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, 2022

 

   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_10qimg1.jpg

 

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)

    

(516) 997-4600

Registrant’s Telephone Number

 

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). Yes ☒ 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

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). Yes No ☒

 

Securities registered pursuant to Section 12 (b) of the Act: None

 

Number of Shares Outstanding of Common Stock, $.001 Par Value, at August 12, 2022 – 175,127,878

 

 

 

 

Vaso Corporation and Subsidiaries

 

INDEX

 

PART I – FINANCIAL INFORMATION..

 

3

ITEM 1 -

FINANCIAL STATEMENTS.

 

3

 

CONDENSED CONSOLIDATED BALANCE SHEETS as of June 30, 2022 (unaudited) and December 31, 2021.

 

3

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited) for the Three and Six Months Ended June 30, 2022 and 2021.

 

4

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) for the Three and Six Months Ended June 30, 2022 and 2021.

 

5

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) for the Six Months Ended June 30, 2022 and 2021.

 

6

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

7

ITEM 2 -

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

18

ITEM 4 -

CONTROLS AND PROCEDURES.

 

26

PART II - OTHER INFORMATION..

 

27

ITEM 6 –

EXHIBITS.

 

27

 

Page 2

Table of Contents

 

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, 2022

 

 

December 31, 2021

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$15,436

 

 

$6,025

 

Short-term investments

 

 

448

 

 

 

629

 

Accounts and other receivables, net of an allowance for doubtful

 

 

 

 

 

 

 

 

accounts and commission adjustments of $6,270 at June 30, 2022

 

 

 

 

 

 

 

 

and $5,804 at December 31, 2021

 

 

6,836

 

 

 

15,393

 

Receivables due from related parties

 

 

342

 

 

 

66

 

Inventories

 

 

1,597

 

 

 

1,147

 

Deferred commission expense

 

 

3,576

 

 

 

3,549

 

Prepaid expenses and other current assets

 

 

861

 

 

 

994

 

Total current assets

 

 

29,096

 

 

 

27,803

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of

 

 

 

 

 

 

 

 

$9,626 at June 30, 2022 and $10,512 at December 31, 2021

 

 

1,576

 

 

 

2,172

 

Opearting lease right of use assets

 

 

1,635

 

 

 

915

 

Goodwill

 

 

15,655

 

 

 

15,722

 

Intangibles, net

 

 

1,735

 

 

 

2,041

 

Other assets, net

 

 

2,574

 

 

 

2,446

 

Investment in EECP Global

 

 

988

 

 

 

1,043

 

Deferred tax assets, net

 

 

219

 

 

 

219

 

Total assets

 

$53,478

 

 

$52,361

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$2,163

 

 

$2,797

 

Accrued commissions

 

 

1,465

 

 

 

2,705

 

Accrued expenses and other liabilities

 

 

6,712

 

 

 

7,489

 

Finance lease liabilities - current

 

 

190

 

 

 

222

 

Operating lease liabilities - current

 

 

722

 

 

 

562

 

Sales tax payable

 

 

733

 

 

 

719

 

Deferred revenue - current portion

 

 

18,583

 

 

 

16,495

 

Notes payable - current portion

 

 

8

 

 

 

8

 

Due to related party

 

 

3

 

 

 

3

 

Total current liabilities

 

 

30,579

 

 

 

31,000

 

 

 

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

 

Notes payable, net of current portion

 

 

19

 

 

 

23

 

Finance lease liabilities, net of current portion

 

 

128

 

 

 

218

 

Operating lease liabilities, net of current portion

 

 

913

 

 

 

352

 

Deferred revenue, net of current portion

 

 

8,514

 

 

 

8,470

 

Other long-term liabilities

 

 

1,067

 

 

 

988

 

Total long-term liabilities

 

 

10,641

 

 

 

10,051

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (NOTE M)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Preferred stock, $.01 par value; 1,000,000 shares authorized; nil shares

 

 

 

 

 

 

 

 

 issued and outstanding at June 30, 2022 and December 31, 2021

 

 

-

 

 

 

-

 

Common stock, $.001 par value; 250,000,000 shares authorized;

 

 

 

 

 

 

 

 

185,435,965 shares issued at June 30, 2022 and December 31, 2021;

 

 

 

 

 

 

 

 

175,127,878 shares outstanding at June 30, 2022 and December 31, 2021

 

 

185

 

 

 

185

 

Additional paid-in capital

 

 

63,930

 

 

 

63,917

 

Accumulated deficit

 

 

(49,751)

 

 

(50,902)

Accumulated other comprehensive income

 

 

(106)

 

 

110

 

Treasury stock, at cost, 10,308,087 shares at June 30, 2022 and December 31, 2021

 

 

(2,000)

 

 

(2,000)

Total stockholders’ equity

 

 

12,258

 

 

 

11,310

 

 

 

$53,478

 

 

$52,361

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
Page 3

Table of Contents

 

Vaso Corporation and Subsidiaries

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, except per share data)

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Managed IT systems and services

 

$10,019

 

 

$10,442

 

 

$20,022

 

 

$21,696

 

Professional sales services

 

 

8,854

 

 

 

4,971

 

 

 

15,461

 

 

 

9,626

 

Equipment sales and services

 

 

629

 

 

 

718

 

 

 

1,029

 

 

 

1,329

 

Total revenues

 

 

19,502

 

 

 

16,131

 

 

 

36,512

 

 

 

32,651

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of managed IT systems and services

 

 

6,342

 

 

 

6,348

 

 

 

12,211

 

 

 

13,195

 

Cost of professional sales services

 

 

1,674

 

 

 

995

 

 

 

2,975

 

 

 

1,985

 

Cost of equipment sales and services

 

 

150

 

 

 

148

 

 

 

221

 

 

 

271

 

Total cost of revenues

 

 

8,166

 

 

 

7,491

 

 

 

15,407

 

 

 

15,451

 

Gross profit

 

 

11,336

 

 

 

8,640

 

 

 

21,105

 

 

 

17,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

9,604

 

 

 

9,192

 

 

 

19,606

 

 

 

18,148

 

Research and development

 

 

170

 

 

 

170

 

 

 

292

 

 

 

314

 

Total operating expenses

 

 

9,774

 

 

 

9,362

 

 

 

19,898

 

 

 

18,462

 

Operating income (loss)

 

 

1,562

 

 

 

(722)

 

 

1,207

 

 

 

(1,262)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and financing costs

 

 

(1)

 

 

(71)

 

 

(24)

 

 

(206)

Interest and other income, net

 

 

(48)

 

 

(23)

 

 

-

 

 

 

27

 

Gain on forgiveness of PPP loan

 

 

-

 

 

 

3,646

 

 

 

-

 

 

 

3,646

 

Loss on disposal of fixed assets

 

 

-

 

 

 

-

 

 

 

(2)

 

 

-

 

Total other (expense) income, net

 

 

(49)

 

 

3,552

 

 

 

(26)

 

 

3,467

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

1,513

 

 

 

2,830

 

 

