0001654954-19-006097.txt : 20190515 0001654954-19-006097.hdr.sgml : 20190515 20190515160630 ACCESSION NUMBER: 0001654954-19-006097 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 75 CONFORMED PERIOD OF REPORT: 20190331 FILED AS OF DATE: 20190515 DATE AS OF CHANGE: 20190515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VASO Corp CENTRAL INDEX KEY: 0000839087 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 112871434 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18105 FILM NUMBER: 19828038 BUSINESS ADDRESS: STREET 1: 137 COMMERCIAL STREET, STE. 200 CITY: PLAINVIEW STATE: NY ZIP: 11803 BUSINESS PHONE: 516-997-4600 MAIL ADDRESS: STREET 1: 137 COMMERCIAL STREET, STE. 200 CITY: PLAINVIEW STATE: NY ZIP: 11803 FORMER COMPANY: FORMER CONFORMED NAME: VASOMEDICAL, INC DATE OF NAME CHANGE: 20120606 FORMER COMPANY: FORMER CONFORMED NAME: VASOMEDICAL INC DATE OF NAME CHANGE: 19950517 FORMER COMPANY: FORMER CONFORMED NAME: FUTURE MEDICAL PRODUCTS INC /DE/ DATE OF NAME CHANGE: 19920703 10-Q 1 vaso_10q.htm QUARTERLY REPORT Blueprint


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 March 31, 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
 (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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ X ] Smaller Reporting Company [X]
Emerging Growth Company [ ]
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock
VASO
OTC:PK
 
Number of Shares Outstanding of Common Stock, $.001 Par Value, at May 9, 2019 – 167,134,200
 

 
 

Vaso Corporation and Subsidiaries
 
INDEX
 
 
 
 
 
 
 

 

PART I – FINANCIAL INFORMATION
 
ITEM 1 - FINANCIAL STATEMENTS

Vaso Corporation and Subsidiaries
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(in thousands, except share and per share data)
 
 
 
March 31, 2019
 
 
December 31, 2018
 
 
 
(unaudited)
 
 
 
 
ASSETS
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 $2,087
 
 $2,668 
Accounts and other receivables, net of an allowance for doubtful
    
    
accounts and commission adjustments of $3,993 at March 31,
    
    
2019 and $3,994 at December 31, 2018
  7,414 
  11,028 
Receivables due from related parties
  20 
  20 
Inventories, net
  2,089 
  1,983 
Deferred commission expense
  2,624 
  2,585 
Prepaid expenses and other current assets
  989 
  890 
 Total current assets
  15,223 
  19,174 
 
    
    
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
    
    
$6,813 at March 31, 2019 and $6,370 at December 31, 2018
  5,658 
  5,809 
OPERATING LEASE RIGHT OF USE ASSETS
  1,011 
  - 
GOODWILL
  17,381 
  17,309 
INTANGIBLES, net
  4,634 
  4,740 
OTHER ASSETS, net
  2,802
 
  3,067 
DEFERRED TAX ASSETS, net
  375 
  375 
 
 $47,084
 
 $50,474 
 
    
    
LIABILITIES AND STOCKHOLDERS' EQUITY
    
    
CURRENT LIABILITIES
    
    
Accounts payable
 $6,229 
 $6,284 
Accrued commissions
  965 
  2,116 
Accrued expenses and other liabilities
  4,881 
  5,655 
Finance lease liabilities - current
  155 
  188 
Operating lease liabilities - current
  657 
  - 
Sales tax payable
  928 
  1,020 
Deferred revenue - current portion
  11,026 
  10,382 
Notes payable - current portion
  9,550 
  9,116 
Notes payable - related parties - current portion
  985 
  582 
Due to related party
  10 
  10 
Total current liabilities
  35,386 
  35,353 
 
    
    
LONG-TERM LIABILITIES
    
    
Notes payable - related parties, net of current portion
  - 
  245 
Finance lease liabilities, net of current portion
  372 
  400 
Operating lease liabilities, net of current portion
  354 
  - 
Deferred revenue, net of current portion
  6,906 
  7,704 
Deferred tax liability
  124 
  124 
Other long-term liabilities
  999 
  1,037 
Total long-term liabilities
  8,755 
  9,510 
 
    
    
COMMITMENTS AND CONTINGENCIES (NOTE P)
    
    
 
    
    
STOCKHOLDERS' EQUITY
    
    
Preferred stock, $.01 par value; 1,000,000 shares authorized; nil shares
    
    
 issued and outstanding at March 31, 2019 and December 31, 2018
  - 
  - 
Common stock, $.001 par value; 250,000,000 shares authorized;
    
    
177,417,287 shares issued at March 31, 2019 and December 31, 2018;
    
    
167,109,200 shares outstanding at March 31, 2019 and December 31, 2018
  178 
  178 
Additional paid-in capital
  63,716
 
  63,672 
Accumulated deficit
  (58,773)
  (55,924)
Accumulated other comprehensive loss
  (178)
  (315)
Treasury stock, at cost, 10,308,087 shares at March 31, 2019 and December 31, 2018
  (2,000)
  (2,000)
Total stockholders’ equity
 2,943
 
