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EX-23 - CONSENT OF SHERB & CO. LLP - HASCO Medical, Inc.ex231.htm
EX-32 - CERTIFICATION OF THE CFO - HASCO Medical, Inc.ex322.htm
EX-31 - CERTIFICATION OF THE CFO - HASCO Medical, Inc.ex312.htm
EX-31 - CERTIFICATION OF THE CEO - HASCO Medical, Inc.ex311.htm
EX-32 - CERTIFICATION OF THE CEO - HASCO Medical, Inc.ex321.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
Amendment No. 2

(Mark One)

 

 

þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

or

 

 

o

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to ____________________

Commission file number: 000-52422

 

HASCO Medical, Inc.

 

(Exact name of registrant as specified in its charter)


 

 

 

Florida

 

65-0924471

 

 

 

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)


 

 

 

1416 West I-65 Service Road S., Mobile, AL

 

36693

 

 

 

(Address of principal executive offices)

 

(Zip Code)

 

 

 

Registrant’s telephone number, including area code:

 

(251) 633-4133

 

 

 

Securities registered under Section 12(b) of the Act:

 

 

 

Title of each class

 

Name of each exchange on which registered

None

 

Not applicable

Securities registered under Section 12(g) of the Act:

Common stock
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No

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 þ No o


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 (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:

 

 

 

 

 

 

Large accelerated filer

o

Accelerated filer

o

 

 

 

 

 

 

Non-accelerated filer

o

Smaller reporting company

þ

 

(Do not check if 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 o No þ

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $4,994,472 on June 30, 2009.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 733,553,142 shares of common stock are issued and outstanding as of March 31, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). None.

EXPLANATORY NOTE

Hasco Medical, Inc. (the “Company”)  is filing this Amendment No. 2 to its Annual Report on Form 10-K (this “Form 10-K/A”) to amend its Annual Report on Form 10-K for the year ended December 31, 2009, which was filed with the Securities and Exchange Commission (“SEC”) on February 14, 2011. This Form 10-K/A amends the 2009 Form 10-K by (i) revising the impairment of intangible assets during fiscal 2008 as an element of operations instead of as an element of other expense; and (ii) revising our disclosure in Part I, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) regarding the comparative discussion of our net revenues. The impact on the consolidated financial statements is a reclassification in the operating expense section of the statements of operations which decreased other expense with a corresponding increase in operating expense. There is no other change to the consolidated financial statements.

Except as described above, no other changes have been made to the 2009 Form 10-K, and this Amendment No. 2 does not otherwise amend, update or change the financial statements or disclosures in the 2009 Form 10-K.

i


HASCO MEDICAL, INC.
FORM 10-K
TABLE OF CONTENTS

 

 

 

 

 

Page No.

Part I

 

 

Item 1.

Business.

1

Item 1A.

Risk Factors.

6

Item 1B.

Unresolved Staff Comments.

9

Item 2.

Properties.

9

Item 3.

Legal Proceedings.

9

Item 4.

Submission of Matters to a Vote of Security Holders.

9

Part II

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

9

Item 6.

Selected Financial Data.

10

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

10

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

21

Item 8.

Financial Statements and Supplementary Data.

21

Item 9.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

21

Item 9A.(T)

Controls and Procedures.

22

Item 9B.

Other Information.

23

Part III

 

 

Item 10.

Directors, Executive Officers and Corporate Governance.

23

Item 11.

Executive Compensation.

27

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

29

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

30

Item 14.

Principal Accountant Fees and Services.

31

Part IV

 

 

Item 15.

Exhibits, Financial Statement Schedules.

32

ii


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

          Certain statements in this annual report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to raise sufficient capital to fund our ongoing operations and satisfy our obligations as they become due, our ability to implement our strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this annual report in its entirety, including the risks described in Part I. Item 1A. Risk Factors. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this annual report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

OTHER PERTINENT INFORMATION

          When used in this annual report, the terms “HASCO,” “ we,” “our,” and “us” refers to Hasco Medical, Inc., a Florida corporation, and our subsidiary.

iii


PART I

 

 

ITEM 1.

DESCRIPTION OF BUSINESS

OVERVIEW

               HASCO Medical, Inc., formerly BBC Graphics of Palm Beach Inc, was incorporated in May 1999 under the laws of the State of Florida. We operated as a provider of advertising and graphic design services. In June 2009, we changed our name to HASCO Medical, Inc.

               From our formation in May 1999 through April 2006, we were in the business of providing advertising and graphic design services to our clients. On October 1, 2004, we were administratively dissolved by the State of Florida pursuant to Sections 607.1420 and 607.1421 of the Florida Business Corporation Act. On April 29, 2006, we were reinstated as an active Florida corporation pursuant to Section 607.1422 of the Florida Business Corporation Act. As of that date, we discontinued our advertising and graphics design business.

               On May 19, 2006, pursuant to a Stock Purchase Agreement between our company, Bluepoint Financial, LLC (“Bluepoint”) and Suzanne Mitchell, our former president and chief executive officer (the “Stock Purchase Agreement”), Ms. Mitchell sold Bluepoint 14,800,000 shares of our common stock which she owned for a purchase price of $1.00. In addition, we sold 22,524,000 shares of our common stock to Bluepoint for a purchase price of $40,000. Upon closing of these transactions, Ms. Mitchell and our remaining officers and directors resigned from their positions and appointed Robert Druzak, a principal of Bluepoint, as a director and as our president and chief executive officer.

               We were organized under the laws of the State of Florida in May 1999. Our principal executive offices are located at 1416 West I-65 Service Road S., Mobile, AL 36693, and our telephone number is (251) 633-4133. In May 2009, we changed our fiscal year end from September 30 to December 31.

               Based on our proposed business activities, we were a “blank check” company. The United States Securities and Exchange Commission (the “SEC”) defines a blank check company as “any development stage company that is issuing a penny stock, within the meaning of Section 3(a)(51) of the Exchange Act of 1934, as amended, (the “Exchange Act”) and that has no specific business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies.” Under SEC Rule 12b-2 under the Securities Act of 1933, as amended (the “Securities Act”), BBC also qualified as a “shell company,” until the reverse merger because we had no or nominal assets (other than cash) and no or nominal operations. Many states have enacted statutes, rules and regulations limiting the sale of securities of “blank check” companies in their respective jurisdictions.

               On January 12, 2009 HASCO Holdings, LLC acquired 65,324,000 shares of HASCO Medical, Inc. common stock for total consideration of $150,000. HASCO Holdings, LLC thereby purchased beneficial ownership of 75% of the outstanding shares of common stock of the Company. HASCO Holdings, LLC acquired the common shares of the Company from two shareholders, Robert Druzak, and John R. Signorello.

               On May 12, 2009, HASCO Medical, Inc. (i) closed a share exchange transaction, pursuant to which HASCO Medical, Inc. became the 100% parent of SOUTHERN MEDICAL & MOBILITY, and (ii) assumed the operations of SOUTHERN MEDICAL & MOBILITY.

               On May 12, 2009, we completed the acquisition of Southern Medical & Mobility, Inc. (SMM”) pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”) among HASCO, SMM and Southern Medical Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company. Under the terms of the Merger Agreement Southern Medical Acquisition, Inc. was merged into Southern Medical & Mobility, Inc., and Southern Medical & Mobility, Inc. became our wholly-owned subsidiary. The shareholder of Southern Medical & Mobility, Inc. was issued a total of 554,676,000 shares of our common stock in exchange for their Southern Medical & Mobility, Inc. share.

               After the merger and transactions that occurred at the same time as the merger, there were 642,176,000 shares of our common stock outstanding, of which 620,000,000, approximately 96.5%, were held by HASCO Holdings, LLC, the former sole shareholder of Southern Medical & Mobility, Inc.

               Prior to the merger, we were a shell company with no business operations.

1


               For accounting purposes, the Merger was treated as a reverse acquisition with Southern Medical & Mobility, Inc. being the accounting acquirer. Therefore, the Company’s historical financial statements reflect those of Southern Medical & Mobility, Inc.

               HASCO Medical, Inc., through the reverse merger of its wholly-owned subsidiary with and into Southern Medical & Mobility, is a low cost, quality provider of a broad range of home healthcare services that serve patients in Alabama, Florida, and Mississippi. We have two major service lines: home respiratory equipment and durable/ home medical equipment. Our objective is to be a leading provider of home health care products and services in the markets we operate.

               The following table provides examples of the services and products in each service line:

 

 

 

Service Line

 

Examples of Services and Products

 

 

 

Home respiratory equipment

 

Provision of oxygen systems, obstructive sleep apnea equipment, and nebulizers.

 

 

 

Home medical equipment

 

Provision of patient safety items, ambulatory aids and in-home equipment, such as wheelchairs and hospital beds.

Business

          The Company provides home health care services and products consisting primarily of the rental and sale of home medical equipment and home health care supplies. These services and products are paid for primarily by Medicare, Medicaid, and other third-party payors. The Company’s objective is to be a leading provider of home health care products and services in the markets in which it operates.

Services and Products

          The Company provides a diversified range of home health care services and products.

Home Medical Equipment and Medical Supplies. The Company provides a variety of equipment and supplies to serve the needs of home care patients. Revenues from home medical equipment and supplies are derived principally from the rental and sale of wheelchairs, power chairs, hospital beds, ambulatory aids, bathroom aids and safety equipment, and rehabilitation equipment. Sales of home medical equipment and medical supplies account for 63% and 58% of the Company’s revenues in 2009 and 2008, respectively.

Home Respiratory Equipment. The Company provides a wide variety of home respiratory equipment primarily to patients with severe and chronic pulmonary diseases. Patients are referred to the Company most often by primary care and pulmonary physicians as well as by hospital discharge planners and case managers. After reviewing pertinent medical records on the patient and confirming insurance coverage information, a Company service technician visits the patient’s home to deliver and to prepare the prescribed equipment. Company representatives coordinate the prescribed regimen with the patient’s physician and train the patient and caregiver in the correct use of the equipment. For patients renting equipment, Company representatives also make periodic follow-up visits to the home to provide additional instructions, perform required equipment maintenance, and deliver oxygen and other supplies.

The primary respiratory services that the Company provides are:

 

 

Oxygen systems to assist patients with breathing. There are two types of oxygen systems: (i) oxygen concentrators, which are stationary units that filter ordinary room air to provide a continuous flow of oxygen; and (ii) high pressure oxygen cylinders, which are used primarily for portability as an adjunct to oxygen concentrators. Oxygen systems are prescribed by physicians for patients with chronic obstructive pulmonary disease, cystic fibrosis, and neurologically-related respiratory problems.

 

 

Nebulizers to assist patients with breathing. Nebulizer compressors are used to administer aerosolized medications (such as albuterol) to patients with asthma, bronchitis, chronic obstructive pulmonary disease, and cystic fibrosis.

 

 

Respiratory assist devices to force air through respiratory passage-ways during sleep. These treatments, which utilize continuous positive airway pressure (“CPAP”) or bi-level positive airway pressure therapy, are used on adults with obstructive sleep apnea (“OSA”), a condition in which a patient’s normal breathing patterns are disturbed during sleep.

2


Operations

          Organization

Management is focused on revenue development and cost control, and decision-making to improve responsiveness and ensure quality. The Company currently operates from a single location.

The Company provides, through its corporate office management, support, compliance oversight and training, marketing and managed care expertise, sales training and support, and financial and information systems. Services performed at the corporate office include financial and accounting functions, treasury, corporate compliance, human resources, reimbursement oversight, sales and marketing support, clinical policy and procedure development, regulatory affairs and licensure, and information system design. The Company’s patient service center provides centralized order intake and revenue qualification.

          Commitment to Quality

The Company maintains quality and performance improvement programs related to the proper implementation of its service standards.

          Training and Retention of Quality Personnel.

Management recognizes that the Company’s business depends on its personnel. The Company attempts to recruit knowledgeable talent for all positions including account executives that are capable of gaining new business from the local medical community. In addition, the Company provides sales training and orientation to all employees.

          Management Information Systems

Management believes that periodic refinement and upgrading of its management information systems, which permit management to closely monitor operating activities is important to the Company’s business. The Company’s financial systems provide, among other things, monthly budget analyses, trended financial data, and financial comparisons to prior periods. These systems also provide a means for management to monitor key statistical data such as accounts receivable, payor mix, cash collections, revenue mix and expense trends. Additionally, Medicare and other third party claims are billed electronically through the Company’s systems thereby facilitating and improving the timeliness of accounts receivable collections. The Company also maintains a communication network that provides company-wide access to email and the Internet.

          Corporate Compliance

The Company’s goal is to operate its business with honesty and integrity and in compliance with the numerous laws and regulations that govern its operations. The Company’s corporate compliance program is designed to help accomplish these goals through employee training and education, a confidential disclosure program, written policy guidelines, periodic reviews, compliance audits, and other programs.

Revenues

          The Company derives substantially all of its revenues from third-party payors including Medicare, private insurers, and Medicaid. Medicare is a federally-funded and administered health insurance program that provides coverage for beneficiaries who require certain medical services and products. Medicaid is a state-administered reimbursement program that provides reimbursement for certain medical services and products. Amounts paid under these programs are based upon fixed rates. Revenues are recorded at the expected reimbursement rates when the services are provided, merchandise is delivered, or equipment is rented to patients. Revenues are recorded at net realizable amounts estimated to be paid by customers and third party payors. Although amounts earned under the Medicare and Medicaid programs are subject to review by such third-party payors, subsequent adjustments to such reimbursements are historically insignificant as these reimbursements are based on fixed fee schedules. In the opinion of management, adequate provision has been made for any adjustment that may result from such reviews. Any differences between estimated settlements and final determinations are reflected in operations in the period known.

3


          Sales revenues and related services include all product sales to patients and are derived from the sale of respiratory therapy equipment, and the sale of home health care equipment and medical supplies, and the sale of supplies and the provision of services related to the delivery of these products. Sales revenues are recognized at the time of delivery and recorded at the expected payment amount based upon the type of product and the payor when the Company has obtained the properly completed Certificate for Medical Necessity (“CMN”) from the health care provider, when applicable. Rentals and other patient revenues are derived from the rental of equipment related to the provision of respiratory therapy, and home health care equipment. All rentals of the equipment are provided by the Company on a month-to-month basis and revenue is recorded at the expected payment amount based upon the type of rental and the payor when the Company has obtained the properly completed CMN from the health care provider, when applicable. Certain pieces of equipment are subject to capped rental arrangements, whereby title to the equipment transfers to the patient at the end of the capped rental payment period.

          Once initial delivery of rental equipment is made to the patient, a monthly billing cycle is established based on the initial date of delivery. The Company recognizes rental revenue ratably over the monthly service period and defers revenue for the portion of the monthly bill which is unearned. The fixed monthly rental encompasses the rental of the product, delivery, set-up, instruction, maintenance, repairs, and providing backup systems when needed, and as such, no separate revenue is earned from the initial equipment delivery and setup process. Routine maintenance and servicing of the equipment is the responsibility of the Company for as long as the patient is renting the equipment.

          Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis, and therefore, are excluded from revenues in the statements of operations.

          Because the Company derives a significant portion of its revenues from Medicare and Medicaid reimbursement, material changes in Medicare and Medicaid reimbursement have a material impact on its revenues and, consequently, on its business operations and financial results. Reimbursement levels typically are subject to downward pressure as the federal and state governments and managed care payors seek to reduce payments.

          Management is working to counter the adverse impact of the reimbursement reductions currently in effect as well as any future reimbursement reductions through a variety of initiatives designed to grow revenues, improve productivity, and reduce costs. The magnitude of the adverse impact that reimbursement reductions will have on the Company’s future operating results and financial condition will depend upon the success of the Company’s revenue growth and cost reduction initiatives. Nevertheless, the adverse impact could be material.

Collections

          The Company has three key initiatives in place to maintain and/or improve collections of accounts receivable: (i) proper staffing and training; (ii) process redesign and standardization; and (iii) billing center specific goals geared toward improved cash collections and reduced accounts receivable.

          Net patient accounts receivable at December 31, 2009 was $241,190 compared to net patient accounts receivable of $356,801 at December 31, 2008.

          We derive a substantial majority of our revenue from reimbursement by third-party payors. We accept assignment of insurance benefits from customers and, in most instances, invoice and collect payments directly from Medicare, Medicaid and private insurance carriers, as well as from customers under co-insurance provisions. The following table sets forth, for the periods indicated, the percentage of our revenues derived from different types of payors.

