SPLASH BEVERAGE GROUP, INC. - Quarter Report: 2013 September (Form 10-Q)
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission File No. 333-182639
CANFIELD MEDICAL SUPPLY, INC.
(Name of registrant in its charter)
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Colorado
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34-1720075
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(State or other jurisdiction of incorporation or formation)
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(I.R.S. employer identification number)
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4120 Boardman Canfield Road, Canfield, Ohio 44406
(Address of principal executive offices)
(330) 533-1914
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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.
x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
¨ Yes x No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ¨
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Accelerated filer ¨
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Non-accelerated filer ¨
(Do not check if a smaller reporting company)
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. On October 31, 2013, there were 9,750,800 shares of Common Stock issued and outstanding.
CANFIELD MEDICAL SUPPLY, INC.
FORM 10-Q
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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3
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Balance sheets
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3
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Statements of operations
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4
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Statements of cash flows
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5
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Notes to unaudited consolidated financial statements
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6
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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8
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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9
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Item 4.
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Controls and Procedures
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9
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PART II. OTHER INFORMATION
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Item 1.
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Legal Proceedings
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10
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Item 1A.
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Risk Factors
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10
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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10
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Item 3.
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Defaults Upon Senior Securities
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10
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Item 4.
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Mine Safety Disclosures
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10
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Item 5.
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Other Information
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10
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Item 6.
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Exhibits
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10
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Signatures
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11
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- 2 -
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
CANFIELD MEDICAL SUPPLY, INC.
BALANCE SHEETS
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Dec. 31, 2012
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Sept 30., 2013
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(Unaudited)
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ASSETS
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Current assets
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||||||||
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Cash
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$
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7,352
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$
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28,888
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Accounts receivable
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14,459
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46,162
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Total current assets
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21,811
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75,050
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Total Assets
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$
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21,811
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$
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75,050
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LIABILITIES & STOCKHOLDERS' EQUITY
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||||||||
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Current liabilities
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Accounts payable
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$
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20,633
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$
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36,293
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Related party payables
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6,000
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7,500
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Notes payable
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85,500
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83,250
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Total current liabilities
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112,133
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127,043
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Total Liabilities
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$
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112,133
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$
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127,043
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Stockholders' Equity
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Preferred stock, no par value; 5,000,000 shares authorized;
No shares issued & outstanding
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$
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-
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$
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-
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||||
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Common stock, no par value; 100,000,000 shares authorized; 9,500,000
(2012) and 9,750,800 (2013) shares issued and outstanding
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15,500
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78,200
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Additional paid in capital
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-
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-
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Retained earnings (deficit)
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(105,822
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)
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(130,193
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)
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Total Stockholders' Equity
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(90,322
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)
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(51,993
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)
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Total Liabilities and Stockholders' Equity
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$
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21,811
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$
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75,050
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The accompanying notes are an integral part of the financial statements.
- 3 -
CANFIELD MEDICAL SUPPLY, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended
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Nine Months Ended
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Sept. 30,
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Sept. 30,
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2012
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2013
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2012
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2013
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Sales (net of returns)
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$
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89,653
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$
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141,849
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$
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245,127
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$
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297,569
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Consulting revenue
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-
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-
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-
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-
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Other revenue
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-
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-
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-
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-
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Cost of goods sold
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32,169
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78,520
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101,729
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148,392
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Gross profit
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57,484
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63,329
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143,398
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149,177
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Operating expenses:
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General and administrative
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53,542
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73,335
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144,197
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170,737
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53,542
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73,335
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144,197
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170,737
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Income (loss) from operations
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3,942
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(10,006
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)
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(799
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)
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(21,560
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)
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Other income (expense):
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Interest income
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5
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8
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7
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8
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Interest expense
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(944
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)
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(1,162
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)
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(2,620
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)
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(2,819
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)
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(939
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)
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(1,154
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)
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(2,613
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)
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(2,811
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)
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Income (loss) before provision for income taxes
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3,003
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(11,160
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)
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(3,412
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)
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(24,371
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)
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Provision for income tax
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-
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-
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-
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-
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Net income (loss)
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$
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3,003
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$
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(11,160
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)
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$
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(3,412
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)
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$
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(24,371
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)
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Net income (loss) per share
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(Basic and fully diluted)
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$
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0.00
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$
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(0.00
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)
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$
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0.00
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$
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0.00
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Weighted average number of common shares outstanding
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9,500,000
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9,625,400
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9,166,667
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9,541,800
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The accompanying notes are an integral part of the financial statements.
