VASO Corp - Quarter Report: 2023 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, 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 November 10, 2023 – 175,319,296

Vaso Corporation and Subsidiaries

INDEX

PART I – FINANCIAL INFORMATION		3

ITEM 1 - FINANCIAL STATEMENTS		3

	CONDENSED CONSOLIDATED BALANCE SHEETS as of September 30, 2023 (unaudited) and December 31, 2022	3

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited) for the Three and Nine Months Ended September 30, 2023 and 2022	4

	CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) for the Three and Nine Months Ended September 30, 2023 and 2022	5

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) for the Nine Months Ended September 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		20

ITEM 4 - CONTROLS AND PROCEDURES		27

PART II - OTHER INFORMATION		28

ITEM 6 – EXHIBITS		28

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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, 2023			December 31, 2022
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	11,055		$	11,821
Short-term investments		15,838			8,504
Accounts and other receivables, net of an allowance for credit losses and commission adjustments of $7,483 at September 30, 2023 and $6,947 at December 31, 2022		8,355			14,514
Receivables due from related parties		837			421
Inventories, net		1,396			1,473
Deferred commission expense		3,614			3,249
Prepaid expenses and other current assets		2,111			1,008
Total current assets		43,206			40,990

Property and equipment, net of accumulated depreciation of $10,233 at September 30, 2023 and $9,787 at December 31, 2022		1,223			1,340
Operating lease right of use assets		1,656			1,568
Goodwill		15,551			15,614
Intangibles, net		1,355			1,511
Other assets, net		4,252			4,726
Investment in EECP Global		788			889
Deferred tax assets, net		5,007			5,007
Total assets	$	73,038		$	71,645

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	2,369		$	2,270
Accrued commissions		1,456			3,518
Accrued expenses and other liabilities		6,353			8,891
Finance lease liabilities - current		69			122
Operating lease liabilities - current		831			745
Sales tax payable		673			809
Deferred revenue - current portion		18,535			15,139
Notes payable - current portion		9			9
Due to related party		3			3
Total current liabilities		30,298			31,506

LONG-TERM LIABILITIES
Notes payable, net of current portion		8			15
Finance lease liabilities, net of current portion		54			96
Operating lease liabilities, net of current portion		826			823
Deferred revenue, net of current portion		14,705			15,664
Other long-term liabilities		1,538			1,474
Total long-term liabilities		17,131			18,072

COMMITMENTS AND CONTINGENCIES (NOTE N)

STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 1,000,000 shares authorized; nil shares issued and outstanding at September 30, 2023 and December 31, 2022		-			-
Common stock, $0.001 par value; 250,000,000 shares authorized; 185,627,383 and 185,435,965 shares issued at September 30, 2023 and December 31, 2022, respectively; 175,319,296 and 175,127,878 shares outstanding at September 30, 2023 and December 31, 2022, respectively		186			185
Additional paid-in capital		63,983			63,952
Accumulated deficit		(36,113	)		(39,837	)
Accumulated other comprehensive loss		(447	)		(233	)
Treasury stock, at cost, 10,308,087 shares at September 30, 2023 and December 31, 2022		(2,000	)		(2,000	)
Total stockholders’ equity		25,609			22,067
	$	73,038		$	71,645

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						Nine months ended
	September 30,						September 30,
	2023			2022			2023			2022
Revenues
Managed IT systems and services	$	9,867		$	9,836		$	30,576		$	29,858
Professional sales services		8,837			9,237			26,401			24,424
Equipment sales and services		745			760			2,130			1,789
Total revenues		19,449			19,833			59,107			56,071

Cost of revenues
Cost of managed IT systems and services		5,593			5,741			17,121			17,952
Cost of professional sales services		1,636			1,530			4,921			4,450
Cost of equipment sales and services		177			188			525			409
Total cost of revenues		7,406			7,459			22,567			22,811
Gross profit		12,043			12,374			36,540			33,260

Operating expenses
Selling, general and administrative		10,927			9,978			32,731			29,584
Research and development		209			130			584			422
Total operating expenses		11,136			10,108			33,315			30,006
Operating income		907			2,266			3,225			3,254

Other (expense) income
Interest and financing costs		(14	)		(14	)		(46	)		(38	)
Interest and other income, net		322			96			583			96
Loss on disposal of fixed assets		(1	)		-			(3	)		(2	)
Total other income, net		307			82			534			56

Income before income taxes		1,214			2,348			3,759			3,310
Income tax expense		(16	)		(12	)		(35	)		(42	)
Net income		1,198			2,336			3,724			3,268

Other comprehensive income
Foreign currency translation loss		(19	)		(234	)		(213	)		(450	)
Comprehensive income	$	1,179		$	2,102		$	3,511		$	2,818

Income per common share
- basic and diluted	$	0.01		$	0.01		$	0.02		$	0.02

Weighted average common shares outstanding
- basic		174,938			173,528			174,246			172,909
- diluted		175,846			174,892			175,394			174,513