 

1,181

 

 

 

2,205

 

Income tax (expense) benefit

 

 

(18)

 

 

(50)

 

 

(30)

 

 

(68)

Net income

 

 

1,495

 

 

 

2,780

 

 

 

1,151

 

 

 

2,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

(215)

 

 

51

 

 

 

(216)

 

 

30

 

Comprehensive income

 

$1,280

 

 

$2,831

 

 

$935

 

 

$2,167

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- basic and diluted

 

$0.01

 

 

$0.02

 

 

$0.01

 

 

$0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- basic

 

 

172,858

 

 

 

171,438

 

 

 

172,594

 

 

 

171,139

 

- diluted

 

 

174,059

 

 

 

173,582

 

 

 

173,195

 

 

 

172,211

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
Page 4

Table of Contents

 

Vaso Corporation and Subsidiaries

 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional  

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Paid-in-

 

 

Accumulated

 

 

Comprehensive

 

 

 Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

 Loss

 

 

Equity

 

Balance at January 1, 2021

 

 

185,244

 

 

$185

 

 

 

(10,308)

 

 

(2,000)

 

$63,886

 

 

$(57,002)

 

$16

 

 

$5,085

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9

 

 

 

-

 

 

 

-

 

 

 

9

 

Foreign currency translation loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(21)

 

 

(21)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(643)

 

 

-

 

 

 

(643)

Balance at March 31, 2021 (unaudited)

 

 

185,244

 

 

$185

 

 

 

(10,308)

 

$(2,000)

 

$63,895

 

 

$(57,645)

 

$(5)

 

$4,430

 

Share-based compensation

 

 

192

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8

 

 

 

-

 

 

 

-

 

 

 

8

 

Foreign currency translation gain

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

51

 

 

 

51

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,780

 

 

 

-

 

 

 

2,780

 

Balance at June 30, 2021 (unaudited)

 

 

185,436

 

 

$185

 

 

 

(10,308)

 

$(2,000)

 

$63,903

 

 

$(54,865)

 

$46

 

 

$7,269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2022

 

 

185,436

 

 

$185

 

 

 

(10,308)

 

 

(2,000)

 

$63,917

 

 

$(50,902)

 

$110

 

 

$11,310

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7

 

 

 

-

 

 

 

-

 

 

 

7

 

Foreign currency translation loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1)

 

 

(1)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(344)

 

 

-

 

 

 

(344)

Balance at March 31, 2022 (unaudited)

 

 

185,436

 

 

$185

 

 

 

(10,308)

 

$(2,000)

 

$63,924

 

 

$(51,246)

 

$109

 

 

$10,972

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6

 

 

 

-

 

 

 

-

 

 

 

6

 

Foreign currency translation loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(215)

 

 

(215)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,495

 

 

 

-

 

 

 

1,495

 

Balance at June 30, 2022 (unaudited)

 

 

185,436

 

 

$185

 

 

 

(10,308)

 

$(2,000)

 

$63,930

 

 

$(49,751)

 

$(106)

 

$12,258

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
Page 5

Table of Contents

  

Vaso Corporation and Subsidiaries

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

 Six months ended

 

 

 

June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

(unaudited)

 

 

(unaudited)

 

Net income

 

$1,151

 

 

$2,137

 

Adjustments to reconcile net income to net

 

 

 

 

 

 

 

 

  cash (used in) provided by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,258

 

 

 

1,124

 

(Gain) loss from investment in EECP Global

 

 

55

 

 

 

20

 

Gain on forgiveness of PPP loan

 

 

-

 

 

 

(3,646)

Provision for doubtful accounts and commission adjustments

 

 

157

 

 

 

455

 

Write-down of inventory

 

 

-

 

 

 

175

 

Share-based compensation

 

 

13

 

 

 

17

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts and other receivables

 

 

8,376

 

 

 

5,792

 

Inventories

 

 

(509)

 

 

134

 

Deferred commission expense

 

 

(27)

 

 

(22)

Prepaid expenses and other current assets

 

 

120

 

 

 

271

 

Other assets, net

 

 

(216)

 

 

(151)

Accounts payable

 

 

(628)

 

 

(2,753)

Accrued commissions

 

 

(1,040)

 

 

(1,087)

Accrued expenses and other liabilities

 

 

(941)

 

 

1,331

 

Sales tax payable

 

 

26

 

 

 

(59)

Deferred revenue

 

 

2,132

 

 

 

1,963

 

Due to related party

 

 

(275)

 

 

(205)

Other long-term liabilities

 

 

79

 

 

 

97

 

Net cash provided by operating activities

 

 

9,731

 

 

 

5,593

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of equipment and software

 

 

(358)

 

 

(124)

Redemption (purchases) of short-term investments

 

 

154

 

 

 

155

 

Net cash (used in) provided by investing activities

 

 

(204)

 

 

31

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Repayment on revolving lines of credit

 

 

-

 

 

 

(1,575)

Repayment of notes payable and finance lease obligations

 

 

(125)

 

 

(1,526)

Net cash used in financing activities

 

 

(125)

 

 

(3,101)

Effect of exchange rate differences on cash and cash equivalents

 

 

9

 

 

 

65

 

 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

9,411

 

 

 

2,588

 

Cash and cash equivalents - beginning of period

 

 

6,025

 

 

 

6,819

 

Cash and cash equivalents - end of period

 

$15,436

 

 

$9,407

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION

 

 

 

 

 

 

 

 

Interest paid

 

$29

 

 

$242

 

Income taxes paid

 

$54

 

 

$97

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Initial recognition of operating lease right of use asset and liability

 

$1,072

 

 

$251

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
Page 6

Table of Contents

 

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 and software.

 

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 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 over 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 (“GE”), 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.

 

 
Page 7

Table of Contents

 

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 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 ECG and blood pressure signals.

 

·

MobiCare™ multi-parameter wireless vital-sign monitoring system.

 

·

EECP® therapy systems 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.

 

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, 2021, as filed with the SEC on March 31, 2022.

 

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.