  5,611 
 
 $47,084
 
 $50,474 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
 
 
3

Vaso Corporation and Subsidiaries
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)
(in thousands, except per share data)
 
 
 
 Three months ended
 
 
 
March 31,
 
 
 
2019
 
 
2018
 
Revenues
 
 
 
 
 
 
Managed IT systems and services
 $11,327 
 $11,413 
Professional sales services
  3,415 
  5,211 
Equipment sales and services
  782 
  913 
Total revenues
  15,524 
  17,537 
 
    
    
Cost of revenues
    
    
Cost of managed IT systems and services
  6,601 
  6,499 
Cost of professional sales services
  730 
  1,058 
Cost of equipment sales and services
  307 
  359 
Total cost of revenues
  7,638 
  7,916 
Gross profit
  7,886 
  9,621 
 
    
    
Operating expenses
    
    
Selling, general and administrative
  10,341 
  11,548 
Research and development
  200 
  187 
Total operating expenses
  10,541 
  11,735 
Operating loss
  (2,655)
  (2,114)
 
    
    
Other (expense) income
    
    
Interest and financing costs
  (225)
  (171)
Interest and other income, net
 42
  24 
Gain on sale of investment in VSK
  - 
  212 
Total other (expense) income, net
  (183)
  65 
 
    
    
Loss before income taxes
  (2,838)
  (2,049)
Income tax expense
  (11)
  (20)
Net loss
  (2,849)
  (2,069)
 
    
    
Other comprehensive loss
    
    
Foreign currency translation gain
  137 
  184 
Comprehensive loss
 $(2,712)
 $(1,885)
 
    
    
Loss per common share
    
    
- basic and diluted
 $(0.02)
 $(0.01)
 
    
    
Weighted average common shares outstanding
    
    
- basic and diluted
  166,859 
  163,895 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
 
 
4

Vaso Corporation and Subsidiaries
 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 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 
 
    
    
    
    
    
    
    
    
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
 
 
(*) 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

 
Vaso Corporation and Subsidiaries
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
(in thousands)
 
 
 
 Three months ended
 
 
 
March 31,
 
 
 
2019
 
 
2018
 
Cash flows from operating activities
 
 
 
 
 
 
Net loss
 $(2,849)
 $(2,069)
Adjustments to reconcile net loss to net
    
    
  cash used in operating activities
    
    
Depreciation and amortization
  675 
  595 
Loss from interest in joint venture
  - 
  9 
Gain on sale of investment in VSK
  - 
  (212)
Provision for doubtful accounts and commission adjustments
  90 
  63 
Amortization of debt issue costs
  8 
  8 
Share-based compensation
  44 
  141 
Changes in operating assets and liabilities:
    
    
Accounts and other receivables
  3,530 
  4,040 
Inventories, net
  (86)
  326 
Deferred commission expense
  (39)
  210 
Prepaid expenses and other current assets
  (96)
  163 
Other assets, net
  306
 
  549 
Accounts payable
  (57)
  (1,828)
Accrued commissions
  (1,084)
  (541)
Accrued expenses and other liabilities
  (860)
  (122)
Sales tax payable
  (95)
  72 
Deferred revenue
  (154)
  (1,772)
Other long-term liabilities
  (38)
  (152)
Net cash used in operating activities
  (705)
  (520)
 
    
    
Cash flows from investing activities
    
    
Purchases of equipment and software
  (410)
  (279)
Net cash used in investing activities
  (410)
  (279)
 
    
    
Cash flows from financing activities
    
    
Net borrowings on revolving lines of credit
  425
 
  1,437 
Repayment of capital lease obligations
  -
 
  (46)
Repayment of notes payable and finance lease obligations
  (64)
  - 
Proceeds from notes payable - related parties
  650 
  - 
Repayment of notes payable - related parties
  (500)
  - 
Net cash provided by financing activities
  511
 
  1,391 
Effect of exchange rate differences on cash and cash equivalents
  23
 
  3 
 
    
    
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
  (581)
  595 
Cash and cash equivalents - beginning of period
  2,668 
  5,245 
Cash and cash equivalents - end of period
 $2,087
 
 $5,840 
 
    
    
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
    
    
Interest paid
 $215 
 $156 
Income taxes paid
 $- 
 $- 
 
    
    
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 
 
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)
 
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 diagnostic imaging applications (national channel partner of GEHC IT).
● 
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.
 
 
 
 
7
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
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.
 
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 three months ended March 31, 2019, and the years ended December 31, 2018 and 2017, and we maintain lines of credit from a lending institution and these lines of credit will require further extensions after their current June 28, 2019 maturity date and notes payable which mature within the next twelve months. These events raise substantial doubt about our ability to continue as a going concern. Our ability to continue operating as a going concern is dependent upon achieving profitability, extending the maturity date of our existing lines of credit, 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.
 