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

         

 

Payors

 

2009

 

2008

 

 

 

   

 

   

 

Medicare and Medicaid programs

 

 

36

%

 

64

%

Private insurance

 

 

43

 

 

29

 

Direct payment

 

 

21

 

 

7

 

 

 

   

 

   

 

 

 

 

100

%

 

100

%

 

 

   

 

   

 

4


     An important indicator of the Company’s accounts receivable collection efforts is the monitoring of the days sales outstanding (“DSO”). The Company monitors DSO trends for the Company as part of the management of the billing and collections process. An increase in DSO usually results from slow-down in the timeliness of payment processing by payors. A decline in DSO usually results from process improvements or more timely payment processing by payors. Management uses DSO trends to monitor, evaluate and improve the performance of the billing process. The table below shows the Company’s DSO for the periods indicated and is calculated by dividing patient accounts receivable by the average daily revenue for the previous 90 days, net of bad debt expense:

 

 

 

 

 

2009

 

2008

 

 

 

 

DSO

62 days

 

67 days

          The Company attempts to minimize DSO by screening new patient cases for adequate sources of reimbursement and by providing complete and accurate claims data to relevant payor sources. The Company’s level of DSO and net patient receivables is affected by the extended time required to obtain necessary billing documentation.

Sales and Marketing

          The Company has increased its focus on sales and marketing efforts over the past several years in an effort to improve revenues. During this time, management implemented changes designed to improve the effectiveness of the Company’s selling efforts. These include revisions to the Account Executive commission plans and a restructuring of the sales organization. Management believes these actions have resulted in a more focused sales management team.

          The Company’s sales and marketing focus for 2009 and beyond includes: (i) increasing the Company’s mix of Medicare and profitable managed care business; (ii) strengthening its sales and marketing efforts through a variety of programs and initiatives; and (iii) expanding managed care revenue through greater management attention and prioritization of payors to secure managed care contracts at acceptable levels of profitability. Improvement in the Company’s ability to grow revenues will be critical to the Company’s success. Management will continue to review and monitor progress with its sales and marketing efforts.

Competition

          The home health care industry is consolidating but remains highly fragmented and competition varies significantly from market to market. There are still relatively few barriers to entry in the local markets served by the Company, and the Company could encounter competition from new market entrants. Management believes that the competitive factors most important in the Company’s lines of business are quality of service, reputation with referral sources, ease of doing business with the provider, ability to develop and to maintain relationships with referral sources, clinical expertise, and the range of services offered.

          Home medical equipment and home health care supply companies in our market compete primarily on the basis of service, not pricing, since reimbursement levels are established by fee schedules promulgated by Medicare and Medicaid or by the individual determinations of private insurance companies. Furthermore, marketing efforts are typically directed toward referral sources that generally do not share financial responsibility for the payment of services provided to customers. The relationships between a home medical equipment company and its customers and referral sources are highly personal. There is no compelling incentive for either physicians or the patients to alter the relationship, so long as the home respiratory company is providing responsive, professional and high-quality service.

          Third-party payors and their case managers actively monitor and direct the care delivered to their beneficiaries. Accordingly, relationships with such payors and their case managers and inclusion within preferred provider and other networks of approved or accredited providers has become a prerequisite in many cases to the Company’s ability to serve many of the patients it treats. Similarly, the ability of the Company and its competitors to align themselves with other healthcare service providers may increase in importance as managed care providers and provider networks seek out providers who offer a broad range of services, substantially discounted prices, and geographic coverage.

Employees

          As of December 31, 2009, we had 27 employees. None of our employees are covered by collective bargaining agreements. We believe that the relations between our management and employees are good.

5



 

 

ITEM 1.A

RISK FACTORS

          You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated into this annual report that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

THE COST OF HEALTHCARE IS FUNDED SUBSTANTIALLY BY GOVERNMENT AND PRIVATE INSURANCE PROGRAMS. IF THIS FUNDING IS REDUCED OR BECOMES LIMITED OR UNAVAILABLE TO OUR CUSTOMERS, OUR BUSINESS MAY BE ADVERSELY IMPACTED.

          Third-party payers include Medicare, Medicaid and private health insurance providers. Third-party payers are increasingly challenging prices charged for healthcare services. We cannot assure you that our services will be considered cost-effective by third-party payers, that reimbursement will be available or that payer reimbursement policies will not have a material adverse effect on our ability to sell our services on a profitable basis, if at all. We cannot control reimbursement rates, including Medicare market basket or other rate adjustments, or policies for a significant portion of our business.

POSSIBLE CHANGES IN THE CASE MIX OF PATIENTS, AS WELL AS PAYER MIX AND PAYMENT METHODOLOGIES, MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR PROFITABILITY.

          The sources and amounts of our patient revenues will be determined by a number of factors, including the mix of patients and the rates of reimbursement among payers. Changes in the case mix of the patients as well as payer mix among private pay, Medicare and Medicaid may significantly affect our profitability. In particular, any significant increase in our Medicaid population or decrease in Medicaid payments could have a material adverse effect on our financial position, results of operations and cash flow, especially if states operating these programs continue to limit, or more aggressively seek limits on, reimbursement rates or service levels.

AN ECONOMIC DOWNTURN, STATE BUDGET PRESSURES, RISING UNEMPLOYMENT AND CONTINUED DEFICIT SPENDING BY THE FEDERAL GOVERNMENT MAY RESULT IN A REDUCTION IN REIMBURSEMENT AND COVERED SERVICES.

          An economic downturn can have a detrimental effect on our revenues. Historically, state budget pressures have translated into reductions in state spending. Given that Medicaid outlays are a significant component of state budgets, we can expect continuing cost containment pressures on Medicaid outlays for our services in the states in which we operate. In addition, an economic downturn, coupled with increased unemployment, may also impact the number of enrollees in managed care programs as well as the profitability of managed care companies, which could result in reduced reimbursement rates.

          The existing federal deficit, as well as deficit spending by the government as the result of adverse developments in the economy, the war in Iraq and Afghanistan or other reasons, can lead to continuing pressure to reduce government expenditures for other purposes, including governmentally funded programs in which we participate, such as Medicare and Medicaid. Such actions in turn may adversely affect our results of operations.

LEGISLATIVE AND REGULATORY ACTIONS RESULTING IN CHANGES IN REIMBURSEMENT RATES OR METHODS OF PAYMENT FROM MEDICARE AND MEDICAID, OR IMPLEMENTATION OF OTHER MEASURES TO REDUCE REIMBURSEMENT FOR OUR SERVICES, MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR REVENUES AND OPERATING MARGINS.

          In fiscal 2009, 36% percent of our total net revenues were generated from Medicare and Medicaid and Local Government programs. The healthcare industry is experiencing a trend toward cost containment, as the government seeks to stabilize or reduce reimbursement and utilization rates. For example, Congress currently has under discussion a number of healthcare reform measures, some of which include reimbursement changes to home health and hospice that can, if enacted, negatively impact HASCO and other providers. The legislative environment is presently very fluid, and the Company is monitoring the situation closely.

6


          In addition, the timing of payments made under these programs is subject to regulatory action and governmental budgetary constraints. For certain Medicaid programs, the time period between submission of claims and payment has increased. Further, within the statutory framework of the Medicare and Medicaid programs, there are a substantial number of areas subject to administrative rulings and interpretations that may further affect payments made under those programs. Additionally, the federal and state governments may in the future reduce the funds available under those programs or require more stringent utilization and quality reviews of providers. Moreover, we cannot assure you that adjustments from regulatory actions or Medicare or Medicaid audits, including the payment of fines or penalties to the federal or state governments, will not have a material adverse effect on our liquidity or profitability.

WE CONDUCT BUSINESS IN A HEAVILY REGULATED INDUSTRY, AND CHANGES IN REGULATIONS AND VIOLATIONS OF REGULATIONS MAY RESULT IN INCREASED COSTS OR SANCTIONS.

          Our business is subject to extensive federal, state and, in some cases, local regulation. Compliance with these regulatory requirements, as interpreted and amended from time to time, can increase operating costs or reduce revenue and thereby adversely affect the financial viability of our business. Because these laws are amended from time to time and are subject to interpretation, we cannot predict when and to what extent liability may arise. Failure to comply with current or future regulatory requirements could also result in the imposition of various remedies, including fines, the revocation of licenses or decertification. Unanticipated increases in operating costs or reductions in revenue could adversely affect our liquidity.

WE ARE SUBJECT TO PERIODIC AUDITS AND REQUESTS FOR INFORMATION BY THE MEDICARE AND MEDICAID PROGRAMS OR GOVERNMENT AGENCIES, WHICH HAVE VARIOUS RIGHTS AND REMEDIES AGAINST US IF THEY ASSERT THAT WE HAVE OVERCHARGED THE PROGRAMS OR FAILED TO COMPLY WITH PROGRAM REQUIREMENTS.

          The operation of our business is subject to federal and state laws prohibiting fraud by healthcare providers, including laws containing criminal provisions, which prohibit filing false claims or making false statements in order to receive payment or obtain certification under Medicare and Medicaid programs, or failing to refund overpayments or improper payments. Violation of these criminal provisions is a felony punishable by imprisonment and/or fines. We may also be subject to fines and treble damage claims if we violate the civil provisions that prohibit knowingly filing a false claim or knowingly using false statements to obtain payment. State and federal governments are devoting increased attention and resources to anti-fraud initiatives against healthcare providers. The Health Insurance Portability and Accountability Act of 1996 and the Balanced Budget Act of 1997 expanded the penalties for healthcare fraud, including broader provisions for the exclusion of providers from the Medicare and Medicaid programs.

          We have established policies and procedures that we believe are sufficient to ensure that we will operate in substantial compliance with these anti-fraud and abuse requirements. While we believe that our business practices are consistent with Medicare and Medicaid programs criteria, those criteria are often vague and subject to change and interpretation. The imposition of fines, criminal penalties or program exclusions could have a material adverse effect on our financial condition, results of operations and cash flows.

WE FACE ADDITIONAL FEDERAL REQUIREMENTS THAT MANDATE MAJOR CHANGES IN THE
TRANSMISSION AND RETENTION OF HEALTH INFORMATION AND IN NOTIFICATION REQUIREMENTS FOR ANY HEALTH INFORMATION SECURITY BREACHES.

          The Health Insurance Portability and Accountability Act of 1996 (“HIPPA”) was enacted to ensure that employees can retain and at times transfer their health insurance when they change jobs and to simplify healthcare administrative processes. The enactment of HIPAA expanded protection of the privacy and security of personal medical data and required the adoption of standards for the exchange of electronic health information. Among the standards that the Secretary of Health and Human Services has adopted pursuant to HIPAA are standards for electronic transactions and code sets, unique identifiers for providers, employers, health plans and individuals, security and electronic signatures, privacy and enforcement. Although HIPAA was intended to ultimately reduce administrative expenses and burdens faced within the healthcare industry, we believe that implementation of this law has resulted in additional costs. Failure to comply with HIPAA could result in fines and penalties that could have a material adverse effect on us.

          The Health Information Technology for Economic and Clinical Health Act (HITECH Act), effective February 22, 2010, sets forth health information security breach notification requirements. A week after the effective date, covered entities and business associates were required to submit reports to the US Department of Health and Human Services (HHS) of any breaches that occurred during the last quarter of 2009. The HITECH Act requires patient notification for all breaches, media notification of breaches of over

7


500 patients and at least annual reporting of all breaches to the Secretary of HHS. The HITECH Act also includes 4 tiers of sanctions for breaches ($100 to $1.5 million). Failure to comply with HITECH could result in fines and penalties that could have a material adverse effect on us.

THE COMPANY DEPENDS ON RETAINING AND OBTAINING PROFITABLE MANAGED CARE CONTRACTS, AND THE COMPANY’S BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED IF IT IS UNABLE TO RETAIN OR OBTAIN SUCH MANAGED CARE CONTRACTS.

               As managed care plays a significant role in markets in which the Company operates, the Company’s success will, in part, depend on retaining and obtaining profitable managed care contracts. There can be no assurance that the Company will retain or obtain such managed care contracts. In addition, reimbursement rates under managed care contracts are likely to continue to experience downward pressure as a result of payors’ efforts to contain or reduce the costs of health care by increasing case management review of services, by increasing retrospective payment audits, and by negotiating reduced contract pricing. Therefore, even if the Company is successful in retaining and obtaining managed care contracts, it will experience declining profitability unless the Company also decreases its cost for providing services and increases higher margin services.

WE MAY UNDERTAKE ACQUISITIONS THAT COULD SUBJECT US TO UNANTICIPATED LIABILITIES AND THAT COULD FAIL TO ACHIEVE EXPECTED BENEFITS.

Our strategy is to increase our market share through internal growth and strategic acquisitions. Consideration for the acquisitions has generally consisted of cash, unsecured non-interest bearing obligations and the assumption of certain liabilities.

               The implementation of an acquisition strategy entails certain risks, including inaccurate assessment of disclosed liabilities, the existence of undisclosed liabilities, regulatory compliance issues associated with the acquired business, entry into markets in which we may have limited or no experience, diversion of management’s attention and human resources from our underlying business, difficulties in integrating the operations of an acquired business or in realizing anticipated efficiencies and cost savings, failure to retain key management or operating personnel of the acquired business, and an increase in indebtedness and a limitation in the ability to access additional capital on favorable terms. The successful integration of an acquired business may be dependent on the size of the acquired business, condition of the customer billing records, and complexity of system conversions and execution of the integration plan by local management. If we do not successfully integrate the acquired business, the acquisition could fail to achieve its expected revenue contribution or there could be delays in the billing and collection of claims for services rendered to customers, which may have a material adverse effect on our financial position and operating results.

THE MARKET IN WHICH THE COMPANY OPERATES IS HIGHLY COMPETITIVE, AND IF THE COMPANY IS UNABLE TO COMPETE SUCCESSFULLY, ITS BUSINESS WILL BE MATERIALLY ADVERSELY AFFECTED.

               The home health care market is highly fragmented. There are relatively few barriers to entry in the local market served by the Company, and it could encounter competition from new market entrants. The majority of the Company’s competition comes from local independent operators or hospital-based facilities. Some of the Company’s present and potential competitors are significantly larger than the Company and have, or may obtain, greater financial and marketing resources than the Company.

THE PROVISION OF HEALTHCARE SERVICES ENTAILS AN INHERENT RISK OF LIABILITY, AND THE COMPANY’S INSURANCE MAY NOT BE SUFFICIENT TO EFFECTIVELY PROTECT THE COMPANY FROM ALL CLAIMS.

               The provision of healthcare services entails an inherent risk of liability. Certain participants in the home healthcare industry may be subject to lawsuits that may involve large claims and significant defense costs. It is expected that the Company periodically will be subject to such suits as a result of the nature of its business. The Company currently maintains product and professional liability insurance intended to cover such claims in amounts which management believes are in keeping with industry standards. There can be no assurance that the Company will be able to obtain liability insurance coverage in the future on acceptable terms, if at all. There can be no assurance that claims in excess of the Company’s insurance coverage will not arise. A successful claim against the Company in excess of the Company’s insurance coverage could have a material adverse effect upon the operations, financial condition or prospects of the Company. Claims against the Company, regardless of their merit or eventual outcome, may also have a material adverse effect upon the Company’s ability to attract patients or to expand its business.

8



 

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

          Not applicable to a smaller reporting company.

 

 

ITEM 2.

PROPERTIES

          We currently lease approximately 12,000 square feet (including common area allocation) of general office and warehouse space in Mobile, Alabama from an unrelated third party which serves as our principal executive office at an annual base rent of approximately $66,000. The lease expires in June 2013.

 

 

ITEM 3.

LEGAL PROCEEDINGS

          We are not a party to any pending or threatened litigation.

 

 

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          None.

PART II

 

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price of and Dividends on Common Equity and Related Stockholder Matters

          Our common stock is quoted on the pink sheets operated by Pink Sheets, LLC. Our shares are listed under the symbol “HASC.”

          The following sets forth, for the fiscal quarters indicated, the high and low closing prices per share of our common stock as reported on the pink sheets. The quotations reflect inter dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions.

 

 

 

 

 

 

Year Ended December 31, 2009

High

Low

 

 

First Quarter

$0.0006

$0.0006

 

 

Second Quarter

0.007

0.007

 

 

Third Quarter

0.007

0.007

 

 

Fourth Quarter

N/A

N/A

 

Year Ended December 31, 2008

 

 

 

 

First Quarter

$0.35

$0.35

 

 

Second Quarter

0.35

0.34

 

 

Third Quarter

0.35

0.35

 

 

Fourth Quarter

0.35

0.0005

Holders

          As of March 31, 2010, we had 63 stockholders of record of our common stock. Such numbers of record stockholders was derived from the records maintained by our transfer agent, Olde Monmouth Stock Transfer Company, Inc.

9


Dividend Policy

          We have never paid cash dividends on our common stock after the reverse merger. Payment of dividends is within the sole discretion of our Board of Directors and will depend, among other factors, upon our earnings, capital requirements and our operating and financial condition. Under Florida law, we may declare and pay dividends on our capital stock either out of our surplus, as defined in the relevant Florida statutes, or if there is no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If, however, the capital of our company, computed in accordance with the relevant Florida statutes, has been diminished by depreciation in the value of our property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, we are prohibited from declaring and paying out of such net profits any dividends upon any shares of our capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired.

Recent Sales of Unregistered Securities

          In January, 2010 we sold 4,000,000 shares of common stock to a Director at a price of $0.007 per share, the fair value at the time of the transaction. The proceeds of the transaction was $28,000. The issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.

