SPLASH BEVERAGE GROUP, INC. - Quarter Report: 2015 March (Form 10-Q)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 March 31, 2015

☐   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. 000-55114

(Name of registrant in its charter)

(Address of principal executive offices)

 

(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.

 ☐ 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   ☒  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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐  Yes   ☒  No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.  As of October 11, 2016, there were 10,527,200 shares of Common Stock issued and outstanding.

 

CANFIELD MEDICAL SUPPLY, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements.

 

CANFIELD MEDICAL SUPPLY, INC.

 

		March 31, 2015				December 31, 2014
ASSETS
Current Assets
Cash		$	11,052			$	24,908
Accounts receivable			108,827				80,183
Inventory			8,576				14,314
Total Current Assets			128,455				119,405
Equipment, net of accumulated depreciation of $28,469 and $24,465			42,575				47,309
Total Assets		$	171,030			$	166,714
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities		$	78,738			$	71,275
Line of credit			79,500				80,252
Current portion of long-term debt			7,418				7,053
Total Current Liabilities			165,656				158,580
Long-term debt			26,895				28,772
Total Liabilities			192,551				187,352
Stockholders' Equity (Deficit)
Preferred stock, no par value; 5,000,000 shares authorized; no shares issued and outstanding			-				-
Common stock, no par value; 100,000,000 shares authorized;  10,027,200 shares issued and outstanding			118,515				118,515
Accumulated deficit			(140,036	)			(139,153	)
Total Stockholders' Equity (Deficit)			(21,521	)			(20,638	)
Total Liabilities and Stockholders' Equity (Deficit)		$	171,030			$	166,714

 

 

The accompanying footnotes are an integral part of these financial statements.

 

 

 

 

 

 

The accompanying footnotes are an integral part of these financial statements.

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.

The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.

The majority of the Company's revenues are received from Medicare, Medicaid, and private insurance companies.  As such, the Company records revenues at allowable amounts, net of estimated allowances and discounts based on contracted prices and historical collection rates.  The Company reviews accounts receivable periodically for collectability and establishes an allowance for doubtful accounts and records bad debt expense when deemed necessary. At March 31, 2015 and December 31, 2014, the Company has determined that no allowance for doubtful accounts is necessary.

Property and equipment are recorded at cost and depreciated under straight line methods over each item's estimated useful life.

The Company carries inventory of durable medical equipment and medical supplies for resale.  Inventory is accounted for on a first–in first-out basis.

 

 

The Company's primary source of revenue is reimbursement from Medicare, Medicaid and private insurance companies for the sale of medical equipment and supplies to patients. Revenue from product sales is recognized subsequent to a patient (customer) ordering a product at an agreed-upon price, and when delivery has occurred and collectability is reasonably assured. A purchase arrangement is evidenced by a written order, with delivery considered as made after physical customer acceptance. Although rare, defective products may be returned, with other return issues considered on a case-by-case basis. Services, such as periodic scheduled deliveries, are contracted in writing, and generally billed monthly. Any service revenue earned by the Company for services, such as safety and set up consulting or claims processing, is recorded after the service is performed. Rental of durable home medical equipment is evidenced by written contract, with revenue recognized when rent is earned.

Advertising costs are expensed as incurred. The Company had advertising costs during the three months ended March 31, 2015 and 2014 of $976 and $280, respectively.

The Company accounts for income taxes pursuant to ASC 740. Under ASC 740, deferred taxes are provided for using the 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.

 

 

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.

There were no potentially dilutive debt or equity instruments issued or outstanding during the three months ended March 31, 2015 or 2014.

The carrying value of the Company's financial instruments, as reported in the accompanying balance sheets, approximates fair value.

Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents.  The Company places its cash and cash equivalents at well-known financial institutions, where at times, such balances may exceed FDIC insurance limits.

The Company receives a significant amount of its revenues in reimbursements from Medicare and Medicaid through competitive bidding processes.  There is no guarantee that the Company will continue to be selected as a winning contract supplier under future bidding rounds.

 

 

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.

NOTE 3.  LINE OF CREDIT

At March 31, 2015 and December 31, 2014, the Company owed a bank $79,500 and $80,252, respectively, under a revolving line of credit. The line of credit is secured by all Company assets, is due on demand, and bears interest at variable rates. Interest expense under the note approximated $750 during each of the three months ended March 31, 2015 and 2014.  During the three months ended March 31, 2015 and 2014, the Company made principal payments of $752 and $750, respectively.

 

 The Company entered into a note agreement with an officer and shareholder in the amount of $1,000 bearing interest at the rate of 6% per year, secured by 125,000 shares of the Company's no-par value common stock, maturing August 24, 2013. In March 2013, the Company entered into three separate loan agreements with shareholders and an officer, for $2,500 each ($7,500 total), bearing interest at the rate of 10% per year, each secured by 10,000 shares (30,000 total), of the Company's no-par value common stock and maturing September 11, 2014. The loans were for working capital advances and were repaid in full during 2014, along with accrued interest of $816.

