UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For
the quarterly period ended
For the transition period from _______________ to ______________
Commission
File Number:
(Exact name of registrant as specified in its charter)
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| incorporation or organization) | Identification Number) |
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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
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has been subject to such filing requirements for the past 90 days.
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
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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 ☐ | Smaller Reporting Company | ||||
| Emerging Growth Company |
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Securities
registered pursuant to Section 12 (b) of the Act:
Number
of Shares Outstanding of Common Stock, $.001 Par Value, at November 10, 2024 –
Vaso Corporation and Subsidiaries
INDEX
Page i
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,
2024 | December 31,
2023 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments | ||||||||
| Accounts and other receivables, net of an allowance for credit losses and commission adjustments of $ | ||||||||
| Receivables due from related parties | ||||||||
| Inventories, net | ||||||||
| Deferred commission expense | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net of accumulated depreciation of $ | ||||||||
| Operating lease right of use assets | ||||||||
| Goodwill | ||||||||
| Intangibles, net | ||||||||
| Other assets, net | ||||||||
| Investment in EECP Global | ||||||||
| Deferred tax assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued commissions | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Finance lease liabilities - current | ||||||||
| Operating lease liabilities - current | ||||||||
| Sales tax payable | ||||||||
| Deferred revenue - current portion | ||||||||
| Notes payable - current portion | ||||||||
| Due to related party | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES | ||||||||
| Notes payable, net of current portion | ||||||||
| Finance lease liabilities, net of current portion | - | |||||||
| Operating lease liabilities, net of current portion | ||||||||
| Deferred revenue, net of current portion | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE N) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock, at cost, | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 1
Vaso Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (unaudited)
(in thousands, except per share data)
| Three
Months ended September 30, | Nine
Months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | ||||||||||||||||
| Managed IT systems and services | $ | $ | $ | $ | ||||||||||||
| Professional sales services | ||||||||||||||||
| Equipment sales and services | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Cost of managed IT systems and services | ||||||||||||||||
| Cost of professional sales services | ||||||||||||||||
| Cost of equipment sales and services | ||||||||||||||||
| Total cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Business combination transaction costs | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||||||
| Other (expense) income | ||||||||||||||||
| Interest and financing costs | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest and other income, net | ||||||||||||||||
| Loss on disposal of fixed assets | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other income, net | ||||||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income | ||||||||||||||||
| Foreign currency translation gain (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Income (loss) per common share | ||||||||||||||||
| - basic and diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| - basic | ||||||||||||||||
| - diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 2
Vaso Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
(in thousands)
| Common Stock | Treasury Stock | Additional Paid-in- | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Equity | |||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | ( | ) | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | ||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||
| Shares withheld for employee tax liability | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||
| Shares withheld for employee tax liability | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Balance at January 1, 2024 | $ | ( | ) | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Retirement of treasury shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||
| Shares withheld for employee tax liability | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 3
Vaso Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
| Nine months ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Loss from investment in EECP Global | ||||||||
| Provision for credit losses and commission adjustments | ||||||||
| Write-off of Achari loan | ||||||||
| Share-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts and other receivables | ||||||||
| Inventories | ||||||||
| Deferred commission expense | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other assets, net | ||||||||
| Accounts payable | ||||||||
| Accrued commissions | ( | ) | ( | ) | ||||
| Accrued expenses and other liabilities | ( | ) | ( | ) | ||||
| Sales tax payable | ( | ) | ||||||
| Deferred revenue | ||||||||
| Due to related party | ( | ) | ( | ) | ||||
| Other long-term liabilities | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities | ||||||||
| Purchases of equipment and software | ( | ) | ( | ) | ||||
| Loan to Achari | ( | ) | ||||||
| Purchases of short-term investments | ( | ) | ||||||
| Redemption of short-term investments | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Payroll taxes paid by withholding shares | ( | ) | ( | ) | ||||
| Repayment of notes payable and finance lease obligations | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate differences on cash and cash equivalents | ( | ) | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| Cash and cash equivalents - beginning of period | ||||||||
| Cash and cash equivalents - end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Initial recognition of operating lease right of use asset and liability | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 4
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 GE Healthcare (“GEHC”) into the healthcare provider middle market; and |
| ● | Equipment segment, primarily focuses on the design, manufacture, sale and service of proprietary medical devices and software, operating through a wholly-owned subsidiary VasoMedical, Inc., which in turn operates through Vasomedical Solutions, Inc. for domestic business and Vasomedical Global Corp. for international business, respectively. |
VasoTechnology
Vaso Technology, 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, Vaso Healthcare IT. 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 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 and ultrasound systems. | |
| ● | GEHC service agreements for the above equipment. | |
| ● | GEHC training services for use of the above equipment. | |
| ● | GEHC and third-party financial services. |
Page 5
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.