          In March 2010, we issued 3,200,000 shares of our common stock to our four officers and three directors for services rendered. The Company valued these common shares at the fair market value on the date of grant at $.007 per share or $22,400 and has been recorded as stock-based compensation. The recipients were accredited investors and the issuances were exempt from registration under the Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of that act.

          In March, 2010, we issued 12,857,142 shares of our common stock valued at $90,000 in satisfaction of debt in the amount of $90,000, which is related to services rendered to the Company by a related party. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.

 

 

ITEM 6.

SELECTED FINANCIAL DATA

          Not applicable to a smaller reporting company.

 

 

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

          The following discussion of our financial condition and results of operation for the fiscal years ended December 31, 2009 and 2008 should be read in conjunction with the selected consolidated financial data, the financial statements and the notes to those statements that are included elsewhere in this report). Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Item 1A. Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Form 10-K. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Overview

          From our formation in May 1999 through April 2006, we were in the business of providing advertising and graphic design services to our clients. On October 1, 2004, we were administratively dissolved by the State of Florida pursuant to Sections 607.1420 and 607.1421 of the Florida Business Corporation Act. On April 29, 2006, we were reinstated as an active Florida corporation pursuant to Section 607.1422 of the Florida Business Corporation Act. As of that date, we discontinued our advertising and graphics design business.

10


          We were organized under the laws of the State of Florida in May 1999. Our principal executive offices are located at 1416 West I-65 Service Road S., Mobile, AL 36693, and our telephone number is (251) 633-4133.

          On January 12, 2009 HASCO Holdings, LLC acquired 65,324,000 shares of HASCO Medical, Inc. common stock for total consideration of $150,000. HASCO Holdings, LLC thereby purchased beneficial ownership of 75% of the outstanding shares of common stock of the Company. HASCO Holdings, LLC acquired the common shares of the Company from two shareholders, Robert Druzak, and John R. Signorello.

          On May 12, 2009, HASCO Medical, Inc. (i) closed a share exchange transaction, pursuant to which HASCO Medical, Inc. became the 100% parent of SOUTHERN MEDICAL & MOBILITY, and (ii) assumed the operations of SOUTHERN MEDICAL & MOBILITY.

          On May 12, 2009, we completed the acquisition of Southern Medical & Mobility, Inc. (SMM”) pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”) among HASCO, SMM and Southern Medical Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company. Under the terms of the Merger Agreement Southern Medical Acquisition, Inc. was merged into Southern Medical & Mobility, Inc., and Southern Medical & Mobility, Inc. became our wholly-owned subsidiary. The shareholder of Southern Medical & Mobility, Inc. was issued a total of 554,676,000 shares of our common stock in exchange for their Southern Medical & Mobility, Inc. share.

          After the merger and transactions that occurred at the same time as the merger, there were 642,176,000 shares of our common stock outstanding, of which 620,000,000, approximately 96.5%, were held by HASCO Holdings, LLC, the former sole shareholder of Southern Medical & Mobility, Inc.

          Prior to the merger, we were a shell company with no business operations.

          HASCO Medical, Inc., through the reverse merger of its wholly-owned subsidiary with and into Southern Medical & Mobility, is a low cost, quality provider of a broad range of home healthcare services that serve patients in Alabama, Florida, and Mississippi. We have two major service lines: home respiratory equipment and durable/ home medical equipment. Our objective is to be a leading provider of home health care products and services in the markets we operate.

          For accounting purposes, the Merger was treated as a reverse acquisition with Southern Medical & Mobility, Inc. being the accounting acquirer. Therefore, the Company’s historical financial statements reflect those of Southern Medical & Mobility, Inc.

Critical Accounting Policies

          The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

          A summary of significant accounting policies is included in Note 1 to the audited consolidated financial statements included for the year ended December 31, 2009 and notes thereto contained in this report as filed with the Securities and Exchange Commission. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about the Company’s operating results and financial condition.

          Our consolidated financial statements include a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the financial statements.

11


               Use of Estimates - Management’s Discussion and Analysis or Plan of Operations is based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these estimates, including those related to allowances for doubtful accounts receivable and the carrying value of and equipment and long-lived assets. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

               Revenue Recognition - The Company follows the guidance of the FASB ASC 605-10-S99 “Revenue Recognition Overall – SEC Materials. The Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company:

 

 

 

 

Revenues from sales of products are generally recognized when products are shipped unless the Company has obligations remaining under sales or licensing agreements, in which case revenue is either deferred until all obligations are satisfied or recognized ratably over the term of the contract.

 

 

 

 

Revenue from services is recorded as it is earned. Customers are generally billed every two weeks based on the units of production for the project. Each project has an estimated total which is based on the estimated units of production and agreed upon billing rates.

 

 

 

 

Amounts billed in advance of services being provided are recorded as deferred revenues and recognized in the consolidated statement of operations as services are provided.

               Stock Based Compensation - In December 2004, the Financial Accounting Standards Board, or FASB, issued FASB ASC Topic 718: Compensation – Stock Compensation (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Companies may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under ASC 718. Upon adoption of ASC 718, the Company elected to value employee stock options using the Black-Scholes option valuation method that uses assumptions that relate to the expected volatility of the Company’s common stock, the expected dividend yield of our stock, the expected life of the options and the risk free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant.

               Accounts Receivable - Management performs ongoing evaluations of its accounts receivable. Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity and uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application, claim denial or account review. Management performs periodic analyses to evaluate accounts receivable balances to ensure that recorded amounts reflect estimated net realizable value. Specifically, management considers historical realization data, accounts receivable aging trends, and other operating trends. Also considered are relevant business conditions such as governmental and managed care payor claims processing procedures and system changes. Accounts receivable are reduced by an allowance for doubtful accounts which provides for those accounts from which payment is not expected to be received, although services were provided and revenue was earned. Upon determination that an account is uncollectible, it is written-off and charged to the allowance.

               Inventory is valued at the lower of cost or market, on an average cost basis and includes primarily finished goods.

12


               Long-Lived Assets - The Company reviews for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable, pursuant to guidance established in ASC 360-10-35-15, “Impairment or Disposal of Long-Lived Assets”. The Company reviews, long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

Reimbursement by Third Party Payors

               We derive substantially all of our revenues from reimbursement by third party payors, including Medicare, Medicaid, and private insurers. Our business has been, and may continue to be, significantly impacted by changes mandated by Medicare legislation.

               Under existing Medicare laws and regulations, the sale and rental of our products generally are reimbursed by the Medicare program according to prescribed fee schedule amounts calculated using statutorily-prescribed formulas. The Balanced Budget Act of 1997 (BBA) granted authority to the Secretary of the Department of Health and Human Services (DHHS) to increase or reduce the reimbursement for home medical equipment, including oxygen, by up to 15% each year under an inherent reasonableness procedure. The regulation implementing the inherent reasonableness authority establishes a process for adjusting payments for certain items and services covered by Medicare Part B when the existing payment amount is determined to be grossly excessive or deficient. The regulation lists factors that may be used by the Centers for Medicare and Medicaid Services (CMS), the agency within the DHHS responsible for administering the Medicare program, and its contractors to determine whether an existing reimbursement rate is grossly excessive or deficient and to determine what a realistic and equitable payment amount is. Also, under the regulation, CMS and its contractors will not consider a payment amount to be grossly excessive or deficient and make an adjustment if they determine that an overall payment adjustment of less than 15% is necessary to produce a realistic and equitable payment amount. The implementation of the inherent reasonableness procedure itself does not trigger payment adjustments for any items or services and to date, no payment adjustments have occurred or been proposed under this inherent reasonableness procedure.

               In addition to its inherent reasonableness authority, CMS has the discretion to reduce the reimbursement for home medical equipment (HME) to an amount based on the payment amount for the least costly alternative (LCA) treatment that meets the Medicare beneficiary’s medical needs. LCA determinations may be applied to particular products and services by CMS and its contractors through the informal notice and comment process used in establishing local coverage policies for HME. Using either its inherent reasonableness authority or LCA determinations, CMS and its contractors may reduce reimbursement levels for certain items and services covered by Medicare Part B, including products and services we offer which could have a material adverse effect on our revenues, profit margins, profitability, operating cash flows and results of operations. With respect to its LCA policies, on October 16, 2008, a U.S. District Court in the District of Columbia held that CMS did not have the authority to implement LCA determinations in setting payment amounts for covered inhalation drugs. DHHS filed its notice of appeal on December 10, 2008. We cannot predict whether this court decision will be overturned or whether CMS or its contractors will continue to apply LCA policies in the future to inhalation drugs or other HME products we offer to Medicare beneficiaries.

               Recent legislation, each of which has been signed into law, including the Medicare Improvement for Patients and Providers Act of 2008 (MIPPA), Medicare, Medicaid and State Children’s Health Insurance Program Extension Act of 2007 (“SCHIP Extension Act”), the Deficit Reduction Act of 2005 (DRA) and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), contain provisions that negatively impact reimbursement for the primary HME products that we provide. MIPPA retroactively delayed the implementation of competitive bidding for eighteen months and decreased the 2009 fee schedule payment amounts by 9.5 percent for product categories included in competitive bidding. The SCHIP Extension Act reduced Medicare reimbursement amounts for covered Medicare Part B drugs, including inhalation drugs that we provide, beginning April 1, 2008. The DRA caps the Medicare rental period for oxygen equipment at 36 months of continuous use, after which time title of the equipment would transfer to the beneficiary. For purposes of this cap, the DRA provides for a new 36-month rental period that began January 1, 2006 for all oxygen equipment. With the passage of MIPPA, transfer of title of oxygen equipment at the end of the 36-month rental cap was repealed, although the rental cap remained in place. The MMA significantly reduced reimbursement for inhalation drug therapies beginning in 2005, reduced payment amounts for five categories of HME, including oxygen, beginning in 2005, froze payment amounts for other covered HME items through 2007, established a competitive acquisition program for HME and implemented quality standards and accreditation requirements for HME suppliers. MIPPA, the SCHIP Extension Act, DRA and MMA provisions (each of which is discussed in more detail below), when fully implemented, will have a material adverse effect on our revenues, profit margins, profitability, operating cash flows and results of operations. We cannot predict the impact that any federal legislation enacted in the future will have on our revenues, profit margins, profitability, operating cash flows and results of operations.

13


               Changes in the law or new interpretations of existing laws could have a dramatic effect on permissible activities, the relative costs associated with doing business and the amount of reimbursement by government and other third-party payors. Reimbursement from Medicare and other government programs is subject to federal and state statutory and regulatory requirements, administrative rulings, interpretations of policy, implementation of reimbursement procedures, retroactive payment adjustments and governmental funding restrictions. Our levels of revenue and profitability, like those of other health care companies, are affected by the continuing efforts of government payors to contain or reduce the costs of health care, including competitive bidding initiatives, measures that impose quality standards as a prerequisite to payment, policies reducing certain HME payment rates and restricting coverage and payment for inhalation drugs, and refinements to payments for oxygen and oxygen equipment.

                (1) Competitive Bidding Program for HME. On April 2, 2007, CMS issued its final rule implementing a competitive bidding program for certain HME products under Medicare Part B. This nationwide competitive bidding program is designed to replace the existing fee schedule payment methodology. Under the competitive bidding program, suppliers compete for the right to provide items to beneficiaries in a defined region. CMS selects contract suppliers that agree to receive as payment the “single payment amount” calculated by CMS after bids are submitted. Round one of the competitive bidding program began on July 1, 2008 in ten high-population competitive bidding areas (CBAs). The competitive bidding program was scheduled to expand to 70 additional CBAs for a total of 80 CBAs in 2009 and additional areas thereafter.

               However, on July 15, 2008, the United States Congress, following an override of a Presidential veto, enacted MIPPA. MIPPA retroactively delays the implementation of competitive bidding for eighteen months, and terminates all existing contracts previously awarded. MIPPA includes a 9.5% nationwide reduction in reimbursement effective January 1, 2009 for the product categories included in competitive bidding, as a budget neutrality offset for the eighteen month delay. Effective April 18, 2009, CMS’s Interim Final Rule incorporates the MIPPA requirements into regulations. CMS will be issuing further guidance on the timeline for and bidding requirements related to the Round 1 re-bid.

                (2) Certain Clinical Conditions, Accreditation Requirements and Quality Standards. The MMA required establishment and implementation of new clinical conditions of coverage for HME products and quality standards for HME suppliers. Some clinical conditions have been implemented, such as the requirement for a face-to-face visit by treating physicians for beneficiaries seeking power mobility devices. CMS published its quality standards and criteria for accrediting organizations for HME suppliers in 2006 and revised some of these standards in October 2008. As an entity that bills Medicare and receives payment from the program, we are subject to these standards. We have revised our policies and procedures to ensure compliance in all material respects with the quality standards. These standards, which are applied by independent accreditation organizations, include business-related standards, such as financial and human resources management requirements, which would be applicable to all HME suppliers, and product-specific quality standards, which focus on product specialization and service standards. The product specific standards address several of our products, including oxygen and oxygen equipment, CPAP and power and manual wheelchairs and other mobility equipment.

               Currently, we are accredited by the Accreditation Commission for Health Care, Inc. (ACHC) for Medical Supply Provider Services. The ACHC is a CMS recognized accrediting organization. Round one competitive bid suppliers will now be required to be accredited by September 30, 2009.

               On January 25, 2008, CMS published a proposed rule to clarify, expand and add to the existing enrollment requirements that Durable Medical Equipment and Prosthetics, Orthotics, and Supplies (DMEPOS) suppliers must satisfy to establish and maintain billing privileges in the Medicare program. Included in the proposed rule are revised or clarified requirements regarding contracting with an individual or entity to provide licensed services, record retention, clarification of the term “appropriate site” as set forth in the regulation (which may be expanded to include a minimum square footage requirement), use of cell phones and beepers/pagers as a method of receiving calls from the public or beneficiaries, comprehensive liability insurance, patient solicitation, maintenance of ordering and referring documentation, sharing of a practice location with another Medicare provider, and minimum operating hours. At this time, we cannot predict the impact that this proposed rule, if implemented, would have on our business.

               On January 2, 2009, CMS published its final rule on surety bond requirements for DMEPOS suppliers, effective March 3, 2009. The amount of the surety bond has been set at $50,000 and must be obtained for each National Provider Identifier (NPI) number subject to Medicare billing privileges. We are required to have our own NPI number. There may be an upward adjustment for suppliers that have had adverse legal actions imposed on them in the past. DMEPOS suppliers already enrolled in Medicare must obtain a surety bond by October 2, 2009, and newly enrolled suppliers or those changing ownership will be subject to the provisions of the new rule on May 4, 2009. We have obtained a surety bond by October 2, 2009.

14


                (3) Reduction in Payments for HME and Inhalation Drugs. The MMA changes also included a reduction in reimbursement rates beginning in January 2005 for oxygen equipment and certain other items of home medical equipment (including wheelchairs, nebulizers, hospital beds and air mattresses) based on the percentage difference between the amount of payment otherwise determined for 2002 and the 2002 median reimbursement amount under the Federal Employee Health Benefits Program (FEHBP) as determined by the Office of the Inspector General of the DHHS. The FEHBP adjusted payments remained “frozen” through 2008. With limited exceptions, items that were not included in competitive bidding received a 5% update for 2009. As discussed above, for 2009, MIPPA included a 9.5% nationwide reduction in reimbursement for the product categories included in competitive bidding, as a budget neutrality offset for the eighteen month delay.

                (4) Reductions in Payments for Oxygen and Oxygen Equipment. The DRA which was signed into law on February 8, 2006, has made certain changes to the way Medicare Part B pays for certain of our HME products, including oxygen and oxygen equipment. For oxygen equipment, prior to the DRA, Medicare made monthly rental payments indefinitely, provided medical need continued. The DRA capped the Medicare rental period for oxygen equipment at 36 months of continuous use, after which time ownership of the equipment would transfer to the beneficiary. For purposes of this cap, the DRA provides for a new 36-month rental period that began January 1, 2006 for all oxygen equipment. In addition to the changes in the duration of the rental period for capped rental items and oxygen equipment, the DRA permits payments for servicing and maintenance of the products after ownership transfers to the beneficiary.

               On November 1, 2006, CMS released a final rule to implement the DRA changes, which went into effect January 1, 2007. Under the rule, CMS clarified the DRA’s 36-month rental cap on oxygen equipment. CMS also revised categories and payment amounts for the oxygen equipment and contents during the rental period and for oxygen contents after equipment ownership by the beneficiary as described below. With the passage of MIPPA on July 15, 2008, transfer of title to oxygen equipment at the end of the 36-month rental cap was repealed, although the rental cap remained in place. Effective January 1, 2009, after the 36th continuous month during which payment is made for the oxygen equipment, the equipment is to continue to be furnished during any period of medical need for the remainder of the reasonable useful lifetime of the equipment. After the 36-month rental cap, payment is made only for oxygen contents and for certain reasonable and necessary maintenance and servicing (for parts and labor not covered by the supplier’s or manufacturer’s warranty) (discussed in more detail below).