- 4 -
CANFIELD MEDICAL SUPPLY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended
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Sept. 30,
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2012
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2013
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Cash Flows From Operating Activities:
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Net income (loss)
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$
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(3,412
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)
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$
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(24,371
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)
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Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
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Accounts receivable
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(6,807
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)
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(31,703
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)
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Accounts payable
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(5,708
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)
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15,660
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Accrued interest payable
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(277
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)
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-
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Net cash provided by (used for) operating activities
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(16,204
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)
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(40,414
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)
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Cash Flows From Investing Activities:
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-
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-
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Net cash provided by (used for) investing activities
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-
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-
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Cash Flows From Financing Activities:
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Notes payable - payments
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(2,500
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)
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(2,250
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)
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Related party payable
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5,000
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1,500
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Sales of common stock
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15,000
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62,700
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Net cash provided by (used for) financing activities
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17,500
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61,950
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Net Increase (Decrease) In Cash
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1,296
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21,536
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Cash At The Beginning Of The Period
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6,431
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7,352
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Cash At The End Of The Period
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$
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7,727
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$
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28,888
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Schedule Of Non-Cash Investing And Financing Activities
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None
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Supplemental Disclosure
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Cash paid for interest
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$
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2,620
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$
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2,819
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Cash paid for income taxes
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$
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-
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$
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-
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The accompanying notes are an integral part of the financial statements.
- 5 -
CANFIELD MEDICAL SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Canfield Medical Supply, Inc. (the “Company”), was incorporated in the State of Ohio on September 3, 1992 and changed domicile to Colorado on April 18, 2012. The Company sells medical supplies to clinics, hospitals and other end users.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim periods are not necessarily indicative of operations for a full year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.
Accounts receivable
The Company reviews accounts receivable periodically for collectability and establishes an allowance for doubtful accounts and records bad debt expense when deemed necessary.
Property and equipment
Property and equipment are recorded at cost and depreciated under accelerated or straight line methods over each item's estimated useful life.
- 6 -
CANFIELD MEDICAL SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Revenue recognition
Revenue is recognized on an accrual basis as earned under contract terms. Specifically, revenue from product sales is recognized subsequent to a customer ordering a product at an agreed upon price, delivery has occurred, and collectability is reasonably assured.
Income tax
The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net income (loss) per share
The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company's preferred stock (if any), are not included in the computation if the effect would be anti-dilutive and would increase the earnings or decrease loss per share.
Financial Instruments
The carrying value of the Company’s financial instruments, as reported in the accompanying balance sheets, approximates fair value.
Long-Lived Assets
In accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the Financial Statements (unaudited) and Notes to Financial Statements (unaudited) filed herein.
BUSINESS OVERVIEW
We primarily provide services to the rehabilitation market, which consists primarily of home medical equipment and supplies. More than 50% of our revenues are derived from the sale and rental of durable home medical equipment including such items as wheeled walkers, manual and power wheelchairs, hospital beds, ramps, bedside commodes, and miscellaneous bathroom equipment. The balance of our revenue is from the sale of various home medical supplies including diabetic testing, incontinence, ostomy, wound care, and catheter care. Our emphasis is on helping patients with mobility related limitations, but our overall business is aimed at helping patients remain in their homes instead of having to go to hospitals, rehab centers and other similar facilities. Most of the equipment and supplies that we sell are prescribed by a physician as part of an overall care plan.
RESULTS OF OPERATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2012.
Revenues for the three months ended September 30, 2013 were $141,849 as compared to the revenues of $89,653 for the three months ended September 30, 2012. The 58% increase in sales in the most recent three months was due to the large increase in number of patients the Company is billing. The Company won the competitive bidding with Medicare in the Mahoning Valley for wheelchairs, enteral tube feeding and pressure reduction services which was effective July 1, 2013, and as a result, the Company’s patient census has increased from an average of approximately 85 prior to July 1 to about 170 patients by the end of the third quarter.
Cost of goods sold for the three months ended September 30, 2013 were $78,520 as compared to cost of goods sold for the three months ended September 30, 2012 of $32,169. The 144% increase in cost of goods sold is primarily due to the increase in sales and inventory levels resulting from the competitive bidding. The profit margins declined because of a 45% reduction in the Medicare payment for the Company’s products. The significant increase in sales has also forced the Company to more than triple its inventory of certain products in order to accommodate the patient demand.
The only operating expenses during these periods consisted of general and administrative expenses which were $73,335 in the three months ended September 30, 2013 as compared to $53,542 for the three months ended September 30, 2012. The 37% increase in operating expenses was due to a significant increase in hours worked by hourly employees, the addition of 2 more part-time employees and the addition of one delivery van.
The net loss for the three months ended September 30, 2013 was ($11,160) as compared to a net income of $3,003 for the three months ended September 30, 2012. The primary reason for the change from a small income in 2012 to a small loss in 2013 was the $19,793 increase in operating expenses in the three months ended September 30, 2013.