Termination of Achari Business Combination Agreement
As
previously announced, the Company entered into a business combination agreement (the “Business Combination Agreement”), dated
as of December 6, 2023, with Achari Ventures Holdings Corp. I, a Delaware corporation (“Achari”), and Achari
Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Achari. On September 17, 2024, Vaso
provided to Achari a notice of termination of the Business Combination Agreement. Business combination transaction costs presented in the Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss) include investment banking and other advisory and legal costs incurred associated with the Business Combination Agreement,
as well as the write-off of $
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, 2023, as filed with the SEC on April 1, 2024.
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.
Page 6
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Correction of Prior Period Financial Statements
We record commission revenue for certain products in our professional sales service segment based on GEHC’s reporting and payment of such commissions to us. In late August 2023, GEHC informed the Company that its calculations for such products were partially inaccurate and had remitted excess commissions. The Company has taken immediate steps to implement additional internal control procedures whereby GEHC will provide additional information sufficient to assess the accuracy of such commission payments going forward. We assessed the materiality of this misstatement on prior periods’ financial statements in accordance with SEC Staff Accounting Bulletin (“SAB”) Topic 1.M, Materiality, codified in Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections, (“ASC 250”) and concluded that the misstatements were not material to the prior annual or interim periods.
| Consolidated Statement of Changes in Stockholders’ Equity | ||||||||||||||||||||||||
| Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||
| (in thousands) | As Reported | Adjustment | As Revised | As Reported | Adjustment | As Revised | ||||||||||||||||||
| Balance at January 1, 2023 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||
Recently Issued Accounting Standards To Be Adopted
In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740), Improvement to Income Tax Disclosures, which requires enhanced income tax disclosures, including disaggregation of information in the rate reconciliation table and disaggregated information related to income taxes paid. The ASU is effective for annual reporting periods beginning with the year ending December 31, 2025. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its Consolidated Financial Statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvement to Reportable Segment Disclosures. This ASU enhances disclosures required for reportable segments in both annual and interim consolidated financial statements. The ASU, which requires retrospective application, is effective for annual reporting periods beginning with the year ending December 31, 2024, and interim periods beginning with the three months ending March 31, 2025. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its Consolidated Financial Statements.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform with the current year presentation.
Page 7
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE C – REVENUE RECOGNITION
Disaggregation of Revenue
| (in thousands) | ||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||
| Professional sales service | Equipment | Professional sales service | Equipment | |||||||||||||||||||||||||||||
| IT segment | segment | segment | Total | IT segment | segment | segment | Total | |||||||||||||||||||||||||
| Network services | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Software sales and support | ||||||||||||||||||||||||||||||||
| Commissions | ||||||||||||||||||||||||||||||||
| Medical equipment sales | ||||||||||||||||||||||||||||||||
| Medical equipment service | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||
| Professional sales service | Equipment | Professional sales service | Equipment | |||||||||||||||||||||||||||||
| IT segment | segment | segment | Total | IT segment | segment | segment | Total | |||||||||||||||||||||||||
| Network services | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Software sales and support | ||||||||||||||||||||||||||||||||
| Commissions | ||||||||||||||||||||||||||||||||
| Medical equipment sales | ||||||||||||||||||||||||||||||||
| Medical equipment service | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||
| Professional sales service | Equipment | Professional sales service | Equipment | |||||||||||||||||||||||||||||
| IT segment | segment | segment | Total | IT segment | segment | segment | Total | |||||||||||||||||||||||||
| Revenue recognized over time | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Revenue recognized at a point in time | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||
| Professional sales service | Equipment | Professional sales service | Equipment | |||||||||||||||||||||||||||||
| IT segment | segment | segment | Total | IT segment | segment | segment | Total | |||||||||||||||||||||||||
| Revenue recognized over time | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Revenue recognized at a point in time | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
Page 8
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Transaction Price Allocated to Remaining Performance Obligations
(in thousands) | ||||||||||||||||
| Fiscal years of revenue recognition | ||||||||||||||||
| 2024 | 2025 | 2026 | Thereafter | |||||||||||||
| Unfulfilled performance obligations | $ | $ | $ | $ | ||||||||||||
Contract Assets and 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
$
In
our VasoHealthcare business, we bill amounts for certain milestones in advance of customer acceptance of the underlying equipment. Such
amounts aggregated approximately $
In
our VasoMedical business, we bill amounts for post-delivery services and varying duration service contracts in advance of performance.