 

 

 

 

Payment for Rental Period. For stationary oxygen equipment, the 2009 monthly payment amount is $175.79, a decrease of $23.49 from the 2008 amount. The 2009 monthly portable oxygen add-on amount is $28.77, a decrease of $3.02 from the 2008 amount. These 2009 payment amounts include the 9.5% reduction associated with MIPPA. The 2009 monthly payment amount for oxygen-generating portable oxygen equipment remains unchanged from 2008 at $51.63 and is unaffected by MIPPA.

 

 

 

 

Payment for Contents after 36-Month Rental Cap. Payment is based on the type of equipment owned and whether it is oxygen-generating. Previously, CMS paid a combined average monthly payment amount of $154.90 for furnishing oxygen contents for stationary and portable systems after the 36 month rental cap. This amount included payment for both stationary contents and portable contents. CMS will split this payment into a separate monthly payment amount for stationary oxygen content of $77.45 and a separate monthly payment amount for portable oxygen content of $77.45. This payment amount is for oxygen contents for equipment that is not oxygen-generating. If the beneficiary uses both stationary and portable equipment that is not oxygen-generating, the monthly payment amount for oxygen contents is $154.90. For stationary or portable oxygen equipment that is oxygen-generating, there will be no monthly payment for contents.

               In its November 1, 2006 final rule, CMS also acknowledged certain other payments after the 36-month rental cap, including payment for supplies such as tubing and masks. In addition, CMS detailed several requirements regarding a supplier’s responsibility to maintain and service capped rental items and provided for a general maintenance and servicing payment for certain oxygen-generating equipment beginning six months after the 36-month rental cap. On October 30, 2008, CMS issued new oxygen payment rules and supplier responsibilities to address changes to the transfer of title under MIPPA. In the final rule, CMS determined that for liquid or gaseous oxygen (stationary or portable), after the 36-month rental cap, there will be no additional Medicare payment for the maintenance and servicing of such equipment for the remainder of the useful lifetime of the equipment. CMS also determined that for 2009 only, Medicare will pay for in-home, maintenance and servicing visits for oxygen concentrators and transfilling equipment every six months, beginning six months after the end of the 36-month rental cap. This payment will be made if the supplier visits the beneficiary’s home, performs any necessary maintenance and servicing, and inspects the equipment to ensure that it will function safely for the next six months. CMS also solicited public comments on whether to continue such maintenance and servicing payments after 2009. Finally, CMS clarified that though it retains title to the equipment, a supplier is required to continue to furnish

15


needed oxygen equipment and contents for liquid or gaseous equipment after the 36-month rental cap until the end of the equipment’s reasonable useful lifetime. CMS determined the reasonable useful lifetime for oxygen equipment to be five years provided there are no breaks in service due to medical necessity, computed based on the date the equipment is delivered to the beneficiary. On January 27, 2009, CMS posted further instructions on the implementation of the 36-month rental cap, including guidance on payment for oxygen contents after month 36 and the replacement of oxygen equipment that has been in continuous use by the patient for the equipment’s reasonable useful lifetime (as defined above). In accordance with these instructions, and consistent with the final rule published on October 30, 2008, suppliers may bill for oxygen contents on a monthly basis after the 36-month rental cap, and the supplier can deliver up to a maximum of three months of oxygen contents at one time. Additionally, in accordance with these instructions, and consistent with the final rule published on October 30, 2008, we now provide replacement equipment to our patients that exceed five years of continuous use.

               The financial impact of the 36-month rental cap will depend upon a number of variables, including, (i) the number of Medicare oxygen customers reaching 36 months of continuous service, (ii) the number of patients receiving oxygen contents beyond the 36-month rental period and the coverage and billing requirements established by CMS for suppliers to receive payment for such oxygen contents, (iii) the mortality rates of patients on service beyond 36 months, (iv) the incidence of patients with equipment deemed to be beyond its reasonable useful life that may be eligible for new equipment and therefore a new rental episode and the coverage and billing requirements established by CMS for suppliers to receive payment for a new rental period, (v) any breaks in continuous use due to medical necessity, and (vi) payment amounts established by CMS to reimburse suppliers for maintenance of oxygen equipment. We cannot predict the impact that any future rulemaking by CMS will have on our business. If payment amounts for oxygen equipment and contents are further reduced in the future, this could have an adverse effect on our revenues, profit margins, profitability, operating cash flows and results of operations.

Results of Operations

The following table sets forth information from our statements of operations for the years ended December 31, 2009 and 2008:

The following table provides an overview of certain key factors of our results of operations for the year ended December 31, 2009 as compared to the year ended December 31, 2008:

 

 

 

 

 

 

 

 

 

 

Years ended
December 31,

 

 

 

  

 

 

 

2009

 

2008

 

 

 

  

 

  

 

Net Revenues

 

$

3,390,840

 

$

4,575,680

 

Cost of sales

 

 

910,540

 

 

1,269,620

 

Operating Expenses:

 

 

 

 

 

 

 

Marketing and selling

 

 

20,644

 

 

1,950

 

Depreciation and amortization

 

 

29,001

 

 

40,908

 

Impairment of intangible assets

 

 

 

 

2,553,417

 

General and administrative

 

 

2,857,606

 

 

2,722,888

 

Total operating expenses

 

 

2,907,251

 

 

5,319,163

 

Income (loss) from operations

 

 

(426,951

)

 

(2,013,103

)

Total other income (expense)

 

 

(9,065

)

 

( 59,232

)

Income tax benefit (expense)

 

 

104,727

 

 

(111,000

)

Net income (loss)

 

$

(331,289

)

$

(2,183,335

)

Other Key Indicators:

 

 

 

 

 

 

 

 

 

 

Years ended
December 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Cost of sales as a percentage of revenues

 

26.9

%

 

27.7

%

 

Gross profit margin

 

73.1

%

 

72.3

%

 

General and administrative expenses as a percentage of revenues

 

84.3

%

 

59.5

%

 

Total operating expenses as a percentage of revenues

 

85.7

%

 

116.2

%

 

16


Years ended December 31, 2009 and 2008

Net Revenues

               For the year ended December 31, 2009, we reported revenues of $3,390,840 as compared to revenues of $4,575,680 for the year ended December 31, 2008, a decrease of $1,184,840 or approximately 26%. The decrease is primarily due to the impact of the 9.5% MIPPA reduction, lower reimbursement rates from third party payors and lower hospital census levels. Additionally, the decrease in revenues is also primarily attributable to the departure of the former owner and CEO of Southern Medical Mobility Inc., our wholly owned subsidiary, in December 2008. The former CEO did have a history of personal relationships with our referral sources, and his departure had a direct and immediate impact on our business.

Cost of Sales

               Our cost of sales consists of the depreciation of rental assets and products purchased for resale. For the year ended December 31, 2009, cost of sales was $910,540, or approximately 26.9% of revenues, compared to $1,269,620, or approximately 27.7% of revenues, for the year ended December 31, 2008. There was no material change in the costs of sales as a percentage of revenue and the corresponding gross profit margin for the year ended December 31, 2009 as compared to the year ended December 31, 2008.

Total Operating Expenses

               Our total operating expenses decreased approximately 45.3% to $2,907,251 for the year ended December 31, 2009 as compared to $5,319,163 for the year ended December 31, 2008. These changes include:

•          Marketing and Selling. For the year ended December 31, 2009, marketing and selling costs were $20,644 as compared to $1,950 for the year ended December 31, 2008, an increase of $18,694. The increase was due to marketing, advertising and print advertising programs initiated during the year ended December 31, 2009.

•          Depreciation expense. For the year ended December 31, 2009, depreciation expense amounted to $29,001 as compared to $40,908 for the year ended December 31, 2008, a decrease of $11,907 or 29.1%. The decrease in depreciation was primarily attributable to older assets which were fully depreciated in fiscal 2008.

•          Impairment of intangible assets. Impairment of intangible assets for the year ended December 31, 2009 and 2008 amounted to $0 and $2,553,417. During fiscal 2008, management determined that the acquired intangible was impaired due to the departure of former CEO. In addition, we recognized an impairment loss due to the sum of expected undiscounted future cash flows is less than the carrying amount of the assets during that period.

•          General and administrative expense. For the year ended December 31, 2009, general and administrative expenses were $2,857,606 as compared to $2,722,888 for the year ended December 31, 2008, an increase of $134,718 or approximately 5%. For the year ended December 31, 2009 and 2008 general and administrative expenses consisted of the following:

 

 

 

 

 

 

 

 

 

 

Years ended
December 31

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Rent

 

$

82,274

 

$

43,365

 

Employee compensation

 

 

1,609,201

 

 

1,392,324

 

Professional fees

 

 

136,002

 

 

52,022

 

Internet/Phone

 

 

29,350

 

 

55,394

 

Travel/Entertainment

 

 

78,144

 

 

124,822

 

Bad debt expense

 

 

463,727

 

 

648,788

 

Insurance

 

 

57,277

 

 

64,227

 

Other general and administrative

 

 

199,976

 

 

173,946

 

Management fees

 

 

201,655

 

 

168,000

 

 

 

   

 

   

 

 

 

$

2,857,606

 

$

2,722,888

 

 

 

   

 

   

 


 

 

 

 

For the year ended December 31, 2009, rent expense increased to $82,274 as compared to $43,365. Rent expense is higher due to the Company’s relocation to its retail location in Mobile, Alabama.

17



 

 

 

 

For the year ended December 31, 2009, employee compensation increased by $216,877, or 15.6% as compared to $1,392,324. The increase was primarily attributable to the addition of a management team, as well as additional headcount in staff.

 

 

 

 

For the year ended December 31, 2009, Professional fees expense increased to $136,002 as compared to $52,022. Professional fees expense increased as a result of non-recurring legal and audit fees incurred in connection with the reverse merger which was executed in May 2009. Non-recurring legal fees in connection with the filing of our stock option plan and reverse merger was approximately $13,000 and $25,000, respectively.

 

 

 

 

For the year ended December 31, 2009, internet and telephone expense decreased to $29,350 as compared to $55,394. Internet and telephone expense decreased as a result of the change in service provider resulting in lower costs and the Company’s move to its retail location in August 2008.

 

 

 

 

For the year ended December 31, 2009, travel and entertainment expense decreased to $78,144 as compared to $124,822. Travel and entertainment expense decreased as a result of cost cutting measures.

 

 

 

 

For the year ended December 31, 2009 Bad debt expense amounted to $463,727 as compared to $648,788 for the year ended December 31, 2008, a decrease of $185,061, or 29%. The decrease was due to the implementation of improved collections procedures, and the overall decrease in revenues for the year ended December 31, 2009 as compared to the prior year. For the year ended December 31, 2009, we wrote off approximately $141,000 of acquired accounts receivable which management deemed uncollectible.

 

 

 

 

For the year ended December 31, 2009 Insurance expense decreased to $57,277 as compared to $64,227 for the year ended December 31, 2008. Insurance expense decreased due to change in insurance providers during the period.

 

 

 

 

For the year ended December 31, 2009 Other general and administrative expense increased to $199,976 as compared to $173,946 for the year ended December 31, 2008. The increase is primarily attributable to increase in software system expense of approximately $16,000 by the Company.

 

 

 

 

For the year ended December 31, 2009 Management fee expense increased to $201,655 as compared to $168,000 for the year ended December 31, 2008. The increase is primarily attributable to management fees paid to HASCO Holdings, LLC beginning in August 2008.

INCOME (LOSS) FROM OPERATIONS

               We reported loss from operations of $(426,951) for the year ended December 31, 2009 as compared to $(2,013,103) for the year ended December 31, 2008, a decrease of $1,586,152 or approximately 79%.

OTHER INCOME (EXPENSES)

               Losses on disposal of assets. Losses on disposal of assets were $0 and $53,825 for the year ended December 31, 2009 and 2008, respectively. In 2008, the losses are attributable to the disposal of vehicles and office equipment which were no longer used by the Company upon moving to their new location and change of ownership.

               Interest Income. Interest income for the year ended December 31, 2009 amounted to $0. This compares to $5,130 in interest income in the comparable period in fiscal 2008.

               Interest Expense. For the year ended December 31, 2009, interest expense amounted to $17,815 as compared to $10,537 for the year ended December 31, 2008. The increase in interest expense is primarily attributable to higher notes payable and interest bearing liabilities in fiscal 2009.

NET INCOME (LOSS)

               Our net loss was $331,289 for the year ended December 31, 2009 as compared to net loss of $2,183,335 for the year ended December 31, 2008.

18


LIQUIDITY AND CAPITAL RESOURCES

               Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. The following table provides an overview of certain selected balance sheet comparisons between December 31, 2009 and December 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

December 31,

 

$

 

%

 

 

 

2009

 

2008

 

Change

 

Change

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

 

67,940

 

 

479,435

 

 

(411,495

)

(85.8

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

200

 

 

141,163

 

 

(140,963

)

(100.0

%)

 

Accounts receivable, net

 

 

241,190

 

 

356,801

 

 

(115,611

)

(32.4

%)

 

Inventory

 

 

104,106

 

 

223,022

 

 

(118,916

)

(53.3

%)

 

Total current assets

 

 

358,986

 

 

729,984

 

 

(370,998

)

(50.8

%)

 

Property and equipment, net

 

 

255,130

 

 

186,056

 

 

69,074

 

37.1

%

 

Total assets

 

 

614,536

 

 

916,460

 

 

(301,924

)

(32.9

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

258,388

 

 

142,339

 

 

116,049

 

81.5

%

 

Notes payable-current

 

 

17,658

 

 

10,205

 

 

7,453

 

73.0

%

 

Total current liabilities

 

 

291,046

 

 

250,549

 

 

40,497

 

16.2

%

 

Notes payable-long term

 

 

168,939

 

 

171,015

 

 

(2,076

)

(1.2

%)

 

Total liabilities

 

 

459,985

 

 

421,564

 

 

38,421

 

9.1

%

 

Accumulated deficit

 

 

(3,254,535

)

 

(2,385,336

)

 

(869,199

)

36.4

%

 

Stockholders’ equity

 

 

154,551

 

 

494,896

 

 

(340,345

)

(68.8

%)

 

               Net cash provided by operating activities was $124,265 for the year ended December 31, 2009 as compared to net cash provided by operating activities of $893,601 for the year ended December 31, 2008, a decrease of $769,336. For the year ended December 31, 2009, we had net loss of $331,289 and non-cash items such as depreciation expense of $201,531, bad debt of $463,727, stock based compensation of $2,173 offset by decreases from changes in assets and liabilities of $211,877. During the year ended December 31, 2009 we experienced an increase in accounts receivable of $348,116, an increase in prepaid expenses of $4,492, and an increase in accounts payable and accrued expenses of $21,815, which was offset by a decrease in inventory of $118,916. For the year ended December 31, 2008, we used cash to fund our net loss of $2,183,335 incremented by non-cash items such as depreciation expense of $390,022, bad debts of $648,788, impairment of intangible assets of $2,553,417, offset by changes in assets and liabilities of $569,116.

               Net cash used in investing activities for the year ended December 31, 2009 was $248,846 as compared to net cash used in investing activities of $306,958 for the year ended December 31, 2008. During the year ended December 31, 2009 and 2008, we used cash for property and equipment purchases.

               Net cash used in financing activities for the year ended December 31, 2009 was $16,382 as compared to net cash used in financing activities of $759,849 for the year ended December 31, 2008. For the year ended December 31, 2009, net cash provided by financing activities related to payments on notes payable of $16,382. For the year ended December 31, 2008, net cash used in financing activities included dividends paid of $898,729, payments on notes payable of $18,125, offset by proceeds from related party borrowings of $157,005.

               At December 31, 2009 we had a working capital surplus of $67,940 and accumulated deficit of $(3,254,535).

               In connection with our annual report for our fiscal year ending December 31, 2009 our management will be required to provide an assessment of the effectiveness of our internal control over financial reporting, including a statement as to whether or not internal control over financial reporting is effective. In order to comply with this requirement we will need to engage a consulting firm to undertake an analysis of our internal controls. We have yet to engage such a consulting firm and are unable at this time to predict the costs associated with our compliance with Section 404 of Sarbanes-Oxley Act of 2002.

19


Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

The following tables summarize our contractual obligations as of December 31, 2009.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due by Period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 1

 

 

1-3 Years

 

 

3-5

 

 

5 Years

 

 

 

 

Total

 

 

year

 

 

 

 

 

Years

 

 

+

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual Obligations :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Lease

 

$

231,000

 

$

66,000

 

$

165,000

 

$

 

$

 

Notes payable

 

 

36,597

 

 

17,658

 

 

18,939

 

 

 

 

 

Note payable – related party

 

 

150,000

 

 

 

 

 

 

150,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Contractual Obligations:

 

$

417,597

 

$

83,658

 

$

183,939

 

$

150,000

 

$

 

 

 

   

 

   

 

   

 

   

 

   

 

Off-balance Sheet Arrangements

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Recently Issued Accounting Pronouncements

In June 2009, the FASB issued Accounting Standards Update No. 2009-01, “Generally Accepted Accounting Principles” (ASC Topic 105) which establishes the FASB Accounting Standards Codification (“the Codification” or “ASC”) as the official single source of authoritative U.S. generally accepted accounting principles (“GAAP”). All existing accounting standards are superseded. All other accounting guidance not included in the Codification will be considered non-authoritative. The Codification also includes all relevant Securities and Exchange Commission (“SEC”) guidance organized using the same topical structure in separate sections within the Codification.