 
 
 
8
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
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
 
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:
 
 
 
 
9
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
 

 
 (in thousands)
 
 
Three Months Ended March 31, 2019 (unaudited)
 
 
Three Months Ended March 31, 2018 (unaudited)
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Network services
 $10,118 
 
 
 
 
 
 
 $10,118 
 $10,211 
 
 
 
 
 
 
 $10,211 
Software sales and support
  1,209 
 
 
 
 
 
 
  1,209 
  1,202 
 
 
 
 
 
 
  1,202 
Commissions
    
  3,415 
 
 
 
  3,415 
    
  5,211 
 
 
 
  5,211 
Medical equipment sales
    
    
  494 
  494 
    
    
  631 
  631 
Medical equipment service
    
    
  288 
  288 
    
    
  282 
  282 
 
 $11,327 
 $3,415 
 $782 
 $15,524 
 $11,413 
 $5,211 
 $913 
 $17,537 
 
 
 
Three Months Ended March 31, 2019 (unaudited)
 
 
Three Months Ended March 31, 2018 (unaudited)
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Revenue recognized over time
 $9,955 
 $- 
 $148 
 $10,103 
 $10,090 
 $- 
 $173 
 $10,263 
Revenue recognized at a point in time
  1,372 
  3,415 
  634 
  5,421 
  1,323 
  5,211 
  740 
  7,274 
 
 $11,327 
 $3,415 
 $782 
 $15,524 
 $11,413 
 $5,211 
 $913 
 $17,537 
 
Transaction Price Allocated to Remaining Performance Obligations
 
As of March 31, 2019, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $82.8 million, of which we expect to recognize revenue as follows:
 
 
 
Fiscal years of revenue recognition
 
 
 
remainder of 2019
 
 
2020
 
 
2021
 
 
Thereafter
 
Unfulfilled performance obligations
 $34,995 
 $29,816 
 $10,652 
 $7,345 
 
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 $314,000 and $344,000 at March 31, 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 equipment. Such amounts aggregated approximately $17,015,000 and $17,098,000 at March 31, 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 $2,020,000 and $2,315,000 at March 31, 2019 and December 31, 2018, respectively, and are included in accrued expenses and other liabilities in our condensed consolidated balance sheets.
 
 
 
 
10
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
In our VasoMedical business, we bill amounts for post-delivery services and varying duration service contracts in advance of performance. Such amounts aggregated approximately $917,000 and $988,000 at March 31, 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 months ended March 31, 2019, we recognized approximately $1.4 million of revenues that were included in our contract liability balance at the beginning of such period.
 
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
 
● 
Professional sales service segment
 
● 
Equipment segment
 
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:
 
 
 
 
 
11
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 

 
 
  (in thousands)
 
 
 
Three months ended March 31,
 
 
 
2019
 
 
2018
 
 
 
(unaudited)
 
 
(unaudited)
 
Revenues from external customers
 
 
 
 
 
 
IT
 $11,327 
 $11,413 
Professional sales service
  3,415 
  5,211 
Equipment
  782 
  913 
Total revenues
 $15,524 
 $17,537 
 
    
    
Gross Profit
    
    
IT
 $4,726 
 $4,914 
Professional sales service
  2,685 
  4,153 
Equipment
  475 
  554 
Total gross profit
 $7,886 
 $9,621 
 
    
    
Operating loss
    
    
IT
 $(343)
 $(435)
Professional sales service
  (1,643)
  (1,054)
Equipment
  (308)
  (228)
Corporate
  (361)
  (397)
Total operating loss
 $(2,655)
 $(2,114)
 
    
    
Depreciation and amortization
    
    
IT
 $559 
 $447 
Professional sales service
  45 
  44 
Equipment
  71 
  102 
Corporate
  - 
  2 
Total depreciation and amortization
 $675 
 $595 
 
    
    
Capital expenditures
    
    
IT
 $391 
 $258 
Professional sales service
  - 
  - 
Equipment
  19 
  18 
Corporate
  - 
  3 
Total cash capital expenditures
 $410 
 $279 
 
 
 
(in thousands) 
 
 
March 31, 2019
 
 
December 31, 2018
 
 
 
(unaudited)
 
 
 
 
Identifiable Assets
 
 
 
 
 
 
IT
 $29,625 
 $28,785 
Professional sales service
  7,672 
  12,193 
Equipment
  7,094
  6,992 
Corporate
  2,693 
  2,504 
Total assets
 $47,084
 $50,474 
 
 
 
 
 
12
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
GE Healthcare accounted for 22% and 30% of revenue for the three months ended March 31, 2019 and 2018, respectively. GE Healthcare also accounted for $2.5 million or 33%, and $7.2 million or 66%, of accounts and other receivables at March 31, 2019 and December 31, 2018, respectively.
 
NOTE E – LOSS PER COMMON SHARE
 
Basic loss per common share is computed as loss applicable to common stockholders divided by the weighted-average number of common shares outstanding for the period. Diluted 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.
 
