VASO CORP
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2020
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to
______________
Commission File Number: 0-18105
VASO CORPORATION
(Exact name of registrant as specified in its charter)
|
Delaware
|
11-2871434
|
|
(State or other
jurisdiction of
incorporation or organization)
|
(IRS Employer
Identification Number)
|
137 Commercial 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
[X]
No
[ ]
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit such
files).
Yes
[X]
No
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company or an emerging growth company. See the definitions of
"large accelerated filer," "accelerated filer," "smaller reporting
company," and "emerging growth company" in Rule 12b-2 of the
Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated
Filer [X] Smaller Reporting Company [X]
Emerging Growth Company [ ]
If
an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. [
]
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes
[ ]
No
[X]
Securities registered pursuant to Section 12 (b) of the Act:
None
Number of Shares Outstanding of Common Stock, $.001 Par Value, at
November 10, 2020– 174,715,411
Vaso Corporation and Subsidiaries
INDEX
|
3
|
|
|
3
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
7
|
|
|
20
|
|
|
28
|
|
|
29
|
|
|
30
|
2
P
ART I – FINANCIAL INFORMATION
Vaso Corporation and Subsidiaries
C
ONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except share and per share data)
|
|
September 30,
2020
|
December 31,
2019
|
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
CURRENT
ASSETS
|
|
|
|
Cash and cash
equivalents
|
$
6,865
|
$
2,124
|
|
Accounts and
other receivables, net of an allowance for
doubtful
|
|
|
|
accounts and
commission adjustments of $3,815 at September 30,
2020
|
|
|
|
and $4,285 at
December 31, 2019
|
6,435
|
15,852
|
|
Receivables
due from related parties
|
102
|
18
|
|
Inventories
|
1,243
|
1,941
|
|
Deferred
commission expense
|
1,992
|
2,785
|
|
Prepaid
expenses and other current assets
|
1,301
|
1,339
|
|
Total
current assets
|
17,938
|
24,059
|
|
|
|
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|
PROPERTY AND
EQUIPMENT, net of accumulated depreciation of
|
|
|
|
$8,447 at
September 30, 2020 and $7,560 at December 31,
2019
|
4,035
|
4,954
|
|
OPERATING
LEASE RIGHT OF USE ASSETS
|
935
|
870
|
|
GOODWILL
|
15,635
|
17,271
|
|
INTANGIBLES,
net
|
4,030
|
4,301
|
|
OTHER ASSETS,
net
|
3,686
|
2,586
|
|
DEFERRED TAX
ASSETS, net
|
323
|
323
|
|
|
$
46,582
|
$
54,364
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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CURRENT
LIABILITIES
|
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Accounts
payable
|
$
3,869
|
$
6,179
|
|
Accrued
commissions
|
983
|
2,102
|
|
Accrued
expenses and other liabilities
|
4,891
|
5,344
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Finance lease
liabilities - current
|
186
|
170
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Operating
lease liabilities - current
|
582
|
549
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Sales tax
payable
|
658
|
887
|
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Deferred
revenue - current portion
|
9,384
|
12,345
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Notes payable
- current portion
|
10,334
|
2,700
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Notes payable
- related parties - current portion
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-
|
1,233
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Due to related
party
|
3
|
19
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Total current
liabilities
|
30,890
|
31,528
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LONG-TERM
LIABILITIES
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Notes payable,
net of current portion
|
1,437
|
8,121
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Notes payable
- related parties, net of current portion
|
-
|
20
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|
Finance lease
liabilities, net of current portion
|
307
|
437
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|
Operating
lease liabilities, net of current portion
|
352
|
321
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|
Deferred
revenue, net of current portion
|
7,267
|
6,998
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|
Deferred tax
liability
|
-
|
124
|
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Other
long-term liabilities
|
1,062
|
1,026
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Total
long-term liabilities
|
10,425
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17,047
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COMMITMENTS
AND CONTINGENCIES (NOTE O)
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STOCKHOLDERS'
EQUITY
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Preferred
stock, $.01 par value; 1,000,000 shares authorized; nil
shares
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issued
and outstanding at September 30, 2020 and December 31,
2019
|
-
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-
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Common stock,
$.001 par value; 250,000,000 shares authorized;
|
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185,023,498
and 183,744,376 shares issued at September 30, 2020 and December
31, 2019;
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174,715,411
and 173,436,289 shares outstanding at September 30, 2020 and
December 31, 2019
|
185
|
184
|
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Additional
paid-in capital
|
63,872
|
63,803
|
|
Accumulated
deficit
|
(56,703
)
|
(55,885
)
|
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Accumulated
other comprehensive loss
|
(87
)
|
(313
)
|
|
Treasury
stock, at cost, 10,308,087 shares at September 30, 2020 and
December 31, 2019
|
(2,000
)
|
(2,000
)
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Total
stockholders’ equity
|
5,267
|
5,789
|
|
|
$
46,582
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$
54,364
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
3
Vaso Corporation and Subsidiaries
C
ONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands, except per share data)
|
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Three months ended
|
Nine months ended
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||
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September 30,
|
September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
Revenues
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|
Managed
IT systems and services
|
$
10,833
|
$
11,485
|
$
32,994
|
$
34,217
|
|
Professional
sales services
|
5,801
|
6,336
|
15,688
|
14,882
|
|
Equipment
sales and services
|
900
|
906
|
2,477
|
2,695
|
|
Total
revenues
|
17,534
|
18,727
|
51,159
|
51,794
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
|
|
|
Cost
of managed IT systems and services
|
6,350
|
6,414
|
19,812
|
19,791
|
|
Cost
of professional sales services
|
1,092
|
1,140
|
3,062
|
2,780
|
|
Cost
of equipment sales and services
|
213
|
332
|
790
|
1,084
|
|
Total
cost of revenues
|
7,655
|
7,886
|
23,664
|
23,655
|
|
Gross
profit
|
9,879
|
10,841
|
27,495
|
28,139
|
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Operating
expenses
|
|
|
|
|
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Selling,
general and administrative
|
8,451
|
9,840
|
27,486
|
29,884
|
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Research
and development
|
174
|
196
|
539
|
624
|
|
Total
operating expenses
|
8,625
|
10,036
|
28,025
|
30,508
|
|
Operating
income (loss)
|
1,254
|
805
|
(530
)
|
(2,369
)
|
|
|
|
|
|
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Other
(expense) income
|
|
|
|
|
|
Interest
and financing costs
|
(145
)
|
(268
)
|
(558
)
|
(728
)
|
|
Interest
and other income, net
|
48
|
36
|
63
|
109
|
|
Gain
on sale of equity in EECP Global
|
-
|
-
|
110
|
-
|
|
Total
other (expense) income, net
|
(97
)
|
(232
)
|
(385
)
|
(619
)
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
1,157
|
573
|
(915
)
|
(2,988
)
|
|
Income
tax (expense) benefit
|
(11
)
|
(11
)
|
97
|
(49
)
|
|
Net
income (loss)
|
1,146
|
562
|
(818
)
|
(3,037
)
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
|
Foreign
currency translation gain (loss)
|
118
|
(193
)
|
39
|
(131
)
|
|
Comprehensive
income (loss)
|
$
1,264
|
$
369
|
$
(779
)
|
$
(3,168
)
|
|
|
|
|
|
|
|
Earnings
(loss) per common share
|
|
|
|
|
|
-
basic
|
$
0.01
|
$
0.00
|
$
(0.00
)
|
$
(0.02
)
|
|
-
diluted
|
$
0.01
|
$
0.00
|
$
(0.00
)
|
$
(0.02
)
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
|
|
-
basic
|
170,515
|
168,662
|
169,279
|
167,557
|
|
-
diluted
|
171,167
|
168,787
|
169,279
|
167,557
|
The accompanying notes are an integral
part of these unaudited
condensed
consolidated
financial
statements.