Following the Codification, the Board will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASU”) which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification.

The Codification is not intended to change GAAP, but it will change the way GAAP is organized and presented. The Codification is effective for our third-quarter 2009 financial statements and the principal impact on our financial statements is limited to disclosures as all future references to authoritative accounting literature will be referenced in accordance with the Codification.

In April 2009, the FASB issued ASC Topic 320-10-65, “Recognition and Presentation of Other-Than-Temporary Impairments”. This update provides guidance for allocation of charges for other-than-temporary impairments between earnings and other comprehensive income. It also revises subsequent accounting for other-than-temporary impairments and expands required disclosure. The update was effective for interim and annual periods ending after June 15, 2009. The adoption of ASC Topic 320-10-65 did not have a material impact on the results of operations and financial condition.

In April 2009, the FASB issued ASC Topic 320-10-65, “Interim Disclosures About Fair Value of Financial Instruments”. This update requires fair value disclosures for financial instruments that are not currently reflected on the balance sheet at fair value on a quarterly basis and is effective for interim periods ending after June 15, 2009. The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and notes payable. At December 31, 2009 and 2008 the carrying value of the Companies financial instruments approximated fair value, due to their short term nature.

20


In May 2009, the FASB issued (ASC Topic 855), “Subsequent Events” (ASC Topic 855). This guidance is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. It is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued ASC Topic 810-10, “Amendments to FASB Interpretation No. 46(R)”. This updated guidance requires a qualitative approach to identifying a controlling financial interest in a variable interest entity (VIE), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. It is effective for annual reporting periods beginning after November 15, 2009. The adoption of ASC Topic 810-10 did not have a material impact on the results of operations and financial condition.

In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements.” This ASU establishes the accounting and reporting guidance for arrangements including multiple revenue-generating activities. This ASU provides amendments to the criteria for separating deliverables, measuring and allocating arrangement consideration to one or more units of accounting. The amendments in this ASU also establish a selling price hierarchy for determining the selling price of a deliverable. Significantly enhanced disclosures are also required to provide information about a vendor’s multiple-deliverable revenue arrangements, including information about the nature and terms, significant deliverables, and its performance within arrangements. The amendments also require providing information about the significant judgments made and changes to those judgments and about how the application of the relative selling-price method affects the timing or amount of revenue recognition. The amendments in this ASU are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010. Early application is permitted. The Company is currently evaluating this new ASU.

In October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements That Include Software Elements.” This ASU changes the accounting model for revenue arrangements that include both tangible products and software elements that are “essential to the functionality,” and scopes these products out of current software revenue guidance. The new guidance will include factors to help companies determine what software elements are considered “essential to the functionality.” The amendments will now subject software-enabled products to other revenue guidance and disclosure requirements, such as guidance surrounding revenue arrangements with multiple-deliverables. The amendments in this ASU are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010. Early application is permitted. The Company is currently evaluating this new ASU.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

 

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                    Not applicable to smaller reporting companies

 

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                    See our Financial Statements beginning on page F-1 of this annual report.

 

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

                    None.

21


ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

               As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of December 31, 2009, the end of the year covered by this report, our management concluded its evaluation of the effectiveness of the design and operation of our disclosure controls and procedures.

               Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

               Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

               With respect to the fiscal year ending December 31, 2009, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934. Based upon our evaluation regarding the fiscal year ending December 31, 2009, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, has concluded that its disclosure controls and procedures were not effective due to the Company’s limited internal audit functions. Through the use of external consultants and the review process, management believes that the financial statements and other information presented herewith are materially correct.

Management’s Report on Internal Control over Financial Reporting

               Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. During our assessment of the effectiveness of internal control over financial reporting as of December 31, 2009, management identified material weaknesses related to (i) our internal audit functions and (ii) a lack of segregation of duties within accounting functions. Therefore, our internal controls over financial reporting were not effective as of December 31, 2009.

               Management has determined that our internal audit function is significantly deficient due to insufficient qualified resources to perform internal audit functions.

               Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.

22


               We believe that the foregoing steps will remediate the material weaknesses identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate. Due to the nature of these material weaknesses in our internal control over financial reporting, there is more than a remote likelihood that misstatements which could be material to our annual or interim financial statements could occur that would not be prevented or detected.

               A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

               Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Auditor Attestation

               This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

               There have been no changes in our internal control over financial reporting during our fiscal year 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

ITEM 9B.

Other Information.

          None.

PART III

 

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

          Set forth below is information concerning our executive officers and directors:

 

 

 

 

 

Name

 

Age

 

Position

 

 

 

 

 

Hal Compton, Sr.

 

62

 

Chairman of the Board

Hal Compton, Jr.

 

37

 

Chief Executive Officer and Director

Mark B. Lucky

 

51

 

Chief Financial Officer and Director

Bill Marginson*

 

63

 

Director

Barry McCook*

 

62

 

Director

          * Member of the audit and compensation committees.

23


Biographical Information

Harold F. Compton, Sr. Mr. Compton has been a member of our Board of Directors since January 2009. Mr. Compton has been a retailer for more than 30 years. Mr. Compton joined CompUSA Inc. in 1994 as Executive Vice President-Operations, becoming Executive Vice President and Chief Operating Officer in 1995, President of CompUSA Stores in 1996 and Chief Executive Officer of CompUSA Inc. in 2000, a position he held until his retirement in 2004. Prior to joining CompUSA, Inc., from 1993 until 1994 he served as President and COO of Central Electric Inc., Executive Vice President Operations and Human Resources, and Director of Stores for HomeBase (1989 to 1993), Senior Vice President Operations and Director of Stores for Roses Discount Department Stores (1986 to 1989), and held various management positions including Store Manager, District Manager, Regional Vice President and Zone Vice President for Zayre Corporation from 1965 to 1986. Mr. Compton currently serves as lead director on the Board of Directors of IceWEB, Inc., and is also currently a member of the Board of Directors of Maidenform Brands, Inc. and is a member of its Compensation Committee and Audit Committee of the Board of Directors of that company.

Hal Compton, Jr. Mr. Compton is currently the CEO/President of Southern Medical & Mobility Inc. Prior to joining Southern Medical & Mobility, he was in the retail sector for 18 years. He was previously the Vice President of Sales and Operations in charge of stores for CompUSA. In addition to his professional experience, he is currently serving on the National Advisory Council for Arnold Palmer Hospital in Orlando Florida. Mr. Compton is a graduate of Pepperdine University.

Mark B. Lucky Mr. Lucky has over 20 years professional experience in high growth/start-up ventures and established companies with multi-industry experience including financial services, technology, software, real estate, biotech and entertainment and media. He is currently the Chief Financial Officer of IceWEB, Inc., a technology company located in northern Virginia. Prior to joining IceWEB, he consulted at Bearing Point on their financial restatement project. From 2004 to 2005 he was Vice President of Finance and Administration at Galt Associates, Inc., a Sterling, Virginia informatics/ technology and medical research services company and from 2001 to 2004 he was Vice President of Finance and Administration of MindShare Design, Inc., a San Francisco, California based internet technology company. While at both Galt Associates, Inc. and MindShare Design, Inc. Mr. Lucky was the senior financial officer for the company, providing strategic and tactical analysis and managing day to day finance, accounting, cash management, reporting and human resource responsibilities. During his career Mr. Lucky has also been employed by Axys Pharmaceuticals, Inc., a NASDAQ-listed San Francisco, California-based early stage drug discovery biotech company (acting CFO and Senior Director of Finance), PriceWaterhouseCoopers, LLC, COMPASS Management and Leasing, Inc. (Vice President - Finance 1997 to 1998), Mindscape, Inc. (Director of Financial Planning and Analysis 1995 to 1996), The Walt Disney Company (Manager, Operations Planning & Analysis, Manager of Corporate Planning 1991 to 1995), and KPMG. Mr. Lucky is a CPA and received his B.A., Economics, from the University of California at Los Angeles.

Bill Marginson Mr. Marginson is currently the vice president of Retail Services at Solutions Management, LLC. He was also a founding partner of LSM Mortgage, Inc./Sandcastle Title, Inc. of Tampa, Florida. Prior to founding LSM Mortgage, he served in senior management positions in the retail industry for 27 years, including serving as president of Clearwater Mattress Company and serving as CEO of The Wiz electronics retailer. In addition, Mr. Marginson was the co-founder of Yes Appliances and Furniture Co. Inc. and has also held senior positions with The Garr Consulting Group, Montgomery Ward, and Zayre Discount Department Stores. Mr. Marginson was an officer in the U.S. Army, and holds an MBA in Management and Finance, with distinction, from Babson College, and a B.S. in Business Economics from the University of Rhode Island.

Barry McCook Mr. McCook is currently the owner and President of QS, LLC, a commercial construction and real estate firm. He was also previously the founder and president of Finders Keepers Inc., an Atlanta, Georgia based retailer featuring deep discount gifts and home accessories. Prior to founding Finders Keepers, Inc., he served in senior management positions in the retail industry for 27 years, including serving as Senior Vice President of Store Operations and Real Estate for Softwarehouse /CompUSA, the Director of Store Operations for Tuesday Morning Inc., and as a District Manager for Eckerd Drug Inc. In addition, Mr. McCook holds a BBA in Finance from the University of Texas – Arlington.

Family Relationships

Harold Compton Sr. and Harold Compton Jr. are father and son.

24


Section 16(a) Beneficial Ownership Reporting Compliance

               Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of the copies of such forms furnished to us during the year ended December 31, 2009, none of our executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have failed to file the required reports in a timely manner.

Code of Ethics Policy

               We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our code of ethics will be provided to any person without charge by written request to 1416 West I-65 Service Road S., Mobile, AL.

Committees of our Board of Directors

               Our Board of Directors has created both an Audit Committee and a Compensation Committee. We do not have a Nominating Committee or any committee performing a similar function. The functions that such a committee would undertake are being undertaken by the entire board as a whole. We do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors or any inquiry as to what the procedures may be if a stockholder wished to make such a recommendation. Since May 2009 the Board has been developing a nominating and approval process and policy to guide the handling of potential recommendations of board candidates. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees.

               Audit Committee. The Audit Committee of our Board of Directors was formed to assist the Board of Directors in fulfilling its oversight responsibilities for the integrity of our consolidated financial statements, compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, and the performance of our internal audit function and independent auditors. The Audit Committee will also prepare the report that SEC rules require be included in our annual proxy statement. The Audit Committee has adopted a charter which sets forth the parameters of its authority The Audit Committee Charter provides that the Audit Committee is empowered to:

 

 

Appoint, compensate, and oversee the work of the independent registered public accounting firm employed by our company to conduct the annual audit. This firm will report directly to the audit committee;

 

 

Resolve any disagreements between management and the auditor regarding financial reporting;

 

 

Pre-approve all auditing and permitted non-audit services performed by our external audit firm;

 

 

Retain independent counsel, accountants, or others to advise the committee or assist in the conduct of an investigation;

 

 

Seek any information it requires from employees - all of whom are directed to cooperate with the committee’s requests - or external parties;

 

 

Meet with our officers, external auditors, or outside counsel, as necessary; and

 

 

The committee may delegate authority to subcommittees, including the authority to pre-approve all auditing and permitted non- audit services, provided that such decisions are presented to the full committee at its next scheduled meeting.

25


Each Audit Committee member is required to:

 

 

satisfy the independence requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934, and all rules and regulations promulgated by the SEC as well as the rules imposed by the stock exchange or other marketplace on which our securities may be listed from time to time, and

 

 

meet the definitions of “non-employee director” for purposes of SEC Rule 16b-3 and “outside director” for purposes of Section 162(m) of the Internal Revenue Code.

Each committee member is required to be financially literate and at least one member is to be designated as the “financial expert,” as defined by applicable legislation and regulation. No committee member is permitted to simultaneously serve on the audit committees of more than two other public companies. Our board of directors has determined that the member of the audit committee is an independent director. Mr. Marginson is considered an “audit committee financial expert” under the definition under Item 407 of Regulation S-K. As we expand our Board of Directors with additional independent directors the number of directors serving on the Audit Committee will also increase.

Compensation Committee. The Compensation Committee was appointed by the Board to discharge the Board’s responsibilities relating to:

 

 

compensation of our executives,

 

 

equity-based compensation plans, including, without limitation, stock option and restricted stock plans, in which officers or employees may participate, and

 

 

arrangements with executive officers relating to their employment relationships with our company, including employment agreements, severance agreements, supplemental pension or savings arrangements, change in control agreements and restrictive covenants.

               The Compensation Committee has adopted a charter. The Compensation Committee charter provides that the Compensation Committee has overall responsibility for approving and evaluating executive officer compensation plans, policies and programs of our company, as well as all equity-based compensation plans and policies. In addition, the Compensation Committee oversees, reviews and approves all of our ERISA and other employee benefit plans which we may establish from time to time. The Compensation Committee is also responsible for producing an annual report on executive compensation for inclusion in our proxy statement and assisting in the preparation of certain information to be included in other periodic reports filed with the SEC.

Each Compensation Committee member is required to:

 

 

satisfy the independence requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934, and all rules and regulations promulgated by the SEC as well as the rules imposed by the stock exchange or other marketplace on which our securities may be listed from time to time, and

 

 

meet the definitions of “non-employee director” for purposes of SEC Rule 16b-3 and “outside director” for purposes of Section 162(m) of the Internal Revenue Code.

               Pursuant to our Compensation Committee Charter, the Compensation Committee is charged with evaluating and recommending for approval by the Board of Directors the compensation of our executive officers. In addition, the Compensation Committee also evaluates and makes recommendations to the entire Board of Directors regarding grants of options which may be made as director compensation. The Compensation Committee does not delegate these authorities to any other persons nor does it use the services of any compensation consultants.

               Mr. McCook is the only member of our Compensation Committee. As we expand our Board of Directors with additional independent directors the number of directors serving on the Compensation Committee will also increase.

26



 

 

ITEM 11.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table summarizes all compensation recorded by us in each of the last two completed fiscal years for our principal executive officer, each other executive officer serving as such whose annual compensation exceeded $100,000 and up to two additional individuals for whom disclosure would have been made in this table but for the fact that the individual was not serving as an executive officer of our company at December 31, 2009. The value attributable to any option awards is computed in accordance with ASC Topic 718.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUMMARY COMPENSATION TABLE

 

Name and
principal
position

(a)

 

Year
(b)

 

Salary
($)
(c)

 

Bonus
($)
(d)

 

Stock
Awards
($)
(e)

 

Option
Awards
($)
(f)

 

Non-
Equity
Incentive
Plan
Compen-
sation
($)

(g)

 

Non-
qualified
Deferred
Compen-
sation
Earnings
($)

(h)

 

All
Other
Compen-
sation

($)
(i)

 

Total
($)
(j)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compton Jr.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 

 

2009

 

 

185,000

 

 

 

 

 

 

6,400

 

 

 

 

 

 

11,700

 

$

203,100

 

 

 

 

2008

 

 

149,423

 

 

 

 

 

 

 

 

 

 

 

 

5,730

 

$

155,153

 

Mark Lucky

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

 

 

2009

 

 

63,400

 

 

 

 

 

 

6,400

 

 

 

 

 

 

 

$

69,800

 

 

 

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

Alfredo

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ollivierre

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

 

 

2009

 

 

126,615

 

 

 

 

 

 

6,400

 

 

 

 

 

 

4,500

 

$

137,515

 

 

 

 

2008

 

 

46,538

 

 

 

 

 

 

 

 

 

 

 

 

1,500

 

$

48,038

 


 

 

 

 

(1)

Hal Compton Jr. has served as our CEO since May 2009. During 2009, in addition to his salary, his compensation included options awards to purchase a total of 1,000,000 shares of our common stock at an exercise price of $.007 per share which were valued at $6,400. Other compensation for fiscal 2009 included $11,700 for payment of health, dental and life insurance.

 

 

 

 

(2)

Mark Lucky has served as our CFO since May 2009. During 2009, in addition to his salary, his compensation included options awards to purchase a total of 1,000,000 shares of our common stock at an exercise price of $.007 per share which were valued at $6,400.

 

 

 

 

(3)

Alfredo Ollivierre. has served as our COO since May 2009. During 2009, in addition to his salary, his compensation included options awards to purchase a total of 1,000,000 shares of our common stock at an exercise price of $.007 per share which were valued at $6,400. Other compensation for fiscal 2009 included $4,500 for payment of health, dental and life insurance.

Prior to the Share Exchange on May 6, 2009, we were a “blank check” shell company that was formed to investigate and acquire a target company or business seeking the perceived advantages of being a publicly held corporation. The officer and director of our company prior to the Share Exchange are no longer employed by or affiliated with our company.

