SPLASH BEVERAGE GROUP, INC. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - SPLASH BEVERAGE GROUP, INC.	ex32x2.htm
EX-32.1 - EXHIBIT 32.1 - SPLASH BEVERAGE GROUP, INC.	ex32x1.htm
EX-31.2 - EXHIBIT 31.2 - SPLASH BEVERAGE GROUP, INC.	ex31x2.htm
EX-31.1 - EXHIBIT 31.1 - SPLASH BEVERAGE GROUP, INC.	ex31x1.htm

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, 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

CANFIELD MEDICAL SUPPLY, INC.

(Name of registrant in its charter)

Colorado		34-1720075
(State or other jurisdiction of incorporation or formation)		(I.R.S. employer identification number)

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.

¨ 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.

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)		Smaller reporting company ☒

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 15, 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		Page

Item 1.	Financial Statements	3

	Condensed Balance Sheets (Unaudited)	3
	Condensed Statements of Operations (Unaudited)	4
	Condensed Statements of Cash Flows (Unaudited)	5
	Notes to Condensed Financial Statements (Unaudited)	6-11

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	13

Item 4.	Controls and Procedures	14

PART II. OTHER INFORMATION		15

Item 1.	Legal Proceedings	15

Item 1A.	Risk Factors	15

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15

Item 3.	Defaults Upon Senior Securities	15

Item 4.	Mine Safety Disclosures	15

Item 5.	Other Information	15

Item 6.	Exhibits	15

	Signatures	16

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CANFIELD MEDICAL SUPPLY, INC.

CONDENSED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
ASSETS	2016			2015

Current Assets
Cash	$	85,253		$	7,343
Accounts receivable		141,702			167,063
Inventory		26,172			21,589
Total Current Assets		253,127			195,995

Equipment, net of accumulated depreciation of $47,234 and $40,771		52,988			43,753

Total Assets	$	306,115		$	239,748

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities
Accounts payable and accrued liabilities	$	142,627		$	135,211
Line of credit		76,000			77,250
Current portion of long-term debt		7,663			7,603
Total Current Liabilities		226,290			220,064

Long-term debt		19,231			21,169

Total Liabilities		245,521			241,233

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; 10,527,200 (Mar. 31, 2016) and 10,027,200 (Dec. 31, 2015) shares issued and outstanding		168,515			118,515
Accumulated deficit		(107,921	)		(120,000	)
Total Stockholders' Equity (Deficit)		60,594			(1,485	)
Total Liabilities and Stockholders' Equity (Deficit)	$	306,115		$	239,748

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

CANFIELD MEDICAL SUPPLY, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months			Three months
	Ended			ended
	March 31, 2016			March 31, 2015

Sales (net of returns)	$	259,653		$	211,879
Cost of goods sold		126,310			91,965
Gross profit		133,343			119,914

Operating expenses:
Salaries and wages		68,994			64,767
Professional fees		8,700			9,785
Depreciation		10,373			7,296
Other selling, general and administrative		33,483			37,812
Total operating expenses		121,550			119,660

Income (loss) from operations		11,793			254

Other income (expense):
Interest expense		(1,035	)		(1,690	)
Gain on disposal of fixed assets		1,321			553
Total other income (expense)		286			(1,137	)

Income (loss) before provision for income taxes		12,079			(883	)
Provision for income tax		-			-

Net income (loss)	$	12,079		$	(883	)

Net income (loss) per share (basic and fully diluted)	$	0.00		$	(0.00	)

Weighted average number of common shares outstanding		10,312,914			10,027,200

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

CANFIELD MEDICAL SUPPLY, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three months ended			Three months ended
	March 31, 2016			March 31, 2015

Cash Flows From Operating Activities:
Net income (loss)	$	12,079		$	(883	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Gain on disposal of fixed assets		(1,321	)		(553	)
Depreciation		10,373			7,296
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		25,361			(28,644	)
(Increase) decrease in inventory		(4,583	)		5,738
Increase in accounts payable and accrued liabilities		7,416			7,463
Net cash provided by (used for) operating activities		49,325			(9,583	)

Cash Flows From Investing Activities:
Proceeds from sale of property and equipment		1,411			-
Purchase of property and equipment		(19,698	)		(2,009	)
Net cash (used for) investing activities		(18,287	)		(2,009	)

Cash Flows From Financing Activities:
Net payments on line of credit		(1,250	)		(752	)
Payments on long-term debt		(1,878	)		(1,512	)
Proceeds from sales of common stock.		50,000			-
Net cash provided by (used for) financing activities		46,872			(2,264	)

Net Increase (Decrease) in Cash		77,910			(13,856	)
Cash At The Beginning Of The Period		7,343			24,908

Cash At The End Of The Period	$	85,253		$	11,052


Schedule Of Non-Cash Investing And Financing Activities	$	-		$	-

Supplemental Disclosure
Cash paid for interest	$	1,038		$	1,690
Cash paid for income taxes	$	-		$	-

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

CANFIELD MEDICAL SUPPLY, INC.

NOTES TO FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2016 and 2015 (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 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 months ended March 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 March 31, 2016 and 2015 are not necessarily indicative of the operating results for the 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 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, 2016 and December 31, 2015, the Company has determined that no allowance for doubtful accounts is necessary.

Property and equipment

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

CANFIELD MEDICAL SUPPLY, INC.