Such amounts aggregated approximately $
During
the three and nine months ended September 30, 2024, we recognized approximately $
| 2024 | 2023 | |||||||
| Contract receivables - January 1 | ||||||||
| Contract receivables - September 30 | ||||||||
| Increase (decrease) | ( | ) | ( | ) | ||||
| Contract liabilities - January 1 | ||||||||
| Contract liabilities - September 30 | ||||||||
| Increase (decrease) | ||||||||
The decrease in contract receivables in the first nine months of 2024 and 2023 was due primarily to collections exceeding billings. The increase in contract liabilities in the same periods is mainly attributable to orders exceeding deliveries.
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
| ● | 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. |
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.
Page 9
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands) | ||||||||||||||||
| Three
months ended September 30, | Nine
months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues from external customers | ||||||||||||||||
| IT | $ | $ | $ | $ | ||||||||||||
| Professional sales service | ||||||||||||||||
| Equipment | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
| Gross Profit | ||||||||||||||||
| IT | $ | $ | $ | $ | ||||||||||||
| Professional sales service | ||||||||||||||||
| Equipment | ||||||||||||||||
| Total gross profit | $ | $ | $ | $ | ||||||||||||
| Operating income (loss) | ||||||||||||||||
| IT | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Professional sales service | ||||||||||||||||
| Equipment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Corporate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Depreciation and amortization | ||||||||||||||||
| IT | $ | $ | $ | $ | ||||||||||||
| Professional sales service | ||||||||||||||||
| Equipment | ||||||||||||||||
| Corporate | ||||||||||||||||
| Total depreciation and amortization | $ | $ | $ | $ | ||||||||||||
| Capital expenditures | ||||||||||||||||
| IT | $ | $ | $ | $ | ||||||||||||
| Professional sales service | ||||||||||||||||
| Equipment | ||||||||||||||||
| Corporate | ||||||||||||||||
| Total capital expenditures | $ | $ | $ | $ | ||||||||||||
(in thousands) | ||||||||||||||||
| September
30, 2024 | December
31, 2023 | |||||||||||||||
| Identifiable Assets | ||||||||||||||||
| IT | $ | $ | ||||||||||||||
| Professional sales service | ||||||||||||||||
| Equipment | ||||||||||||||||
| Corporate | ||||||||||||||||
| Total assets | $ | $ | ||||||||||||||
GE
Healthcare accounted for
NOTE E –NET INCOME (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.
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Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Diluted
earnings per share were computed based on the weighted average number of shares outstanding plus all potentially dilutive common shares.
(in thousands) | ||||||||||||||||
| Three
months ended September 30, | Nine
months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Basic weighted average shares outstanding | ||||||||||||||||
| Dilutive effect of unvested restricted shares | ||||||||||||||||
| Diluted weighted average shares outstanding | ||||||||||||||||
(in thousands) | ||||||||||||||||
| Three
months ended September 30, | Nine
months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Restricted common stock grants | ||||||||||||||||
NOTE F – SHORT-TERM INVESTMENTS AND FINANCIAL INSTRUMENTS
The
Company’s short-term investments consist of bank deposits with yields based on underlying debt and equity securities and
six-month US Treasury bills. The bank deposits are carried at fair value of $
Cash and cash equivalents represent cash and short-term, highly liquid investments either in certificates of deposit, treasury bills, money market funds, or investment grade commercial paper issued by major corporations and financial institutions that generally have maturities of three months or less from the date of acquisition.
The Company complies with the provisions of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”). Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
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Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
The carrying amount of assets and liabilities including cash and cash equivalents, short-term investments, accounts receivable, prepaids, accounts payable, accrued expenses and other current liabilities approximated their fair value as of September 30, 2024 and December 31, 2023, due to the relative short maturity of these instruments. Property and equipment, intangible assets, capital lease obligations, and goodwill are not required to be re-measured to fair value on a recurring basis. These assets are evaluated for impairment if certain triggering events occur. If such evaluation indicates that impairment exists, the respective asset is written down to its fair value.
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | Balance | |||||||||||||
| Markets for | Observable | Unobservable | as of | |||||||||||||
| Identical Assets | Inputs | Inputs | September 30, | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2024 | |||||||||||||
| Assets | ||||||||||||||||
| Cash equivalents invested in money market funds and treasury bills | $ | $ | $ | $ | ||||||||||||
| Quoted Prices | Significant | |||||||||||||||
| in Active | Other | Significant | Balance | |||||||||||||
| Markets for | Observable | Unobservable | as of | |||||||||||||
| Identical Assets | Inputs | Inputs | December 31, | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | 2023 | |||||||||||||
| Assets | ||||||||||||||||
| Cash equivalents invested in money market funds and treasury bills | $ | $ | $ | $ | ||||||||||||
| Bank deposits (included in short term investments) | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
NOTE G – ACCOUNTS AND OTHER RECEIVABLES, NET
| (in thousands) | ||||||||
| September
30, 2024 | December
31, 2023 | |||||||
| Trade receivables | $ | $ | ||||||
| Unbilled receivables | ||||||||
| Allowance for credit losses and commission adjustments | ( | ) | ( | ) | ||||
| Accounts and other receivables, net | $ | $ | ||||||
Contract receivables under “Revenue from Contracts with Customers (“ASC 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 ASC 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 credit losses 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.