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		$	(51,131	)	$	110		$	11,081
Share-based compensation		-		-		-			-			7			-			-			7
Foreign currency translation loss		-		-		-			-			-			-			(1	)		(1	)
Net loss		-		-		-			-			-			(403	)		-			(403	)
Balance at March 31, 2022		185,436	$	185		(10,308	)	$	(2,000	)	$	63,924		$	(51,534	)	$	109		$	10,684
Share-based compensation		-		-		-			-			6			-			-			6
Foreign currency translation loss		-		-		-			-			-			-			(215	)		(215	)
Net income		-		-		-			-			-			1,335			-			1,335
Balance at June 30, 2022		185,436	$	185		(10,308	)	$	(2,000	)	$	63,930		$	(50,199	)	$	(106	)	$	11,810
Share-based compensation		-		-		-			-			9			-			-			9
Shares not issued for employee tax liability		-		-		-			-			-			-			-			-
Foreign currency translation loss		-		-		-			-			-			-			(234	)		(234	)
Net income		-		-		-			-			-			2,336			-			2,336
Balance at September 30, 2022		185,436	$	185		(10,308	)	$	(2,000	)	$	63,939		$	(47,863	)	$	(340	)	$	13,921

Balance at January 1, 2023		185,436	$	185		(10,308	)		(2,000	)	$	63,952		$	(39,837	)	$	(233	)	$	22,067
Share-based compensation		-		-		-			-			13			-			-			13
Foreign currency translation gain		-		-		-			-			-			-			15			15
Net income		-		-		-			-			-			454			-			454
Balance at March 31, 2023		185,436	$	185		(10,308	)	$	(2,000	)	$	63,965		$	(39,383	)	$	(218	)	$	22,549
Share-based compensation		13		-		-			-			15			-			-			15
Shares withheld for employee tax liability		-		-		-			-			(1	)		-			-			(1	)
Foreign currency translation loss		-		-		-			-			-			-			(210	)		(210	)
Net income		-		-		-			-			-			2,072			-			2,072
Balance at June 30, 2023		185,449	$	185		(10,308	)	$	(2,000	)	$	63,979		$	(37,311	)	$	(428	)	$	24,425
Share-based compensation		178		1		-			-			9			-			-			10
Shares withheld for employee tax liability		-		-		-			-			(5	)		-			-			(5	)
Foreign currency translation loss		-		-		-			-			-			-			(19	)		(19	)
Net income		-		-		-			-			-			1,198			-			1,198
Balance at September 30, 2023		185,627	$	186		(10,308	)	$	(2,000	)	$	63,983		$	(36,113	)	$	(447	)	$	25,609

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)

	Nine months ended
	September 30,
	2023			2022
Cash flows from operating activities
Net income	$	3,724		$	3,268
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization		762			1,576
Loss from investment in EECP Global		101			95
Provision for credit losses and commission adjustments		85			236
Share-based compensation		38			22
Changes in operating assets and liabilities:
Accounts and other receivables		6,052			6,978
Inventories		12			(697	)
Deferred commission expense		(364	)		(167	)
Prepaid expenses and other current assets		(1,474	)		(239	)
Other assets, net		424			(539	)
Accounts payable		104			261
Accrued commissions		(2,006	)		(655	)
Accrued expenses and other liabilities		(2,559	)		849
Sales tax payable		(130	)		20
Deferred revenue		2,437			1,927
Due to related party		(411	)		(343	)
Other long-term liabilities		65			84
Net cash provided by operating activities		6,860			12,676

Cash flows from investing activities
Purchases of equipment and software		(536	)		(447	)
Purchases of short-term investments		(20,330	)		(5,000	)
Redemption of short-term investments		13,330			151
Net cash used in investing activities		(7,536	)		(5,296	)

Cash flows from financing activities
Payroll taxes paid by withholding shares		(6	)		-
Repayment of notes payable and finance lease obligations		(101	)		(177	)
Net cash used in financing activities		(107	)		(177	)
Effect of exchange rate differences on cash and cash equivalents		17			55

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(766	)		7,258
Cash and cash equivalents - beginning of period		11,821			6,025
Cash and cash equivalents - end of period	$	11,055		$	13,283

SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
Interest paid	$	14		$	37
Income taxes paid	$	80		$	60

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Initial recognition of operating lease right of use asset and liability	$	661		$	1,332

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.

Correction of Prior Period Financial Statements

We record commission revenue for certain products in our professional sales service segment based on GEHC’s reporting and payment of such commissions to us. In late August 2023, GEHC informed the Company that its calculations for such products were partially inaccurate and had remitted excess commissions. The Company has taken immediate steps to implement additional internal control procedures whereby GEHC will provide additional information sufficient to assess the accuracy of such commission payments going forward. We assessed the materiality of this misstatement on prior periods’ financial statements in accordance with SEC Staff Accounting Bulletin (“SAB”) Topic 1.M, Materiality, codified in Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections, (“ASC 250”) and concluded that the misstatements were not material to the prior annual or interim periods.

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Vaso Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Accordingly, in accordance with ASC 250 (SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), we have increased the accumulated deficit at January 1, 2022 by $229,000 to reflect $287,000 lower commission revenue and $58,000 lower commission expense, and corrected the accompanying Condensed Consolidated Balance Sheets as of December 31, 2022 and the Condensed Consolidated Statements of Operations and Comprehensive Income, Cash Flows, and Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2023, and the related notes to revise for those misstatements that impacted such periods.