Compensation for our current named executive officers is determined with the goal of attracting and retaining high quality executive officers and encouraging them to work as effectively as possible on our behalf. Compensation is designed to reward executive officers for successfully meeting their individual functional objectives and for their contributions to our overall development. For these reasons, the elements of compensation of our executive officers are salary and bonus. Salary is paid to cover an appropriate level of living expenses for the executive officers and the bonus is paid to reward the executive officer for individual and company achievement. The compensation is determined by the Compensation Committee of our Board of Directors.

27


We believe that the salaries paid to our executive officers during 2009 are indicative of the objectives of our compensation program and reflect the fair value of the services provided to our company. Salary is designed to attract, as needed, individuals with the skills necessary for us to achieve our business plan, to motivate those individuals, to reward those individuals fairly over time, and to retain those individuals who continue to perform at or above the levels that we expect. When setting and adjusting individual executive salary levels, we consider the relevant established salary range, the named executive officer’s responsibilities, experience, potential, individual performance and contribution. We also consider other factors such as our overall corporate budget for annual merit increases, unique skills, demand in the labor market and succession planning.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

 

OPTION AWARDS

 

STOCK AWARDS

 

 

 

Name
(a)

 

Number of
Securities
Underlying
Unexercised
Options

(#)
Exercisable

(b)

 

Number of
Securities
Underlying
Unexercised
Options

(#)
Unexercisable
(c)

 

Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options

(#)
(d)

 

Option
Exercise
Price

($)
(e)

 

Option
Expiration
Date

(f)

 

Number
of Shares
or Units
of Stock
That
Have Not
Vested (#)
(g)

 

Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)

(h)

 

Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights that
Have Not
Vested (#)

(i)

 

Equity
Incentive Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)

(j)

 

Hal Compton Jr.

 

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark Lucky

 

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alfredo Ollivierre

 

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2009 Stock Option Plan

Under the Company’s stock option plan, adopted on July 9, 2009, 20,000,000 shares of common stock were reserved for issuance upon exercise of options granted to our directors, officers and employees. We are authorized to issue Incentive Stock Options (“ISOs”), which meet the requirements of Section 42 of the Internal Revenue Code of 1986. At its discretion, we can also issue Non Statutory Options (“NSOs”). When an ISO is granted, the exercise price shall be equal to the fair market value per share of the common stock on the date of the grant. The exercise price of an NSO shall not be less than fair market value of one share of the common stock on the date the option is granted. The vesting period will be determined on the date of grant.

Pension Benefits

There were no pension benefit plans in effect in 2009

Nonqualified defined contribution and other nonqualified deferred compensation plans

There were no non-qualified defined contribution or other nonqualified deferred compensation plans in effect in 2009.

Employment Agreements

At this time there are no agreements in place.

28


Director Compensation

Our Board of Directors is comprised of Hal Compton, Sr., Hal Compton, Jr. Bill Marginson and Barry McCook. Hal Compton, Jr. does not receive any compensation specifically for his Board services. The following table provides information concerning the compensation of Hal Compton, Sr., Bill Marginson and Barry McCook for services as members of our Board of Directors for fiscal 2009. The value attributable to any option awards is computed in accordance with ASC Topic 718.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIRECTOR COMPENSATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name
(a)

 

Fees
earned or
paid in
cash ($)
(b)

 

Stock
awards
($)
(c)

 

Warrant
and
Option
awards
($)
(d)

 

Non-equity
incentive
plan
compensation
($)
(e)

 

Nonqualified
deferred
compensation
earnings ($)
(f)

 

All other
compensation
($)
(g)

 

Total
($)
(h)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hal Compton, Sr. (1)

 

 

0

 

 

0

 

 

160

 

 

0

 

 

0

 

 

0

 

 

160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bill Marginson (2)

 

 

0

 

 

0

 

 

160

 

 

0

 

 

0

 

 

0

 

 

160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Barry McCook (3)

 

 

0

 

 

0

 

 

160

 

 

0

 

 

0

 

 

0

 

 

160

 


 

 

(1)

Represents the value of options to purchase 25,000 shares of our common stock with an exercise price of $0.007 per share.

 

 

(2)

Represents the value of options to purchase 25,000 shares of our common stock with an exercise price of $0.007 per share

 

 

(3)

Represents the value of options to purchase 25,000 shares of our common stock with an exercise price of $0.007 per share

          We have not established standard compensation arrangements for our directors and the compensation payable to each individual for their service on our Board and determined from time to time by our Board of Directors based upon the amount of time expended by each of the directors on our behalf.

 

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

 

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

          At March 31, 2010 we had 733,553,142 shares of our common stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of March 31, 2010 by:

 

 

 

 

each person known by us to be the beneficial owner of more than 5% of our common stock;

 

 

 

 

each of our directors;

 

 

 

 

each of our named executive officers; and

 

 

 

 

our named executive officers, directors and director nominees as a group.

Unless otherwise indicated, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the stockholder’s name, subject to community property laws, where applicable. Unless otherwise indicated, the address of each stockholder listed in the table is c/o Southern Medical & Mobility, Inc. 1416 West I-65 Service Road, S., Mobile, AL 36693.

29



 

 

 

 

 

 

 

 

 

 

Name and Address
of Beneficial Owner

 

Title

 

 

Beneficially
Owned
Post-Share
Exchange
(1)

 

Percent
of Class

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HASCO Holdings, LLC

 

 

 

 

632,857,142

 

86.3

%

 

 

 

 

 

 

 

 

 

 

 

Hal Compton, Sr. (2)

 

Chairman of the Board

 

 

215,002,381

 

29.3

%

 

 

 

 

 

 

 

 

 

 

 

Scott Compton (2)

 

 

 

 

211,952,380

 

28.9

%

 

 

 

 

 

 

 

 

 

 

 

Hal Compton, Jr. (2)

 

Chief Executive Officer

 

 

211,952,381

 

28.9

%

 

 

 

 

 

 

 

 

 

 

 

Barry McCook

 

Board member

 

 

50,000

 

*

 

 

 

 

 

 

 

 

 

 

 

 

Bill Marginson

 

Board member

 

 

50,000

 

*

 

 

 

 

 

 

 

 

 

 

 

 

Mark Lucky

 

Chief Financial Officer, Board member

 

 

2,050,000

 

*

 

 

 

 

 

 

 

 

 

 

 

 

All directors and executive officers as a group (7 people)

 

 

 

 

635,007,142

 

86.6

%

 


 

 

*

represents less than 1%


 

 

(1)

Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.

 

 

(2)

Includes 210,952,381 shares of common stock owned by HASCO Holdings, LLC, our largest stockholder. HASCO Holdings, LLC is a Texas limited liability company of which Hal Compton Sr., Hal Compton, Jr. and Scott Compton are each managers and each own 33.3% of the outstanding membership interests.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

We entered into a note payable agreement with its largest shareholder, HASCO Holdings, LLC in June 2008, at the time of the Company’s acquisition by HASCO. The loan was in the amount of $150,000, was for working capital, and bears interest at 10% per annum. The loan has a term of five years. As of December 31, 2009, accrued interest from such notes payable amounted to $15,000.

We paid management fee of approximately $202,000 and $168,000 to HASCO Holdings, LLC during the year ended December 31, 2009 and 2008, respectively.

Our major shareholder, HASCO Holdings, LLC has made advances to us from time-to-time for operating expenses. These advances are short-term in nature and are non-interest bearing. At December 31, 2009 and 2008, amounts due to this related party amounted to $0 and $7,005, respectively.

In January, 2010 we sold 4,000,000 shares of common stock to a Director at a price of $0.007 per share, the fair value at the time of the transaction. The proceeds of the transaction was $28,000.

In March, 2010, we issued 12,857,142 shares of our common stock valued at $90,000 in satisfaction of debt in the amount of $90,000, which is related to services rendered to the Company by a related party.

30


Director Independence

               Of the five directors, management believes that Mr. Marginson and Mr. McCook would be considered “independent” within the meaning of Rule 5605 of the NASDAQ Marketplace Rules.

 

 

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

               The following table sets forth the fees billed by our principal independent accountants for each of our last two fiscal years for the categories of services indicated.

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

 

 

 

Category

 

2009

 

2008

 

 

 

 

 

 

 

Audit Fees (1)

 

$

26,472

 

$

1,572

 

Audit Related Fees (2)

 

 

14,750

 

 

 

Tax Fees (3)

 

 

 

 

2,500

 

All Other Fees (4)

 

 

 

 

 


 

 

(1)

Consists of fees billed for the audit of our annual financial statements, review of our Form 10-K/10-KSB and services that are normally provided by the accountant in connection with year end statutory and regulatory filings or engagements.

 

 

(2)

Consists of fees billed for the review of our quarterly financial statements, review of our forms 10-Q/10-QSB and 8-K and services that are normally provided by the accountant in connection with non year end statutory and regulatory filings on engagements.

 

 

(3)

Consists of professional services rendered by a company aligned with our principal accountant for tax compliance, tax advice and tax planning.

 

 

(4)

The services provided by our accountants within this category consisted of advice and other services relating to SEC matters, registration statement review, accounting issues and client conferences.

               Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent auditors. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. The audit and tax fees paid to the auditors with respect to fiscal year 2009 were pre-approved by the entire Board of Directors.

31



 

 

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES.


 

 

 

Exhibit No.

 

Exhibit Description

 

 

 

 

 

 

2.1

 

Agreement and Plan of Merger between BBC Graphics of Palm Beach, Inc. HASCO Holdings, LLC and Southern Medical & Mobility, Inc. *

 

 

 

2.2

 

Amendment to Articles of Incorporation of BBC Graphics, Inc. *

 

 

 

2.3

 

Bylaws of Southern Medical & Mobility, Inc. *

 

 

 

2.4

 

Schedule of Directors and Officers of Surviving Corporation *

 

 

 

2.5

 

Articles of Incorporation of Southern Medical & Mobility, Inc. *

 

 

 

2.6

 

Amendments to the Articles of Incorporation of Southern Medical & Mobility, Inc. *

 

 

 

2.7

 

Amendment to Stock Sale and Purchase Agreement *

 

 

 

2.8

 

Delaware Certificate of Merger between Southern Medical Acquisition, Inc. and Southern Medical & Mobility, Inc. *

 

 

 

23.1

 

Consent of Sherb & Co. LLP **

 

 

 

31.1

 

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **

 

 

 

31.2

 

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **

 

 

 

32.2

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **

* Previously filed
** Filed herein

32


SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) 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.

 

 

 

HASCO MEDICAL, INC.

 

 

March 17, 2011

By:/s/ Hal Compton, Jr.

 

Hal Compton, Jr.,

 

Chief Executive Officer, principal executive officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

 

 

 

 

 

Signature

 

Title

 

Date

 

 

 

 

 

 

 

 

Chief Executive Officer,

 

 

/s/ Hal Compton, Jr.

 

principal executive officer

 

March 17, 2011

 

 

 

 

 

Hal Compton, Jr.

 

 

 

 

 

 

 

 

 

 

 

Chief Financial Officer,

 

 

/s/ Mark B. Lucky

 

principal financial and

 

March 17, 2011

 

 

 

 

 

Mark B. Lucky

 

accounting officer

 

 

 

 

 

 

 

/s/ Hal Compton, Sr.

 

Director

 

March 17, 2011

 

 

 

 

 

Hal Compton, Sr.

 

 

 

 

 

 

 

 

 

/s/ Bill Marginson

 

Director

 

March 17, 2011

 

 

 

 

 

Bill Marginson

 

 

 

 

 

 

 

 

 

/s/ Barry McCook

 

Director

 

March 17, 2011

 

 

 

 

 

Barry McCook

 

 

 

 

33


HASCO MEDICAL, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Financial Statements:

 

 

 

Consolidated Balance Sheets as of December 31, 2009 and 2008

F-3

 

 

Consolidated Statements of Operations for the years ended

 

December 31, 2009 and 2008

F-4

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the years ended

 

December 31, 2009 and 2008

F-5

 

 

Consolidated Statements of Cash Flows for the years ended

 

December 31, 2009 and 2008

F-6

 

 

Notes to Audited Consolidated Financial Statements

F-7 to F-18

F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
HASCO Medical, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheets of HASCO Medical, Inc. and Subsidiary as of December 31, 2009 and 2008 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required at this time, to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HASCO Medical, Inc. and Subsidiary as of December 31, 2009 and 2008 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

 

 

/s/ Sherb & Co., LLP

 

 

 

Certified Public Accountants

 

 

Boca Raton, Florida

 

March 24, 2010 (except to Note 13 which is as of January 20, 2011)

 

F-2


HASCO Medical, Inc. and Subsidiary
Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

December 31, 2009
(Restated -
See note 13)

 

December 31, 2008

 

 

 

   

 

   

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash

 

$

200

 

$

141,163

 

Accounts receivable, net

 

 

241,190

 

 

356,801

 

Inventory

 

 

104,106

 

 

223,022

 

Prepaid expenses

 

 

13,490

 

 

8,998

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total Current Assets

 

 

358,986

 

 

729,984

 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

Property and equipment, net

 

 

255,130

 

 

186,056

 

Deposits

 

 

420

 

 

420

 

 

 

   

 

   

 

Total Assets

 

$

614,536

 

$

916,460

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

258,388

 

$

142,339

 

Notes payable, current portion

 

 

17,658

 

 

10,205

 

Income tax payable

 

 

 

 

82,250

 

Due to related party

 

 

 

 

7,005

 

Accrued interest payable

 

 

15,000

 

 

8,750

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total Current Liabilities

 

 

291,046

 

 

250,549

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

Notes Payable

 

 

18,939

 

 

21,015

 

Notes Payable - related party

 

 

150,000

 

 

150,000

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total Long-Term Liabilities

 

 

168,939

 

 

171,015

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

459,985

 

 

421,564

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock ($.001 par value; 3,000,000 shares authorized; none issued and outstanding)

 

 

 

 

 

Common stock ($.001 par value; 1,000,000,000 shares authorized; 713,496,000 and 554,676,000 shares issued and outstanding at December 31, 2009 and December 31, 2008, respectively)

 

 

713,496

 

 

554,676

 

Additional paid in capital

 

 

2,695,590

 

 

2,325,556

 

Accumulated deficit

 

 

(3,254,535

)

 

(2,385,336

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total Stockholders' Equity

 

 

154,551

 

 

494,896

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$

614,536

 

$

916,460

 

 

 

   

 

   

 

See accompanying notes to audited consolidated financial statements
F-3


HASCO Medical, Inc. and Subsidiary
Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

For the Year Ended
December 31,

 

 

 

   

 

   

 

 

 

2009

 

2008

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Net revenues

 

$

3,390,840

 

$

4,575,680

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

910,540

 

 

1,269,620

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Gross profit

 

 

2,480,300

 

 

3,306,060

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Marketing and selling

 

 

20,644

 

 

1,950

 

Depreciation

 

 

29,001

 

 

40,908

 

Impairment of intangible assets

 

 

 

 

2,553,417

 

General and administrative

 

 

2,857,606

 

 

2,722,888

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

2,907,251

 

 

5,319,163

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(426,951

)

 

(2,013,103

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

Loss on disposal of assets

 

 

 

 

(53,825

)

Forgiveness of debt

 

 

8,750

 

 

 

Interest income

 

 

 

 

5,130

 

Interest expense

 

 

(17,815

)

 

(10,537

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total other expenses:

 

 

(9,065

)

 

( 59,232

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Loss before taxes

 

 

(436,016

)

 

(2,072,335

)

 

 

 

 

 

 

 

 

Income tax benefit (expense)

 

 

104,727

 

 

(111,000

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Net loss

 

$

(331,289

)

$

(2,183,335

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Net loss per common shares:

 

 

 

 

 

 

 

Basic

 

$

 

$

 

 

 

   

 

   

 

Diluted

 

$

 

$

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

656,059,726

 

 

554,676,000

 

 

 

   

 

   

 

Diluted

 

 

656,059,726

 

 

554,676,000

 

 

 

   

 

   

 

See accompanying notes to audited consolidated financial statements
F-4


HASCO Medical, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2009 and 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

Common Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings
(Accumulated
Deficit)

 

Total

 

 

 

         

 

         

 

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

 

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2007

 

 

 

$

 

 

554,676,000

 

$

554,676

 

$

(553,676

)

$

1,022,542

 

$

1,023,542

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclass of S-Corporation retained earnings

 

 

 

 

 

 

 

 

 

 

325,814

 

 

(325,814

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

(898,729

)

 

(898,729

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Push down accounting pursuant to acquisition of the Company

 

 

 

 

 

 

 

 

 

 

2,553,417

 

 

 

 

2,553,417

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(2,183,335

)

 

(2,183,335

)

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2008

 

 

 

 

 

 

554,676,000

 

 

554,676

 

 

2,325,555

 

 

(2,385,336

)

 

494,895

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued in connection with reverse merger

 

 

 

 

