0001654954-19-012972.txt : 20191114 0001654954-19-012972.hdr.sgml : 20191114 20191114160100 ACCESSION NUMBER: 0001654954-19-012972 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 76 CONFORMED PERIOD OF REPORT: 20190930 FILED AS OF DATE: 20191114 DATE AS OF CHANGE: 20191114 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: 191219825 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
11/11/2019 18:47 PM

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2019
 
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to ______________
 
Commission File Number: 0-18105
 
 
VASO CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
 
11-2871434
(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.YesNo
 
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, 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 November 10, 2019 – 172,701,726
 

 
 
 
11/11/2019 18:47 PM
 
Vaso Corporation and Subsidiaries
 
INDEX
 
3
 
 
3
 
 
3
 
 
4
 
 
5
 
 
6
 
 
7
 
 
22
 
 
29
 
 
30
 
 
30
  
 
2
11/11/2019 18:47 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)
 
 
 
September 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
ASSETS
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 $1,343 
 $2,668 
Accounts and other receivables, net of an allowance for doubtful accounts and commission adjustments of $4,039 at September 30, 2019 and $3,994 at December 31, 2018
  8,040 
  11,028 
Receivables due from related parties
  18 
  20 
Inventories, net
  2,181 
  1,983 
Deferred commission expense
  2,476 
  2,585 
Prepaid expenses and other current assets
  1,075 
  890 
 Total current assets
  15,133 
  19,174 
 
    
    
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $7,164 at September 30, 2019 and $6,370 at December 31, 2018
  5,091 
  5,809 
OPERATING LEASE RIGHT OF USE ASSETS
  998 
  - 
GOODWILL
  17,203 
  17,309 
INTANGIBLES, net
  4,395 
  4,740 
OTHER ASSETS, net
  2,733 
  3,067 
DEFERRED TAX ASSETS, net
  375 
  375 
 
 $45,928 
 $50,474 
 
    
    
LIABILITIES AND STOCKHOLDERS' EQUITY
    
    
CURRENT LIABILITIES
    
    
Accounts payable
 $4,919 
 $6,284 
Accrued commissions
  581 
  2,116 
Accrued expenses and other liabilities
  4,604 
  5,655 
Finance lease liabilities - current
  146 
  188 
Operating lease liabilities - current
  621 
  - 
Sales tax payable
  933 
  1,020 
Deferred revenue - current portion
  11,148 
  10,382 
Notes payable - current portion
  10,415 
  9,116 
Notes payable - related parties - current portion
  1,245 
  582 
Due to related party
  10 
  10 
Total current liabilities
  34,622 
  35,353 
 
    
    
LONG-TERM LIABILITIES
    
    
Notes payable - related parties, net of current portion
  - 
  245 
Finance lease liabilities, net of current portion
  406 
  400 
Operating lease liabilities, net of current portion
  377 
  - 
Deferred revenue, net of current portion
  6,752 
  7,704 
Deferred tax liability
  124 
  124 
Other long-term liabilities
  1,083 
  1,037 
Total long-term liabilities
  8,742 
  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 September 30, 2019 and December 31, 2018
  - 
  - 
Common stock, $.001 par value; 250,000,000 shares authorized; 182,969,813 and 177,417,287 shares issued at September 30, 2019 and December 31 2018, respectively; 172,661,726 and 167,109,200 shares outstanding at September 30, 2019 and December 31, 2018, respectively
  184 
  178 
Additional paid-in capital
  63,787 
  63,672 
Accumulated deficit
  (58,961)
  (55,924)
Accumulated other comprehensive loss
  (446)
  (315)
Treasury stock, at cost, 10,308,087 shares at September 30, 2019 and December 31, 2018
  (2,000)
  (2,000)
Total stockholders’ equity
  2,564 
  5,611 
 
 $45,928 
 $50,474 
  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
3
11/11/2019 18:47 PM
 
Vaso Corporation and Subsidiaries
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands, except per share data)
 
 
 
  Three months ended  
 
 
Nine months ended  
 
 
 
