10-Q 1 vaso_10q.htm QUARTERLY REPORT vaso_10q
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2020
 
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to ______________
 
Commission File Number: 0-18105
 
VASO CORPORATION
(Exact name of registrant as specified in its charter)
 
 Delaware
 11-2871434
 (State or other jurisdiction of incorporation or organization)
 (IRS Employer Identification Number)
 
137 Commercial St., Suite 200, Plainview, New York 11803
(Address of principal executive offices)
 
Registrant’s Telephone Number  (516) 997-4600
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes [X]No [ ]
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes [X] No [ ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [X] Smaller Reporting Company [X]
Emerging Growth Company [ ]
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
 
Securities registered pursuant to Section 12 (b) of the Act: None
 
 
Number of Shares Outstanding of Common Stock, $.001 Par Value, at November 10, 2020– 174,715,411
 

 
 
 
Vaso Corporation and Subsidiaries
 
INDEX
 
3
3
3
4
5
6
7
20
28
29
30
 
 
 
 
 
 
 
 
 
 
2
 
 
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,
2020
 
 
December 31,
2019
 
 
 
(unaudited)
 
 
 
 
ASSETS
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 $6,865 
 $2,124 
Accounts and other receivables, net of an allowance for doubtful
    
    
accounts and commission adjustments of $3,815 at September 30, 2020
    
    
and $4,285 at December 31, 2019
  6,435 
  15,852 
Receivables due from related parties
  102 
  18 
Inventories
  1,243 
  1,941 
Deferred commission expense
  1,992 
  2,785 
Prepaid expenses and other current assets
  1,301 
  1,339 
 Total current assets
  17,938 
  24,059 
 
    
    
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
    
    
$8,447 at September 30, 2020 and $7,560 at December 31, 2019
  4,035 
  4,954 
OPERATING LEASE RIGHT OF USE ASSETS
  935 
  870 
GOODWILL
  15,635 
  17,271 
INTANGIBLES, net
  4,030 
  4,301 
OTHER ASSETS, net
  3,686 
  2,586 
DEFERRED TAX ASSETS, net
  323 
  323 
 
 $46,582 
 $54,364 
 
    
    
LIABILITIES AND STOCKHOLDERS' EQUITY
    
    
CURRENT LIABILITIES
    
    
Accounts payable
 $3,869 
 $6,179 
Accrued commissions
  983 
  2,102 
Accrued expenses and other liabilities
  4,891 
  5,344 
Finance lease liabilities - current
  186 
  170 
Operating lease liabilities - current
  582 
  549 
Sales tax payable
  658 
  887 
Deferred revenue - current portion
  9,384 
  12,345 
Notes payable - current portion
  10,334 
  2,700 
Notes payable - related parties - current portion
  - 
  1,233 
Due to related party
  3 
  19 
Total current liabilities
  30,890 
  31,528 
 
    
    
LONG-TERM LIABILITIES
    
    
Notes payable, net of current portion
  1,437 
  8,121 
Notes payable - related parties, net of current portion
  - 
  20 
Finance lease liabilities, net of current portion
  307 
  437 
Operating lease liabilities, net of current portion
  352 
  321 
Deferred revenue, net of current portion
  7,267 
  6,998 
Deferred tax liability
  - 
  124 
Other long-term liabilities
  1,062 
  1,026 
Total long-term liabilities
  10,425 
  17,047 
 
    
    
COMMITMENTS AND CONTINGENCIES (NOTE O)
    
    
 
    
    
STOCKHOLDERS' EQUITY
    
    
Preferred stock, $.01 par value; 1,000,000 shares authorized; nil shares
    
    
 issued and outstanding at September 30, 2020 and December 31, 2019
  - 
  - 
Common stock, $.001 par value; 250,000,000 shares authorized;
    
    
185,023,498 and 183,744,376 shares issued at September 30, 2020 and December 31, 2019;
    
    
174,715,411 and 173,436,289 shares outstanding at September 30, 2020 and December 31, 2019
  185 
  184 
Additional paid-in capital
  63,872 
  63,803 
Accumulated deficit
  (56,703)
  (55,885)
Accumulated other comprehensive loss
  (87)
  (313)
Treasury stock, at cost, 10,308,087 shares at September 30, 2020 and December 31, 2019
  (2,000)
  (2,000)
Total stockholders’ equity
  5,267 
  5,789 
 