4
Vaso Corporation and Subsidiaries
C
ONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
(in thousands)
|
|
|
|
|
|
|
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Accumulated
|
|
|
|
|
|
|
|
|
|
Other
|
Total
|
|
|
Common
Stock
|
Treasury
Stock
|
Additional
|
Accumulated
|
Comprehensive
|
Stockholders’
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Paid-in-Capital
|
Deficit
|
Loss
|
Equity
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2020
|
183,744
|
$
184
|
(10,308
)
|
(2,000
)
|
$
63,803
|
$
(55,885
)
|
$
(313
)
|
$
5,789
|
|
Share-based
compensation
|
1,000
|
1
|
-
|
-
|
26
|
-
|
-
|
27
|
|
Foreign
currency translation loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(65
)
|
(65
)
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(1,367
)
|
-
|
(1,367
)
|
|
Balance
at March 31, 2020 (unaudited)
|
184,744
|
$
185
|
(10,308
)
|
$
(2,000
)
|
$
63,829
|
$
(57,252
)
|
$
(378
)
|
$
4,384
|
|
Share-based
compensation
|
224
|
-
|
-
|
-
|
27
|
-
|
-
|
27
|
|
Reclassify
accumulated translation loss (see Note M)
|
-
|
-
|
-
|
-
|
-
|
-
|
187
|
187
|
|
Foreign
currency translation loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(14
)
|
(14
)
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(597
)
|
-
|
(597
)
|
|
Balance
at June 30, 2020 (unaudited)
|
184,968
|
$
185
|
(10,308
)
|
$
(2,000
)
|
$
63,856
|
$
(57,849
)
|
$
(205
)
|
$
3,987
|
|
Share-based
compensation
|
55
|
-
|
-
|
-
|
16
|
-
|
-
|
16
|
|
Foreign
currency translation gain
|
-
|
-
|
-
|
-
|
-
|
-
|
118
|
118
|
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
1,146
|
-
|
1,146
|
|
Balance
at September 30, 2020 (unaudited)
|
185,023
|
$
185
|
(10,308
)
|
$
(2,000
)
|
$
63,872
|
$
(56,703
)
|
$
(87
)
|
$
5,267
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
5
Vaso Corporation and Subsidiaries
C
ONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
(in thousands)
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
|
2020
|
2019
|
|
Cash flows
from operating activities
|
|
|
|
Net
loss
|
$
(818
)
|
$
(3,037
)
|
|
Adjustments to
reconcile net loss to net
|
|
|
|
cash
provided by (used in) operating activities
|
|
|
|
Depreciation
and amortization
|
1,861
|
2,024
|
|
Deferred
income taxes
|
(124
)
|
-
|
|
Loss from
investment in EECP Global
|
17
|
-
|
|
Gain on sale
of equity in EECP Global
|
(110
)
|
-
|
|
Provision for
doubtful accounts and commission adjustments
|
425
|
243
|
|
Amortization
of debt issue costs
|
-
|
14
|
|
Share-based
compensation
|
69
|
123
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Accounts and
other receivables
|
8,615
|
2,774
|
|
Due from
related parties
|
(29
)
|
-
|
|
Inventories
|
107
|
(232
)
|
|
Deferred
commission expense
|
770
|
109
|
|
Prepaid
expenses and other current assets
|
37
|
(190
)
|
|
Other assets,
net
|
(126
)
|
269
|
|
Accounts
payable
|
(2,307
)
|
(1,363
)
|
|
Accrued
commissions
|
(1,171
)
|
(1,539
)
|
|
Accrued
expenses and other liabilities
|
(376
)
|
(1,022
)
|
|
Sales tax
payable
|
(204
)
|
(85
)
|
|
Deferred
revenue
|
(1,923
)
|
(185
)
|
|
Due to related
party
|
(15
)
|
-
|
|
Other
long-term liabilities
|
36
|
47
|
|
Net cash
provided by (used in) operating activities
|
4,734
|
(2,050
)
|
|
|
|
|
|
Cash flows
from investing activities
|
|
|
|
Purchases of
equipment and software
|
(635
)
|
(889
)
|
|
Sale of fixed
assets
|
-
|
22
|
|
Proceeds from
sale of equity in EECP Global
|
1,150
|
-
|
|
Net cash
provided by (used in) investing activities
|
515
|
(867
)
|
|
|
|
|
|
Cash flows
from financing activities
|
|
|
|
Net
(repayment) borrowings on revolving lines of
credit
|
(1,351
)
|
1,000
|
|
Proceeds from
note payable
|
3,754
|
-
|
|
Payroll taxes
paid by withholding shares
|
(1
)
|
(2
)
|
|
Repayment of
notes payable and finance lease obligations
|
(1,615
)
|
(181
)
|
|
Proceeds from
notes payable
|
-
|
300
|
|
Proceeds from
notes payable - related parties
|
-
|
930
|
|
Repayment of
notes payable - related parties
|
(1,252
)
|
(500
)
|
|
Net cash (used
in) provided by financing activities
|
(465
)
|
1,547
|
|
Effect of
exchange rate differences on cash and cash
equivalents
|
(43
)
|
45
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
|
4,741
|
(1,325
)
|
|
Cash and cash
equivalents - beginning of period
|
2,124
|
2,668
|
|
Cash and cash
equivalents - end of period
|
$
6,865
|
$
1,343
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
|
|
|
|
Interest
paid
|
$
582
|
$
550
|
|
Income taxes
paid
|
$
65
|
$
38
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
|
|
|
|
Initial
recognition of operating lease right of use asset and
liability
|
$
599
|
$
1,107
|
|
Equipment
acquired through note payable
|
$
42
|
$
-
|
|
Equipment
acquired through finance lease
|
$
-
|
$
134
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
6
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
N
OTE 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 (channel partner of select vendors of
healthcare IT products).
●
Managed network
infrastructure (routers, switches and other core
equipment).
●
Managed network
transport (FCC licensed carrier reselling 175+ facility
partners).
●
Managed security
services.
VasoTechnology uses
a combination of proprietary technology, methodology and
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 (see Note M). These
devices are primarily for cardiovascular monitoring and diagnostic
systems. Its current offerings consist of:
●
Biox™ series
Holter monitors and ambulatory blood pressure
recorders.
●
ARCS
®
series
analysis, reporting and communication software for physiological
signals such as ECG and blood pressure.
●
MobiCare™
multi-parameter wireless vital-sign monitoring system.
This
segment uses its extensive cardiovascular device knowledge coupled
with its significant engineering resources to cost-effectively
create and market its proprietary technology. It works with a
global distribution network of channel partners to sell its
products. It also provides engineering and OEM services to other
medical device companies.
NOTE B – INTERIM STATEMENT PRESENTATION
Basis of Presentation and Use of Estimates
The
accompanying condensed consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP") and pursuant
to the accounting and disclosure rules and regulations of the
Securities and Exchange Commission (the "SEC") for interim
financial information. Certain information and disclosures normally
included in the financial statements prepared in accordance with
U.S. GAAP have been condensed or omitted pursuant to such rules and
regulations. Accordingly, these condensed consolidated financial
statements should be read in conjunction with the audited
consolidated financial statements and related notes thereto
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2019, as filed with the SEC on April 14,
2020.
These
unaudited condensed consolidated financial statements include the
accounts of the companies over which we exercise control. In the
opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation
of interim results for the Company. The results of operations for
any interim period are not necessarily indicative of results to be
expected for any other interim period or the full
year.
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of
the condensed consolidated financial statements, the disclosure of
contingent assets and liabilities in the unaudited condensed
consolidated financial statements and the accompanying notes, and
the reported amounts of revenues, expenses and cash flows during
the periods presented. Actual amounts and results could differ from
those estimates. The estimates and assumptions the Company makes
are based on historical factors, current circumstances and the
experience and judgment of the Company's management. The Company
evaluates its estimates and assumptions on an ongoing
basis.
