VASO CORP
10-Ks and 10-Qs
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11/11/2019 18:47 PM
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2019
☐ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to
______________
Commission File Number: 0-18105
VASO CORPORATION
(Exact name of registrant as specified in its charter)
|
Delaware
|
|
11-2871434
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|
(State or other jurisdiction of incorporation or
organization)
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(IRS Employer Identification Number)
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137 Commercial St., Suite 200, Plainview, New York
11803
(Address of principal executive offices)
Registrant’s Telephone Number (516) 997-4600
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15 (d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has
submitted electronically 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
☒
No
☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company or an emerging growth company. See the definitions of
"large accelerated filer," "accelerated filer," "smaller reporting
company," and "emerging growth company" in Rule 12b-2 of the
Exchange Act.
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Large Accelerated Filer ☐
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Accelerated Filer ☐
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Non-Accelerated Filer ☒
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Smaller Reporting Company ☒
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Emerging Growth Company ☐
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If
an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. [
]
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes
☐
No
☒
Securities registered pursuant to Section 12 (b) of the
Act:
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Title of each class
|
Trading Symbol
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Name of each exchange on which registered
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Common Stock
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VASO
|
OTC:PK
|
Number of Shares Outstanding of Common Stock, $.001 Par Value, at
November 10, 2019 – 172,701,726
11/11/2019 18:47 PM
Vaso Corporation and Subsidiaries
INDEX
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3
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3
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3
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4
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5
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6
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7
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22
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29
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30
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30
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2
11/11/2019 18:47 PM
P
ART I – FINANCIAL INFORMATION
Vaso Corporation and Subsidiaries
C
ONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
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|
September 30,
2019
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December 31,
2018
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(unaudited)
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ASSETS
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CURRENT
ASSETS
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Cash
and cash equivalents
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$
1,343
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$
2,668
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Accounts
and other receivables, net of an allowance for doubtful
accounts
and commission adjustments of $4,039 at September 30, 2019
and
$3,994 at December 31, 2018
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8,040
|
11,028
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Receivables
due from related parties
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18
|
20
|
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Inventories,
net
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2,181
|
1,983
|
|
Deferred
commission expense
|
2,476
|
2,585
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Prepaid
expenses and other current assets
|
1,075
|
890
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Total
current assets
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15,133
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19,174
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PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$7,164
at September 30, 2019 and $6,370 at December 31, 2018
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5,091
|
5,809
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OPERATING
LEASE RIGHT OF USE ASSETS
|
998
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-
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GOODWILL
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17,203
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17,309
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INTANGIBLES,
net
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4,395
|
4,740
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OTHER
ASSETS, net
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2,733
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3,067
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DEFERRED
TAX ASSETS, net
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375
|
375
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$
45,928
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$
50,474
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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CURRENT
LIABILITIES
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Accounts
payable
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$
4,919
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$
6,284
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Accrued
commissions
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581
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2,116
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Accrued
expenses and other liabilities
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4,604
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5,655
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Finance
lease liabilities - current
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146
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188
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Operating
lease liabilities - current
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621
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-
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Sales
tax payable
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933
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1,020
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Deferred
revenue - current portion
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11,148
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10,382
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Notes
payable - current portion
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10,415
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9,116
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Notes
payable - related parties - current portion
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1,245
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582
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Due
to related party
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10
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10
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Total
current liabilities
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34,622
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35,353
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LONG-TERM
LIABILITIES
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Notes
payable - related parties, net of current portion
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-
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245
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Finance
lease liabilities, net of current portion
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406
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400
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Operating
lease liabilities, net of current portion
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377
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-
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Deferred
revenue, net of current portion
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6,752
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7,704
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Deferred
tax liability
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124
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124
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Other
long-term liabilities
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1,083
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1,037
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Total
long-term liabilities
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8,742
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9,510
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COMMITMENTS
AND CONTINGENCIES (NOTE Q)
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STOCKHOLDERS'
EQUITY
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Preferred
stock, $.01 par value; 1,000,000 shares authorized; nil shares
issued and outstanding at September 30, 2019 and December 31,
2018
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-
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-
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Common
stock, $.001 par value; 250,000,000 shares authorized; 182,969,813
and 177,417,287 shares issued at September 30, 2019 and December 31
2018, respectively; 172,661,726 and 167,109,200 shares outstanding
at September 30, 2019 and December 31, 2018,
respectively
|
184
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178
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Additional
paid-in capital
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63,787
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63,672
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Accumulated
deficit
|
(58,961
)
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(55,924
)
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Accumulated
other comprehensive loss
|
(446
)
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(315
)
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Treasury
stock, at cost, 10,308,087 shares at September 30, 2019 and
December 31, 2018
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(2,000
)
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(2,000
)
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Total
stockholders’ equity
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2,564
|
5,611
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$
45,928
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$
50,474
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
3
11/11/2019 18:47 PM
V
aso Corporation and
Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
(Unaudited)
(in thousands, except per share data)
|
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T
hree
months ended
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Nine months ended
|
||
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S
eptember
30,
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September 30,
|
||
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2019
|
2018
|
2019
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2018
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Revenues
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Managed
IT systems and services
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$
11,485
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$
11,002
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$
34,217
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$
33,118
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Professional
sales services
|
6,336
|
6,854
|
14,882
|
18,868
|
|
Equipment
sales and services
|
906
|
932
|
2,695
|
2,755
|
|
Total
revenues
|
18,727
|
18,788
|
51,794
|
54,741
|
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|
|
|
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Cost
of revenues
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Cost
of managed IT systems and services
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6,414
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6,563
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19,791
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19,291
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Cost
of professional sales services
|
1,140
|
1,465
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2,780
|
3,903
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Cost
of equipment sales and services
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332
|
309
|
1,084
|
1,040
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Total
cost of revenues
|
7,886
|
8,337
|
23,655
|
24,234
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Gross
profit
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10,841
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10,451
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28,139
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30,507
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Operating
expenses
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Selling,
general and administrative
|
9,840
|
10,462
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29,884
|
32,459
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Research
and development
|
196
|
230
|
624
|
668
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Total
operating expenses
|
10,036
|
10,692
|
30,508
|
33,127
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Operating
income (loss)
|
805
|
(241
)
|
(2,369
)
|
(2,620
)
|
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Other
(expense) income
|
|
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Interest
and financing costs
|
(268
)
|
(178
)
|
(728
)
|
(530
)
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Interest
and other income, net
|
36
|
56
|
109
|
114
|
|
Gain
on sale of investment in VSK
|
-
|
-
|
-
|
212
|
|
Total
other (expense) income, net
|
(232
)
|
(122
)
|
(619
)
|
(204
)
|
|
|
|
|
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Income
(loss) before income taxes
|
573
|
(363
)
|
(2,988
)
|
(2,824
)
|
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Income
tax expense
|
(11
)
|
(14
)
|
(49
)
|
(71
)
|
|
Net
income (loss)
|
562
|
(377
)
|
(3,037
)
|
(2,895
)
|
|
|
|
|
|
|
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Other
comprehensive income (loss)
|
|
|
|
|
|
Foreign
currency translation (loss) gain
|
(193
)
|
(131
)
|
(131
)
|
(218
)
|
|
Comprehensive
income (loss)
|
$
369
|
$
(508
)
|
$
(3,168
)
|
$
(3,113
)
|
|
|
|
|
|
|
|
Earnings
(loss) per common share
|
|
|
|
|
|
-
basic
|
$
0.00
|
$
(0.00
)
|
$
(0.02
)
|
$
(0.02
)
|
|
-
diluted
|
$
0.00
|
$
(0.00
)
|
$
(0.02
)
|
$
(0.02
)
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
|
|
-
basic
|
168,662
|
166,431
|
167,557
|
165,024
|
|
-
diluted
|
168,787
|
166,431
|
167,557
|
165,024
|
The accompanying notes are an integral
part of these unaudited
condensed
consolidated
financial
statements.