 $46,582 
 $54,364 
 
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 INCOME (LOSS)
 
(unaudited)
(in thousands, except per share data)
 
 
 
 Three months ended
 
 
 Nine months ended
 
 
 
September 30,
 
 
September 30,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Revenues
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
Managed IT systems and services
 $10,833 
 $11,485 
 $32,994 
 $34,217 
Professional sales services
  5,801 
  6,336 
  15,688 
  14,882 
Equipment sales and services
  900 
  906 
  2,477 
  2,695 
Total revenues
  17,534 
  18,727 
  51,159 
  51,794 
 
    
    
    
    
Cost of revenues
    
    
    
    
Cost of managed IT systems and services
  6,350 
  6,414 
  19,812 
  19,791 
Cost of professional sales services
  1,092 
  1,140 
  3,062 
  2,780 
Cost of equipment sales and services
  213 
  332 
  790 
  1,084 
Total cost of revenues
  7,655 
  7,886 
  23,664 
  23,655 
Gross profit
  9,879 
  10,841 
  27,495 
  28,139 
 
    
    
    
    
Operating expenses
    
    
    
    
Selling, general and administrative
  8,451 
  9,840 
  27,486 
  29,884 
Research and development
  174 
  196 
  539 
  624 
Total operating expenses
  8,625 
  10,036 
  28,025 
  30,508 
Operating income (loss)
  1,254 
  805 
  (530)
  (2,369)
 
    
    
    
    
Other (expense) income
    
    
    
    
Interest and financing costs
  (145)
  (268)
  (558)
  (728)
Interest and other income, net
  48 
  36 
  63 
  109 
Gain on sale of equity in EECP Global
  - 
  - 
  110 
  - 
Total other (expense) income, net
  (97)
  (232)
  (385)
  (619)
 
    
    
    
    
Income (loss) before income taxes
  1,157 
  573 
  (915)
  (2,988)
Income tax (expense) benefit
  (11)
  (11)
  97 
  (49)
Net income (loss)
  1,146 
  562 
  (818)
  (3,037)
 
    
    
    
    
Other comprehensive income (loss)
    
    
    
    
Foreign currency translation gain (loss)
  118 
  (193)
  39 
  (131)
Comprehensive income (loss)
 $1,264 
 $369 
 $(779)
 $(3,168)
 
    
    
    
    
Earnings (loss) per common share
    
    
    
    
- basic
 $0.01 
 $0.00 
 $(0.00)
 $(0.02)
- diluted
 $0.01 
 $0.00 
 $(0.00)
 $(0.02)
 
    
    
    
    
Weighted average common shares outstanding
    
    
    
    
- basic
  170,515 
  168,662 
  169,279 
  167,557 
- diluted
  171,167 
  168,787 
  169,279 
  167,557 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
4
 
 
Vaso Corporation and Subsidiaries
 
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, 2019
  177,417 
 $178 
  (10,308)
 $(2,000)
 $63,672 
 $(55,924)
 $(315)
 $5,611 
Share-based compensation
  - 
  - 
  - 
  - 
  44 
  - 
  - 
  44 
Foreign currency translation gain
  - 
  - 
  - 
  - 
  - 
  - 
  137 
  137 
Net loss
  - 
  - 
  - 
  - 
  - 
  (2,849)
  - 
  (2,849)
Balance at March 31, 2019 (unaudited)
  177,417 
 $178 
  (10,308)
 $(2,000)
 $63,716 
 $(58,773)
 $(178)
 $2,943 
Share-based compensation
  5,438 
  5 
  - 
  - 
  49 
  - 
  - 
  54 
Shares not issued for employee tax liability
  - 
  - 
  - 
  - 
  (2)
  - 
  - 
  (2)
Foreign currency translation loss
  - 
  - 
  - 
  - 
  - 
  - 
  (75)
  (75)
Net loss
  - 
  - 
  - 
  - 
  - 
  (750)
  - 
  (750)
Balance at June 30, 2019 (unaudited)
  182,855 
 $183 
  (10,308)
 $(2,000)
 $63,763 
 $(59,523)
 $(253)
 $2,170 
Share-based compensation
  115 
  1 
  - 
  - 
  24 
  - 
  - 
  25 
Foreign currency translation loss
  - 
  - 
  - 
  - 
  - 
  - 
  (193)
  (193)
Net income
  - 
  - 
  - 
  - 
  - 
  562 
  - 
  562 
Balance at September 30, 2019 (unaudited)
  182,970 
 $184 
  (10,308)
 $(2,000)
 $63,787 
 $(58,961)
 $(446)
 $2,564 
 
