$52,000 reduction in deferred tax assets.
The
following is a reconciliation of the effective income tax rate to
the federal statutory rate:
(in thousands)
|
|
Year ended December
31,
|
|
|
|
2020
|
2019
|
|
|
%
|
%
|
|
Federal
statutory rate
|
21.00
|
21.00
|
|
State
income taxes
|
19.39
|
(16.91
)
|
|
Change
in valuation allowance
|
|
|
|
relating
to operations
|
2.13
|
12.81
|
|
Foreign
tax rate differential
|
(61.99
)
|
(15.27
)
|
|
R&D
credit
|
(1.39
)
|
5.64
|
|
Nondeductible
expenses
|
8.06
|
(29.32
)
|
|
Other
|
12.52
|
(18.97
)
|
|
|
(0.28
)
|
(41.02
)
|
F-32
The
effective tax rate increased mainly due to the change from pre-tax
loss in 2019 to pre-tax profit in 2020, and the impact of foreign
taxes and non-deductible expenses.
As of
December 31, 2020, the recorded deferred tax assets were
$14,917,000, reflecting a decrease of $428,000 during the year
ended December 31, 2020, which was offset by a valuation allowance
of $12,145,000, reflecting a decrease of $182,000.
The
components of our deferred tax assets and liabilities are
summarized as follows:
(in (thousands)
|
|
December 31,
2020
|
December 31,
2019
|
|
Deferred
Tax Assets:
|
|
|
|
Net
operating loss carryforwards
|
$
12,026
|
$
12,517
|
|
Amortization
|
344
|
338
|
|
Stock-based
compensation
|
6
|
6
|
|
Allowance
for doubtful accounts
|
110
|
84
|
|
Reserve
for slow moving inventory
|
47
|
169
|
|
Tax
credits
|
449
|
444
|
|
Expense
accruals
|
543
|
457
|
|
Excess
interest carryforwards
|
-
|
171
|
|
Deferred
revenue
|
1,392
|
1,159
|
|
Total
gross deferred taxes
|
14,917
|
15,345
|
|
Valuation
allowance
|
(12,145
)
|
(12,327
)
|
|
Net
deferred tax assets
|
2,772
|
3,018
|
|
|
|
|
|
Deferred
Tax Liabilities:
|
|
|
|
Deferred
commissions
|
(370
)
|
(302
)
|
|
Goodwill
|
(1,445
)
|
(1,186
)
|
|
Differences
in timing of revenue recognition
|
-
|
(124
)
|
|
Depreciation
|
(686
)
|
(1,207
)
|
|
Total
deferred tax liabilities
|
(2,501
)
|
(2,819
)
|
|
|
|
|
|
Total
deferred tax assets (liabilities)
|
271
|
199
|
|
|
|
|
|
|
|
|
|
Recorded
as:
|
|
|
|
Non-current
deferred tax assets
|
271
|
323
|
|
Non-current
deferred tax liabilities
|
-
|
(124
)
|
|
Total
deferred tax assets (liabilities)
|
$
271
|
$
199
|
F-33
The
activity in the valuation allowance is set forth
below:
(in thousands)
|
|
2020
|
2019
|
|
Valuation
allowance, January 1,
|
$
12,327
|
$
12,362
|
|
Change
in valuation allowance
|
(182
)
|
(35
)
|
|
Valuation
allowance, December 31,
|
$
12,145
|
$
12,327
|
At
December 31, 2020, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $38
million expiring at various dates from 2020 through 2037 and
approximately $7 million with no expiration date.
Under
current tax law, the utilization of tax attributes will be
restricted if an ownership change, as defined, were to occur.
Section 382 of the Internal Revenue Code provides, in general, that
if an “ownership change” occurs with respect to a
corporation with net operating and other loss carryforwards, such
carryforwards will be available to offset taxable income in each
taxable year after the ownership change only up to the
“Section 382 Limitation” for each year (generally, the
product of the fair market value of the corporation’s stock
at the time of the ownership change, with certain adjustments, and
a specified long-term tax-exempt bond rate at such time). The
Company’s ability to use its loss carryforwards will be
limited in the event of an ownership change.
NOTE S
- COMMITMENTS AND CONTINGENCIES
Sales representation agreement
In
December 2017, the Company concluded an amendment of the GEHC
Agreement with GEHC, originally signed on May 19, 2010. The
amendment extends the term of the original agreement, which began
on July 1, 2010 and was previously extended in 2012 and 2015,
through December 31, 2022, subject to early termination by GEHC
without cause with certain conditions, making it the longest
extension thus far with a remaining term of five years from
December 31, 2017. Under the agreement, VasoHealthcare is the
exclusive representative for the sale of select GE Healthcare
diagnostic imaging products to specific market accounts in the 48
contiguous states of the United States and the District of
Columbia. The circumstances under 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. The Company met all the contractual conditions in
2020 except achieving certain sales goals due to the adverse impact
of the COVID-19 pandemic.