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Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE H – INVENTORIES, NET
| (in thousands) | ||||||||
| September
30, 2024 | December
31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
The
Company maintained reserves for slow moving inventories of $
NOTE I – GOODWILL AND OTHER INTANGIBLES
Goodwill
of $
| (in thousands) | ||||||||
| Nine months ended | Year ended | |||||||
| September
30, 2024 | December
31, 2023 | |||||||
| Beginning of period | $ | $ | ||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| End of period | $ | $ | ||||||
| (in thousands) | ||||||||
| September
30, 2024 | December
31, 2023 | |||||||
| Customer-related | ||||||||
| Costs | $ | $ | ||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Patents and Technology | ||||||||
| Costs | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Software | ||||||||
| Costs | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Patents
and technology are amortized on a straight-line basis over their estimated useful lives of
Page 13
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
Amortization
expense amounted to $
| (in thousands) | ||||
| Years ending December 31, | ||||
| Remainder of 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| $ | ||||
NOTE J – OTHER ASSETS, NET
| (in thousands) | ||||||||
| September
30, 2024 | December
31, 2023 | |||||||
| Deferred commission expense - noncurrent | $ | $ | ||||||
| Trade receivables - noncurrent | ||||||||
| Other, net of allowance for loss on loan receivable of $ | ||||||||
| $ | $ | |||||||
NOTE K – ACCRUED EXPENSES AND OTHER LIABILITIES
| (in thousands) | ||||||||
| September
30, 2024 | December
31, 2023 | |||||||
| Accrued compensation | $ | $ | ||||||
| Accrued expenses - other | ||||||||
| Order reduction liability | ||||||||
| Other liabilities | ||||||||
| $ | $ | |||||||
Page 14
Vaso Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE L - DEFERRED REVENUE
| (in thousands) | ||||||||||||||||
| Three
months ended September 30, | Nine
months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Deferred revenue at beginning of period | $ | $ | $ | $ | ||||||||||||
| Net additions: | ||||||||||||||||
| Deferred extended service contracts | ||||||||||||||||
| Deferred commission revenues | ||||||||||||||||
| Recognized as revenue: | ||||||||||||||||
| Deferred extended service contracts | ( | ) | ( | ) | ( | ) | ||||||||||
| Deferred commission revenues | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deferred revenue at end of period | ||||||||||||||||
| Less: current portion | ||||||||||||||||
| Long-term deferred revenue at end of period | $ | $ | $ | $ | ||||||||||||
NOTE M – RELATED-PARTY TRANSACTIONS
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 September 30, 2024 and 2023, the Company’s share of EECP Global’s (loss) earnings was approximately
$(
NOTE N – 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 extended the term of the original agreement, which began on July 1, 2010, through December 31, 2026, subject to early termination by GEHC without cause with certain conditions. Under the agreement, VasoHealthcare is the exclusive representative for the sale of select GEHC diagnostic imaging products to specific market accounts in the 48 contiguous states of the United States and the District of Columbia. The circumstances under which early termination of the agreement may occur with cause include: not materially achieving certain sales goals, not maintaining a minimum number of sales representatives, and not meeting various legal and GEHC policy requirements.
Employment Agreements
On
May 10, 2019, the Company modified its Employment Agreement with its President and Chief Executive Officer, Dr. Jun Ma, to provide for
a 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 $
On
December 31, 2022, the Company executed an Employment Agreement with the President of its VasoHealthcare subsidiary, Ms. Jane Moen, to
provide for a twenty-seven month initial term with extensions, unless earlier terminated by the Company, but in no event can it extend
beyond December 31, 2026 or the earlier termination of the GEHC Agreement. The Employment Agreement provides for annual base compensation
of $
Page 15
Vaso Corporation and Subsidiaries
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained in this report, the matters discussed are forward-looking statements that involve risks and uncertainties. When used in this report, words such as “anticipates”, “believes”, “could”, “estimates”, “expects”, “may”, “plans”, “potential” and “intends” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company’s management, as well as assumptions made by and information currently available to the Company’s management. Among the factors that could cause actual results to differ materially are the following: unfavorable business and economic conditions; the effect of pandemics and geopolitical events, including the COVID-19 pandemic which has adversely affected our operating results; the ability to keep pace with 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; securing and protecting our intellectual property rights; compliance with applicable government regulations; failure to maintain the integrity of our information technology systems, including without limitation, cyber-attacks; 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; our ability to enter into new partnerships and strategic transactions, 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
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, primarily focuses on the design, manufacture, sale and service of proprietary medical devices and software, operating through a wholly-owned subsidiary VasoMedical, Inc., which in turn operates through Vasomedical Solutions, Inc. for domestic business and Vasomedical Global Corp. for international business, respectively. |
Termination of Business Combination Agreement
On September 17, 2024 Vaso provided notice to Achari to terminate the Business Combination Agreement with Achari. Vaso intends to continue to seek opportunities to increase stockholder value, including through internal growth, new partnerships, and strategic investments with a concentration on medical and IT service companies.