    
    
    
    
    
    
    
    
Balance at January 1, 2020
  183,744 
 $184 
  (10,308)
  (2,000)
 $63,803 
 $(55,885)
 $(313)
 $5,789 
Share-based compensation
  1,000 
  1 
  - 
  - 
  26 
  - 
  - 
  27 
Foreign currency translation loss
  - 
  - 
  - 
  - 
  - 
  - 
  (65)
  (65)
Net loss
  - 
  - 
  - 
  - 
  - 
  (1,367)
  - 
  (1,367)
Balance at March 31, 2020 (unaudited)
  184,744 
 $185 
  (10,308)
 $(2,000)
 $63,829 
 $(57,252)
 $(378)
 $4,384 
Share-based compensation
  224 
  - 
  - 
  - 
  27 
  - 
  - 
  27 
Reclassify accumulated translation loss (see Note M)
  - 
  - 
  - 
  - 
  - 
  - 
  187 
  187 
Foreign currency translation loss
  - 
  - 
  - 
  - 
  - 
  - 
  (14)
  (14)
Net loss
  - 
  - 
  - 
  - 
  - 
  (597)
  - 
  (597)
Balance at June 30, 2020 (unaudited)
  184,968 
 $185 
  (10,308)
 $(2,000)
 $63,856 
 $(57,849)
 $(205)
 $3,987 
Share-based compensation
  55 
  - 
  - 
  - 
  16 
  - 
  - 
  16 
Foreign currency translation gain
  - 
  - 
  - 
  - 
  - 
  - 
  118 
  118 
Net income
  - 
  - 
  - 
  - 
  - 
  1,146 
  - 
  1,146 
Balance at September 30, 2020 (unaudited)
  185,023 
 $185 
  (10,308)
 $(2,000
 $63,872 
 $(56,703
 $(87)
 $5,267 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
5
 
 
Vaso Corporation and Subsidiaries
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
 
Nine months ended
 
 
 
September 30,
 
 
 
2020
 
 
2019
 
Cash flows from operating activities
 
 
 
 
 
 
Net loss
 $(818)
 $(3,037)
Adjustments to reconcile net loss to net
    
    
  cash provided by (used in) operating activities
    
    
Depreciation and amortization
  1,861 
  2,024 
Deferred income taxes
  (124)
  - 
Loss from investment in EECP Global
  17 
  - 
Gain on sale of equity in EECP Global
  (110)
  - 
Provision for doubtful accounts and commission adjustments
  425 
  243 
Amortization of debt issue costs
  - 
  14 
Share-based compensation
  69 
  123 
Changes in operating assets and liabilities:
    
    
Accounts and other receivables
  8,615 
  2,774 
Due from related parties
  (29)
  - 
Inventories
  107 
  (232)
Deferred commission expense
  770 
  109 
Prepaid expenses and other current assets
  37 
  (190)
Other assets, net
  (126)
  269 
Accounts payable
  (2,307)
  (1,363)
Accrued commissions
  (1,171)
  (1,539)
Accrued expenses and other liabilities
  (376)
  (1,022)
Sales tax payable
  (204)
  (85)
Deferred revenue
  (1,923)
  (185)
Due to related party
  (15)
  - 
Other long-term liabilities
  36 
  47 
Net cash provided by (used in) operating activities
  4,734 
  (2,050)
 
    
    