The following table represents common stock equivalents that were excluded from the computation of diluted loss per share for the three months ended March 31, 2019 and 2018, because the effect of their inclusion would be anti-dilutive.
 
 
 
(in thousands)  
 
 
 
Three months ended March 31,
 
 
 
2019
 
 
2018
 
 
 
(unaudited)
 
 
(unaudited)
 
Restricted common stock grants
  2,388 
  4,762 
 
NOTE F – ACCOUNTS AND OTHER RECEIVABLES, NET
 
The following table presents information regarding the Company’s accounts and other receivables as of March 31, 2019 and December 31, 2018:
 
 
(in thousands)
 
 
March 31,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Trade receivables
 $11,036 
 $15,016 
Unbilled receivables
  365 
  - 
Due from employees
  6 
  6 
Allowance for doubtful accounts and
    
    
commission adjustments
  (3,993)
  (3,994)
Accounts and other receivables, net
 $7,414 
 $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 represents 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)
 
 
 
March 31, 2019
 
 
December 31, 2018
 
 
 
(unaudited)
 
 
 
 
Raw materials
 $657 
 $577 
Work in process
  374 
  388 
Finished goods
  1,058 
  1,018 
 
 $2,089 
 $1,983 
 
At March 31, 2019 and December 31, 2018, the Company maintained reserves for slow moving inventories of $636,000.
 
NOTE H – PROPERTY AND EQUIPMENT
 
 
 
(in thousands)
 
 
 
March 31, 2019
 
 
December 31, 2018
 
 
 
(unaudited)
 
 
 
 
Office, laboratory and other equipment
 $3,108 
 $3,885 
Equipment furnished for customer
    
    
or clinical uses
  8,321 
  8,167 
Right of use assets - finance leases
  915 
  - 
Furniture and fixtures
  127 
  127 
 
  12,471 
  12,179 
Less: accumulated depreciation and amortization
  (6,813)
  (6,370)
   Property and equipment, net
 $5,658 
 $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”.
 
NOTE I – GOODWILL AND OTHER INTANGIBLES
 
Goodwill of $14,375,000 is attributable to the NetWolves reporting unit within the IT segment. The remaining $3,006,000 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 March 31, 2019 and December 31, 2018. The changes in the carrying amount of goodwill are as follows:
                  
 
(in thousands) 
 
 
Three months ended
 
 
Year ended
 
 
 
March 31, 2019
 
 
December 31, 2018
 
 
 
(unaudited)
 
 
 
 
Beginning of period
 $17,309 
 $17,471 
Foreign currency translation adjustment
  72 
  (162)
End of period
 $17,381 
 $17,309 
 
 
 
 
14
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
The Company’s other intangible assets consist of capitalized customer-related intangibles, patent and technology costs, and software costs, as set forth in the following:

 
 
(in thousands)
 
 
 
March 31, 2019
 
 
December 31, 2018
 
 
 
(unaudited)
 
 
 
 
Customer-related
 
 
 
 
 
 
Costs
 $5,831 
 $5,831 
Accumulated amortization
  (3,201)
  (3,083)
 
  2,630 
  2,748 
 
    
    
Patents and Technology
    
    
Costs
  2,363 
  2,363 
Accumulated amortization
  (1,586)
  (1,532)
 
  777 
  831 
 
    
    
Software
    
    
Costs
  2,472 
  2,346 
Accumulated amortization
  (1,245)
  (1,185)
 
  1,227 
  1,161 
 
    
    
 
 $4,634 
 $4,740 
 
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 $232,000 and $256,000 for the three months ended March 31, 2019 and 2018, respectively.
 
 
 
 
15
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
Amortization of intangibles for the next five years is:
 
                                                                                                 
 
 
(in thousands)
 
Years ending December 31,
 
(unaudited)
 
Remainder of 2019
  807 
2020
  966 
2021
  891 
2022
  594 
2023
  336 

 $3,594 
 
NOTE J – OTHER ASSETS, NET
 
Other assets, net consist of the following at March 31, 2019 and December 31, 2018:
 
 
 
(in thousands)
 
 
 
March 31, 2019
 
 
December 31, 2018
 
 
 
(unaudited)
 
 
 
 
Deferred commission expense - noncurrent
 $1,768 
 $1,978 
Trade receivables - noncurrent
  670 
  630 
Other, net of allowance for loss on loan receivable of
    
    
  $412 at March 31, 2019 and December 31, 2018
  364 
  459 
 
 $2,802 
 $3,067 
 
 
NOTE K – ACCRUED EXPENSES AND OTHER LIABILITIES
 
Accrued expenses and other liabilities consist of the following at March 31, 2019 and December 31, 2018:
      
 
 (in thousands) 
 
 
March 31, 2019
 
 
December 31, 2018
 
 
 
(unaudited)
 
 
 
 
Accrued compensation
 $602 
 $648 
Accrued expenses - other
  1,651 
  2,092 
Other liabilities
  2,629 
  2,915 
 
 $4,881 
 $5,655 
 
 
 
 
16
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
NOTE L - DEFERRED REVENUE
 
