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 United States economy 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.
Equipment orders in our professional sales service segment have been negatively
impacted, and we do anticipate continued negative impact in all our businesses
during the remainder of 2021, in particular in our professional sales service
segment for the diagnostic imaging equipment. Moreover, we have also experienced
the negative impact in the recurring revenue business in our IT segment as some
of our customers have been adversely affected by the shutdown, and new business
in this segment appears to be slower as well. The pandemic also may have a
negative impact on our cash receipts as some customers request forbearance or a
delay in their payments to us.
The pandemic may impact our operations beyond the first half of 2021, depending
on the duration of the pandemic and the timing and success of the reopening of
the economy.
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.
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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.
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, 2020 as filed with the SEC on May 5, 2021.
Prior Periods' Financial Statement Revision
Certain prior period amounts have been revised to reflect the impact of
corrections of misstatements and to correct the timing of previously recorded
out-of-period adjustments. Refer to Note B in the Notes to Condensed
Consolidated Financial Statements for more information.
Results of Operations - For the Three Months Ended June 30, 2021 and 2020
Revenues
Total revenue for the three months ended June 30, 2021 and 2020 was $16,131,000
and $16,294,000, respectively, representing a decrease of $163,000, or 1%
year-over-year. On a segment basis, revenue in the IT and equipment segments
decreased $334,000 and $80,000, respectively, while revenue in the professional
sales services segment increased $251,000.
Revenue in the IT segment for the three months ended June 30, 2021 was
$10,442,000 compared to $10,776,000 for the three months ended June 30, 2020, a
decrease of $334,000, or 3%, of which $184,000 resulted from lower NetWolves
revenues and $150,000 from lower revenues in the healthcare IT business. Our
monthly recurring revenue in the IT segment accounted for $9,246,000 or 89% of
the segment revenue in the second quarter of 2021, and $9,762,000 or 91% of the
segment revenue for the same quarter last year (see Note C).
Commission revenues in the professional sales service segment were $4,971,000 in
the second quarter of 2021, an increase of $251,000, or 5%, as compared to
$4,720,000 in the same quarter of 2020. 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, 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. As of June 30, 2020,
$16,465,000 in deferred commission revenue was recorded in the Company's
condensed consolidated balance sheet, of which $7,278,000 was long-term. The
increase in deferred revenue is principally due to an increase in new orders
booked.
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Revenue in the equipment segment decreased by $80,000, or 10%, to $718,000 for
the three-month period ended June 30, 2021 from $798,000 for the same period of
the prior year, principally due to lower service revenues.
Gross Profit
Gross profit for the three months ended June 30, 2021 and 2020 was $8,640,000,
or 54% of revenue, and $8,374,000, or 51% of revenue, respectively, representing
an increase of $266,000, or 3.2% year-over-year. On a segment basis, gross
profit in the IT segment decreased $32,000, or less than 1%, while gross profit
in the professional sales service and equipment segments increased $206,000, or
6%; and $92,000, or 19%, respectively.
IT segment gross profit for the three months ended June 30, 2021 was $4,094,000,
or 39% of the segment revenue, compared to $4,126,000, or 38% of the segment
revenue for the three months ended June 30, 2020. The year-over-year decrease of
$32,000, or less than 1%, was primarily a result of lower sales volume in both
the NetWolves and healthcare IT businesses, partially offset by a higher margin
sales mix in the healthcare IT business.
Professional sales service segment gross profit was $3,976,000, or 80% of
segment revenue, for the three months ended June 30, 2021 as compared to
$3,770,000, or 80% of the segment revenue, for the three months ended June 30,
2020, reflecting an increase of $206,000, or 6%. 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 2021 than in the same period last year. Cost of commissions in
the professional sales service segment of $995,000 and $950,000, for the three
months ended June 30, 2021 and 2020, 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 increased to $570,000, or 79% of segment
revenues, for the second quarter of 2021 compared to $478,000, or 60% of segment
revenues, for the same quarter of 2020. The $92,000, or 19%, increase in gross
profit was the result of higher margin sales mix during the quarter.