Cash flows from investing activities
    
    
Purchases of equipment and software
  (635)
  (889)
Sale of fixed assets
  - 
  22 
Proceeds from sale of equity in EECP Global
  1,150 
  - 
Net cash provided by (used in) investing activities
  515 
  (867)
 
    
    
Cash flows from financing activities
    
    
Net (repayment) borrowings on revolving lines of credit
  (1,351)
  1,000 
Proceeds from note payable
  3,754 
  - 
Payroll taxes paid by withholding shares
  (1)
  (2)
Repayment of notes payable and finance lease obligations
  (1,615)
  (181)
Proceeds from notes payable
  - 
  300 
Proceeds from notes payable - related parties
  - 
  930 
Repayment of notes payable - related parties
  (1,252)
  (500)
Net cash (used in) provided by financing activities
  (465)
  1,547 
Effect of exchange rate differences on cash and cash equivalents
  (43)
  45 
 
    
    
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
  4,741 
  (1,325)
Cash and cash equivalents - beginning of period
  2,124 
  2,668 
Cash and cash equivalents - end of period
 $6,865 
 $1,343 
 
    
    
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
    
    
Interest paid
 $582 
 $550 
Income taxes paid
 $65 
 $38 
 
    
    
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
    
    
Initial recognition of operating lease right of use asset and liability
 $599 
 $1,107 
Equipment acquired through note payable
 $42 
 $- 
Equipment acquired through finance lease
 $- 
 $134 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
6
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
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 (channel partner of select vendors of healthcare IT products).
Managed network infrastructure (routers, switches and other core equipment).
Managed network transport (FCC licensed carrier reselling 175+ facility partners).
Managed security services.
 
VasoTechnology uses a combination of proprietary technology, methodology and third-party applications to deliver its value proposition.
 
VasoHealthcare
 
VasoHealthcare commenced operations in 2010, in conjunction with the Company’s execution of its exclusive sales representation agreement (“GEHC Agreement”) with GEHC, which is the healthcare business division of the General Electric Company, to further the sale of certain healthcare capital equipment in the healthcare provider middle market. Sales of GEHC equipment by the Company have grown significantly since then.
 
VasoHealthcare’s current offerings consist of:
 
GEHC diagnostic imaging capital equipment.
GEHC service agreements for the above equipment.
GEHC training services for use of the above equipment.
GEHC and third party financial services.
 
 
7
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
VasoMedical
 
VasoMedical is the Company’s business division for its proprietary medical device operations, including the design, development, manufacturing, sales and service of various medical devices in the domestic and international markets and includes the Vasomedical Global and Vasomedical Solutions business units (see Note M). These devices are primarily for cardiovascular monitoring and diagnostic systems. Its current offerings consist of:
 
Biox™ series Holter monitors and ambulatory blood pressure recorders.
ARCS® series analysis, reporting and communication software for physiological signals such as ECG and blood pressure.
MobiCare™ multi-parameter wireless vital-sign monitoring system.
 
This segment uses its extensive cardiovascular device knowledge coupled with its significant engineering resources to cost-effectively create and market its proprietary technology. It works with a global distribution network of channel partners to sell its products. It also provides engineering and OEM services to other medical device companies.
 
NOTE B – INTERIM STATEMENT PRESENTATION
 
Basis of Presentation and Use of Estimates
 
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial information. Certain information and disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on April 14, 2020.
 
These unaudited condensed consolidated financial statements include the accounts of the companies over which we exercise control. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of interim results for the Company. The results of operations for any interim period are not necessarily indicative of results to be expected for any other interim period or the full year.
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities in the unaudited condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenues, expenses and cash flows during the periods presented. Actual amounts and results could differ from those estimates. The estimates and assumptions the Company makes are based on historical factors, current circumstances and the experience and judgment of the Company's management. The Company evaluates its estimates and assumptions on an ongoing basis.
 
Significant Accounting Policies and Recent Accounting Pronouncements
 
Recently Adopted Accounting Pronouncements
 
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how we determine our allowance for estimated uncollectible receivables. In November 2019, the FASB issued ASU 2019-10, which changed the effective date of ASU 2016-13 for smaller reporting companies as defined by the SEC from first quarter of 2020 to the first quarter of 2023, with early adoption permitted. We are currently evaluating the effect that ASU 2016-13 will have on our consolidated financial statements and related disclosures.
 