  September 30,  
 
 
September 30,  
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Managed IT systems and services
 $11,485 
 $11,002 
 $34,217 
 $33,118 
Professional sales services
  6,336 
  6,854 
  14,882 
  18,868 
Equipment sales and services
  906 
  932 
  2,695 
  2,755 
Total revenues
  18,727 
  18,788 
  51,794 
  54,741 
 
    
    
    
    
Cost of revenues
    
    
    
    
Cost of managed IT systems and services
  6,414 
  6,563 
  19,791 
  19,291 
Cost of professional sales services
  1,140 
  1,465 
  2,780 
  3,903 
Cost of equipment sales and services
  332 
  309 
  1,084 
  1,040 
Total cost of revenues
  7,886 
  8,337 
  23,655 
  24,234 
Gross profit
  10,841 
  10,451 
  28,139 
  30,507 
 
    
    
    
    
Operating expenses
    
    
    
    
Selling, general and administrative
  9,840 
  10,462 
  29,884 
  32,459 
Research and development
  196 
  230 
  624 
  668 
Total operating expenses
  10,036 
  10,692 
  30,508 
  33,127 
Operating income (loss)
  805 
  (241)
  (2,369)
  (2,620)
 
    
    
    
    
Other (expense) income
    
    
    
    
Interest and financing costs
  (268)
  (178)
  (728)
  (530)
Interest and other income, net
  36 
  56 
  109 
  114 
Gain on sale of investment in VSK
  - 
  - 
  - 
  212 
Total other (expense) income, net
  (232)
  (122)
  (619)
  (204)
 
    
    
    
    
Income (loss) before income taxes
  573 
  (363)
  (2,988)
  (2,824)
Income tax expense
  (11)
  (14)
  (49)
  (71)
Net income (loss)
  562 
  (377)
  (3,037)
  (2,895)
 
    
    
    
    
Other comprehensive income (loss)
    
    
    
    
Foreign currency translation (loss) gain
  (193)
  (131)
  (131)
  (218)
Comprehensive income (loss)
 $369 
 $(508)
 $(3,168)
 $(3,113)
 
    
    
    
    
Earnings (loss) per common share
    
    
    
    
- basic
 $0.00 
 $(0.00)
 $(0.02)
 $(0.02)
- diluted
 $0.00 
 $(0.00)
 $(0.02)
 $(0.02)
 
    
    
    
    
Weighted average common shares outstanding
    
    
    
    
- basic
  168,662 
  166,431 
  167,557 
  165,024 
- diluted
  168,787
  166,431 
  167,557 
  165,024 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
4
11/11/2019 18:47 PM
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 
Share-based compensation
  108 
  - 
  - 
  - 
  44 
  - 
  - 
  44 
Foreign currency translation gain (loss)
  - 
  - 
  - 
  - 
  - 
  - 
  (131)
  (131)
Net loss
  - 
  - 
  - 
  - 
  - 
  (380)
  - 
  (380)
Balance at September 30, 2018 (unaudited)
  177,028 
 $177 
  (10,308)
 $(2,000)
 $63,627 
 $(55,085)
 $(276)
 $6,443 
 
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
Balance at January 1, 2019
  177,417 
 $178 
  (10,308)
  (2,000)
 $63,672 
 $(55,924)
 $(315)
 $5,611 
Share-based compensation
  - 
  - 
  - 
  - 
  44 
  - 
  - 
  44 
Foreign currency translation gain
  - 
  - 
  - 
  - 
  - 
  - 
  137 
  137 
Net loss
  - 
  - 
  - 
  - 
  - 
  (2,849)
  - 
  (2,849)
Balance at March 31, 2019 (unaudited)
  177,417 
 $178 
  (10,308)
 $(2,000)
 $63,716 
 $(58,773)
 $(178)
 $2,943 
Share-based compensation
  5,438 
  5 
  - 
  - 
  49 
  - 
  - 
  54 
Shares not issued for employee tax liability
  - 
  - 
  - 
  - 
  (2)
  - 
  - 
  (2)
Foreign currency translation loss
  - 
  - 
  - 
  - 
  - 
  - 
  (75)
  (75)
Net loss
  - 
  - 
  - 
  - 
  - 
  (750)
  - 
  (750)
Balance at June 30, 2019 (unaudited)
  182,855 
 $183 
  (10,308)
 $(2,000)
 $63,763 
 $(59,523)
 $(253)
 $2,170 
Share-based compensation
  115 
  1 
  - 
  - 
  24 
  - 
  - 
  25 
Foreign currency translation loss
  - 
  - 
  - 
  - 
  - 
  - 
  (193)
  (193)
Net income
  - 
  - 
  - 
  - 
  - 
  562 
  - 
  562 
Balance at September 30, 2019 (unaudited)
  182,970 
 $184 
  (10,308)
 $(2,000)
 $63,787 
 $(58,961)
 $(446)
 $2,564 
 