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.
F-34
On June
1, 2015, the Company entered into an Employment Agreement with Mr.
Peter Castle to be its Chief Operating Officer. The agreement
provides for a three-year term ending on June 1, 2018 and shall
extend for additional one-year periods annually commencing June 1,
2018, unless earlier terminated by the Company, but in no event can
extend beyond June 1, 2021. The Employment Agreement currently
provides for annual compensation of $350,000. Mr. Castle shall be
eligible to receive a bonus for each fiscal year thereafter during
the employment term. The amount and the occasion for payment of
such bonus, if any, shall be at the discretion of the Board of
Directors. Mr. Castle shall also be eligible for an award under any
long-term incentive compensation plan and grants of options and
awards of shares of the Company’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.
Licensing and Support Service Agreement
In
December 2020, NetWolves extended the licensing and support service
agreement of its billing system for an additional three years, to
expire December 2023. The agreement provides for monthly recurring
charges based on a percentage of billed revenues using these
services, which charges aggregated approximately $301,000 and
$331,000 for the years ended December 31, 2020 and 2019,
respectively.
Letters of Credit
At
December 31, 2020 we are contingently liable under a standby letter
of credit approximating $220,500. The letter of credit is being
maintained as security for payments to a vendor.
Litigation
The
Company is currently, and has been in the past, a party to various
routine legal proceedings, primarily employee related matters,
incident to the ordinary course of business. The Company believes
that the outcome of all such pending legal proceedings in the
aggregate is unlikely to have a material adverse effect on the
business or consolidated financial condition of the
Company.
Foreign operations
During
the years ended December 31, 2020 and 2019, the Company had and
continues to have operations in China. Operating
transactions in China are denominated in the
Chinese currency called RMB or CNY, which is not freely convertible
into foreign currencies.
Operating internationally involves
additional risks relating to such things as currency exchange
rates, different legal and regulatory environments, political,
economic risks relating to the stability or predictability of
foreign governments, differences in the manner in which different
cultures do business, difficulties in staffing and managing foreign
operations, differences in financial reporting, operating
difficulties, and other factors.
Commercial law is
still developing in China and there are limited legal precedents to
follow in commercial transactions. There are many tax jurisdictions
each of which may have changing tax laws. Applicable taxes include
value added taxes (“VAT”), Enterprise Income Tax, and
social (payroll) taxes. Regulations are often unclear. Tax
declarations (reports) are subject to review and taxing authorities
may impose fines, penalties and interest. These facts create risks
in China.
NOTE T
- 401(k) PLANS
The
Company maintains a defined contribution plan to provide retirement
benefits for its employees - the Vaso Corporation 401(k) Plan
adopted in April 1997. As allowed under Section 401(k) of the
Internal Revenue Code, the plan provides tax-deferred salary
deductions for eligible employees. Employees are eligible to
participate in the next quarter enrollment period after employment
and participants may make voluntary contributions to the plan up to
80% of their compensation, subject to applicable IRS annual
limitations. In the years ended December 31, 2020 and 2019 the
Company made discretionary contributions, to match a percentage of
employee contributions, of approximately $114,000 and $118,000,
respectively.
NOTE U
– SUBSEQUENT EVENT
Extension of debt maturity dates
In
March 2021, the Company made principal payments aggregating $1.5
million on its lines of credit and $1.2 million on its MedTech
Notes, and extended the maturity dates of its remaining line of
credit and its MedTech Notes to June 30, 2022. The extensions
require subsequent principal payments of $50,000 per quarter
beginning June 30, 2021 through March 31, 2022 under both the line
of credit and the MedTech Notes. No change was made to the interest
rates in effect at the time of extensions.
F-35
TABLE OF CONTENTS
Part IItem 1 BusinessItem 1A - Risk FactorsItem 2 PropertiesPart IIItem 5 Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 7 Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 8 - Financial Statements and Supplementary DataItem 9A - Controls and ProceduresPart IIIItem 10 Directors, Executive Officers and Corporate GovernanceItem 11 - Executive CompensationItem 12 - Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13 - Certain Relationships and Related Transactions, and Director IndependenceItem 14 - Principal Accounting Fees and ServicesPart IVItem 15 Exhibits and Financial Statement Schedules