4
11/11/2019 18:47 PM
V
aso Corporation and
Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
|
|
|
|
|
|
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Accumulated
|
|
|
|
|
|
|
|
|
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Other
|
Total
|
|
|
Common Stock
|
Treasury Stock
|
Additional
|
Accumulated
|
Comprehensive
|
Stockholders’
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Paid-in-Capital
|
Deficit
|
Loss
|
Equity
|
|
Balance at January 1, 2018
|
175,742
|
$
176
|
(10,308
)
|
$
(2,000
)
|
$
63,363
|
$
(52,329
)
|
$
(58
)
|
$
9,152
|
|
Share-based compensation
|
167
|
-
|
-
|
-
|
141
|
-
|
-
|
141
|
|
Adoption of new accounting standard (*)
|
-
|
-
|
-
|
-
|
-
|
139
|
-
|
139
|
|
Foreign currency translation gain
|
-
|
-
|
-
|
-
|
-
|
-
|
184
|
184
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(2,069
)
|
-
|
(2,069
)
|
|
Balance at March 31, 2018 (unaudited)
|
175,909
|
$
176
|
(10,308
)
|
$
(2,000
)
|
$
63,504
|
$
(54,259
)
|
$
126
|
$
7,547
|
|
Share-based compensation
|
1,011
|
1
|
-
|
-
|
80
|
-
|
-
|
81
|
|
Shares not issued for employee tax liability
|
-
|
-
|
-
|
-
|
(1
)
|
-
|
-
|
(1
)
|
|
Foreign currency translation loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(271
)
|
(271
)
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(446
)
|
-
|
(446
)
|
|
Balance at June 30, 2018 (unaudited)
|
176,920
|
177
|
(10,308
)
|
(2,000
)
|
63,583
|
(54,705
)
|
(145
)
|
6,910
|
|
Share-based compensation
|
108
|
-
|
-
|
-
|
44
|
-
|
-
|
44
|
|
Foreign currency translation gain (loss)
|
-
|
-
|
-
|
-
|
-
|
-
|
(131
)
|
(131
)
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(380
)
|
-
|
(380
)
|
|
Balance at September 30, 2018 (unaudited)
|
177,028
|
$
177
|
(10,308
)
|
$
(2,000
)
|
$
63,627
|
$
(55,085
)
|
$
(276
)
|
$
6,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2019
|
177,417
|
$
178
|
(10,308
)
|
(2,000
)
|
$
63,672
|
$
(55,924
)
|
$
(315
)
|
$
5,611
|
|
Share-based compensation
|
-
|
-
|
-
|
-
|
44
|
-
|
-
|
44
|
|
Foreign currency translation gain
|
-
|
-
|
-
|
-
|
-
|
-
|
137
|
137
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(2,849
)
|
-
|
(2,849
)
|
|
Balance at March 31, 2019 (unaudited)
|
177,417
|
$
178
|
(10,308
)
|
$
(2,000
)
|
$
63,716
|
$
(58,773
)
|
$
(178
)
|
$
2,943
|
|
Share-based compensation
|
5,438
|
5
|
-
|
-
|
49
|
-
|
-
|
54
|
|
Shares not issued for employee tax liability
|
-
|
-
|
-
|
-
|
(2
)
|
-
|
-
|
(2
)
|
|
Foreign currency translation loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(75
)
|
(75
)
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(750
)
|
-
|
(750
)
|
|
Balance at June 30, 2019 (unaudited)
|
182,855
|
$
183
|
(10,308
)
|
$
(2,000
)
|
$
63,763
|
$
(59,523
)
|
$
(253
)
|
$
2,170
|
|
Share-based compensation
|
115
|
1
|
-
|
-
|
24
|
-
|
-
|
25
|
|
Foreign currency translation loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(193
)
|
(193
)
|
|
Net income
|
-
|
-
|
-
|
-
|
-
|
562
|
-
|
562
|
|
Balance at September 30, 2019 (unaudited)
|
182,970
|
$
184
|
(10,308
)
|
$
(2,000
)
|
$
63,787
|
$
(58,961
)
|
$
(446
)
|
$
2,564
|
(*)
Accounting
Standards Codification Topic 606,
Revenue from Contracts with Customers
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
5
11/11/2019 18:47 PM
V
aso Corporation and
Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
(in thousands)
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
|
2019
|
2018
|
|
Cash
flows from operating activities
|
|
|
|
Net
loss
|
$
(3,037
)
|
$
(2,895
)
|
|
Adjustments
to reconcile net loss to net
|
|
|
|
cash
used in operating activities
|
|
|
|
Depreciation
and amortization
|
2,024
|
1,828
|
|
Loss
from interest in joint venture
|
-
|
9
|
|
Gain
on sale of investment in VSK
|
-
|
(212
)
|
|
Provision
for doubtful accounts and commission adjustments
|
243
|
240
|
|
Amortization
of debt issue costs
|
14
|
24
|
|
Share-based
compensation
|
123
|
266
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
and other receivables
|
2,774
|
2,837
|
|
Inventories,
net
|
(232
)
|
(75
)
|
|
Deferred
commission expense
|
109
|
1,142
|
|
Prepaid
expenses and other current assets
|
(190
)
|
(152
)
|
|
Other
assets, net
|
269
|
244
|
|
Accounts
payable
|
(1,363
)
|
1,756
|
|
Accrued
commissions
|
(1,539
)
|
(1,264
)
|
|
Accrued
expenses and other liabilities
|
(1,022
)
|
791
|
|
Sales
tax payable
|
(85
)
|
155
|
|
Deferred
revenue
|
(185
)
|
(6,114
)
|
|
Deferred
tax liability
|
-
|
12
|
|
Other
long-term liabilities
|
47
|
(124
)
|
|
Net
cash used in operating activities
|
(2,050
)
|
(1,532
)
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
Purchases
of equipment and software
|
(889
)
|
(2,168
)
|
|
Sale
of fixed assets
|
22
|
-
|
|
Proceeds
from sale of investment in VSK
|
-
|
311
|
|
Net
cash used in investing activities
|
(867
)
|
(1,857
)
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
Net
borrowings on revolving lines of credit
|
1,000
|
1,158
|
|
Payroll
taxes paid by withholding shares
|
(2
)
|
(1
)
|
|
Repayment
of capital lease obligations
|
-
|
(94
)
|
|
Repayment
of notes payable and finance lease obligations
|
(181
)
|
-
|
|
Proceeds
from notes payable
|
300
|
18
|
|
Proceeds
from notes payable - related parties
|
930
|
-
|
|
Repayment
of notes payable - related parties
|
(500
)
|
-
|
|
Net
cash provided by financing activities
|
1,547
|
1,081
|
|
Effect
of exchange rate differences on cash and cash
equivalents
|
45
|
42
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
(1,325
)
|
(2,266
)
|
|
Cash
and cash equivalents - beginning of period
|
2,668
|
5,245
|
|
Cash
and cash equivalents - end of period
|
$
1,343
|
$
2,979
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
|
|
|
|
Interest
paid
|
$
550
|
$
491
|
|
Income
taxes paid
|
$
38
|
$
74
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
|
|
|
|
Initial
recognition of operating lease right of use asset and
liability
|
$
1,107
|
$
-
|
|
Sale
of investment in VSK
|
$
-
|
$
676
|
|
Equipment
acquired through finance lease
|
$
134
|
$
399
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
V
aso Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
NOTE A - ORGANIZATION AND PLAN OF OPERATIONS
Vaso
Corporation was incorporated in Delaware in July 1987. Unless the
context requires otherwise, all references to “we”,
“our”, “us”, “Company”,
“registrant”, “Vaso” or
“management” refer to Vaso Corporation and its
subsidiaries.
Overview
Vaso
Corporation principally operates in three distinct business
segments in the healthcare and information technology
(“IT”) industries. We manage and evaluate our
operations, and report our financial results, through these three
business segments.
●
IT segment,
operating through a wholly-owned subsidiary VasoTechnology, Inc.,
primarily focuses on healthcare IT and managed network technology
services;
●
Professional sales
service segment, operating through a wholly-owned subsidiary Vaso
Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the
sale of healthcare capital equipment for General Electric
Healthcare (“GEHC”) into the healthcare provider middle
market; and
●
Equipment segment,
operating through a wholly-owned subsidiary VasoMedical, Inc.,
primarily focuses on the design, manufacture, sale and service of
proprietary medical devices.
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 and a healthcare IT application VAR (value added reseller)
division. Its current offerings include:
●
Managed radiology
and imaging applications (national channel partner of GEHC Digital
and other 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
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 (“GEHC Agreement”) with GEHC, which is the
healthcare business division of the General Electric Company, to
further the sale of certain healthcare capital equipment in the
healthcare provider middle market. Sales of GEHC equipment by the
Company have grown significantly since then.
VasoHealthcare’s
current offerings consist of:
●
GEHC diagnostic
imaging capital equipment.
●
GEHC service
agreements for the above equipment.
●
GEHC training
services for use of the above equipment.
●
GEHC and third
party financial services.
7
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
VasoMedical
VasoMedical is the
Company’s business division for its proprietary medical
device operations, including the design, development,
manufacturing, sales and service of various medical devices in the
domestic and international markets and includes the Vasomedical
Global and Vasomedical Solutions business units. These devices are
primarily for cardiovascular monitoring, diagnostic and therapeutic
systems. Its current offerings consist of:
●
Biox™ series
Holter monitors and ambulatory blood pressure
recorders.
●
ARCS
®
series
analysis, reporting and communication software for physiological
signals such as ECG and blood pressure.
●
MobiCare™
multi-parameter wireless vital-sign monitoring system.
●
EECP
®
therapy system
for non-invasive, outpatient treatment of ischemic heart
disease.
This
segment uses its extensive cardiovascular device knowledge coupled
with its significant engineering resources to cost-effectively
create and market its proprietary technology. It works with a
global distribution network of channel partners to sell its
products. It also provides engineering and OEM services to other
medical device companies.
Going concern Assessment
We
have incurred net losses from operations for the nine months ended
September 30, 2019, and the years ended December 31, 2018 and 2017.
We maintain lines of credit from a lending institution which will
require further extensions after their current December 18, 2019
maturity date. We also have notes payable which mature within the
next twelve months. Our ability to continue operating as a going
concern is dependent upon achieving profitability, extending the
maturity date of our existing lines of credit and notes payable, or
through additional debt or equity financing. Achieving
profitability is largely dependent on our ability to reduce
operating costs and to maintain or increase our current revenue.