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.
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Vaso Corporation and Subsidiaries
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, 2023 as filed with the SEC on April 1, 2024.
Results of Operations – For the Three Months Ended September 30, 2024 and 2023
Revenues
Total revenue for the three months ended September 30, 2024 and 2023 was $20,769,000 and $19,449,000, respectively, representing an increase of $1,320,000, or 7% year-over-year. On a segment basis, revenue in the IT and professional sales services segments increased by $1,215,000 and $277,000, respectively, while revenue in the equipment segment decreased by $172,000.
Revenue in the IT segment for the three months ended September 30, 2024 was $11,082,000 compared to $9,867,000 for the three months ended September 30, 2023, an increase of $1,215,000, or 12%, of which $1,133,000 resulted from higher network services revenue and $82,000 from higher revenues in the healthcare IT business. Monthly recurring revenue in the IT segment accounted for $9,341,000 or 84% of the segment revenue in the third quarter of 2024, and $9,302,000 or 94% of the segment revenue for the same quarter last year (see Note C).
Commission revenues in the professional sales service segment were $9,114,000 in the third quarter of 2024, an increase of $277,000, or 3%, as compared to $8,837,000 in the same quarter of 2023. 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 GEHC prior to customer acceptance of the equipment are recorded as deferred revenue in the condensed consolidated balance sheet. As of September 30, 2024, $33,117,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $15,623,000 was long-term. As of September 30, 2023, $33,232,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $14,701,000 was long-term. The small decrease in deferred revenue is principally due to high deliveries in the 4th quarter of 2023, partially offset by an increase in new orders booked in 2024.
Revenue in the equipment segment decreased by $172,000, or 23%, to $573,000 for the three-month period ended September 30, 2024 from $745,000 for the same period of the prior year, due to lower ARCS® subscription revenues in our US operations as well as lower deliveries in our China operations.
Gross Profit
Gross profit for the three months ended September 30, 2024 and 2023 was $11,756,000, or 57% of revenue, and $12,043,000, or 62% of revenue, respectively, representing a decrease of $287,000, or 2% year-over-year. On a segment basis, gross profit in the professional sales service segment increased $75,000, or 1%, while gross profit in the IT and equipment segments decreased $163,000, or 4%, and $199,000, or 35%, respectively.
IT segment gross profit for the three months ended September 30, 2024 was $4,111,000, or 37% of the segment revenue, compared to $4,274,000, or 43% of the segment revenue for the three months ended September 30, 2023. The year-over-year decrease of $163,000, or 4%, was primarily a result of a lower margin sales mix in the network services business.
Professional sales service segment gross profit was $7,276,000, or 80% of segment revenue, for the three months ended September 30, 2024 as compared to $7,201,000, or 81% of the segment revenue, for the three months ended September 30, 2023, reflecting an increase of $75,000, or 1%. The increase was due to higher commission revenue as a result of higher volume of GEHC equipment delivered during the third quarter of 2024 and a higher blended commission rate, when compared to the same period last year, partially offset by higher commission expenses. Cost of commissions in the professional sales service segment of $1,838,000 and $1,636,000, for the three months ended September 30, 2024 and 2023, respectively, reflected commission expense associated with recognized commission revenues.
Page 17
Vaso Corporation and Subsidiaries
Commission expense associated with short-term deferred revenue is recorded as short-term deferred commission expense, or with long-term deferred revenue as part of other assets, on the balance sheet until the related commission revenue is recognized.
Equipment segment gross profit decreased to $369,000, or 64% of segment revenues, for the third quarter of 2024 compared to $568,000, or 76% of segment revenues, for the same quarter of 2023. The $199,000, or 35%, decrease in gross profit was primarily the result of lower sales and a lower gross margin for product sales in China during the quarter.