RESULTS OF OPERATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2012.
Revenues for the nine months ended September 30, 2013 were $297,569 as compared to the revenues of $245,127 for the nine months ended September 30, 2012. The 21% increase in sales is primarily due to the significant increase in sales for the most recent three months of the nine month period due to winning the competitive bidding described above in the three month comparisons.
Cost of goods sold for the nine months ended September 30, 2013 were $148,392 as compared to cost of goods sold for the nine months ended September 30, 2012 of $101,729. The 46% increase in cost of goods sold is primarily due to the increase in the sales volume in the last three months of the nine month period combined with the fact that since July 1, 2013, Medicare has reduced the amount it is paying the Company for its products. The Company has also recently been forced to more than triple its inventory of certain products in order to accommodate the patient demand.
- 8 -
The only operating expenses during these periods consisted of general and administrative expenses which were $170,737 in the nine months ended September 30, 2013 as compared to $144,197 for the nine months ended September 30, 2012. The 18% increase in operating expenses was due to an increase in operating expenses in the last three months of the nine month period. This increase was due to a significant increase in hours worked by hourly employees, the addition of 2 more part-time employees and the addition of one delivery van.
The net loss for the nine months ended September 30, 2013 was ($24,371) as compared to a net loss of ($3,412) for the nine months ended September 30, 2012. The primary reason for the increased loss in the first nine months of 2013 was the $26,540 increase in operating expenses in the 2013 nine month period which was due to competitive bidding.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2013, we had negative working capital of ($51,993) compared to negative working capital of ($90,322) as of December 31, 2012.
Net cash used for operating activities during the nine months ended September 30, 2013 was $40,414 as compared to net cash used for operating activities in the nine months ended September 30, 2012 of $16,204. The primary reason for the $24,210 increase in cash used for operating activities was the $20,959 increase in net loss.
Net cash provided by financing activities during the nine months ended September 30, 2013 was $61,950 as compared to $17,500 provided by financing activities in the nine months ended September 30, 2012. The Company received $62,700 in gross proceeds from its initial public offering during September 2013.
Due to the uncertainty of our ability to meet our operational expenses, in their report on our audited financial statements as of and for the years ended December 31, 2012 and 2011, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. There is substantial doubt about our ability to continue as a going concern as we have losses for the year ended December 31, 2011 of ($53,096), for the year ended December 31, 2012 of ($12,635) and a negative working capital and a stockholders’ deficit.
CONTRACTUAL OBLIGATIONS
None.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
Our Chief Executive Officer and Principal Financial Officer have evaluated the effectiveness of the design and operations of our disclosure controls and procedures as of the end of the period covered by this quarterly report, and have concluded that our disclosure controls and procedures are adequate.
(b) Changes in Internal Control over Financial Reporting.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
- 9 -
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We received a total of $62,700 in gross proceeds from the sale of 250,800 shares of common stock in our initial public offering which was closed on September 10, 2013. The effective date of the registration statement for our initial public offering was February 12, 2013 and the SEC file number was 333-182639. The offering terminated on September 10, 2013, which was the end of the offering period, and 949,200 shares which were registered for sale by the Company were not sold.
The Company has paid a total of $60,082 for offering expenses as follows: legal fees and SEC filing fees ($26,885); accounting and auditing fees ($29,160); escrow agent fees ($3,729); and printing expenses ($308). There were no payments made to officers or directors of the Company or to affiliates of the Company. The net offering proceeds after deducting the above expenses was $2,618. Since the offering was closed, the only other expenditure from the offering proceeds through October 31, 2013 was the payment of $15,000 to a broker-dealer to get the Company’s common stock OTC eligible.
The registration statement also registered 1,500,000 shares of common stock to be offered by the selling shareholders. The selling shareholders have not started offering any of their shares for sale.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Item 6. Exhibits.
(a) Exhibits required by Item 601 of Regulation S-K.
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Exhibit
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Description
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31.1
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Certification of CEO and Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) - Filed herewith electronically
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|
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31.2
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Certification of CFO and Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) - Filed herewith electronically
|
|
|
32.1
|
Certification of CEO and Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Filed herewith electronically
|
|
|
32.2
|
Certification of CFO and Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Filed herewith electronically
|
|
| 101 | XBRL Exhibits |
- 10 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CANFIELD MEDICAL SUPPLY, INC.
|
||
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Date: November 12, 2013
|
By:
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/s/ Michael J. West
|
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Michael J. West, President and CEO
(Principal Executive Officer)
|
||
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Date: November 12, 2013
|
By:
|
/s/ Stephen H. West
|
|
Stephen H. West, CFO
(Principal Financial Officer and Principal Accounting Officer)
|
11