 

 
Page 8

Table of Contents

 

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 June 30, 2022 (unaudited)

 

 

Three Months Ended June 30, 2021 (unaudited)

 

 

 

 

 

 

Professional

 

 

 

 

 

 

 

 

 

 

Professional

 

 

 

 

 

 

 

 

IT segment

 

 

sales

service

segment

 

 

 

Equipment

segment

 

 

Total

 

 

IT segment

 

 

sales

service

segment

 

 

Equipment

segment

 

 

Total

 

Network services

 

$8,890

 

 

$-

 

 

$-

 

 

$8,890

 

 

$9,371

 

 

$-

 

 

$-

 

 

$9,371

 

Software sales and support

 

 

1,129

 

 

 

-

 

 

 

-

 

 

 

1,129

 

 

 

1,071

 

 

 

-

 

 

 

-

 

 

 

1,071

 

Commissions

 

 

-

 

 

 

8,854

 

 

 

-

 

 

 

8,854

 

 

 

-

 

 

 

4,971

 

 

 

-

 

 

 

4,971

 

Medical equipment sales

 

 

-

 

 

 

-

 

 

 

597

 

 

 

597

 

 

 

-

 

 

 

-

 

 

 

686

 

 

 

686

 

Medical equipment service

 

 

-

 

 

 

-

 

 

 

32

 

 

 

32

 

 

 

-

 

 

 

-

 

 

 

32

 

 

 

32

 

 

 

$10,019

 

 

$8,854

 

 

$629

 

 

$19,502

 

 

$10,442

 

 

$4,971

 

 

$718

 

 

$16,131

 

   

 

 

Six Months Ended June 30, 2022 (unaudited)

 

 

Six Months Ended June 30, 2021 (unaudited)

 

 

 

 

 

Professional sales

 

 

 

 

 

 

 

 

Professional sales

 

 

 

 

 

 

 

IT segment

 

 

service

segment

 

 

 Equipment

segment

 

 

Total

 

 

IT segment

 

 

service

segment

 

 

 Equipment

segment

 

 

Total

 

Network services

 

$17,919

 

 

$-

 

 

$-

 

 

$17,919

 

 

$19,490

 

 

$-

 

 

$-

 

 

$19,490

 

Software sales and support

 

 

2,103

 

 

 

-

 

 

 

-

 

 

 

2,103

 

 

 

2,206

 

 

 

-

 

 

 

-

 

 

 

2,206

 

Commissions

 

 

-

 

 

 

15,461

 

 

 

-

 

 

 

15,461

 

 

 

-

 

 

 

9,626

 

 

 

-

 

 

 

9,626

 

Medical equipment sales

 

 

-

 

 

 

-

 

 

 

967

 

 

 

967

 

 

 

-

 

 

 

-

 

 

 

1,263

 

 

 

1,263

 

Medical equipment service

 

 

-

 

 

 

-

 

 

 

62

 

 

 

62

 

 

 

-

 

 

 

-

 

 

 

66

 

 

 

66

 

 

 

$20,022

 

 

$15,461

 

 

$1,029

 

 

$36,512

 

 

$21,696

 

 

$9,626

 

 

$1,329

 

 

$32,651

 

 

 

 

Three Months Ended June 30, 2022 (unaudited)

 

 

Three Months Ended June 30, 2021 (unaudited)

 

 

 

 

 

 

Professional sales

 

 

 

 

 

 

 

 

 

 

Professional sales

 

 

 

 

 

 

 

 

IT segment

 

 

service

segment

 

 

Equipment

segment

 

 

Total

 

 

IT segment

 

 

service

segment

 

 

Equipment

segment

 

 

Total

 

Revenue recognized over time

 

$9,075

 

 

$-

 

 

$84

 

 

$9,159

 

 

$9,246

 

 

$-

 

 

$31

 

 

$9,277

 

Revenue recognized at a point in time

 

 

944

 

 

 

8,854

 

 

 

545

 

 

 

10,343

 

 

 

1,196

 

 

 

4,971

 

 

 

687

 

 

 

6,854

 

 

 

$10,019

 

 

$8,854

 

 

$629

 

 

$19,502

 

 

$10,442

 

 

$4,971

 

 

$718

 

 

$16,131

 

 

 

 

Six Months Ended June 30, 2022 (unaudited)

 

 

Six Months Ended June 30, 2021 (unaudited)

 

 

 

 

 

 

Professional sales

 

 

 

 

 

 

 

 

 

 

Professional sales

 

 

 

 

 

 

 

 

IT segment

 

 

service

segment

 

 

Equipment

segment

 

 

Total

 

 

IT segment

 

 

service

segment

 

 

Equipment

segment

 

 

Total

 

Revenue recognized over time

 

$18,309

 

 

$-

 

 

$148

 

 

$18,457

 

 

$19,271

 

 

$-

 

 

$63

 

 

$19,334

 

Revenue recognized at a point in time

 

 

1,713

 

 

 

15,461

 

 

 

881

 

 

 

18,055

 

 

 

2,425

 

 

 

9,626

 

 

 

1,266

 

 

 

13,317

 

 

 

$20,022

 

 

$15,461

 

 

$1,029

 

 

$36,512

 

 

$21,696

 

 

$9,626

 

 

$1,329

 

 

$32,651

 

 

 

 
Page 9

Table of Contents

 

Vaso Corporation and Subsidiaries

 

 Notes to Condensed Consolidated Financial Statements (unaudited)

 

Transaction Price Allocated to Remaining Performance Obligations

 

As of June 30, 2022, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $84.1 million, of which we expect to recognize revenue as follows:

 

 

 

 

(in thousands)

 

 

 

Fiscal years of revenue recognition (unaudited)

 

 

 

2022

 

 

2023

 

 

2024

 

 

Thereafter

 

Unfulfilled performance obligations

 

$29,216

 

 

$31,904

 

 

$8,103

 

 

$14,910

 

 

Contract Liabilities

 

Contract liabilities arise in our healthcare IT, VasoHealthcare, and VasoMedical businesses. In our healthcare IT 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 $445,000 and $407,000 at June 30, 2022 and December 31, 2021, 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 $27,090,000 and $24,955,000 at June 30, 2022 and December 31, 2021, 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 $2,470,000 and $1,518,000 at June 30, 2022 and December 31, 2021, 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 $7,000 and $9,000 at June 30, 2022 and December 31, 2021, 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, 2022, we recognized approximately $3.2 million and $5.7 million of revenues, respectively, that were included in our contract liability balance at April 1, 2022 and January 1, 2022, 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.

 

 
Page 10

Table of Contents

 

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 June 30,

 

 

Six months ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Revenues from external customers

 

 

 

 

 

 

 

 

 

 

 

 

IT

 

$10,019

 

 

$10,442

 

 

$20,022

 

 

$21,696

 

Professional sales service

 

 

8,854

 

 

 

4,971

 

 

 

15,461

 

 

 

9,626

 

Equipment

 

 

629

 

 

 

718

 

 

 

1,029

 

 

 

1,329

 

Total revenues

 

$19,502

 

 

$16,131

 

 

$36,512

 

 

$32,651

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IT

 

$3,677

 

 

$4,094

 

 

$7,811

 

 

$8,501

 

Professional sales service

 

 

7,180

 

 

 

3,976

 

 

 

12,486

 

 

 

7,641

 

Equipment

 

 

479

 

 

 

570

 

 

 

808

 

 

 

1,058

 

Total gross profit

 

$11,336

 

 

$8,640

 

 

$21,105

 

 

$17,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IT

 

$(918)

 

$(246)

 

$(1,057)

 

$(179)

Professional sales service

 

 

2,754

 

 

 

(47)

 

 

2,990

 

 

 

(382)

Equipment

 

 

(77)

 

 

(128)

 

 

(156)

 

 

(115)

Corporate

 

 

(197)

 

 

(301)

 

 

(570)

 

 

(586)

Total operating income (loss)

 

$1,562

 

 

$(722)

 

$1,207

 

