VASO Corp - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the quarterly period ended September 30, 2021

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period from _______________ to ______________

Commission File Number: 0-18105

VASO CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

11-2871434

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification Number)

137 Commercial St., Suite 200, Plainview, New York 11803

(Address of principal executive offices)

Registrant’s Telephone Number (516) 997-4600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Smaller Reporting Company	☒
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

Number of Shares Outstanding of Common Stock, $.001 Par Value, at November 12, 2021 – 175,127,878

Vaso Corporation and Subsidiaries

INDEX

PART I – FINANCIAL INFORMATION		3
ITEM 1 - FINANCIAL STATEMENTS		3
CONDENSED CONSOLIDATED BALANCE SHEETS as of September 30, 2021 (unaudited) and December 31, 2020		3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020		4
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020		5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) for the Nine Months Ended September 30, 2021 and 2020		6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)		7
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		20
ITEM 4 - CONTROLS AND PROCEDURES		28
PART II - OTHER INFORMATION		29
ITEM 5 – OTHER INFORMATION		29
ITEM 6 – EXHIBITS		30

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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, 2021			December 31, 2020
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	6,190		$	6,819
Short-term investments		620			766
Accounts and other receivables, net of an allowance for doubtful accounts and commission adjustments of $4,913 at September 30, 2021 and $4,208 at December 31, 2020		6,567			9,776
Receivables due from related parties		100			18
Inventories		1,419			1,384
Deferred commission expense		2,944			2,354
Prepaid expenses and other current assets		712			1,151
Total current assets		18,552			22,268

Property and equipment, net of accumulated depreciation of $9,823 at September 30, 2021 and $8,833 at December 31, 2020		3,022			3,885
Operating lease right of use assets		993			1,009
Goodwill		15,704			15,688
Intangibles, net		3,337			3,949
Other assets, net		2,130			2,190
Investment in EECP Global		1,081			1,116
Deferred tax assets, net		271			271
Total assets	$	45,090		$	50,376

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	2,719		$	6,285
Accrued commissions		1,558			1,474
Accrued expenses and other liabilities		7,292			4,867
Finance lease liabilities - current		228			190
Operating lease liabilities - current		615			540
Sales tax payable		532			621
Deferred revenue - current portion		13,365			11,516
Notes payable - current portion		2,429			5,970
Due to related party		3			236
Total current liabilities		28,741			31,699

LONG-TERM LIABILITIES
Notes payable, net of current portion		25			5,779
Finance lease liabilities, net of current portion		269			246
Operating lease liabilities, net of current portion		378			469
Deferred revenue, net of current portion		6,820			6,188
Other long-term liabilities		918			910
Total long-term liabilities		8,410			13,592

COMMITMENTS AND CONTINGENCIES (NOTE N)

STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 1,000,000 shares authorized; nil shares issued and outstanding at September 30, 2021 and December 31, 2020		-			-
Common stock, $.001 par value; 250,000,000 shares authorized; 185,435,965 and 185,244,299 shares issued at September 30, 2021 and December 31, 2020; 175,127,878 and 174,936,212 shares outstanding at September 30, 2021 and December 31, 2020		185			185
Additional paid-in capital		63,911			63,886
Accumulated deficit		(54,214	)		(57,002	)
Accumulated other comprehensive income		57			16
Treasury stock, at cost, 10,308,087 shares at September 30, 2021 and December 31, 2020		(2,000	)		(2,000	)
Total stockholders’ equity		7,939			5,085
	$	45,090		$	50,376

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

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Vaso Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

	Three months ended						Nine months ended
	September 30,						September 30,
	2021			2020			2021			2020
Revenues	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Managed IT systems and services	$	10,580		$	10,733		$	32,275		$	32,792
Professional sales services		7,246			5,801			16,872			15,688
Equipment sales and services		603			900			1,932			2,477
Total revenues		18,429			17,434			51,079			50,957

Cost of revenues
Cost of managed IT systems and services		6,341			6,350			19,536			19,812
Cost of professional sales services		1,692			1,092			3,677			3,062
Cost of equipment sales and services		136			213			407			790
Total cost of revenues		8,169			7,655			23,620			23,664
Gross profit		10,260			9,779			27,459			27,293

Operating expenses
Selling, general and administrative		9,501			8,495			27,646			27,636
Research and development		123			174			437			539
Total operating expenses		9,624			8,669			28,083			28,175
Operating income (loss)		636			1,110			(624	)		(882	)

Other (expense) income
Interest and financing costs		(61	)		(145	)		(267	)		(558	)
Interest and other income, net		95			48			120			63
Gain on forgiveness of PPP loan		-			-			3,646			-
Gain on sale of equity in EECP Global		-			-			-			110
Total other (expense) income, net		34			(97	)		3,499			(385	)

Income (loss) before income taxes		670			1,013			2,875			(1,267	)
Income tax (expense) benefit		(19	)		(11	)		(87	)		97
Net income (loss)		651			1,002			2,788			(1,170	)

Other comprehensive income
Foreign currency translation income (loss)		11			118			41			39
Comprehensive income (loss)	$	662		$	1,120		$	2,829		$	(1,131	)

Income (loss) per common share
- basic and diluted	$	0.00		$	0.01		$	0.02		$	(0.01	)

Weighted average common shares outstanding
- basic		172,228			170,515			171,506			169,279
- diluted		174,196			171,167			173,562			169,279

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

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Vaso Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

																Accumulated
											Additional					Other			Total
	Common Stock				Treasury Stock						Paid-in-		Accumulated			Comprehensive			Stockholders’
	Shares		Amount		Shares			Amount			Capital		Deficit			Loss			Equity
Balance at January 1, 2020		183,744	$	184		(10,308	)		(2,000	)	$	63,803	$	(57,360	)	$	(313	)	$	4,314
Share-based compensation		1,000		1		-			-			26		-			-			27
Foreign currency translation loss		-		-		-			-			-		-			(65	)		(65	)
Net loss		-		-		-			-			-		(1,475	)		-			(1,475	)
Balance at March 31, 2020 (unaudited)		184,744	$	185		(10,308	)	$	(2,000	)	$	63,829	$	(58,835	)	$	(378	)	$	2,801
Share-based compensation		224		-		-			-			27		-			-			27
Reclassify accumulated translation loss		-		-		-			-			-		-			187			187
Foreign currency translation loss		-		-		-			-			-		-			(14	)		(14	)
Net loss		-		-		-			-			-		(697	)		-			(697	)
Balance at June 30, 2020 (unaudited)		184,968	$	185		(10,308	)	$	(2,000	)	$	63,856	$	(59,532	)	$	(205	)	$	2,304
Share-based compensation		55		-		-			-			16		-			-			16
Foreign currency translation gain		-		-		-			-			-		-			118			118
Net income		-		-		-			-			-		1,002			-			1,002
Balance at September 30, 2020 (unaudited)		185,023	$	185		(10,308	)	$	(2,000	)	$	63,872	$	(58,530	)	$	(87	)	$	3,440