 
8
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
NOTE C – REVENUE RECOGNITION
 
Disaggregation of Revenue
 
The following tables present revenues disaggregated by our business operations and timing of revenue recognition:
 
  (in thousands)
 
 
 
Three Months Ended September 30, 2020 (unaudited)
 
 
Three Months Ended September 30, 2019 (unaudited)
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Network services
 $9,972 
 $- 
 $- 
 $9,972 
 $10,210 
 $- 
 $- 
 $10,210 
Software sales and support
  861 
  - 
  - 
  861 
  1,275 
  - 
  - 
  1,275 
Commissions
  - 
  5,801 
  - 
  5,801 
  - 
  6,336 
  - 
  6,336 
Medical equipment sales
  - 
  - 
  868 
  868 
  - 
  - 
  686 
  686 
Medical equipment service
  - 
  - 
  32 
  32 
  - 
  - 
  220 
  220 
 
 $10,833 
 $5,801 
 $900 
 $17,534 
 $11,485 
 $6,336 
 $906 
 $18,727 
 
 
 
Nine Months Ended September 30, 2020 (unaudited)
 
 
Nine Months Ended September 30, 2019 (unaudited)
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Network services
 $30,005 
 $- 
 $- 
 $30,005 
 $30,221 
 $- 
 $- 
 $30,221 
Software sales and support
  2,989 
  - 
  - 
  2,989 
  3,996 
  - 
  - 
  3,996 
Commissions
  - 
  15,688 
  - 
  15,688 
  - 
  14,882 
  - 
  14,882 
Medical equipment sales
  - 
  - 
  2,038 
  2,038 
  - 
  - 
  1,911 
  1,911 
Medical equipment service
  - 
  - 
  439 
  439 
  - 
  - 
  784 
  784 
 
 $32,994 
 $15,688 
 $2,477 
 $51,159 
 $34,217 
 $14,882 
 $2,695 
 $51,794 
 

 
 
Three Months Ended September 30, 2020 (unaudited)
 
 
Three Months Ended September 30, 2019 (unaudited)
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Revenue recognized over time
 $10,183 
 $- 
 $31 
 $10,214 
 $10,524 
 $- 
 $145 
 $10,669 
Revenue recognized at a point in time
  650 
  5,801 
  869 
  7,320 
  961 
  6,336 
  761 
  8,058 
 
 $10,833 
 $5,801 
 $900 
 $17,534 
 $11,485 
 $6,336 
 $906 
 $18,727 
 
 
 
Nine Months Ended September 30, 2020 (unaudited)
 
 
Nine Months Ended September 30, 2019 (unaudited)
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
 
 
Professional sales
 
 
 Equipment
 
 
 
 
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
 
IT segment
 
 
service segment
 
 
segment
 
 
Total
 
Revenue recognized over time
 $30,542 
 $- 
 $336 
 $30,878 
 $30,526 
 $- 
 $447 
 $30,973 
Revenue recognized at a point in time
  2,452 
  15,688 
  2,141 
  20,281 
  3,691 
  14,882 
  2,248 
  20,821 
 
 $32,994 
 $15,688 
 $2,477 
 $51,159 
 $34,217 
 $14,882 
 $2,695 
 $51,794 
 
 
9
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
Transaction Price Allocated to Remaining Performance Obligations
 
As of September 30, 2020, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $71.7 million, of which we expect to recognize revenue as follows:
(in thousands)
 
 
Fiscal years of revenue recognition (unaudited)
 
 
 
remainder of 2020
 
 
2021
 
 
2022
 
 
Thereafter
 
Unfulfilled performance obligations
 $12,241 
 $31,998 
 $15,233 
 $12,219 
 
Contract Liabilities
 
Contract liabilities arise in our IT VAR, VasoHealthcare, and VasoMedical businesses. In our IT VAR business, payment arrangements with clients typically include an initial payment due upon contract signing and milestone-based payments based upon product delivery and go-live, as well as post go-live monthly payments for subscription and support fees. Customer payments received, or receivables recorded, in advance of go-live and customer acceptance, where applicable, are deferred as contract liabilities. Such amounts aggregated approximately $478,000 and $568,000 at September 30, 2020 and December 31, 2019, respectively, and are included in accrued expenses and other liabilities in our condensed consolidated balance sheets.
 