(*) Accounting Standards Codification Topic 606, Revenue from Contracts with Customers
  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
5
11/11/2019 18:47 PM
 
Vaso Corporation and Subsidiaries
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
 
   Nine months ended  
 
 
 
  September 30,  
 
 
 
2019
 
 
2018
 
Cash flows from operating activities
 
 
 
 
 
 
Net loss
 $(3,037)
 $(2,895)
Adjustments to reconcile net loss to net
    
    
  cash used in operating activities
    
    
Depreciation and amortization
  2,024 
  1,828 
Loss from interest in joint venture
  - 
  9 
Gain on sale of investment in VSK
  - 
  (212)
Provision for doubtful accounts and commission adjustments
  243 
  240 
Amortization of debt issue costs
  14 
  24 
Share-based compensation
  123 
  266 
Changes in operating assets and liabilities:
    
    
Accounts and other receivables
  2,774 
  2,837 
Inventories, net
  (232)
  (75)
Deferred commission expense
  109 
  1,142 
Prepaid expenses and other current assets
  (190)
  (152)
Other assets, net
  269 
  244 
Accounts payable
  (1,363)
  1,756 
Accrued commissions
  (1,539)
  (1,264)
Accrued expenses and other liabilities
  (1,022)
  791 
Sales tax payable
  (85)
  155 
Deferred revenue
  (185)
  (6,114)
Deferred tax liability
  - 
  12 
Other long-term liabilities
  47 
  (124)
Net cash used in operating activities
  (2,050)
  (1,532)
 
    
    
Cash flows from investing activities
    
    
Purchases of equipment and software
  (889)
  (2,168)
Sale of fixed assets
  22 
  - 
Proceeds from sale of investment in VSK
  - 
  311 
Net cash used in investing activities
  (867)
  (1,857)
 
    
    
Cash flows from financing activities
    
    
Net borrowings on revolving lines of credit
  1,000 
  1,158 
Payroll taxes paid by withholding shares
  (2)
  (1)
Repayment of capital lease obligations
  - 
  (94)
Repayment of notes payable and finance lease obligations
  (181)
  - 
Proceeds from notes payable
  300 
  18 
Proceeds from notes payable - related parties
  930 
  - 
Repayment of notes payable - related parties
  (500)
  - 
Net cash provided by financing activities
  1,547 
  1,081 
Effect of exchange rate differences on cash and cash equivalents
  45 
  42 
 
    
    
NET DECREASE IN CASH AND CASH EQUIVALENTS
  (1,325)
  (2,266)
Cash and cash equivalents - beginning of period
  2,668 
  5,245 
Cash and cash equivalents - end of period
 $1,343 
 $2,979 
 
    
    
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
    
    
Interest paid
 $550
 $491 
Income taxes paid
 $38 
 $74 
 
    
    
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
    
    
Initial recognition of operating lease right of use asset and liability
 $1,107 
 $- 
Sale of investment in VSK
 $- 
 $676 
Equipment acquired through finance lease
 $134 
 $399 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
6
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
NOTE A - ORGANIZATION AND PLAN OF OPERATIONS
 
Vaso Corporation was incorporated in Delaware in July 1987. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Vaso” or “management” refer to Vaso Corporation and its subsidiaries.
 
