SPLASH BEVERAGE GROUP, INC. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.1 - 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 - 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, 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

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 May 15, 2017, there were 11,277,200 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	2017			2016

Current Assets
Cash	$	40,431		$	61,659
Accounts receivable		177,183			206,254
Inventory		34,550			25,231
Total Current Assets		252,164			293,144

Equipment, net of accumulated depreciation		63,533			62,190
of $75,670 and $76,197

Total Assets	$	315,697		$	355,334

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable and accrued liabilities	$	201,136		$	209,069
Line of credit		68,283			70,373
Current portion of long-term debt		11,011			10,918
Total Current Liabilities		280,430			290,360

Long-term debt		22,516			25,305

Total Liabilities		302,946			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 (Mar.31, 2017) and 10,927,200 (Dec. 31, 2016)		243,515			208,515
shares issued and outstanding
Accumulated deficit		(230,764	)		(168,846	)
Total Stockholders' Equity		12,751			39,669
Total Liabilities and Stockholders' Equity	$	315,697		$	355,334

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

CANFIELD MEDICAL SUPPLY, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

	Three months			Three months
	ended			ended
	March 31, 2017			March 31, 2016

Sales (net of returns)	$	210,060		$	259,653
Cost of goods sold		105,521			126,310
Gross profit		104,539			133,343

Operating expenses:
Salaries and wages		82,535			68,994
Professional fees		27,205			8,700
Depreciation		13,469			10,373
Other selling, general and administrative		42,570			33,483
		165,779			121,550

Income (loss) from operations		(61,240	)		11,793

Other income (expense):
Interest expense		(2,282	)		(1,035	)
Gain on sale of fixed assets		1,604			1,321
		(678	)		286

Income (loss) before provision for income taxes		(61,918	)		12,079
Provision for income tax		-			-

Net income (loss)	$	(61,918	)	$	12,079

Net income (loss) per share (basic and fully diluted)	$	(0.01	)	$	0.00

Weighted average number of common shares outstanding		11,238,311			10,312,914

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

CANFIELD MEDICAL SUPPLY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three months ended			Three months ended
	March 31, 2017			March 31, 2016
Cash Flows From Operating Activities:
Net income (loss)	$	(61,918	)	$	12,079
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Gain on sale of fixed assets		(1,604	)		(1,321	)
Depreciation		13,469			10,373
Changes in operating assets and liabilities:
Decrease in accounts receivable		29,071			25,361
(Increase) in inventory		(9,319	)		(4,583	)
Increase (decrease) in accounts payable and accrued liabilities		(7,933	)		7,416
Net cash provided by (used for) operating activities		(38,234	)		49,325

Cash Flows From Investing Activities:
Proceeds from sale of fixed assets		3,171			1,411
Purchase of fixed assets		(16,379	)		(19,698	)
Net cash (used for) investing activities		(13,208	)		(18,287	)

Cash Flows From Financing Activities:
Net payments on line of credit		(2,090	)		(1,250	)
Payments on long-term debt		(2,696	)		(1,878	)
Proceeds from sales of common stock		35,000			50,000
Net cash provided by financing activities		30,214			46,872

Net Increase (Decrease) in Cash		(21,228	)		77,910
Cash At The Beginning Of The Period		61,659			7,343

Cash At The End Of The Period	$	40,431		$	85,253

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

Supplemental Disclosure
Cash paid for interest	$	2,282		$	1,035
Cash paid for income taxes	$	-		$	-

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

CANFIELD MEDICAL SUPPLY, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016 (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 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 three months ended March 31, 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 March 31, 2017 and 2016 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, 2017 and December 31, 2016, 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.

CONDENSED NOTES TO FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016 (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, 2017 and 2016 of $4,418 and $1,025, 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.

CONDENSED NOTES TO FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016 (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, 2017 or 2016.

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.

CONDENSED NOTES TO FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016 (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 and hospital bed rental pool, which consists of wheelchairs and hospital beds 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 or hospital bed. At the end of the use period, the wheelchair or hospital bed is either returned to the pool to be rented to another customer, or title of the chair or bed 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, 2017 and 2016 was $13,469 and $10,373, respectively. Accumulated depreciation totaled $75,670 and $76,197 at March 31, 2017 and December 31, 2016, respectively.

