VASO CORPORATION This Management's Discussion and Analysis of Financial Condition and Results of Operations contains descriptions of our expectations regarding future trends affecting our business. These forward looking statements and other forward-looking statements made elsewhere in this document are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Please read the section titled "Risk Factors" in "Item One - Business" to review certain conditions, among others, which we believe could cause results to differ materially from those contemplated by the forward-looking statements.
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 COVID-19 pandemic; the
effect of the dramatic changes taking place in IT and healthcare; continuation
of the GEHC agreement; the impact of competitive technology and products and
their pricing; medical insurance reimbursement policies; unexpected
manufacturing or supplier problems; unforeseen difficulties and delays in the
conduct of product development programs; the actions of regulatory authorities
and third-party payers in
The following discussion should be read in conjunction with the financial statements and notes thereto included in this Annual Report on Form 10-K.
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General Overview
COVID-19 pandemic
The COVID-19 pandemic has had a significant impact on economies of
We have taken significant steps in our efforts to protect our workforce and our
clients. Most of our employees have worked at least partially remotely and we
have reopened our work sites consistent with the guidelines promulgated by the
CDC and respective state governments. In addition, the Company in 2020 received
a
Our 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 health 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
· Managed diagnostic 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 175+ facility
partners).
· Managed security services.
VasoTechnology uses a combination of proprietary technology, methodology and best-in-class third-party applications to deliver its value proposition.
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VasoHealthcare
VasoHealthcare commenced operations in 2010, in conjunction with the Company's execution of its exclusive sales representation agreement with GEHC, which at the time was the healthcare business division of the General Electric Company ("GE"), to further the sale of certain medical capital equipment in certain domestic market segments. Its current offering consists of:
· GEHC diagnostic imaging 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 for the above equipment.
VasoHealthcare has built a team of over 75 highly experienced sales professionals who utilize highly focused sales management and analytic tools to manage the complete sales process and to increase market penetration.
VasoMedical
The proprietary medical equipment business under
· Biox™ series Holter monitors and ambulatory blood pressure recorders.
· ARCS® series analysis, reporting and communication software for ECG and
blood pressure signals, including cloud-based software and algorithm
subscription services.
· 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 in-house knowledge for cardiovascular devices
and software coupled with its engineering resources to cost effectively create
and market its proprietary technology. It sells and services its products to
customers in the
Strategic Plan and Objectives
Our short- and long-term plans for the growth of the Company and to increase stockholder value are:
· Continue to effectively control operating costs in the current
inflationary environment.
· Continue to expand our product and service offerings as well as market
penetration in all of our business segments.
· Maintain and improve business performance in our professional sales
service segment by increasing market penetration of the GEHC product
modalities we represent, and possibly building new teams to represent
other vendors.
· Maintain and grow our equipment business by increasing efficiency and
exploring new revenue models.
· Continue to seek accretive partnership opportunities.
· Explore options in capital markets for our stock.
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Results of Operations - For the Years Ended
Total revenues increased by
Revenues
Revenue in the IT segment was
Commission revenues in the professional sales service segment increased by
Revenue in our equipment segment decreased 20.1% to
Gross Profit
The Company recorded gross profit of
IT segment gross profit decreased to
Professional sales service segment gross profit was
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Equipment segment gross profit decreased by
Operating Income
Operating income was
Selling, general and administrative (SG&A) expenses for the years ended
Research and development (R&D) expenses of
Adjusted EBITDA
We define Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure, as net (loss) income, plus net interest expense (income), 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 accounting
principles generally accepted in
A reconciliation of net income to Adjusted EBITDA is set forth below:
(in thousands)
Year ended December 31,
2022 2021
Net income $ 11,873 $ 6,100
Interest expense (income), net (85 ) 301
Income tax (benefit) expense (4,743 ) 151
Depreciation and amortization 1,923 3,840
Share-based compensation 35 31
Adjusted EBITDA $ 9,003 $ 10,423
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Adjusted EBITDA decreased by
Other Income (Expense), Net
Other income (expense), net for the years ended
Income Tax (Expense) Benefit
During the year ended
Liquidity and Capital Resources
Cash and Cash Flow - For the year ended
We have financed our operations and investment activities from working
capital. At
Cash provided by operating activities was
Cash used in investing activities during the year ended
Cash used in financing activities during the year ended
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Liquidity
The Company expects to generate sufficient cash flow from operations to satisfy its obligations at least for the next twelve months.
Off-Balance Sheet Arrangements
We do not participate in transactions that generate relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities (SPES), which
would have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. As of
Effects of Inflation
We believe that inflation and changing prices over the past two years have not had a significant impact on our revenue or on our results of operations.
Critical Accounting Policies and Estimates
Note B of the Notes to Consolidated Financial Statements includes a summary of our significant accounting policies and methods used in the preparation of our financial statements. In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Our critical accounting policies and estimates are as follows:
Allowance for Commission Adjustments
In our professional sale service segment, we bill a portion of commissions on the orders we booked in advance of delivery of the underlying equipment. Such amounts are classified in our consolidated balance sheets in accounts receivable and deferred revenue, net of estimated commission adjustments. Similarly, commissions payable to our sales force related to such billings are recorded as deferred commission expense, net of the impact of the estimated commission adjustments, when the associated deferred revenue is recorded. The commission adjustments are based on estimates of future order cancellations, which is calculated based on historical cancellation rates and applicable credit policies.
Valuation Allowance for Deferred Tax Assets
Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities and loss carry forwards for which income tax benefits are expected to be realized in future years. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized. In estimating future tax consequences, we generally consider all expected future events other than an enactment of changes in the tax laws or rates. Deferred tax assets are continually evaluated for realizability. To the extent our judgment regarding the realization of the deferred tax assets changes, an adjustment to the allowance is recorded, with an offsetting increase or decrease, as appropriate, in income tax expense. Such adjustments are recorded in the period in which our estimate as to the realizability of the assets changed that it is "more likely than not" that all of the deferred tax assets will be realized. The "more likely than not" standard is subjective and is based upon our estimate of a greater than 50% probability that the deferred tax asset will be realized.
Intangible assets consist of the value of customer contracts and relationships, patent and technology costs, and software. The cost of significant customer-related intangibles is amortized in proportion to estimated total related revenue; cost of other intangible assets is generally amortized on a straight-line basis over the asset's estimated economic life, which range from five to ten years. The Company capitalizes internal use software costs incurred during the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred. We evaluate whether events or circumstances have occurred that warrant a revision to the remaining useful lives of intangible assets. In cases where a revision is deemed appropriate, the remaining carrying amounts of the intangible assets are amortized over the revised remaining useful life.
Recently Issued Accounting Pronouncements
Note B of the Notes to Consolidated Financial Statements includes a description of the Company's evaluation of recently issued accounting pronouncements.
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