Significant Accounting Policies and Recent Accounting
Pronouncements
Recently Adopted Accounting Pronouncements
In June
2016, the FASB issued ASU 2016-13, Financial Instruments - Credit
Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, which provides new guidance regarding the measurement
and recognition of credit impairment for certain financial assets.
Such guidance will impact how we determine our allowance for
estimated uncollectible receivables. In November 2019, the FASB
issued ASU 2019-10, which changed the effective date of ASU 2016-13
for smaller reporting companies as defined by the SEC from first
quarter of 2020 to the first quarter of 2023, with early adoption
permitted. We are currently evaluating the effect that ASU 2016-13
will have on our consolidated financial statements and related
disclosures.
8
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
NOTE C – REVENUE RECOGNITION
Disaggregation of Revenue
The
following tables present revenues disaggregated by our business
operations and timing of revenue recognition:
(in thousands)
|
|
Three
Months Ended September 30, 2020 (unaudited)
|
Three
Months Ended September 30, 2019 (unaudited)
|
||||||
|
|
|
Professional
sales
|
Equipment
|
|
|
Professional
sales
|
Equipment
|
|
|
|
IT
segment
|
service
segment
|
segment
|
Total
|
IT
segment
|
service
segment
|
segment
|
Total
|
|
Network
services
|
$
9,972
|
$
-
|
$
-
|
$
9,972
|
$
10,210
|
$
-
|
$
-
|
$
10,210
|
|
Software
sales and support
|
861
|
-
|
-
|
861
|
1,275
|
-
|
-
|
1,275
|
|
Commissions
|
-
|
5,801
|
-
|
5,801
|
-
|
6,336
|
-
|
6,336
|
|
Medical
equipment sales
|
-
|
-
|
868
|
868
|
-
|
-
|
686
|
686
|
|
Medical
equipment service
|
-
|
-
|
32
|
32
|
-
|
-
|
220
|
220
|
|
|
$
10,833
|
$
5,801
|
$
900
|
$
17,534
|
$
11,485
|
$
6,336
|
$
906
|
$
18,727
|
|
|
Nine
Months Ended September 30, 2020 (unaudited)
|
Nine
Months Ended September 30, 2019 (unaudited)
|
||||||
|
|
|
Professional
sales
|
Equipment
|
|
|
Professional
sales
|
Equipment
|
|
|
|
IT
segment
|
service
segment
|
segment
|
Total
|
IT
segment
|
service
segment
|
segment
|
Total
|
|
Network
services
|
$
30,005
|
$
-
|
$
-
|
$
30,005
|
$
30,221
|
$
-
|
$
-
|
$
30,221
|
|
Software
sales and support
|
2,989
|
-
|
-
|
2,989
|
3,996
|
-
|
-
|
3,996
|
|
Commissions
|
-
|
15,688
|
-
|
15,688
|
-
|
14,882
|
-
|
14,882
|
|
Medical
equipment sales
|
-
|
-
|
2,038
|
2,038
|
-
|
-
|
1,911
|
1,911
|
|
Medical
equipment service
|
-
|
-
|
439
|
439
|
-
|
-
|
784
|
784
|
|
|
$
32,994
|
$
15,688
|
$
2,477
|
$
51,159
|
$
34,217
|
$
14,882
|
$
2,695
|
$
51,794
|
|
|
Three Months Ended September 30, 2020 (unaudited)
|
Three Months Ended September 30, 2019 (unaudited)
|
||||||
|
|
|
Professional sales
|
Equipment
|
|
|
Professional sales
|
Equipment
|
|
|
|
IT segment
|
service segment
|
segment
|
Total
|
IT segment
|
service segment
|
segment
|
Total
|
|
Revenue
recognized over time
|
$
10,183
|
$
-
|
$
31
|
$
10,214
|
$
10,524
|
$
-
|
$
145
|
$
10,669
|
|
Revenue
recognized at a point in time
|
650
|
5,801
|
869
|
7,320
|
961
|
6,336
|
761
|
8,058
|
|
|
$
10,833
|
$
5,801
|
$
900
|
$
17,534
|
$
11,485
|
$
6,336
|
$
906
|
$
18,727
|
|
|
Nine Months Ended September 30, 2020 (unaudited)
|
Nine Months Ended September 30, 2019 (unaudited)
|
||||||
|
|
|
Professional sales
|
Equipment
|
|
|
Professional sales
|
Equipment
|
|
|
|
IT segment
|
service segment
|
segment
|
Total
|
IT segment
|
service segment
|
segment
|
Total
|
|
Revenue
recognized over time
|
$
30,542
|
$
-
|
$
336
|
$
30,878
|
$
30,526
|
$
-
|
$
447
|
$
30,973
|
|
Revenue
recognized at a point in time
|
2,452
|
15,688
|
2,141
|
20,281
|
3,691
|
14,882
|
2,248
|
20,821
|
|
|
$
32,994
|
$
15,688
|
$
2,477
|
$
51,159
|
$
34,217
|
$
14,882
|
$
2,695
|
$
51,794
|
9
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Transaction Price Allocated to Remaining Performance
Obligations
As of
September 30, 2020, the aggregate amount of transaction price
allocated to performance obligations that are unsatisfied (or
partially unsatisfied) for executed contracts approximates $71.7
million, of which we expect to recognize revenue as
follows:
(in thousands)
|
|
Fiscal years of revenue recognition (unaudited)
|
|||
|
|
remainder of 2020
|
2021
|
2022
|
Thereafter
|
|
Unfulfilled
performance obligations
|
$
12,241
|
$
31,998
|
$
15,233
|
$
12,219
|
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 $478,000 and $568,000 at
September 30, 2020 and December 31, 2019, 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 $16,634,000 and $18,565,000 at
September 30, 2020 and December 31, 2019, 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
$1,963,000 and $1,270,000 at September 30, 2020 and December 31,
2019, 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 $17,000 and $778,000 at
September 30, 2020 and December 31, 2019, 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, 2020, we recognized
approximately $1.8 million and $4.5 million of revenues that were
included in our contract liability balance at July 1, 2020 and
January 1, 2020, 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
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,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|
Revenues
from external customers
|
|
|
|
|
|
IT
|
$
10,833
|
$
11,485
|
$
32,994
|
$
34,217
|
|
Professional
sales service
|
5,801
|
6,336
|
15,688
|
14,882
|
|
Equipment
|
900
|
906
|
2,477
|
2,695
|
|
Total
revenues
|
$
17,534
|
$
18,727
|
$
51,159
|
$
51,794
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
|
|
|
IT
|
$
4,483
|
$
5,071
|
$
13,182
|
$
14,426
|
|
Professional
sales service
|
4,709
|
5,196
|
12,626
|
12,102
|
|
Equipment
|
687
|
574
|
1,687
|
1,611
|
|
Total
gross profit
|
$
9,879
|
$
10,841
|
$
27,495
|
$
28,139
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
|
|
|
IT
|
$
159
|
$
269
|
$
(920
)
|
$
(306
)
|
|
Professional
sales service
|
1,161
|
1,028
|
1,038
|
(487
)
|
|
Equipment
|
142
|
(282
)
|
(1
)
|
(809
)
|
|
Corporate
|
(208
)
|
(210
)
|
(647
)
|
(767
)
|
|
Total
operating income (loss)
|
$
1,254
|
$
805
|
$
(530
)
|
$
(2,369
)
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
IT
|
$
500
|
$
562
|
$
1,517
|
$
1,673
|
|
Professional
sales service
|
37
|
42
|
123
|
130
|
|
Equipment
|
73
|
75
|
221
|
221
|
|
Corporate
|
-
|
-
|
-
|
-
|
|
Total
depreciation and amortization
|
$
610
|
$
679
|
$
1,861
|
$
2,024
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
|
|
|
IT
|
$
182
|
$
143
|
$
600
|
$
827
|
|
Professional
sales service
|
3
|
-
|
5
|
-
|
|
Equipment
|
-
|
32
|
28
|
56
|
|
Corporate
|
-
|
-
|
2
|
6
|
|
Total
cash capital expenditures
|
$
185
|
$
175
|
$
635
|
$
889
|
11
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
(in thousands)
|
|
September 30,
2020
|
December 31,
2019
|
|
|
(unaudited)
|
|
|
Identifiable
Assets
|
|
|
|
IT
|
$
27,752
|
$
30,079
|
|
Professional
sales service
|
7,090
|
16,257
|
|
Equipment
|
5,430
|
6,370
|
|
Corporate
|
6,310
|
1,658
|
|
Total
assets
|
$
46,582
|
$
54,364
|
GE
Healthcare accounted for 33% and 34% of revenue for the three
months ended September 30, 2020 and 2019, respectively, and 31% and
29% of revenue for the nine months ended September 30, 2020 and
2019, respectively. GE Healthcare also accounted for $3.0 million
or 47%, and $10.9 million or 69%, of accounts and other receivables
at September 30, 2020 and December 31, 2019,
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,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|
Basic
weighted average shares outstanding
|
170,515
|
168,662
|
169,279
|
167,557
|
|
Dilutive
effect of unvested restricted shares
|
652
|
125
|
-
|
-
|
|
Diluted
weighted average shares outstanding
|
171,167
|
168,787
|
169,279
|
167,557
|
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, 2020 and 2019,
because the effect of their inclusion would be
anti-dilutive.
