0001654954-19-009565.txt : 20190814 0001654954-19-009565.hdr.sgml : 20190814 20190814160552 ACCESSION NUMBER: 0001654954-19-009565 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 75 CONFORMED PERIOD OF REPORT: 20190630 FILED AS OF DATE: 20190814 DATE AS OF CHANGE: 20190814 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: 191026255 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
8/9/2019 15:12 PM

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2019
 
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to ______________
 
Commission File Number: 0-18105
 
VASO CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
11-2871434
(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 ☒ 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).YesNo
 
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
Smaller Reporting Company
 
 
Emerging Growth Company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesNo
 
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 August 9, 2019 – 172,661,726
 


 
8/9/2019 15:12 PM
 
Vaso Corporation and Subsidiaries
 
INDEX
 
PART I – FINANCIAL INFORMATION
3
 
 
3
 
 
3
 
 
4
 
 
5
 
 
6
 
 
7
 
 
23
 
 
30
 
 
PART II - OTHER INFORMATION
31
 
 
31
 
 
2
8/9/2019 15:12 PM
 
PART I – FINANCIAL INFORMATION
 
ITEM 1 - FINANCIAL STATEMENTS
 
Vaso Corporation and Subsidiaries
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
 
 
June 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
ASSETS
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 $1,037 
 $2,668 
Accounts and other receivables, net of an allowance for doubtful
    
    
accounts and commission adjustments of $3,956 at June 30, 2019
    
    
and $3,994 at December 31, 2018
  9,141 
  11,028 
Receivables due from related parties
  19 
  20 
Inventories, net
  1,702 
  1,983 
Deferred commission expense
  2,596 
  2,585 
Prepaid expenses and other current assets
  909 
  890 
 Total current assets
  15,404 
  19,174 
 
    
    
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
    
    
$6,737 at June 30, 2019 and $6,370 at December 31, 2018
  5,543 
  5,809 
OPERATING LEASE RIGHT OF USE ASSETS
  899 
  - 
GOODWILL
  17,314 
  17,309 
INTANGIBLES, net
  4,510 
  4,740 
OTHER ASSETS, net
  2,770 
  3,067 
DEFERRED TAX ASSETS, net
  375 
  375 
 
 $46,815 
 $50,474 
 
    
    
LIABILITIES AND STOCKHOLDERS' EQUITY
    
    
CURRENT LIABILITIES
    
    
Accounts payable
 $5,269 
 $6,284 
Accrued commissions
  907 
  2,116 
Accrued expenses and other liabilities
  5,560 
  5,655 
Finance lease liabilities - current
  153 
  188 
Operating lease liabilities - current
  613 
  - 
Sales tax payable
  1,164 
  1,020 
Deferred revenue - current portion
  11,697 
  10,382 
Notes payable - current portion
  10,236 
  9,116 
Notes payable - related parties - current portion
  1,238 
  582 
Due to related party
  10 
  10 
Total current liabilities
  36,847 
  35,353 
 
    
    
LONG-TERM LIABILITIES
    
    
Notes payable - related parties, net of current portion
  - 
  245 
Finance lease liabilities, net of current portion
  443 
  400 
Operating lease liabilities, net of current portion
  286 
  - 
Deferred revenue, net of current portion
  5,878 
  7,704 
Deferred tax liability
  124 
  124 
Other long-term liabilities
  1,067 
  1,037 
Total long-term liabilities
  7,798 
  9,510 
 
    
    
COMMITMENTS AND CONTINGENCIES (NOTE Q)
    
    
 
    
    
STOCKHOLDERS' EQUITY
    
    
Preferred stock, $.01 par value; 1,000,000 shares authorized; nil shares
    
    
 issued and outstanding at June 30, 2019 and December 31, 2018
  - 
  - 
Common stock, $.001 par value; 250,000,000 shares authorized;
    
    
182,854,813 and 177,417,287 shares issued at June 30, 2019 and December 31, 2018, respectively;
    