The following are selected line items from the Company's Condensed Consolidated Financial Statements illustrating the effect of these corrections:

	Condensed Consolidated Balance Sheet
	As of December 31, 2022
(in thousands)	As Reported			Adjustment			As Revised
Accounts and other receivables	$	15,524		$	(1,010	)	$	14,514
Accrued commissions	$	3,720		$	(202	)	$	3,518
Accumulated deficit	$	(39,029	)	$	(808	)	$	(39,837	)

	Condensed Consolidated Statement of Cash Flows
	Nine months ended September 30, 2022
(in thousands)	As Reported			Adjustment			As Revised
Net income	$	3,649		$	(381	)	$	3,268
Accounts and other receivables	$	6,502		$	476		$	6,978
Accrued commissions	$	(560	)	$	(95	)	$	(655	)

	Condensed Consolidated Statement of Operations and Comprehensive Income
	Three months ended September 30, 2022							Nine months ended September 30, 2022
(in thousands, except per share data)	As Reported		Adjustment			As Revised		As Reported		Adjustment			As Revised
Revenues
Professional sales services	$	9,439	$	(202	)	$	9,237	$	24,900	$	(476	)	$	24,424

Cost of revenues
Cost of professional sales services	$	1,570	$	(40	)	$	1,530	$	4,545	$	(95	)	$	4,450

Gross Profit - professional sales services segment	$	7,869	$	(162	)	$	7,707	$	20,355	$	(381	)	$	19,974


Operating income	$	2,428	$	(162	)	$	2,266	$	3,635	$	(381	)	$	3,254

Net income	$	2,498	$	(162	)	$	2,336	$	3,649	$	(381	)	$	3,268

Comprehensive income/(loss)	$	2,264	$	(162	)	$	2,102	$	3,199	$	(381	)	$	2,818

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

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Vaso Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

	Condensed 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, 2022	$	(50,902	)	$	(229	)	$	(51,131	)	$	11,310		$	(229	)	$	11,081

Net loss	$	(344	)	$	(59	)	$	(403	)	$	(344	)	$	(59	)	$	(403	)

Balance at March 31, 2022	$	(51,246	)	$	(288	)	$	(51,534	)	$	10,972		$	(288	)	$	10,684

Net income	$	1,495		$	(160	)	$	1,335		$	1,495		$	(160	)	$	1,335

Balance at June 30, 2022	$	(49,751	)	$	(448	)	$	(50,199	)	$	12,258		$	(448	)	$	11,810

Net income	$	2,498		$	(162	)	$	2,336		$	2,498		$	(162	)	$	2,336

Balance at September 30, 2022	$	(47,253	)	$	(610	)	$	(47,864	)	$	14,531		$	(610	)	$	13,921

Balance at January 1, 2023	$	(39,029	)	$	(808	)	$	(39,837	)	$	22,875		$	(808	)	$	22,067

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, 2023								Three Months Ended September 30, 2022
			Professional sales		Equipment						Professional sales		Equipment
	IT segment		service segment		segment		Total		IT segment		service segment		segment		Total
Network services	$	8,849	$	-	$	-	$	8,849	$	8,787	$	-	$	-	$	8,787
Software sales and support		1,018		-		-		1,018		1,049		-		-		1,049
Commissions		-		8,837		-		8,837		-		9,237		-		9,237
Medical equipment sales		-		-		714		714		-		-		728		728
Medical equipment service		-		-		31		31		-		-		32		32
	$	9,867	$	8,837	$	745	$	19,449	$	9,836	$	9,237	$	760	$	19,833

		Nine Months Ended September 30, 2023								Nine Months Ended September 30, 2022
			Professional sales		Equipment						Professional sales		Equipment
	IT segment		service segment		segment		Total		IT segment		service segment		segment		Total
Network services	$	26,833	$	-	$	-	$	26,833	$	26,705	$	-	$	-	$	26,705
Software sales and support		3,743		-		-		3,743		3,153		-		-		3,153
Commissions		-		26,401		-		26,401		-		24,424		-		24,424
Medical equipment sales		-		-		2,036		2,036		-		-		1,696		1,696
Medical equipment service		-		-		94		94		-		-		93		93
	$	30,576	$	26,401	$	2,130	$	59,107	$	29,858	$	24,424	$	1,789	$	56,071

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Notes to Condensed Consolidated Financial Statements (unaudited)

	Three Months Ended September 30, 2023								Three Months Ended September 30, 2022
			Professional sales		Equipment						Professional sales		Equipment
	IT segment		service segment		segment		Total		IT segment		service segment		segment		Total
Revenue recognized over time	$	9,302	$	-	$	221	$	9,523	$	9,220	$	-	$	84	$	9,304
Revenue recognized at a point in time		565		8,837		524		9,926		616		9,237		676		10,529
	$	9,867	$	8,837	$	745	$	19,449	$	9,836	$	9,237	$	760	$	19,833

	Nine Months Ended September 30, 2023									Nine Months Ended September 30, 2022
			Professional sales		Equipment						Professional sales		Equipment
	IT segment		service segment		segment		Total		IT segment		service segment		segment		Total
Revenue recognized over time	$	28,180	$	-	$	462	$	28,642	$	27,530	$	-	$	232	$	27,762
Revenue recognized at a point in time		2,396		26,401		1,668		30,465		2,328		24,424		1,557		28,309
	$	30,576	$	26,401	$	2,130	$	59,107	$	29,858	$	24,424	$	1,789	$	56,071

