SPLASH BEVERAGE GROUP, INC. - Quarter Report: 2017 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, 2017

☐   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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 6, 2017, there were 11,277,100 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)

 

		September 30,				December 31,
ASSETS		2017				2016
Current Assets
Cash		$	37,281			$	61,659
Accounts receivable			231,010				206,254
Inventory			29,037				25,231
Total Current Assets			297,328				293,144
Property and equipment, net of accumulated depreciation of $87,184 and $76,197			56,155				62,190
Total Assets		$	353,483			$	355,334
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities		$	231,768			$	209,069
Line of credit			64,619				70,373
Current portion of long-term debt			10,973				10,918
Total Current Liabilities			307,360				290,360
Long-term debt			17,096				25,305
Total Liabilities			324,456				315,665
Stockholders' Equity
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;
11,277,200 (September 30, 2017) and 10,927,200 (Dec. 31, 2016) shares
issued and outstanding			243,515				208,515
Accumulated deficit			(214,488	)			(168,846	)
Total Stockholders' Equity			29,027				39,669
Total Liabilities and Stockholders' Equity		$	353,483			$	355,334

 

 

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

 

CANFIELD MEDICAL SUPPLY, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three months				Three months				Nine months				Nine months
		ended				ended				ended				ended
		September 30, 2017				September 30, 2016				September 30, 2017				September 30, 2016
Sales (net of returns)		$	319,015			$	236,059			$	739,647			$	695,697
Cost of goods sold			148,664				113,572				343,034				348,686
Gross profit			170,351				122,487				396,613				347,011
Operating expenses:
Salaries and wages			80,347				75,649				241,891				214,787
Professional Fees			4,851				6,054				36,751				24,378
Depreciation			14,421				17,125				51,720				40,281
Other selling, general and administrative			37,664				35,891				116,009				101,495
Total operating expenses			137,283				134,719				446,371				380,941
Income (loss) from operations			33,068				(12,232	)			(49,758	)			(33,930	)
Other income (expense):
Interest expense			(1,186	)			(1,258	)			(3,660	)			(3,156	)
Gain on disposal of property and equipment			3,526				1,636				7,776				4,063
			2,340				378				4,116				907
Income (loss) before provision for income taxes			35,408				(11,854	)			(45,642	)			(33,023	)
Provision for income tax			-				-				-				-
Net income (loss)		$	35,408			$	(11,854	)		$	(45,642	)		$	(33,023	)
Net income (loss) per share (basic and fully diluted)		$	0.00			$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted average number of common shares outstanding			11,277,200				10,527,200				11,264,379				10,470,010

 

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

 

 

CANFIELD MEDICAL SUPPLY, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying footnotes are an integral part of these unaudited condensed 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 three and nine months ended September 30, 2017 and 2016 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, 2016 audited financial statements.  The results of operations for the periods ended September 30, 2017 and 2016 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 twelve 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 30, 2017 and December 31, 2016, 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.

 

 

 

CANFIELD MEDICAL SUPPLY, INC.

 

 

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, 2017 and 2016 of $5,215 and $4,149 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, 2017 or 2016.

 

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.

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, 2017 and December 31, 2016, the Company owed a bank $64,619 and $70,373 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 6% on average. Interest expense under the note approximated $3,336 and $2,250 during each of the nine months ended September 30, 2017 and 2016, respectively.  During the nine months ended September 30, 2017 and 2016, the Company made principal payments of $5,754 and $5,448, respectively.

Long-term debt consists of the following:

		September 30, 2017				December 31, 2016
3.53% installment note payable $352 monthly,  including    interest, through July 2019, collateralized by vehicle with carrying value of $4,078		$	7,496			$	10,426
3.79% installment note payable $299 monthly, including
interest, through July 2021, collateralized by vehicle with carrying value of $12,466			12,764				15,052
2.99% installment note payable $350 monthly, including    interest, through August 2019, collateralized by vehicle with carrying value of $6,806			7,809				10,745
			28,069				36,223
Less principal due within one year			(10,973	)			(10,918	)
TOTAL LONG-TERM DEBT		$	17,096			$	25,305

 

On January 10, 2017 the Company issued 350,000 shares of its common stock at $.10 per share for total proceeds of $35,000 to unaffiliated individuals.