Long-term debt consists of the following:

 In March and April 2014, the Company received net proceeds of $69,100 from the sale of 276,400 shares of no-par value common stock at $0.25 per share.   Of the total proceeds, $22,800 was received during the three months ended March 31, 2014.

The Company has suffered losses from operations and has working capital and stockholders' equity deficits. In all likelihood, the Company will be required to make significant future expenditures in connection with marketing efforts along with general administrative expenses. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

The Company may raise additional capital through the sale of its equity securities, through an offering of debt securities, or through borrowings from financial institutions or related parties. By doing so, the Company hopes to generate sufficient capital to execute its business plan of selling medical supplies on an ongoing basis. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern.

The Company has evaluated subsequent events through the date these financial statements were available to be issued and determined that there are no other reportable subsequent events.

 

NOTE 10.  RESTATEMENT

The Company earned revenues of $27,726 during the year ended December 31, 2013 that were not recorded until payment was received subsequently during the first quarter of 2014.  The accompanying comparative financial statements for the three months ended March 31, 2014 have been restated to correct the overstatement of revenue.

 

		Amount as
		Originally				Restatement				Restated
		Filed				Adjustment				Amount
Three months ended March 31, 2014
Statement of Operations
Revenue		$	156,639			$	(27,726	)		$	128,913
Gross profit		$	84,612			$	(27,726	)		$	56,886
Income (Loss) from operations		$	15,366			$	(27,726	)		$	(12,360	)
Net income (loss)		$	14,424			$	(27,726	)		$	(13,302	)
Net loss per share		$	0.00			$	(0.00	)		$	(0.00	)
Weighted Ave Shares			9,758,033								9,758,033
Statement of Cash Flows
Net income (loss)		$	14,424			$	(27,726	)		$	(13,302	)
Decrease in accounts receivable		$	2,512			$	27,726			$	30,238

 

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 MARCH 31, 2015 AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2014.

Revenues for the three months ended March 31, 2015 were $211,879 as compared to the revenues of $128,913 for the three months ended March 31, 2014.  The 64% increase in sales is primarily due to winning the Medicare competitive bidding for wheel chairs and a few other items in our local market, as well as a shift in customer focus away from Medicare and Medicaid towards private pay/private insurance customers due to continually decreasing Medicare and Medicaid reimbursement rates.

Cost of goods sold for the three months ended March 31, 2015 were $91,965 as compared to cost of goods sold for the three months ended March 31, 2014 of $72,027.  The 28% increase in the latest three month period was due to the increase in the sales volume, combined with the fact that Medicare has reduced the amount it is paying the Company for its products.  The Company has also recently been forced to carry more inventory of certain products in order to accommodate the patient demand.

Operating expenses for the three months ended March 31, 2015 were $119,660 as compared to $69,246 for the three months ended March 31, 2014.  The 73% increase was due to a significant increase in hours worked by six hourly employees and two more part-time employees, resulting in a $27,247 increase in salaries and wages.

The net loss for the three months ended March 31, 2015 was $883 as compared to a net loss of $13,302 for the three months ended March 31, 2014.  The primary reason for the $12,419 improvement was the 64% increase in sales.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2014, we had negative working capital of ($37,201) compared to negative working capital of ($39,175) as of December 31, 2014.

Net cash used for operating activities during the three months ended March 31, 2015 was $9,583 as compared to net cash provided by operating activities in the three months ended March 31, 2014 of $6,471.  The primary reason for the change from cash provided by operating activities in the first quarter of 2014 to cash used for operating activities in the first quarter of 2015 was the $28,644 increase in accounts receivable in the 2015 quarter compared to the $30,238 decrease in accounts receivable in the 2014 quarter.

 

 

 

Net cash used for investing activities during the three months ended March 31, 2015 was $2,009 for the purchase of equipment, and there was no cash provided by or used for investing activities during the three months ended March 31, 2014.

Net cash used for financing activities during the three months ended March 31, 2015 was $2,264 as compared to $21,141 provided by financing activities in the three months ended March 31, 2014.  The Company sold shares of its common stock during the three months ended March 31, 2014 to raise $22,800 to help pay for the costs associated with being a public company.

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. 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

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.

 

 

PART II – OTHER INFORMATION

Item 1.    Legal Proceedings.

Currently we are not involved in any pending litigation or legal proceeding.

Item 1A.  Risk Factors.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

Item 3.    Defaults Upon Senior Securities.

We had no senior securities issued and outstanding the during the three months ended March 31, 2014 and 2013.

Item 4.    Mine Safety Disclosures.

Not applicable.

Item 5.    Other Information.

Not applicable.

Item 6.    Exhibits.

(a)  Exhibits required by Item 601 of Regulation S-K.

 

 

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.