Overview
 
Vaso Corporation principally operates in three distinct business segments in the healthcare and information technology (“IT”) industries. We manage and evaluate our operations, and report our financial results, through these three business segments.
 
IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;
 
Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for General Electric Healthcare (“GEHC”) into the healthcare provider middle market; and
 
Equipment segment, operating through a wholly-owned subsidiary VasoMedical, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices.
 
VasoTechnology
 
VasoTechnology, Inc. was formed in May 2015, at the time the Company acquired all of the assets of NetWolves, LLC and its affiliates, including the membership interests in NetWolves Network Services, LLC (collectively, “NetWolves”). It currently consists of a managed network and security service division and a healthcare IT application VAR (value added reseller) division. Its current offerings include:
 
Managed radiology and imaging applications (national channel partner of GEHC Digital and other vendors of healthcare IT products).
Managed network infrastructure (routers, switches and other core equipment).
Managed network transport (FCC licensed carrier reselling 175+ facility partners).
Managed security services.
 
VasoTechnology uses a combination of proprietary technology, methodology and third-party applications to deliver its value proposition.
 
VasoHealthcare
 
VasoHealthcare commenced operations in 2010, in conjunction with the Company’s execution of its exclusive sales representation agreement (“GEHC Agreement”) with GEHC, which is the healthcare business division of the General Electric Company, to further the sale of certain healthcare capital equipment in the healthcare provider middle market. Sales of GEHC equipment by the Company have grown significantly since then.
 
VasoHealthcare’s current offerings consist of:
 
GEHC diagnostic imaging capital equipment.
GEHC service agreements for the above equipment.
GEHC training services for use of the above equipment.
GEHC and third party financial services.
 
 
7
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
VasoMedical
 
VasoMedical is the Company’s business division for its proprietary medical device operations, including the design, development, manufacturing, sales and service of various medical devices in the domestic and international markets and includes the Vasomedical Global and Vasomedical Solutions business units. These devices are primarily for cardiovascular monitoring, diagnostic and therapeutic systems. Its current offerings consist of:
 
Biox™ series Holter monitors and ambulatory blood pressure recorders.
ARCS® series analysis, reporting and communication software for physiological signals such as ECG and blood pressure.
MobiCare™ multi-parameter wireless vital-sign monitoring system.
EECP® therapy system for non-invasive, outpatient treatment of ischemic heart disease.
 
This segment uses its extensive cardiovascular device knowledge coupled with its significant engineering resources to cost-effectively create and market its proprietary technology. It works with a global distribution network of channel partners to sell its products. It also provides engineering and OEM services to other medical device companies.
 
Going concern Assessment
 
We have incurred net losses from operations for the nine months ended September 30, 2019, and the years ended December 31, 2018 and 2017. We maintain lines of credit from a lending institution which will require further extensions after their current December 18, 2019 maturity date. We also have notes payable which mature within the next twelve months. Our ability to continue operating as a going concern is dependent upon achieving profitability, extending the maturity date of our existing lines of credit and notes payable, or through additional debt or equity financing. Achieving profitability is largely dependent on our ability to reduce operating costs and to maintain or increase our current revenue. While we believe we will continue to maintain or increase our gross revenue and are substantially reducing operating costs, and while historically we have received extensions of the maturity dates of our lines of credit, failure to achieve these objectives could cast doubt on our ability to continue as a going concern.
 
NOTE B – INTERIM STATEMENT PRESENTATION
 
Basis of Presentation and Use of Estimates
 
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial information. Certain information and disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on April 15, 2019.
 
These unaudited condensed consolidated financial statements include the accounts of the companies over which we exercise control. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of interim results for the Company. The results of operations for any interim period are not necessarily indicative of results to be expected for any other interim period or the full year.
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities in the unaudited condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenues, expenses and cash flows during the periods presented. Actual amounts and results could differ from those estimates. The estimates and assumptions the Company makes are based on historical factors, current circumstances and the experience and judgment of the Company's management. The Company evaluates its estimates and assumptions on an ongoing basis.
 