Transaction Price Allocated to Remaining Performance Obligations

As of September 30, 2023, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $98.5 million, of which we expect to recognize revenue as follows:

	(in thousands)
	Fiscal years of revenue recognition
	2023		2024		2025		Thereafter
Unfulfilled performance obligations	$	13,525	$	42,368	$	16,455	$	26,118

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 $335,000 and $481,000 at September 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 $33,232,000 and $30,794,000 at September 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 $1,198,000 and $2,577,000 at September 30, 2023 and December 31, 2022, respectively, and are included in accrued expenses and other liabilities in our condensed consolidated balance sheets.

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Notes to Condensed Consolidated Financial Statements (unaudited)

In our VasoMedical business, we bill amounts for post-delivery services and varying duration service contracts in advance of performance. Such amounts aggregated approximately $7,000 and $9,000 at September 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 nine months ended September 30, 2023, we recognized approximately $3.1 million and $7.6 million of revenues, respectively, that were included in our contract liability balance at July 1, 2023 and January 1, 2023, respectively.

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

	(in thousands)
	2023			2022
Contract receivables - January 1		15,306			15,474
Contract receivables - September 30		9,185			8,132
Increase (decrease)		(6,121	)		(7,342	)

Contract liabilities - January 1		33,861			26,890
Contract liabilities - September 30		34,773			30,908
Increase (decrease)		911			4,018

The decrease in contract receivables in the first nine months of 2023 and 2022 was due primarily to collections exceeding billings. The increase in contract liabilities in the same periods is mainly attributable to orders exceeding deliveries.

NOTE D – SEGMENT REPORTING AND CONCENTRATIONS

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

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:

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Notes to Condensed Consolidated Financial Statements (unaudited)

	(in thousands)
	Three months ended September 30,						Nine months ended September 30,
	2023			2022			2023			2022
Revenues from external customers
IT	$	9,867		$	9,836		$	30,576		$	29,858
Professional sales service		8,837			9,237			26,401			24,424
Equipment		745			760			2,130			1,789
Total revenues	$	19,449		$	19,833		$	59,107		$	56,071

Gross Profit
IT	$	4,274		$	4,095		$	13,455		$	11,906
Professional sales service		7,201			7,707			21,480			19,974
Equipment		568			572			1,605			1,380
Total gross profit	$	12,043		$	12,374		$	36,540		$	33,260

Operating income (loss)
IT	$	(187	)	$	(474	)	$	(133	)	$	(1,531	)
Professional sales service		1,648			2,981			4,784			5,752
Equipment		(83	)		24			(214	)		(132	)
Corporate		(471	)		(265	)		(1,212	)		(835	)
Total operating income	$	907		$	2,266		$	3,225		$	3,254

Depreciation and amortization
IT	$	196		$	263		$	678		$	1,367
Professional sales service		21			10			62			32
Equipment		8			45			22			177
Corporate		-			-			-			-
Total depreciation and amortization	$	225		$	318		$	762		$	1,576

Capital expenditures
IT	$	71		$	86		$	293		$	383
Professional sales service		23			-			75			40
Equipment		82			2			168			23
Corporate		-			-			-			1
Total cash capital expenditures	$	176		$	88		$	536		$	447

	(in thousands)
	September 30, 2023		December 31, 2022
Identifiable Assets
IT	$	22,334	$	22,201
Professional sales service		15,088		20,674
Equipment		6,725		6,957
Corporate		28,891		21,813
Total assets	$	73,038	$	71,645

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Notes to Condensed Consolidated Financial Statements (unaudited)

GE Healthcare accounted for 45% and 47% of revenue for the three months ended September 30, 2023 and 2022, respectively, and 45% and 44% of revenue for the nine months ended September 30, 2023 and 2022, respectively. GE Healthcare also accounted for $6.9 million or 83%, and $11.8 million or 81%, of accounts and other receivables at September 30, 2023 and December 31, 2022, respectively. No other customer accounted for 10% or more of revenue.

NOTE E –NET INCOME PER COMMON SHARE

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

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

	(in thousands)
	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Basic weighted average shares outstanding		174,938		173,528		174,246		172,909
Dilutive effect of unvested restricted shares		908		1,364		1,148		1,604
Diluted weighted average shares outstanding		175,846		174,892		175,394		174,513

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, 2023 and 2022, because the effect of their inclusion would be anti-dilutive.

	(in thousands)
	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Restricted common stock grants		-		-		-		2

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 $411,000 and $433,000 at September 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 $15,427,000 and $8,071,000 at September 30, 2023 and December 31, 2022, respectively. Their fair value at September 30, 2023 and December 31, 2022 is approximately $15,426,000 and $8,064,000, respectively, and the unrecognized holding gain (loss) is $3,000 and $(1,000) for the three and nine months ended September 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.