 

$(1,262)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IT

 

$729

 

 

$415

 

 

$1,104

 

 

$901

 

Professional sales service

 

 

11

 

 

 

38

 

 

 

22

 

 

 

76

 

Equipment

 

 

65

 

 

 

75

 

 

 

132

 

 

 

147

 

Corporate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total depreciation and amortization

 

$805

 

 

$528

 

 

$1,258

 

 

$1,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IT

 

$145

 

 

$62

 

 

$296

 

 

$86

 

Professional sales service

 

 

7

 

 

 

3

 

 

 

40

 

 

 

3

 

Equipment

 

 

11

 

 

 

-

 

 

 

21

 

 

 

36

 

Corporate

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

Total cash capital expenditures

 

$163

 

 

$65

 

 

$358

 

 

$125

 

 

 

 

 

(in thousands)

 

 

 

June 30,

2022

 

 

December 31,

2021

 

 

 

(unaudited)

 

 

 

 

Identifiable Assets

 

 

 

 

 

 

IT

 

$22,346

 

 

$23,144

 

Professional sales service

 

 

11,903

 

 

 

18,718

 

Equipment

 

 

7,323

 

 

 

7,144

 

Corporate

 

 

11,906

 

 

 

3,355

 

Total assets

 

$53,478

 

 

$52,361

 

 

 
Page 11

Table of Contents

 

Vaso Corporation and Subsidiaries

 

 Notes to Condensed Consolidated Financial Statements (unaudited)

 

GE Healthcare accounted for 45% and 31% of revenue for the three-month periods ended June 30, 2022 and 2021, respectively, and 42% and 29% of revenue for the six-month periods ended June 30, 2022 and 2021, respectively. GE Healthcare also accounted for $5.0 million or 72%, and $12.3 million or 80%, of accounts and other receivables at June 30, 2022 and December 31, 2021, respectively. No other customer accounted for 10% or more of revenue.

 

NOTE E –NET INCOME PER COMMON SHARE

 

Basic earnings per common share is computed as earnings applicable to common stockholders divided by the weighted-average number of common shares outstanding for the period. Diluted earnings 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 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)

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Basic weighted average shares outstanding

 

 

172,858

 

 

 

171,438

 

 

 

172,594

 

 

 

171,139

 

Dilutive effect of unvested restricted shares

 

 

1,201

 

 

 

2,144

 

 

 

601

 

 

 

1,072

 

Diluted weighted average shares outstanding

 

 

174,059

 

 

 

173,582

 

 

 

173,195

 

 

 

172,211

 

 

The following table represents common stock equivalents that were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2022 and 2021, because the effect of their inclusion would be anti-dilutive.

 

 

 

 

(in thousands)

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Restricted common stock grants

 

 

2

 

 

 

9

 

 

 

2,249

 

 

 

9

 

 

NOTE F – ACCOUNTS AND OTHER RECEIVABLES, NET

 

The following table presents information regarding the Company’s accounts and other receivables as of June 30, 2022 and December 31, 2021:

 

 

 

 

(in thousands)

 

 

 

June 30,

2022

 

 

December 31,

2021

 

 

 

(unaudited)

 

 

 

 

Trade receivables

 

$11,269

 

 

$21,197

 

Unbilled receivables

 

 

1,837

 

 

 

-

 

Allowance for doubtful accounts and commission adjustments

 

 

(6,270)

 

 

(5,804)

Accounts and other receivables, net

 

$6,836

 

 

$15,393

 

 

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.

 

 
Page 12

Table of Contents

 

Vaso Corporation and Subsidiaries

 

 Notes to Condensed Consolidated Financial Statements (unaudited)

 

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,

2022

 

 

December 31,

 2021

 

 

 

(unaudited)

 

 

 

 

Raw materials

 

$754

 

 

$744

 

Work in process

 

 

55

 

 

 

4

 

Finished goods

 

 

788

 

 

 

399

 

 

 

$1,597

 

 

$1,147

 

 

The Company maintained reserves for slow moving inventories of $163,000 and $165,000 at June 30, 2022 and December 31, 2021, respectively.

 

NOTE H – GOODWILL AND OTHER INTANGIBLES

 

Goodwill of $14,375,000 is allocated to the IT segment. The remaining $1,280,000 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, 2022 and December 31, 2021. The components of the change in goodwill are as follows:

 

 

 

 

(in thousands)

 

 

 

Six months ended

 

 

Year ended

 

 

 

June 30,

2022

 

 

December 31,

2021

 

 

 

(unaudited)

 

 

 

 

Beginning of period

 

$15,722

 

 

$15,688

 

Foreign currency translation adjustment

 

 

(67)

 

 

34

 

End of period

 

$15,655

 

 

$15,722

 

 

 
Page 13

Table of Contents

 

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, 2022

 

 

December 31, 2021

 

 

 

(unaudited)

 

 

 

Customer-related

 

 

 

 

 

 

Costs

 

$5,831

 

 

$5,831

 

Accumulated amortization

 

 

(4,418)

 

 

(4,279)

 

 

 

1,413

 

 

 

1,552

 

 

 

 

 

 

 

 

 

 

Patents and Technology

 

 

 

 

 

 

 

 

Costs

 

 

1,894

 

 

 

1,894

 

Accumulated amortization

 

 

(1,859)

 

 

(1,754)

 

 

 

35

 

 

 

140

 

 

 

 

 

 

 

 

 

 

Software

 

 

 

 

 

 

 

 

Costs

 

 

2,351

 

 

 

3,459

 

Accumulated amortization

 

 

(2,064)

 

 

(3,110)

 

 

 

287

 

 

 

349

 

 

 

 

 

 

 

 

 

 

 

 

$1,735

 

 

$2,041

 

 

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 $164,000 and $214,000 for the three months ended June 30, 2022 and 2021, respectively and $315,000 and $428,000 for the six months ended June 30, 2022 and 2021, respectively.

 

Amortization of intangibles for the next five years is:

 

 

 

 

(in thousands)

 

Years ending December 31,

 

(unaudited)

 

Remainder of 2022

 

$236

 

2023

 

 

340

 

2024

 

 

271

 

2025

 

 

200

 

2026

 

 

145

 

 

 

$1,192

 

 

 
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 Notes to Condensed Consolidated Financial Statements (unaudited)

 

NOTE I – OTHER ASSETS, NET

 

Other assets, net consist of the following at June 30, 2022 and December 31, 2021:

 

 

 

 

(in thousands)

 

 

 

June 30,

2022

 

 

December 31,

2021

 

 

 

(unaudited)

 

 

 

Deferred commission expense - noncurrent

 

$2,168

 

 

$2,018

 

Trade receivables - noncurrent

 

 

335

 

 

 

368

 

Other, net of allowance for loss on loan receivable of  $412 at June 30, 2022 and December 31, 2021

 

 

71

 

 

 

60

 

 

 

$2,574

 

 

$2,446

 

 

NOTE J – ACCRUED EXPENSES AND OTHER LIABILITIES

 