Operating Income (Loss)
Operating income (loss) for the three months ended September 30, 2024 was $(1,393,000) compared to $907,000 for the same quarter in 2023, representing a decrease of $2,300,000, or 254%, due primarily to $1,409,000 higher costs for investment banking activities, and to both the decrease in gross profit and the increase in operating costs (below) in the IT segment. On a segment basis, the IT segment recorded an operating loss of $695,000 in the third quarter of 2024 as compared to an operating loss of $187,000 in the same period of 2023; the professional sales service segment recorded operating income of $1,531,000 in the third quarter of 2024 as opposed to operating income of $1,648,000 in the same period of 2023; and the equipment segment recorded an operating loss of $223,000 in the third quarter of 2024 as compared to an operating loss of $83,000 in the same period of 2023.
Operating loss in the IT segment increased to $695,000 for the three-month period ended September 30, 2024 from an operating loss of $187,000 in the same period of 2023, due to lower gross profit and higher SG&A costs. Operating income in the professional sales service segment decreased by $117,000 in the three-month period ended September 30, 2024 as compared to operating income in the same period of 2023, due to higher SG&A costs, partially offset by higher gross profit. The equipment segment reported an operating loss of $223,000 in the third quarter of 2024, compared to an operating loss of $83,000 in the third quarter 2023, an increase of $140,000, primarily due to lower gross profit partially offset by lower SG&A costs in both US and China operations.
SG&A costs for the three months ended September 30, 2024 and 2023 were $11,409,000 and $10,887,000, respectively, representing an increase of $522,000, or 5% year-over-year. On a segment basis, SG&A costs in the IT segment increased by $346,000 in the third quarter of 2024 from the same quarter of the prior year due primarily to higher personnel costs; SG&A costs in the professional sales service segment increased $191,000 due mainly to higher personnel costs associated with provision of expanded services; and SG&A costs in the equipment segment decreased $41,000 due primarily to lower personnel costs. Corporate SG&A costs not allocated to segments increased $26,000 due mainly to higher annual meeting costs, partially offset by lower directors’ fees. Investment banking expenses for the business combination with Achari Venture Holdings I increased to $1,549,000 in the third quarter of 2024 from $40,000 in the third quarter of 2023.
Research and development expenses were $191,000, or 1% of revenues, for the third quarter of 2024, a decrease of $79,000, or 9%, from $209,000, or 1% of revenues, for the third quarter of 2023. The decrease is primarily attributable to lower product development expenses in the equipment 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.
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Vaso Corporation and Subsidiaries
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 (loss) to Adjusted EBITDA is set forth below:
| (in thousands) | ||||||||
| Three
months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| (unaudited) | (unaudited) | |||||||
| Net (loss) income | $ | (1,181 | ) | $ | 1,198 | |||
| Interest expense (income), net | (284 | ) | (264 | ) | ||||
| Income tax expense | 30 | 16 | ||||||
| Depreciation and amortization | 219 | 225 | ||||||
| Share-based compensation | 8 | 10 | ||||||
| Adjusted EBITDA | $ | (1,208 | ) | $ | 1,185 | |||
Adjusted EBITDA decreased by $2,393,000, to $(1,208,000) in the quarter ended September 30, 2024 from $1,185,000 in the quarter ended September 30, 2023. The decrease was primarily attributable to the decrease in net income and increase in interest income.
Interest and Other Income (Expense)
Interest and other income (expense) for the three months ended September 30, 2024 was $242,000 as compared to $307,000 for the corresponding period of 2023. The decrease in interest and other income (expense) was due primarily to higher loss at EECP Global, partially offset by higher interest income resulting from higher money market and US Treasury bill balances.
Income Tax Expense
For the three months ended September 30, 2024, we recorded income tax expense of $30,000 as compared to $16,000 for the corresponding period of 2023. The $14,000 increase is due mainly to higher state tax expense.
Net Income (Loss)
Net loss for the three months ended September 30, 2024 was $1,181,000 as compared to net income of $1,198,000 for the three months ended September 30, 2023, representing a decrease of $2,379,000. Income (loss) per share of $(0.01) and $0.01 was recorded in the three-month periods ended September 30, 2024 and 2023, respectively. The principal cause of the decrease in net income is the increase in business combination transaction costs, decrease in gross profit and increase in SG&A costs, partially offset by the increase in interest income.
Results of Operations – For the Nine Months Ended September 30, 2024 and 2023
Revenues
Total revenue for the nine months ended September 30, 2024 and 2023 was $59,732,000 and $59,107,000, respectively, representing an increase of $625,000, or 1% year-over-year. On a segment basis, revenue in the IT segment increased $1,249,000, while revenue in the professional sales service and equipment segments decreased $51,000 and $573,000, respectively.