    
172,546,726 and 167,109,200 shares outstanding at June 30, 2019 and December 31, 2018, respectively
  183 
  178 
Additional paid-in capital
  63,763 
  63,672 
Accumulated deficit
  (59,523)
  (55,924)
Accumulated other comprehensive loss
  (253)
  (315)
Treasury stock, at cost, 10,308,087 shares at June 30, 2019 and December 31, 2018
  (2,000)
  (2,000)
Total stockholders’ equity
  2,170 
  5,611 
 
 $46,815 
 $50,474 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
3
8/9/2019 15:12 PM
 
Vaso Corporation and Subsidiaries
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(in thousands, except per share data)
 
 
 
   Three months ended  
 
 
   Six months ended  
 
 
 
  June 30,  
 
 
  June 30,  
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Managed IT systems and services
 $11,405 
 $10,704 
 $22,732 
 $22,117 
Professional sales services
  5,131 
  6,803 
  8,546 
  12,014 
Equipment sales and services
  1,007 
  911 
  1,789 
  1,824 
Total revenues
  17,543 
  18,418 
  33,067 
  35,955 
 
    
    
    
    
Cost of revenues
    
    
    
    
Cost of managed IT systems and services
  6,777 
  6,229 
  13,378 
  12,728 
Cost of professional sales services
  910 
  1,380 
  1,640 
  2,438 
Cost of equipment sales and services
  445 
  372 
  751 
  731 
Total cost of revenues
  8,132 
  7,981 
  15,769 
  15,897 
Gross profit
  9,411 
  10,437 
  17,298 
  20,058 
 
    
    
    
    
Operating expenses
    
    
    
    
Selling, general and administrative
  9,703 
  10,448 
  20,044 
  21,996 
Research and development
  228 
  252 
  428 
  438 
Total operating expenses
  9,931 
  10,700 
  20,472 
  22,434 
Operating loss
  (520)
  (263)
  (3,174)
  (2,376)
 
    
    
    
    
Other (expense) income
    
    
    
    
Interest and financing costs
  (235)
  (182)
  (460)
  (353)
Interest and other income, net
  32 
  36 
  73 
  59 
Gain on sale of investment in VSK
  - 
  - 
  - 
  212 
Total other (expense) income, net
  (203)
  (146)
  (387)
  (82)
 
    
    
    
    
Loss before income taxes
  (723)
  (409)
  (3,561)
  (2,458)
Income tax expense
  (27)
  (37)
  (38)
  (57)
Net loss
  (750)
  (446)
  (3,599)
  (2,515)
 
    
    
    
    
Other comprehensive loss
    
    
    
    
Foreign currency translation (loss) gain
  (75)
  (271)
  62 
  (87)
Comprehensive loss
 $(825)
 $(717)
 $(3,537)
 $(2,602)
 
    
    
    
    
Loss per common share
    
    
    
    
- basic and diluted
 $(0.00)
 $(0.00)
 $(0.02)
 $(0.02)
 
    
    
    
    
Weighted average common shares outstanding
    
    
    
    
- basic and diluted
  167,131 
  164,720 
  166,996 
  164,310 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
4
8/9/2019 15:12 PM
 
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 
Share-based compensation
  1,011 
  1 
  - 
  - 
  80 
  - 
  - 
  81 
Shares not issued for employee tax liability
  - 
  - 
  - 
  - 
  (1)
  - 
  - 
  (1)
Foreign currency translation loss
  - 
  - 
  - 
  - 
  - 
  - 
  (271)
  (271)
Net loss
  - 
  - 
  - 
  - 
  - 
  (446)
  - 
  (446)
Balance at June 30, 2018 (unaudited)
  176,920 
 $177 
  (10,308)
 $(2,000)
 $63,583 
 $(54,705)
 $(145)
 $6,910 
 
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
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 
 