NOTES TO FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

Inventory

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

Revenue recognition

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

Advertising costs are expensed as incurred. The Company had advertising costs during the three months ended March 31, 2016 and 2015 of $1,025 and $976, respectively.

Income tax

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.

CANFIELD MEDICAL SUPPLY, INC.

NOTES TO FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

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.

There were no potentially dilutive debt or equity instruments issued or outstanding during the three months ended March 31, 2016 or 2015.

Financial instruments

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

Concentrations

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.

CANFIELD MEDICAL SUPPLY, INC.

NOTES TO FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

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.

Products and services, geographic areas and major customers

The Company's business of medical supply sales constitutes one operating segment. All revenues each year were domestic and to external customers.

NOTE 2. EQUIPMENT

Fixed assets are comprised of office equipment, vehicles, and the wheelchair rental pool, which consists of wheelchairs rented to customers over the shorter of the 13-month rental period mandated by Medicaid and Medicare, or the period over which the customer requires use of the wheelchair. At the end of the use period, the wheelchair is either returned to the pool to be rented to another customer, or title of the chair is transferred to the customer. Depreciation is computed over the estimated useful life of the assets, ranging from 13 months to 7 years, on the straight-line basis. Depreciation expense for the three months ended March 31, 2016 and 2015 was $10,373 and $7,296, respectively. Accumulated depreciation totaled $47,234 and $40,771 at March 31, 2016 and December 31, 2015, respectively.

NOTE 3. LINE OF CREDIT

At March 31, 2016 and December 31, 2015, the Company owed a bank $76,000 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 $750 during each of the three months ended March 31, 2016 and 2015. During the three months ended March 31, 2016 and 2015, the Company made principal payments of $1,250 and $752, respectively.

CANFIELD MEDICAL SUPPLY, INC.

NOTES TO FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

NOTE 4. LONG-TERM DEBT

Long-term debt consists of the following:

	March 31, 2016			December 31, 2015

3.53% installment note payable $352 monthly, including interest, through July 2019, collateralized by vehicle with carrying value of $10,928	$	13,616		$	14,213
2.99% installment note payable $350 monthly, including interest, through August 2019, collateralized by vehicle with carrying value of $12,641		13,278			14,559
		26,894			28,772

Less principal due within one year		(7,663	)		(7,603	)

TOTAL LONG-TERM DEBT	$	19,231		$	21,169

CANFIELD MEDICAL SUPPLY, INC.

NOTES TO FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

NOTE 5. COMMON STOCK

During the period of January through March 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.

NOTE 6. LEASE COMMITMENTS

The Company rents office space under a non-cancellable lease through May 2017 with monthly payments of approximately $2,700 plus costs.

Lease expense incurred for each of the three months ended March 31, 2016 and 2015 was approximately $8,100. Subsequent to March 31, 2016, future minimum payments under the leases total approximately $38,400 including: 2016 (balance) - $24,900, and 2017 - $13,500.

NOTE 7. GOING CONCERN

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.

NOTE 8. SUBSEQUENT EVENTS

On July 11, 2016, the Company purchased a delivery vehicle for $17,913 pursuant to a 3.79% simple finance charge agreement. The loan term is five years with a monthly payment of $299.

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.

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 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, 2016 AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2015.

Revenues for the three months ended March 31, 2016 were $259,653 as compared to the revenues of $211,879 for the three months ended March 31, 2015. The 23% 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, 2016 were $126,310 as compared to cost of goods sold for the three months ended March 31, 2015 of $91,965. The 37% 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, 2016 were $121,550 as compared to $119,660 for the three months ended March 31, 2015 as operating costs were fairly consistent between the two periods.

The net income for the three months ended March 31, 2016 was $12,079 as compared to a net loss of $883 for the three months ended March 31, 2015. The primary reason for the improvement was the 23% increase in sales which resulted in an 11% increase in gross profit.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2016, we had working capital of $26,837 compared to negative working capital of ($24,069) as of December 31, 2015.

Net cash provided by operating activities during the three months ended March 31, 2016 was $49,325 as compared to net cash used for operating activities in the three months ended March 31, 2015 of ($9,583). The primary reasons for the improvement were the $25,361 decrease in accounts receivable and the $12,079 net income during the three months ended March 31, 2016.

Net cash used for investing activities during the three months ended March 31, 2016 was $18,287 which represented $19,698 used for the purchase of equipment which was offset by $1,411 received from the sale of equipment, as compared to $2,009 used for the purchase of equipment during the three months ended March 31, 2015.

Net cash provided by financing activities during the three months ended March 31, 2016 was $46,872 as compared to ($2,264) used for financing activities in the three months ended March 31, 2015. The Company sold shares of its common stock during the three months ended March 31, 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.

During the three months ended March 31, 2016, the Company sold 500,000 shares to 11 investors not related to the Company in a private offering conducted under Regulation D.

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.

		CANFIELD MEDICAL SUPPLY, INC.


Date: November 15, 2016	By:	/s/ Michael J. West
		Michael J. West, President and CEO (Principal Executive Officer)


Date: November 15, 2016	By:	/s/ Stephen H. West
		Stephen H. West, CFO (Principal Financial Officer and Principal Accounting Officer)

SPLASH BEVERAGE GROUP, INC. - FORM 10-Q - November 15, 2016

Attached files

SPLASH BEVERAGE GROUP, INC. Reports