VASO Corp: Form 10-Q for the period ended Mar 31, 2025

The information contained in this report contains forward-looking statements (as such term is defined in the Securities Exchange Act of 1934 and the regulations thereunder). These forward-looking statements may include projections of, or guidance on, the Company’s future financial performance, expected levels of future revenue and expenses, anticipated growth strategies, and anticipated trends in the Company’s business or financial results. When used in this report, words such as “anticipates”, “continue”, “believes”, “could”, “estimates”, “expects”, “may”, “plans”, “potential”, “future”, “intends”, the negative of these terms and similar expressions identify forward-looking statements. Any forward-looking statement made by the Company in this document is based only on the Company’s current expectations, estimates and projections about future events and financial trends affecting the financial condition of its business based on information currently available to the Company and speaks only as of the date when made. Forward-looking statements are not historical facts or guarantees of future performance. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict, many of which are outside of the Company’s control. Actual results may differ materially from this forward-looking information and therefore, should not be unduly relied upon. Among the factors that could cause actual results to differ materially are the following: the effect of business and economic conditions, including the possibility of a downturn or disruptions in the U.S. economy; the impact of US tariff policies; 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 product development programs; the actions of regulatory authorities and third-party payers in the United States and overseas; and the risk factors reported from time to time in the Company’s SEC reports. 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. (“VasoTechnology”), 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 Technologies, Inc. (“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.

Termination of Business Combination Agreement

On September 17, 2024 Vaso provided notice to Achari to terminate the Business Combination Agreement with Achari. Vaso intends to continue to seek opportunities to increase stockholder value, including through internal growth, new partnerships and strategic investments with a concentration on medical and IT service companies.

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 contained in this Report, and see “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, 2024 as filed with the SEC on March 31, 2025.

Results of Operations – For the Three Months Ended March 31, 2025 and 2024

Revenues

Total revenue for the three months ended March 31, 2025 and 2024 was $19,462,000 and $18,738,000, respectively, representing an increase of $724,000, or 4% year-over-year. On a segment basis, revenue in the professional sales service and IT segments increased $578,000 and $162,000, respectively, while revenue in the equipment segment decreased $16,000.

Revenue in the IT segment for the three months ended March 31, 2025 was $10,315,000 compared to $10,153,000 for the three months ended March 31, 2024, an increase of $162,000, or 2%, of which $384,000 resulted from higher NetWolves revenue, due primarily to increased managed service sales, partially offset by $222,000 lower healthcare IT revenue, due primarily to lower software support sales. Monthly recurring revenue in the IT segment accounted for $9,670,000 or 94% of the segment revenue in the first quarter of 2025, and $9,301,000 or 92% of the segment revenue for the same quarter last year (see Note C).

Commission revenues in the professional sales service segment were $8,705,000 in the first quarter of 2025, an increase of $578,000, or 7%, as compared to $8,127,000 in the same quarter of 2024. The increase in commission revenues was due to higher deliveries by GEHC of both the ultrasound and diagnostic imaging products that we booked, partially offset by a lower blended commission rate applicable to such deliveries. The Company only recognizes commission revenue when the underlying equipment has been accepted at the customer site in accordance with the specific terms of the sales agreement for such equipment. 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 sheets. As of March 31, 2025, $35,404,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheets, of which $18,246,000 was long-term. At March 31, 2024, $31,424,000 in deferred commission revenue was recorded in the Company’s condensed consolidated balance sheets, of which $14,154,000 was long-term. The increase in deferred revenue was principally due to higher value of new orders booked than orders delivered during the twelve-month period.

Revenue in the equipment segment decreased by $16,000, or 3%, to $442,000 for the three-month period ended March 31, 2025 from $458,000 for the same period of the prior year, principally due to lower deliveries in our China operations resulting from impact of increased government scrutiny of healthcare purchasing practices, partially offset by higher ARCS®-cloud revenues in the US market.

Gross Profit

Gross profit for the three months ended March 31, 2025 and 2024 was $11,358,000, or 58% of revenue, and $10,918,000, or 58% of revenue, respectively, representing an increase of $440,000, or 4% year-over-year. On a segment basis, gross profit in the professional sales service segment increased $516,000, or 8%, while gross profit in the IT and equipment segments decreased $57,000, or 1%, and $19,000, or 6%, respectively.

IT segment gross profit for the three months ended March 31, 2025 was $4,138,000, or 40% of the segment revenue, compared to $4,195,000, or 41% of the segment revenue for the three months ended March 31, 2024. The year-over-year decrease of $57,000, or 1%, was primarily a result of a lower margin product sales mix in both the network services and healthcare IT businesses, partially offset by higher revenue in the network services business.

Professional sales service segment gross profit was $6,894,000, or 79% of segment revenue, for the three months ended March 31, 2025 as compared to $6,378,000, or 79% of the segment revenue, for the three months ended March 31, 2024, reflecting an increase of $516,000, or 8%. The increase was primarily due to higher revenues partially offset by higher cost of commissions. Cost of commissions in the professional sales service segment of $1,811,000 and $1,749,000, for the three months ended March 31, 2025 and 2024, respectively, reflected commission expense associated with recognized commission revenues. Cost of commissions increased primarily due to a higher commission cost structure associated with ultrasound product revenues.

Commission expense associated with short-term deferred revenue is recorded as Deferred commission expense, or with long-term deferred revenue as part of Other assets, net, on the condensed consolidated balance sheets until the related commission revenue is recognized.