(in thousands)
|
|
Three months ended September 30,
|
Nine months ended September 30,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|
Restricted
common stock grants
|
874
|
1,485
|
4,674
|
5,485
|
12
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
NOTE F – ACCOUNTS AND OTHER RECEIVABLES, NET
The
following table presents information regarding the Company’s
accounts and other receivables as of September 30, 2020 and
December 31, 2019:
(in thousands)
|
|
September 30,
2020
|
December 31,
2019
|
|
|
(unaudited)
|
|
|
Trade
receivables
|
$
9,542
|
$
20,110
|
|
Unbilled
receivables
|
657
|
-
|
|
Due
from employees
|
51
|
27
|
|
Allowance
for doubtful accounts and
|
|
|
|
commission
adjustments
|
(3,815
)
|
(4,285
)
|
|
Accounts
and other receivables, net
|
$
6,435
|
$
15,852
|
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.
NOTE G – INVENTORIES, NET
Inventories,
net of reserves, consist of the following:
(in thousands)
|
|
September 30,
2020
|
December 31,
2019
|
|
|
(unaudited)
|
|
|
Raw
materials
|
$
651
|
$
650
|
|
Work
in process
|
17
|
181
|
|
Finished
goods
|
575
|
1,110
|
|
|
$
1,243
|
$
1,941
|
At
September 30, 2020 and December 31, 2019, the Company maintained
reserves for slow moving inventories of $168,000 and $390,000,
respectively.
13
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
NOTE H – GOODWILL AND OTHER INTANGIBLES
Goodwill
of $14,375,000 is allocated to the IT segment. The remaining
$1,260,000 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, 2020 and
December 31, 2019. The components of the change in goodwill are as
follows:
(in thousands)
|
|
Nine months ended
|
Year ended
|
|
|
September 30,
2020
|
December 31,
2019
|
|
|
(unaudited)
|
|
|
Beginning
of period
|
$
17,271
|
$
17,309
|
|
Foreign
currency translation adjustment
|
29
|
(38
)
|
|
Sale
of equity in EECP Global
|
(1,665
)
|
-
|
|
End
of period
|
$
15,635
|
$
17,271
|
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,
2020
|
December 31,
2019
|
|
|
(unaudited)
|
|
|
Customer-related
|
|
|
|
Costs
|
$
5,831
|
$
5,831
|
|
Accumulated
amortization
|
(3,848
)
|
(3,553
)
|
|
|
1,983
|
2,278
|
|
|
|
|
|
Patents
and Technology
|
|
|
|
Costs
|
1,894
|
2,363
|
|
Accumulated
amortization
|
(1,465
)
|
(1,752
)
|
|
|
429
|
611
|
|
|
|
|
|
Software
|
|
|
|
Costs
|
3,249
|
2,840
|
|
Accumulated
amortization
|
(1,631
)
|
(1,428
)
|
|
|
1,618
|
1,412
|
|
|
|
|
|
|
$
4,030
|
$
4,301
|
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.
14
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
Amortization
expense amounted to $222,000 and $239,000 for the three months
ended September 30, 2020 and 2019, respectively, and $680,000 and
$708,000 for the nine months ended September 30, 2020 and 2019,
respectively.
Amortization
of intangibles for the next five years is:
(in thousands)
|
Years
ending December 31,
|
(unaudited)
|
|
Remainder of
2020
|
$
225
|
|
2021
|
1,037
|
|
2022
|
742
|
|
2023
|
517
|
|
2024
|
448
|
|
|
$
2,969
|
NOTE I – OTHER ASSETS, NET
Other
assets, net consist of the following at September 30, 2020 and
December 31, 2019:
(in thousands)
|
|
September 30,
2020
|
December 31,
2019
|
|
|
(unaudited)
|
|
|
Deferred
commission expense - noncurrent
|
$
2,062
|
$
1,770
|
|
Investment
in EECP Global (see Note M)
|
1,088
|
-
|
|
Trade
receivables - noncurrent
|
474
|
631
|
|
Other,
net of allowance for loss on loan receivable of
|
|
|
|
$412
at September 30, 2020 and December 31, 2019
|
62
|
185
|
|
|
$
3,686
|
$
2,586
|
NOTE J – ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued
expenses and other liabilities consist of the following at
September 30, 2020 and December 31, 2019:
(in thousands)
|
|
September 30,
2020
|
December 31,
2019
|
|
|
(unaudited)
|
|
|
Accrued
compensation
|
$
1,050
|
$
1,509
|
|
Accrued
expenses - other
|
1,311
|
1,818
|
|
Other
liabilities
|
2,530
|
2,017
|
|
|
$
4,891
|
$
5,344
|
15
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
NOTE K - 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,
|
||
|
|
2020
|
2019
|
2020
|
2019
|
|
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|
Deferred
revenue at beginning of period
|
$
16,480
|
$
17,575
|
$
19,343
|
$
18,086
|
|
Deconsolidate
EECP Global (see Note M)
|
-
|
-
|
(769
)
|
-
|
|
Net
additions:
|
|
|
|
|
|
Deferred
extended service contracts
|
2
|
30
|
144
|
269
|
|
Deferred
in-service and training
|
-
|
3
|
3
|
13
|
|
Deferred
service arrangements
|
-
|
5
|
5
|
25
|
|
Deferred
commission revenues
|
2,554
|
3,075
|
4,432
|
6,200
|
|
Recognized
as revenue:
|
|
|
|
|
|
Deferred
extended service contracts
|
(1
)
|
(137
)
|
(138
)
|
(427
)
|
|
Deferred
in-service and training
|
-
|
-
|
-
|
(15
)
|
|
Deferred
service arrangements
|
-
|
(8
)
|
(5
)
|
(21
)
|
|
Deferred
commission revenues
|
(2,384
)
|
(2,643
)
|
(6,364
)
|
(6,230
)
|
|
Deferred
revenue at end of period
|
16,651
|
17,900
|
16,651
|
17,900
|
|
Less:
current portion
|
9,384
|
11,148
|
9,384
|
11,148
|
|
Long-term
deferred revenue at end of period
|
$
7,267
|
$
6,752
|
$
7,267
|
$
6,752
|
NOTE L – NOTES PAYABLE
Notes
payable consist of the following:
(in thousands)
|
|
September
30, 2020
|
December
31, 2019
|
|
|
(unaudited)
|
|
|
Line
of credit
|
$
4,371
|
$
5,721
|
|
Notes
payable
|
3,800
|
300
|
|
Notes
payable - MedTech
|
3,600
|
4,800
|
|
Notes
payable - related parties
|
-
|
1,253
|
|
Total
debt
|
11,771
|
12,074
|
|
Less:
current portion (including related parties)
|
(10,334
)
|
(3,933
)
|
|
|
$
1,437
|
$
8,141
|
NetWolves
maintains a $4.0 million line of credit with a lending institution.