Balance at January 1, 2021		185,244	$	185		(10,308	)		(2,000	)	$	63,886	$	(57,002	)	$	16		$	5,085
Share-based compensation		-		-		-			-			9		-			-			9
Foreign currency translation loss		-		-		-			-			-		-			(21	)		(21	)
Net loss		-		-		-			-			-		(643	)		-			(643	)
Balance at March 31, 2021 (unaudited)		185,244	$	185		(10,308	)	$	(2,000	)	$	63,895	$	(57,645	)	$	(5	)	$	4,430
Share-based compensation		192		-		-			-			8		-			-			8
Foreign currency translation gain		-		-		-			-			-		-			51			51
Net income		-		-		-			-			-		2,780			-			2,780
Balance at June 30, 2021 (unaudited)		185,436	$	185		(10,308	)	$	(2,000	)	$	63,903	$	(54,865	)	$	46		$	7,269
Share-based compensation		-		-		-			-			8		-			-			8
Foreign currency translation gain		-		-		-			-			-		-			11			11
Net income		-		-		-			-			-		651			-			651
Balance at September 30, 2021 (unaudited)		185,436	$	185		(10,308	)	$	(2,000	)	$	63,911	$	(54,214	)	$	57		$	7,939

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

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Vaso Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine months ended
	September 30,
	2021			2020
Cash flows from operating activities	(unaudited)			(unaudited)
Net income (loss)	$	2,788		$	(1,170	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization		1,748			1,861
Deferred income taxes		-			(124	)
Loss from investment in EECP Global		35			17
Gain on forgiveness of PPP loan		(3,646	)		-
Gain on sale of equity in EECP Global		-			(110	)
Provision for doubtful accounts and commission adjustments		545			425
Write-down of inventory		282			-
Share-based compensation		25			69
Changes in operating assets and liabilities:
Accounts and other receivables		2,669			8,615
Due from related parties		(80	)		(29	)
Inventories		13			107
Deferred commission expense		(589	)		770
Prepaid expenses and other current assets		441			37
Other assets, net		81			(126	)
Accounts payable		(3,569	)		(1,955	)
Accrued commissions		146			(1,171	)
Accrued expenses and other liabilities		2,388			(376	)
Sales tax payable		(89	)		(204	)
Deferred revenue		2,480			(1,923	)
Due to related party		(233	)		(15	)
Other long-term liabilities		9			36
Net cash provided by operating activities		5,444			4,734

Cash flows from investing activities
Purchases of equipment and software		(367	)		(635	)
Redemption of short-term investments		155			-
Proceeds from sale of equity in EECP Global		-			1,150
Net cash (used in) provided by investing activities		(212	)		515

Cash flows from financing activities
Repayment on revolving lines of credit		(3,025	)		(1,351	)
Proceeds from notes payable		-			3,754
Payroll taxes paid by withholding shares		-			(1	)
Repayment of notes payable and finance lease obligations		(2,823	)		(1,615	)
Repayment of notes payable - related parties		-			(1,252	)
Net cash (used in) provided by financing activities		(5,848	)		(465	)
Effect of exchange rate differences on cash and cash equivalents		(13	)		(43	)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(629	)		4,741
Cash and cash equivalents - beginning of period		6,819			2,124
Cash and cash equivalents - end of period	$	6,190		$	6,865

SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
Interest paid	$	284		$	582
Income taxes paid	$	101		$	65

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Initial recognition of operating lease right of use asset and liability	$	639		$	599
Equipment acquired through note payable	$	-		$	42

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

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Vaso Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE A - ORGANIZATION AND PLAN OF OPERATIONS

Vaso Corporation was incorporated in Delaware in July 1987. Unless the context requires otherwise, all references to “we”, “our”, “us”, “Company”, “registrant”, “Vaso” or “management” refer to Vaso Corporation and its subsidiaries.

Overview

Vaso Corporation principally operates in three distinct business segments in the healthcare and information technology (“IT”) industries. We manage and evaluate our operations, and report our financial results, through these three business segments.

	·	IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;

	·	Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for General Electric Healthcare (“GEHC”) into the healthcare provider middle market; and

	·	Equipment segment, operating through a wholly-owned subsidiary VasoMedical, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices and software.

VasoTechnology

VasoTechnology, Inc. was formed in May 2015, at the time the Company acquired all of the assets of NetWolves, LLC and its affiliates, including the membership interests in NetWolves Network Services, LLC (collectively, “NetWolves”). It currently consists of a managed network and security service division and a healthcare IT application division. Its current offerings include:

	·	Managed radiology and imaging applications (channel partner of select vendors of healthcare IT products).
	·	Managed network infrastructure (routers, switches and other core equipment).
	·	Managed network transport (FCC licensed carrier reselling over 175 facility partners).
	·	Managed security services.

VasoTechnology uses a combination of proprietary technology, methodology and third-party applications to deliver its value proposition.

VasoHealthcare

VasoHealthcare commenced operations in 2010, in conjunction with the Company’s execution of its exclusive sales representation agreement (“GEHC Agreement”) with GEHC, which is the healthcare business division of the General Electric Company (“GE”), to further the sale of certain healthcare capital equipment in the healthcare provider middle market. Sales of GEHC equipment by the Company have grown significantly since then.

VasoHealthcare’s current offerings consist of:

	·	GEHC diagnostic imaging capital equipment.
	·	GEHC service agreements for the above equipment.
	·	GEHC training services for use of the above equipment.
	·	GEHC and third party financial services.

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Vaso Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

VasoMedical

VasoMedical is the Company’s business division for its proprietary medical device operations, including the design, development, manufacturing, sales and service of various medical devices in the domestic and international markets and includes the Vasomedical Global and Vasomedical Solutions business units (see Note M). These devices are primarily for cardiovascular monitoring and diagnostic systems. Its current offerings consist of:

	·	Biox™ series Holter monitors and ambulatory blood pressure recorders.
	·	ARCS^® series analysis, reporting and communication software for ECG and blood pressure signals.
	·	MobiCare™ multi-parameter wireless vital-sign monitoring system.
	·	EECP^® therapy systems for non-invasive, outpatient treatment of ischemic heart disease.

This segment uses its extensive cardiovascular device knowledge coupled with its significant engineering resources to cost-effectively create and market its proprietary technology. It works with a global distribution network of channel partners to sell its products. It also provides engineering and OEM services to other medical device companies.

NOTE B – INTERIM STATEMENT PRESENTATION

Basis of Presentation and Use of Estimates

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Certain information and disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on May 5, 2021.

These unaudited condensed consolidated financial statements include the accounts of the companies over which we exercise control. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of interim results for the Company. The results of operations for any interim period are not necessarily indicative of results to be expected for any other interim period or the full year.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, the disclosure of contingent assets and liabilities in the unaudited condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenues, expenses and cash flows during the periods presented. Actual amounts and results could differ from those estimates. The estimates and assumptions the Company makes are based on historical factors, current circumstances and the experience and judgment of the Company’s management. The Company evaluates its estimates and assumptions on an ongoing basis.