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Vaso Corporation and Subsidiaries
Revenue in the IT segment for the nine months ended September 30, 2024 was $31,825,000 compared to $30,576,000 for the nine months ended September 30, 2023, an increase of $1,249,000, or 4%, of which $1,561,000 resulted from higher network services revenue, offset by $312,000 lower revenue from healthcare IT services. Our monthly recurring revenue in the IT segment accounted for $27,445,000 or 86% of the segment revenue in the first nine months of 2024, and $28,180,000 or 92% of the segment revenue for the same period last year (see Note C).
Commission revenues in the professional sales service segment were $26,350,000 in the first nine months of 2024, a decrease of $51,000, or less than 1%, as compared to $26,401,000 in the first nine months of 2023. The decrease in commission revenues was due primarily to a slight decrease in the volume of underlying equipment delivered by GEHC during the period, offset by 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 GEHC prior to customer acceptance of the equipment are recorded as deferred revenue in the condensed consolidated balance sheet. As of September 30, 2024, $33,232,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $14,701,000 was long-term. As of September 30, 2023, $33,232,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $14,701,000 was long-term. The small decrease in deferred revenue is principally due to high deliveries in the 4th quarter of 2023, partially offset by an increase in new orders booked in 2024.
Revenue in the equipment segment decreased by $573,000, or 27%, to $1,557,000 for the nine-month period ended September 30, 2024 from $2,130,000 for the same period of the prior year, principally due to lower equipment deliveries in our China operations and lower cloud-based software-as-a-service (“SaaS”) sales in the U.S.
Gross Profit
Gross profit for the nine months ended September 30, 2024 and 2023 was $34,824,000, or 58% of revenue, and $36,540,000, or 62% of revenue, respectively, representing a decrease of $1,716,000, or 5% year-over-year. On a segment basis, gross profit in the IT, professional sales service, and equipment segments decreased $569,000, or 4%; $653,000, or 3%; and $494,000, or 31%, respectively.
IT segment gross profit for the nine months ended September 30, 2024 was $12,886,000, or 40% of the segment revenue, compared to $13,455,000, or 44% of the segment revenue for the nine months ended September 30, 2023. The year-over-year decrease of $569,000, or 4%, was primarily a result of lower margin product sales mix in both the network service and healthcare IT businesses, partially offset by higher network service revenues.
Professional sales service segment gross profit was $20,827,000, or 79% of segment revenue, for the nine months ended September 30, 2024 as compared to $21,480,000, or 81% of the segment revenue, for the nine months ended September 30, 2023, reflecting a decrease of $653,000, or 3%. The decrease was primarily due to the product mix of diagnostic imaging revenues and ultrasound revenues, where ultrasound revenues incur higher cost of commissions. Cost of commissions in the professional sales service segment of $5,523,000 and $4,921,000, for the nine months ended September 30, 2024 and 2023, 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 $1,111,000, or 71% of segment revenues, for the first nine months of 2024 compared to $1,605,000, or 75% of segment revenues, for the same period in 2023. The $494,000, or 31%, decrease in gross profit was primarily the result of lower revenue in both our China operations and our U.S. SaaS operations, and by lower gross profit margin.
Operating Income (Loss)
Operating income (loss) for the nine months ended September 30, 2024 and 2023 was $(1,866,000), and $3,225,000, respectively, representing a decrease of $5,091,000 as a combined result of gross profit decreasing $1,716,000 and operating costs (below) increasing $3,375,000, year-over-year. On a segment basis, the IT segment recorded an operating loss of $1,288,000 in the first nine months of 2024 as compared to an operating loss of $133,000 in the same period of 2023; operating income in the professional sales service segment decreased by $1,602,000, from $4,784,000 in the first nine months of 2023 to $3,182,000 in the same period of 2024; and the equipment segment recorded an operating loss of $809,000 in the first nine months of 2024 as compared to an operating loss of $214,000 in the same period of 2023.
Operating loss in the IT segment increased to $1,288,000 for the nine-month period ended September 30, 2024 as compared to an operating loss of $133,000 in the same period of 2023, due primarily to lower gross profit and higher SG&A costs. Operating income in the professional sales service segment decreased $1,602,000 to $3,182,000 in the nine-month period ended September 30, 2024 as compared to operating income of $4,784,000 in the same period of 2023, due to higher SG&A costs and lower gross profit. The equipment segment reported an operating loss of $809,000 in the first nine months of 2024, compared to an operating loss of $214,000 in the first nine months of 2023, an increase of $494,000, due mainly to lower gross profit, as well as to higher SG&A and R&D costs.