Advances under the line are secured by substantially all of the
assets of NetWolves Network Services, LLC and guaranteed by Vaso
Corporation. Principal payments of $25,000 were made in March, June
and September 2020. At September 30, 2020, the Company had drawn
approximately $3.7 million against the line. In April 2020, the
lending institution extended the maturity date to April 30,
2021.
The
Company maintains an additional $2.0 million line of credit with a
lending institution. Advances under the line are secured by
substantially all of the assets of the Company. In March 2020,
$75,000 in principal was repaid. In April 2020, $1.2 million in
principal was repaid and the lending institution extended the
maturity date of the remaining balance to April 30, 2021. At
September 30, 2020, the Company had drawn $675,000 against the
line. The line of credit agreement includes certain financial
covenants that became effective on March 31, 2020. The Company was
in compliance with the covenants at September 30, 2020. No
additional borrowing is permitted under the lines.
16
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
In
August 2020, the Company issued a note for approximately $42,000
for the purchase of equipment. The note is secured by the purchased
equipment, bears interest at 1.9% and is payable in 60 equal
monthly installments maturing August 2025.
In
April 2020, the Company’s Biox subsidiary issued a note
RMB1,000,000 (approximately $147,000) with a Chinese bank for
working capital purposes. The note is secured by the assets of
Biox. It matures April 15, 2021 and bears interest at 4.35% per
annum.
In
April 2020 the Company repaid $1.2 million of the MedTech note (see
Note N). The remaining balance of $3.6 million is due on April 30,
2021 and bears interest at 6% per annum.
In the
year ended December 31, 2019, the Company issued notes aggregating
$930,000 to directors, employees, and a shareholder (see Note N).
$400,000 and $530,000 of the notes
were repaid in June and July 2020,
respectively.
In
August 2019, the Company issued to a private party a $300,000 note
bearing interest at 10% per annum and maturing November 15, 2019.
In November 2019, the note’s maturity date was extended to
January 15, 2020, at which time it was repaid.
Paycheck Protection Program debt
In April 2020, the Compan
y
received funding of a $3,610,900 Note
(the “PPP Note”) issued by PNC Bank, National
Association (“PNC”) pursuant to the Coronavirus Aid,
Relief, and Economic Security (CARES) Act’s Paycheck
Protection Program (the “Program”).
The Company accounts for the PPP Note in
accordance with Financial Accounting Standards Board ASC Topic
470,
Debt
, and Technical Question and Answer (TQA)
3200.18,
Borrower Accounting for a
Forgivable Loan Received Under the Small Business Administration
Paycheck Protection Program
.
Under the TQA, the Company:
●
Initially records
the cash inflow from the PPP loan as a financial liability and
accrues interest in accordance with the interest method under ASC
Subtopic 835-30.
●
Does not impute
additional interest at a market rate.
●
Continues to record
the proceeds from the loan as a liability until either (i) the loan
is partly or wholly forgiven and the debtor has been legally
released or (ii) the debtor pays off the loan.
●
Reduces the
liability by the amount forgiven and records a gain on
extinguishment once the loan is partly or wholly forgiven and legal
release is received.
Amounts
outstanding on the PPP Note are at the annual interest rate of 1%.
During the first six months of the PPP Note, there is no principal
nor interest required to be paid. Thereafter, to the extent the PPP
Note is not forgiven under the Program, the outstanding balance of
the PPP Note converts to an amortizing term loan payable monthly
over an eighteen-month period, which has been updated according to
the Paycheck Protection Program Flexibility Act of 2020
(“Flexibility Act”). The PPP Note can be prepaid at any
time without penalty.
In June 2020, the Flexibility Act was signed into
law, which amended the CARES Act. The Flexibility Act changed key
provisions of the PPP, including, but not limited to, (i)
provisions relating to the maturity of PPP loans, (ii) the deferral
period covering of PPP loan payments and (iii) the process for
measurement of loan forgiveness. More specifically, the Flexibility
Act provides a minimum maturity of five years for all PPP loans
made on or after the date of the enactment of the Flexibility Act
(“June 5, 2020”) and permits lenders and borrowers to
extend the maturity date of earlier PPP loans by mutual agreement.
As of the date of this filing, the Company has not approached the
lender to request an extension of the maturity date from two years
to five years. The Flexibility Act also provides that if a borrower
does not apply for forgiveness of a loan within 10 months after the
last day of the measurement period (“covered period”),
the PPP loan is no longer deferred and the
borrower
must
begin paying principal and interest. In addition, the Flexibility
Act extended the length of the covered period from eight weeks to
24 weeks from receipt of proceeds, while allowing borrowers that
received PPP loans before June 5, 2020 to determine, at their sole
discretion, a covered period of either 8 weeks or 24
weeks.
17
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
After
reviewing the applicable terms and conditions of the Flexibility
Act, the Company elected to extend the length of the covered period
from the lesser of (i) period whereby qualified expenses equal loan
proceeds or (ii) 24 weeks. The Company has performed initial
calculations for the PPP loan forgiveness according to the terms
and conditions of the SBA’s Loan Forgiveness Application
(Revised June 16, 2020) and, based on such calculations, expects
that the PPP loan will be forgiven in full over a period less than
24 weeks. In October 2020, the Company submitted its application to
PNC for forgiveness of the PPP Note in an amount equal to the sum
of the following costs incurred by the Company during the covered
period beginning on the date of first disbursement of the PPP Note
proceeds:
(a)
payroll costs;
(b)
any payment of interest on a covered mortgage
obligation;
(c)
any covered rent payment; and
(d)
any covered utility payment.
The
amount of forgiveness is calculated in accordance with the
requirements of the Program. In this regard, no more than 40% of
the amount forgiven can be attributable to non-payroll
costs.
NOTE
M – SALE OF EQUITY IN THE EECP BUSINESS
On
May 20, 2020, the Company closed on the sale of 51% of the capital
stock of its wholly-owned subsidiary EECP Global Corporation
(“EECP Global”) to Chongqing PSK-Health Sci-Tech
Development Co. Ltd, a China-based company, for $1,150,000. EECP
Global was formed to in September 2019 hold all the assets and
liabilities of its EECP business. Concurrently with the closing of
the transaction, the Company signed a three-year Management Service
Agreement with EECP Global to provide management service for the
business and operation of EECP Global in the United States.
Pursuant to the agreement, EECP Global reimburses the Company all
direct expenses and pays a management fee starting April 1, 2020,
the effective date of the sale.
Due
to the Company’s now minority ownership of EECP Global, it
deconsolidated the EECP Global operations effective April 1, 2020
and recorded a gain on sale of approximately $110,000, of which
approximately $54,000 resulted from the gain related to the
remeasurement of the retained noncontrolling investment in EECP
Global to fair value. The gain on sale includes the effect of the
reclassification of approximately $187,000 in accumulated
translation losses from accumulated other comprehensive
loss.
The
Company uses the equity method to account for its interest in EECP
Global as it has the ability to exercise significant influence over
the entity and reports its share of EECP Global operations in Other
Income (Expense) on its condensed consolidated statements of
operations. For the three and nine months ended September 30, 2020,
the Company’s share of EECP Global’s income (loss) was
approximately $22,000 and $(17,000), respectively. At September 30,
2020, the Company recorded a receivable due from related parties of
approximately $84,000 on its condensed consolidated balance sheet
for amounts due it from EECP Global for fees and cost
reimbursements.