Operating Loss
Operating loss for the three months ended June 30, 2021 and 2020 was $722,000
and $632,000, respectively, representing an increase of loss by $90,000, or 14%,
as operating costs (below) increased much more than gross profit,
year-over-year. On a segment basis, the IT segment recorded an operating loss of
$246,000 in the second quarter of 2021 as opposed to an operating loss of
$695,000 in the same period of 2020; the equipment segment recorded an operating
loss of $128,000 in the second quarter of 2021 as opposed to an operating loss
of $94,000 in the same period of 2020; and the professional sales service
segment recorded an operating loss of $47,000 in the second quarter of 2021 as
opposed to operating income of $310,000 in the same period of 2020.
Operating loss in the IT segment decreased to $246,000 for the three-month
period ended June 30, 2021 as compared to an operating loss of $695,000 in the
same period of 2020, due to lower selling, general, and administrative ("SG&A")
costs. Operating income in the professional sales service segment decreased
$357,000 in the three-month period ended June 30, 2021 as compared to operating
income in the same period of 2020, due to higher SG&A costs partially offset by
higher gross profit. The equipment segment reported an operating loss of
$128,000 in the second quarter of 2021, compared to an operating loss of $94,000
in the second quarter 2020, an increase of $34,000. The increase was due to
higher SG&A and R&D costs partially offset by higher gross profit.
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SG&A costs for the three months ended June 30, 2021 and 2020 were $9,192,000 and
$8,823,000, respectively, representing an increase of $369,000, or 4%
year-over-year. On a segment basis, SG&A costs in the IT segment decreased by
$422,000 in the second quarter of 2021 from the same quarter of the prior year
due to reduced personnel costs; SG&A costs in the professional sales service
segment increased $563,000 due mainly to higher travel and personnel costs; and
SG&A costs in the equipment segment increased $81,000 due mainly to higher
marketing and personnel costs. Corporate costs not allocated to segments
increased $147,000 due mainly to higher accounting and director fees.
Research and development ("R&D") expenses were $170,000, or 1% of revenues, for
the second quarter of 2021, a decrease of $15,000, or 8%, from $185,000, or 1%
of revenues, for the second quarter of 2020. 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.
A reconciliation of net income (loss) to Adjusted EBITDA is set forth below:
(in thousands)
Three months ended June 30,
2021 2020
(unaudited) (unaudited)
Net income (loss) $ 2,780 $ (697 )
Interest expense (income), net 78 152
Income tax expense 50 11
Depreciation and amortization 528 628
Share-based compensation 8 27
Adjusted EBITDA $ 3,444 $ 121Adjusted EBITDA increased by $3,323,000, to $3,444,000 in the quarter ended June
30, 2021 from $121,000 in the quarter ended June 30, 2020. The increase was
attributable to the increase in net income, partially offset primarily by
decreases in interest expense and depreciation and amortization.
Interest and Other Income (Expense)
Interest and other income (expense) for the three months ended June 30, 2021 was
$3,552,000 as compared to $(54,000) for the corresponding period of 2020. The
increase in interest and other income (expense) was due primarily to the
$3,646,000 gain on PPP loan forgiveness in the three months ended June 30, 2021.
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Income Tax Expense
For the three months ended June 30, 2021, we recorded income tax expense of
$50,000 as compared to $11,000 for the corresponding period of 2020. The $39,000
increase arose mainly from higher tax expense in our China operations.
Net Income (Loss)
Net income for the three months ended June 30, 2021 was $2,780,000 as compared
to net loss of $(697,000) for the three months ended June 30, 2020, representing
an improvement of $3,477,000. Income per share of $0.02 and $0.00 was recorded
in the three-month periods ended June 30, 2021 and 2020, respectively. The
principal cause of the increase in net income is the PPP loan forgiveness in the
three months ended June 30, 2021.
Results of Operations - For the Six Months Ended June 30, 2021 and 2020
Revenues
Total revenue for the six months ended June 30, 2021 and 2020 was $32,651,000
and $33,523,000, respectively, representing a decrease of $872,000, or 3%
year-over-year. On a segment basis, revenue in the IT, professional sales
service and equipment segments decreased $363,000, $261,000 and $248,000,
respectively.