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SG&A costs for the nine months ended September 30, 2024 and 2023 were $34,316,000 and $32,691,000, respectively, representing an increase of $1,625,000, or 5% year-over-year. On a segment basis, SG&A costs in the IT segment increased by $605,000 in the first nine months of 2024 from the same period of the prior year due mainly to higher personnel costs; SG&A costs in the professional sales service segment increased by $948,000 due to higher personnel costs associated with the provision of expanded services, and to higher travel costs; and SG&A costs in the equipment segment increased by $78,000 due mainly to higher personnel costs. Corporate SG&A costs not allocated to segments decreased $7,000 due mainly to lower director fees and insurance costs, partially offset by higher annual meeting costs. Expenses for investment banking activities associated with the business combination with Achari Venture Holdings I increased to $1,787,000 in the nine months ended September 30, 2024 from $40,000 in the same period of 2023.
Research and development (“R&D”) expenses were $587,000, or 1% of revenues, for the first nine months of 2024, an increase of $3,000, or less than 1%, from $584,000, or 1% of revenues, for the first nine months of 2023. The increase is primarily attributable to higher product development expenses in the equipment 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.
A reconciliation of net income (loss) to Adjusted EBITDA is set forth below:
| (in thousands) | ||||||||
| Nine
months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| (unaudited) | (unaudited) | |||||||
| Net (loss) income | $ | (1,199 | ) | $ | 3,724 | |||
| Interest expense (income), net | (884 | ) | (555 | ) | ||||
| Income tax expense | 154 | 35 | ||||||
| Depreciation and amortization | 630 | 762 | ||||||
| Share-based compensation | 26 | 38 | ||||||
| Adjusted EBITDA | $ | (1,273 | ) | $ | 4,004 | |||
Adjusted EBITDA decreased by $5,277,000 to $(1,273,000) in the nine months ended September 30, 2024 from $4,004,000 in the nine months ended September 30, 2023. The decrease was primarily attributable to lower net income and higher interest income, partially offset by higher income tax expense.
Interest and Other Income (Expense)
Interest and other income (expense) for the nine months ended September 30, 2024 was $821,000 as compared to $534,000 for the corresponding period of 2023. The increase in interest and other income was due primarily to higher interest income.
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Income Tax Expense
For the nine months ended September 30, 2024, we recorded income tax expense of $154,000 as compared to income tax expense of $35,000 for the corresponding period of 2023. The increase was due mainly to higher state tax expense.
Net Income (Loss)
Net loss for the nine months ended September 30, 2024 was $1,199,000 as compared to net income of $3,724,000 for the nine months ended September 30, 2023, representing a decrease of $4,923,000, or 132%. Income (loss) per share of $(0.01) and $0.02 was recorded in the nine-month periods ended September 30, 2024 and 2023, respectively. The principal cause of the decrease was lower operating income, partially offset by higher interest income.
Liquidity and Capital Resources
Cash and Cash Flow
We have financed our operations from working capital. At September 30, 2024, we had cash and cash equivalents of $26,841,000 and working capital of $12,822,00 0, compared to cash and cash equivalents of $11,342,000 and working capital of $15,059,000 at December 31, 2023.
Cash provided by operating activities was $3,648,000, which consisted of net loss after adjustments to reconcile net loss to net cash of $287,000 and cash provided by operating assets and liabilities of $3,361,000, during the nine months ended September 30, 2024, compared to cash provided by operating activities of $6,860,000 for the same period in 2023. The changes in the account balances primarily reflect a decrease in accounts and other receivables of $4,111,000 and increases in accounts payables and deferred revenue of $1,886,000 and $921,000, respectively; partially offset by decreases in accrued commissions and accrued expenses of $1,092,000 and $2,439,000, respectively.
Cash provided by investing activities during the nine-month period ended September 30, 2024 was $11,953,000 attributed to $13,757,000 in redemption of short-term investments, offset by $1,231,000 used for the purchase of equipment and software and $573,000 used in the funding of a working capital loan to Achari.
Cash used in financing activities during the nine-month period ended September 30, 2024 was $67,000 resulting primarily from 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.
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 September 30, 2024 and have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2024.
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 September 30, 2024 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 1 – LEGAL PROCEEDINGS
Information with respect to this item may be found in Note N Commitments and Contingencies under “Litigation”, in the accompanying notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
ITEM 6 - EXHIBITS
Exhibits
| 31.1* | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1* | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2* | Certification of 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. | |
| 101.INS** | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
| 101.SCH** | XBRL Taxonomy Extension Schema Document | |
| 101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF** | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB** | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104** | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| * | Filed herewith |
| ** | Filed herewith electronically |
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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.
| VASO CORPORATION | ||
| By: | /s/ Jun Ma | |
| Jun Ma | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| /s/ Michael J. Beecher | ||
| Michael J. Beecher | ||
| Chief Financial Officer and Principal Accounting Officer | ||
| Date: November 14, 2024 | ||
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