Significant Accounting Policies and Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such guidance will impact how we determine our allowance for estimated uncollectible receivables. In November 2019, the FASB issued ASU 2019-10, which changed the effective date of ASU 2016-13 for smaller reporting companies as defined by the SEC from first quarter of 2020 to the first quarter of 2023, with early adoption permitted. We are currently evaluating the effect that ASU 2016-13 will have on our consolidated financial statements and related disclosures.

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Vaso Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Prior Periods’ Financial Statement Revisions

As disclosed in our 2020 Annual Report, we identified certain misstatements in our previously issued financial statements. The misstatements included misappropriation of funds by a mid-level management employee and partially recording certain regulatory fees billed to our customers as revenue. We assessed the materiality of the misstatements 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. However, in our 2020 Annual Report, we revised our previously issued 2019 consolidated financial statements to correct for these misstatements.

In connection with the filing of this Quarterly Report, we have revised the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), Cash Flows, and Changes in Stockholders’ Equity for the three and nine months ended September 30, 2020, and the related notes to revise for those misstatements that impacted such periods.

	Consolidated Statement of Operations and Comprehensive Income (Loss)							Consolidated Statement of Operations and Comprehensive Income (Loss)
	Three months ended September 30, 2020 (unaudited)							Nine months ended September 30, 2020 (unaudited)
(in thousands, except per share data)	As Reported		Adjustment			As Revised		As Reported			Adjustment			As Revised
Revenues
Managed IT systems and services	$	10,833	$	(100	)	$	10,733	$	32,994		$	(202	)	$	32,792

Gross Profit - IT segment		4,483		(100	)		4,383		13,182			(202	)		12,980

Operating expenses
Selling, general and administrative		8,451		44			8,495		27,486			150			27,636
Operating income/(loss)	$	1,254	$	(144	)	$	1,110	$	(530	)	$	(352	)	$	(882	)

Net income/(loss)	$	1,146	$	(144	)	$	1,002	$	(818	)	$	(352	)	$	(1,170	)

Comprehensive income/(loss)	$	1,264	$	(144	)	$	1,120	$	(779	)	$	(352	)	$	(1,131	)

Income/(loss) per common share
- basic and diluted	$	0.01	$	(0.00	)	$	0.01	$	(0.00	)	$	(0.00	)	$	(0.01	)

									Consolidated Statement of Cash Flows
									Nine months ended September 30, 2020 (unaudited)
(in thousands)								As Reported			Adjustment			As Revised
Net loss								$	(818	)	$	(352	)	$	(1,170	)
Accounts payable								$	(2,307	)	$	352		$	(1,955	)

	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, 2020	$	(55,885	)	$	(1,475	)	$	(57,360	)	$	5,789		$	(1,475	)	$	4,314

Net loss	$	(1,367	)	$	(108	)	$	(1,475	)	$	(1,367	)	$	(108	)	$	(1,475	)

Balance at March 31, 2020 (unaudited)	$	(57,252	)	$	(1,583	)	$	(58,835	)	$	4,384		$	(1,583	)	$	2,801

Net loss	$	(597	)	$	(100	)	$	(697	)	$	(597	)	$	(100	)	$	(697	)

Balance at June 30, 2020 (unaudited)	$	(57,849	)	$	(1,683	)	$	(59,532	)	$	3,987		$	(1,683	)	$	2,304

Net income	$	1,146		$	(144	)	$	1,002		$	1,146		$	(144	)	$	1,002

Balance at September 30, 2020 (unaudited)	$	(56,703	)	$	(1,827	)	$	(58,530	)	$	5,267			(1,827	)	$	3,440

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Vaso Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE C – REVENUE RECOGNITION

Disaggregation of Revenue

The following tables present revenues disaggregated by our business operations and timing of revenue recognition:

	(in thousands)
	Three Months Ended September 30, 2021 (unaudited)								Three Months Ended September 30, 2020 (unaudited)
			Professional sales service		Equipment						Professional sales service		Equipment
	IT segment		segment		segment		Total		IT segment		segment		segment		Total
Network services	$	9,181	$	-	$	-	$	9,181	$	9,872	$	-	$	-	$	9,872
Software sales and support		1,399		-		-		1,399		861		-		-		861
Commissions		-		7,246		-		7,246		-		5,801		-		5,801
Medical equipment sales		-		-		570		570		-		-		868		868
Medical equipment service		-		-		33		33		-		-		32		32
	$	10,580	$	7,246	$	603	$	18,429	$	10,733	$	5,801	$	900	$	17,434

	Nine Months Ended September 30, 2021 (unaudited)								Nine Months Ended September 30, 2020 (unaudited)
			Professional sales service		Equipment						Professional sales service		Equipment
	IT segment		segment		segment		Total		IT segment		segment		segment		Total
Network services	$	28,670	$	-	$	-	$	28,670	$	29,803	$	-	$	-	$	29,803
Software sales and support		3,605		-		-		3,605		2,989		-		-		2,989
Commissions		-		16,872		-		16,872		-		15,688		-		15,688
Medical equipment sales		-		-		1,835		1,835		-		-		2,038		2,038
Medical equipment service		-		-		97		97		-		-		439		439
	$	32,275	$	16,872	$	1,932	$	51,079	$	32,792	$	15,688	$	2,477		50,957

	Three Months Ended September 30, 2021 (unaudited)								Three Months Ended September 30, 2020 (unaudited)
			Professional sales service		Equipment						Professional sales service		Equipment
	IT segment		segment		segment		Total		IT segment		segment		segment		Total
Revenue recognized over time	$	9,561	$	-	$	76	$	9,637	$	10,083	$	-	$	31	$	10,114
Revenue recognized at a point in time		1,019		7,246		527		8,792		650		5,801		869		7,320
	$	10,580	$	7,246	$	603	$	18,429	$	10,733	$	5,801	$	900	$	17,434

	Nine Months Ended September 30, 2021 (unaudited)								Nine Months Ended September 30, 2020 (unaudited)
			Professional sales service		Equipment						Professional sales service		Equipment
	IT segment		segment		segment		Total		IT segment		segment		segment		Total
Revenue recognized over time	$	28,831	$	-	$	139	$	28,970	$	30,340	$	-	$	336	$	30,676
Revenue recognized at a point in time		3,444		16,872		1,793		22,109		2,452		15,688		2,141		20,281
	$	32,275	$	16,872	$	1,932	$	51,079	$	32,792	$	15,688	$	2,477	$	50,957

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Notes to Condensed Consolidated Financial Statements (unaudited)

Transaction Price Allocated to Remaining Performance Obligations

As of September 30, 2021, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $74.5 million, of which we expect to recognize revenue as follows:

			(in thousands)
			Fiscal years of revenue recognition (unaudited)
	remainder of 2021		2022		2023		Thereafter
Unfulfilled performance obligations	$	12,467	$	33,350	$	13,757	$	14,959

Contract Liabilities

Contract liabilities arise in our healthcare IT, VasoHealthcare, and VasoMedical businesses. In our healthcare IT business, payment arrangements with clients typically include an initial payment due upon contract signing and milestone-based payments based upon product delivery and go-live, as well as post go-live monthly payments for subscription and support fees. Customer payments received, or receivables recorded, in advance of go-live and customer acceptance, where applicable, are deferred as contract liabilities. Such amounts aggregated approximately $370,000 and $553,000 at September 30, 2021 and December 31, 2020, respectively, and are included in accrued expenses and other liabilities in our condensed consolidated balance sheets.