 

 

87,500,000

 

 

87,500

 

 

367,862

 

 

(639,066

)

 

(183,704

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for due to shareholder

 

 

 

 

 

 

71,320,000

 

 

71,320

 

 

 

 

101,156

 

 

172,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of options issued to employees

 

 

 

 

 

 

 

 

 

 

2,173

 

 

 

 

2,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(331,289

)

 

(331,289

)

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2009

 

 

 

$

 

 

713,496,000

 

$

713,496

 

$

2,695,590

 

$

(3,254,535

)

$

154,551

 

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

See accompanying notes to audited consolidated financial statements
F-5


HASCO Medical, Inc. and Subsidiary
Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

For the Year Ended
December 31,

 

 

 

         

 

 

 

2009

 

2008

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

 

$

(331,289

)

$

(2,183,335

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

 

201,531

 

 

390,022

 

Loss on disposal of fixed assets

 

 

 

 

53,825

 

Impairment of intangible assets

 

 

 

 

2,553,417

 

Bad debt expense

 

 

463,727

 

 

648,788

 

Fair value of options issued to employees

 

 

2,173

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

Accounts receivable

 

 

(348,116

)

 

(612,024

)

Inventory

 

 

118,916

 

 

(165,529

)

Prepaid expenses

 

 

(4,492

)

 

(8,997

)

Other assets

 

 

 

 

(130

)

Income tax payable

 

 

 

 

82,250

 

Accounts payable and accrued liabilities

 

 

28,820

 

 

126,564

 

Due to related party

 

 

(7,005

)

 

8,750

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

 

124,265

 

 

893,601

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(248,846

)

 

(306,958

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(248,846

)

 

(306,958

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from notes payable - related party

 

 

 

 

150,000

 

Advance from related party

 

 

 

 

7,005

 

Payment of dividends

 

 

 

 

(898,729

)

Repayments of notes payable

 

 

(16,382

)

 

(18,125

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Net cash used in financing activities

 

 

(16,382

)

 

(759,849

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Net decrease in cash

 

 

(140,963

)

 

(173,206

)

 

 

 

 

 

 

 

 

Cash, Beginning of year

 

 

141,163

 

 

314,369

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Cash, End of year

 

$

200

 

$

141,163

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash paid during the year for interest

 

$

3,519

 

$

1,787

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Cash paid during the year for taxes

 

$

 

$

28,750

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Supplemental schedule of non-cash financing and investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of shares of common stock issued for due to shareholder

 

$

172,476

 

$

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Vehicles acquired through financing

 

$

21,759

 

 

31,221

 

 

 

   

 

   

 

See accompanying notes to audited consolidated financial statements
F-6


NOTE 1 - NATURE OF OPERATIONS

Organization

HASCO Medical, Inc. (“HASCO” or the “Company”), formerly BBC Graphics of Palm Beach Inc, was incorporated in May 2009 under the laws of the State of Florida. The Company operated as a provider of advertising and graphic design services. In June 2009, the Company changed its name to HASCO Medical, Inc.

On May 12, 2009, HASCO completed the acquisition of Southern Medical & Mobility, Inc. (SMM”) pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”) among HASCO, SMM and Southern Medical Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company. Under the terms of the Merger Agreement Southern Medical Acquisition, Inc. was merged into Southern Medical & Mobility, Inc., and Southern Medical & Mobility, Inc. became a wholly-owned subsidiary of HASCO. The shareholder of Southern Medical & Mobility, Inc. was issued a total of 554,676,000 shares of the Company’s common stock in exchange for their Southern Medical & Mobility, Inc. share.

After the merger and transactions that occurred at the same time as the merger, there were 642,176,000 shares of the Company’s common stock outstanding, of which 620,000,000, approximately 96.5%, were held by HASCO Holdings, LLC, the former sole shareholder of Southern Medical & Mobility, Inc.

Prior to the merger, the Company was a shell company with no business operations.

Southern Medical & Mobility, Inc. provides home health care services and products consisting primarily of the rental and sale of home medical equipment and home health care supplies. These services and products are paid for primarily by Medicare, Medicaid, and other third-party payors.

For accounting purposes, HASCO Medical, Inc. has accounted for the transaction as a reverse acquisition and HASCO will be the surviving entity as a publicly-traded company under the name HASCO Medical Inc. or together with its subsidiaries. The Company did not recognize goodwill or any intangible assets in connection with this transaction.

The Merger was accounted for as a reverse acquisition, with Southern Medical & Mobility, Inc, as the accounting acquirer. Accordingly, the reverse acquisition is being accounted for as a capital transaction in substance, rather than a business combination. For accounting purposes, the net liabilities of HASCO Medical, Inc. were recorded at fair value as of the Closing Date, with an adjustment to additional paid-in capital. The deficit accumulated by HASCO was carried forward after the Merger. The results of operations of HASCO Medical, Inc. are included in the accompanying Consolidated Statements of Operations from the date of the Merger through December 31, 2009.

Effective with the reverse merger, all previously outstanding common stock owned by HASCO Medical, Inc.’s shareholders were exchanged for the Company’s common stock. The value of the Company’s common stock that was issued to HASCO Medical, Inc.’s shareholders was the historical cost of the Company’s net tangible assets, which did not differ materially from its fair value.

All references to common stock, share and per share amounts have been retroactively restated to reflect the reverse acquisition as if the transaction had taken place as of the beginning of the earliest period presented.

Services and Products

The Company provides a diversified range of home health care services and products.

Home Medical Equipment and Medical Supplies. The Company provides a variety of equipment and supplies to serve the needs of home care patients. Revenues from home medical equipment and supplies are derived principally from the rental and sale of wheelchairs, power chairs, hospital beds, ambulatory aids, bathroom aids and safety equipment, and rehabilitation equipment.

F-7


NOTE 1 - NATURE OF OPERATIONS (continued)

Services and Products (continued)

Home Respiratory Equipment. The Company provides a wide variety of home respiratory equipment primarily to patients with severe and chronic pulmonary diseases. Patients are referred to the Company most often by primary care and pulmonary physicians as well as by hospital discharge planners and case managers. After reviewing pertinent medical records on the patient and confirming insurance coverage information, a Company service technician visits the patient’s home to deliver and to prepare the prescribed equipment. Company representatives coordinate the prescribed regimen with the patient’s physician and train the patient and caregiver in the correct use of the equipment. For patients renting equipment, Company representatives also make periodic follow-up visits to the home to provide additional instructions, perform required equipment maintenance, and deliver oxygen and other supplies.

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company’s consolidated financial statements include the financial statements of its wholly-owned subsidiary, Southern Medical & Mobility, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

ASB Accounting Standards Codification

The issuance by the FASB of the Accounting Standards CodificationTM (the “Codification”) on July 1, 2009 (effective for interim or annual reporting periods ending after September 15, 2009), changes the way that GAAP is referenced. Beginning on that date, the Codification officially became the single source of authoritative nongovernmental GAAP; however, SEC registrants must also consider rules, regulations, and interpretive guidance issued by the SEC or its staff. The change affects the way the Company refers to GAAP in financial statements and in its accounting policies. All existing standards that were used to create the Codification became superseded. Instead, references to standards consist solely of the number used in the Codification’s structural organization.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheets and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates in 2009 and 2008 include the allowance for doubtful accounts, the valuation of inventory, the useful life of property and equipment and the assumptions used to calculate stock-based compensation.

Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

 

 

 

Level 1:

Observable inputs such as quoted market prices in active markets for identical assets or liabilities

 

Level 2:

Observable market-based inputs or unobservable inputs that are corroborated by market data

 

Level 3:

Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

F-8


NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments (continued)

Cash and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of December 31, 2009 and 2008, respectively. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.

In addition, FASB ASC 825-10-25 Fair Value Option was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.

The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities approximated fair value as of December 31, 2009, because of the relatively short-term maturity of these instruments and their market interest rates.

Revenue Recognition and Concentration of Credit Risk

Revenues are recognized under fee for service arrangements through equipment that the Company rents to patients, sales of equipment, supplies, and other items the Company sells to patients. Revenue generated from equipment that the Company rents to patients is recognized over the rental period and commences on delivery of the equipment to the patients. Revenue related to sales of equipment, and supplies is recognized on the date of delivery to the patients. All revenues are recorded at amounts estimated to be received under reimbursement arrangements with third-party payors, including private insurers, prepaid health plans, Medicare and Medicaid.

Our revenues are recognized on an accrual basis in the period in which services and related products are provided to customers and are recorded at net realizable amounts estimated to be paid by customers and third-party payors. Insurance benefits are assigned to the Company and, accordingly, the Company bills on behalf of its customers. The Company’s billing system contains payor-specific price tables that reflect the fee schedule amounts in effect or contractually agreed upon by various government and commercial payors for each item of equipment or supply provided to a customer. The Company has established an allowance to account for sales adjustments that result from differences between the payment amount received and the expected realizable amount. Actual adjustments that result from differences between the payment amount received and the expected realizable amount are recorded against the allowance for sales adjustments and are typically identified and ultimately recorded at the point of cash application or when otherwise determined pursuant to the Company’s collection procedures. The Company reports revenues in our financial statements net of such adjustments.

Certain items provided by the Company are reimbursed under rental arrangements that generally provide for fixed monthly payments established by fee schedules for as long as the patient is using the equipment and medical necessity continues (subject to capped rental arrangements which limit the rental payment periods in some instances and which may result in a transfer of title to the patient at the end of the rental payment period). Once initial delivery of rental equipment is made to the patient, a monthly billing cycle is established based on the initial date of delivery. The Company recognizes rental arrangement revenues ratably over the monthly service period and defers revenue for the portion of the monthly bill that is unearned. No separate payment is earned from the initial equipment delivery and setup process. During the rental period, the Company is responsible for servicing the equipment and providing routine maintenance, if necessary.

The Company follows the guidance of the FASB ASC 605-10-S99 “Revenue Recognition Overall – SEC Materials. The Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.

Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time products and/or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application, claim denial or account review.

F-9


NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition and Concentration of Credit Risk (continued)

Included in accounts receivable are earned but unbilled receivables. Unbilled accounts receivable represent charges for equipment and supplies delivered to customers for which invoices have not yet been generated by the billing system. Prior to the delivery of equipment and supplies to customers, the Company performs certain certification and approval procedures to ensure collection is reasonably assured and that unbilled accounts receivable are recorded at net amounts expected to be paid by customers and third-party payors. Billing delays, generally ranging from several days to several weeks, can occur due to delays in obtaining certain required payor-specific documentation from internal and external sources, interim transactions occurring between cycle billing dates established for each customer within the billing system and business acquisitions awaiting assignment of new provider enrollment identification numbers. In the event that a third-party payor does not accept the claim for payment, the customer is ultimately responsible.

The Company performs analyses to evaluate the net realizable value of accounts receivable. Specifically, the Company considers historical realization data, accounts receivable aging trends, other operating trends and relevant business conditions. Because of continuing changes in the health care industry and third-party reimbursement, it is possible that our estimates could change, which could have a material impact on our operations and cash flows.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and notes payable. The Company’s cash and cash equivalents accounts are held at financial institutions and are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $100,000 between January 2007 and October 2008 and $250,000 for interest-bearing accounts and an unlimited amount for noninterest-bearing accounts after October 2008. During the year ended December 31, 2009, the Company has not reached bank balances exceeding the FDIC insurance limit. While the Company periodically evaluates the credit quality of the financial institutions in which it holds deposits, it cannot reasonably alleviate the risk associated with the sudden failure of such financial institutions. The Company’s investment policy is to invest in low risk, highly liquid investments. The Company does not believe it is exposed to any significant credit risk in its cash investment.

The Company performs on-going credit evaluations of its customer base including those included in accounts receivable at December 31, 2009 and 2008, and, generally, does not require collateral. The Company maintains reserves for potential credit losses and such losses have been within management’s expectations.

Accounts Receivable

Accounts receivable consists primarily of receivables due from Medicare Medicaid, and third party payors. The Company recorded a bad debt allowance of $307,495 and $305,539 as of December 31, 2009 and 2008, respectively. Management performs ongoing evaluations of its accounts receivable.

Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity and uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application, claim denial or account review.

F-10


NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Accounts Receivable (continued)

Management performs periodic analyses to evaluate accounts receivable balances to ensure that recorded amounts reflect estimated net realizable value. Specifically, management considers historical realization data, accounts receivable aging trends, and other operating trends. Also considered are relevant business conditions such as governmental and managed care payor claims processing procedures and system changes.

Accounts receivable are reduced by an allowance for doubtful accounts which provides for those accounts from which payment is not expected to be received, although services were provided and revenue was earned. Upon determination that an account is uncollectible, it is written-off and charged to the allowance.

Inventory

Inventory is valued at the lower of cost or market, on an average cost basis and includes primarily finished goods.

Advertising

Advertising, marketing and selling is expensed as incurred. Such expenses for the year ended December 31, 2009 and 2008 totaled approximately $20,604 and $1,950, respectively.

Shipping and Handling Costs

The Company classifies costs related to freight as costs of sales.

Property and Equipment

Property and equipment including rental equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets, generally one to three years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Impairment of Long-Lived Assets

Long-Lived Assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable, pursuant to guidance established in ASC 360-10-35-15, “Impairment or Disposal of Long-Lived Assets”. The Company reviews, long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded an impairment of intangibles of $0 and $2,553,417 included in the accompanying statement of operations for the years ended December 31, 2009 and 2008, respectively.

Income Taxes

During the year ended December 31, 2009, the Company recorded an income tax benefit of $104,729 from the reversal of the accrual of income tax expense during fiscal 2008 and the receipt of income tax refund in July 2009.

Income taxes are accounted for under the asset and liability method as prescribed by ASC Topic 740: Income Taxes (“ASC 740”). Deferred income tax assets and liabilities are computed for differences between the carrying amounts of assets and liabilities for financial statement and tax purposes. Deferred income tax assets are required to be reduced by a valuation allowance when it is determined that it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining the necessity and amount of a valuation allowance, management considers current and past performance, the operating market environment, tax planning strategies and the length of tax benefit carryforward periods.

F-11


NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes (continued)

Pursuant to ASC Topic 740-10: Income Taxes related to the accounting for uncertainty in income taxes, the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. The accounting standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. The adoption had no effect on the Company’s consolidated financial statements.

Subsequent Events

In May 2009, the FASB issued ASC Topic 855: Subsequent Events (“ASC855”), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. For purposes of determining whether a post-balance sheet event should be evaluated to determine whether it has an effect on the financial statements for the year ended December 31, 2009, subsequent events were evaluated by the Company as of March 31, 2010, the date on which the consolidated financial statements at and for the year ended December 31, 2009, were available to be issued.

Stock Based Compensation

In December 2004, the Financial Accounting Standards Board, or FASB, issued FASB ASC Topic 718: Compensation – Stock Compensation (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Companies may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under ASC 718. Upon adoption of ASC 718, the Company elected to value employee stock options using the Black-Scholes option valuation method that uses assumptions that relate to the expected volatility of the Company’s common stock, the expected dividend yield of our stock, the expected life of the options and the risk free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant.

Related Parties

Parties are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to related party.

F-12


NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Acquisition of Southern Medical Mobility Inc.

In June 2008, the Company consummated a Stock Sale and Purchase Agreement (the "Purchase Agreement"), wherein an individual, Harold Compton, SR., acquired 100% of the outstanding share of stock in Southern Medical & Mobility, Inc. in exchange for cash in the amount of $3,200,000. Harold Compton, SR. acquired 100% of the outstanding stock from the former shareholder of Southern Medical & Mobility, Inc. and subsequently, Mr. Compton, Sr. transferred the title of the acquired stock to Hasco Holdings, LLC, a holding company owned by Mr. Compton Sr. and his family members.

The Company accounted for the acquisition utilizing the purchase method of accounting in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations". Accordingly, the Company applied push-down accounting and adjusted to fair value all of the assets and liabilities directly on the financial statements of the Company. The net purchase price, including acquisition costs paid by Mr. Compton, was allocated to assets acquired and liabilities assumed on the records of the Company as follows:

Current assets (including cash of $341,030)

 

$

894,269

 

Property and equipment at net book value

 

 

268,144

 

Other assets

 

 

420

 

Intangible assets

 

 

2,553,417

 

 

 

 

 

 

Liabilities assumed

 

 

(516,250

)

Net purchase price

 

$

3,200,000

 

In December 2008, the former owner and CEO of the Company discontinued his employment with the Company. It was determined that when the former CEO left the Company that there was no future benefit to the acquired customer relationships/intangible assets as a result of his departure. The Company deemed the acquired intangible assets to be impaired and wrote-off the intangible assets in December 2008. In addition, the Company recognized an impairment loss due to the sum of expected undiscounted future cash flows is less than the carrying amount of the assets. Accordingly, for the year ended December 31, 2008, the Company recorded an impairment of intangible assets of $2,553,417 on the accompanying statement of operations.