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Notes to Condensed Consolidated Financial Statements (unaudited)

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

Level 1

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

Level 2

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

Level 3

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

The carrying amount of assets and liabilities including cash and cash equivalents, short-term investments, accounts receivable, prepaids, accounts payable, accrued expenses and other current liabilities approximated their fair value as of September 30, 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 September 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		September 30,
	(Level 1)		(Level 2)		(Level 3)		2023
Assets
Cash equivalents invested in money market funds	$	9,706	$	-	$	-	$	9,706
Bank deposits (included in short term investments)		411						411
	$	10,117	$	-	$	-	$	10,117

	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 September 30, 2023 and December 31, 2022:

	(in thousands)
	September 30, 2023			December 31, 2022
Trade receivables	$	12,788		$	21,461
Unbilled receivables		3,050			-
Allowance for credit losses and commission adjustments		(7,483	)		(6,947	)
Accounts and other receivables, net	$	8,355		$	14,514

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 H – INVENTORIES, NET

Inventories, net of reserves, consist of the following:

	(in thousands)
	September 30, 2023		December 31, 2022
Raw materials	$	731	$	751
Work in process		35		6
Finished goods		630		716
	$	1,396	$	1,473

The Company maintained reserves for slow moving inventories of $164,000 and $163,000 at September 30, 2023 and December 31, 2022, respectively.

NOTE I – GOODWILL AND OTHER INTANGIBLES

Goodwill of $14,375,000 is allocated to the IT segment. The remaining $1,176,000 of goodwill is attributable to the FGE reporting unit within the Equipment segment. The NetWolves and FGE reporting units had negative carrying values at September 30, 2023 and December 31, 2022. The components of the change in goodwill are as follows:

	(in thousands)
	Nine months ended			Year ended
	September 30, 2023			December 31, 2022
Beginning of period	$	15,614		$	15,722
Foreign currency translation adjustment		(63	)		(108	)
End of period	$	15,551		$	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)
	September 30, 2023			December 31, 2022
Customer-related
Costs	$	5,831		$	5,831
Accumulated amortization		(4,732	)		(4,557	)
		1,099			1,274

Patents and Technology
Costs		1,894			1,894
Accumulated amortization		(1,894	)		(1,894	)
		-			-
Software
Costs		2,468			2,362
Accumulated amortization		(2,212	)		(2,125	)
		256			237

	$	1,355		$	1,511

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Notes to Condensed Consolidated Financial Statements (unaudited)

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 $81,000 and $136,000 for the three months ended September 30, 2023 and 2022, respectively and $261,000 and $451,000 for the nine months ended September 30, 2023 and 2022, respectively.

Amortization of intangibles for the next five years is:

	(in thousands)
Years ending December 31,
Remainder of 2023		86
2024		295
2025		224
2026		169
2027		581
	$	1,355

NOTE J – OTHER ASSETS, NET

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

	(in thousands)
	September 30, 2023		December 31, 2022
Deferred commission expense - noncurrent	$	3,363	$	3,864
Trade receivables - noncurrent		831		792
Other, net of allowance for loss on loan receivable of $412 at September 30, 2023 and December 31, 2022		58		70
	$	4,252	$	4,726

NOTE K – ACCRUED EXPENSES AND OTHER LIABILITIES

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

	(in thousands)
	September 30, 2023		December 31, 2022
Accrued compensation	$	1,473	$	2,652
Accrued expenses - other		1,791		2,012
Order reduction liability		1,198		2,577
Other liabilities		1,891		1,650
	$	6,353	$	8,891

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Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE L - 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,
	2023			2022			2023			2022
Deferred revenue at beginning of period	$	33,586		$	27,096		$	30,803		$	24,965
Net additions:
Deferred extended service contracts		-			-			2			-
Deferred commission revenues		2,924			3,474			12,406			11,741
Recognized as revenue:
Deferred extended service contracts		(1	)		(1	)		(4	)		(4	)
Deferred commission revenues		(3,269	)		(3,677	)		(9,967	)		(9,810	)
Deferred revenue at end of period		33,240			26,892			33,240			26,892
Less: current portion		18,535			17,525			18,535			17,525
Long-term deferred revenue at end of period	$	14,705		$	9,367		$	14,705		$	9,367

NOTE M – RELATED-PARTY TRANSACTIONS

The Company uses the equity method to account for its interest in EECP Global as it has the ability to exercise significant influence over the entity and reports its share of EECP Global operations in Other Income (Expense) on its condensed consolidated statements of operations. For the three months ended September 30, 2023 and 2022, the Company’s share of EECP Global’s earnings (loss) was approximately $24,000 and $(40,000), respectively, and for the nine months ended September 30, 2023 and 2022, the Company’s share of EECP Global’s loss was approximately $101,000 and $95,000, respectively, and included in Other (Expense) Income in its condensed consolidated statements of operations. At September 30, 2023 and December 31, 2022, the Company recorded a net receivable from related parties of approximately $814,000 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 N – COMMITMENTS AND CONTINGENCIES

Litigation

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

Sales representation agreement

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

Employment Agreements

On May 10, 2019, the Company modified its Employment Agreement with its President and Chief Executive Officer, Dr. Jun Ma, to provide for a five-year term with extensions, unless earlier terminated by the Company, but in no event can it extend beyond May 31, 2026. The Employment Agreement provides for annual compensation of $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

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 September 30, 2023 and 2022

Revenues

Total revenue for the three months ended September 30, 2023 and 2022 was $19,449,000 and $19,833,000, respectively, representing a decrease of $384,000, or 2% year-over-year. On a segment basis, revenue in the IT segment increased by $31,000, while revenue in the professional sales services and equipment segments decreased by $400,000 and $15,000, respectively.

