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EXCEL - IDEA: XBRL DOCUMENT - HASCO Medical, Inc. | Financial_Report.xls |
EX-32 - CERTIFICATION OF THE CEO - HASCO Medical, Inc. | ex_32-1.htm |
EX-31 - CERTIFICATION OF THE CFO - HASCO Medical, Inc. | ex_31-2.htm |
EX-31 - CERTIFICATION OF THE CEO - HASCO Medical, Inc. | ex_31-1.htm |
EX-32 - CERTIFICATION OF THE CFO - HASCO Medical, Inc. | ex_32-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE EXCHANGE ACT
For the transition period from __________ to __________
COMMISSION FILE NUMBER: 000-52422
HASCO Medical, Inc.
(Name of Registrant as specified in its charter)
Florida | 65-0924471 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation of organization) | Identification No.) |
1416 West I-65 Service Road S., Mobile, AL 36693
(Address of principal executive office)
(251) 633-4133
(Registrants telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [√] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [√] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [ ] | Accelerated filer | [ ] |
|
|
|
|
Non-accelerated filer (Do not check if smaller reporting company) | [ ] | Smaller reporting company | [√] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [√]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 979,528,829 shares of common stock are issued and outstanding as of May 11, 2012.
HASCO MEDICAL, INC.
Form 10-Q
Quarterly period ended March 31, 2012
Index
Part I. |
| Financial Information | ||||
|
| Item 1. |
| Financial Statements |
| 3 |
|
|
|
| Consolidated Balance Sheets as of March 31, 2012 (Unaudited) and as of December 31, 2011 (Audited) |
| 3 |
|
|
|
| Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 (Unaudited) |
| 4 |
|
|
|
| Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (Unaudited) |
| 5 |
|
|
|
| Notes to Unaudited Consolidated Financial Statements |
| 6 |
|
| Item 2. |
| Managements Discussion and Analysis of Financial Condition and Results of Operations |
| 19 |
|
| Item 3. |
| Quantitative and Qualitative Disclosures About Market Risk |
| 29 |
|
| Item 4. |
| Controls and Procedures |
| 29 |
|
|
| ||||
Part II. |
| Other Information | ||||
|
| Item 1. |
| Legal Proceedings |
| 30 |
|
| Item 1A. |
| Risk Factors |
| 30 |
|
| Item 2. |
| Unregistered Sales of Equity Securities and Use of Proceeds |
| 30 |
|
| Item 3. |
| Defaults Upon Senior Securities |
| 30 |
|
| Item 4. |
| Mine Safety Disclosures |
| 30 |
|
| Item 5. |
| Other Information |
| 30 |
|
| Item 6. |
| Exhibits |
| 31 |
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as expects, anticipates, intends, plans, believes, seeks, estimates and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K, in Managements Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q and in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.
We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
- 2 -
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
Hasco Medical, Inc. & Subsidiaries
Consolidated Balance Sheets
|
|
| March 31, |
|
| December 31, |
|
|
|
| 2012 |
|
| 2011 |
|
|
|
| (unaudited) |
|
| (audited) |
|
Assets |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash |
| $ | 686,907 |
| $ | 212,460 |
|
Accounts receivable, net of allowance for doubtful accounts of $ 417,850 and $328,177 respectively |
|
| 4,896,833 |
|
| 1,042,953 |
|
Inventory |
|
| 15,016,879 |
|
| 2,444,563 |
|
Prepaid expenses |
|
| 417,268 |
|
| 89,207 |
|
Total current assets |
|
| 21,017,887 |
|
| 3,789,183 |
|
|
|
|
|
|
|
|
|
Property & equipment, net of accumulated depreciation of $ 708,221 and $634,857, respectively |
|
| 1,697,412 |
|
| 526,571 |
|
|
|
|
|
|
|
|
|
Intangible property, net of accumulated amortization of $181,897 and $123,804, respectively |
|
| 7,521,915 |
|
| 3,695,755 |
|
Other non-current assets |
|
| 261,210 |
|
| 420 |
|
Total Assets |
| $ | 30,498,424 |