Recently Issued Accounting Pronouncements

In June 2009, the FASB issued Accounting Standards Update No. 2009-01, “Generally Accepted Accounting Principles” (ASC Topic 105) which establishes the FASB Accounting Standards Codification (“the Codification” or “ASC”) as the official single source of authoritative U.S. generally accepted accounting principles (“GAAP”). All existing accounting standards are superseded. All other accounting guidance not included in the Codification will be considered non-authoritative. The Codification also includes all relevant Securities and Exchange Commission (“SEC”) guidance organized using the same topical structure in separate sections within the Codification.

F-13


NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently Issued Accounting Pronouncements (continued)

Following the Codification, the Board will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASU”) which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification.

The Codification is not intended to change GAAP, but it will change the way GAAP is organized and presented. The Codification is effective for our third-quarter 2009 financial statements and the principal impact on our financial statements is limited to disclosures as all future references to authoritative accounting literature will be referenced in accordance with the Codification.

In April 2009, the FASB issued ASC Topic 320-10-65, “Recognition and Presentation of Other-Than-Temporary Impairments”. This update provides guidance for allocation of charges for other-than-temporary impairments between earnings and other comprehensive income. It also revises subsequent accounting for other-than-temporary impairments and expands required disclosure. The update was effective for interim and annual periods ending after June 15, 2009. The adoption of ASC Topic 320-10-65 did not have a material impact on the results of operations and financial condition.

In April 2009, the FASB issued ASC Topic 320-10-65, “Interim Disclosures About Fair Value of Financial Instruments”. This update requires fair value disclosures for financial instruments that are not currently reflected on the balance sheet at fair value on a quarterly basis and is effective for interim periods ending after June 15, 2009. The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and notes payable. At December 31, 2009 and 2008 the carrying value of the Companies financial instruments approximated fair value, due to their short term nature.

In May 2009, the FASB issued (ASC Topic 855), “Subsequent Events” (ASC Topic 855). This guidance is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. It is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued ASC Topic 810-10, “Amendments to FASB Interpretation No. 46(R)”. This updated guidance requires a qualitative approach to identifying a controlling financial interest in a variable interest entity (VIE), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. It is effective for annual reporting periods beginning after November 15, 2009. The adoption of ASC Topic 810-10 did not have a material impact on the results of operations and financial condition.

In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements.” This ASU establishes the accounting and reporting guidance for arrangements including multiple revenue-generating activities. This ASU provides amendments to the criteria for separating deliverables, measuring and allocating arrangement consideration to one or more units of accounting. The amendments in this ASU also establish a selling price hierarchy for determining the selling price of a deliverable. Significantly enhanced disclosures are also required to provide information about a vendor’s multiple-deliverable revenue arrangements, including information about the nature and terms, significant deliverables, and its performance within arrangements. The amendments also require providing information about the significant judgments made and changes to those judgments and about how the application of the relative selling-price method affects the timing or amount of revenue recognition. The amendments in this ASU are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010. Early application is permitted. The Company is currently evaluating this new ASU.

In October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements That Include Software Elements.” This ASU changes the accounting model for revenue arrangements that include both tangible products and software elements that are “essential to the functionality,” and scopes these products out of current software revenue guidance. The new guidance will include factors to help companies determine what software elements are considered “essential to the functionality.” The amendments will now subject software-enabled products to other revenue guidance and disclosure requirements, such as guidance surrounding revenue arrangements with multiple-deliverables. The amendments in this ASU are effective prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010. Early application is permitted. The Company is currently evaluating this new ASU.

F-14


NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently Issued Accounting Pronouncements (continued)

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

Earnings (Loss) Per Share

Earnings (loss) per common share are calculated in accordance with ASC Topic 260: Earnings Per Share (“ASC 260”). The accounting standard requires the Company to report both basic earnings (loss) per share, which is based on the weighted-average number of common shares outstanding, and diluted earnings (loss) per share, which is based on the weighted-average number of common shares outstanding plus all potential dilutive common shares outstanding. The outstanding options of 4,075,000 at December 31, 2009 are excluded from the income per share computation for that period due to their antidilutive effect.

The following table sets forth the computation of basic and diluted income (loss) per share:

 

 

 

 

 

 

 

 

 

 

Year ended
December 31, 2009

 

Year ended
December 31, 2008

 

 

 

         

 

Numerator:

 

 

 

 

 

 

 

Net income (loss)

 

$

(331,289

)

$

370,082

 

 

 

   

 

   

 

Denominator:

 

 

 

 

 

 

 

Denominator for basic income per share (weighted-average shares)

 

 

656,059,726

 

 

554,676,000

 

 

 

   

 

   

 

Denominator for dilutive income per share (adjusted weighted-average)

 

 

656,059,726

 

 

554,676,000

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Basic and diluted income per share from continuing operations

 

$

0.00

 

$

0.00

 

 

 

   

 

   

 

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Life

 

December 31, 2009

 

December 31, 2008

 

 

 

   

 

   

 

   

 

Office equipment

 

5 years

 

$

38,979

 

$

38,325

 

Rental equipment

 

13 - 36 months

 

 

402,355

 

 

666,012

 

Vehicles

 

5 years

 

 

71,656

 

 

49,231

 

Computer equipment

 

5 years

 

 

31,483

 

 

31,192

 

 

 

 

 

 

   

 

   

 

 

 

 

 

 

 

544,473

 

 

784,760

 

Less: accumulated depreciation

 

 

 

 

 

(289,343

)

 

(598,704

)

 

 

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

255,130

 

$

186,056

 

 

 

 

 

 

   

 

   

 

For the years ended December 31, 2009 and 2008, depreciation expense amounted to $201,531 and $390,022, of which $172,530 and $349,114 is included in cost of sales, respectively.

The Company has entered into various financing arrangements in connection with the acquisition of three delivery vehicles (see Note 4 below).

NOTE 4 - NOTES PAYABLE

Between December 2008 and January 2009, the Company issued notes payable amounting to $52,979 in connection with the acquisition of three delivery vehicles. The notes payable bear approximately 2% interest per annum and shall be payable in thirty-six equal monthly payments of $1,516 beginning in January 2009 thru December 2011. As of December 31, 2009, the current and long term portion of this note amounted to $17,658 and $18,939, respectively. As of December 31, 2008, the current and long term portion of this note amounted to $10,205 and $21,015, respectively.

F-15


NOTE 5 - NOTE PAYABLE – RELATED PARTY

The Company entered into a note payable with its largest shareholder, HASCO Holdings, LLC in June 2008, at the time of the Company’s acquisition by HASCO. The loan was in the amount of $150,000, was for working capital, and bears interest at 10% per annum. The loan has a term of five years and is included on the accompanying balance sheet as a long term liability. As of December 31, 2009 and 2008, accrued interest from such notes payable amounted to $15,000 and $8,750, respectively.

NOTE 6 - STOCKHOLDERS’ EQUITY

On May 12, 2009 HASCO Medical, Inc. (“HASCO”) completed the acquisition of Southern Medical & Mobility, Inc. (SMM”) pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”) among HASCO, SMM and Southern Medical Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company. Under the terms of the Merger Agreement Southern Medical Acquisition, Inc. was merged into Southern Medical & Mobility, Inc., and Southern Medical & Mobility, Inc. became a wholly-owned subsidiary of HASCO. The shareholder of Southern Medical & Mobility, Inc. was issued a total of 554,676,000 shares of the Company’s common stock in exchange for their Southern Medical & Mobility, Inc. share.

After the merger and transactions that occurred at the same time as the merger, there were 642,176,000 shares of the Company’s common stock outstanding, of which 620,000,000, approximately 96.5%, were held by HASCO Holdings, LLC, the former sole shareholder of Southern Medical & Mobility, Inc.

Prior to the merger, the Company was a shell company with no business operations.

For accounting purposes, HASCO Medical, Inc. has accounted for the transaction as a reverse acquisition and HASCO will be the surviving entity as a publicly-traded company under the name HASCO Medical Inc. or together with its subsidiaries. The Company did not recognize goodwill or any intangible assets in connection with this transaction.

Effective with the reverse merger, all previously outstanding common stock owned by HASCO Medical, Inc.’s shareholders were exchanged for the Company’s common stock. The value of the Company’s common stock that was issued to HASCO Medical, Inc.’s shareholders was the historical cost of the Company’s net tangible assets, which did not differ materially from its fair value.

All references to common stock, share and per share amounts have been retroactively restated to reflect the reverse acquisition as if the transaction had taken place as of the beginning of the earliest period presented.

Simultaneous with the closing of the merger agreement, the Company issued 71,320,000 shares in connection with the payment of liability to shareholders amounting to $172,476.

NOTE 7 - STOCK OPTIONS

Under the Company’s stock option plan, adopted on July 9, 2009, 20,000,000 shares of common stock were reserved for issuance upon exercise of options granted to directors, officers and employees of the Company. The Company is authorized to issue Incentive Stock Options (“ISOs”), which meet the requirements of Section 42 of the Internal Revenue Code of 1986. At its discretion, the Company can also issue Non Statutory Options (“NSOs”). When an ISO is granted, the exercise price shall be equal to the fair market value per share of the common stock on the date of the grant. The exercise price of an NSO shall not be less than fair market value of one share of the common stock on the date the option is granted. The vesting period will be determined on the date of grant.

On November 1, 2009, the Company granted an aggregate of 4,075,000 5-year option to purchase shares of common stock at $0.007 per share, vesting in 24 equal monthly installments to four officers and three directors of the Company. The 4,075,000 options were valued on the grant date at $0.0064 per option or a total of $26,080 using a Black-Scholes option pricing model with the following assumptions: stock price of $0.007 per share, volatility of 150%, expected term of five years, and a risk free interest rate of 2.33%. For the year ended December 31, 2009, the Company recorded stock based compensation expense of $2,173. At December 31, 2009, there was $23,907 or total unrecognized compensation expense related to non-vested option-based compensation arrangements under the Plan.

F-16


NOTE 7 - STOCK OPTIONS (continued)

Stock option activity for the year ended December 31, 2009 and 2008 is summarized as follows:

 

 

 

 

 

 

 

 

 

 

Number of
shares

 

Weighted average
exercise price

 

 

 

   

 

   

 

Outstanding at December 31, 2007

 

 

 

$

 

Granted

 

 

 

 

 

Exercised

 

 

 

 

 

Cancelled

 

 

 

 

 

 

 

   

 

   

 

Outstanding at December 31, 2008

 

 

 

 

 

Granted

 

 

4,075,000

 

 

0.007

 

Exercised

 

 

 

 

 

Cancelled

 

 

 

 

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2009

 

 

4,075,000

 

$

0.007

 

 

 

   

 

   

 

The following table summarizes the Company’s stock options outstanding at December 31, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options Outstanding

 

Options Exercisable

 

                     

 

         

 

Range of
Exercise
Price

 

Number
Outstanding

 

Weighted
Average
Remaining
Contractual
Life

 

Weighted
Average
Exercise
Price

 

Number
Exercisable

 

Weighted
Average
Exercise
Price

 

   

 

   

 

   

 

   

 

   

 

   

 

$

0.007

 

 

4,075,000

 

 

4.83 Years

 

$

0.007

 

 

 

$

 

 

 

 

   

 

 

 

 

   

 

   

 

   

 

 

 

 

 

4,075,000

 

 

 

 

$

0.007

 

 

 

$

 

 

 

 

   

 

 

 

 

   

 

   

 

   

 

NOTE 8 - INCOME TAXES

Prior to its acquisition in June, 2008 by HASCO Holdings, LLC, the Company was an S Corporation. Beginning in June 2008 the Company’s tax status changed to a C Corporation. The Company accounts for income taxes under ASC Topic 740: Income Taxes requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards. ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets.

As of December 31, 2009 and 2008, the Company had net loss carry forwards available to reduce its future federal taxable income of approximately $417,000 and $0, respectively. These loss carryovers, if unused, expire through 2029. These losses may be subject to limitation under Internal Revenue Code Section 382 in the event of a more than 50% owner shift.

The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows for the year ended December 31, 2009 and 2008:

 

 

 

 

 

 

 

 

 

 

12/31/09

 

12/31/08

 

 

 

   

 

   

 

Expected Federal income tax expense (at 34%)

 

$

(148,000

)

$

164,000

 

State tax benefit (net of Federal effect)

 

 

(17,000

)

19,000

 

Income incurred during S Corp period

 

 

 

 

(77,000

)

Reversal of prior year over accrual

 

 

(85,727

)

 

 

Permanent differences and Other

 

 

 

 

5,000

 

Increase in valuation allowance

 

 

146,000

 

 

 

 

 

   

 

   

 

Net income tax (benefit) expense

 

$

(104,727

)

$

111,000

 

 

 

   

 

   

 

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NOTE 8 - INCOME TAXES

The Company has deferred tax assets which are summarized as follows:

 

 

 

 

 

 

 

 

 

 

12/31/09

 

12/31/08

 

 

 

   

 

   

 

Net operating loss

 

$

159,000

 

$

 

Allowance for doubtful account

 

 

 

 

13,000

 

Valuation allowance

 

 

(159,000

)

 

(13,000

)

 

 

   

 

   

 

Net deferred tax asset

 

$

 

$

 

 

 

   

 

   

 

At December 31, 2009 and 2008, the Company fully reserved against its deferred tax assets due to the uncertainty of the future utilization of such assets. The valuation allowance was increased by $146,000 in 2009.

NOTE 9 - COMMITMENTS

Operating Lease

The Company leases office space in Mobile, Alabama under a five-year operating lease that expires on June 30, 2013. The office lease agreement has certain escalation clauses and renewal options. Additionally, the Company has lease agreements for computer equipment, including an office copier and fax machine. Future minimum rental payments required under these operating leases are as follows:

 

 

 

 

 

Years ending December 31:

 

 

 

 

2010

 

 

66,000

 

2011

 

 

66,000

 

2012

 

 

66,000

 

2013 and thereafter

 

 

33,000

 

 

 

   

 

 

 

$

231,000

 

 

 

   

 

Rent expense was $82,274 and $43,365 for the years ended December 31, 2009 and 2008, respectively.

NOTE 10 - SEGMENT REPORTING

ASC 280, “Segment Reporting” establishes guidance for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. ASC 280 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company’s operating decision-maker is considered to be the chief executive officer (CEO). The CEO reviews financial information for purposes of making operating decisions and assessing financial performance. The financial information reviewed by the CEO is identical to the information presented in the accompanying statements of operations. Therefore, the Company has determined that it operates in a single operating segment. For the periods ended December 31, 2009 and 2008 all material assets and revenues of the Company were in the United States.

NOTE 11 - RELATED PARTY TRANSACTIONS

Note payable to related party

The Company entered into a note payable with its largest shareholder, HASCO Holdings, LLC in June 2008, at the time of the Company’s acquisition by HASCO. The loan was in the amount of $150,000, was for working capital, and bears interest at 10% per annum. The loan has a term of five years and is included on the accompanying balance sheet as a long term liability. As of December 31, 2009 and 2008, accrued interest from such notes payable amounted to $15,000 and $8,750, respectively.

F-18


NOTE 11 - RELATED PARTY TRANSACTIONS (continued)

Management Fee

The Company paid management fee of approximately $202,000 to HASCO Holdings, LLC during the year ended December 31, 2009. Based on the amended management agreement in June 2009, HASCO Holdings, LLC has waived the management fees from June 2009 to October 2009 due to the Company’s cash book balance fell below $50,000 as defined in the amended agreement.

Advances from related party

The Company’s major shareholder, HASCO Holdings, LLC has made advances to the Company from time-to-time for operating expenses. These advances are short-term in nature and are non-interest bearing. At December 31, 2009 and 2008, amounts due to this related party amounted to $0 and $7,005, respectively.

NOTE 12 - SUBSEQUENT EVENTS

In March 2010, the Company issued in aggregate 3,200,000 shares of common stock to four officers and three directors of the Company for services rendered. The Company valued these common shares at the fair market value on the date of grant at $.007 per share or $22,400 and has been recorded as stock-based compensation.

In January 2010, in connection with the sale of the Company’s common stock, the Company issued 4,000,000 shares of common stock to the Company’s director for net proceeds of approximately $28,000.

In March 2010, the Company issued 12,857,142 shares in connection with the payment of management fee from January 2010 to March 2010 of $90,000 to HASCO Holdings, LLC.

NOTE 13 - RESTATEMENT

The Company has restated its consolidated financial statements as at and for the year ended December 31, 2008 to reflect the impact of transactions that occurred in fiscal 2008 related to the impairment of an intangible asset. The Company reclassified the impairment of intangible assets as an element of operations instead of as an element of other expenses.

The following table presents the adjustments to the consolidated financial statements:

Statement of Income Data

 

For the Year Ended December 31, 2008

 

 

As Filed

 

Adjustments
to Restate

 

Restated

Operating expenses

$

(2,765,746)

$

(2,553,417)

$

(5,319,163)

Other income (expense)

$

(2,612,649)

$

2,553,417 

$

(59,232)

Net income (loss)

$

(2,183,335)

$

— 

$

(2,183,335)


F-19