In our VasoHealthcare business, we bill amounts for certain milestones in advance of customer acceptance of the underlying equipment. Such amounts aggregated approximately $20,174,000 and $17,689,000 at September 30, 2021 and December 31, 2020, respectively, and are classified in our condensed consolidated balance sheets as either current or long-term deferred revenue. In addition, we record a contract liability for amounts expected to be repaid to GEHC due to customer order reductions. Such amounts aggregated approximately $1,378,000 and $1,118,000 at September 30, 2021 and December 31, 2020, respectively, and are included in accrued expenses and other liabilities in our condensed consolidated balance sheets.

In our VasoMedical business, we bill amounts for post-delivery services and varying duration service contracts in advance of performance. Such amounts aggregated approximately $11,000 and $15,000 at September 30, 2021 and December 31, 2020, respectively, and are classified in our condensed consolidated balance sheets as either current or long-term deferred revenue.

During the three and nine months ended September 30, 2021, we recognized approximately $3.0 million and $4.8 million of revenues, respectively, that were included in our contract liability balance at July 1, 2021 and January 1, 2021, respectively.

NOTE D – SEGMENT REPORTING AND CONCENTRATIONS

Vaso Corporation principally operates in three distinct business segments in the healthcare and information technology industries. We manage and evaluate our operations, and report our financial results, through these three reportable segments.

	·	IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;

	·	Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for GEHC into the healthcare provider middle market; and

	·	Equipment segment, operating through a wholly-owned subsidiary VasoMedical, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices.

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Notes to Condensed Consolidated Financial Statements (unaudited)

The chief operating decision maker is the Company’s Chief Executive Officer, who, in conjunction with upper management, evaluates segment performance based on operating income and adjusted EBITDA (net income (loss), plus interest expense (income), net; tax expense; depreciation and amortization; and non-cash stock-based compensation). Administrative functions such as finance, human resources, and information technology are centralized and related expenses allocated to each segment. Other costs not directly attributable to operating segments, such as audit, legal, director fees, investor relations, and others, as well as certain assets – primarily cash balances – are reported in the Corporate entity below. There are no intersegment revenues. Summary financial information for the segments is set forth below:

	(in thousands)
	Three months ended September 30,						Nine Months ended September 30,
	2021			2020			2021			2020
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues from external customers
IT	$	10,580		$	10,733		$	32,275		$	32,792
Professional sales service		7,246			5,801			16,872			15,688
Equipment		603			900			1,932			2,477
Total revenues	$	18,429		$	17,434		$	51,079		$	50,957

Gross Profit
IT	$	4,239		$	4,383		$	12,739		$	12,980
Professional sales service		5,554			4,709			13,195			12,626
Equipment		467			687			1,525			1,687
Total gross profit	$	10,260		$	9,779		$	27,459		$	27,293

Operating income (loss)
IT	$	(77	)	$	15		$	(254	)	$	(1,272	)
Professional sales service		1,091			1,161			709			1,038
Equipment		(96	)		142			(212	)		(1	)
Corporate		(282	)		(208	)		(867	)		(647	)
Total operating income (loss)	$	636		$	1,110		$	(624	)	$	(882	)

Depreciation and amortization
IT	$	512		$	500		$	1,413		$	1,517
Professional sales service		39			37			115			123
Equipment		73			73			220			221
Corporate		-			-			-			-
Total depreciation and amortization	$	624		$	610		$	1,748		$	1,861

Capital expenditures
IT	$	238		$	182		$	324		$	600
Professional sales service		-			3			3			5
Equipment		1			-			37			28
Corporate		3			-			3			2
Total cash capital expenditures	$	242		$	185		$	367		$	635

	(in thousands)
	September 30, 2021		December 31, 2020
	(unaudited)
Identifiable Assets
IT	$	25,453	$	28,110
Professional sales service		8,786		9,171
Equipment		6,564		6,668
Corporate		4,287		6,427
Total assets	$	45,090	$	50,376

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Notes to Condensed Consolidated Financial Statements (unaudited)

GE Healthcare accounted for 39% and 33% of revenue for the three months ended September 30, 2021 and 2020, respectively, and 33% and 31% of revenue for the nine months ended September 30, 2021 and 2020, respectively. GE Healthcare also accounted for $3.5 million or 53%, and $5.1 million or 52%, of accounts and other receivables at September 30, 2021 and December 31, 2020, respectively. No other customer accounted for 10% or more of revenue.

NOTE E –NET INCOME (LOSS) PER COMMON SHARE

Basic earnings per common share is computed as earnings applicable to common stockholders divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted to common stock.

Diluted earnings per share were computed based on the weighted average number of shares outstanding plus all potentially dilutive common shares. A reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:

	(in thousands)
	For the three months ended September 30,				For the nine months ended September 30,
	2021		2020		2021		2020
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Basic weighted average shares outstanding		172,228		170,515		171,506		169,279
Dilutive effect of unvested restricted shares		1,968		652		2,056		-
Diluted weighted average shares outstanding		174,196		171,167		173,562		169,279

The following table represents common stock equivalents that were excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2021 and 2020, because the effect of their inclusion would be anti-dilutive.

	(in thousands)
	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Restricted common stock grants		-		874		-		4,674

NOTE F – ACCOUNTS AND OTHER RECEIVABLES, NET

The following table presents information regarding the Company’s accounts and other receivables as of September 30, 2021 and December 31, 2020:

	(in thousands)
	September 30, 2021			December 31, 2020
	(unaudited)
Trade receivables	$	9,757		$	13,960
Unbilled receivables		1,723			-
Due from employees		-			24
Allowance for doubtful accounts and commission adjustments		(4,913	)		(4,208	)
Accounts and other receivables, net	$	6,567		$	9,776

Contract receivables under Topic 606 consist of trade receivables and unbilled receivables. Trade receivables include amounts due for shipped products and services rendered. Unbilled receivables represent variable consideration recognized in accordance with Topic 606 but not yet billable. Amounts recorded – billed and unbilled - under the GEHC Agreement are subject to adjustment in subsequent periods should the underlying sales order amount, upon which the receivable is based, change.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Allowance for doubtful accounts and commission adjustments include estimated losses resulting from the inability of our customers to make required payments, and adjustments arising from subsequent changes in sales order amounts that may reduce the amount the Company will ultimately receive under the GEHC Agreement. Due from employees is primarily commission advances made to sales personnel.