NOTE 3. LINE OF CREDIT

At March 31, 2017 and December 31, 2016, the Company owed a bank $68,283 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 4% on average. Interest expense under the note approximated $974 and $750 during each of the three months ended March 31, 2017 and 2016, respectively. During the three months ended March 31, 2017 and 2016, the Company made principal payments of $2,090 and $1,250, respectively.

CANFIELD MEDICAL SUPPLY, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016 (Unaudited)

NOTE 4. LONG-TERM DEBT

Long-term debt consists of the following, each of which is an automobile loan collateralized by the underlying financed vehicle:

	March 31, 2017			December 31, 2016

3.53% installment note payable $352 monthly, including interest, through July 2019	$	9,457		$	10,426
3.79% installment note payable $299 monthly, including interest, through July 2021		14,296			15,052
2.99% installment note payable $350 monthly, including interest, through August 2019		9,774			10,745
		33,527			36,223

Less principal due within one year		(11,011	)		(10,918	)

TOTAL LONG-TERM DEBT	$	22,516		$	25,305

CANFIELD MEDICAL SUPPLY, INC.

CONDENSED NOTES TO FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2017 and 2016 (Unaudited)

NOTE 5. COMMON STOCK

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 an unaffiliated individual.

NOTE 6. LEASE COMMITMENTS

The Company rents office space under a non-cancellable lease through June 2017 with monthly payments of approximately $2,291 plus costs.

Lease expense incurred for each of the three months ended March 31, 2017 and 2016 was approximately $6,900. Subsequent to March 31, 2017, future minimum payments under the leases total approximately $6,900 through the June 30, 2017 expiration date, at which point the Company plans to renew the lease.

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

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 MARCH 31, 2017 AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2016.

Revenues for the three months ended March 31, 2017 were $210,060 as compared to the revenues of $259,653 for the three months ended March 31, 2015. The 19% decrease in sales is primarily due to the fact that approximately ten patients receiving nutritional supplements passed away during the quarter and we rented two fewer power chairs during the latest quarter compared to the corresponding quarter in 2016.

Cost of goods sold for the three months ended March 31, 2017 were $105,521 as compared to cost of goods sold for the three months ended March 31, 2016 of $126,310. The 16% decrease in the latest three month period was due to the decrease in the sales volume.

Operating expenses for the three months ended March 31, 2017 were $165,779 as compared to $121,550 for the three months ended March 31, 2016. This significant increase is due to the $13,541 increase in salaries and wages attributable to pay raises and the hiring of a sales representative during the third quarter of 2016, the $18,505 increase in professional fees incurred during the current quarter 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 $9,087 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 three months ended March 31, 2017 was $61,918 as compared to a net income of $12,079 for the three months ended March 31, 2016. The reasons for the change from a small profit in the first three months of 2016 to the loss in the most recent three months include a $28,804 decline in gross profit caused by the drop in sales discussed above, and the $44,229 increase in selling, general and administrative expenses also discussed above.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2017, we had negative working capital of ($28,266) compared to working capital of $2,784 as of December 31, 2016.

Net cash (used for) operating activities during the three months ended March 31, 2017 was ($38,234) as compared to net cash provided by operating activities in the three months ended March 31, 2016 of $49,325. The primary reason for the change in cash used for operating activities was the change from net income of $12,079 in the first three months of 2016 to a current quarter loss of $61,918, resulting from a decrease in revenues and increase in operating expenses.

Net cash used for investing activities during the three months ended March 31, 2017 was $13,208, which represented $16,379 used for the purchase of equipment offset by $3,171 received from the sale of equipment. In comparison, during the three months ended March 31, 2016, the Company used $19,698 for the purchase of equipment and received $1,411 in proceeds from the sale of equipment, resulting in a net of $18,287 used.

Net cash provided by financing activities during the three months ended March 31, 2017 was $30,214 as compared to $46,872 provided by financing activities in the three months ended March 31, 2016. The Company sold shares of its common stock during the three months ended March 31, 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 quarters ended March 31, 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.

During the three months ended March 31, 2017, the Company sold 350,000 shares at $.10 per share for total proceeds of $35,000 to one unaffiliated investor 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: May 18, 2017	By:	/s/ Michael J. West
		Michael J. West, President and CEO (Principal Executive Officer)


Date: May 18, 2017	By:	/s/ Stephen H. West
		Stephen H. West, CFO (Principal Financial Officer and Principal Accounting Officer)

SPLASH BEVERAGE GROUP, INC. - FORM 10-Q - May 18, 2017

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SPLASH BEVERAGE GROUP, INC. Reports