Revenue in the IT segment for the six months ended June 30, 2021 was $21,696,000
compared to $22,059,000 for the six months ended June 30, 2020, a decrease of
$363,000, or 2%, of which $440,000 resulted from lower NetWolves revenue,
partially offset by a $77,000 increase in the operations of the healthcare IT
business. Our monthly recurring revenue in the IT segment accounted for
$19,271,000 or 89% of the segment revenue in the first half of 2021, and
$20,257,000 or 92% of the segment revenue for the same period last year (see
Note C).
Commission revenues in the professional sales service segment were $9,626,000 in
the first half of 2021, a decrease of $261,000, or 3%, as compared to $9,887,000
in the first half of 2020. The decrease in commission revenues was due primarily
to both a decrease in the volume of underlying equipment delivered by GEHC
during the period and a lower 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, 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. As of June 30, 2020, $16,465,000 in deferred
commission revenue was recorded in the Company's condensed consolidated balance
sheet, of which $7,278,000 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 $248,000, or 16%, to $1,329,000
for the six-month period ended June 30, 2021 from $1,577,000 for the same period
of the prior year, principally due to the deconsolidation of EECP operations
after the sale of equity in the EECP business in the second quarter of 2020. On
a proforma basis with EECP operations also excluded from the financial
statements for the first half of 2020, revenue in the equipment segment would
increase by $202,000, or 18%.
Gross Profit
Gross profit for the six months ended June 30, 2021 and 2020 was $17,200,000, or
53% of revenue, and $17,514,000, or 52% of revenue, respectively, representing a
decrease of $314,000, or 2% year-over-year. On a segment basis, gross profit in
the IT and professional sales service decreased $96,000, or 1%, and $276,000, or
3%, respectively, while gross profit in the equipment segment increased $58,000,
or 6%.
IT segment gross profit for the six months ended June 30, 2021 was $8,501,000,
or 39% of the segment revenue, compared to $8,597,000, or 39% of the segment
revenue for the six months ended June 30, 2020. The year-over-year decrease of
$96,000, or 1%, was primarily a result of lower margin product sales mix in the
healthcare IT business partially offset by a higher margin sales mix at
NetWolves.
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Professional sales service segment gross profit was $7,641,000, or 79% of
segment revenue, for the six months ended June 30, 2021 as compared to
$7,917,000, or 80% of the segment revenue, for the six months ended June 30,
2020, reflecting a decrease of $276,000, or 3%. The decrease in absolute dollars
was primarily due to lower commission revenue as a result of a lower blended
commission rate and lower volume of GEHC equipment delivered during the first
half of 2021 than in the same period last year. Cost of commissions in the
professional sales service segment of $1,985,000 and $1,970,000, for the six
months ended June 30, 2021 and 2020, 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 increased to $1,058,000, or 80% of segment
revenues, for the first half of 2021 compared to $1,000,000, or 63% of segment
revenues, for the same half of 2020. The $58,000, or 6%, increase in gross
profit was the result of higher gross profit margin of non-EECP products sold
during the first half of 2021, partially offset by lower revenue due to
exclusion of EECP business in the financials for the first half of 2021.
Operating Loss
Operating loss for the six months ended June 30, 2021 and 2020 was $1,262,000
and $1,992,000, respectively, representing an improvement of $730,000, or 37%,
as operating costs (below) decreased much more than gross profit,
year-over-year. On a segment basis, the IT segment recorded an operating loss of
$179,000 in the first half of 2021 as compared to an operating loss of
$1,287,000 in the same period of 2020; the equipment segment recorded an
operating loss of $115,000 in the first half of 2021 as compared to an operating
loss of $143,000 in the same period of 2020; and operating loss in the
professional sales service segment increased by $259,000, from $123,000 in the
first half of 2020 to $382,000 in the same period of 2021.
Operating loss in the IT segment decreased to $179,000 for the six-month period
ended June 30, 2021 as compared to an operating loss of $1,287,000 in the same
period of 2020, due to lower selling, general, and administrative ("SG&A") costs
partially offset by lower gross profit. Operating loss in the professional sales
service segment increased $259,000 in the six-month period ended June 30, 2021
as compared to operating loss in the same period of 2020, due to higher SG&A
costs and lower gross profit. The equipment segment reported an operating loss
of $115,000 in the first half of 2021, compared to an operating loss of $143,000
in the first half 2020, an improvement of $28,000. The improvement was due to
higher gross profit, offset by higher SG&A and R&D costs.