The changes in the Company’s deferred revenues are as follows:

 
 
(in thousands)
 
 
 
Three months ended March 31,
 
 
 
2019
 
 
2018
 
 
 
(unaudited)
 
 
(unaudited)
 
Deferred revenue at beginning of period
 $18,086 
 $23,066 
Net additions:
    
    
Deferred extended service contracts
  70 
  192 
Deferred in-service and training
  5 
  - 
Deferred service arrangements
  10 
  - 
Deferred commission revenues
  1,336 
  462 
Recognized as revenue:
    
    
Deferred extended service contracts
  (143)
  (161)
Deferred in-service and training
  (8)
  (3)
Deferred service arrangements
  (5)
  (12)
Deferred commission revenues
  (1,419)
  (2,249)
Deferred revenue at end of period
  17,932 
  21,295 
Less: current portion
  11,026 
  15,607 
Long-term deferred revenue at end of period
 $6,906 
 $5,688 
 
NOTE M – NOTES PAYABLE
 
Notes payable consist of the following:
 
 
 
(in thousands)
 
 
 
March 31, 2019
 
 
December 31, 2018
 
 
 
(unaudited)
 
 
 
 
Line of credit
 $4,596 
 $4,171 
Unsecured term loan
  149 
  145 
Notes payable
  10 
  14 
Notes payable - MedTech (net of $6 and $14 in debt issue costs
    
    
at March 31, 2019 and December 31, 2018, respectively)
  4,795 
  4,786 
Notes payable - related parties
  985 
  827 
Total debt
  10,535 
  9,943 
Less: current portion (including related parties)
  (10,535)
  (9,698)
 
 $- 
 $245 
 
NetWolves maintains a $4.0 million line of credit with a lending institution. Advances under the line, which expires on June 28, 2019, bear interest at a rate of LIBOR plus 3% and are secured by substantially all of the assets of NetWolves Network Services, LLC and guaranteed by Vaso Corporation. At March 31, 2019, the Company had drawn approximately $3.2 million against the line. The draw is included in notes payable – current portion in the Company’s condensed consolidated balance sheet.
 
 
 
 
17
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
The Company maintains an additional $2.0 million line of credit with a lending institution. Advances under the line, which expires on June 28, 2019, bear interest at a rate of LIBOR plus 3% and are secured by substantially all of the assets of the Company. At March 31, 2019, the Company had drawn approximately $1.3 million against the line. The line of credit agreement includes certain financial covenants. At March 31, 2019, the Company was not in compliance with such covenants.
 
In March 2019, the Company’s Biox subsidiary drew RMB500,000 (approximately $75,000) from a line of credit with a Chinese bank for working capital purposes. The advance, which bore interest at 9.2%, was fully repaid in April 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 three months ended March 31, 2019, the Company issued notes aggregating $650,000 to a director, an employee and a shareholder. The notes mature at various periods through March 28, 2020 and bear interest at 10% per annum payable quarterly. In April 2019, the Company issued to a director a $100,000 note maturing April 3, 2020 bearing interest at 10% per annum payable quarterly.
 
NOTE N – LEASES
 
ASC 842, “Leases”, requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at either the effective date (the “effective date method”) or the beginning of the earliest period presented (the “comparative method”) using a modified retrospective approach. Under the effective date method, the Company’s comparative period reporting is unchanged. In contrast, under the comparative method, the Company’s date of initial application is the beginning of the earliest comparative period presented, and the Topic 842 transition guidance is then applied to all comparative periods presented. Further, under either transition method, the standard includes certain practical expedients intended to ease the burden of adoption. The Company adopted ASC 842 January 1, 2019 using the effective date method and elected certain practical expedients allowing the Company not to reassess:
 
● 
whether expired or existing contracts contain leases under the new definition of a lease;
● 
lease classification for expired or existing leases; and
● 
whether previously capitalized initial direct costs would qualify for capitalization under Topic 842.
 
 
 
 
18
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
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) 
 
 
March 31, 2019
 
 
December 31, 2018
 
 
 
(unaudited)
 
 
 
 
Lease liabilities - current
 
 
 
 
 
 
Finance leases
 $155 
 $188 
Operating leases
  657 
  - 
 
 $812 
 $188 
Lease liabilities - net of current portion
    
    
Finance leases
 $372 
 $400 
Operating leases
  354 
  - 
 
 $726 
 $400 
 
A reconciliation of undiscounted cash flows to finance and operating lease liabilities recognized in the condensed consolidated balance sheet at March 31, 2019 is set forth below:
 
 
 (in thousands) 
Years ending December 31,
 
Finance leases
 
 
Operating leases
 
 
Total
 
Remainder of 2019
  153 
  495 
  648 
2020
  142 
  426 
  568 
2021
  142 
  129 
  271 
2022
  118 
  51 
  169 
2023
  47 
  - 
  47 
Undiscounted lease payments
  602 
  1,101 
  1,703 
Amount representing interest
  (75)
  (90)
  (165)
Discounted lease liabilities (unaudited)
  527 
  1,011 
  1,538 
 
 
 
 
19
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
Additional disclosures of lease data are set forth below:
 
 
 
Three months ended March 31, 2019
 
 
 
(unaudited)
 
Lease costs:
 
 
 
Finance lease costs:
 
 
 
Amortization of right-of-use assets
 $46
Interest on lease liabilities
  13 
 
 59
Operating lease costs:
  181 
Short-term lease costs:
  16 
Total lease cost
 $256
 
    
Other information:
    
Cash paid for amounts included in the
    
measurement of lease liabilities:
    
Operating cash flows from finance leases
 $11 
Operating cash flows from operating leases
  181 
Financing cash flows from finance leases
  60 
 
 $252 
 
    
Weighted-average remaining lease term - finance leases (months)
  46 
Weighted-average remaining lease term - operating leases (months)
  24 
 
    
Weighted-average discount rate - finance leases
  7.9%
Weighted-average discount rate - operating leases
  9.0%
 
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.
 
NOTE O – RELATED-PARTY TRANSACTIONS
 
The Company made interest payments, aggregating approximately $108,000 in each of the three-month periods ended March 31, 2019 and 2018, to MedTechnology Investments, LLC (“MedTech”) pursuant to its $4,800,000 promissory notes (“Notes”). The Notes bear interest, payable quarterly, at an annual rate of 9%, mature on May 29, 2019, may be prepaid without penalty, and are subordinated to any current or future Senior Debt as defined in the Subordinated Security Agreement. The Subordinated Security Agreement secures payment and performance of the Company’s obligations under the 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. 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 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 & Barandes, LLP, which performs certain legal services for the Company. Fees of approximately $85,000 were billed by the firm for each of the three-month periods ended March 31, 2019 and 2018, at which dates no amounts were outstanding.
 
 
 
 
20
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
NOTE P – 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 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 continuing five-year term, unless earlier terminated by the Company, but in no event can 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 thereafter during the employment term. The amount and the occasion for payment of such bonus, if any, shall be at the discretion of the Board of Directors. 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.
 
NOTE Q – SUBSEQUENT EVENT
 
In May 2019, the Board of Directors ("Board") approved the 2019 Stock Plan (the "2019 Plan") for officers, directors, and senior employees of the Corporation or any subsidiary of the Corporation. The stock issuable under the 2019 Plan shall be shares of the Company's authorized but unissued or reacquired common stock. The maximum number of shares of common stock that may be issued under the 2019 Plan is 15,000,000 shares.
 
The 2019 Plan consists of a Stock Issuance Program, under which eligible persons may, at the discretion of the Board, be issued shares of common stock directly, as a bonus for services rendered or to be rendered to the Corporation or any subsidiary of the Corporation.
 
 
 
 
 
21
Vaso Corporation and Subsidiaries
 
 
 
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Except for historical information contained in this report, the matters discussed are forward-looking statements that involve risks and uncertainties. When used in this report, words such as “anticipates”, “believes”, “could”, “estimates”, “expects”, “may”, “plans”, “potential” and “intends” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company’s management, as well as assumptions made by and information currently available to the Company’s management. Among the factors that could cause actual results to differ materially are the following: the effect of business and economic conditions; 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 the conduct of clinical trials and other product development programs; the actions of regulatory authorities and third-party payers in the United States and overseas; continuation of the GEHC 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 C 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
Vaso Corporation and Subsidiaries
 
 
 
Results of Operations – For the Three Months Ended March 31, 2019 and 2018
 
Revenues
 
Total revenue for the three months ended March 31, 2019 and 2018 was $15,524,000 and $17,537,000, respectively, representing a decrease of $2,013,000, or 11% year-over-year. On a segment basis, revenue in the IT, professional sales services, and equipment segments decreased $86,000, $1,796,000, and $131,000, respectively.
 
Revenue in the IT segment for the three months ended March 31, 2019 was $11,327,000 compared to $11,413,000 for the three months ended March 31, 2018, a decrease of $86,000, or 1%, of which $92,000 resulted from lower NetWolves revenues, offset by $6,000 from the growth in the healthcare IT VAR business. Our monthly recurring revenue in the managed network services operations continues to grow month over month 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 increased to $12.5 million at March 31, 2019 from $10.4 million at March 31, 2018, as a result of growth in orders and clients.
 
Commission revenues in the professional sales services segment were $3,415,000 in the first quarter of 2019, a decrease of 34%, as compared to $5,211,000 in the same quarter of 2018. The decrease in commission revenues was due primarily to a decrease in the volume of equipment delivered by GEHC during the period, as well as to a lower blended commission rate. 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 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 March 31, 2019, $17,015,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $6,461,000 was long-term. At March 31, 2018, $20,338,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $5,185,000 was long-term. The decrease in deferred revenue is principally due to a decrease in orders booked, partially offset by a decrease in deliveries by GEHC. We anticipate that revenue will increase in the remaining quarters of 2019 as deliveries increase.
 
Revenue in the equipment segment decreased by $131,000, or 14%, to $782,000 for the three-month period ended March 31, 2019 from $913,000 for the same period of the prior year. The decrease was principally due to lower sales of Biox ambulatory monitors and ARCS software during the quarter.
 
Gross Profit
 
Gross profit for the three months ended March 31, 2019 and 2018 was $7,886,000, or 51% of revenue, and $9,621,000, or 55% of revenue, respectively, representing a decrease of $1,735,000, or 18% period-over-period.
 
IT segment gross profit for the three months ended March 31, 2019 was $4,726,000, or 42% of the segment revenue, compared to $4,914,000, or 43% of the segment revenue for the three months ended March 31, 2018. The period-over-period decrease of $188,000, or 4%, was primarily a result of an unfavorable mix of lower margin equipment sales at NetWolves.
 
Professional sales services segment gross profit was $2,685,000, or 79% of segment revenue, for the three months ended March 31, 2019 as compared to $4,153,000, or 80% of the segment revenue, for the three months ended March 31, 2018, reflecting a decrease of $1,468,000, or 35%. The decrease in absolute dollars was primarily due to lower commission revenue as a result of lower volume of GEHC equipment delivered during the first quarter of 2019 than in the same period last year, as well as to lower blended commission rates. Cost of commissions in the professional sales service segment of $730,000 and $1,058,000, for the three months ended March 31, 2019 and 2018, respectively, reflected commission expense associated with recognized commission revenues.
 
 
 
 
23
Vaso Corporation and Subsidiaries
 
 
 
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 $475,000, or 61% of segment revenues, for the first quarter of 2019 compared to $554,000, or 61% of segment revenues, for the same quarter of 2018. The $79,000, or 14%, decrease in gross profit was due to lower sales volume, compared to the first quarter 2018.
 
Operating Loss
 
Operating loss for the three months ended March 31, 2019 and 2018 was $2,655,000 and $2,114,000, respectively, representing an increase of $541,000, due to lower gross profit, partially offset by lower operating costs (defined below).
 
Operating loss in the IT segment decreased $92,000 in the three-month period ended March 31, 2019 as compared to the same period of 2018 due to lower selling, general, and administrative (“SG&A”) costs, partially offset by lower gross profit. Operating loss in the professional sales service segment increased $589,000 in the three-month period ended March 31, 2019 as compared to operating loss in the same period of 2018 due to lower gross profit partially offset by lower SG&A costs. The increase in equipment segment operating loss was $80,000 in the first quarter of 2019, due to lower gross profit. During the first quarter of 2019, corporate expenses decreased $36,000 when compared to the same quarter of 2018.
 
SG&A costs for the three months ended March 31, 2019 and 2018 were $10,341,000 and $11,548,000, respectively, representing a decrease of $1,207,000, or 10% year-over-year. On a segment basis, SG&A costs in the IT segment decreased by $300,000 in the first 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 $880,000 due mainly to cost savings related to the annual national sales meeting, headcount and other personnel-related costs. SG&A costs in the equipment segment increased $7,000 due mainly to increased headcount in our China operations. Corporate costs not allocated to segments decreased by $36,000 in the three months ended March 31, 2019 from the same period in 2018, due primarily to lower director and legal fees.
 
Research and development (“R&D”) expenses were $200,000, or 1% of revenues, for the first quarter of 2019, an increase of $13,000, or 7%, from $187,000, or 1% of revenues, for the first quarter of 2018. The increase is primarily attributable to higher software development expenses in the IT segment.
 
Interest and Other (Expense) Income
 
Interest and other (expense) income for the three months ended March 31, 2019 was $(183,000) as compared to $65,000 for the corresponding period of 2018. The increase in expense was due primarily to higher interest expense and the non-recurring $212,000 gain on sale of investment in the VSK joint venture in the prior year quarter.
 
Income Tax Expense
 
For the three months ended March 31, 2019, we recorded income tax expense of $11,000 as compared to $20,000 for the corresponding period of 2018. The decrease arose mainly from lower foreign taxes.
 
Net Loss
 
Net loss for the three months ended March 31, 2019 was $2,849,000 as compared to a net loss of $2,069,000 for the three months ended March 31, 2018, representing an increase of $780,000. Our net loss per share was $0.02 and $0.01 in the three-month periods ended March 31, 2019 and 2018, respectively. The principal cause of the increase in net loss is the increase in operating loss and the increase in interest and other expense. The Company historically reports a loss in the first quarter of the year.
 
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:
 
 
 
24
Vaso Corporation and Subsidiaries
 
 
                              
 
 
 
(in thousands)
 
 
 
Three months ended March 31,

 
 
2019
 
 
2018
 
 
 
  (unaudited)
 
 
  (unaudited)
 
Net loss
 $(2,849)
 $(2,069)
Interest expense (income), net
  217 
  161
 
Income tax expense
  11 
  20
 
Depreciation and amortization
  675 
  595
 
Share-based compensation
  44 
  141
 
Adjusted EBITDA
 $(1,902)
 $(1,152)
 
Adjusted EBITDA losses increased by $750,000, to $1,902,000 in the quarter ended March 31, 2019 from $1,152,000 in the quarter ended March 31, 2018. The increase was primarily attributable to the higher net loss and the lower share-based compensation and income tax expense.
 