| $ | 8,011,929 |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $ | 4,042,939 |
| $ | 599,008 |
|
Other current liabilities |
|
| 378,078 |
|
| 180,780 |
|
Customer deposits and deferred revenue |
|
| 907,083 |
|
| 175,464 |
|
Note Payable - Floor Plan |
|
| 8,561,501 |
|
| 2,028,318 |
|
Line of Credit |
|
| 6,481,928 |
|
| 898,713 |
|
Current portion of Notes Payable |
|
| 436,132 |
|
| 108,901 |
|
Current portion of loans and notes payable, related parties |
|
| 163,498 |
|
| 154,346 |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
| 20,971,159 |
|
| 4,145,530 |
|
|
|
|
|
|
|
|
|
Notes payable, net of current portion |
|
| 5,090,850 |
|
| 1,947,994 |
|
Notes payable to related party, net of current portion |
|
| 1,731,948 |
|
| 1,784,020 |
|
Total liabilities |
|
| 27,793,957 |
|
| 7,877,544 |
|
|
|
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 3,000,000 shares authorized, none issued and outstanding |
|
|
|
|
|
|
|
Common stock, $.001 par value, 2,000,000,000 shares authorized; and 972,675,204 and 794,578,818 shares issued and outstanding, respectively |
|
| 972,675 |
|
| 794,579 |
|
Additional paid-in capital |
|
| 6,347,340 |
|
| 4,007,004 |
|
Accumulated deficit |
|
| (4,615,548 | ) |
| (4,667,198 | ) |
Total stockholders' equity |
|
| 2,704,467 |
|
| 134,385 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity |
| $ | 30,498,424 |
| $ | 8,011,929 |
|
See accompanying notes to unaudited consolidated financial statements
- 3 -
Hasco Medical, Inc. & Subsidiaries
Consolidated Statements of Operations
(unaudited)
|
| For the Three Months Ended |
| ||||
|
| 2012 |
| 2011 |
| ||
|
|
|
|
|
|
|
|
Revenues, net |
| $ | 8,825,230 |
| $ | 484,329 |
|
Cost of sales |
|
| 6,282,809 |
|
| 155,839 |
|
Gross Profit |
|
| 2,542,421 |
|
| 328,490 |
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
Selling and Marketing |
|
| 557,541 |
|
| |
|
General and administrative |
|
| 1,714,223 |
|
| 468,455 |
|
Amortization and depreciation |
|
| 97,623 |
|
| 7,108 |
|
Total operating expenses |
|
| 2,369,387 |
|
| 475,563 |
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
| 173,034 |
|
| (147,073 | ) |
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
Other income |
|
| 72,709 |
|
| |
|
Acquisition Fees |
|
| (27,740 | ) |
| |
|
Interest expenses |
|
| (156,748 | ) |
| (8,583 | ) |
Total other income (expense) |
|
| (111,779 | ) |
| (8,583 | ) |
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes |
|
| 61,255 |
|
| (155,656 | ) |
|
|
|
|
|
|
|
|
Provision for income taxes |
|
| 9,605 |
|
| |
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 51,650 |
| $ | (155,656 | ) |
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
Basic and dilutive |
| $ | 0.00 |
| $ | (0.00 | ) |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
Basic and dilutive |
|
| 841,486,000 |
|
| 750,238,020 |
|
See accompanying notes to unaudited consolidated financial statements
- 4 -
Hasco Medical, Inc. & Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
|
| For the three Months Ended |
| ||||
|
| 2012 |
| 2011 |
| ||
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
Net income (loss) |
| $ | 51,650 |
| $ | (155,656 | ) |
Adjustment to reconcile Net Income to net cash provided by operations: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 97,623 |
|
| 26,901 |
|
Issuance of stock in settlement of services |
|
| 18,432 |
|
| 3,000 |
|
Bad debt expense |
|
| |
|
| 6,256 |
|
Fair value of options issued to employees |
|
| |
|
| 3,260 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
| 213,698 |
|
| (25,379 | ) |
Inventory |
|
| (1,510,632 | ) |
| (3,989 | ) |
Prepaid expenses |
|
| (113,113 | ) |
| 16,901 |
|
Accounts payable |
|
| 1,959,673 |
|
| 7,808 |
|
Accrued expenses and other liabilities |
|
| 197,298 |
|
| |
|
Customer deposits and deferred revenue |
|
| (119,755 | ) |
| |
|