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 Condensed Financial Statements (unaudited) and Notes to Condensed 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, 2017 AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2016.

Revenues for the three months ended September 30, 2017 were $319,015 as compared to the revenues of $236,059 for the three months ended September 30, 2016.  The 35% increase in sales is due to an increasing trend in powerchair sales.

Cost of goods sold for the three months ended September 30, 2017 were $148,664 as compared to cost of goods sold for the three months ended September 30, 2016 of $113,572.  The 31% increase in the latest three months is primarily due to the 35% increase in sales.

Operating expenses for the three months ended September 30, 2017 were $137,283 as compared to $134,719 for the three months ended September 30, 2016.  The 2% increase in operating expenses was primarily due to the 6% increase in salaries and wages which was offset in part by small decreases in professional fees and depreciation.

The net income for the three months ended September 30, 2017 was $35,408 as compared to a net loss of $11,854 for the three months ended September 30, 2016.  The reasons for the $47,262 improvement include the fact that the sales increased by $82,956 while the cost of good sold only increased by $35,092.

 

 

 

 

RESULTS OF OPERATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2016.

Revenues for the nine months ended September 30, 2017 were $739,647 as compared to the revenues of $695,697 for the nine months ended September 30, 2016.  The 6% increase in sales is primarily due to an increasing trend in power chair sales.

Cost of goods sold for the nine months ended September 30, 2017 were $343,034 as compared to cost of goods sold for the nine months ended September 30, 2016 of $348,686.  The 2% decrease in the latest nine month period was due to the net effect of a decrease in cost of enteral nutrition products and increase in the purchase of high-price items such as power chairs, scooters, power vehicle lifts, and manual lifts.

Operating expenses for the nine months ended September 30, 2017 were $446,371 as compared to $380,941 for the nine months ended September 30, 2016.  The 17% increase is due to the $27,104 increase in salaries and wages attributable to pay raises and the hiring of a sales representative during the third quarter of 2016, the $12,373 increase in professional fees incurred during the latest nine months for the audit of our December 31, 2016 financial statements and Form 10-K filing (we did not commence our December 31, 2015 audit until the second quarter of 2016), and the $14,514 increase in other general and administrative expenses comprised primarily of our new website development and outsourcing of our billing collections.

The net loss for the nine months ended September 30, 2017 was $45,642 as compared to a net loss of $33,023 for the nine months ended September 30, 2016.  The reason for the increased loss in the first nine months of 2017 was primarily the $65,430 increase in operating expenses discussed above.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2017, we had negative working capital of ($10,032) compared to working capital of $2,784 as of December 31, 2016.

Net cash (used for) operating activities during the nine months ended September 30, 2017 was ($7,561) as compared to net cash provided by operating activities in the nine months ended September 30, 2016 of $27,256.  The primary reason for the change in cash used for operating activities was the increase in the net loss from $33,023 in the nine months ended September 30, 2016 to a net loss of $45,642 in the latest nine-month period as explained previously. 

 

Net cash used for investing activities during the nine months ended September 30, 2017 was $37,909 which included $48,199 used for the purchase of equipment.  In comparison, during the nine months ended September 30, 2016, the Company used $43,194 for the purchase of equipment.

Net cash provided by financing activities during the nine months ended September 30, 2017 was $21,092 as compared to $38,379 provided by financing activities in the nine months ended September 30, 2016.  The Company sold shares of its common stock during the nine months ended September 30, 2017 and 2016 to raise $35,000 and $50,000, respectively, to help pay for the costs associated with being a public company.  Minimal payments towards the Company’s line of credit and notes payable were also made during each of the nine-month periods ended September 30, 2017 and 2016.

 

 

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.