Accrued expenses and other liabilities consist of the following at June 30, 2022 and December 31, 2021:

 

 

 

 

(in thousands)

 

 

 

June 30,

 2022

 

 

December 31,

2021

 

 

 

(unaudited)

 

 

 

 

Accrued compensation

 

$1,205

 

 

$2,397

 

Accrued expenses - other

 

 

1,275

 

 

 

1,799

 

Other liabilities

 

 

4,232

 

 

 

3,293

 

 

 

$6,712

 

 

$7,489

 

 

 
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 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 June 30,

 

 

Six months ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Deferred revenue at beginning of period

 

$26,954

 

 

$18,484

 

 

$24,965

 

 

$17,704

 

Net additions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred extended service contracts

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1)

Deferred commission revenues

 

 

3,575

 

 

 

3,092

 

 

 

8,267

 

 

 

5,705

 

Recognized as revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred extended service contracts

 

 

(1)

 

 

(1)

 

 

(3)

 

 

(2)

Deferred commission revenues

 

 

(3,431)

 

 

(1,908)

 

 

(6,132)

 

 

(3,739)

Deferred revenue at end of period

 

 

27,097

 

 

 

19,667

 

 

 

27,097

 

 

 

19,667

 

Less: current portion

 

 

18,583

 

 

 

12,613

 

 

 

18,583

 

 

 

12,613

 

Long-term deferred revenue at end of period

 

$8,514

 

 

$7,054

 

 

$8,514

 

 

$7,054

 

 

NOTE L – RELATED-PARTY TRANSACTIONS

 

The Company recorded interest charges aggregating approximately $36,000 and $90,000 for the three and six-month periods ended June 30, 2021, respectively, payable to MedTechnology Investments, LLC (“MedTech”) pursuant to its promissory notes (“Notes”). The MedTech Notes were used in 2015 to partially fund the purchase of NetWolves, and, through several principal payments made in 2020 and 2021, were repaid in full in December 2021.

 

David Lieberman, the Vice Chairman of the Company’s Board of Directors, is a practicing attorney in the State of New York and a senior partner at the law firm of Beckman Lieberman & Associates LLP, which performs certain legal services for the Company. Fees of approximately $48,000 were billed by the firm for both of the three-month periods ended June 30, 2022 and 2021, and fees of approximately $95,000 were billed by the firm for both of the six-month periods ended June 30, 2022 and 2021. No amounts were outstanding at June 30, 2022 and 2021.

 

The Company uses the equity method to account for its interest in EECP Global as it has the ability to exercise significant influence over the entity and reports its share of EECP Global operations in Other Income (Expense) on its condensed consolidated statements of operations. For the three months ended June 30, 2022 and 2021, the Company’s share of EECP Global’s loss was approximately $71,000 and $33,000, respectively, and for the six months ended June 30, 2022 and 2021, the Company’s share of EECP Global’s loss was approximately $55,000 and $20,000, respectively, and included in Other (Expense) Income in its condensed consolidated statements of operations. At June 30, 2022, the Company recorded a net receivable from related parties of approximately $322,000 on its condensed consolidated balance sheet for amounts due from EECP Global for fees and cost reimbursements net of amounts due to EECP Global for receivables collected on its behalf.

 

 
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 Notes to Condensed Consolidated Financial Statements (unaudited)

 

NOTE M – COMMITMENTS AND CONTINGENCIES

 

Litigation

 

The Company is currently, and has been in the past, a party to various legal proceedings, primarily employee related matters, incident to its business. The Company believes that the outcome of all pending legal proceedings in the aggregate is unlikely to have a material adverse effect on the business or consolidated financial condition of the Company.

 

Sales Representation Agreement

 

In October 2021, the Company concluded an amendment of the GEHC Agreement with GEHC, originally signed on May 19, 2010 and previously extended in 2012, 2015 and 2017. The amendment further extended the term of the agreement through December 31, 2026. Under the agreement, VasoHealthcare is the exclusive representative for the sale of select GE Healthcare diagnostic imaging products to certain customer segments/accounts in the 48 contiguous states of the United States and the District of Columbia. The agreement may be terminated by GE Healthcare with cause, which includes VasoHealthcare’s not materially achieving certain sales goals, not maintaining a minimum number of sales representatives, or not meeting various legal and GEHC policy requirements. The agreement may also be terminated by GE Healthcare without cause but subject to certain conditions.

 

Employment Agreements

 

On May 10, 2019, the Company modified its Employment Agreement with its President and Chief Executive Officer, Dr. Jun Ma, to provide for a five-year term with extensions, unless earlier terminated by the Company, but in no event can it extend beyond May 31, 2026. The Employment Agreement provides for annual compensation of $500,000. Dr. Ma shall be eligible to receive a bonus for each fiscal year during the employment term. The amount and the occasion for payment of such bonus, if any, shall be at the discretion of the Board of Directors. Dr. Ma shall also be eligible for an award under any long-term incentive compensation plan and grants of options and awards of shares of the Company's stock, as determined at the Board of Directors' discretion. The Employment Agreement further provides for reimbursement of certain expenses, and certain severance benefits in the event of termination prior to the expiration date of the Employment Agreement.

 

Operating Leases

 

The Company executed amendments to its facility leases in New York and Florida in March 2022 and June 2022, respectively. for three additional years in New York and two additional years in Florida, with rates increasing 3% per annum, and recorded initial right-of-use assets of approximately $207,000 and $378,000, respectively.  In addition, the Company entered into operating leases ranging from two to four years for additional computer equipment and automobiles at various times in 2022 recording initial right-of-use assets of approximately $141,000 and $346,000, respectively.

 

 
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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Except for historical information contained in this report, the matters discussed are forward-looking statements that involve risks and uncertainties. When used in this report, words such as “anticipates”, “believes”, “could”, “estimates”, “expects”, “may”, “plans”, “potential” and “intends” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company’s management, as well as assumptions made by and information currently available to the Company’s management. Among the factors that could cause actual results to differ materially are the following: the effect of business and economic conditions, including the current COVID-19 pandemic which has already adversely affected operating results; the effect of the dramatic changes taking place in IT and healthcare; the impact of competitive procedures and products and their pricing; medical insurance reimbursement policies; unexpected manufacturing or supplier problems; unforeseen difficulties and delays in product development programs; the actions of regulatory authorities and third-party payers in the United States and overseas; continuation of the GEHC agreement and the risk factors reported from time to time in the Company’s SEC reports, including its recent report on Form 10-K. The Company undertakes no obligation to update forward-looking statements as a result of future events or developments.

 

Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Vaso” or “management” refer to Vaso Corporation and its subsidiaries

 

General Overview

 

COVID-19 Pandemic

 

The COVID-19 pandemic has had and will continue to have a significant impact on the economy of the United States and the world, and it is anticipated that its negative impact to the Company’s financial condition and results of operations will continue. At this time, we cannot reasonably estimate what the total impact may be. The pandemic has resulted in workforce and travel restrictions and created business disruptions in supply chain, production and demand across many business sectors. For Vaso Corporation, we believe that significant uncertainty will continue to remain in all our businesses for the remainder of 2022 and beyond.