Net Cash (Used) Provided by Operating Activities |
|
| 794,874 |
|
| (120,898 | ) |
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (91,958 | ) |
| (29,232 | ) |
Decrease (increase) in other assets |
|
| (2,135 | ) |
| |
|
Net Cash (Used) by Investing Activities |
|
| (94,093 | ) |
| (29,232 | ) |
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
Overdraft liability |
|
| |
|
| (46,023 | ) |
Lines of credit and floor plan, net |
|
| (149,169 | ) |
| |
|
Proceeds from sale of common stock |
|
| |
|
| 20,000 |
|
Proceeds from loan payable related party |
|
| |
|
| 200,000 |
|
Repayments of loan payable related party |
|
| (42,920 | ) |
| (15,000 | ) |
Repayment of notes payable |
|
| (34,245 | ) |
| (5,338 | ) |
Net cash provided (used) by financing activities |
|
| (226,334 | ) |
| 153,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/decrease in Cash |
|
| 474,447 |
|
| 3,509 |
|
|
|
|
|
|
|
|
|
Cash at beginning of period |
|
| 212,460 |
|
| 423 |
|
|
|
|
|
|
|
|
|
Cash at end of period |
| $ | 686,907 |
| $ | 3,932 |
|
See accompanying notes to unaudited consolidated financial statements
- 5 -
HASCO MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
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. 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. accounted for the transaction as a reverse acquisition and HASCO as the surviving entity as a publicly-traded company under the name HASCO Medical Inc. together with its subsidiaries. The Company did not recognize goodwill or any intangible assets in connection with this transaction.
Southern Medical & Mobility, Inc was deemed the accounting acquirer for the reverse acquisition. Therefore, the Companys historical financial statements reflect those of Southern Medical & Mobility, Inc. 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.
On May 13, 2011 Hasco Medical, Inc. completed the acquisition of Mobility Freedom, Inc and Wheel Chair Vans of America (a DBA of Mobility freedom, Inc.). Mobility Freedom was founded in 1999 in Clermont, Florida. Mobility Freedom is a quality full service dealership of conversion vans and other mobility products that would help the disabled become mobile. Wheelchair Vans of America specializes in renting conversion vans to disabled individuals. Pursuant to the terms of the transaction, HASCO paid the selling shareholders of Mobility Freedom Inc. and Wheelchair Vans of America $1,850,000 in cash and a $2,000,000 Promissory Note with a 15 year term for a total consideration of $3,850,000 along with 250,000 shares of HASCO Medical, Inc. common stock.
On November 16, 2011 Hasco Medical, Inc completed the acquisition of Certified Medical Systems II, Inc. (Certified Medical) and Certified Medical Auto Division, Inc.(Certified Auto). Certified Medical is in the same business segment as Southern Medical & Mobility, Inc. and Certified Auto is in the same business segment as Mobility Freedom, Inc. Pursuant to the terms of the transaction, HASCO paid the selling shareholders $50,000 in cash and a $50,000 Promissory Note with a 4 year term for a total consideration of $100,000 along with 2,857,143 shares of HASCO Medical, Inc. common stock. The equity of Certified as well as the amount the Company paid for its assets was less than 10% of the total assets of HASCO and its consolidated subsidiaries.
On March 1, 2012, Hasco Medical, Inc. completed the acquisition of Ride-Away Handicap Equipment Corp., a closely-held New Hampshire corporation (Ride-Away). Pursuant to the terms and conditions of the Stock Purchase Agreement, Hasco Medical paid the sole selling shareholder of Ride-Away $500,000 in cash and a $3,000,000 Promissory Note bearing 5% simple interest, principle and interest payable monthly over 10 years., along with 165,944,450 shares of HASCO Medical, Inc. common stock, valued at $2,500,000, for a total consideration of $6,000,000.