SG&A costs for the six months ended June 30, 2021 and 2020 were $18,148,000 and
$19,141,000, respectively, representing a decrease of $993,000, or 5%
year-over-year. On a segment basis, SG&A costs in the IT segment decreased by
$1,129,000 in the first half of 2021 from the same half of the prior year due to
reduced personnel costs; SG&A costs in the professional sales service segment
decreased slightly by $17,000; and SG&A costs in the equipment segment increased
slightly by $7,000. Corporate costs not allocated to segments increased $146,000
due mainly to higher accounting and director fees.
Research and development ("R&D") expenses were $314,000, or 1% of revenues, for
the first half of 2021, a decrease of $51,000, or 14%, from $365,000, or 1% of
revenues, for the first half of 2020. 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.
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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)
Six months ended June 30,
2021 2020
(unaudited) (unaudited)
Net income (loss) $ 2,137 $ (2,172 )
Interest expense (income), net 199 412
Income tax expense (benefit) 68 (108 )
Depreciation and amortization 1,124 1,251
Share-based compensation 17 54
Adjusted EBITDA $ 3,545 $ (563 )Adjusted EBITDA increased by $4,108,000 to $3,545,000 in the period ended June
30, 2021 from $(563,000) in the period ended June 30, 2020. The increase was
primarily attributable to the $3,646,000 gain on PPP loan forgiveness in the six
months ended June 30, 2021, partially offset by lower interest expense and lower
depreciation and amortization.
Interest and Other Income (Expense)
Interest and other income (expense) for the six months ended June 30, 2021 was
$3,467,000 as compared to $(288,000) for the corresponding period of 2020. The
increase in interest and other income was due primarily to the PPP loan
forgiveness in the six months ended June 30, 2021.
Income Tax (Expense) Benefit
For the six months ended June 30, 2021, we recorded income tax expense of
$(68,000) as compared to income tax benefit of $108,000 for the corresponding
period of 2020. The change from benefit to expense arose mainly from the
reversal in the first half of 2020 of a deferred tax liability in our China
operations.
Net Income (Loss)
Net income for the six months ended June 30, 2021 was $2,137,000 as compared to
net loss of $(2,172,000) for the six months ended June 30, 2020, representing an
improvement of $4,309,000, or 198%. Income per share of $0.01 and loss per share
of $0.01 was recorded in the six-month periods ended June 30, 2021 and 2020,
respectively. The principal cause of the improvement is mainly due to the PPP
loan forgiveness, as well as the reduction in operating expenses in the six
months ended June 30, 2021.
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Liquidity and Capital Resources
Cash and Cash Flow
We have financed our operations from working capital. At June 30, 2021, we had
cash and cash equivalents of $9,407,000 and negative working capital of
$11,097,000, compared to cash and cash equivalents of $6,819,000 and negative
working capital of $9,431,000 at December 31, 2020. $10,237,000 in negative
working capital at June 30, 2021 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.
Cash provided by operating activities was $5,593,000, which consisted of net
income after adjustments to reconcile net income to net cash of $282,000 and
cash provided by operating assets and liabilities of $5,311,000, during the six
months ended June 30, 2021, compared to cash provided by operating activities of
$4,014,000 for the same period in 2020. The changes in the account balances
primarily reflect a decrease in accounts and other receivables of $5,792,000,
partially offset by decreases in accrued commissions and accounts payable of
$1,087,000 and $2,753,000, respectively.
Cash provided by investing activities during the six-month period ended June 30,
2021 was $31,000 attributed to the redemption of $155,000 in short-term
investments, offset by $124,000 used for the purchase of equipment and software.
Cash used in financing activities during the six-month period ended June 30,
2021 was $3,101,000 resulting from the repayment of $1,575,000 of lines of
credit and $1,526,000 in notes payable and finance lease obligations.
Liquidity
The Company expects to generate sufficient cash flow from operations to satisfy
its obligations for 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 2021, depending on
the duration of the pandemic and the timing and success of the reopening of the
economy.
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Vaso Corporation and Subsidiaries© Edgar Online, source Glimpses
VASO CORPORATION 
