SPLASH BEVERAGE GROUP, INC. - Quarter Report: 2018 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, 2018

☐   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.

x Yes   ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

x 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 12 2018, there were 11,477,200 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 unaudited condensed financial statements.

 

 

CANFIELD MEDICAL SUPPLY, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

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 March 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 30, 2018 and 2017 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, 2017 audited financial statements.  The results of operations for the periods ended September 30, 2018 and 2017 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, 2018 and December 31, 2017, the Company has determined that no allowance for doubtful accounts is necessary.

Equipment is recorded at cost and depreciated under straight line method 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, 2018 and 2017 of $13,386 and $5,215 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 Nine months ended September 30, 2018 or 2017.

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.  For the nine months ended September 30, 2018 and 2017, we did not recognize any impairment charges.

NOTE 3.  LINE OF CREDIT

At September 30, 2018 and December 31, 2017, the Company owed a bank $56,983 and $62,378 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 $3,256 and $3,336 during each of the Nine months ended September 30, 2018 and 2017, respectively.  During the Nine months ended September 30, 2018 and 2017, the Company made principal payments of $5,395 and $5,754, respectively.

 

Long-term debt consists of the following:

 

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.

 

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 provide services to the rehabilitation market, which consists primarily of home medical equipment and supplies.  More than 50% of our revenues is 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, 2018 AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2017.

Revenues for the three months ended September 30, 2018 were $312,988 as compared to the revenues of $319,015 for the three months ended September 30, 2017.  The $6,027 decrease in sales is due to a decrease in our complex rehab powerchair and wheelchairs sold.  Cost of goods sold for the three months ended September 30, 2018 were $147,911 as compared to cost of goods sold for the three months ended September 30, 2017 of $148,664.  The $753 decrease in cost of goods sold for the three month period ended September 30, 2018 is primarily due to our decreased sales, and as our sales decreased, our cost for those sales correspondingly decreased.  Our gross profit for the three months ended September 30, 2018 was $165,077, as compared to gross profit of $170,351 for the three month period ended September 30, 2017.

Operating expenses for the three months ended September 30, 2018 of $167,286 as compared to $137,283 for the three months ended September 30, 2017 were due to an increase in our general and administrative expenses during the period related to the costs of being a public company as well as completing the process of receiving our stock symbol and beginning to be quoted on OTC Markets.The net loss for the three months ended September 30, 2018 was $4,994 as compared to a net income of $35,408 for the three months ended September 30, 2017.  The reason for the decrease in net income to net loss is the fact that we had an increase in general and administrative expenses during the period.

RESULTS OF OPERATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2017.

Revenues for the nine months ended September 30, 2018 were $1,012,377 as compared to the revenues of $739,647 for the nine months ended September 30, 2017.  The $272,730 increase in sales is due to a significant increase in the number of expensive complex rehab powerchairs sold as well as custom manual wheelchairs sold.  Cost of goods sold for the nine months ended September 30, 2018 were $465,122 as compared to cost of goods sold for the nine months ended September 30, 2017 of $343,034.  The $122,088 increase in cost of goods sold for the nine month period ended September 30, 2018 is primarily due to our increased sales, and as our sales increased, our cost for those sales correspondingly increased.  Our gross profit for the nine month period ended September 30, 2018 was $547,255 as compared to $396,613 for the nine month period ended September 30, 2017, which was a result of our overall sales increasing during the period.

Operating expenses for the nine months ended September 30, 2018 were $465,030 as compared to $446,371 for the nine months ended September 30, 2017.  The $18,659 increase in operating expenses during the period was primarily due to an increase in general and administrative expenses during the period related to expenses due to being a public company, as well as completing our OTC Markets listing.  The net income for the nine months ended September 30, 2018 was $82,722 as compared to a net loss of $45,642 for the nine months ended September 30, 2017.  The reasons for the $128,363 improvement include the fact that revenues increased by $272,730 during the period.

 

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2018, we had total assets of $350,702, and as of December 31, 2017, we had total assets of $241,027.

Net cash provided by operating activities during the nine months ended September 30, 2018 was $53,389 as compared to net cash (used for) operating activities in the nine months ended September 30, 2017 of ($7,561).  The primary reason for the change in cash used for operating activities was the change from a net loss of ($45,642) to a net income of $82,722 in the latest nine-month period as explained previously. 

 

Net cash used for investing activities during the nine months ended September 30, 2018 was $37,530.  In comparison, during the nine months ended September 30, 2017, the net cash used for investing activities was $37,909.  We had $7,359 of proceeds from the sale of fixed assets during the nine month period ended September 30, 2018, as compared to $10,290 of proceeds from the sale of fixed assets during the nine month period ended September 30, 2017.  Additionally, we had $44,889 used for the purchase of fixed assets during the nine month period ended September 30, 2018, as compared to $48,199 used for the purchase of fixed assets during the nine month period ended September 30, 2017. 

Net cash (used for) financing activities during the nine months ended September 30, 2018 was ($12,099) as compared to $21,092 provided by financing activities in the nine months ended September 30, 2017.  The Company sold shares of its common stock during the nine months ended September 30, 2017 to raise $35,000, to help pay for the costs associated with being a public company.  The Company also received $2,000 worth of proceeds from sales of common stock during the nine month period ended September 30, 2018.  Payments of $5,395 were made towards the Company’s lines of credit and long term debt during the nine months ended September 30, 2018, as compared to $5,754 of payments made on the Company’s lines of credit and long term debt during the nine months ended September 30, 2017.

 

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/Principal Financial Officer and Chief 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 effective as of the date of this form 10-Q.

(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 15

 

 

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.