In our VasoHealthcare business, we bill amounts for certain milestones in advance of customer acceptance of the underlying equipment. Such amounts aggregated approximately $16,634,000 and $18,565,000 at September 30, 2020 and December 31, 2019, respectively, and are classified in our condensed consolidated balance sheets as either current or long-term deferred revenue. In addition, we record a contract liability for amounts expected to be repaid to GEHC due to customer order reductions. Such amounts aggregated approximately $1,963,000 and $1,270,000 at September 30, 2020 and December 31, 2019, respectively, and are included in accrued expenses and other liabilities in our condensed consolidated balance sheets.
 
In our VasoMedical business, we bill amounts for post-delivery services and varying duration service contracts in advance of performance. Such amounts aggregated approximately $17,000 and $778,000 at September 30, 2020 and December 31, 2019, respectively, and are classified in our condensed consolidated balance sheets as either current or long-term deferred revenue.
 
During the three and nine months ended September 30, 2020, we recognized approximately $1.8 million and $4.5 million of revenues that were included in our contract liability balance at July 1, 2020 and January 1, 2020, respectively.
 
NOTE D – SEGMENT REPORTING AND CONCENTRATIONS
 
Vaso Corporation principally operates in three distinct business segments in the healthcare and information technology industries. We manage and evaluate our operations, and report our financial results, through these three reportable segments.
 
IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;
 
Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for GEHC into the healthcare provider middle market; and
 
Equipment segment, operating through a wholly-owned subsidiary VasoMedical, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices.
 
 
10
 
 
The chief operating decision maker is the Company’s Chief Executive Officer, who, in conjunction with upper management, evaluates segment performance based on operating income and adjusted EBITDA (net income (loss), plus interest expense (income), net; tax expense; depreciation and amortization; and non-cash stock-based compensation). Administrative functions such as finance, human resources, and information technology are centralized and related expenses allocated to each segment. Other costs not directly attributable to operating segments, such as audit, legal, director fees, investor relations, and others, as well as certain assets – primarily cash balances – are reported in the Corporate entity below. There are no intersegment revenues. Summary financial information for the segments is set forth below:
 
(in thousands)
 
 
Three months ended September 30,
 
 
Nine months ended September 30,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
Revenues from external customers
 
 
 
 
 
 
 
 
 
 
 
 
IT
 $10,833 
 $11,485 
 $32,994 
 $34,217 
Professional sales service
  5,801 
  6,336 
  15,688 
  14,882 
Equipment
  900 
  906 
  2,477 
  2,695 
Total revenues
 $17,534 
 $18,727 
 $51,159 
 $51,794 
 
    
    
    
    
Gross Profit
    
    
    
    
IT
 $4,483 
 $5,071 
 $13,182 
 $14,426 
Professional sales service
  4,709 
  5,196 
  12,626 
  12,102 
Equipment
  687 
  574 
  1,687 
  1,611 
Total gross profit
 $9,879 
 $10,841 
 $27,495 
 $28,139 
 
    
    
    
    
Operating income (loss)
    
    
    
    
IT
 $159 
 $269 
 $(920)
 $(306)
Professional sales service
  1,161 
  1,028 
  1,038 
  (487)
Equipment
  142 
  (282)
  (1)
  (809)
Corporate
  (208)
  (210)
  (647)
  (767)
Total operating income (loss)
 $1,254 
 $805 
 $(530)
 $(2,369)
 
    
    
    
    
Depreciation and amortization
    
    
    
    
IT
 $500 
 $562 
 $1,517 
 $1,673 
Professional sales service
  37 
  42 
  123 
  130 
Equipment
  73 
  75 
  221 
  221 
Corporate
  - 
  - 
  - 
  - 
Total depreciation and amortization
 $610 
 $679 
 $1,861 
 $2,024 
 
    
    