 
8
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
Significant Accounting Policies and Recent Accounting Pronouncements
 
Recently Adopted Accounting Pronouncements
 
Effective January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) Topic 842, “Leases”. See Note N for further details.
  
Reclassifications
 
Certain reclassifications have been made to prior period amounts to conform with the current period presentation.
 
NOTE C – REVENUE RECOGNITION
 
Disaggregation of Revenue
 
The following tables present revenues disaggregated by our business operations and timing of revenue recognition:
 
 
 
(in thousands)
 
 
Three Months Ended September 30, 2019 (unaudited)
 
 
  Three Months Ended September 30, 2018 (unaudited)
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Network services
 $10,210 
 
 
 
 
 
 
 $10,210 
 $10,146 
 
 
 
 
 
 
 $10,146 
Software sales and support
  1,275 
 
 
 
 
 
 
  1,275 
  856 
 
 
 
 
 
 
  856 
Commissions
    
  6,336 
 
 
 
  6,336 
    
  6,854 
 
 
 
  6,854 
Medical equipment sales
    
    
  686
  686
    
    
  661 
  661 
Medical equipment service
    
    
  220 
  220 
    
    
  271 
  271 
 
 $11,485 
 $6,336 
 $906 
 $18,727 
 $11,002 
 $6,854 
 $932 
 $18,788 
 
 
 
      Nine Months Ended September 30, 2019 (unaudited)      
 
 
      Nine Months Ended September 30, 2018 (unaudited)      
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Network services
 $30,221 
 
 
 
 
 
 
 $30,221 
 $30,418 
 
 
 
 
 
 
 $30,418 
Software sales and support
  3,996 
 
 
 
 
 
 
  3,996 
  2,700 
 
 
 
 
 
 
  2,700 
Commissions
    
  14,882 
 
 
 
  14,882 
    
  18,868 
 
 
 
  18,868 
Medical equipment sales
    
    
  1,911 
  1,911 
    
    
  1,936 
  1,936 
Medical equipment service
    
    
  784 
  784 
    
    
  819 
  819 
 
 $34,217 
 $14,882 
 $2,695 
 $51,794 
 $33,118 
 $18,868 
 $2,755 
 $54,741 
 
 
 
      Three Months Ended September 30, 2019 (unaudited)      
 
 
      Three Months Ended September 30, 2018 (unaudited)      
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Revenue recognized over time
 $10,524
 $- 
 $145 
 $10,669
 $9,561 
 $- 
 $163 
 $9,724 
Revenue recognized at a point in time
 961
  6,336 
  761
 8,058
  1,441 
  6,854 
  769 
  9,064 
 
 $11,485 
 $6,336 
 $906 
 $18,727 
 $11,002 
 $6,854 
 $932 
 $18,788 
 
 
 
      Nine Months Ended September 30, 2019 (unaudited)      
 
 
      Nine Months Ended September 30, 2018 (unaudited)      
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Revenue recognized over time
 $30,526
 $- 
 $447
 $30,973
 $29,315 
 $- 
 $505 
 $29,820 
Revenue recognized at a point in time
  3,691
  14,882 
  2,248 
  20,821
  3,803 
  18,868 
  2,250 
  24,921 
 
 $34,217 
 $14,882 
 $2,695 
 $51,794 
 $33,118 
 $18,868 
 $2,755 
 $54,741 
 
 
9
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
   
Transaction Price Allocated to Remaining Performance Obligations
 
As of September 30, 2019, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $80.4 million, of which we expect to recognize revenue as follows:
 
 
 
(in thousands)
Fiscal years of revenue recognition
 
 
 
remainder of 2019
 
 
2020
 
 
2021
 
 
Thereafter
 
Unfulfilled performance obligations
 $15,520 
 $37,538 
 $14,164 
 $13,256 
   
Contract Liabilities
 
Contract liabilities arise in our IT VAR, VasoHealthcare, and VasoMedical businesses. In our IT VAR business, payment arrangements with clients typically include an initial payment due upon contract signing and milestone-based payments based upon product delivery and go-live, as well as post go-live monthly payments for subscription and support fees. Customer payments received, or receivables recorded, in advance of go-live and customer acceptance, where applicable, are deferred as contract liabilities. Such amounts aggregated approximately $808,000 and $344,000 at September 30, 2019 and December 31, 2018, respectively, and are included in accrued expenses and other liabilities in our condensed consolidated balance sheets.
 