NOTE G – INVENTORIES, NET

Inventories, net of reserves, consist of the following:

	(in thousands)
	September 30, 2021		December 31, 2020
	(unaudited)
Raw materials	$	775	$	669
Work in process		31		4
Finished goods		613		711
	$	1,419	$	1,384

The Company maintained reserves for slow moving inventories of $165,000 and $167,000 at September 30, 2021 and December 31, 2020, respectively.

NOTE H – GOODWILL AND OTHER INTANGIBLES

Goodwill of $14,375,000 is allocated to the IT segment. The remaining $1,327,000 of goodwill is attributable to the FGE reporting unit within the Equipment segment. The NetWolves and FGE reporting units had negative net asset carrying amounts at September 30, 2021 and December 31, 2020. The components of the change in goodwill are as follows:

	(in thousands)
	Nine months ended		Year ended
	September 30, 2021		December 31, 2020
	(unaudited)
Beginning of period	$	15,688	$	17,271
Foreign currency translation adjustment		16		82
Sale of equity in EECP Global		-		(1,665	)
End of period	$	15,704	$	15,688

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Notes to Condensed Consolidated Financial Statements (unaudited)

The Company’s other intangible assets consist of capitalized customer-related intangibles, patent and technology costs, and software costs, as set forth in the following:

	(in thousands)
	September 30, 2021			December 31, 2020
	(unaudited)
Customer-related
Costs	$	5,831		$	5,831
Accumulated amortization		(4,196	)		(3,947	)
		1,635			1,884

Patents and Technology
Costs		1,894			1,894
Accumulated amortization		(1,696	)		(1,521	)
		198			373

Software
Costs		3,424			3,394
Accumulated amortization		(1,920	)		(1,702	)
		1,504			1,692

	$	3,337		$	3,949

Patents and technology are amortized on a straight-line basis over their estimated useful lives of ten and eight years, respectively. The cost of significant customer-related intangibles is amortized in proportion to estimated total related revenue; cost of other customer-related intangible assets is amortized on a straight-line basis over the asset’s estimated economic life of seven years. Software costs are amortized on a straight-line basis over its expected useful life of five years.

Amortization expense amounted to $213,000 and $222,000 for the three months ended September 30, 2021 and 2020, respectively and $641,000 and $680,000 for the nine months ended September 30, 2021 and 2020, respectively.

Amortization of intangibles for the next five years is:

Years ending December 31,	(in thousands) (unaudited)
Remainder of 2021		269
2022		778
2023		555
2024		475
2025		413
	$	2,490

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Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE I – OTHER ASSETS, NET

Other assets, net consist of the following at September 30, 2021 and December 31, 2020:

	(in thousands)
	September 30, 2021		December 31, 2020
	(unaudited)
Deferred commission expense - noncurrent	$	1,835	$	1,683
Trade receivables - noncurrent		228		448
Other, net of allowance for loss on loan receivable of $412 at September 30, 2021 and December 31, 2020		67		59
	$	2,130	$	2,190

NOTE J – ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following at September 30, 2021 and December 31, 2020:

	(in thousands)
	September 30, 2021		December 31, 2020
	(unaudited)
Accrued compensation	$	1,388	$	1,044
Accrued expenses - other		1,860		1,854
Other liabilities		4,044		1,969
	$	7,292	$	4,867

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Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE K - DEFERRED REVENUE

The changes in the Company’s deferred revenues are as follows:

	(in thousands)
	Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Deferred revenue at beginning of period	$	19,667		$	16,480		$	17,704		$	19,343
Deconsolidate EECP Global		-			-			-			(769	)
Net additions:
Deferred extended service contracts		-			2			(1	)		144
Deferred in-service and training		-			-			-			3
Deferred service arrangements		-			-			-			5
Deferred commission revenues		3,356			2,554			9,061			4,432
Recognized as revenue:
Deferred extended service contracts		(1	)		(1	)		(4	)		(138	)
Deferred in-service and training		-			-			-			-
Deferred service arrangements		-			-			-			(5	)
Deferred commission revenues		(2,837	)		(2,384	)		(6,575	)		(6,364	)
Deferred revenue at end of period		20,185			16,651			20,185			16,651
Less: current portion		13,365			9,384			13,365			9,384
Long-term deferred revenue at end of period	$	6,820		$	7,267		$	6,820		$	7,267

NOTE L – NOTES PAYABLE

Notes payable consist of the following:

	(in thousands)
	September 30, 2021			December 31, 2020
	(unaudited)
Line of credit	$	1,321		$	4,346
Notes payable		33			3,803
Notes payable - MedTech		1,100			3,600
Total debt		2,454			11,749
Less: current portion		(2,429	)		(5,970	)
	$	25		$	5,779

NetWolves maintains a $4.0 million line of credit with a lending institution. In March 2021, the line’s expiration date was extended to June 30, 2022 upon repayment of $825,000 and subsequent quarterly payments of $50,000 beginning June 30, 2021. Advances under the line are secured by substantially all of the assets of NetWolves Network Services, LLC and guaranteed by Vaso Corporation. During the nine months ended September 30, 2021, $2.4 million in draw was repaid. At September 30, 2021, the Company had drawn approximately $1.3 million against the line, all of which is included in notes payable – current portion in the Company’s condensed consolidated balance sheet at September 30, 2021. No additional borrowing is permitted under the line. The credit agreement includes certain financial covenants. The Company was in compliance with such covenants at September 30, 2021.

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Notes to Condensed Consolidated Financial Statements (unaudited)

The Company maintained an additional $2.0 million line of credit with a lending institution. In March 2021, the $675,000 balance and accrued interest was paid in full and the line was closed.

In April 2020, the Company’s Biox subsidiary issued a note RMB1,000,000 (approximately $147,000) with a Chinese bank for working capital purposes. The note is secured by the assets of Biox and bears interest at 4.35%. It matured on April 15, 2021 and was repaid in full.

In June 2021, the Company’s Paycheck Protection Program (“PPP”) loan of $3,610,900 and related accrued interest of approximately $35,000 was forgiven by the Small Business Administration. The Company reported a gain on forgiveness of debt of approximately $3,646,000 in Other (Expense) Income in its condensed consolidated statements of operations.

NOTE M – RELATED-PARTY TRANSACTIONS

The Company recorded interest charges aggregating approximately $116,000 and $232,000 for the nine-month periods ended September 30, 2021 and 2020, respectively, payable to MedTechnology Investments, LLC (“MedTech”) pursuant to its promissory notes (“Notes”). The MedTech Notes were used in 2015 to partially fund the purchase of NetWolves. $2,300,000 of the $4,800,000 provided by MedTech was provided by directors of the Company, or by their family members. The Notes bore interest, payable quarterly, at an annual rate of 9% through their original maturity date of May 29, 2019. In August 2018, MedTech agreed to extend the maturity date of $3,600,000 of the Notes an additional year from May 29, 2019 to May 29, 2020, provided that a minimum of $1,200,000 of the principal was paid on or before December 31, 2019 and the annual interest rate for the balance increased to 10% during the extension. The $1,200,000 principal payment was waived pursuant to MedTech’s consent to the bank line of credit maturity extension to September 30, 2020. The Notes may be prepaid without penalty, and are subordinated to any current or future Senior Debt as defined in the Subordinated Security Agreement. The Subordinated Security Agreement secures payment and performance of the Company’s obligations under the Notes. In April 2020, $1.2 million in principal was repaid and the maturity date of $3.6 million of the Notes were extended through April 30, 2021 at a new interest rate of 6% per annum. The maturity date was extended again in March 2021 to June 30, 2022, upon repayment of $1.2 million and subsequent quarterly payments of $50,000 beginning June 30, 2021. The interest rate remains at 6% per annum. On August 10, 2021, the Company made an additional $1.2 million principal payment. The total $1.1 million outstanding balance of the MedTech Notes is included in current liabilities in the Company’s condensed consolidated balance sheet as of September 30, 2021.