Revenue in the IT segment for the three months ended September 30, 2023 was $9,867,000 compared to $9,836,000 for the three months ended September 30, 2022, an increase of $31,000, or less than 1%, of which $62,000 resulted from higher network services revenue by NetWolves, offset by $31,000 from lower revenues in the healthcare IT business. Monthly recurring revenue in the IT segment accounted for $9,302,000 or 94% of the segment revenue in the third quarter of 2023, and $9,220,000 or 94% of the segment revenue for the same quarter last year (see Note C).

Commission revenues in the professional sales service segment were $8,837,000 in the third quarter of 2023, a decrease of $400,000, or 4%, as compared to $9,237,000 in the same quarter of 2022. The decrease in commission revenues was due primarily to a decrease in the volume of underlying equipment delivered by GEHC during the period, partially offset by a higher blended commission rate applicable to such deliveries. The Company only recognizes commission revenue when the underlying equipment has been accepted at the customer site in accordance with the specific terms of the sales agreement. Consequently, amounts billable, or billed and received, under the agreement with GEHC prior to customer acceptance of the equipment are recorded as deferred revenue in the condensed consolidated balance sheet. As of September 30, 2023, $33,232,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $14,701,000 was long-term. As of September 30, 2022, $26,886,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $9,366,000 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 $15,000, or 2%, to $745,000 for the three-month period ended September 30, 2023 from $760,000 for the same period of the prior year, due to lower deliveries in our China operations, partially offset by revenue increase in our US operations.

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Gross Profit

Gross profit for the three months ended September 30, 2023 and 2022 was $12,043,000, or 62% of revenue, and $12,374,000, or 62% of revenue, respectively, representing a decrease of $331,000, or 3% year-over-year. On a segment basis, gross profit in the IT segments increased $179,000, or 4%, while gross profit in the professional sales service and equipment segments decreased $506,000, or 7%, and $4,000, or 1%, respectively.

IT segment gross profit for the three months ended September 30, 2023 was $4,274,000, or 43% of the segment revenue, compared to $4,095,000, or 42% of the segment revenue for the three months ended September 30, 2022. The year-over-year increase of $179,000, or 4%, was primarily a result of a higher margin sales mix in the healthcare IT business.

Professional sales service segment gross profit was $7,201,000, or 81% of segment revenue, for the three months ended September 30, 2023 as compared to $7,707,000, or 83% of the segment revenue, for the three months ended September 30, 2022, reflecting a decrease of $506,000, or 7%. The decrease was due to lower commission revenue as a result of lower volume of GEHC equipment delivered during the third quarter of 2023, partially offset by a higher blended commission rate, when compared to the same period last year, as well as by higher commission expenses. Cost of commissions in the professional sales service segment of $1,636,000 and $1,530,000, for the three months ended September 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 balance sheet until the related commission revenue is recognized.

Equipment segment gross profit decreased to $568,000, or 76% of segment revenues, for the third quarter of 2023 compared to $572,000, or 75% of segment revenues, for the same quarter of 2022. The $4,000, or 1%, decrease in gross profit was primarily the result of lower sales during the quarter.

Operating Income (Loss)

Operating income for the three months ended September 30, 2023 was $907,000 compared to $2,266,000 for the same quarter in 2022, representing a decrease of $1,359,000, or 60%, due primarily to both the decrease in gross profit and increase in operating costs (below) in the professional sales service segment. On a segment basis, the IT segment recorded an operating loss of $187,000 in the third quarter of 2023 as compared to an operating loss of $474,000 in the same period of 2022; the professional sales service segment recorded operating income of $1,648,000 in the third quarter of 2023 as opposed to operating income of $2,981,000 in the same period of 2022; and the equipment segment recorded an operating loss of $83,000 in the third quarter of 2023 as opposed to operating income of $24,000 in the same period of 2022.

Operating loss in the IT segment decreased to $187,000 for the three-month period ended September 30, 2023 from an operating loss of $474,000 in the same period of 2022, due to higher gross profit and lower SG&A and R&D costs. Operating income in the professional sales service segment decreased by $1,333,000 in the three-month period ended September 30, 2023 as compared to operating income in the same period of 2022, due to both lower gross profit and higher SG&A costs. The equipment segment reported an operating loss of $83,000 in the third quarter of 2023, compared to operating income of $24,000 in the third quarter 2022, a decrease of $107,000, primarily due to lower revenue and gross profit in our China operations.

SG&A costs for the three months ended September 30, 2023 and 2022 were $10,927,000 and $9,978,000, respectively, representing an increase of $949,000, or 10% year-over-year. On a segment basis, SG&A costs in the IT segment decreased by $102,000 in the third quarter of 2023 from the same quarter of the prior year due primarily to lower third party commission costs; SG&A costs in the professional sales service segment increased $829,000 due mainly to higher personnel costs associated with provision of expanded services; and SG&A costs in the equipment segment increased $16,000 due primarily to higher personnel costs. Corporate costs not allocated to segments increased $206,000 due mainly to higher director and accounting fees.