While we believe we will continue to maintain or increase our gross
revenue and are substantially reducing operating costs, and while
historically we have received extensions of the maturity dates of
our lines of credit, failure to achieve these objectives could cast
doubt on our ability to continue as a going concern.
NOTE B – INTERIM STATEMENT PRESENTATION
Basis of Presentation and Use of Estimates
The
accompanying condensed consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP") and pursuant
to the accounting and disclosure rules and regulations of the
Securities and Exchange Commission (the "SEC") for interim
financial information. Certain information and disclosures normally
included in the financial statements prepared in accordance with
U.S. GAAP have been condensed or omitted pursuant to such rules and
regulations. Accordingly, these condensed consolidated financial
statements should be read in conjunction with the audited
consolidated financial statements and related notes thereto
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2018, as filed with the SEC on April 15,
2019.
These
unaudited condensed consolidated financial statements include the
accounts of the companies over which we exercise control. In the
opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation
of interim results for the Company. The results of operations for
any interim period are not necessarily indicative of results to be
expected for any other interim period or the full
year.
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of
the condensed consolidated financial statements, the disclosure of
contingent assets and liabilities in the unaudited condensed
consolidated financial statements and the accompanying notes, and
the reported amounts of revenues, expenses and cash flows during
the periods presented. Actual amounts and results could differ from
those estimates. The estimates and assumptions the Company makes
are based on historical factors, current circumstances and the
experience and judgment of the Company's management. The Company
evaluates its estimates and assumptions on an ongoing
basis.
8
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Significant Accounting Policies and Recent Accounting
Pronouncements
Recently Adopted Accounting Pronouncements
Effective January
1, 2019, the Company adopted Accounting Standards Codification
(“ASC”) Topic 842, “Leases”. See Note N for
further details.
Reclassifications
Certain
reclassifications have been made to prior period amounts to conform
with the current period presentation.
NOTE C – REVENUE RECOGNITION
Disaggregation of Revenue
The
following tables present revenues disaggregated by our business
operations and timing of revenue recognition:
|
|
(in thousands)
|
|||||||
|
|
Three Months Ended September 30, 2019
(unaudited)
|
Three Months Ended September 30, 2018
(unaudited)
|
||||||
|
|
|
Professional sales
|
Equipment
|
|
|
Professional sales
|
Equipment
|
|
|
|
IT segment
|
service segment
|
segment
|
Total
|
IT segment
|
service segment
|
segment
|
Total
|
|
Network
services
|
$
10,210
|
|
|
$
10,210
|
$
10,146
|
|
|
$
10,146
|
|
Software
sales and support
|
1,275
|
|
|
1,275
|
856
|
|
|
856
|
|
Commissions
|
|
6,336
|
|
6,336
|
|
6,854
|
|
6,854
|
|
Medical
equipment sales
|
|
|
686
|
686
|
|
|
661
|
661
|
|
Medical
equipment service
|
|
|
220
|
220
|
|
|
271
|
271
|
|
|
$
11,485
|
$
6,336
|
$
906
|
$
18,727
|
$
11,002
|
$
6,854
|
$
932
|
$
18,788
|
|
|
Nine Months Ended September 30, 2019 (unaudited)
|
Nine Months Ended September 30, 2018 (unaudited)
|
||||||
|
|
|
Professional sales
|
Equipment
|
|
|
Professional sales
|
Equipment
|
|
|
|
IT segment
|
service segment
|
segment
|
Total
|
IT segment
|
service segment
|
segment
|
Total
|
|
Network
services
|
$
30,221
|
|
|
$
30,221
|
$
30,418
|
|
|
$
30,418
|
|
Software
sales and support
|
3,996
|
|
|
3,996
|
2,700
|
|
|
2,700
|
|
Commissions
|
|
14,882
|
|
14,882
|
|
18,868
|
|
18,868
|
|
Medical
equipment sales
|
|
|
1,911
|
1,911
|
|
|
1,936
|
1,936
|
|
Medical
equipment service
|
|
|
784
|
784
|
|
|
819
|
819
|
|
|
$
34,217
|
$
14,882
|
$
2,695
|
$
51,794
|
$
33,118
|
$
18,868
|
$
2,755
|
$
54,741
|
|
|
Three Months Ended September 30, 2019 (unaudited)
|
Three Months Ended September 30, 2018 (unaudited)
|
||||||
|
|
|
Professional sales
|
Equipment
|
|
|
Professional sales
|
Equipment
|
|
|
|
IT segment
|
service segment
|
segment
|
Total
|
IT segment
|
service segment
|
segment
|
Total
|
|
Revenue
recognized over time
|
$
10,524
|
$
-
|
$
145
|
$
10,669
|
$
9,561
|
$
-
|
$
163
|
$
9,724
|
|
Revenue
recognized at a point in time
|
961
|
6,336
|
761
|
8,058
|
1,441
|
6,854
|
769
|
9,064
|
|
|
$
11,485
|
$
6,336
|
$
906
|
$
18,727
|
$
11,002
|
$
6,854
|
$
932
|
$
18,788
|
|
|
Nine Months Ended September 30, 2019 (unaudited)
|
Nine Months Ended September 30, 2018 (unaudited)
|
||||||
|
|
|
Professional sales
|
Equipment
|
|
|
Professional sales
|
Equipment
|
|
|
|
IT segment
|
service segment
|
segment
|
Total
|
IT segment
|
service segment
|
segment
|
Total
|
|
Revenue
recognized over time
|
$
30,526
|
$
-
|
$
447
|
$
30,973
|
$
29,315
|
$
-
|
$
505
|
$
29,820
|
|
Revenue
recognized at a point in time
|
3,691
|
14,882
|
2,248
|
20,821
|
3,803
|
18,868
|
2,250
|
24,921
|
|
|
$
34,217
|
$
14,882
|
$
2,695
|
$
51,794
|
$
33,118
|
$
18,868
|
$
2,755
|
$
54,741
|
9
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Transaction Price Allocated to Remaining Performance
Obligations
As of
September 30, 2019, the aggregate amount of transaction price
allocated to performance obligations that are unsatisfied (or
partially unsatisfied) for executed contracts approximates $80.4
million, of which we expect to recognize revenue as
follows:
|
|
(in thousands)
Fiscal years of revenue
recognition
|
|||
|
|
remainder of 2019
|
2020
|
2021
|
Thereafter
|
|
Unfulfilled
performance obligations
|
$
15,520
|
$
37,538
|
$
14,164
|
$
13,256
|
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 $808,000 and $344,000 at
September 30, 2019 and December 31, 2018, respectively, and are
included in accrued expenses and other liabilities in our condensed
consolidated balance sheets.
In our
VasoHealthcare business, we bill amounts for certain milestones in
advance of customer acceptance of the underlying equipment. Such
amounts aggregated approximately $17,069,000 and $17,098,000 at
September 30, 2019 and December 31, 2018, respectively, and are
classified in our condensed consolidated balance sheets as either
current or long-term deferred revenue. In addition, we record a
contract liability for amounts expected to be repaid to GEHC due to
customer order reductions. Such amounts aggregated approximately
$1,265,000 and $2,315,000 at September 30, 2019 and December 31,
2018, respectively, and are included in accrued expenses and other
liabilities in our condensed consolidated balance
sheets.
In our
VasoMedical business, we bill amounts for post-delivery services
and varying duration service contracts in advance of performance.
Such amounts aggregated approximately $831,000 and $988,000 at
September 30, 2019 and December 31, 2018, respectively, and are
classified in our condensed consolidated balance sheets as either
current or long-term deferred revenue.
During
the three and nine months ended September 30, 2019, we recognized
approximately $2.9 million and $4.8 million of revenues that were
included in our contract liability balance at July 1, 2019 and
January 1, 2019, respectively.
NOTE D – SEGMENT REPORTING AND CONCENTRATIONS
Vaso
Corporation principally operates in three distinct business
segments in the healthcare and information technology industries.
We manage and evaluate our operations, and report our financial
results, through these three reportable segments.
●
IT segment,
operating through a wholly-owned subsidiary VasoTechnology, Inc.,
primarily focuses on healthcare IT and managed network technology
services;
●
Professional sales
service segment, operating through a wholly-owned subsidiary Vaso
Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the
sale of healthcare capital equipment for GEHC into the healthcare
provider middle market; and
●
Equipment segment,
operating through a wholly-owned subsidiary VasoMedical, Inc.,
primarily focuses on the design, manufacture, sale and service of
proprietary medical devices.
10
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
The
chief operating decision maker is the Company’s Chief
Executive Officer, who, in conjunction with upper management,
evaluates segment performance based on operating income and
adjusted EBITDA (net income (loss), plus interest expense (income),
net; tax expense; depreciation and amortization; and non-cash
stock-based compensation). Administrative functions such as
finance, human resources, and information technology are
centralized and related expenses allocated to each segment. Other
costs not directly attributable to operating segments, such as
audit, legal, director fees, investor relations, and others, as
well as certain assets – primarily cash balances – are
reported in the Corporate entity below. There are no intersegment
revenues. Summary financial information for the segments is set
forth below:
|
|
(in
thousands)
|
|||
|
|
Three months ended September 30,
|
Nine months ended September 30,
|
||
|
|
2019
|
2018
|
2019
|
2018
|
|
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|
Revenues
from external customers
|
|
|
|
|
|
IT
|
$
11,485
|
$
11,002
|
$
34,217
|
$
33,118
|
|
Professional
sales service
|
6,336
|
6,854
|
14,882
|
18,868
|
|
Equipment
|
906
|
932
|
2,695
|
2,755
|
|
Total
revenues
|
$
18,727
|
$
18,788
|
$
51,794
|
$
54,741
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
|
|
|
IT
|
$
5,071
|
$
4,439
|
$
14,426
|
$
13,827
|
|
Professional
sales service
|
5,196
|
5,389
|
12,102
|
14,965
|
|
Equipment
|
574
|
623
|
1,611
|
1,715
|
|
Total
gross profit
|
$
10,841
|
$
10,451
|
$
28,139
|
$
30,507
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
|
|
|
IT
|
$
269
|
$
(782
)
|
$
(306
)
|
$
(2,064
)
|
|
Professional
sales service
|
1,028
|
1,013
|
(487
)
|
1,123
|
|
Equipment
|
(282
)
|
(181
)
|
(809
)
|
(747
)
|
|
Corporate
|
(210
)
|
(291
)
|
(767
)
|
(932
)
|
|
Total
operating income (loss)
|
$
805
|
$
(241
)
|
$
(2,369
)
|
$
(2,620
)
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
IT
|
$
562
|
$
476
|
$
1,673
|
$
1,393
|
|
Professional
sales service
|
42
|
45
|
130
|
137
|
|
Equipment
|
75
|
105
|
221
|
298
|
|
Corporate
|
-
|
-
|
-
|
-
|
|
Total
depreciation and amortization
|
$
679
|
$
626
|
$
2,024
|
$
1,828
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
|
|
|
IT
|
$
143
|
$
1,055
|
$
827
|
$
2,107
|
|
Professional
sales service
|
-
|
-
|
-
|
-
|
|
Equipment
|
32
|
37
|
56
|
57
|
|
Corporate
|
-
|
1
|
6
|
4
|
|
Total
cash capital expenditures
|
$
175
|
$
1,093
|
$
889
|
$
2,168
|
11
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
|
|
(in
thousands)
|
|
|
|
September 30,
2019
|
December 31,
2018
|
|
|
(unaudited)
|
|
|
Identifiable
Assets
|
|
|
|
IT
|
$
29,458
|
$
28,785
|
|
Professional
sales service
|
8,514
|
12,193
|
|
Equipment
|
6,423
|
6,992
|
|
Corporate
|
1,533
|
2,504
|
|
Total
assets
|
$
45,928
|
$
50,474
|
GE
Healthcare accounted for 34% and 36% of revenue for the three
months ended September 30, 2019 and 2018, respectively, and 29% and
34% of revenue for the nine months ended September 30, 2019 and
2018, respectively. GE Healthcare also accounted for $3.5 million
or 44%, and $7.2 million or 66%, of accounts and other receivables
at September 30, 2019 and December 31, 2018,
respectively.
NOTE E – EARNINGS (LOSS) PER COMMON SHARE
Basic
earnings (loss) per common share is computed as earnings (loss)
applicable to common stockholders divided by the weighted-average
number of common shares outstanding for the period. Diluted
earnings (loss) per common share reflects the potential dilution
that could occur if securities or other contracts to issue common
shares were exercised or converted to common stock.
Diluted
earnings (loss) 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)
|
|||
|
|
For the three months ended September 30,
|
For the nine months ended September 30,
|
||
|
|
2019
|
2018
|
2019
|
2018
|
|
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|
Basic
weighted average shares outstanding
|
168,662
|
166,431
|
167,557
|
165,024
|
|
Dilutive
effect of unvested restricted shares
|
125
|
-
|
-
|
-
|
|
Diluted
weighted average shares outstanding
|
168,787
|
166,431
|
167,557
|
165,024
|
12
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
The
following table represents common stock equivalents that were
excluded from the computation of diluted earnings (loss) per share
for the three and nine months ended September 30, 2019 and 2018,
because the effect of their inclusion would be
anti-dilutive.
|
|
(in thousands)
|
|||
|
|
Three months ended September 30,
|
Nine months ended September 30,
|
||
|
|
2019
|
2018
|
2019
|
2018
|
|
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|
Restricted
common stock grants
|
1,485
|
2,559
|
5,485
|
2,559
|
NOTE F – ACCOUNTS AND OTHER RECEIVABLES, NET
The
following table presents information regarding the Company’s
accounts and other receivables as of September 30, 2019 and
December 31, 2018:
|
|
(in thousands)
|
|
|
|
September 30,
2019
|
December 31,
2018
|
|
|
(unaudited)
|
|
|
Trade
receivables
|
$
10,433
|
$
15,016
|
|
Unbilled
receivables
|
1,639
|
-
|
|
Due
from employees
|
7
|
6
|
|
Allowance
for doubtful accounts and
|
|
|
|
commission
adjustments
|
(4,039
)
|
(3,994
)
|
|
Accounts
and other receivables, net
|
$
8,040
|
$
11,028
|
Contract
receivables under Topic 606 consist of trade receivables and
unbilled receivables. Trade receivables include amounts due for
shipped products and services rendered. Unbilled receivables
represent variable consideration recognized in accordance with
Topic 606 but not yet billable. Amounts recorded – billed and
unbilled - under the GEHC Agreement are subject to adjustment in
subsequent periods should the underlying sales order amount, upon
which the receivable is based, change.
Allowance
for doubtful accounts and commission adjustments include estimated
losses resulting from the inability of our customers to make
required payments, and adjustments arising from subsequent changes
in sales order amounts that may reduce the amount the Company will
ultimately receive under the GEHC Agreement. Due from employees is
primarily commission advances made to sales personnel.
13
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
NOTE G – INVENTORIES, NET
Inventories,
net of reserves, consist of the following:
|
|
(in
thousands)
|
|
|
|
September 30,
2019
|
December 31,
2018
|
|
|
(unaudited)
|
|
|
Raw
materials
|
$
610
|
$
577
|
|
Work
in process
|
273
|
388
|
|
Finished
goods
|
1,298
|
1,018
|
|
|
$
2,181
|
$
1,983
|
At
September 30, 2019 and December 31, 2018, the Company maintained
reserves for slow moving inventories of $452,000 and $636,000,
respectively.
NOTE H – PROPERTY AND EQUIPMENT
|
|
(in
thousands)
|
|
|
|
September 30,
2019
|
December 31,
2018
|
|
|
(unaudited)
|
|
|
Office,
laboratory and other equipment
|
$
2,514
|
$
3,885
|
|
Equipment
furnished for customer
|
|
|
|
or
clinical uses
|
8,594
|
8,167
|
|
Right
of use assets - finance leases
|
1,020
|
-
|
|
Furniture
and fixtures
|
127
|
127
|
|
|
12,255
|
12,179
|
|
Less:
accumulated depreciation and amortization
|
(7,164
)
|
(6,370
)
|
|
Property
and equipment, net
|
$
5,091
|
$
5,809
|
Assets
under capital lease comprised approximately $855,000 of the office,
laboratory and other equipment asset class and approximately
$60,000 of the equipment furnished for customer or clinical use
asset class at December 31, 2018. In January 2019, the Company
adopted Accounting Standards Codification (“ASC”) 842,
“Leases” (See Note N) and classifies the assets arising
from such leases as “right of use asset - finance
leases”.
14
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
NOTE I – GOODWILL AND OTHER INTANGIBLES
Goodwill
of $14,375,000 is allocated to the IT segment. The remaining
$2,828,000 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 September 30, 2019 and
December 31, 2018. The components of the change in goodwill are as
follows:
|
|
(in thousands)
|
|
|
|
Nine months ended
|
Year ended
|
|
|
September 30,
2019
|
December 31,
2018
|
|
|
(unaudited)
|
|
|
Beginning
of period
|
$
17,309
|
$
17,471
|
|
Foreign
currency translation adjustment
|
(106
)
|
(162
)
|
|
End
of period
|
$
17,203
|
$
17,309
|
The
Company’s other intangible assets consist of capitalized
customer-related intangibles, patent and technology costs, and
software costs, as set forth in the following:
|
|
(in thousands)
|
|
|
|
September 30,
2019
|
December 31,
2018
|
|
|
(unaudited)
|
|
|
Customer-related
|
|
|
|
Costs
|
$
5,831
|
$
5,831
|
|
Accumulated
amortization
|
(3,435
)
|
(3,083
)
|
|
|
2,396
|
2,748
|
|
|
|
|
|
Patents
and Technology
|
|
|
|
Costs
|
2,363
|
2,363
|
|
Accumulated
amortization
|
(1,708
)
|
(1,532
)
|
|
|
655
|
831
|
|
|
|
|
|
Software
|
|
|
|
Costs
|
2,709
|
2,346
|
|
Accumulated
amortization
|
(1,365
)
|
(1,185
)
|
|
|
1,344
|
1,161
|
|
|
|
|
|
|
$
4,395
|
$
4,740
|
15
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Patents and technology are amortized on a
straight-line basis over their estimated useful lives of ten and
eight years, respectively. The cost of significant customer-related
intangibles is amortized in proportion to estimated total related
revenue; cost of other customer-related intangible assets
is
amortized on a straight-line basis over the asset's estimated
economic life of seven years
. Software costs are amortized
on a straight-line basis over its expected useful life of five
years.