David Lieberman, the Vice Chairman of the Company’s Board of Directors, is a practicing attorney in the State of New York and a senior partner at the law firm of Beckman Lieberman & Associates LLP, which performs certain legal services for the Company. Fees of approximately $48,000 and $55,000 were billed by the firm for the three-month periods ended September 30, 2021 and 2020, respectively, and fees of approximately $143,000 and $173,000 were billed by the firm for the nine-month periods ended September 30, 2021 and 2020, respectively. No amounts were outstanding at September 30, 2021 and 2020.

In April, 2020, the Company closed on the sale of 51% of the capital stock of its wholly-owned subsidiary EECP Global Corporation (“EECP Global”) to Chongqing PSK-Health Sci-Tech Development Co. Ltd, a China-based company, for $1,150,000. EECP Global was formed in September 2019 to hold all the assets and liabilities of its EECP business. Concurrently with the closing of the transaction, the Company signed a three-year Management Service Agreement with EECP Global to provide management service for the business and operation of EECP Global in the United States. Pursuant to the agreement, EECP Global reimburses the Company all direct expenses and pays a management fee starting April 1, 2020, the effective date of the sale.

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 and nine months ended September 30, 2021, the Company’s share of EECP Global’s loss was approximately $15,000 and $35,000, respectively and is included in Other (Expense) Income in its condensed consolidated statements of operations. At September 30, 2021, the Company recorded a net receivable from related parties of approximately $80,000 on its condensed consolidated balance sheet for amounts due from EECP Global for fees and cost reimbursements net of amounts due to EECP Global for receivables collected on its behalf.

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Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 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 further extended the term of the agreement through December 31, 2026, subject to earlier termination with or without cause under certain circumstances after timely notice. Under the agreement, VasoHealthcare is the exclusive representative for the sale of select GE Healthcare diagnostic imaging products to specific market segments/accounts in the 48 contiguous states of the United States and the District of Columbia. The agreement may be terminated by GE Healthcare without cause subject to certain conditions. 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. See Note O.

Employment Agreements

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

NOTE O – SUBSEQUENT EVENT

On October 25, 2021, the Company executed an amendment to the GEHC Agreement with GEHC, which, among other changes to the terms and conditions of the agreement, extended the term of the agreement from December 31, 2022 to December 31, 2026, subject to earlier termination with or without cause under certain circumstances after timely notice.

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

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

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

General Overview

COVID-19 pandemic

The COVID-19 pandemic has had and will continue to have a significant impact on the 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 nine months 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.

Our Business Segments

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

	·	IT segment, operating through a wholly-owned subsidiary VasoTechnology, Inc., primarily focuses on healthcare IT and managed network technology services;

	·	Professional sales service segment, operating through a wholly-owned subsidiary Vaso Diagnostics, Inc. d/b/a VasoHealthcare, primarily focuses on the sale of healthcare capital equipment for GEHC into the healthcare provider middle market; and

	·	Equipment segment, operating through a wholly-owned subsidiary VasoMedical, Inc., primarily focuses on the design, manufacture, sale and service of proprietary medical devices.

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Critical Accounting Policies and Estimates

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

Certain of our accounting policies are deemed “critical”, as they are both most important to the financial statement presentation and require management’s most difficult, subjective or complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a discussion of our critical accounting policies, see Note B to the condensed consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 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 September 30, 2021 and 2020

Revenues

Total revenue for the three months ended September 30, 2021 and 2020 was $18,429,000 and $17,434,000, respectively, representing an increase of $995,000, or 6% year-over-year. On a segment basis, revenue in the IT and equipment segments decreased $153,000 and $297,000, respectively, while revenue in the professional sales services segment increased $1,445,000.

Revenue in the IT segment for the three months ended September 30, 2021 was $10,580,000 compared to $10,733,000 for the three months ended September 30, 2020, a decrease of $153,000, or 1%, of which $692,000 resulted from lower NetWolves revenues, offset by $539,000 higher revenues in the healthcare IT business. Our monthly recurring revenue in the IT segment accounted for $9,561,000 or 90% of the segment revenue in the third quarter of 2021, and $10,083,000 or 94% of the segment revenue for the same quarter last year (see Note C).

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Commission revenues in the professional sales service segment were $7,246,000 in the third quarter of 2021, an increase of $1,445,000, or 25%, as compared to $5,801,000 in the same quarter of 2020. The increase in commission revenues was due primarily to an increase in the volume of underlying equipment delivered by GEHC during the period, partially offset by 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 September 30, 2021, $20,174,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $6,814,000 was long-term. As of September 30, 2020, $16,634,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $7,250,000 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 $297,000, or 33%, to $603,000 for the three-month period ended September 30, 2021 from $900,000 for the same period of the prior year, principally due to lower deliveries in our China operations.

Gross Profit

Gross profit for the three months ended September 30, 2021 and 2020 was $10,260,000, or 56% of revenue, and $9,779,000, or 56% of revenue, respectively, representing an increase of $481,000, or 5% year-over-year. On a segment basis, gross profit in the IT and equipment segments decreased $144,000, or 3%, and $220,000, or 32%, respectively, while gross profit in the professional sales service segment increased $845,000, or 18%.

IT segment gross profit for the three months ended September 30, 2021 was $4,239,000, or 40% of the segment revenue, compared to $4,383,000, or 41% of the segment revenue for the three months ended September 30, 2020. The year-over-year decrease of $144,000, or 3%, was primarily a result of lower sales volume in the NetWolves business, partially offset by higher sales volume and a higher margin sales mix in the healthcare IT business.

Professional sales service segment gross profit was $5,554,000, or 77% of segment revenue, for the three months ended September 30, 2021 as compared to $4,709,000, or 81% of the segment revenue, for the three months ended September 30, 2020, reflecting an increase of $845,000, or 18%. The increase in absolute dollars was due to higher commission revenue as a result of a higher blended commission rate and higher volume of GEHC equipment delivered during the third quarter of 2021 than in the same period last year, partially offset by higher commission expenses. Cost of commissions in the professional sales service segment of $1,692,000 and $1,092,000, for the three months ended September 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 decreased to $467,000, or 77% of segment revenues, for the third quarter of 2021 compared to $687,000, or 76% of segment revenues, for the same quarter of 2020. The $220,000, or 32%, decrease in gross profit was primarily the result of lower sales during the quarter.