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Research and development expenses were $209,000, or 1% of revenues, for the third quarter of 2023, an increase of $79,000, or 61%, from $130,000, or 1% of revenues, for the third quarter of 2022. The increase is primarily attributable to higher product development expenses in the equipment segment.

Adjusted EBITDA

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

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

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

	(in thousands)
	Three months ended September 30,
	2023			2022
	(unaudited)			(unaudited)
Net income	$	1,198		$	2,336
Interest expense (income), net		(264	)		(34	)
Income tax expense		16			12
Depreciation and amortization		225			318
Share-based compensation		10			9
Adjusted EBITDA	$	1,185		$	2,641

Adjusted EBITDA decreased by $1,456,000, to $1,185,000 in the quarter ended September 30, 2023 from $2,641,000 in the quarter ended September 30, 2022. The decrease was primarily attributable to the decrease in net income and increase in interest income.

Interest and Other Income (Expense)

Interest and other income (expense) for the three months ended September 30, 2023 was $307,000 as compared to $82,000 for the corresponding period of 2022. The increase in interest and other income (expense) was due primarily to higher interest income resulting from higher money market and short-term investment balances.

Income Tax Expense

For the three months ended September 30, 2023, we recorded income tax expense of $16,000 as compared to $12,000 for the corresponding period of 2022. The $4,000 increase is due mainly to higher state tax expense.

Net Income

Net income for the three months ended September 30, 2023 was $1,198,000 as compared to net income of $2,336,000 for the three months ended September 30, 2022, representing a decrease of $1,138,000. Income per share of $0.01 was recorded in both the three-month periods ended September 30, 2023 and 2022. The principal cause of the decrease in net income is the decrease in gross profit and increase in SG&A costs, partially offset by the increase in interest income.

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Results of Operations – For the Nine Months Ended September 30, 2023 and 2022

Revenues

Total revenue for the nine months ended September 30, 2023 and 2022 was $59,107,000 and $56,071,000, respectively, representing an increase of $3,036,000, or 5% year-over-year. On a segment basis, revenue in the IT, professional sales service, and equipment segments increased $718,000, $1,977,000, and $341,000, respectively.

Revenue in the IT segment for the nine months ended September 30, 2023 was $30,576,000 compared to $29,858,000 for the nine months ended September 30, 2022, an increase of $718,000, or 2%, of which $127,000 resulted from higher NetWolves revenue and $591,000 resulted from higher healthcare IT revenue. Our monthly recurring revenue in the IT segment accounted for $28,180,000 or 92% of the segment revenue in the first nine months of 2023, and $27,530,000 or 92% of the segment revenue for the same period last year (see Note C).

Commission revenues in the professional sales service segment were $26,401,000 in the first nine months of 2023, an increase of $1,977,000, or 8%, as compared to $24,424,000 in the first nine months of 2022. The increase in commission revenues was due primarily to an increase in the volume of underlying equipment delivered by GEHC during the period, as well as by a higher blended commission rate applicable to of the sales agreement. Consequently, amounts billable, or billed and received, under the agreement with GEHC prior to customer acceptance of the equipment are recorded as deferred revenue in the condensed consolidated balance sheet. As of September 30, 2023, $33,232,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $14,701,000 was long-term. As of September 30, 2022, $26,886,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheet, of which $9,366,000 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 $341,000, or 19%, to $2,130,000 for the nine-month period ended September 30, 2023 from $1,789,000 for the same period of the prior year, principally due to higher cloud-based software-as-a-service (“SaaS”) sales in the U.S.

Gross Profit

Gross profit for the nine months ended September 30, 2023 and 2022 was $36,540,000, or 62% of revenue, and $33,260,000, or 59% of revenue, respectively, representing an increase of $3,280,000, or 10% year-over-year. On a segment basis, gross profit in the IT segment increased $1,549,000, or 13%, and gross profit in the professional sales service and equipment segments increased $1,506,000, or 8%, and $225,000, or 16%, respectively.

IT segment gross profit for the nine months ended September 30, 2023 was $13,455,000, or 44% of the segment revenue, compared to $11,906,000, or 40% of the segment revenue for the nine months ended September 30, 2022. The year-over-year increase of $1,549,000, or 13%, was primarily a result of higher revenue and higher margin product sales mix in both the network service and healthcare IT businesses.

Professional sales service segment gross profit was $21,480,000, or 81% of segment revenue, for the nine months ended September 30, 2023 as compared to $19,974,000, or 82% of the segment revenue, for the nine months ended September 30, 2022, reflecting an increase of $1,506,000, or 8%. The increase was primarily due to higher commission revenue as a result of a higher volume of GEHC equipment delivered, as well as by a higher blended commission rate during the first nine months of 2023 than in the same period last year. Cost of commissions in the professional sales service segment of $4,921,000 and $4,450,000, for the nine months ended September 30, 2023 and 2022, respectively, reflected commission expense associated with recognized commission revenues.