    
    
Capital expenditures
    
    
    
    
IT
 $182 
 $143 
 $600 
 $827 
Professional sales service
  3 
  - 
  5 
  - 
Equipment
  - 
  32 
  28 
  56 
Corporate
  - 
  - 
  2 
  6 
Total cash capital expenditures
 $185 
 $175 
 $635 
 $889 
  
 
11
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
(in thousands)
 
 
September 30,
2020
 
 
December 31,
2019
 
 
 
(unaudited)
 
 
 
 
Identifiable Assets
 
 
 
 
 
 
IT
 $27,752 
 $30,079 
Professional sales service
  7,090 
  16,257 
Equipment
  5,430 
  6,370 
Corporate
  6,310 
  1,658 
Total assets
 $46,582 
 $54,364 
 
GE Healthcare accounted for 33% and 34% of revenue for the three months ended September 30, 2020 and 2019, respectively, and 31% and 29% of revenue for the nine months ended September 30, 2020 and 2019, respectively. GE Healthcare also accounted for $3.0 million or 47%, and $10.9 million or 69%, of accounts and other receivables at September 30, 2020 and December 31, 2019, respectively.
 
NOTE E – EARNINGS (LOSS) PER COMMON SHARE
 
Basic earnings (loss) per common share is computed as earnings (loss) applicable to common stockholders divided by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted to common stock.
 
Diluted earnings (loss) per share were computed based on the weighted average number of shares outstanding plus all potentially dilutive common shares. A reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:
(in thousands)
 
 
For the three months ended September 30,
 
 
For the nine months ended September 30,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited) 
 
 
(unaudited) 
 
Basic weighted average shares outstanding
  170,515 
  168,662 
  169,279 
  167,557 
Dilutive effect of unvested restricted shares
  652 
  125 
  - 
  - 
Diluted weighted average shares outstanding
  171,167 
  168,787 
  169,279 
  167,557 
 
 
The following table represents common stock equivalents that were excluded from the computation of diluted earnings (loss) per share for the three and nine months ended September 30, 2020 and 2019, because the effect of their inclusion would be anti-dilutive.
(in thousands)
 
 
Three months ended September 30,
 
 
Nine months ended September 30,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
Restricted common stock grants
  874 
  1,485 
  4,674 
  5,485 
 
 
12
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
NOTE F – ACCOUNTS AND OTHER RECEIVABLES, NET
 
The following table presents information regarding the Company’s accounts and other receivables as of September 30, 2020 and December 31, 2019:
 
(in thousands)
 
 
September 30,
2020
 
 
December 31,
2019
 
 
 
(unaudited)
 
 
 
 
Trade receivables
 $9,542 
 $20,110 
Unbilled receivables
  657 
  - 
Due from employees
  51 
  27 
Allowance for doubtful accounts and
    
    
commission adjustments
  (3,815)
  (4,285)
Accounts and other receivables, net
 $6,435 
 $15,852 
 
Contract receivables under Topic 606 consist of trade receivables and unbilled receivables. Trade receivables include amounts due for shipped products and services rendered. Unbilled receivables represent variable consideration recognized in accordance with Topic 606 but not yet billable. Amounts recorded – billed and unbilled - under the GEHC Agreement are subject to adjustment in subsequent periods should the underlying sales order amount, upon which the receivable is based, change.
 
Allowance for doubtful accounts and commission adjustments include estimated losses resulting from the inability of our customers to make required payments, and adjustments arising from subsequent changes in sales order amounts that may reduce the amount the Company will ultimately receive under the GEHC Agreement. Due from employees is primarily commission advances made to sales personnel.
 
NOTE G – INVENTORIES, NET
 
Inventories, net of reserves, consist of the following:
 
(in thousands)
 
 
September 30,
2020
 
 
December 31,
2019
 
 
 
(unaudited)
 
 
 
 
Raw materials
 $651 
 $650 
Work in process
  17 
  181 
Finished goods
  575 
  1,110 
 
 $1,243 
 $1,941 
 
At September 30, 2020 and December 31, 2019, the Company maintained reserves for slow moving inventories of $168,000 and $390,000, respectively.
 