Amortization
expense amounted to $239,000 and $248,000 for the three months
ended September 30, 2019 and 2018, respectively, and $708,000 and
$753,000 for the nine months ended September 30, 2019 and 2018,
respectively.
Amortization
of intangibles for the next five years is:
|
|
(in thousands)
|
|
Years
ending December 31,
|
(unaudited)
|
|
Remainder
of 2019
|
320
|
|
2020
|
980
|
|
2021
|
904
|
|
2022
|
609
|
|
2023
|
542
|
|
|
$
3,355
|
NOTE J – OTHER ASSETS, NET
Other
assets, net consist of the following at September 30, 2019 and
December 31, 2018:
|
|
(in
thousands)
|
|
|
|
September 30,
2019
|
December 31,
2018
|
|
|
(unaudited)
|
|
|
Deferred
commission expense - noncurrent
|
$
1,728
|
$
1,978
|
|
Trade
receivables - noncurrent
|
672
|
630
|
|
Other,
net of allowance for loss on loan receivable of
|
|
|
|
$412
at September 30, 2019 and December 31, 2018
|
333
|
459
|
|
|
$
2,733
|
$
3,067
|
16
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
NOTE K – ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued
expenses and other liabilities consist of the following at
September 30, 2019 and December 31, 2018:
|
|
(in
thousands)
|
|
|
|
September 30,
2019
|
December 31,
2018
|
|
|
(unaudited)
|
|
|
Accrued
compensation
|
$
1,025
|
$
648
|
|
Accrued
expenses - other
|
1,104
|
2,092
|
|
Other
liabilities
|
2,475
|
2,915
|
|
|
$
4,604
|
$
5,655
|
NOTE L - DEFERRED REVENUE
The
changes in the Company’s deferred revenues are as
follows:
|
|
(in thousands)
|
|||
|
|
Three months ended September 30,
|
Nine months ended September 30,
|
||
|
|
2019
|
2018
|
2019
|
2018
|
|
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|
Deferred
revenue at beginning of period
|
$
17,575
|
$
20,193
|
$
18,086
|
$
23,066
|
|
Net
additions:
|
|
|
|
|
|
Deferred
extended service contracts
|
30
|
189
|
269
|
503
|
|
Deferred
in-service and training
|
3
|
-
|
13
|
3
|
|
Deferred
service arrangements
|
5
|
-
|
25
|
5
|
|
Deferred
commission revenues
|
3,075
|
(797
)
|
6,200
|
1,372
|
|
Recognized
as revenue:
|
|
|
|
|
|
Deferred
extended service contracts
|
(137
)
|
(156
)
|
(427
)
|
(477
)
|
|
Deferred
in-service and training
|
-
|
(3
)
|
(15
)
|
(5
)
|
|
Deferred
service arrangements
|
(8
)
|
(7
)
|
(21
)
|
(28
)
|
|
Deferred
commission revenues
|
(2,643
)
|
(2,467
)
|
(6,230
)
|
(7,487
)
|
|
Deferred
revenue at end of period
|
17,900
|
16,952
|
17,900
|
16,952
|
|
Less:
current portion
|
11,148
|
9,969
|
11,148
|
9,969
|
|
Long-term
deferred revenue at end of period
|
$
6,752
|
$
6,983
|
$
6,752
|
$
6,983
|
The
net reduction in deferred commission revenue of $797 thousand in
the third quarter 2018 is due to the impact of the tiered
commission structure. New orders for the quarter exceeded
cancellations of prior period orders recognized in the quarter;
however, the average commission rate on such cancellations was
greater than the average commission rate for new orders in the
quarter resulting in the net decrease in deferred commission
revenues. Periodically, GEHC “scrubs” the open orders
to eliminate orders that are not expected to be
fulfilled.
17
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
NOTE M – NOTES PAYABLE
Notes
payable consist of the following:
|
|
September 30,
2019
|
December 31,
2018
|
|
|
(unaudited)
|
|
|
Line
of credit
|
$
5,171
|
$
4,171
|
|
Unsecured
term loan
|
140
|
145
|
|
Notes
payable
|
304
|
14
|
|
Notes
payable - MedTech (net of $0 and $14 in debt issue
costs
|
|
|
|
at
September 30, 2019 and December 31, 2018,
respectively)
|
4,800
|
4,786
|
|
Notes
payable - related parties
|
1,245
|
827
|
|
Total
debt
|
11,660
|
9,943
|
|
Less:
current portion (including related parties)
|
(11,660
)
|
(9,698
)
|
|
|
$
-
|
$
245
|
NetWolves maintains a $4.0 million line of credit
with a lending institution.
In
June 2019, the line’s expiration date was extended from June
28, 2019 to December 18, 2019, and the interest rate was increased
25 basis points to LIBOR plus 3.25%.
Advances under the line
are secured by substantially all of the assets of NetWolves Network
Services, LLC and guaranteed by Vaso Corporation. At September 30,
2019, the Company had drawn approximately $3.8 million against the
line. The draw is included in notes payable – current portion
in the Company’s condensed consolidated balance
sheet.
The Company maintains an additional $2.0 million
line of credit with a lending institution. In June 2019, the
line’s expiration date was extended from June 28, 2019 to
December 18, 2019, and the interest rate was increased 25 basis
points to LIBOR plus 3.25%. Advances under the line are secured by
substantially all of the assets of the Company.
At September
30, 2019, the Company had drawn approximately $1.4 million against
the line.
The line of credit agreement
includes certain financial covenants that become effective
beginning in the quarter ended September 30, 2019. The Company was
in compliance with such covenants at September 30,
2019.
In
November and December 2018, the Company issued unsecured notes
aggregating $500,000 to certain directors. The notes bore interest
at 10% per annum and matured on March 25, 2019. Principal and
interest on these notes were paid in full upon
maturity.
In
the nine months ended September 30, 2019, the Company issued notes
aggregating $930,000 to directors, employees, and a shareholder.
The notes mature at various periods through July 19, 2020 and bear
interest at 10% per annum payable quarterly.
In
August 2019, the Company issued to a private party a $300,000 note
bearing interest at 10% and maturing November 15,
2019.
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:
18
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
●
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
sales representation 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)
|
|
|
|
September 30,
2019
|
December 31,
2018
|
|
|
(unaudited)
|
|
|
Lease
liabilities - current
|
|
|
|
Finance
leases
|
$
146
|
$
188
|
|
Operating
leases
|
621
|
-
|
|
|
$
767
|
$
188
|
|
Lease
liabilities - net of current portion
|
|
|
|
Finance
leases
|
$
406
|
$
400
|
|
Operating
leases
|
377
|
-
|
|
|
$
783
|
$
400
|
A
reconciliation of undiscounted cash flows to finance and operating
lease liabilities recognized in the condensed consolidated balance
sheet at September 30, 2019 is set forth below:
|
|
(in thousands)
|
||
|
Years
ending December 31,
|
Finance leases
|
Operating leases
|
Total
|
|
Remainder
of 2019
|
48
|
190
|
238
|
|
2020
|
192
|
548
|
740
|
|
2021
|
192
|
268
|
460
|
|
2022
|
165
|
82
|
247
|
|
2023
|
48
|
-
|
48
|
|
Undiscounted
lease payments
|
645
|
1,088
|
1,733
|
|
Amount
representing interest
|
(93
)
|
(90
)
|
(183
)
|
|
Discounted
lease liabilities (unaudited)
|
552
|
998
|
1,550
|
19
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Additional
disclosures of lease data are set forth below:
|
|
(in
thousands)
|
|
|
|
Three months ended
September 30,
2019
|
Nine months ended
September 30,
2019
|
|
|
(unaudited)
|
(unaudited)
|
|
Lease costs:
|
|
|
|
Finance
lease costs:
|
|
|
|
Amortization
of right-of-use assets
|
$
47
|
$
167
|
|
Interest
on lease liabilities
|
11
|
37
|
|
|
58
|
204
|
|
Operating
lease costs:
|
190
|
540
|
|
Short-term
lease costs:
|
20
|
56
|
|
Total
lease cost
|
$
268
|
$
800
|
|
|
|
|
|
Other information:
|
|
|
|
Cash
paid for amounts included in the
|
|
|
|
measurement
of lease liabilities:
|
|
|
|
Operating
cash flows from finance leases
|
$
11
|
$
37
|
|
Operating
cash flows from operating leases
|
195
|
546
|
|
Financing
cash flows from finance leases
|
45
|
170
|
|
|
$
251
|
$
753
|
|
|
September 30,
2019
|
|
|
(unaudited)
|
|
Weighted-average
remaining lease term - finance leases (months)
|
43
|
|
Weighted-average
remaining lease term - operating leases (months)
|
23
|
|
|
|
|
Weighted-average
discount rate - finance leases
|
9.9
%
|
|
Weighted-average
discount rate - operating leases
|
9.3
%
|
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.