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Equipment segment gross profit increased to $1,605,000, or 75% of segment revenues, for the first nine months of 2023 compared to $1,380,000, or 77% of segment revenues, for the same period in 2022. The $225,000, or 16%, increase in gross profit was primarily the result of higher revenue in both our China operations and our U.S. SaaS operations, partially offset by lower gross profit margin.

Operating Income (Loss)

Operating income for the nine months ended September 30, 2023 and 2022 was $3,225,000 and $3,254,000, respectively, representing a decrease of $29,000 as a combined result of gross profit increasing $3,280,000 and operating costs (below) increasing $3,309,000, year-over-year. On a segment basis, the IT segment recorded an operating loss of $133,000 in the first nine months of 2023 as compared to an operating loss of $1,531,000 in the same period of 2022; operating income in the professional sales service segment decreased by $968,000, from $5,752,000 in the first nine months of 2022 to $4,784,000 in the same period of 2023; and the equipment segment recorded an operating loss of $214,000 in the first nine months of 2023 as compared to an operating loss of $132,000 in the same period of 2022.

Operating loss in the IT segment decreased to $133,000 for the nine-month period ended September 30, 2023 as compared to an operating loss of $1,531,000 in the same period of 2022, due primarily to higher gross profit, partially offset by higher SG&A costs. Operating income in the professional sales service segment decreased $968,000 to $4,784,000 in the nine-month period ended September 30, 2023 as compared to operating income of $5,752,000 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 $214,000 in the first nine months of 2023, compared to an operating loss of $132,000 in the first nine months of 2022, a decrease of $82,000, due to higher SG&A and R&D costs, partially offset by higher gross profit.

SG&A costs for the nine months ended September 30, 2023 and 2022 were $32,731,000 and $29,584,000, respectively, representing an increase of $3,147,000, or 11% year-over-year. On a segment basis, SG&A costs in the IT segment increased by $167,000 in the first nine months of 2023 from the same period of the prior year due mainly to higher personnel costs; SG&A costs in the professional sales service segment increased by $2,475,000 due to higher personnel costs associated with the provision of expanded services, and to higher travel costs; and SG&A costs in the equipment segment increased by $129,000 due mainly to higher personnel costs. Corporate costs not allocated to segments increased $376,000 due mainly to higher director and accounting fees.

Research and development (“R&D”) expenses were $584,000, or 1% of revenues, for the first nine months of 2023, a decrease of $15,000, or 3%, from $422,000, or 1% of revenues, for the first nine months of 2022. The increase is primarily attributable to higher product development expenses in the equipment segment.

Adjusted EBITDA

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

	(in thousands)
	Nine months ended September 30,
	2023			2022
	(unaudited)			(unaudited)
Net income	$	3,724		$	3,268
Interest expense (income), net		(555	)		(10	)
Income tax expense		35			42
Depreciation and amortization		762			1,576
Share-based compensation		38			22
Adjusted EBITDA	$	4,004		$	4,898

Adjusted EBITDA decreased by $894,000 to $4,004,000 in the nine months ended September 30, 2023 from $4,848,000 in the nine months ended September 30, 2022. The decrease was primarily attributable to higher interest income and lower depreciation and amortization, partially offset by higher net income.

Interest and Other Income (Expense)

Interest and other income (expense) for the nine months ended September 30, 2023 was $534,000 as compared to $56,000 for the corresponding period of 2022. The increase in interest and other income was due primarily to higher money market and short-term investment balances.

Income Tax Expense

For the nine months ended September 30, 2023, we recorded income tax expense of $35,000 as compared to income tax expense of $42,000 for the corresponding period of 2022. The decrease was due mainly to lower tax expense in our China operations.

Net Income

Net income for the nine months ended September 30, 2023 was $3,724,000 as compared to $3,268,000 for the nine months ended September 30, 2022, representing an increase of $456,000, or 14%. Income per share of $0.02 was recorded in both of the nine-month periods ended September 30, 2023 and 2022. The principal cause of the improvement is the increase in interest income.

Liquidity and Capital Resources

Cash and Cash Flow

We have financed our operations from working capital. At September 30, 2023, we had cash and cash equivalents of $11,055,000 and working capital of $12,908,00 0, compared to cash and cash equivalents of $11,821,000 and working capital of $9,484,000 at December 31, 2022.

Cash provided by operating activities was $6,860,000, which consisted of net income after adjustments to reconcile net income to net cash of $4,710,000 and cash provided by operating assets and liabilities of $2,150,000, during the nine months ended September 30, 2023, compared to cash provided by operating activities of $12,676,000 for the same period in 2022. The changes in the account balances primarily reflect a decrease in accounts and other receivables and deferred revenue of $6,052,000 and $2,437,000, respectively; partially offset by decreases in accrued commissions and accrued expenses of $2,006,000 and $2,559,000, respectively.

Cash used in investing activities during the nine-month period ended September 30, 2023 was $7,536,000 attributed to $536,000 used for the purchase of equipment and software and $20,330,000 used in the purchase of short-term investments, offset by $13,330,000 in redemption of short-term investments.

Cash used in financing activities during the nine-month period ended September 30, 2023 was $107,000 resulting primarily from the repayment of notes payable and finance lease obligations.

Liquidity

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

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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 September 30, 2023 and have concluded that the Company’s disclosure controls and procedures were effective as of September 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 September 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: November 14, 2023

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