SPLASH BEVERAGE GROUP, INC. - Quarter Report: 2016 September (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 September 30, 2016

☐   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 November 21, 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.

CONDENSED BALANCE SHEETS

(Unaudited)

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

 

 

CANFIELD MEDICAL SUPPLY, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

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

 

CANFIELD MEDICAL SUPPLY, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

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

 

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 is in the business of home health services, primarily the selling of durable medical equipment and medical supplies to the public, nursing homes, hospitals, and other end users.

The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the nine months ended September 31, 2016 and 2015 have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2015 audited financial statements.  The results of operations for the periods ended September 31, 2016 and 2015 are not necessarily indicative of the operating results for the full year.

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 nine 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 September 31, 2016 and December 31, 2015, 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 nine months ended September 30, 2016 and 2015 of $4,149 and $2,329, respectively.

 

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 nine months ended September 30, 2016 or 2015.

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 September 30, 2016 and December 31, 2015, the Company owed a bank $71,802 and $77,250, respectively, under a revolving line of credit. The line of credit is secured by all Company assets, is capped at $100,000, is due on demand, and bears interest at variable rates approximating 4% on average. Interest expense under the note approximated $2,250 during each of the nine months ended September 30, 2016 and 2015.  During the nine months ended September 30, 2016 and 2015, the Company made net principal payments of $5,448 and $752, respectively.

 

 

Long-term debt consists of the following:

 

 

During the period of January through September 2016, the Company underwent a stock offering of 500,000 shares at $.10 per share for total proceeds of $50,000 to primarily unaffiliated individuals and entities.

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 reportable subsequent events.

 

 

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, 2016 AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2015.

Revenues for the three months ended September 30, 2016 were $236,059 as compared to the revenues of $219,105 for the three months ended September 30, 2015.  The 8% 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 September 30, 2016 were $113,572 as compared to cost of goods sold for the three months ended September 30, 2015 of $119,075.  The 5% decrease in the latest three month period was due to a new contract with the supplier of enteral tube feeding supplies which had a 10% decrease over the previous prices.

 

Operating expenses for the three months ended September 30, 2016 were $134,719 as compared to $119,797 for the three months ended September 30, 2015.  The 12% increase in the latest three month period was primarily due to a $16,098 increase in salaries and a $10,627 increase in depreciation.

The net loss for the three months ended September 30, 2016 was $11,854 as compared to a net loss of $18,917 for the three months ended September 30, 2015.  The primary reason for the approximately $7,000 improvement in the net loss was the $22,457 increase in gross profit which was offset somewhat by the $14,922 increase in operating expenses.

 

 

RESULTS OF OPERATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2015.

Revenues for the nine months ended September 30, 2016 were $695,697 as compared to the revenues of $620,060 for the nine months ended September 30, 2015.  The 12% 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 nine months ended September 30, 2016 were $348,686 as compared to cost of goods sold for the nine months ended September 30, 2015 of $314,054.  The 11% increase in the latest nine 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. 

Operating expenses for the nine months ended September 30, 2016 were $380,941 as compared to $341,443 for the nine months ended September 30, 2015.  The 12% increase in the latest nine month period was primarily due to a $31,312 increase in salaries and wages and a $19,483 increase in depreciation.

The net loss for the nine months ended September 30, 2016 was $33,023 as compared to a net loss of $35,349 for the nine months ended September 30, 2015.  The primary reason for the consistent net loss was the $41,005 increase in gross profit which was offset by the $39,498 increase in operating expenses.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2016, we had negative working capital of $18,505 compared to negative working capital of $24,069 as of December 31, 2015.

 

Net cash provided by operating activities during the nine months ended September 30, 2016 was $27,256 as compared to net cash used for operating activities in the nine months ended September 30, 2015 of $1,002. The primary reason for the improvement was the $19,483 increase in depreciation in 2016 over the 2015 period.

Net cash used for investing activities during the nine months ended September 30, 2016 was $38,236 which represented $43,194 used for the purchase of equipment, which was offset by $4,958 received from the sale of equipment, as compared to $9,964 used for the purchase of equipment during the nine months ended September 30, 2015.

Net cash provided by financing activities during the nine months ended September 30, 2016 was $38,379 as compared to $7,443 used for financing activities in the nine months ended September 30, 2015.  The Company sold shares of its common stock during the nine months ended September 30, 2016 to raise $50,000 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. 

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.

 

 

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.

Item 3.    Defaults Upon Senior Securities.

None.

Item 4.    Mine Safety Disclosures.

Not applicable.

Item 5.    Other Information.

None.

Item 6.    Exhibits.

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

Exhibits

Description

31.1	Certification of CEO and Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) - Filed herewith electronically

31.2	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

 

 

 

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.