NOTE
N – RELATED-PARTY TRANSACTIONS
The
Company recorded interest charges aggregating approximately
$232,000 and $344,000 for the nine-month periods ended September
30, 2020 and 2019, 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 the
maturity date of $3,600,000 of the Notes an additional year from
May 29, 2019 to May 29, 2020, provided that a minimum of $1,200,000
of the principal was paid on or before December 31, 2019 and the
annual interest rate for the balance increased to 10% during the
extension. The $1,200,000 principal payment was waived pursuant to
MedTech’s consent to the bank line of credit maturity
extension to September 30, 2020. In April 2020, $1.2 million in
principal was repaid in consideration of Medtech extending the
maturity date of $3.6 million of the Notes to April 30, 2021 and
reducing the interest rate to 6% per annum. 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 $56,000 were outstanding
at June 30, 2020 and paid on July 1, 2020. The $3.6 million
outstanding balance of the MedTech Notes is included in current
liabilities in the Company’s condensed consolidated balance
sheet as of September 30, 2020.
18
Vaso
Corporation and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
(unaudited)
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 $55,000
and $63,000 were billed by the firm for the three-month periods
ended September 30, 2020 and 2019, respectively, and fees of
approximately $173,000 and $218,000 were billed by the firm for the
nine-month periods ended September 30, 2020 and 2019, respectively,
at which times no amounts were outstanding.
On
August 6, 2014 the Company acquired all of the outstanding shares
of Genwell Instruments Co. Ltd. (“Genwell”), located in
Wuxi, China for cash and notes of Chinese Yuan RMB13,250,000
(approximately $2,151,000 at the acquisition date). In August 2019,
the Company modified the notes, which had a remaining principal
balance of RMB2,250,000, to change the interest rate from 9% to 10%
per annum, effective August 27, 2019, and to extend the maturity
date from August 26, 2019 to February 26, 2020. Unsecured notes and
accrued interest aggregating approximately $339,000 was payable to
officers of Biox at December 31, 2019. The notes and accrued
interest were repaid in March 2020.
In the
year ended December 31, 2019, the Company issued notes aggregating
$930,000 to third parties, including directors and employees. The
notes matured from January 2020 to July 2020 and bore interest at
10% per annum payable quarterly. In March 2020, the notes were
extended for six months, substantially all of which matured by
November 2020, at a reduced interest rate of 8%, and permitted
prepayment without penalty.
In June
and July 2020, the Company repaid the notes and accrued
interest.
NOTE O – 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 extended 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 agreement may be terminated by GE
Healthcare without cause subject to certain conditions. 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.
19
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,
including the current COVID-19 pandemic which has already adversely
affected operating results; the effect of the dramatic changes
taking place in IT and healthcare; the impact of competitive
procedures and products and their pricing; medical insurance
reimbursement policies; unexpected manufacturing or supplier
problems; unforeseen difficulties and delays in product development
programs; the actions of regulatory authorities and third-party
payers in the United States and overseas; continuation of the GEHC
agreement and the risk factors reported from time to time in the
Company’s SEC reports, including its recent report on Form
10-K. The Company undertakes no obligation to update
forward-looking statements as a result of future events or
developments.
Unless the context requires otherwise, all references to
“we”, “our”, “us”,
“Company”, “registrant”, “Vaso”
or “management” refer to Vaso Corporation and its
subsidiaries
General Overview
COVID-19 pandemic
The
COVID-19 pandemic has had and will continue to have a significant
impact on the United States economy and it is anticipated that its
negative impact to the Company’s financial condition and
results of operations will continue. At this time we cannot
reasonably estimate what the total impact may be. The pandemic has
resulted in workforce and travel restrictions and created business
disruptions in supply chain, production and demand across many
business sectors. Equipment orders in our professional sales
service segment have been negatively impacted, and we do anticipate
continued negative impact in all our business at least through the
fourth quarter, in particular in our professional sales service
segment for the diagnostic imaging equipment. Moreover, we have
also experienced the negative impact in the recurring revenue
business in our IT segment as some of our customers have been
adversely affected by the shutdown, and new business in this
segment appears to be slower as well. The pandemic also may have a
negative impact on our cash receipts as some customers request
forbearance or a delay in their payments to us.
The
pandemic may impact our operations beyond the fourth quarter of
2020, depending on the duration of the pandemic and the timing and
success of the reopening of the economy.
We
have taken significant steps in our efforts to protect our
workforce and our clients. Most of our employees have been working
remotely and we are implementing plans to reopen our work sites
consistent with the guidelines promulgated by the CDC and
respective state governments. In addition, the Company received a
$3.6 million loan under the Paycheck Protection Program of the
CARES Act. This loan, substantially all of which shall qualify for
forgiveness, has been used to principally cover our payroll costs,
thereby allowing us to maintain our workforce and continue to
provide services and solutions to our clients.
Our Business Segments
Vaso Corporation
(“Vaso”)
was incorporated in Delaware in July
1987.
We principally operate in three distinct business
segments in the healthcare and information technology industries.
We manage and evaluate our operations, and report our financial
results, through these three business segments.
20
●
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, 2019 as filed with the
SEC on April 14, 2020.
Results of Operations – For the Three Months Ended September
30, 2020 and 2019
Revenues
Total
revenue for the three months ended September 30, 2020 and 2019 was
$17,534,000 and $18,727,000, respectively, representing a decrease
of $1,193,000, or 6% year-over-year. On a segment basis, revenue in
the IT, professional sales service and equipment segments decreased
$652,000, $535,000 and $6,000, respectively.
Revenue
in the IT segment for the three months ended September 30, 2020 was
$10,833,000 compared to $11,485,000 for the three months ended
September 30, 2019, a decrease of $652,000, or 6%, of which
$414,000 resulted from a decrease in the operations of the
healthcare IT VAR business and $238,000 resulted from lower
NetWolves revenue. Our monthly recurring revenue in the IT segment
accounted for $10,183,000 or 94% of the segment revenue in the
third quarter of 2020, and $10,524,000 or 92% of the segment
revenue for the same quarter last year (see Note C).
Commission
revenues in the professional sales service segment were $5,801,000
in the third quarter of 2020, a decrease of 8%, as compared to
$6,336,000 in the same quarter of 2019. 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, 2020, $16,634,000 in deferred commission
revenue was recorded in the Company’s condensed consolidated
balance sheet, of which $7,250,000 was long-term. At 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. The decrease in deferred revenue is
principally due to a decrease in new orders booked. We anticipate
that revenue will increase in the fourth quarter of 2020 as
deliveries increase.
21
Revenue in the equipment segment decreased by
$6,000, or 0.7%, to $900,000 for the three-month period ended
September 30, 2020 from $906,000 for the same period of the prior
year. The decrease was principally due to lower sales of
EECP
®
equipment as a result of the sale of
equity in the EECP business.
Gross Profit
Gross
profit for the three months ended September 30, 2020 and 2019 was
$9,879,000, or 56% of revenue, and $10,841,000, or 58% of revenue,
respectively, representing a decrease of $962,000, or 9%
year-over-year. On a segment basis, gross profit in the equipment
segment increased $113,000, or 20%, while gross profit in the IT
and professional sales service segments decreased $588,000, or 12%,
and $487,000, or 9%, respectively.
IT
segment gross profit for the three months ended September 30, 2020
was $4,483,000, or 41% of the segment revenue, compared to
$5,071,000, or 44% of the segment revenue for the three months
ended September 30, 2019. The year-over-year decrease of $588,000,
or 12%, was primarily a result of lower margin product sales mix of
network and managed services and lower sales volume in the IT VAR
business.
Professional sales service segment gross profit
was $4,709,000, or 81% of segment revenue, for the three months
ended September 30, 2020 as compared to $5,196,000, or 82% of the
segment revenue, for the three months ended September 30, 2019,
reflecting a decrease of $487,000, or 9%. 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 2020 than in the same period last year. Cost of
commissions in the professional sales
service segment of $1,092,000 and $1,140,000, for the three months
ended September 30, 2020 and 2019, respectively, reflected
commission expense associated with recognized commission
revenues.
Commission
expense associated with short-term deferred revenue is recorded as
short-term deferred commission expense, or with long-term deferred
revenue as part of other assets, on the balance sheet until the
related commission revenue is recognized.
Equipment
segment gross profit increased to $687,000, or 76% of segment
revenues, for the third quarter of 2020 compared to $574,000, or
63% of segment revenues, for the same quarter of 2019. The
$113,000, or 20%, increase in gross profit was the result of an
increase in gross profit margin due to a higher proportion of high
margin products in the sales mix when lower margin EECP equipment
sales were no longer included in the financial statements for the
third quarter of 2020, compared to the third quarter of
2019.
Operating Income
Operating
income for the three months ended September 30, 2020 and 2019 was
$1,254,000 and $805,000, respectively, representing an increase of
$449,000, or 56%, as operating costs (below) decreased much more
than gross profit did, year-over-year. On a segment basis,
operating income in the professional sales service and equipment
segments increased by $133,000 and $424,000, respectively, while
operating income in the IT segment decreased by
$110,000.
Operating
income in the IT segment decreased to $159,000 for the three-month
period ended September 30, 2020 as compared to operating income of
$269,000 in the same period of 2019, due to lower gross profit
partially offset by lower selling, general, and administrative
(“SG&A”) costs. Operating income in the
professional sales service segment increased $133,000 in the
three-month period ended September 30, 2020 as compared to
operating income in the same period of 2019, due to lower SG&A
costs partially offset by lower gross profit. The equipment segment
reported operating income of $142,000 in the third quarter of 2020,
compared to an operating loss of $282,000 in the third quarter
2019, an improvement of $424,000. The improvement was due to a
combination of higher gross profit and lower SG&A and R&D
costs.
22
SG&A
costs for the three months ended September 30, 2020 and 2019 were
$8,451,000 and $9,840,000, respectively, representing a decrease of
$1,389,000, or 14% year-over-year. On a segment basis, SG&A
costs in the IT segment decreased by $492,000 in the third quarter
of 2020 from the same quarter of the prior year due to reduced
personnel costs; SG&A costs in the professional sales service
segment decreased $622,000 due mainly to lower travel costs; and
SG&A costs in the equipment segment decreased $273,000 due
mainly to lower personnel costs. Corporate costs not allocated to
segments decreased by $2,000 in the three months ended September
30, 2020 from the same period in 2019.
Research
and development (“R&D”) expenses were $174,000, or
1% of revenues, for the third quarter of 2020, a decrease of
$22,000, or 11%, from $196,000, or 1% of revenues, for the third
quarter of 2019. The decrease is primarily attributable to lower
product development expenses and a reduction in technical staff in
the equipment segment.
Adjusted EBITDA
We
define Adjusted EBITDA (earnings (loss) before interest, taxes,
depreciation and amortization), which is a non-GAAP financial
measure, as net income (loss), plus interest expense (income), net;
tax expense; depreciation and amortization; and non-cash expenses
for share-based compensation. Adjusted EBITDA is a metric
that is used by the investment community for comparative and
valuation purposes. We disclose this metric in order to support and
facilitate the dialogue with research analysts and
investors.
Adjusted EBITDA is
not a measure of financial performance under U.S. GAAP and should
not be considered a substitute for operating income, which we
consider to be the most directly comparable U.S. GAAP measure.
Adjusted EBITDA has limitations as an analytical tool, and when
assessing our operating performance, you should not consider
Adjusted EBITDA in isolation, or as a substitute for net income or
other consolidated income statement data prepared in accordance
with U.S. GAAP. Other companies may calculate Adjusted EBITDA
differently than we do, limiting its usefulness as a comparative
measure.
A
reconciliation of net income to Adjusted EBITDA is set forth
below:
(in thousands)
|
|
Three months ended September 30,
|
|
|
|
2020
|
2019
|
|
|
(unaudited)
|
(unaudited)
|
|
Net
income
|
$
1,146
|
$
562
|
|
Interest
expense (income), net
|
133
|
268
|
|
Income
tax (benefit) expense
|
11
|
11
|
|
Depreciation
and amortization
|
610
|
679
|
|
Share-based
compensation
|
15
|
25
|
|
Adjusted
EBITDA
|
$
1,915
|
$
1,545
|
Adjusted EBITDA
increased by $370,000, to $1,915,000 in the quarter ended September
30, 2020 from $1,545,000 in the quarter ended September 30, 2019.
The increase was attributable to the increase in net income,
partially offset primarily by the decrease in interest
expense.
Interest and Other Income (Expense)
Interest
and other income (expense) for the three months ended September 30,
2020 was $(97,000) as compared to $(232,000) for the corresponding
period of 2019. The decrease in interest and other income (expense)
was due primarily to lower interest expense due to principal
payments against the line of credit and other notes
payable.
23
Income Tax Expense
For
the three months ended September 30, 2020 and 2019, respectively,
we recorded income tax expense of $11,000 for applicable state
taxes.
Net Income
Net
income for the three months ended September 30, 2020 was $1,146,000
as compared to $562,000 for the three months ended September 30,
2019, representing an improvement of $584,000, or 104%. Earnings
per share of $0.01 and $0.00 was recorded in the three-month
periods ended September 30, 2020 and 2019, respectively. The
principal cause of the increase in net income is the increase in
equipment segment and professional sales service segment operating
income due primarily to lower SG&A costs.
Results of Operations – For the Nine months Ended September
30, 2020 and 2019
Revenues
Total
revenue for the nine months ended September 30, 2020 and 2019 was
$51,159,000 and $51,794,000, respectively, representing a decrease
of $635,000, or 1% year-over-year. On a segment basis, revenue in
the professional sales service segment increased $806,000, while
revenue in the IT and equipment segments decreased $1,223,000 and
$218,000, respectively.
Revenue
in the IT segment for the nine months ended September 30, 2020 was
$32,994,000 compared to $34,217,000 for the nine months ended
September 30, 2019, a decrease of $1,223,000, or 4%, as a result of
a $1,007,000 decrease in healthcare IT VAR revenues and a $216,000
revenue decrease in our NetWolves operation.
Commission
revenues in the professional sales service segment were $15,688,000
in the first nine months of 2020, an increase of 5%, as compared to
$14,882,000 in the first nine months of 2019. The increase in
commission revenues was due primarily to an increase in the volume
of underlying equipment delivered by GEHC during the period. We
expect deliveries and revenue to improve through the remainder of
2020. 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
$218,000, or 8%, to $2,477,000 for the nine-month period ended
September 30, 2020 from $2,695,000 for the same period of the prior
year. The decrease was principally due to a decrease in
EECP
®
revenues as a result of the sale of
equity in the EECP
®
business, partially offset by
increased sales in our China operations.
Gross Profit
Gross
profit for the nine months ended September 30, 2020 and 2019 was
$27,495,000, or 54% of revenue, and $28,139,000, or 54% of revenue,
respectively, representing a decrease of $644,000, or 2%
year-over-year. On a segment basis, gross profit in the
professional sales service and equipment segments increased
$524,000 and $76,000, respectively, while gross profit in the IT
segment decreased $1,244,000.
IT
segment gross profit for the nine months ended September 30, 2020
was $13,182,000, or 40% of the segment revenue, compared to
$14,426,000, or 42% of the segment revenue for the nine months
ended September 30, 2019, with decreases of $693,000 and $551,000
from the IT VAR and NetWolves businesses, respectively, as a result
of lower sales and lower margin product mix.
Professional sales service segment gross profit
was $12,626,000, or 80% of segment revenue, for the nine months
ended September 30, 2020 as compared to $12,102,000, or 81% of the
segment revenue, for the nine months ended September 30, 2019,
reflecting an increase of $524,000, or 4%. The increase in absolute
dollars was due to higher commission revenue primarily as a result
of
higher volume of GEHC equipment delivered during the
first nine months of 2020 than in the same period last
year
, offset by higher commission
expense in the first nine months of 2020 compared to the same
period of 2019.
24
Cost
of commissions in the professional sales service segment of
$3,062,000 and $2,780,000, for the nine months ended September 30,
2020 and 2019, 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 increased to $1,687,000, or 68% of segment
revenues, for the first nine months of 2020 compared to $1,611,000,
or 60% of segment revenues, for the same period of 2019, due to
higher margin product mix, partially offset by lower sales volume,
in the first nine months of 2020, compared to the same period of
2019.
Operating Loss
Operating
loss for the nine months ended September 30, 2020 and 2019 was
$530,000 and $2,369,000, respectively, representing an improvement
of $1,839,000, primarily due to lower operating costs partially
offset by lower gross profit. On a segment basis, operating loss
increased by $614,000 in the IT segment and decreased by $808,000
in the equipment segment. Operating income in the professional
sales service segment increased by $1,525,000 to $1,038,000 in the
first nine months of 2020 from an operating loss of $487,000 in the
same period of 2019.
Operating
loss in the IT segment increased in the nine-month period ended
September 30, 2020 as compared to the same period of 2019 due to
lower gross profit and higher research and development costs,
partially offset by lower SG&A costs. Operating income in the
professional sales service segment increased in the nine-month
period ended September 30, 2020 as compared to the same period of
2019 due to higher gross profit and lower SG&A costs. Operating
loss in the equipment segment decreased in the nine-month period
ended September 30, 2020 as compared to the same period of 2019 due
to higher gross profit and lower SG&A and R&D
costs.
SG&A
costs for the nine months ended September 30, 2020 and 2019 were
$27,486,000 and $29,884,000, respectively, representing a decrease
of $2,398,000, or 8% year-over-year. On a segment basis, SG&A
costs for the nine months ended September 30, 2020 decreased in the
IT segment by $669,000 to $13,816,000, from $14,485,000 for the
corresponding period of the prior year, due primarily to decreased
personnel, travel and marketing costs, and decreased in the
professional sales service segment by $1,002,000 to $11,586,000,
from $12,588,000 for the corresponding period of the prior year,
due to lower personnel and travel costs. SG&A costs in the
equipment segment for the nine months ended September 30, 2020
decreased $607,000 to $1,436,000, from $2,043,000 for the
corresponding period of the prior year, due primarily to lower
personnel and travel costs. Corporate costs not allocated to
segments decreased in the same period by $120,000 to $647,000 from
$767,000, due primarily to lower accounting and legal
fees.
Research
and development (“R&D”) expenses were $539,000, or
1% of revenues, for the first nine months of 2020, a decrease of
$85,000, or 14%, from $624,000, or 1% of revenues, for the first
nine months of 2019. The decrease is primarily attributable to
lower product development expenses and staff reductions 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.
25
A
reconciliation of net income to Adjusted EBITDA is set forth
below:
(in thousands)
|
|
Nine months ended September 30,
|
|
|
|
2016
|
2015
|
|
|
(unaudited)
|
(unaudited)
|
|
Net
loss
|
$
(818
)
|
$
(3,037
)
|
|
Interest
expense (income), net
|
546
|
711
|
|
Income
tax (benefit) expense
|
(97
)
|
49
|
|
Depreciation
and amortization
|
1,861
|
2,024
|
|
Share-based
compensation
|
69
|
123
|
|
Adjusted
EBITDA
|
$
1,561
|
$
(130
)
|
Adjusted EBITDA
improved by $1,691,000, to $1,561,000 in the nine months ended
September 30, 2020 from $(130,000) in the nine months ended
September 30, 2019. The improvement was primarily attributable to
lower net loss, partially offset by lower interest
costs.
Interest and Other Income (Expense)
Interest
and other income (expense) for the nine months ended September 30,
2020 was $(385,000) as compared to $(619,000) for the corresponding
period of 2019. The decrease was due primarily to the $110,000 gain
on sale of equity in the EECP business and lower interest costs due
to principal payments against the line of credit and Medtech notes
payable.
Income Tax (Expense) Benefit
For
the nine months ended September 30, 2020, we recorded income tax
benefit of $97,000 as compared to income tax expense of $(49,000)
for the corresponding period of 2019. The change arose mainly from
the release of deferred foreign tax liabilities.
Net Loss
Net
loss for the nine months ended September 30, 2020 was $818,000
compared to net loss of $3,037,000 for the nine months ended
September 30, 2019, representing a decrease in net loss of
$2,219,000. Our net loss per share was $0.00 and $0.02 in the
nine-month periods ended September 30, 2020 and 2019, respectively.
The principal causes of the decrease in net loss is the increase in
operating income in the professional sales service segment and
decrease in operating loss in the equipment segment, partially
offset by the increase in operating loss in the IT
segment.
Liquidity and Capital Resources
Cash and Cash Flow
We
have financed our operations from working capital. At September 30,
2020, we had cash and cash equivalents of $6,865,000 and negative
working capital of $12,952,000, compared to cash and cash
equivalents of $2,124,000 and negative working capital of
$7,469,000 at December 31, 2019. $7,392,000 in negative working
capital at September 30, 2020 is attributable to the net balance of
deferred commission expense and deferred revenue. These are
non-cash expense and revenue items and have no impact on future
cash flows.
26
Cash
provided by operating activities was $4,734,000, which consisted of
net loss after adjustments to reconcile net loss to net cash of
$1,320,000 and cash provided by operating assets and liabilities of
$3,414,000, during the nine months ended September 30, 2020,
compared to cash used in operating activities of $2,050,000 for the
same period in 2019. The changes in the account balances primarily
reflect a decrease in accounts and other receivables of $8,615,000,
offset by decreases in accounts payable, accrued commissions, and
deferred revenue of $2,307,000, $1,171,000, and $1,923,000,
respectively.
Cash
provided by investing activities during the nine-month period ended
September 30, 2020 was $515,000 of which $1,150,000 was provided by
the sale of equity in the EECP business, offset by $635,000 used
for the purchase of equipment and software.
Cash
used in financing activities during the nine-month period ended
September 30, 2020 was $465,000 primarily as a result of repayments
of lines of credit, notes payable, and finance leases aggregating
$4,218,000, partially offset by $3,754,000 in proceeds from notes
payable.
Liquidity
The
Company expects to generate sufficient cash flow from operations to
satisfy its obligations for the next twelve months.
It
is anticipated that the COVID-19 pandemic will continue to
adversely impact our operations during and beyond the remaining
quarter of 2020, depending on the duration of the pandemic and the
timing and success of the reopening of the economy.
27
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, 2020 and have concluded that the Company’s disclosure
controls and procedures were effective as of September 30,
2020.
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, 2020 that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control
over financial reporting.
28
P
ART II - OTHER INFORMATION
I
TEM 6 – EXHIBITS
Exhibits
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.
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.
29
I
n accordance with the requirements of the
Exchange Act, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
|
VASO
CORPORATION
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Jun
Ma
|
|
|
|
|
Jun
Ma
|
|
|
|
|
President and
Chief Executive
Officer
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Michael
J. Beecher
|
|
|
|
|
Michael
J. Beecher
|
|
|
|
|
Chief
Financial Officer and
Principal
Accounting Officer
|
|
Date: November 13, 2020
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