 

We have taken significant steps in our efforts to protect our workforce and our clients. Many of our employees have been working remotely and we are implementing plans to reopen our work sites consistent with the guidelines promulgated by the CDC and respective state governments. In addition, the Company received a $3.6 million loan under the Paycheck Protection Program of the CARES Act. This loan was used to principally cover our payroll costs for a period of time as specified by the rules, thereby allowing us to maintain our workforce and continue to provide services and solutions to our clients. In June 2021, the loan, as well as accrued interest, was forgiven in its entirety by the Small Business Administration.

 

Our Business Segments

 

Vaso Corporation (“Vaso”) was incorporated in Delaware in July 1987. We principally operate in three distinct business segments in the healthcare and information technology industries. We manage and evaluate our operations, and report our financial results, through these three business segments.

 

 

·

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.

 

 
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Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based upon the accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Although these estimates are based on our knowledge of current events, our actual amounts and results could differ from those estimates. The estimates made are based on historical factors, current circumstances, and the experience and judgment of our management, who continually evaluate the judgments, estimates and assumptions and may employ outside experts to assist in the evaluations.

 

Certain of our accounting policies are deemed “critical”, as they are both most important to the financial statement presentation and require management’s most difficult, subjective or complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a discussion of our critical accounting policies, see Note B to the condensed consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 31, 2022.

 

Results of Operations – For the Three Months Ended June 30, 2022 and 2021

 

Revenues

 

Total revenue for the three months ended June 30, 2022 and 2021 was $19,502,000 and $16,131,000, respectively, representing an increase of $3,371,000, or 21% year-over-year. On a segment basis, revenue in the professional sales services segment increased $3,883,000 while revenue in the IT and equipment segments decreased $423,000 and $89,000, respectively.

 

Revenue in the IT segment for the three months ended June 30, 2022 was $10,019,000 compared to $10,442,000 for the three months ended June 30, 2021, a decrease of $423,000, or 4%, of which $481,000 resulted from lower NetWolves revenues, partially offset by $58,000 higher revenues in the healthcare IT business. Our monthly recurring revenue in the IT segment accounted for $9,075,000 or 91% of the segment revenue in the second quarter of 2022, and $9,246,000 or 89% of the segment revenue for the same quarter last year (see Note C).

 

Commission revenues in the professional sales service segment were $8,854,000 in the second quarter of 2022, an increase of $3,883,000, or 78%, as compared to $4,971,000 in the same quarter of 2021. The increase in commission revenues was due primarily to both an increase in the volume of underlying equipment delivered by GEHC during the period and a higher blended commission rate applicable to such deliveries. The Company only recognizes commission revenue when the underlying equipment has been accepted at the customer site in accordance with the specific terms of the sales agreement. Consequently, amounts billable, or billed and received, under the agreement with GE Healthcare prior to customer acceptance of the equipment are recorded as deferred revenue in the condensed consolidated balance sheet. As of June 30, 2022, $27,090,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $8,511,000 was long-term. As of June 30, 2021, $19,655,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $7,046,000 was long-term. The increase in deferred revenue is principally due to an increase in new orders booked.

 

Revenue in the equipment segment decreased by $89,000, or 12%, to $629,000 for the three-month period ended June 30, 2022 from $718,000 for the same period of the prior year, principally due to lower equipment revenues in China as impacted by the COVID-19 lockdown.

 

Gross Profit

 

Gross profit for the three months ended June 30, 2022 and 2021 was $11,336,000, or 58% of revenue, and $8,640,000, or 54% of revenue, respectively, representing an increase of $2,696,000, or 31% year-over-year. On a segment basis, gross profit in the professional sales service segment increased $3,204,000, or 81%, while gross profit in the IT and equipment segments decreased $417,000, or 10%; and $91,000, or 16%, respectively.

 

 
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IT segment gross profit for the three months ended June 30, 2022 was $3,677,000, or 37% of the segment revenue, compared to $4,094,000, or 39% of the segment revenue for the three months ended June 30, 2021. The year-over-year decrease of $417,000, or 10%, was primarily a result of lower sales volume in the NetWolves business, partially offset by higher sales volume and higher margin sales mix in the healthcare IT business.

 

Professional sales service segment gross profit was $7,180,000, or 81% of segment revenue, for the three months ended June 30, 2022 as compared to $3,976,000, or 80% of the segment revenue, for the three months ended June 30, 2021, reflecting an increase of $3,204,000, or 81%. The increase in absolute dollars was primarily due to higher commission revenue as a result of a higher blended commission rate and higher volume of GEHC equipment delivered during the second quarter of 2022 than in the same period last year. Cost of commissions in the professional sales service segment of $1,674,000 and $995,000, for the three months ended June 30, 2022 and 2021, respectively, reflected commission expense associated with recognized commission revenues.

 

Commission expense associated with short-term deferred revenue is recorded as short-term deferred commission expense, or with long-term deferred revenue as part of other assets, on the balance sheet until the related commission revenue is recognized.

 

Equipment segment gross profit decreased to $479,000, or 76% of segment revenues, for the second quarter of 2022 compared to $570,000, or 79% of segment revenues, for the same quarter of 2021. The $91,000, or 16%, decrease in gross profit was the result of lower equipment revenue during the quarter compounded with higher material and labor costs.  

 

Operating Income (Loss)

 

Operating income (loss) for the three months ended June 30, 2022 and 2021 was $1,562,000 and $(722,000), respectively, representing an increase of $2,284,000, due primarily to the increase in gross profit. On a segment basis, the IT segment recorded an operating loss of $918,000 in the second quarter of 2022 as compared to an operating loss of $246,000 in the same period of 2021; the equipment segment recorded an operating loss of $77,000 in the second quarter of 2022 as compared to an operating loss of $128,000 in the same period of 2021; and the professional sales service segment recorded operating income of $2,754,000 in the second quarter of 2022 as opposed to an operating loss of $47,000 in the same period of 2021.

 

Operating loss in the IT segment increased to $918,000 for the three-month period ended June 30, 2022 as compared to an operating loss of $246,000 in the same period of 2021, due to lower gross profit and higher selling, general, and administrative (“SG&A”) costs. Operating income in the professional sales service segment increased by $2,801,000 to $2,754,000 in the three-month period ended June 30, 2022 as compared to a $47,000 operating loss in the same period of 2021, due to higher gross profit partially offset by higher SG&A costs. The equipment segment reported an operating loss of $77,000 in the second quarter of 2022, compared to an operating loss of $128,000 in the second quarter 2021, an improvement of $51,000. The decrease in operating loss was due to lower SG&A and R&D costs partially offset by lower gross profit.