(*) 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
8/9/2019 15:12 PM
  
Vaso Corporation and Subsidiaries
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
 
   Six months ended  
 
 
 
  June 30,  
 
 
 
2019
 
 
2018
 
Cash flows from operating activities
 
 
 
 
 
 
Net loss
 $(3,599)
 $(2,515)
Adjustments to reconcile net loss to net
    
    
  cash used in operating activities
    
    
Depreciation and amortization
  1,345 
  1,202 
Loss from interest in joint venture
  - 
  9 
Gain on sale of investment in VSK
  - 
  (212)
Provision for doubtful accounts and commission adjustments
  168 
  157 
Amortization of debt issue costs
  14 
  16 
Share-based compensation
  98 
  222 
Changes in operating assets and liabilities:
    
    
Accounts and other receivables
  1,720 
  2,125 
Inventories, net
  281 
  383 
Deferred commission expense
  (11)
  434 
Prepaid expenses and other current assets
  (19)
  15 
Other assets, net
  300 
  514 
Accounts payable
  (1,015)
  (230)
Accrued commissions
  (1,179)
  (671)
Accrued expenses and other liabilities
  (128)
  (733)
Sales tax payable
  143 
  127 
Deferred revenue
  (510)
  (2,873)
Deferred tax liability
  - 
  12 
Other long-term liabilities
  30 
  (138)
Net cash used in operating activities
  (2,362)
  (2,156)
 
    
    
Cash flows from investing activities
    
    
Purchases of equipment and software
  (714)
  (1,075)
Proceeds from sale of investment in VSK
  - 
  311 
Net cash used in investing activities
  (714)
  (764)
 
    
    
Cash flows from financing activities
    
    
Net borrowings on revolving lines of credit
  1,112 
  896 
Payroll taxes paid by withholding shares
  (2)
  (1)
Repayment of capital lease obligations
  - 
  (61)
Repayment of notes payable and finance lease obligations
  (133)
  - 
Proceeds from notes payable - related parties
  910 
  - 
Repayment of notes payable - related parties
  (500)
  - 
Net cash provided by financing activities
  1,387 
  834 
Effect of exchange rate differences on cash and cash equivalents
  58 
  4 
 
    
    
NET DECREASE IN CASH AND CASH EQUIVALENTS
  (1,631)
  (2,082)
Cash and cash equivalents - beginning of period
  2,668 
  5,245 
Cash and cash equivalents - end of period
 $1,037 
 $3,163 
 
    
    
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
    
    
Interest paid
 $317 
 $324 
Income taxes paid
 $38 
 $60 
 
    
    
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
    
    
Initial recognition of operating lease right of use asset and liability
 $1,107 
 $- 
Sale of investment in VSK
 $- 
 $676 
Equipment acquired through finance lease
 $134 
 $- 
 
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 radiology and imaging applications (national channel partner of GEHC Digital and other vendors of healthcare IT products).
Managed network infrastructure (routers, switches and other core equipment).
Managed network transport (FCC licensed carrier reselling 175+ facility partners).
Managed security services.
 
VasoTechnology uses a combination of proprietary technology, methodology and third-party applications to deliver its value proposition.
 
VasoHealthcare
 
VasoHealthcare commenced operations in 2010, in conjunction with the Company’s execution of its exclusive sales representation agreement (“GEHC Agreement”) with GEHC, which is the healthcare business division of the General Electric Company, to further the sale of certain healthcare capital equipment in the healthcare provider middle market. Sales of GEHC equipment by the Company have grown significantly since then.
 
VasoHealthcare’s current offerings consist of:
 
GEHC diagnostic imaging capital equipment.
GEHC service agreements for the above equipment.
GEHC training services for use of the above equipment.
GEHC and third party financial services.
 
 
7
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
VasoMedical
 
VasoMedical is the Company’s business division for its proprietary medical device operations, including the design, development, manufacturing, sales and service of various medical devices in the domestic and international markets and includes the Vasomedical Global and Vasomedical Solutions business units. These devices are primarily for cardiovascular monitoring, diagnostic and therapeutic systems. Its current offerings consist of:
 
Biox™ series Holter monitors and ambulatory blood pressure recorders.
ARCS® series analysis, reporting and communication software for physiological signals such as ECG and blood pressure.
MobiCare™ multi-parameter wireless vital-sign monitoring system.
EECP® therapy system for non-invasive, outpatient treatment of ischemic heart disease.
 
This segment uses its extensive cardiovascular device knowledge coupled with its significant engineering resources to cost-effectively create and market its proprietary technology. It works with a global distribution network of channel partners to sell its products. It also provides engineering and OEM services to other medical device companies.
 
Going concern Assessment
 
We have incurred net losses from operations for the three and six months ended June 30, 2019, and the years ended December 31, 2018 and 2017. We maintain lines of credit from a lending institution which will require further extensions after their current December 18, 2019 maturity date. We also have notes payable which mature within the next twelve months. Our ability to continue operating as a going concern is dependent upon achieving profitability, extending the maturity date of our existing lines of credit and notes payable, or through additional debt or equity financing. Achieving profitability is largely dependent on our ability to reduce operating costs and to maintain or increase our current revenue. While we believe we will continue to maintain or increase our gross revenue and are substantially reducing operating costs, and while historically we have received extensions of the maturity dates of our lines of credit, failure to achieve these objectives could cast doubt on our ability to continue as a going concern.
 
NOTE B – INTERIM STATEMENT PRESENTATION
 
Basis of Presentation and Use of Estimates
 
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial information. Certain information and disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on April 15, 2019.
 
These unaudited condensed consolidated financial statements include the accounts of the companies over which we exercise control. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of interim results for the Company. The results of operations for any interim period are not necessarily indicative of results to be expected for any other interim period or the full year.
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities in the unaudited condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenues, expenses and cash flows during the periods presented. Actual amounts and results could differ from those estimates. The estimates and assumptions the Company makes are based on historical factors, current circumstances and the experience and judgment of the Company's management. The Company evaluates its estimates and assumptions on an ongoing basis.
 
 
8
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
Significant Accounting Policies and Recent Accounting Pronouncements
 
Recently Adopted Accounting Pronouncements
 
Effective January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) Topic 842, “Leases”. See Note N for further details.
 
Reclassifications
 
Certain reclassifications have been made to prior period amounts to conform with the current period presentation.
 
NOTE C – REVENUE RECOGNITION
 
Disaggregation of Revenue
 
The following tables present revenues disaggregated by our business operations and timing of revenue recognition:
 
 
 
(in thousands)
 
 
 
      Three Months Ended June 30, 2019 (unaudited)      
 
 
      Three Months Ended June 30, 2018 (unaudited)      
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Network services
 $9,893 
 
 
 
 
 
 
 $9,893 
 $10,062 
 
 
 
 
 
 
 $10,062 
Software sales and support
  1,512 
 
 
 
 
 
 
  1,512 
  642 
 
 
 
 
 
 
  642 
Commissions
    
  5,131 
 
 
 
  5,131 
    
  6,803 
 
 
 
  6,803 
Medical equipment sales
    
    
  731 
  731 
    
    
  645 
  645 
Medical equipment service
    
    
  276 
  276 
    
    
  266 
  266 
 
 $11,405 
 $5,131 
 $1,007 
 $17,543 
 $10,704 
 $6,803 
 $911 
 $18,418 
 
 
 
      Six Months Ended June 30, 2019 (unaudited)      
 
 
      Six Months Ended June 30, 2018 (unaudited)      
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Network services
 $20,011 
 
 
 
 
 
 
 $20,011 
 $20,272 
 
 
 
 
 
 
 $20,272 
Software sales and support
  2,721 
 
 
 
 
 
 
  2,721 
  1,845 
 
 
 
 
 
 
  1,845 
Commissions
    
  8,546 
 
 
 
  8,546 
    
  12,014 
 
 
 
  12,014 
Medical equipment sales
    
    
  1,225 
  1,225 
    
    
  1,276 
  1,276 
Medical equipment service
    
    
  564 
  564 
    
    
  548 
  548 
 
 $22,732 
 $8,546 
 $1,789 
 $33,067 
 $22,117 
 $12,014 
 $1,824 
 $35,955 
 
 
9
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
 
Three Months Ended June 30, 2019 (unaudited)
 
 
Three Months Ended June 30, 2018 (unaudited)
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Revenue recognized over time
 $10,047 
 $- 
 $155 
 $10,202 
 $9,665 
 $- 
 $169 
 $9,834
Revenue recognized at a point in time
  1,358 
  5,131 
  852 
  7,341 
  1,039 
  6,803 
  742 
  8,584
 
 $11,405 
 $5,131 
 $1,007 
 $17,543 
 $10,704 
 $6,803 
 $911 
 $18,418 
 
 
 
Six Months Ended June 30, 2019 (unaudited)
 
 
Six Months Ended June 30, 2018 (unaudited)
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Revenue recognized over time
 $20,002 
 $- 
 $303 
 $20,305 
 $19,755 
 $- 
 $342 
 $20,097 
Revenue recognized at a point in time
  2,730 
  8,546 
  1,486 
  12,762 
  2,362 
  12,014 
  1,482 
  15,858 
 
 $22,732 
 $8,546 
 $1,789 
 $33,067 
 $22,117 
 $12,014 
 $1,824 
 $35,955 
 
Transaction Price Allocated to Remaining Performance Obligations
 
As of June 30, 2019, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $79.6 million, of which we expect to recognize revenue as follows:
            
 
 
(in thousands)
 
 
 
Fiscal years of revenue recognition
 
 
 
remainder of 2019
 
 
2020
 
 
2021
 
 
Thereafter
 
Unfulfilled performance obligations
 $27,301 
 $30,850 
 $11,917 
 $9,550 
 
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 $689,000 and $344,000 at June 30, 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 VasoHealthcare business, we bill amounts for certain milestones in advance of customer acceptance of the underlying equipment. Such amounts aggregated approximately $16,638,000 and $17,098,000 at June 30, 2019 and December 31, 2018, respectively, and are classified in our condensed consolidated balance sheets as either current or long-term deferred revenue. In addition, we record a contract liability for amounts expected to be repaid to GEHC due to customer order reductions. Such amounts aggregated approximately $2,169,000 and $2,315,000 at June 30, 2019 and December 31, 2018, respectively, and are included in accrued expenses and other liabilities in our condensed consolidated balance sheets.
 
In our VasoMedical business, we bill amounts for post-delivery services and varying duration service contracts in advance of performance. Such amounts aggregated approximately $938,000 and $988,000 at June 30, 2019 and December 31, 2018, respectively, and are classified in our condensed consolidated balance sheets as either current or long-term deferred revenue.
 
During the three and six months ended June 30, 2019, we recognized approximately $2.2 million and $3.2 million of revenues that were included in our contract liability balance at April 1, 2019 and January 1, 2019, respectively.
 
NOTE D – SEGMENT REPORTING AND CONCENTRATIONS
 
Vaso Corporation principally operates in three distinct business segments in the healthcare and information technology industries. We manage and evaluate our operations, and report our financial results, through these three reportable segments.
 
IT segment
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 June 30,
 
 
Six months ended June 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
Revenues from external customers
 
 
 
 
 
 
 
 
 
 
 
 
IT
 $11,405 
 $10,704 
 $22,732 
 $22,117 
Professional sales service
  5,131 
  6,803 
  8,546 
  12,014 
Equipment
  1,007 
  911 
  1,789 
  1,824 
Total revenues
 $17,543 
 $18,418 
 $33,067 
 $35,955 
 
    
    
    
    
Gross Profit
    
    
    
    
IT
 $4,628 
 $4,475 
 $9,354 
 $9,389 
Professional sales service
  4,221 
  5,423 
  6,906 
  9,576 
Equipment
  562 
  539 
  1,038 
  1,093 
Total gross profit
 $9,411 
 $10,437 
 $17,298 
 $20,058 
 
    
    
    
    
Operating (loss) income
    
    
    
    
IT
 $(232)
 $(845)
 $(575)
 $(1,280)
Professional sales service
  127 
  1,164 
  (1,516)
  110 
Equipment
  (218)
  (339)
  (526)
  (566)
Corporate
  (197)
  (243)
  (557)
  (640)
Total operating (loss) income
 $(520)
 $(263)
 $(3,174)
 $(2,376)
 
    
    
    
    
Depreciation and amortization
    
    
    
    
IT
 $552 
 $470 
 $1,111 
 $917 
Professional sales service
  43 
  45 
  88 
  92 
Equipment
  75 
  92 
  146 
  193 
Corporate
  - 
  - 
  - 
  - 
Total depreciation and amortization
 $670 
 $607 
 $1,345 
 $1,202 
 
    
    
    
    
Capital expenditures
    
    
    
    
IT
 $426 
 $794 
 $684 
 $1,052 
Professional sales service
  - 
  - 
  - 
  - 
Equipment
  6 
  2 
  24 
  20 
Corporate
  3 
  - 
 6
  3 
Total cash capital expenditures
 $435 
 $796 
 $714 
 $1,075 
 
 
12
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
                                                 
 
 
(in thousands)
 
 
 
June 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Identifiable Assets
 
 
 
 
 
 
IT
 $29,329 
 $28,785 
Professional sales service
  9,263 
  12,193 
Equipment
  6,825 
  6,992 
Corporate
  1,398 
  2,504 
Total assets
 $46,815 
 $50,474 
 
GE Healthcare accounted for 29% and 37% of revenue for the three months ended June 30, 2019 and 2018, respectively, and 26% and 33% of revenue for the six months ended June 30, 2019 and 2018, respectively. GE Healthcare also accounted for $4.2 million or 46%, and $7.2 million or 66%, of accounts and other receivables at June 30, 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 and six months ended June 30, 2019 and 2018, because the effect of their inclusion would be anti-dilutive.
 
 
 
(in thousands)
 
 
 
Three and six months ended June 30,
 
 
 
2019
 
 
2018
 
 
 
(unaudited)
 
 
(unaudited)
 
Restricted common stock grants
  5,600 
  3,874 
 
 
13
 
 
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 June 30, 2019 and December 31, 2018:
    
 
 
  (in thousands)
 
 
 
June 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Trade receivables
 $11,934 
 $15,016 
Unbilled receivables
  1,157 
  - 
Due from employees
  6 
  6 
Allowance for doubtful accounts and
    
    
commission adjustments
  (3,956)
  (3,994)
Accounts and other receivables, net
 $9,141 
 $11,028 
 
Contract receivables under Topic 606 consist of trade receivables and unbilled receivables. Trade receivables include amounts due for shipped products and services rendered. Unbilled receivables represent obligations performed, or 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)
 
 
 
June 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Raw materials
 $594 
 $577 
Work in process
  311 
  388 
Finished goods
  797 
  1,018 
 
 $1,702 
 $1,983 
 
 
14
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
At June 30, 2019 and December 31, 2018, the Company maintained reserves for slow moving inventories of $534,000 and $636,000, respectively.
 
NOTE H – PROPERTY AND EQUIPMENT
       
 
 
  (in thousands)
 
 
 
June 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Office, laboratory and other equipment
 $2,576 
 $3,885 
Equipment furnished for customer
    
    
or clinical uses
  8,557
  8,167 
Right of use assets - finance leases
  1,020
  - 
Furniture and fixtures
  127 
  127 
 
  12,280 
  12,179 
Less: accumulated depreciation and amortization
  (6,737)
  (6,370)
   Property and equipment, net
 $5,543 
 $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 $2,939,000 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 June 30, 2019 and December 31, 2018. The changes in the carrying amount of goodwill are as follows:
              
 
 
(in thousands)
 
 
 
Six months ended
 
 
Year ended
 
 
 
June 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Beginning of period
 $17,309 
 $17,471 
Foreign currency translation adjustment
  5 
  (162)
End of period
 $17,314 
 $17,309 
 
 
15
 
 
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)
 
 
 
June 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Customer-related
 
 
 
 
 
 
Costs
 $5,831 
 $5,831 
Accumulated amortization
  (3,318)
  (3,083)
 
  2,513 
  2,748 
 
    
    
Patents and Technology
    
    
Costs
  2,363 
  2,363 
Accumulated amortization
  (1,647)
  (1,532)
 
  716 
  831 
 
    
    
Software
    
    
Costs
  2,585 
  2,346 
Accumulated amortization
  (1,304)
  (1,185)
 
  1,281 
  1,161 
 
    
    
 
 $4,510 
 $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 $237,000 and $249,000 for the three months ended June 30, 2019 and 2018, respectively and $469,000 and $505,000 for the six months ended June 30, 2019 and 2018, respectively.
 
Amortization of intangibles for the next five years is:
                                                                                                  
 
 
(in thousands)
 
Years ending December 31,
 
(unaudited)
 
Remainder of 2019
  531 
2020
  981 
2021
  906 
2022
  609 
2023
  442 
 
 $3,469 
 
 
16
 
  
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
NOTE J – OTHER ASSETS, NET
 
Other assets, net consist of the following at June 30, 2019 and December 31, 2018:
  
 
 
(in thousands)
 
 
 
June 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Deferred commission expense - noncurrent
 $1,729 
 $1,978 
Trade receivables - noncurrent
  702 
  630 
Other, net of allowance for loss on loan receivable of
    
    
  $412 at June 30, 2019 and December 31, 2018
  339 
  459 
 
 $2,770 
 $3,067 
 
NOTE K – ACCRUED EXPENSES AND OTHER LIABILITIES
 
Accrued expenses and other liabilities consist of the following at June 30, 2019 and December 31, 2018:
 
 
 
  (in thousands)
 
 
 
June 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Accrued compensation
 $770 
 $648 
Accrued expenses - other
  1,620 
  2,092 
Other liabilities
  3,170 
  2,915 
 
 $5,560 
 $5,655 
 
 
17
 
 
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 June 30,  
 
 
  Six months ended June 30,  
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
Deferred revenue at beginning of period
 $17,932 
 $21,295 
 $18,086 
 $23,066 
Net additions:
    
    
    
    
Deferred extended service contracts
  169 
  122 
  239 
  314 
Deferred in-service and training
  5 
  3 
  10 
  3 
Deferred service arrangements
  10 
  5 
  20 
  5 
Deferred commission revenues
  1,791 
  1,710 
  3,126 
  2,169 
Recognized as revenue:
    
    
    
    
Deferred extended service contracts
  (148)
  (160)
  (291)
  (321)
Deferred in-service and training
  (8)
  - 
  (15)
  (3)
Deferred service arrangements
  (8)
  (9)
  (13)
  (21)
Deferred commission revenues
  (2,168)
  (2,773)
  (3,587)
  (5,019)
Deferred revenue at end of period
  17,575 
  20,193 
  17,575 
  20,193 
Less: current portion
  11,697 
  13,544 
  11,697 
  13,544 
Long-term deferred revenue at end of period
 $5,878 
 $6,649 
 $5,878 
 $6,649 
 
 
18
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
NOTE M – NOTES PAYABLE
 
Notes payable consist of the following:
  
 
 
(in thousands)
 
 
 
June 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Line of credit
 $5,283