Operating Income

Operating income for the three months ended September 30, 2021 was $636,000 compared to $1,110,000 for the same quarter in 2020, representing a decrease of $474,000, or 43%, 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 $77,000 in the third quarter of 2021 as opposed to operating income of $15,000 in the same period of 2020; the equipment segment recorded an operating loss of $96,000 in the third quarter of 2021 as opposed to operating income of $142,000 in the same period of 2020; and the professional sales service segment recorded operating income of $1,091,000 in the third quarter of 2021 as opposed to operating income of $1,161,000 in the same period of 2020.

Operating loss in the IT segment increased to $77,000 for the three-month period ended September 30, 2021 as compared to operating income of $15,000 in the same period of 2020, due to lower gross profit, partially offset by lower research and development (“R&D”) costs. Operating income in the professional sales service segment decreased $70,000 in the three-month period ended September 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 $96,000 in the third quarter of 2021, compared to operating income of $142,000 in the third quarter 2020, a decrease of $238,000. The decrease was primarily due to lower gross profit.

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SG&A costs for the three months ended September 30, 2021 and 2020 were $9,501,000 and $8,495,000, respectively, representing an increase of $1,006,000, or 12% year-over-year. On a segment basis, SG&A costs in the IT segment increased by $10,000 in the third quarter of 2021 from the same quarter of the prior year due to higher travel costs; SG&A costs in the professional sales service segment increased $917,000 due mainly to higher travel, as travel in the third quarter of 2020 was unusually low due to COVID-19 restrictions, and higher personnel costs due to increased headcount and increased bonuses due to improved order booking; and SG&A costs in the equipment segment increased $6,000 due mainly to higher consulting costs. Corporate costs not allocated to segments increased $73,000 due mainly to higher investor relations and director fees.

Research and development expenses were $123,000, or 1% of revenues, for the third quarter of 2021, a decrease of $51,000, or 29%, from $174,000, or 1% of revenues, for the third 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 September 30,
	2021		2020
	(unaudited)		(unaudited)
Net income	$	651	$	1,002
Interest expense (income), net		62		133
Income tax expense		19		11
Depreciation and amortization		624		610
Share-based compensation		8		15
Adjusted EBITDA	$	1,364	$	1,771

Adjusted EBITDA decreased by $407,000, to $1,364,000 in the quarter ended September 30, 2021 from $1,771,000 in the quarter ended September 30, 2020. The decrease was primarily attributable to decreases in net income and interest expense.

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Interest and Other Income (Expense)

Interest and other income (expense) for the three months ended September 30, 2021 was $34,000 as compared to $(97,000) for the corresponding period of 2020. The change in interest and other income (expense) was due primarily to lower interest expense resulting from repayments of notes payable and lines of credit.

Income Tax Expense

For the three months ended September 30, 2021, we recorded income tax expense of $19,000 as compared to $11,000 for the corresponding period of 2020. The $8,000 increase arose mainly from higher state tax expense.

Net Income

Net income for the three months ended September 30, 2021 was $651,000 as compared to net income of $1,002,000 for the three months ended September 30, 2020, representing a decrease of $351,000. Income per share of $0.00 and $0.01 was recorded in the three-month periods ended September 30, 2021 and 2020, respectively. The principal cause of the decrease in net income is the increase in SG&A costs, partially offset by the increase in gross profit.

Results of Operations – For the Nine Months Ended September 30, 2021 and 2020

Revenues

Total revenue for the nine months ended September 30, 2021 and 2020 was $51,079,000 and $50,957,000, respectively, representing an increase of $122,000, or less than 1% year-over-year. On a segment basis, revenue in the IT and equipment segments decreased $517,000 and $545,000, respectively, while revenue in the professional sales service segment increased $1,184,000.

Revenue in the IT segment for the nine months ended September 30, 2021 was $32,275,000 compared to $32,792,000 for the nine months ended September 30, 2020, a decrease of $517,000, or 2%, of which $1,133,000 resulted from lower NetWolves revenue, offset by a $616,000 increase in the operations of the healthcare IT business. Our monthly recurring revenue in the IT segment accounted for $28,831,000 or 89% of the segment revenue in the first nine months of 2021, and $30,340,000 or 93% of the segment revenue for the same period last year (see Note C).

Commission revenues in the professional sales service segment were $16,872,000 in the first nine months of 2021, an increase of $1,184,000, or 8%, as compared to $15,688,000 in the first nine months of 2020. The increase in commission revenues was due primarily to an increase in the volume of underlying equipment delivered by GEHC during the period, partially offset by a lower blended commission rate applicable to such deliveries. The Company recognizes commission revenue when the underlying equipment has been accepted at the customer site in accordance with the specific terms of the sales agreement. Consequently, amounts billable, or billed and received, under the agreement with GE Healthcare prior to customer acceptance of the equipment are recorded as deferred revenue in the condensed consolidated balance sheet. As of September 30, 2021, $20,174,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $6,814,000 was long-term. As of September 30, 2020, $16,634,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $7,250,000 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 $545,000, or 22%, to $1,932,000 for the nine-month period ended September 30, 2021 from $2,477,000 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 nine months of 2020, revenue in the equipment segment would decrease by $125,000, or 6%.

Gross Profit

Gross profit for the nine months ended September 30, 2021 and 2020 was $27,459,000, or 54% of revenue, and $27,293,000, or 54% of revenue, respectively, representing an increase of $166,000, or 1% year-over-year. On a segment basis, gross profit in the IT and equipment segments decreased $241,000, or 2%, and $162,000, or 10%, respectively, while gross profit in the professional sales service segment increased $569,000, or 5%.

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IT segment gross profit for the nine months ended September 30, 2021 was $12,739,000, or 39% of the segment revenue, compared to $12,980,000, or 40% of the segment revenue for the nine months ended September 30, 2020. The year-over-year decrease of $241,000, or 2%, was primarily a result of lower revenue at NetWolves and lower margin product sales mix in the healthcare IT business.

Professional sales service segment gross profit was $13,195,000, or 78% of segment revenue, for the nine months ended September 30, 2021 as compared to $12,626,000, or 80% of the segment revenue, for the nine months ended September 30, 2020, reflecting an increase of $569,000, or 5%. The increase in absolute dollars was primarily due to higher commission revenue as a result of a higher volume of GEHC equipment delivered, partially offset by a lower blended commission rate during the first nine months of 2021 than in the same period last year. Cost of commissions in the professional sales service segment of $3,677,000 and $3,062,000, for the nine months ended September 30, 2021 and 2020, respectively, reflected commission expense associated with recognized commission revenues.

Equipment segment gross profit decreased to $1,525,000, or 79% of segment revenues, for the first nine months of 2021 compared to $1,687,000, or 68% of segment revenues, for the same period in 2020. The $162,000, or 10%, decrease in gross profit was primarily the result of lower revenue due to exclusion of EECP business in the financials for the first nine months of 2021, partially offset by higher gross profit margin of non-EECP products sold during the first nine months of 2021.