 
13
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
NOTE H – GOODWILL AND OTHER INTANGIBLES
 
Goodwill of $14,375,000 is allocated to the IT segment. The remaining $1,260,000 of goodwill is attributable to the FGE reporting unit within the Equipment segment. The NetWolves and FGE reporting units had negative net asset carrying amounts at September 30, 2020 and December 31, 2019. The components of the change in goodwill are as follows:
 
(in thousands)
 
 
Nine months ended
 
 
Year ended
 
 
 
September 30,
2020
 
 
December 31,
2019
 
 
 
(unaudited)
 
 
 
 
Beginning of period
 $17,271 
 $17,309 
Foreign currency translation adjustment
  29 
  (38)
Sale of equity in EECP Global
  (1,665)
  - 
End of period
 $15,635 
 $17,271 
 
The Company’s other intangible assets consist of capitalized customer-related intangibles, patent and technology costs, and software costs, as set forth in the following:
 
(in thousands)
 
 
September 30,
2020
 
 
December 31,
2019
 
 
 
(unaudited)
 
 
 
 
Customer-related
 
 
 
 
 
 
Costs
 $5,831 
 $5,831 
Accumulated amortization
  (3,848)
  (3,553)
 
  1,983 
  2,278 
 
    
    
Patents and Technology
    
    
Costs
  1,894 
  2,363 
Accumulated amortization
  (1,465)
  (1,752)
 
  429 
  611 
 
    
    
Software
    
    
Costs
  3,249 
  2,840 
Accumulated amortization
  (1,631)
  (1,428)
 
  1,618 
  1,412 
 
    
    
 
 $4,030 
 $4,301 
 
Patents and technology are amortized on a straight-line basis over their estimated useful lives of ten and eight years, respectively. The cost of significant customer-related intangibles is amortized in proportion to estimated total related revenue; cost of other customer-related intangible assets is amortized on a straight-line basis over the asset's estimated economic life of seven years. Software costs are amortized on a straight-line basis over its expected useful life of five years. 
 
 
14
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
Amortization expense amounted to $222,000 and $239,000 for the three months ended September 30, 2020 and 2019, respectively, and $680,000 and $708,000 for the nine months ended September 30, 2020 and 2019, respectively.
 
Amortization of intangibles for the next five years is:
 
(in thousands)
Years ending December 31,
 
(unaudited)
 
Remainder of 2020
 $225 
2021
  1,037 
2022
  742 
2023
  517 
2024
  448 
 
 $2,969 
 
NOTE I – OTHER ASSETS, NET
 
Other assets, net consist of the following at September 30, 2020 and December 31, 2019:
 
(in thousands)
 
 
September 30,
2020
 
 
December 31,
2019
 
 
 
(unaudited)
 
 
 
 
Deferred commission expense - noncurrent
 $2,062 
 $1,770 
Investment in EECP Global (see Note M)
  1,088 
  - 
Trade receivables - noncurrent
  474 
  631 
Other, net of allowance for loss on loan receivable of
    
    
  $412 at September 30, 2020 and December 31, 2019
  62 
  185 
 
 $3,686 
 $2,586 
 
NOTE J – ACCRUED EXPENSES AND OTHER LIABILITIES
 
Accrued expenses and other liabilities consist of the following at September 30, 2020 and December 31, 2019:
 
(in thousands)
 
 
September 30,
2020
 
 
December 31,
2019
 
 
 
(unaudited)
 
 
 
 
Accrued compensation
 $1,050 
 $1,509 
Accrued expenses - other
  1,311 
  1,818 
Other liabilities
  2,530 
  2,017 
 
 $4,891 
 $5,344 
 
 
15
Vaso Corporation and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
NOTE K - DEFERRED REVENUE
 
The changes in the Company’s deferred revenues are as follows:
 
(in thousands)
 
 
Three months ended September 30,
 
 
Nine months ended September 30,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
 
(unaudited)
 
Deferred revenue at beginning of period
 $16,480 
 $17,575 
 $19,343 
 $18,086 
Deconsolidate EECP Global (see Note M)
  - 
  - 
  (769)
  - 
Net additions: