VASO Corp - Quarter Report: 2023 June (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 June 30, 2023

☐	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 August 12, 2023 – 175,141,005

Vaso Corporation and Subsidiaries

INDEX

PART I – FINANCIAL INFORMATION	3
ITEM 1 - FINANCIAL STATEMENTS	3
CONDENSED CONSOLIDATED BALANCE SHEETS as of June 30, 2023 (unaudited) and December 31, 2022	3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited) for the Three and Six Months Ended June 30, 2023 and 2022	4
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) for the Three and Six Months Ended June 30, 2023 and 2022	5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) for the Six Months Ended June 30, 2023 and 2022	6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)	7
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
ITEM 4 - CONTROLS AND PROCEDURES	26
PART II - OTHER INFORMATION	27
ITEM 6 – EXHIBITS	27

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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)

	June 30, 2023			December 31, 2022
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	14,399		$	11,821
Short-term investments		11,675			8,504
Accounts and other receivables, net of an allowance for credit losses and commission adjustments of $7,526 at June 30, 2023 and $6,947 at December 31, 2022		9,490			15,524
Receivables due from related parties		779			421
Inventories, net		1,541			1,473
Deferred commission expense		3,405			3,249
Prepaid expenses and other current assets		1,685			1,008
Total current assets		42,974			42,000


Property and equipment, net of accumulated depreciation of $10,095 at June 30, 2023 and $9,787 at December 31, 2022		1,268			1,340
Operating lease right of use assets		1,669			1,568
Goodwill		15,558			15,614
Intangibles, net		1,400			1,511
Other assets, net		4,936			4,726
Investment in EECP Global		764			889
Deferred tax assets, net		5,007			5,007
Total assets	$	73,576		$	72,655

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	2,528		$	2,270
Accrued commissions		2,054			3,720
Accrued expenses and other liabilities		6,122			8,891
Finance lease liabilities - current		67			122
Operating lease liabilities - current		822			745
Sales tax payable		612			809
Deferred revenue - current portion		16,859			15,139
Notes payable - current portion		9			9
Due to related party		3			3
Total current liabilities		29,076			31,708

LONG-TERM LIABILITIES
Notes payable, net of current portion		10			15
Finance lease liabilities, net of current portion		56			96
Operating lease liabilities, net of current portion		847			823
Deferred revenue, net of current portion		16,727			15,664
Other long-term liabilities		1,627			1,474
Total long-term liabilities		19,267			18,072

COMMITMENTS AND CONTINGENCIES (NOTE M)

STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 1,000,000 shares authorized; nil shares issued and outstanding at June 30, 2023 and December 31, 2022		-			-
Common stock, $0.001 par value; 250,000,000 shares authorized; 185,449,092 and 185,435,965 shares issued at June 30, 2023 and December 31, 2022, respectively; 175,141,005 and 175,127,878 shares outstanding at June 30, 2023 and December 31, 2022, respectively		185			185
Additional paid-in capital		63,979			63,952
Accumulated deficit		(36,503	)		(39,029	)
Accumulated other comprehensive loss		(428	)		(233	)
Treasury stock, at cost, 10,308,087 shares at June 30, 2023 and December 31, 2022		(2,000	)		(2,000	)
Total stockholders’ equity		25,233			22,875
	$	73,576		$	72,655

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

(unaudited)

(in thousands, except per share data)

	Three months ended						Six months ended
	June 30,						June 30,
	2023			2022			2023			2022
Revenues
Managed IT systems and services	$	10,435		$	10,019		$	20,709		$	20,022
Professional sales services		9,254			8,854			17,564			15,461
Equipment sales and services		748			629			1,385			1,029
Total revenues		20,437			19,502			39,658			36,512

Cost of revenues
Cost of managed IT systems and services		5,693			6,342			11,527			12,211
Cost of professional sales services		1,766			1,674			3,285			2,975
Cost of equipment sales and services		191			150			349			221
Total cost of revenues		7,650			8,166			15,161			15,407
Gross profit		12,787			11,336			24,497			21,105

Operating expenses
Selling, general and administrative		10,662			9,604			21,804			19,606
Research and development		217			170			375			292
Total operating expenses		10,879			9,774			22,179			19,898
Operating income		1,908			1,562			2,318			1,207

Other (expense) income
Interest and financing costs		(5	)		(1	)		(33	)		(24	)
Interest and other income, net		179			(48	)		262			-
Loss on disposal of fixed assets		(1	)		-			(2	)		(2	)
Total other income, net		173			(49	)		227			(26	)

Income before income taxes		2,081			1,513			2,545			1,181
Income tax expense		(9	)		(18	)		(19	)		(30	)
Net income		2,072			1,495			2,526			1,151

Other comprehensive income
Foreign currency translation loss		(210	)		(215	)		(195	)		(216	)
Comprehensive income	$	1,862		$	1,280		$	2,331		$	935

Income per common share
- basic and diluted	$	0.01		$	0.01		$	0.01		$	0.01

Weighted average common shares outstanding
- basic		174,159			172,858			173,895			172,594
- diluted		175,120			174,059			175,162			173,195

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

(unaudited)

(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, 2022		185,436	$	185		(10,308	)		(2,000	)	$	63,917		$	(50,902	)	$	110		$	11,310
Share-based compensation		-		-		-			-			7			-			-			7
Foreign currency translation (loss) gain		-		-		-			-			-			-			(1	)		(1	)
Net (loss) income		-		-		-			-			-			(344	)		-			(344	)
Balance at March 31, 2022		185,436	$	185		(10,308	)	$	(2,000	)	$	63,924		$	(51,246	)	$	109		$	10,972
Share-based compensation		-		-		-			-			6			-			-			6
Foreign currency translation (loss) gain		-		-		-			-			-			-			(215	)		(215	)
Net (loss) income		-		-		-			-			-			1,495			-			1,495
Balance at June 30, 2022		185,436	$	185		(10,308	)	$	(2,000	)	$	63,930		$	(49,751	)	$	(106	)	$	12,258

Balance at January 1, 2023		185,436	$	185		(10,308	)		(2,000	)	$	63,952		$	(39,029	)	$	(233	)	$	22,875
Share-based compensation		-		-		-			-			13			-			-			13
Foreign currency translation (loss) gain		-		-		-			-			-			-			15			15
Net (loss) income		-		-		-			-			-			454			-			454
Balance at March 31, 2023		185,436	$	185		(10,308	)	$	(2,000	)	$	63,965		$	(38,575	)	$	(218	)	$	23,357
Share-based compensation		13		-		-			-			15			-			-			15
Shares withheld for employee tax liability		-		-		-			-			(1	)		-			-			(1	)
Foreign currency translation (loss) gain		-		-		-			-			-			-			(210	)		(210	)
Net (loss) income		-		-		-			-			-			2,072			-			2,072
Balance at June 30, 2023		185,449	$	185		(10,308	)	$	(2,000	)	$	63,979		$	(36,503	)	$	(428	)	$	25,233

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

(unaudited)

(in thousands)

	Six months ended
	June 30,
	2023			2022
Cash flows from operating activities
Net income	$	2,526		$	1,151
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		537			1,258
Loss from investment in EECP Global		125			55
Provision for credit losses and commission adjustments		44			157
Share-based compensation		28			13
Changes in operating assets and liabilities:
Accounts and other receivables		5,972			8,376
Inventories		(129	)		(509	)
Deferred commission expense		(156	)		(27	)
Prepaid expenses and other current assets		(884	)		120
Other assets, net		(291	)		(216	)
Accounts payable		268			(628	)
Accrued commissions		(1,553	)		(1,040	)
Accrued expenses and other liabilities		(2,856	)		(941	)
Sales tax payable		(194	)		26
Deferred revenue		2,783			2,132
Due to related party		(354	)		(275	)
Other long-term liabilities		153			79
Net cash provided by operating activities		6,019			9,731

Cash flows from investing activities
Purchases of equipment and software		(360	)		(358	)
Purchases of short-term investments		(11,134	)		-
Redemption of short-term investments		8,134			154
Net cash used in investing activities		(3,360	)		(204	)

Cash flows from financing activities
Payroll taxes paid by withholding shares		(1	)		-
Repayment of notes payable and finance lease obligations		(99	)		(125	)
Net cash used in financing activities		(100	)		(125	)
Effect of exchange rate differences on cash and cash equivalents		19			9

NET INCREASE IN CASH AND CASH EQUIVALENTS		2,578			9,411
Cash and cash equivalents - beginning of period		11,821			6,025
Cash and cash equivalents - end of period	$	14,399		$	15,436

SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
Interest paid	$	10		$	29
Income taxes paid	$	23		$	54

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Initial recognition of operating lease right of use asset and liability	$	474		$	1,072

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 GE Healthcare (“GEHC”) into the healthcare provider middle market; and
	·	Equipment segment, primarily focuses on the design, manufacture, sale and service of proprietary medical devices and software, operating through a wholly-owned subsidiary VasoMedical, Inc., which in turn operates through Vasomedical Solutions, Inc. for domestic business and Vasomedical Global Corp. for international business, respectively.

VasoTechnology

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

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

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

VasoHealthcare

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

VasoHealthcare’s current offerings consist of:

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

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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. 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, 2022, as filed with the SEC on March 31, 2023.

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.

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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 June 30, 2023								Three Months Ended June 30, 2022
				Professional sales								Professional sales
		IT segment		service segment		Equipment segment		Total		IT segment		service segment		Equipment segment		Total
Network services		$	8,946	$	-	$	-	$	8,946	$	8,890	$	-	$	-	$	8,890
Software sales and support			1,489		-		-		1,489		1,129		-		-		1,129
Commissions			-		9,254		-		9,254		-		8,854		-		8,854
Medical equipment sales			-		-		716		716		-		-		597		597
Medical equipment service			-		-		32		32		-		-		32		32
		$	10,435	$	9,254	$	748	$	20,437	$	10,019	$	8,854	$	629	$	19,502

		Six Months Ended June 30, 2023								Six Months Ended June 30, 2022
				Professional sales								Professional sales
		IT segment		service segment		Equipment segment		Total		IT segment		service segment		Equipment segment		Total
Network services		$	17,984	$	-	$	-	$	17,984	$	17,919	$	-	$	-	$	17,919
Software sales and support			2,725		-		-		2,725		2,103		-		-		2,103
Commissions			-		17,564		-		17,564		-		15,461		-		15,461
Medical equipment sales			-		-		1,322		1,322		-		-		967		967
Medical equipment service			-		-		63		63		-		-		62		62
		$	20,709	$	17,564	$	1,385	$	39,658	$	20,022	$	15,461	$	1,029	$	36,512

	Three Months Ended June 30, 2023								Three Months Ended June 30, 2022
			Professional sales								Professional sales
	IT segment		service segment		Equipment segment		Total		IT segment		service segment		Equipment segment		Total
Revenue recognized over time	$	9,357	$	-	$	131	$	9,488	$	9,075	$	-	$	84	$	9,159
Revenue recognized at a point in time		1,078		9,254		617		10,949		944		8,854		545		10,343
	$	10,435	$	9,254	$	748	$	20,437	$	10,019	$	8,854	$	629	$	19,502

	Six Months Ended June 30, 2023								Six Months Ended June 30, 2022
			Professional sales								Professional sales
	IT segment		service segment		Equipment segment		Total		IT segment		service segment		Equipment segment		Total
Revenue recognized over time	$	18,878	$	-	$	241	$	19,119	$	18,309	$	-	$	148	$	18,457
Revenue recognized at a point in time		1,831		17,564		1,144		20,539		1,713		15,461		881		18,055
	$	20,709	$	17,564	$	1,385	$	39,658	$	20,022	$	15,461	$	1,029	$	36,512

Transaction Price Allocated to Remaining Performance Obligations

As of June 30, 2023, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $98.6 million, of which we expect to recognize revenue as follows:

	(in thousands)

	Fiscal years of revenue recognition
	2023		2024		2025		Thereafter
Unfulfilled performance obligations	$	24,935	$	31,497	$	12,648	$	29,553

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Vaso Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

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 $379,000 and $481,000 at June 30, 2023 and December 31, 2022, 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 $33,578,000 and $30,794,000 at June 30, 2023 and December 31, 2022, 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 $1,124,000 and $2,577,000 at June 30, 2023 and December 31, 2022, 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 $8,000 and $9,000 at June 30, 2023 and December 31, 2022, respectively, and are classified in our condensed consolidated balance sheets as either current or long-term deferred revenue.

During the three and six months ended June 30, 2023, we recognized approximately $3.4 million and $5.6 million of revenues, respectively, that were included in our contract liability balance at April 1, 2023 and January 1, 2023, respectively.

The following table summarizes the Company’s contract receivable and contract liability balances:

	2023			2022
Contract receivables - January 1		16,316			15,761
Contract receivables - June 30		10,541			7,171
Increase (decrease)		(5,775	)		(8,590	)

Contract liabilities - January 1		33,861			26,890
Contract liabilities - June 30		35,090			30,012
Increase (decrease)		1,229			3,122

The decrease in contract receivables in the first halves of 2023 and 2022 was due primarily to collections exceeding billings.

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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Vaso Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

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

	(in thousands)

	Three months ended June 30,							Six months ended June 30,
	2023				2022			2023			2022
Revenues from external customers
IT		$	10,435		$	10,019		$	20,709		$	20,022
Professional sales service			9,254			8,854			17,564			15,461
Equipment			748			629			1,385			1,029
Total revenues		$	20,437		$	19,502		$	39,658		$	36,512

Gross Profit
IT		$	4,742		$	3,677		$	9,182		$	7,811
Professional sales service			7,488			7,180			14,279			12,486
Equipment			557			479			1,036			808
Total gross profit		$	12,787		$	11,336		$	24,497		$	21,105

Operating income (loss)
IT		$	163		$	(918	)	$	53		$	(1,057	)
Professional sales service			2,149			2,754			3,136			2,990
Equipment			(106	)		(77	)		(131	)		(156	)
Corporate			(298	)		(197	)		(740	)		(570	)
Total operating income		$	1,908		$	1,562		$	2,318		$	1,207

Depreciation and amortization
IT		$	236		$	729		$	482		$	1,104
Professional sales service			21			11			41			22
Equipment			7			65			14			132
Corporate			-			-			-			-
Total depreciation and amortization		$	264		$	805		$	537		$	1,258

Capital expenditures
IT		$	137		$	145		$	222		$	296
Professional sales service			2			7			52			40
Equipment			73			11			86			21
Corporate			-			-			-			1
Total cash capital expenditures		$	212		$	163		$	360		$	358

	(in thousands)

	June 30, 2023		December 31, 2022
Identifiable Assets
IT	$	22,386	$	22,201
Professional sales service		16,356		21,684
Equipment		6,564		6,957
Corporate		28,270		21,813
Total assets	$	73,576	$	72,656

GE Healthcare accounted for 45% of revenue for both of the three-month periods ended June 30, 2023 and 2022, and 44% and 42% of revenue for the six-month periods ended June 30, 2023 and 2022, respectively. GE Healthcare also accounted for $6.8 million or 72%, and $12.8 million or 83%, of accounts and other receivables at June 30, 2023 and December 31, 2022, respectively. No other customer accounted for 10% or more of revenue.

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Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE E –NET INCOME PER COMMON SHARE

Basic earnings per common share is based on the weighted average number of common shares outstanding, including vested restricted shares, without consideration of potential common stock. Diluted earnings per common share is based on the weighted average number of common and potential dilutive common shares outstanding.

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

	(in thousands)
	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Basic weighted average shares outstanding		174,159		172,858		173,895		172,594
Dilutive effect of unvested restricted shares		961		1,201		1,267		601
Diluted weighted average shares outstanding		175,120		174,059		175,162		173,195

The following table represents common stock equivalents that were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2023 and 2022, because the effect of their inclusion would be anti-dilutive.

	(in thousands)
	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Restricted common stock grants		-		2		-		2,249

NOTE F – SHORT-TERM INVESTMENTS AND FINANCIAL INSTRUMENTS

The Company's short-term investments consist of bank deposits with yields based on underlying debt and equity securities and six-month US Treasury bills. The bank deposits are carried at fair value of approximately $413,000 and $433,000 at June 30, 2023 and December 31, 2022, respectively, and are classified as available-for-sale. Realized gains or losses on the bank deposits are included in net income. The US Treasury bills are classified as held-to-maturity and are carried at amortized cost of approximately $11,261,000 and $8,071,000 at June 30, 2023 and December 31, 2022, respectively. Their fair value at June 30, 2023 and December 31, 2022 is approximately $11,257,000 and $8,064,000, respectively, and the unrecognized holding (loss) gain is $(8,000) and $4,000 for the three and six months ended June 30, 2023, respectively. The Company does not expect a credit loss for its short-term investments.

Cash and cash equivalents represent cash and short-term, highly liquid investments either in certificates of deposit, treasury bills, money market funds, or investment grade commercial paper issued by major corporations and financial institutions that generally have maturities of three months or less from the date of acquisition.

The Company complies with the provisions of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”). Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:

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Notes to Condensed Consolidated Financial Statements (unaudited)

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The carrying amount of assets and liabilities including cash and cash equivalents, short-term investments, accounts receivable, prepaids, accounts payable, accrued expenses and other current liabilities approximated their fair value as of June 30, 2023 and December 31, 2022, due to the relative short maturity of these instruments. Property and equipment, intangible assets, capital lease obligations, and goodwill are not required to be re-measured to fair value on a recurring basis. These assets are evaluated for impairment if certain triggering events occur. If such evaluation indicates that impairment exists, the respective asset is written down to its fair value.

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Notes to Condensed Consolidated Financial Statements (unaudited)

The following table presents information about the Company’s assets measured at fair value as of June 30, 2023 and December 31, 2022:

	(in thousands)
	Quoted Prices		Significant
	in Active		Other		Significant		Balance
	Markets for		Observable		Unobservable		as of
	Identical Assets		Inputs		Inputs		June 30,
	(Level 1)		(Level 2)		(Level 3)		2023
Assets
Cash equivalents invested in money market funds	$	11,660	$	-	$	-	$	11,660
Bank deposits (included in short term investments)		413						413
	$	12,073	$	-	$	-	$	12,073

	Quoted Prices		Significant
	in Active		Other		Significant		Balance
	Markets for		Observable		Unobservable		as of
	Identical Assets		Inputs		Inputs		December 31,
	(Level 1)		(Level 2)		(Level 3)		2022
Assets
Cash equivalents invested in money market funds	$	7,934	$	-	$	-	$	7,934
Bank deposits (included in short term investments)		433						433
	$	8,367	$	-	$	-	$	8,367

NOTE G – ACCOUNTS AND OTHER RECEIVABLES, NET

The following table presents information regarding the Company’s accounts and other receivables as of June 30, 2023 and December 31, 2022:

	(in thousands)
	June 30, 2023			December 31, 2022
Trade receivables	$	14,885		$	22,471
Unbilled receivables		2,131			-
Allowance for credit losses and commission adjustments		(7,526	)		(6,947	)
Accounts and other receivables, net	$	9,490		$	15,524

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

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

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Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE G – INVENTORIES, NET

Inventories, net of reserves, consist of the following:

	(in thousands)
	June 30, 2023		December 31, 2022
Raw materials	$	810	$	751
Work in process		35		6
Finished goods		696		716
	$	1,541	$	1,473

The Company maintained reserves for slow moving inventories of $163,000 at June 30, 2023 and December 31, 2022.

NOTE H – GOODWILL AND OTHER INTANGIBLES

Goodwill of $14,375,000 is allocated to the IT segment. The remaining $1,183,000 of goodwill is attributable to the FGE reporting unit within the Equipment segment. The NetWolves and FGE reporting units had negative net asset carrying amounts at June 30, 2023 and December 31, 2022. The components of the change in goodwill are as follows:

	(in thousands)
	Six months ended			Year ended
	June 30, 2023			December 31, 2022
Beginning of period	$	15,614		$	15,722
Foreign currency translation adjustment		(56	)		(108	)
End of period	$	15,558		$	15,614

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

	(in thousands)
	June 30, 2023			December 31, 2022
Customer-related
Costs	$	5,831		$	5,831
Accumulated amortization		(4,674	)		(4,557	)
		1,157			1,274

Patents and Technology
Costs		1,894			1,894
Accumulated amortization		(1,894	)		(1,894	)

Software
Costs		2,431			2,362
Accumulated amortization		(2,188	)		(2,125	)
		243			237

	$	1,400		$	1,511

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.

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Notes to Condensed Consolidated Financial Statements (unaudited)

Amortization expense amounted to $90,000 and $164,000 for the three months ended June 30, 2023 and 2022, respectively and $180,000 and $315,000 for the six months ended June 30, 2023 and 2022, respectively.

Amortization of intangibles for the next five years is:

	(in thousands)
Years ending December 31,
Remainder of 2023		167
2024		287
2025		217
2026		161
2027		568
	$	1,400

NOTE I – OTHER ASSETS, NET

Other assets, net consist of the following at June 30, 2023 and December 31, 2022:

	(in thousands)
	June 30, 2023		December 31, 2022
Deferred commission expense - noncurrent	$	3,799	$	3,864
Trade receivables - noncurrent		1,052		792
Other, net of allowance for loss on loan receivable of $412 at June 30, 2023 and December 31, 2022		85		70
	$	4,936	$	4,726

NOTE J – ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following at June 30, 2023 and December 31, 2022:

	(in thousands)
	June 30, 2023		December 31, 2022
Accrued compensation	$	1,452	$	2,652
Accrued expenses - other		1,594		2,012
Order reduction liability		1,124		2,577
Other liabilities		1,952		1,650
	$	6,122	$	8,891

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Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE K - DEFERRED REVENUE

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

	(in thousands)
	Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022
Deferred revenue at beginning of period	$	31,553		$	26,954		$	30,803		$	24,965
Net additions:
Deferred extended service contracts		-			-			2			-
Deferred commission revenues		5,467			3,575			9,482			8,267
Recognized as revenue:
Deferred extended service contracts		(1	)		(1	)		(2	)		(3	)
Deferred commission revenues		(3,433	)		(3,431	)		(6,699	)		(6,132	)
Deferred revenue at end of period		33,586			27,097			33,586			27,097
Less: current portion		16,859			18,583			16,859			18,583
Long-term deferred revenue at end of period	$	16,727		$	8,514		$	16,727		$	8,514

NOTE L – RELATED-PARTY TRANSACTIONS

The Company uses the equity method to account for its interest in EECP Global as it has the ability to exercise significant influence over the entity and reports its share of EECP Global operations in Other Income (Expense) on its condensed consolidated statements of operations. For the three months ended June 30, 2023 and 2022, the Company’s share of EECP Global’s loss was approximately $47,000 and $71,000, respectively, and for the six months ended June 30, 2023 and 2022, the Company’s share of EECP Global’s loss was approximately $125,000 and $55,000, respectively, and included in Other (Expense) Income in its condensed consolidated statements of operations. At June 30, 2023 and December 31, 2022 the Company recorded a net receivable from related parties of approximately $757,000 and $403,000, respectively, 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.

NOTE M – COMMITMENTS AND CONTINGENCIES

Litigation

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

Sales Representation Agreement

In October 2021, the Company concluded an amendment of the GEHC Agreement with GEHC, originally signed on May 19, 2010 and previously extended in 2012, 2015 and 2017. The amendment extended the term of the original agreement, which began on July 1, 2010, through December 31, 2026, subject to early termination by GEHC without cause with certain conditions. Under the agreement, VasoHealthcare is the exclusive representative for the sale of select GEHC diagnostic imaging products to specific market accounts in the 48 contiguous states of the United States and the District of Columbia. The circumstances under which early termination of the agreement may occur with cause include: not materially achieving certain sales goals, not maintaining a minimum number of sales representatives, and not meeting various legal and GEHC policy requirements.

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Notes to Condensed Consolidated Financial Statements (unaudited)

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.

On December 31, 2022, the Company executed an Employment Agreement with the President of its VasoHealthcare subsidiary, Ms. Jane Moen, to provide for a twenty-seven month initial term with extensions, unless earlier terminated by the Company, but in no event can it extend beyond December 31, 2026 or the earlier termination of the GEHC Agreement. The Employment Agreement provides for annual base compensation of $350,000. Ms. Moen shall be eligible to receive bonuses for each fiscal year during the employment term. The amount and the occasion for payment of such bonuses, if any, shall be based on employment status as well as achieving certain operating targets. Ms. Moen 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.

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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 a significant impact on economies of the United States and the world, and it is possible that some negative impact to the Company’s financial condition and results of operations may continue. The pandemic caused workforce and travel restrictions and created business disruptions in supply chain, production and demand across many business sectors, and we have experienced 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. In addition, revenues in our China operations were adversely affected by its government’s lockdown policies, which have only recently been reversed.

Our Business Segments

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

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

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

	·	Equipment segment, primarily focuses on the design, manufacture, sale and service of proprietary medical devices and software, operating through a wholly-owned subsidiary VasoMedical, Inc., which in turn operates through Vasomedical Solutions, Inc. for domestic business and Vasomedical Global Corp. for international business, respectively.

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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, 2022 as filed with the SEC on March 31, 2023.

Results of Operations – For the Three Months Ended June 30, 2023 and 2022

Revenues

Total revenue for the three months ended June 30, 2023 and 2022 was $20,437,000 and $19,502,000, respectively, representing an increase of $935,000, or 5% year-over-year. On a segment basis, revenue in the IT, professional sales services, and equipment segments increased $416,000, $400,000, and $119,000, respectively.

Revenue in the IT segment for the three months ended June 30, 2023 was $10,435,000 compared to $10,019,000 for the three months ended June 30, 2022, an increase of $416,000, or 4%, of which $56,000 resulted from higher network service revenues, and $360,000 from higher revenues in the healthcare IT business. Our monthly recurring revenue in the IT segment accounted for $9,357,000 or 90% of the segment revenue in the second quarter of 2023, and $9,075,000 or 91% of the segment revenue for the same quarter last year (see Note C to condensed consolidated financial statements).

Commission revenues in the professional sales service segment were $9,254,000 in the second quarter of 2023, an increase of $400,000, or 5%, as compared to $8,854,000 in the same quarter of 2022. The increase in commission revenues was due primarily to deliveries of ultrasound products by GEHC beginning in the second quarter of 2023, while revenues attributable to diagnostic imaging equipment was essentially flat compared to the second quarter of 2022. 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, 2023, $33,578,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $16,722,000 was long-term. As of June 30, 2022, $27,090,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $8,511,000 was long-term. The increase in deferred revenue is principally due to an increase in new orders booked.

Revenue in the equipment segment increased by $119,000, or 19%, to $748,000 for the three-month period ended June 30, 2023 from $629,000 for the same period of the prior year, due to higher sales of ARCS^® cloud software as a service (SaaS) in the US and higher equipment deliveries in our China operations.

Gross Profit

Gross profit for the three months ended June 30, 2023 and 2022 was $12,787,000, or 63% of revenue, and $11,336,000, or 58% of revenue, respectively, representing an increase of $1,451,000, or 13% year-over-year. On a segment basis, gross profit in the IT, professional sales service, and equipment segments increased $1,065,000, or 29%; $308,000, or 4%; and $78,000, or 16%, respectively.

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IT segment gross profit for the three months ended June 30, 2023 was $4,742,000, or 45% of the segment revenue, compared to $3,677,000, or 37% of the segment revenue for the three months ended June 30, 2022. The year-over-year increase of $1,065,000, or 29%, was primarily a result of higher sales volume in both the network service and healthcare IT businesses, and by lower equipment and carrier costs of the network service business.

Professional sales service segment gross profit was $7,488,000, or 81% of segment revenue, for the three months ended June 30, 2023 as compared to $7,180,000, or 81% of the segment revenue, for the three months ended June 30, 2022, reflecting an increase of $308,000, or 4%. The increase in absolute dollars was primarily due to higher commission revenue resulting mainly from ultrasound deliveries by GEHC beginning in the second quarter of 2023. Cost of commissions in the professional sales service segment of $1,766,000 and $1,674,000, for the three months ended June 30, 2023 and 2022, 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 condensed consolidated balance sheet until the related commission revenue is recognized.

Equipment segment gross profit increased to $557,000, or 74% of segment revenues, for the second quarter of 2023 compared to $479,000, or 76% of segment revenues, for the same quarter of 2022. The $78,000, or 16%, increase in gross profit was the result of higher equipment revenue during the quarter partially offset by higher ARCS^® software costs.

Operating Income

Operating income for the three months ended June 30, 2023 and 2022 was $1,908,000 and $1,562,000, respectively, representing an increase of $346,000, or 22%, due primarily to the increase in gross profit. On a segment basis, the IT segment recorded operating income of $163,000 in the second quarter of 2023 as compared to an operating loss of $918,000 in the same period of 2022; the professional sales service segment recorded operating income of $2,149,000 in the second quarter of 2023 as opposed to operating income of $2,754,000 in the same period of 2022; and the equipment segment recorded an operating loss of $106,000 in the second quarter of 2023 as compared to an operating loss of $77,000 in the same period of 2022.

Operating income in the IT segment increased to $163,000 for the three-month period ended June 30, 2023 as compared to an operating loss of $918,000 in the same period of 2022, due mainly to higher gross profit and lower selling, general, and administrative (“SG&A”) costs. Operating income in the professional sales service segment decreased by $605,000 to $2,149,000 in the three-month period ended June 30, 2023 as compared to operating income of $2,754,000 in the same period of 2022, due to higher SG&A costs partially offset by higher gross profit. The equipment segment reported an operating loss of $106,000 in the second quarter of 2023, compared to an operating loss of $77,000 in the second quarter 2022, an increase of $29,000. The increase in operating loss was due to higher SG&A and R&D costs partially offset by higher gross profit.

SG&A costs for the three months ended June 30, 2023 and 2022 were $10,662,000 and $9,604,000, respectively, representing an increase of $1,058,000, or 11% year-over-year. On a segment basis, SG&A costs in the IT segment decreased by $5,000 in the second quarter of 2023 from the same quarter of the prior year due mainly to lower third-party commission costs; SG&A costs in the professional sales service segment increased $914,000 due mainly to additional sales headcount and higher travel costs; and SG&A costs in the equipment segment increased $48,000 due mainly to higher personnel costs in China. Corporate costs not allocated to segments increased $101,000 due mainly to higher director and accounting fees.

Research and development (“R&D”) expenses increased by $47,000, or 28%, to $217,000 in the second quarter of 2023 from $170,000 for the second quarter of 2022, primarily due to additional software development costs in our China operations.

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Adjusted EBITDA

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

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

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

(in thousands)

Adjusted EBITDA decreased by $150,000, to $2,179,000 in the quarter ended June 30, 2023 from $2,329,000 in the quarter ended June 30, 2022. The decrease was attributable mainly to the decrease in depreciation and amortization and increase in interest income in the second quarter of 2023, partially offset by the increase in net income.

Interest and Other Income (Expense)

Interest and other income (expense) for the three months ended June 30, 2023 was $173,000 as compared to $(49,000) for the corresponding period of 2022. The increase in interest and other income (expense) was due primarily to interest income earned on higher money market and short-term investment balances in the second quarter of 2023.

Income Tax Expense

For the three months ended June 30, 2023, we recorded income tax expense of $9,000 as compared to $18,000 for the corresponding period of 2022. The $9,000 decrease arose mainly from lower tax expense in our China operations.

Net Income

Net income for the three months ended June 30, 2023 was $2,072,000 as compared to net income of $1,495,000 for the three months ended June 30, 2022, representing an increase of $577,000. Income per share of $0.01 was recorded in both the three-month periods ended June 30, 2023 and 2022. The principal cause of the increase in net income is higher operating income and higher interest income.

Results of Operations – For the Six Months Ended June 30, 2023 and 2022

Revenues

Total revenue for the six months ended June 30, 2023 and 2022 was $39,658,000 and $36,512,000, respectively, representing an increase of $3,146,000, or 9% year-over-year. On a segment basis, revenue in the IT, professional sales service, and equipment segments increased $687,000, $2,103,000, and $356,000, respectively.

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Revenue in the IT segment for the six months ended June 30, 2023 was $20,709,000 compared to $20,022,000 for the six months ended June 30, 2022, an increase of $687,000, or 3%, of which $65,000 resulted from higher network service revenue and $622,000 from higher healthcare IT revenue. Our monthly recurring revenue in the IT segment accounted for $18,878,000 or 91% of the segment revenue in the first half of 2023, and $18,309,000 or 91% of the segment revenue for the same period last year (see Note C to condensed consolidated financial statements).

Commission revenues in the professional sales service segment were $17,564,000 in the first half of 2023, an increase of $2,103,000, or 14%, as compared to $15,461,000 in the first half of 2022. The increase in commission revenues was due primarily to both an increase in the volume of underlying equipment delivered by GEHC during the period and a higher blended commission rate applicable to such deliveries. The Company recognizes commission revenue when the underlying equipment has been accepted at the customer site in accordance with the specific terms of the sales agreement. Consequently, amounts billable, or billed and received, under the agreement with GE Healthcare prior to customer acceptance of the equipment are recorded as deferred revenue in the condensed consolidated balance sheet. As of June 30, 2023, $33,578,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $16,722,000 was long-term. As of June 30, 2022, $27,090,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $8,511,000 was long-term. The increase in deferred revenue is principally due to an increase in new orders booked.

Revenue in the equipment segment increased by $356,000, or 35%, to $1,385,000 for the six-month period ended June 30, 2023 from $1,029,000 for the same period of the prior year, principally due to higher equipment deliveries in our China operations and higher ARCS^®cloud SaaS revenues in our US business.

Gross Profit

Gross profit for the six months ended June 30, 2023 and 2022 was $24,497,000, or 62% of revenue, and $21,105,000, or 58% of revenue, respectively, representing an increase of $3,392,000, or 16% year-over-year. On a segment basis, gross profit in the IT, professional sales service, and equipment segments increased $1,371,000, or 18%; $1,793,000, or 14%; and $228,000 or 28%, respectively.

IT segment gross profit for the six months ended June 30, 2023 was $9,182,000, or 44% of the segment revenue, compared to $7,811,000, or 39% of the segment revenue for the six months ended June 30, 2022. The year-over-year increase of $1,371,000, or 18%, was primarily a result of higher revenues at both the network service and healthcare IT businesses and lower equipment and carrier costs in the network service business.

Professional sales service segment gross profit was $14,279,000, or 81% of segment revenue, for the six months ended June 30, 2023 as compared to $12,486,000, or 81% of the segment revenue, for the six months ended June 30, 2022, reflecting an increase of $1,793,000, or 14%. The increase in absolute dollars was primarily due to higher commission revenue as a result of a higher blended commission rate and higher volume of GEHC equipment delivered during the first half of 2023 than in the same period last year. Cost of commissions in the professional sales service segment of $3,285,000 and $2,975,000, for the six months ended June 30, 2023 and 2022, respectively, reflected commission expense associated with recognized commission revenues.

Equipment segment gross profit increased to $1,036,000, or 75% of segment revenues, for the first half of 2023 compared to $808,000, or 79% of segment revenues, for the same half of 2022. The $228,000, or 28%, increase in gross profit was primarily the result of an increase in ARCS^®cloud softwareandequipment sales, partially offset by higher network costs of hosting ARCS^® cloud software and an increase in material and labor costs in our China operations during the first half of 2023.

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Operating Income

Operating income for the six months ended June 30, 2023 and 2022 was $2,318,000 and $1,207,000, respectively, representing an improvement of $1,111,000, or 92%, due primarily to higher gross profit, partially offset by higher SG&A and R&D costs. On a segment basis, the IT segment recorded operating income of $53,000 in the first half of 2023 as compared to an operating loss of $1,057,000 in the same period of 2022; the professional sales service segment recorded operating income of $3,136,000 in the first half of 2023 as compared to operating income of $2,990,000 in the same period of 2022; and the equipment segment recorded an operating loss of $131,000 in the first half of 2023 as compared to an operating loss of $156,000 in the same period of 2022.

Operating income in the IT segment increased to $53,000 for the six-month period ended June 30, 2023 as compared to an operating loss of $1,057,000 in the same period of 2022, due to higher gross profit, partially offset by SG&A costs. The professional sales service segment reported operating income of $3,136,000 in the first half of 2023, an increase of $146,000 from operating income of $2,990,000 in the six-month period ended June 30, 2022, due to higher gross profit partially offset by higher SG&A costs. The equipment segment reported an operating loss of $131,000 in the first half of 2023, compared to an operating loss of $156,000 in the first half 2022, an improvement of $25,000 due to higher gross profit, partially offset by higher SG&A and R&D costs.

SG&A costs for the six months ended June 30, 2023 and 2022 were $21,804,000 and $19,606,000, respectively, representing an increase of $2,198,000, or 11% year-over-year. On a segment basis, SG&A costs in the IT segment increased by $268,000 in the first half of 2023 from the same half of the prior year due to higher personnel costs partially offset by lower third-party commission costs; SG&A costs in the professional sales service segment increased by $1,647,000 due to higher travel and personnel costs; and SG&A costs in the equipment segment increased by $113,000 due mainly to higher personnel costs. Corporate costs not allocated to segments increased $170,000 due mainly to higher director fees.

Research and development (“R&D”) expenses were $375,000, or 1% of revenues, for the first half of 2023, an increase of $83,000, or 28%, from $292,000, or 1% of revenues, for the first half of 2022. The increase is primarily attributable to higher software development expenses in the equipment segment.

Adjusted EBITDA

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

	(in thousands)
	Six months ended June 30,
	2023			2022
	(unaudited)			(unaudited)
Net income	$	2,526		$	1,151
Interest expense (income), net		(292	)		24
Income tax expense		19			30
Depreciation and amortization		537			1,258
Share-based compensation		28			13
Adjusted EBITDA	$	2,818		$	2,476

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Adjusted EBITDA increased by $342,000 to $2,818,000 in the period ended June 30, 2023 from $2,476,000 in the period ended June 30, 2022. The increase was primarily attributable to higher net income in the six months ended June 30, 2023, partially offset by lower depreciation and amortization and higher interest income.

Interest and Other Income (Expense)

Interest and other income (expense) for the six months ended June 30, 2023 was $227,000 as compared to $(26,000) for the corresponding period of 2022. The increase in interest and other income was due primarily to higher interest income on higher money market and short-term investment balances.

Income Tax Expense

We recorded income tax expense of $19,000 and $30,000 for the six-month periods ended June 30, 2023 and 2022, respectively. The decrease arose mainly from lower tax expense in our China operations.

Net Income

Net income for the six months ended June 30, 2023 was $2,526,000 as compared to net income of $1,151,000 for the six months ended June 30, 2022, representing an increase of $1,375,000, or 119%. Income per share of $0.01 was recorded in the six-month periods ended June 30, 2023 and 2022, respectively. The principal cause of the increase in net income is higher operating income and higher interest income in the six months ended June 30, 2023.

Liquidity and Capital Resources

Cash and Cash Flow

We have financed our operations from working capital. At June 30, 2023, we had cash and cash equivalents of $14,399,000 and working capital of $13,898,000, compared to cash and cash equivalents of $11,821,000 and working capital of $10,292,000 at December 31, 2022.

Cash provided by operating activities was $6,019,000, which consisted of net income after adjustments to reconcile net income to net cash of $3,260,000 and cash provided by operating assets and liabilities of $2,759,000, during the six months ended June 30, 2023, compared to cash provided by operating activities of $9,731,000 for the same period in 2022. The changes in the account balances primarily reflect a decrease in accounts and other receivables of $5,972,000 and an increase in deferred revenue of $2,783,000, partially offset by decreases in accrued commissions of $1,553,000 and accrued expenses of $2,856,000.

Cash used in investing activities during the six-month period ended June 30, 2023 was $3,360,000 attributed to $360,000 used for the purchase of equipment and software and $3,000,000 in net purchases of short-term investments.

Cash used in financing activities during the six-month period ended June 30, 2023 was $100,000 primarily for the repayment of notes payable and finance lease obligations.

Liquidity

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

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ITEM 4 - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Our CEO and our CFO have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2023 and have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2023.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 6 – EXHIBITS

Exhibits

31	Certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to Rules 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certifications of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

		VASO CORPORATION

	By:	/s/ Jun Ma
		Jun Ma
		President and Chief Executive Officer
		(Principal Executive Officer)

		/s/ Michael J. Beecher .
		Michael J. Beecher
		Chief Financial Officer and Principal Accounting Officer

Date: August 14, 2023

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