 

SG&A costs for the three months ended June 30, 2022 and 2021 were $9,604,000 and $9,192,000, respectively, representing an increase of $412,000, or 5% year-over-year. On a segment basis, SG&A costs in the IT segment increased by $257,000 in the second quarter of 2022 from the same quarter of the prior year due to higher personnel costs; SG&A costs in the professional sales service segment increased $403,000 due mainly to higher travel and personnel costs; and SG&A costs in the equipment segment decreased $142,000 due mainly to lower marketing and personnel costs. Corporate costs not allocated to segments decreased $106,000 due mainly to lower accounting and director fees. 

 

Research and development (“R&D”) expenses were $170,000, or 1% of revenues, for the second quarters of both 2021 and 2022.

 

 
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Adjusted EBITDA

 

We define Adjusted EBITDA (earnings (loss) before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure, as net income (loss), plus interest expense (income), net; tax expense; depreciation and amortization; and non-cash expenses for share-based compensation. Adjusted EBITDA is a metric that is used by the investment community for comparative and valuation purposes. We disclose this metric in order to support and facilitate the dialogue with research analysts and investors.

 

Adjusted EBITDA is not a measure of financial performance under U.S. GAAP and should not be considered a substitute for operating income, which we consider to be the most directly comparable U.S. GAAP measure. Adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, you should not consider Adjusted EBITDA in isolation, or as a substitute for net income or other consolidated income statement data prepared in accordance with U.S. GAAP. Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

 

A reconciliation of net income to Adjusted EBITDA is set forth below:

  

 

 

(in thousands)

 

 

 

Three months ended June 30,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

(unaudited)

 

Net income

 

$1,495

 

 

$2,780

 

Interest expense (income), net

 

 

5

 

 

 

78

 

Income tax expense

 

 

18

 

 

 

50

 

Depreciation and amortization

 

 

805

 

 

 

528

 

Share-based compensation

 

 

6

 

 

 

8

 

Adjusted EBITDA

 

$2,329

 

 

$3,444

 

 

Adjusted EBITDA decreased by $1,115,000, to $2,329,000 in the quarter ended June 30, 2022 from $3,444,000 in the quarter ended June 30, 2021. The decrease was attributable mainly to the decrease in net income arising from the non-recurring $3,646,000 gain on forgiveness of the PPP loan and interest in the second quarter of 2021, partially offset by the increase in depreciation and amortization.

 

Interest and Other Income (Expense)

 

Interest and other income (expense) for the three months ended June 30, 2022 was $(49,000) as compared to $3,552,000 for the corresponding period of 2021. The decrease in interest and other income (expense) was due primarily to the non-recurring $3,646,000 gain on forgiveness of the PPP loan and interest in the three months ended June 30, 2021.

 

Income Tax Expense

 

For the three months ended June 30, 2022, we recorded income tax expense of $18,000 as compared to $50,000 for the corresponding period of 2021. The $32,000 decrease arose mainly from lower tax expense in our China operations.

 

Net Income

 

Net income for the three months ended June 30, 2022 was $1,495,000 as compared to net income of $2,780,000 for the three months ended June 30, 2021, representing a decrease of $1,285,000. Income per share of $0.01 and $0.02 was recorded in the three-month periods ended June 30, 2022 and 2021, respectively. The principal cause of the decrease in net income is because the Company recorded the PPP loan forgiveness in the three months ended June 30, 2021, partially offset by higher operating income in the current year quarter.

 

 
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Results of Operations – For the Six Months Ended June 30, 2022 and 2021

 

Revenues

 

Total revenue for the six months ended June 30, 2022 and 2021 was $36,512,000 and $32,651,000, respectively, representing an increase of $3,861,000, or 12% year-over-year. On a segment basis, revenue in the professional sales service segment increased $5,835,000 while revenue in the IT and equipment segments decreased $1,674,000 and $300,000, respectively.

 

Revenue in the IT segment for the six months ended June 30, 2022 was $20,022,000 compared to $21,696,000 for the six months ended June 30, 2021, a decrease of $1,674,000, or 8%, of which $1,572,000 resulted from lower NetWolves revenue and $102,000 from lower healthcare IT revenue. Our monthly recurring revenue in the IT segment accounted for $18,309,000 or 91% of the segment revenue in the first half of 2022, and $19,271,000 or 89% of the segment revenue for the same period last year (see Note C).

 

Commission revenues in the professional sales service segment were $15,461,000 in the first half of 2022, an increase of $5,835,000, or 61%, as compared to $9,626,000 in the first half of 2021. The increase in commission revenues was due primarily to both an increase in the volume of underlying equipment delivered by GEHC during the period and a higher blended commission rate applicable to such deliveries. The Company recognizes commission revenue when the underlying equipment has been accepted at the customer site in accordance with the specific terms of the sales agreement. Consequently, amounts billable, or billed and received, under the agreement with GE Healthcare prior to customer acceptance of the equipment are recorded as deferred revenue in the condensed consolidated balance sheet. As of June 30, 2022, $27,090,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $8,511,000 was long-term. As of June 30, 2021, $19,655,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $7,046,000 was long-term. The increase in deferred revenue is principally due to an increase in new orders booked.

 

Revenue in the equipment segment decreased by $300,000, or 23%, to $1,029,000 for the six-month period ended June 30, 2022 from $1,329,000 for the same period of the prior year, principally due to lower equipment deliveries in our China operations.

 

Gross Profit

 

Gross profit for the six months ended June 30, 2022 and 2021 was $21,105,000, or 58% of revenue, and $17,200,000, or 53% of revenue, respectively, representing an increase of $3,905,000, or 23% year-over-year. On a segment basis, gross profit in the professional sales service increased $4,845,000, or 63%, while gross profit in the IT and equipment segments decreased $690,000, or 8%, and $250,000, or 24%, respectively.

 

IT segment gross profit for the six months ended June 30, 2022 was $7,811,000, or 39% of the segment revenue, compared to $8,501,000, or 39% of the segment revenue for the six months ended June 30, 2021. The year-over-year decrease of $690,000, or 8%, was primarily a result of lower revenues at NetWolves, partially offset by higher margin sales mix in the healthcare IT business.

 

Professional sales service segment gross profit was $12,486,000, or 81% of segment revenue, for the six months ended June 30, 2022 as compared to $7,641,000, or 79% of the segment revenue, for the six months ended June 30, 2021, reflecting an increase of $4,845,000, or 63%. The increase in absolute dollars was primarily due to higher commission revenue as a result of a higher blended commission rate and higher volume of GEHC equipment delivered during the first half of 2022 than in the same period last year. Cost of commissions in the professional sales service segment of $2,975,000 and $1,985,000, for the six months ended June 30, 2022 and 2021, respectively, reflected commission expense associated with recognized commission revenues.

 

Commission expense associated with short-term deferred revenue is recorded as short-term deferred commission expense, or with long-term deferred revenue as part of other assets, on the balance sheet until the related commission revenue is recognized.

 

Equipment segment gross profit decreased to $808,000, or 79% of segment revenues, for the first half of 2022 compared to $1,058,000, or 80% of segment revenues, for the same half of 2021. The $250,000, or 24%, decrease in gross profit was primarily the result of a decrease in equipment sales and an increase in material and labor costs in our China operations during the first half of 2022.

 

 
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Operating Income (Loss)

 

Operating income (loss) for the six months ended June 30, 2022 and 2021 was $1,207,000 and $(1,262,000), respectively, representing an improvement of $2,469,000, due primarily to higher gross profit, partially offset by higher SG&A costs. On a segment basis, the IT segment recorded an operating loss of $1,057,000 in the first half of 2022 as compared to an operating loss of $179,000 in the same period of 2021; the professional sales service segment recorded operating income of $2,990,000 in the first half of 2022 as compared to an operating loss of $382,000 in the same period of 2021; and the equipment segment recorded an operating loss of $156,000 in the first half of 2022 as compared to an operating loss of $115,000 in the same period of 2021 .

 

Operating loss in the IT segment increased to $1,057,000 for the six-month period ended June 30, 2022 as compared to an operating loss of $179,000 in the same period of 2021, due to lower gross profit and higher selling, general, and administrative (“SG&A”) costs. The professional sales service segment reported operating income of $2,990,00 in the first half of 2022, an increase of $3,372,000 from an operating loss of $382,000 in the six-month period ended June 30, 2021, due to higher gross profit partially offset by higher SG&A costs. The equipment segment reported an operating loss of $156,000 in the first half of 2022, compared to an operating loss of $115,000 in the first half 2021, an increase of $41,000 due to lower gross profit, partially offset offset by lower SG&A costs.

 

SG&A costs for the six months ended June 30, 2022 and 2021 were $19,606,000 and $18,148,000, respectively, representing an increase of $1,458,000, or 8% year-over-year. On a segment basis, SG&A costs in the IT segment increased by $243,000 in the first half of 2022 from the same half of the prior year due to higher personnel costs; SG&A costs in the professional sales service segment increased by $1,472,000 due to higher travel and personnel costs; and SG&A costs in the equipment segment decreased by $240,000 due mainly to lower personnel costs. Corporate costs not allocated to segments decreased $17,000 due mainly to lower accounting and director fees. 

 

Research and development (“R&D”) expenses were $292,000, or 1% of revenues, for the first half of 2022, a decrease of $22,000, or 7%, from $314,000, or 1% of revenues, for the first half of 2021. The decrease is primarily attributable to lower product development expenses in the IT segment.

 

Adjusted EBITDA

 

We define Adjusted EBITDA (earnings (loss) before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure, as net income (loss), plus interest expense (income), net; tax expense; depreciation and amortization; and non-cash expenses for share-based compensation. Adjusted EBITDA is a metric that is used by the investment community for comparative and valuation purposes. We disclose this metric in order to support and facilitate the dialogue with research analysts and investors.

 

Adjusted EBITDA is not a measure of financial performance under U.S. GAAP and should not be considered a substitute for operating income, which we consider to be the most directly comparable U.S. GAAP measure. Adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, you should not consider Adjusted EBITDA in isolation, or as a substitute for net income or other consolidated income statement data prepared in accordance with U.S. GAAP. Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

 

 
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A reconciliation of net income to Adjusted EBITDA is set forth below:

 

 

 

(in thousands)

 

 

 

Six months ended June 30,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

(unaudited)

 

Net income

 

$1,151

 

 

$2,137

 

Interest expense (income), net

 

 

24

 

 

 

199

 

Income tax expense

 

 

30

 

 

 

68

 

Depreciation and amortization

 

 

1,258

 

 

 

1,124

 

Share-based compensation

 

 

13

 

 

 

17

 

Adjusted EBITDA

 

$2,476

 

 

$3,545

 

 

Adjusted EBITDA decreased by $1,069,000 to $2,476,000 in the period ended June 30, 2022 from $3,545,000 in the period ended June 30, 2021. The decrease was primarily attributable to the $3,646,000 non-recurring gain on PPP loan and interest forgiveness in the six months ended June 30, 2021, partially offset by higher depreciation and amortization.

 

Interest and Other Income (Expense)

 

Interest and other income (expense) for the six months ended June 30, 2022 was $(26,000) as compared to $3,467,000 for the corresponding period of 2021. The decrease in interest and other income was due primarily to the PPP loan and interest forgiveness in the six months ended June 30, 2021.

 

Income Tax Expense

 

We recorded income tax expense of $30,000 and $68,000 for the six-month periods ended June 30, 2022 and 2021, respectively. The decrease arose mainly from lower tax expense in our China operations.

 

Net Income

 

Net income for the six months ended June 30, 2022 was $1,151,000 as compared to net income of $2,137,000 for the six months ended June 30, 2021, representing a decrease of $986,000, or 46%. Income per share of $0.01 was recorded in the six-month periods ended June 30, 2022 and 2021, respectively. The principal cause of the decrease in net income is the PPP loan forgiveness in the six months ended June 30, 2021, partially offset by higher operating results in the six months ended June 30, 2022.

 

Liquidity and Capital Resources

 

Cash and Cash Flow

 

We have financed our operations from working capital. At June 30, 2022, we had cash and cash equivalents of $15,436,000 and negative working capital of $1,483,000, compared to cash and cash equivalents of $6,025,000 and negative working capital of $3,197,000 at December 31, 2021. $15,007,000 in negative working capital at June 30, 2022 is attributable to the net balance of deferred commission expense and deferred revenue. These are non-cash expense and revenue items and have no impact on future cash flows.

 

 
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Cash provided by operating activities was $9,731,000, which consisted of net income after adjustments to reconcile net income to net cash of $2,634,000 and cash provided by operating assets and liabilities of $7,097,000, during the six months ended June 30, 2022, compared to cash provided by operating activities of $5,593,000 for the same period in 2021. The changes in the account balances primarily reflect a decrease in accounts and other receivables of $8,376,000 and an increase in deferred revenue of $2,132,000, partially offset by decreases in accrued commissions, accrued expenses, and accounts payable of $1,040,000, $941,000 and $628,000, respectively.

 

Cash used in investing activities during the six-month period ended June 30, 2022 was $204,000 attributed to $358,000 used for the purchase of equipment and software, offset by the redemption of $154,000 in short-term investments.

 

Cash used in financing activities during the six-month period ended June 30, 2022 was $125,000 for the repayment of notes payable and finance lease obligations.

 

Liquidity

 

The Company expects to generate sufficient cash flow from operations to satisfy its obligations for at least the next twelve months.

 

It is anticipated that the COVID-19 pandemic may continue to adversely impact our operations during and beyond the remaining quarters of 2022, depending on the duration of the pandemic and the timing and success of the continued reopening of the economy.

 

 
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ITEM 4 - CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures reporting as promulgated under the Exchange Act is defined as controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Our CEO and our CFO have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2022 and have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2022.               

 

Changes in Internal Control Over Financial Reporting

 

                There were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 
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PART II - OTHER INFORMATION

 

ITEM 6 – EXHIBITS

 

Exhibits

 

31

Certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to Rules 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

32

Certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 
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                In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.