20
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
NOTE
O – EQUITY
In
June 2019, 5,000,000 restricted shares of common stock, valued at
$100,000, under the 2019 Stock Plan were granted and issued to an
officer of the Company as stock-based compensation. 1,000,000
shares vested immediately with the remainder vesting 25% per year
over the ensuing four-year period. The grant was valued at the fair
value, using market price, of the stock at the grant date, and the
Company recognized $25,000 in compensation expense related to such
grant in the nine months ended September 30, 2019.
NOTE
P – RELATED-PARTY TRANSACTIONS
The
Company recorded interest charges aggregating approximately
$344,000 and $328,000 for the nine-month periods ended September
30, 2019 and 2018, respectively, payable to MedTechnology
Investments, LLC (“MedTech”) pursuant to its $4,800,000
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 is paid on or before
December 31, 2019 and the annual interest rate for the balance
increases to 10% during the extension. 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. Interest charges
aggregating approximately $123,000 were outstanding at September
30, 2019 and paid on October 1, 2019. The entire outstanding
balance of the MedTech Notes is included as current
liabilities.
David
Lieberman, the Vice Chairman of the Company’s Board of
Directors, is a practicing attorney in the State of New York and a
senior partner at the law firm of Beckman Lieberman &
Associates LLP, which performs certain legal services for the
Company.
Fees of approximately $63,000
and $85,000 were billed by the firm for the three-month periods
ended September 30, 2019 and 2018, respectively, and fees of
approximately $218,000 and $255,000 were billed by the firm for the
nine-month periods ended September 30, 2019 and 2018, respectively,
at which times no amounts were outstanding.
NOTE Q – COMMITMENTS AND CONTINGENCIES
Litigation
The
Company is currently, and has been in the past, a party to various
legal proceedings, primarily employee related matters, incident to
its business. The Company believes that the outcome of all pending
legal proceedings in the aggregate is unlikely to have a material
adverse effect on the business or consolidated financial condition
of the Company.
Sales representation agreement
In
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 agreement through December 31,
2022, subject to earlier termination with or without cause under
certain circumstances after timely notice. Under the agreement,
VasoHealthcare is the exclusive representative for the sale of
select GE Healthcare diagnostic imaging products to specific market
segments/accounts in the 48 contiguous states of the United States
and 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.
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.
21
I
TEM 2 - MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Except for historical information contained in this report, the
matters discussed are forward-looking statements that involve risks
and uncertainties. When used in this report, words such as
“anticipates”, “believes”,
“could”, “estimates”,
“expects”, “may”, “plans”,
“potential” and “intends” and similar
expressions, as they relate to the Company or its management,
identify forward-looking statements. Such forward-looking
statements are based on the beliefs of the Company’s
management, as well as assumptions made by and information
currently available to the Company’s management. Among the
factors that could cause actual results to differ materially are
the following: the effect of business and economic conditions; the
effect of the dramatic changes taking place in the healthcare
environment; the impact of competitive procedures and products and
their pricing; medical insurance reimbursement policies; unexpected
manufacturing or supplier problems; unforeseen difficulties and
delays in product development programs; the actions of regulatory
authorities and third-party payers in the United States and
overseas; continuation of the GEHC agreements and the risk factors
reported from time to time in the Company’s SEC reports,
including its recent report on Form 10-K. The Company undertakes no
obligation to update forward-looking statements as a result of
future events or developments.
Unless the context requires otherwise, all references to
“we”, “our”, “us”,
“Company”, “registrant”, “Vaso”
or “management” refer to Vaso Corporation and its
subsidiaries
General Overview
Vaso Corporation
(“Vaso”)
was incorporated in Delaware in July
1987.
We principally operate in three distinct business
segments in the healthcare and information technology industries.
We manage and evaluate our operations, and report our financial
results, through these three business segments.
●
IT segment,
operating through a wholly-owned subsidiary VasoTechnology, Inc.,
primarily focuses on healthcare IT and managed network technology
services;
●
Professional sales
service segment, operating through a wholly-owned subsidiary Vaso
Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the
sale of healthcare capital equipment for GEHC into the healthcare
provider middle market; and
●
Equipment segment,
operating through a wholly-owned subsidiary VasoMedical, Inc.,
primarily focuses on the design, manufacture, sale and service of
proprietary medical devices.
Critical Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of
operations are based upon the accompanying unaudited condensed
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States (“U.S. GAAP”). The preparation of
financial statements in conformity with U.S. GAAP requires
management to make judgments, estimates and assumptions that affect
the reported amounts of assets, liabilities, revenue, expenses, and
the related disclosures at the date of the financial statements and
during the reporting period. Although these estimates are based on
our knowledge of current events, our actual amounts and results
could differ from those estimates. The estimates made are based on
historical factors, current circumstances, and the experience and
judgment of our management, who continually evaluate the judgments,
estimates and assumptions and may employ outside experts to assist
in the evaluations.
Certain
of our accounting policies are deemed “critical”, as
they are both most important to the financial statement
presentation and require management’s most difficult,
subjective or complex judgments as a result of the need to make
estimates about the effect of matters that are inherently
uncertain. For a discussion of our critical accounting policies,
see Note B to the condensed consolidated financial statements and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our Annual Report on
Form 10-K for the year ended December 31, 2018 as filed with the
SEC on April 15, 2019.
22
Results of Operations – For the Three Months Ended September
30, 2019 and 2018
Revenues
Total
revenue for the three months ended September 30, 2019 and 2018 was
$18,727,000 and $18,788,000, respectively, representing a decrease
of $61,000, or less than 1% year-over-year. On a segment basis,
revenue in the IT segment increased $483,000, while professional
sales service and equipment segment revenue decreased $518,000 and
$26,000, respectively.
Revenue
in the IT segment for the three months ended September 30, 2019 was
$11,485,000 compared to $11,002,000 for the three months ended
September 30, 2018, an increase of $483,000, or 4%, of which
$419,000 resulted from an increase in the operations of the
healthcare IT VAR business and $64,000 resulted from higher
NetWolves revenue. Our monthly recurring revenue in the managed
network services operations continues to grow as we add new
customers and expand our services to existing customers. At the
same time, the backlog of orders in our healthcare IT operations
decreased to $13.2 million at September 30, 2019 from $14.8 million
at September 30, 2018, due to revenues exceeding order bookings and
higher order cancellations. We define backlog as the total value of
the undelivered products and services in current contracts that
will be delivered in future periods.
Commission
revenues in the professional sales service segment were $6,336,000
in the third quarter of 2019, a decrease of 8%, as compared to
$6,854,000 in the same quarter of 2018. The decrease in commission
revenues was due primarily to a decrease in the volume of
underlying equipment delivered by GEHC during the period. The
Company only recognizes commission revenue when the underlying
equipment has been accepted at the customer site in accordance with
the specific terms of the sales agreement. Consequently, amounts
billable, or billed and received, under the agreement with GE
Healthcare prior to customer acceptance of the equipment are
recorded as deferred revenue in the condensed consolidated balance
sheet. As of September 30, 2019, $17,069,000 in deferred commission
revenue was recorded in the Company’s condensed consolidated
balance sheet, of which $6,376,000 was long-term. At September 30,
2018, $16,011,000 in deferred commission revenue was recorded in
the Company’s condensed consolidated balance sheet, of which
$6,518,000 was long-term. The increase in deferred revenue is
principally due to an increase in new orders booked and a decrease
in deliveries by GEHC. We anticipate that revenue will increase in
the fourth quarter of 2019 as deliveries increase.
Revenue in the equipment segment decreased by
$26,000, or 3%, to $906,000 for the three-month period ended
September 30, 2019 from $932,000 for the same period of the prior
year. The decrease was principally due to lower sales of
EECP
®
equipment.
Gross Profit
Gross
profit for the three months ended September 30, 2019 and 2018 was
$10,841,000, or 58% of revenue, and $10,451,000, or 56% of revenue,
respectively, representing an increase of $390,000, or 4%
year-over-year. On a segment basis, gross profit in the IT segment
increased $632,000, or 14%, while gross profit in the professional
sales service and equipment segments decreased $193,000, or 4%, and
$49,000, or 8%, respectively.
IT
segment gross profit for the three months ended September 30, 2019
was $5,071,000, or 44% of the segment revenue, compared to
$4,439,000, or 42% of the segment revenue for the three months
ended September 30, 2018. The year-over-year increase of $632,000,
or 14%, was primarily a result of higher margin product sales mix
of network and managed services and higher sales volume in the IT
VAR business.
Professional sales service segment gross profit
was $5,196,000, or 82% of segment revenue, for the three months
ended September 30, 2019 as compared to $5,389,000, or 79% of the
segment revenue, for the three months ended September 30, 2018,
reflecting a decrease of $193,000. The decrease in absolute dollars
was primarily due to lower commission revenue as a result of
lower volume of GEHC equipment delivered during the third quarter
of 2019 than in the same period last year. Cost of
commissions in the professional sales service
segment of $1,140,000 and $1,465,000, for the three months ended
September 30, 2019 and 2018, respectively, reflected commission
expense associated with recognized commission
revenues.
23
Commission
expense associated with short-term deferred revenue is recorded as
short-term deferred commission expense, or with long-term deferred
revenue as part of other assets, on the balance sheet until the
related commission revenue is recognized.
Equipment
segment gross profit decreased to $574,000, or 63% of segment
revenues, for the third quarter of 2019 compared to $623,000, or
67% of segment revenues, for the same quarter of 2018. The $49,000,
or 8%, decrease in gross profit was due to lower sales volume, as
well as a gross profit margin decrease due mainly to a higher
proportion of lower margin products in the sales mix in the third
quarter of 2019, compared to the third quarter of
2018.
Operating Income (loss)
Operating
income (loss) for the three months ended September 30, 2019 and
2018 was $805,000 and $(241,000), respectively, representing an
improvement of $1,046,000, due to the increase in gross profit and
decrease in operating costs (below). On a segment basis, operating
income in the IT and professional sales service segments increased
$1,051,000 and $15,000, respectively and, while operating loss in
the equipment segment increased $101,000. In addition, corporate
expenses decreased $81,000.
Operating
income in the IT segment increased to $269,000 for the three-month
period ended September 30, 2019 as compared to operating loss of
$(782,000) in the same period of 2018 due to higher gross profit
and lower selling, general, and administrative
(“SG&A”) costs, partially offset by higher research
and development (“R&D”) costs. Operating income in
the professional sales service segment increased $15,000 in the
three-month period ended September 30, 2019 as compared to
operating income in the same period of 2018, due to lower SG&A
costs partially offset by lower gross profit. The increase in
equipment segment operating loss of $101,000 in the third quarter
of 2019 was due to lower gross profit and higher SG&A costs,
partially offset by lower R&D costs.
SG&A
costs for the three months ended September 30, 2019 and 2018 were
$9,840,000 and $10,462,000, respectively, representing a decrease
of $622,000, or 6% year-over-year. On a segment basis, SG&A
costs in the IT segment decreased by $422,000 in the third quarter
of 2019 from the same quarter of the prior year due to reduced
personnel costs. SG&A costs in the professional sales service
segment decreased $209,000 due mainly to lower personnel-related
costs, and SG&A costs in the equipment segment increased
$90,000 due mainly to higher legal costs associated with the
successful conclusion of a lawsuit partially offset by lower
personnel costs. Corporate costs not allocated to segments
decreased by $81,000 in the three months ended September 30, 2019
from the same period in 2018, due primarily to lower director and
legal fees and lower investor relations costs.
Research
and development (“R&D”) expenses were $196,000, or
1% of revenues, for the third quarter of 2019, a decrease of
$34,000, or 15%, from $230,000, or 1% of revenues, for the third
quarter of 2018. The decrease is primarily attributable to lower
product development expenses in the equipment segment.
Adjusted EBITDA
We
define Adjusted EBITDA (earnings (loss) before interest, taxes,
depreciation and amortization), which is a non-GAAP financial
measure, as net income (loss), plus interest expense (income), net;
tax expense; depreciation and amortization; and non-cash expenses
for share-based compensation. Adjusted EBITDA is a metric
that is used by the investment community for comparative and
valuation purposes. We disclose this metric in order to support and
facilitate the dialogue with research analysts and
investors.
Adjusted EBITDA is
not a measure of financial performance under U.S. GAAP and should
not be considered a substitute for operating income, which we
consider to be the most directly comparable U.S. GAAP measure.
Adjusted EBITDA has limitations as an analytical tool, and when
assessing our operating performance, you should not consider
Adjusted EBITDA in isolation, or as a substitute for net income or
other consolidated income statement data prepared in accordance
with U.S. GAAP. Other companies may calculate Adjusted EBITDA
differently than we do, limiting its usefulness as a comparative
measure.
24
A
reconciliation of net income to Adjusted EBITDA is set forth
below:
|
|
(in
thousands)
|
|
|
|
Three months ended September 30,
|
|
|
|
2019
|
2018
|
|
|
(unaudited)
|
(unaudited)
|
|
Net
income (loss)
|
$
562
|
$
(377
)
|
|
Interest
expense (income), net
|
268
|
169
|
|
Income
tax expense
|
11
|
14
|
|
Depreciation
and amortization
|
679
|
626
|
|
Share-based
compensation
|
25
|
44
|
|
Adjusted
EBITDA
|
$
1,545
|
$
476
|
Adjusted EBITDA
increased by $1,069,000, to $1,545,000 in the quarter ended
September 30, 2019 from $476,000 in the quarter ended September 30,
2018. The increase was primarily attributable to the change from
net loss to net income.
Interest and Other Income (Expense)
Interest
and other income (expense) for the three months ended September 30,
2019 was $(232,000) as compared to $(122,000) for the corresponding
period of 2018. The increase in interest and other income (expense)
was due primarily to higher interest expense due to increased
borrowings under the line of credit.
Income Tax Expense
For
the three months ended September 30, 2019, we recorded income tax
expense of $11,000 as compared to $14,000 for the corresponding
period of 2018. The decrease arose mainly from lower state
taxes.
Net Income (loss)
Net
income for the three months ended September 30, 2019 was $562,000
as compared to a net loss of $377,000 for the three months ended
September 30, 2018, representing an improvement of $939,000. No net
income (loss) per share was recorded in each of the three-month
periods ended September 30, 2019 and 2018. The principal cause of
the change from net loss to net income is the increase in IT
segment revenue and gross profit, and the reduction in IT segment
SG&A costs.
Results of Operations – For the Nine months Ended September
30, 2019 and 2018
Revenues
Total
revenue for the nine months ended September 30, 2019 and 2018 was
$51,794,000 and $54,741,000, respectively, representing a decrease
of $2,947,000, or 5% year-over-year. On a segment basis, revenue in
the IT segment increased $1,099,000, while revenue in the
professional sales service and equipment segments decreased
$3,986,000 and $60,000, respectively.
25
Revenue
in the IT segment for the nine months ended September 30, 2019 was
$34,217,000 compared to $33,118,000 for the nine months ended
September 30, 2018, an increase of $1,099,000, or 3%, a result of
$1,295,000 growth in the healthcare IT VAR business offset by a
$196,000 revenue decrease in our NetWolves operation.
Commission
revenues in the professional sales service segment were $14,882,000
in the first nine months of 2019, a decrease of 21%, as compared to
$18,868,000 in the first nine months of 2018. The decrease in
commission revenues was due primarily to a decrease in the volume
of underlying equipment delivered by GEHC during the period. We
expect deliveries and revenue to improve through the remainder of
2019. The Company recognizes commission revenue when the underlying
equipment has been accepted at the customer site in accordance with
the specific terms of the sales agreement. Consequently, amounts
billable, or billed and received, under the agreement with GE
Healthcare prior to customer acceptance of the equipment are
recorded as deferred revenue in the condensed consolidated balance
sheet.
Revenue in the equipment segment decreased by
$60,000, or 2%, to $2,695,000 for the nine-month period ended
September 30, 2019 from $2,755,000 for the same period of the prior
year. The decrease was principally due to a decrease in
EECP
®
revenues as a result of lower sales
volume.
Gross Profit
Gross
profit for the nine months ended September 30, 2019 and 2018 was
$28,139,000, or 54% of revenue, and $30,507,000, or 56% of revenue,
respectively, representing a decrease of $2,368,000, or 8%
year-over-year. On a segment basis, gross profit in the IT segments
increased $599,000, while gross profit in the professional sales
service and equipment segments decreased $2,863,000 and $104,000,
respectively.
IT
segment gross profit for the nine months ended September 30, 2019
was $14,426,000, or 42% of the segment revenue, compared to
$13,827,000, or 42% of the segment revenue for the nine months
ended September 30, 2018, with increases of $497,000 and $102,000
from the IT VAR and NetWolves businesses, respectively, as a result
of higher sales.
Professional sales service segment gross profit
was $12,102,000, or 81% of segment revenue, for the nine months
ended September 30, 2019 as compared to $14,965,000, or 79% of the
segment revenue, for the nine months ended September 30, 2018,
reflecting a decrease of $2,863,000, or 19%. The decrease in
absolute dollars was due to lower commission revenue as a result
of
lower volume of GEHC equipment delivered during the first
nine months of 2019 than in the same period last year
, offset by lower commission expense in the first
nine months of 2019 compared to the same period of
2018.
Cost
of commissions in the professional sales service segment of
$2,780,000 and $3,903,000, for the nine months ended September 30,
2019 and 2018, respectively, reflected commission expense
associated with recognized commission revenues. Commission expense
associated with deferred revenue is recorded as deferred commission
expense until the related commission revenue is
recognized.
Equipment
segment gross profit decreased to $1,611,000, or 60% of segment
revenues, for the first nine months of 2019 compared to $1,715,000,
or 62% of segment revenues, for the same period of 2018, due to
lower sales volume and lower margin product mix in the first nine
months of 2019, compared to the same period of 2018.
Operating Loss
Operating
loss for the nine months ended September 30, 2019 and 2018 was
$2,369,000 and $2,620,000, respectively, representing an
improvement of $251,000, primarily due to lower operating costs
partially offset by lower gross profit. On a segment basis,
operating loss decreased $1,758,000 in the IT segment and increased
$62,000 in the equipment segment. Operating income in the
professional sales service segment decreased $1,610,000 from
$1,123,000 in the nine months ended September 30, 2018 to an
operating loss $487,000 in the same period of 2019. In addition,
corporate expenses decreased $165,000.
26
Operating
loss in the IT segment decreased in the nine-month period ended
September 30, 2019 as compared to the same period of 2018 due to
higher gross profit and lower SG&A costs, partially offset by
higher research and development costs. Operating income in the
professional sales service segment decreased in the nine-month
period ended September 30, 2019 as compared to the same period of
2018 due to lower gross profit, partially offset by lower SG&A
costs. Operating loss in the equipment segment increased in the
nine-month period ended September 30, 2019 as compared to the same
period of 2018 due to lower gross profit and higher SG&A costs,
partially offset by lower R&D costs.
SG&A
costs for the nine months ended September 30, 2019 and 2018 were
$29,884,000 and $32,459,000, respectively, representing a decrease
of $2,575,000, or 8% year-over-year. On a segment basis, SG&A
costs for the nine months ended September 30, 2019 decreased in the
IT segment by $1,195,000 to $14,485,000, from $15,680,000 for the
corresponding period of the prior year, due primarily to decreased
personnel costs, and decreased in the professional sales service
segment by $1,254,000 to $12,588,000, from $13,842,000 for the
corresponding period of the prior year, due to lower
personnel-related costs. SG&A costs in the equipment segment
for the nine months ended September 30, 2019 increased $39,000 to
$2,043,000, from $2,005,000 for the corresponding period of the
prior year, due primarily to higher legal costs, partially offset
by lower personnel costs. Corporate costs not allocated to segments
decreased in the same period by $165,000 to $767,000 from $932,000,
due primarily to lower director and legal fees and lower investor
relations costs.
Research
and development (“R&D”) expenses were $624,000, or
1% of revenues, for the first nine months of 2019, a decrease of
$44,000, or 7%, from $668,000, or 1% of revenues, for the first
nine months of 2018. The decrease is primarily attributable to
lower product development expenses in the equipment
segment.
Adjusted EBITDA
We
define Adjusted EBITDA (earnings (loss) before interest, taxes,
depreciation and amortization), which is a non-GAAP financial
measure, as net income (loss), plus interest expense (income), net;
tax expense; depreciation and amortization; and non-cash expenses
for share-based compensation. Adjusted EBITDA is a metric
that is used by the investment community for comparative and
valuation purposes. We disclose this metric in order to support and
facilitate the dialogue with research analysts and
investors.
Adjusted EBITDA is
not a measure of financial performance under U.S. GAAP and should
not be considered a substitute for operating income, which we
consider to be the most directly comparable U.S. GAAP measure.
Adjusted EBITDA has limitations as an analytical tool, and when
assessing our operating performance, you should not consider
Adjusted EBITDA in isolation, or as a substitute for net income or
other consolidated income statement data prepared in accordance
with U.S. GAAP. Other companies may calculate Adjusted EBITDA
differently than we do, limiting its usefulness as a comparative
measure.
A
reconciliation of net income to Adjusted EBITDA is set forth
below:
|
|
(in thousands)
|
|
|
|
Nine months ended September 30,
|
|
|
|
2019
|
2018
|
|
|
(unaudited)
|
(unaudited)
|
|
Net
loss
|
$
(3,037
)
|
$
(2,895
)
|
|
Interest
expense (income), net
|
711
|
507
|
|
Income
tax expense
|
49
|
71
|
|
Depreciation
and amortization
|
2,024
|
1,828
|
|
Share-based
compensation
|
123
|
266
|
|
Adjusted
EBITDA
|
$
(130
)
|
$
(223
)
|
27
Adjusted EBITDA
improved by $93,000, to $(130,000) in the nine months ended
September 30, 2019 from $(223,000) in the nine months ended
September 30, 2018. The improvement was primarily attributable to
higher interest and depreciation and amortization charges,
partially offset by the higher net loss and lower share-based
compensation.
Interest and Other Income (Expense)
Interest
and other income (expense) for the nine months ended September 30,
2019 was $(619,000) as compared to $(204,000) for the corresponding
period of 2018. The increase was due primarily to the $212,000 gain
on sale of VSK in the corresponding period of the prior year, and
by higher interest expense due to increased borrowings under our
credit line.
Income Tax Expense
For
the nine months ended September 30, 2019, we recorded income tax
expense of $49,000 as compared to income tax expense of $71,000 for
the corresponding period of 2018. The decrease arose mainly from
lower state and foreign taxes.
Net Loss
Net
loss for the nine months ended September 30, 2019 was $3,037,000
compared to net loss of $2,895,000 for the nine months ended
September 30, 2018, representing an increase in net loss of
$142,000. Our net loss per share was $0.02 in the nine-month
periods ended September 30, 2019 and 2018. The principal causes of
the increase in net loss is the decrease in operating income in the
professional sales service segment and the gain on sale of
investment in VSK, partially offset by the decrease in operating
loss in the IT segment.
Liquidity and Capital Resources
Cash and Cash Flow
We
have financed our operations from working capital and drawdown on
our lines of credit. At September 30, 2019, we had cash and cash
equivalents of $1,343,000 and negative working capital of
$19,489,000, compared to cash and cash equivalents of $2,668,000
and negative working capital of $16,179,000 at December 31, 2018.
$8,672,000 in negative working capital at September 30, 2019 is
attributable to the net balance of deferred commission expense and
deferred revenue. These are non-cash expense and revenue items and
have no impact on future cash flows.
Cash
used in operating activities was $2,050,000, which consisted of net
loss after adjustments to reconcile net loss to net cash of
$633,000 and cash used by operating assets and liabilities of
$1,417,000, during the nine months ended September 30, 2019,
compared to cash used in operating activities of $1,532,000 for the
same period in 2018. The changes in the account balances primarily
reflect a decrease in accounts and other receivables of $2,774,000,
offset by decreases in accounts payable, accrued commissions, and
accrued expenses of $1,363,000, $1,539,000, and $1,022,000,
respectively.
Cash
used in investing activities during the nine-month period ended
September 30, 2019 was $867,000 for the purchase of equipment and
software.
Cash
provided by financing activities during the nine-month period ended
September 30, 2019 was $1,547,000 primarily as a result of
$1,730,000 in net borrowings on revolving lines of credit and notes
payable, partially offset by $181,000 in net repayments of notes
and finance leases issued for equipment purchases.
Liquidity
We
have incurred net losses from operations for the nine months ended
September 30, 2019, and the years ended December 31, 2018 and 2017.
We maintain lines of credit from a lending institution which will
require further extensions after their current December 18, 2019
maturity date, as will notes payable which mature within the next
twelve months. Our ability to continue operating as a going concern
is dependent upon achieving profitability, extending the maturity
date of our existing lines of credit and notes payable, or through
additional debt or equity financing. Achieving profitability is
largely dependent on our ability to reduce operating costs and to
maintain or increase our current revenue. While we believe we will
continue to maintain or increase our gross revenue and are
substantially reducing operating costs, and while historically we
have received extensions of the maturity dates of our lines of
credit, failure to achieve these objectives could cast doubt on our
ability to continue as a going concern.
28
I
TEM 4 - CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure
controls and procedures reporting as promulgated under the Exchange
Act is defined as controls and procedures that are designed to
ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act are recorded,
processed, summarized and reported within the time periods
specified in the SEC rules and forms. Disclosure controls and
procedures include without limitation, controls and procedures
designed to ensure that information required to be disclosed by us
in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our Chief
Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”), or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.
Our
CEO and our CFO have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of September
30, 2019 and have concluded that the Company’s disclosure
controls and procedures were effective as of September 30,
2019.
Changes in Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over
financial reporting during the Company’s fiscal quarter ended
September 30, 2019 that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control
over financial reporting.
29
P
ART II - OTHER INFORMATION
I
TEM 6 – EXHIBITS
Exhibits
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Certifications of the Chief Executive Officer and the Chief
Financial Officer pursuant to Rules 13a-14(a) as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certifications of the Chief Executive Officer and the Chief
Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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In
accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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VASO
CORPORATION
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By:
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/s/
Jun
Ma
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Jun Ma |
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President and
Chief Executive
Officer
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(Principal
Executive Officer)
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/s/
Michael
J. Beecher
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Michael
J. Beecher
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Chief
Financial Officer and Principal Accounting
Officer
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Date: November 14, 2019
31
TABLE OF CONTENTS
Part I Financial InformationItem 1 - Financial StatementsItem 2 - Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 4 - Controls and ProceduresPart II - Other InformationItem 6 Exhibits