In our VasoHealthcare business, we bill amounts for certain milestones in advance of customer acceptance of the underlying equipment. Such amounts aggregated approximately $17,069,000 and $17,098,000 at September 30, 2019 and December 31, 2018, respectively, and are classified in our condensed consolidated balance sheets as either current or long-term deferred revenue. In addition, we record a contract liability for amounts expected to be repaid to GEHC due to customer order reductions. Such amounts aggregated approximately $1,265,000 and $2,315,000 at September 30, 2019 and December 31, 2018, respectively, and are included in accrued expenses and other liabilities in our condensed consolidated balance sheets.
 
In our VasoMedical business, we bill amounts for post-delivery services and varying duration service contracts in advance of performance. Such amounts aggregated approximately $831,000 and $988,000 at September 30, 2019 and December 31, 2018, respectively, and are classified in our condensed consolidated balance sheets as either current or long-term deferred revenue.
 
During the three and nine months ended September 30, 2019, we recognized approximately $2.9 million and $4.8 million of revenues that were included in our contract liability balance at July 1, 2019 and January 1, 2019, respectively.
 
NOTE D – SEGMENT REPORTING AND CONCENTRATIONS
 
Vaso Corporation principally operates in three distinct business segments in the healthcare and information technology industries. We manage and evaluate our operations, and report our financial results, through these three reportable segments.
 
IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;
 
Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for GEHC into the healthcare provider middle market; and
 
Equipment segment, operating through a wholly-owned subsidiary VasoMedical, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices.
 
 
10
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
The chief operating decision maker is the Company’s Chief Executive Officer, who, in conjunction with upper management, evaluates segment performance based on operating income and adjusted EBITDA (net income (loss), plus interest expense (income), net; tax expense; depreciation and amortization; and non-cash stock-based compensation). Administrative functions such as finance, human resources, and information technology are centralized and related expenses allocated to each segment. Other costs not directly attributable to operating segments, such as audit, legal, director fees, investor relations, and others, as well as certain assets – primarily cash balances – are reported in the Corporate entity below. There are no intersegment revenues. Summary financial information for the segments is set forth below:
  
 
 
(in thousands)
 
 
 
  Three months ended September 30,  
 
 
  Nine months ended September 30,  
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
Revenues from external customers
 
 
 
 
 
 
 
 
 
 
 
 
IT
 $11,485 
 $11,002 
 $34,217 
 $33,118 
Professional sales service
  6,336 
  6,854 
  14,882 
  18,868 
Equipment
  906 
  932 
  2,695 
  2,755 
Total revenues
 $18,727 
 $18,788 
 $51,794 
 $54,741 
 
    
    
    
    
Gross Profit
    
    
    
    
IT
 $5,071 
 $4,439 
 $14,426 
 $13,827 
Professional sales service
  5,196 
  5,389 
  12,102 
  14,965 
Equipment
  574 
  623 
  1,611 
  1,715 
Total gross profit
 $10,841 
 $10,451 
 $28,139 
 $30,507 
 
    
    
    
    
Operating income (loss)
    
    
    
    
IT
 $269 
 $(782)
 $(306)
 $(2,064)
Professional sales service
  1,028 
  1,013 
  (487)
  1,123 
Equipment
  (282)
  (181)
  (809)
  (747)
Corporate
  (210)
  (291)
  (767)
  (932)
Total operating income (loss)
 $805 
 $(241)
 $(2,369)
 $(2,620)
 
    
    
    
    
Depreciation and amortization
    
    
    
    
IT
 $562 
 $476
 $1,673 
 $1,393
Professional sales service
  42 
  45 
  130 
 137
Equipment
  75 
 105
  221 
 298
Corporate
  - 
  - 
  - 
  - 
Total depreciation and amortization
 $679 
 $626
 $2,024 
 $1,828
 
    
    
    
    
Capital expenditures
    
    
    
    
IT
 $143
 $1,055 
 $827
 $2,107 
Professional sales service
  - 
  - 
  - 
  - 
Equipment
  32 
  37 
  56 
  57 
Corporate
  - 
  1 
  6 
  4 
Total cash capital expenditures
 $175 
 $1,093 
 $889 
 $2,168 
 
 
11
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
  
 
 
  (in thousands)
 
 
 
September 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Identifiable Assets
 
 
 
 
 
 
IT
 $29,458 
 $28,785 
Professional sales service
  8,514 
  12,193 
Equipment
  6,423 
  6,992 
Corporate
  1,533 
  2,504 
Total assets
 $45,928 
 $50,474 
 
GE Healthcare accounted for 34% and 36% of revenue for the three months ended September 30, 2019 and 2018, respectively, and 29% and 34% of revenue for the nine months ended September 30, 2019 and 2018, respectively. GE Healthcare also accounted for $3.5 million or 44%, and $7.2 million or 66%, of accounts and other receivables at September 30, 2019 and December 31, 2018, respectively.
 
NOTE E – EARNINGS (LOSS) PER COMMON SHARE
 
Basic earnings (loss) per common share is computed as earnings (loss) applicable to common stockholders divided by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted to common stock.
 
Diluted earnings (loss) per share were computed based on the weighted average number of shares outstanding plus all potentially dilutive common shares. A reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:
 
 
 
(in thousands)
 
 
 
  For the three months ended September 30,  
 
 
  For the nine months ended September 30,  
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
Basic weighted average shares outstanding
  168,662 
  166,431 
  167,557 
  165,024 
Dilutive effect of unvested restricted shares
  125 
  - 
  - 
  - 
Diluted weighted average shares outstanding
  168,787 
  166,431 
  167,557 
  165,024 
 
 
12
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
The following table represents common stock equivalents that were excluded from the computation of diluted earnings (loss) per share for the three and nine months ended September 30, 2019 and 2018, because the effect of their inclusion would be anti-dilutive.
 
 
 
(in thousands)
 
 
 
Three months ended September 30,
 
 
Nine months ended September 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
Restricted common stock grants
  1,485 
  2,559 
  5,485 
  2,559 
 
NOTE F – ACCOUNTS AND OTHER RECEIVABLES, NET
 
The following table presents information regarding the Company’s accounts and other receivables as of September 30, 2019 and December 31, 2018:
 
 
 
(in thousands)
 
 
 
September 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Trade receivables
 $10,433 
 $15,016 
Unbilled receivables
  1,639 
  - 
Due from employees
  7 
  6 
Allowance for doubtful accounts and
    
    
commission adjustments
  (4,039)
  (3,994)
Accounts and other receivables, net
 $8,040 
 $11,028 
 
Contract receivables under Topic 606 consist of trade receivables and unbilled receivables. Trade receivables include amounts due for shipped products and services rendered. Unbilled receivables represent variable consideration recognized in accordance with Topic 606 but not yet billable. Amounts recorded – billed and unbilled - under the GEHC Agreement are subject to adjustment in subsequent periods should the underlying sales order amount, upon which the receivable is based, change.
 
Allowance for doubtful accounts and commission adjustments include estimated losses resulting from the inability of our customers to make required payments, and adjustments arising from subsequent changes in sales order amounts that may reduce the amount the Company will ultimately receive under the GEHC Agreement. Due from employees is primarily commission advances made to sales personnel.
 
 
13
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
NOTE G – INVENTORIES, NET
 
Inventories, net of reserves, consist of the following:
 
 
 
(in thousands)
 
 
 
September 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Raw materials
 $610 
 $577 
Work in process
  273 
  388 
Finished goods
  1,298 
  1,018 
 
 $2,181 
 $1,983 
 
At September 30, 2019 and December 31, 2018, the Company maintained reserves for slow moving inventories of $452,000 and $636,000, respectively.
 
NOTE H – PROPERTY AND EQUIPMENT
 
 
 
(in thousands)
 
 
 
September 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Office, laboratory and other equipment
 $2,514 
 $3,885 
Equipment furnished for customer
    
    
or clinical uses
  8,594 
  8,167 
Right of use assets - finance leases
  1,020 
  - 
Furniture and fixtures
  127 
  127 
 
  12,255 
  12,179 
Less: accumulated depreciation and amortization
  (7,164)
  (6,370)
   Property and equipment, net
 $5,091 
 $5,809 
 
Assets under capital lease comprised approximately $855,000 of the office, laboratory and other equipment asset class and approximately $60,000 of the equipment furnished for customer or clinical use asset class at December 31, 2018. In January 2019, the Company adopted Accounting Standards Codification (“ASC”) 842, “Leases” (See Note N) and classifies the assets arising from such leases as “right of use asset - finance leases”.
 
 
14
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
NOTE I – GOODWILL AND OTHER INTANGIBLES
 
Goodwill of $14,375,000 is allocated to the IT segment. The remaining $2,828,000 of goodwill is attributable to the FGE reporting unit within the Equipment segment. The NetWolves and FGE reporting units had negative net asset carrying amounts at September 30, 2019 and December 31, 2018. The components of the change in goodwill are as follows:
 
 
 
(in thousands)
 
 
 
Nine months ended
 
 
Year ended
 
 
 
September 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Beginning of period
 $17,309 
 $17,471 
Foreign currency translation adjustment
  (106)
  (162)
End of period
 $17,203 
 $17,309 
 
The Company’s other intangible assets consist of capitalized customer-related intangibles, patent and technology costs, and software costs, as set forth in the following:
 
 
 
(in thousands)
 
 
 
September 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Customer-related
 
 
 
 
 
 
Costs
 $5,831 
 $5,831 
Accumulated amortization
  (3,435)
  (3,083)
 
  2,396 
  2,748 
 
    
    
Patents and Technology
    
    
Costs
  2,363 
  2,363 
Accumulated amortization
  (1,708)
  (1,532)
 
  655 
  831 
 
    
    
Software
    
    
Costs
  2,709 
  2,346 
Accumulated amortization
  (1,365)
  (1,185)
 
  1,344
  1,161 
 
    
    
 
 $4,395 
 $4,740 
 
 
15
 
 
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
Patents and technology are amortized on a straight-line basis over their estimated useful lives of ten and eight years, respectively. The cost of significant customer-related intangibles is amortized in proportion to estimated total related revenue; cost of other customer-related intangible assets is amortized on a straight-line basis over the asset's estimated economic life of seven years. Software costs are amortized on a straight-line basis over its expected useful life of five years.
 
Amortization expense amounted to $239,000 and $248,000 for the three months ended September 30, 2019 and 2018, respectively, and $708,000 and $753,000 for the nine months ended September 30, 2019 and 2018, respectively.
 
Amortization of intangibles for the next five years is:
 
 
 
(in thousands) 
 
Years ending December 31,
 
(unaudited)
 
Remainder of 2019
  320 
2020
  980 
2021
  904 
2022
  609 
2023
  542 
 
 $3,355
 
NOTE J – OTHER ASSETS, NET
 
Other assets, net consist of the following at September 30, 2019 and December 31, 2018:
 
 
 
(in thousands)
 
 
 
September 30,
2019
 
 
December 31,
2018
 
 
 
(unaudited)
 
 
 
 
Deferred commission expense - noncurrent
 $1,728 
 $1,978 
Trade receivables - noncurrent
  672 
  630 
Other, net of allowance for loss on loan receivable of
    
    
  $412 at September 30, 2019 and December 31, 2018
  333 
  459 
 
 $2,733 
 $3,067 
 
 
 
16