Equipment segment gross profit was $326,000, or 74% of segment revenues, for the first quarter of 2025 compared to $345,000, or 75% of segment revenues, for the same quarter of 2024. The $19,000, or 6%, decrease in gross profit was mainly the result of lower revenue in our China operations due to decreased delivery volume for the first quarter of 2025, partially offset by higher ARCS®-cloud revenues in the US market.

Operating Loss

Operating loss for the three months ended March 31, 2025 and 2024 was $1,218,000 and $1,468,000, respectively, representing an improvement of $250,000, due primarily to higher gross profit and lower business combination transaction costs, partially offset by higher selling, general, and administrative (“SG&A”) expenses. On a segment basis, the professional sales service segment recorded operating income of $347,000 in the first quarter of 2025, as compared to an operating loss of $7,000 for the same period of 2024; the IT segment recorded an operating loss of $798,000 in the first quarter of 2025 as compared to an operating loss of $420,000 in the same period of 2024; and the equipment segment recorded an operating loss of $246,000 in the first quarter of 2025 as compared to an operating loss of $294,000 in the same period of 2024.

Operating loss in the IT segment was $798,000 for the three-month period ended March 31, 2025, an increase in loss of $378,000 from an operating loss of $420,000 in the same period of 2024, due mainly to lower gross profit and higher SG&A costs. The professional sales service segment reported operating income of $347,000 in the three-month period ended March 31, 2025 as compared to operating loss of $7,000 in the same period of 2024, an increase in operating income of $354,000, due to higher gross profit, partially offset by higher SG&A costs. The equipment segment reported an operating loss of $246,000 in the first quarter of 2025, compared to an operating loss of $294,000 in the first quarter 2024, an improvement of $48,000, due primarily to lower SG&A costs.

SG&A costs for the three months ended March 31, 2025 and 2024 were $12,398,000 and $12,066,000, respectively, representing an increase of $332,000, or 3%, year-over-year. On a segment basis, SG&A costs in the IT segment increased by $338,000 in the first quarter of 2025 from the same quarter of the prior year due to higher personnel and credit loss costs partially offset by reduced third-party commissions; SG&A costs in the professional sales service segment increased $162,000 due mainly to higher recruiting and IT consulting costs; and SG&A costs in the equipment segment decreased $72,000 due mainly to lower personnel costs. Corporate costs not allocated to segments decreased by $96,000 to $521,000 in the three months ended March 31, 2025 from $617,000 for the same period in 2024, due mainly to lower accounting and legal costs, partially offset by higher investor relations costs.

Research and development (“R&D”) expenses were $178,000, or 1% of revenues, for the first quarter of 2025, a decrease of $13,000, or 7%, from $191,000, or 1% of revenues, for the first quarter of 2024. The decrease is primarily attributable to lower product development expenses in the IT segment.

Adjusted EBITDA

We utilize Adjusted EBITDA in evaluating our performance internally, and this non-GAAP financial measure is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Company’s industry. Management believes that this non-GAAP financial measure, in addition to GAAP measures, is also useful to investors to evaluate the Company’s results.

Adjusted EBITDA is not a measure of financial performance under U.S. GAAP and should not be considered a substitute for operating income (loss), 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. Investors should recognize that the Company’s presentation of this non-GAAP financial measure might not be comparable to similarly-titled measures of other companies limiting its usefulness as a comparative measure.

A reconciliation of operating loss to Adjusted EBITDA is set forth below:

(in thousands)

Adjusted EBITDA increased by $151,000, to ($1,115,000) in the quarter ended March 31, 2025 from ($1,266,000) in the quarter ended March 31, 2024. The increase was mainly attributable to the lower operating loss, partially offset by lower other income, net and lower depreciation and amortization.

Interest and Other Income (Expense)

Interest and other income (expense) for the three months ended March 31, 2025 was $183,000 as compared to $307,000 for the corresponding period of 2024. The decrease in interest and other income (expense) was due primarily to lower interest income on money market balances and US Treasury bills, and by increased loss on investment in EECP Global.

Income Tax Expense

For the three months ended March 31, 2025, we recorded income tax expense of $40,000 as compared to income tax expense of $12,000 for the corresponding period of 2024. The increase was due mainly to higher state income taxes.

Net Loss

Net loss for the three months ended March 31, 2025 was $1,075,000 as compared to $1,173,000 for the three months ended March 31, 2024, representing a decrease in loss of $98,000. Loss per share was $0.01 in both of the three-month periods ended March 31, 2025 and 2024. The principal cause of the decrease in net loss was the increase in gross profit and decrease in business combination transactions costs, partially offset by higher SG&A costs and lower interest income.

Liquidity and Capital Resources

Cash and Cash Flow

We have financed our operations from working capital. At March 31, 2025, we had cash and cash equivalents of $25,311,000 and working capital of $15,736,000, compared to cash and cash equivalents of $26,271,000 and working capital of $16,465,000 at December 31, 2024.

Cash used by operating activities during the three months ended March 31, 2025 was $566,000, which consisted of net loss after adjustments to reconcile net loss to net cash of $774,000 and cash provided by operating assets and liabilities of $208,000, compared to cash used by operating activities of $1,070,000 for the same period in 2024. The changes in the account balances primarily reflect a decrease in accounts and other receivables of $4,623,000 and an increase in deferred revenue of $509,000, partially offset by decreases in accrued commissions and accrued expenses and other liabilities of $1,826,000 and $2,854,000, respectively.

Cash used by investing activities during the three-month period ended March 31, 2025 was $363,000 for the purchase of equipment and software.

Cash used by financing activities during the three-month period ended March 31, 2025 was $27,000 for 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.

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 March 31, 2025 and have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2025.

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 March 31, 2025 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.