Operating Loss

Operating loss for the nine months ended September 30, 2021 and 2020 was $624,000 and $882,000, respectively, representing an improvement of $258,000, or 29%, as gross profit increased $166,000 and operating costs (below) decreased $92,000, year-over-year. On a segment basis, the IT segment recorded an operating loss of $254,000 in the first nine months of 2021 as compared to an operating loss of $1,272,000 in the same period of 2020; the equipment segment recorded an operating loss of $212,000 in the first nine months of 2021 as compared to an operating loss of $1,000 in the same period of 2020; and operating income in the professional sales service segment decreased by $329,000, from $1,038,000 in the first nine months of 2020 to $709,000 in the same period of 2021.

Operating loss in the IT segment decreased to $254,000 for the nine-month period ended September 30, 2021 as compared to an operating loss of $1,272,000 in the same period of 2020, due primarily to lower selling, general, and administrative (“SG&A”) costs partially offset by lower gross profit. Operating income in the professional sales service segment decreased $329,000 in the nine-month period ended September 30, 2021 as compared to operating income in the same period of 2020, due to higher SG&A costs offset by higher gross profit. The equipment segment reported an operating loss of $212,000 in the first nine months of 2021, compared to an operating loss of $1,000 in the first nine months of 2020, an increase of $211,000. The increase in loss was due to lower gross profit as well as higher SG&A and R&D costs.

SG&A costs for the nine months ended September 30, 2021 and 2020 were $27,646,000 and $27,636,000, respectively, representing an increase of $10,000, or less than 1% year-over-year. On a segment basis, SG&A costs in the IT segment decreased by $1,122,000 in the first nine months of 2021 from the same period of the prior year due mainly to reduced personnel and third-party commission costs; SG&A costs in the professional sales service segment increased by $900,000 due to higher travel and personnel costs; and SG&A costs in the equipment segment increased slightly by $13,000. Corporate costs not allocated to segments increased $220,000 due mainly to higher accounting and director fees.

Research and development (“R&D”) expenses were $437,000, or 1% of revenues, for the first nine months of 2021, a decrease of $102,000, or 19%, from $539,000, or 1% of revenues, for the first nine months of 2020. The decrease is primarily attributable to lower product development expenses in the IT segment.

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Adjusted EBITDA

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

	(in thousands)
	Nine months ended September 30,
	2021		2020
	(unaudited)		(unaudited)
Net income (loss)	$	2,788	$	(1,170	)
Interest expense (income), net		261		546
Income tax expense (benefit)		87		(97	)
Depreciation and amortization		1,748		1,861
Share-based compensation		25		69
Adjusted EBITDA	$	4,909	$	1,209

Adjusted EBITDA increased by $3,700,000 to $4,909,000 in the period ended September 30, 2021 from $1,209,000 in the period ended September 30, 2020. The increase was primarily attributable to the $3,646,000 gain on PPP loan forgiveness in the nine months ended September 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 nine months ended September 30, 2021 was $3,499,000 as compared to $(385,000) for the corresponding period of 2020. The increase in interest and other income was due primarily to the $3.6 million PPP loan forgiveness and $291,000 lower interest expense in the nine months ended September 30, 2021.

Income Tax (Expense) Benefit

For the nine months ended September 30, 2021, we recorded income tax expense of $(87,000) as compared to income tax benefit of $97,000 for the corresponding period of 2020. The change from benefit to expense arose mainly from the reversal of a deferred tax liability in our China operations in the first nine months of 2020.

Net Income (Loss)

Net income for the nine months ended September 30, 2021 was $2,788,000 as compared to net loss of $(1,170,000) for the nine months ended September 30, 2020, representing an improvement of $3,958,000, or 338%. Income per share of $0.02 and loss per share of $0.01 was recorded in the nine-month periods ended September 30, 2021 and 2020, respectively. The principal cause of the improvement is the forgiveness of the PPP loan, as well as the reduction in operating expenses and interest expense in the nine months ended September 30, 2021.

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Liquidity and Capital Resources

Cash and Cash Flow

We have financed our operations from working capital. At September 30, 2021, we had cash and cash equivalents of $6,190,000 and negative working capital of $10,189,00 0, compared to cash and cash equivalents of $6,819,000 and negative working capital of $9,431,000 at December 31, 2020. $10,421,000 in negative working capital at September 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. Excluding these non-cash items, working capital would be $232,000 at September 30, 2021.

Cash provided by operating activities was $5,444,000, which consisted of net income after adjustments to reconcile net income to net cash of $1,777,000 and cash provided by operating assets and liabilities of $3,667,000, during the nine months ended September 30, 2021, compared to cash provided by operating activities of $4,734,000 for the same period in 2020. The changes in the account balances primarily reflect a decrease in accounts and other receivables of $2,669,000 and increases in accrued expenses and deferred revenue of $2,388,000 and $2,480,000, respectively, partially offset by a decrease in accounts payable of $3,569,000.

Cash used in investing activities during the nine-month period ended September 30, 2021 was $212,000 attributed to $367,000 used for the purchase of equipment and software, offset by the redemption of $155,000 in short-term investments.

Cash used in financing activities during the nine-month period ended September 30, 2021 was $5,848,000 resulting from the repayment of $3,025,000 of lines of credit and $2,823,000 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 quarter of 2021, depending on the duration of the pandemic and the timing and success of the reopening of the economy.

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ITEM 4 - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company’s senior management, including the Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures to provide reasonable assurance of achieving the desired objectives of the disclosure controls and procedures. In light of the material weaknesses noted in our Annual Report on Form 10-K for our fiscal year ended December 31, 2020, the Company has implemented additional internal control procedures during the quarter ended June 30, 2021, as discussed in our report on Form 10-K for the year ended December 31, 2020. Accordingly, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2021, our disclosure controls and procedures were effective.

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, 2021 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 5 – OTHER INFORMATION

The Company held its Annual Meeting of Stockholders on October 12, 2021. At the meeting, the Company’s stockholders voted to approve the following proposals:

	1)	The election of two directors in Class III, to hold office until the 2023 Annual Meeting of Stockholders and the election of two directors in Class I, to hold office until the 2024 Annual Meeting of Stockholders.

	2)	The appointment of Malone Bailey LLP as our independent registered public accountants for the year ending December 31, 2021.

The following table presents the voting results on these proposals:

Approved Proposals	Stockholder votes cast
	For		Withheld		Against		Abstain
Election of Directors
Dr. Jun Ma		102,267,458		7,610,031
David Lieberman		99,739,633		10,137,856
Joshua Markowitz		102,769,008		7,108,481
Edgar Rios		101,932,766		7,944,723

Appointment of public accountants		126,700,072		-		5,688,318		1,156,666

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ITEM 6 – EXHIBITS

Exhibits

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

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

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

	VASO CORPORATION

Date: November 15, 2021	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

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