Liquidity and Capital Resources
 
Cash and Cash Flow
 
We have financed our operations primarily from working capital and drawdown on our line of credit. At March 31, 2019, we had cash and cash equivalents of $2,087,000 and negative working capital of $20,163,000 compared to cash and cash equivalents of $2,668,000 and negative working capital of $16,179,000 at December 31, 2018. $8,402,000 in negative working capital at March 31, 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 $705,000, which consisted of net loss after adjustments to reconcile net loss to net cash of $2,032,000 and cash provided by operating assets and liabilities of $1,327,000, during the three months ended March 31, 2019, compared to cash used by operating activities of $520,000 for the same period in 2018. The changes in the account balances primarily reflect a decrease in accounts and other receivables of $3,530,000, and decreases in accrued commission and accrued expenses of $1,084,000 and $860,000, respectively.
 
Cash used in investing activities during the three-month period ended March 31, 2019 was $410,000 for the purchase of equipment and software.
 
Cash provided by financing activities during the three-month period ended March 31, 2019 was $511,000 primarily as a result of $425,000 in net borrowings on revolving lines of credit and $150,000 in net proceeds from notes issued to related parties, partially offset by $64,000 in payments of notes payable and finance leases issued for equipment purchases.
 
Liquidity
 
We have incurred net losses from operations for the three months ended March 31, 2019, and the years ended December 31, 2018 and 2017, and we maintain lines of credit from a lending institution which will require further extensions after their current June 28, 2019 maturity date and notes payable which mature within the next twelve months. These events raise substantial doubt about our ability to continue as a going concern. Our ability to continue operating as a going concern is dependent upon achieving profitability, extending the maturity date of our existing lines of credit, 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.
 
 
 
 
25
Vaso Corporation and Subsidiaries
 
 
 
ITEM 4 - CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Disclosure controls and procedures reporting as promulgated under the Exchange Act is defined as controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
Our CEO and our CFO have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2019 and have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2019.
 
Changes in Internal Control Over Financial Reporting
 
The Company implemented new internal control processes in conjunction with the adoption of ASC 842, "Leases." There were no other changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
 
 
 
 
26
Vaso Corporation and Subsidiaries
 
 
 
PART II - OTHER INFORMATION
 
ITEM 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.
 
 
 
 
 
 
 
27
Vaso Corporation and Subsidiaries
 
 
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
VASO CORPORATION
 
 
 
 
 
 
By:  
/s/ Jun Ma
 
 
 
Jun Ma 
 
 
 
President and Chief Executive Officer 
(Principal Executive Officer)
 
 
 
 
 
 
 
 
 
By:  
/s/ Michael J. Beecher
 
 
 
Michael J. Beecher 
 
 
 
Chief Financial Officer and
Principal Accounting Officer 
 
 

 
Date: May 15, 2019
 
  28
EX-31 2 vaso_ex311.htm CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF THE SARBANES-OXLY ACT OF 2002 Blueprint
 
EXHIBIT 31.1
 
CERTIFICATION PURSUANT TO RULE 13a/15d OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Jun Ma, certify that:
 
1. 
I have reviewed this quarterly report on Form 10-Q of Vaso Corporation and subsidiaries (the “registrant”);
 
2. 
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. 
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. 
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a. 
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. 
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. 
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. 
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. 
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
 
a. 
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b. 
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
/s/ Jun Ma .
Jun Ma
President and Chief Executive Officer
 
Date: May 15, 2019
 

EX-31.2 3 vaso_ex312.htm CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF THE SARBANES-OXLY ACT OF 2002 Blueprint
 
EXHIBIT 31.2
 
CERTIFICATION PURSUANT TO RULE 13a/15d OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Michael J. Beecher, certify that:
 
1. 
I have reviewed this quarterly report on Form 10-Q of Vaso Corporation and subsidiaries (the “registrant”);
 
2. 
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. 
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. 
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a. 
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. 
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. 
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. 
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. 
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
 
a. 
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b. 
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
/s/ Michael J. Beecher .
Michael J. Beecher
Chief Financial Officer
 
Date: May 15, 2019

EX-32 4 vaso_ex321.htm CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Blueprint
 
EXHIBIT 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the quarterly report of Vaso Corporation and subsidiaries (the “Company”) on Form 10-Q for the period ending March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jun Ma, as President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
/s/ Jun Ma .
Jun Ma
President and Chief Executive Officer
 
Dated: May 15, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 

EX-32 5 vaso_ex322.htm CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Blueprint
 
EXHIBIT 32.2
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the quarterly report of Vaso Corporation and subsidiaries (the “Company”) on Form 10-Q for the period ending March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael J. Beecher, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
/s/ Michael J. Beecher .
Michael J. Beecher
Chief Financial Officer
Dated: May 15, 2019

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