Services and Products
Historically, our operations were focused on the provision of a diversified range of home health care services and products. Following our 2011 acquisitions of Mobility Freedom and the Certified subsidiaries, and our March 2012 acquisition of Ride-Away, our operations are conducted within two business segments:
- 6 -
HASCO MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
| · | Wheelchair Vans - which conducts sales of handicap accessible vans, parts and service and rental operations. This segment consists of Ride-Away which has eleven locations from Maine to Florida, Mobility Freedom including its rental operations conducted under the trade name “Wheelchair Vans of America” and Certified Medical Auto, which are located in Florida; and |
|
|
|
| · | Home Health Care - which conducts sales of medical equipment and supplies This segment consists of Southern Medical & Mobility located in Mobile Alabama and Certified Medical located in Ocala, Florida |
Wheelchair Vans
Ride-Away, Mobility Freedom and Certified Auto serve individuals with physical limitations that need specialty equipment to drive as well as families with members who are disabled that need to be transported. In certain circumstances, both the van itself as well as its specialty equipment is paid for, directly to the respective company, by a federal or state agency. For the 3 months ended March 31, 2012, approximately 25% of the Wheelchair Vans segments revenue is derived from veterans receiving benefits from the United States Department of Veterans Affairs (the VA). As part of the VAs mission to provided veterans the world-class benefits and services they have earned, the VA pays for a van for disabled veterans. As a result, Mobility Freedom is both a VA and Vocational Rehabilitation (VR) state certified vendor.
Ride-Away has eleven corporate owned stores which are located in Beltsville, MD, East Hartford, CT, Essex Junction, VT, Gray, ME, Londonderry, NH, Norfolk, VA, Norristown, PA, North Attleboro, MA, Norwood, MA, Richmond VA, Tampa, FL. Mobility Freedom has four corporate owned stores which are located in Orlando, Tampa, Clermont and Palm Coast, Florida. Certified Auto is located in Ocala, FL.
Home Health Care
Southern Medical and Certified Medical are the two entities in this business segment. These companies provide 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.
Southern Medical also 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 patients home to deliver and to prepare the prescribed equipment. Company representatives coordinate the prescribed regimen with the patients 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. (Certified Medical does not serve this market.)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (US GAAP) and present the financial statements of the Company and its wholly-owned subsidiaries. In the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three month periods ended March 31, 2012 and 2011; (b) the financial position at March 31, 2012; and (c) cash flows for the three month periods ended March 31, 2012 and 2011, have been made. Certain reclassifications have been made to prior year information for comparability purposes. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated entities are:
- 7 -
HASCO MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
| · | Hasco Holdings, Inc.; |
| · | Ride-Away Handicap Equipment Corp.; |
| · | Mobility Freedom, Inc.; |
| · | Southern Medical & Mobility, Inc.; |
| · | Certified Medical Auto Division, Inc.; and |
| · | Certified Medical Systems II, Inc. |
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 2011 and 2012 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, and 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 Companys 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 entitys own assumptions. |
Cash and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of March 31, 2012 and December 31, 2011. 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, and promissory note, approximated fair value as of March 31, 2012 and December 31, 2011 , because of the relatively short-term maturity of these instruments and their market interest rates.
- 8 -
HASCO MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
Revenue Recognition and Concentration of Credit Risk
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.
For our wheelchair van sales, revenues are recognized when the vehicle is delivered to the customer. Parts and service revenues are recognized when the work is completed and delivered to the customer.
For our home health care, 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 payers, including private insurers, prepaid health plans, Medicare and Medicaid.
Revenues for home health care are recognized on an accrual basis at the time services and related products are provided to patients and collections are reasonably assured, and are recorded at amounts estimated to be received under healthcare contracts with third-party payers, including private insurers, Medicaid, and Medicare. Insurance benefits are assigned to us by patients receiving medical treatments and related products and, accordingly, we bill on behalf of our patients/customers. Under these contracts, we provide healthcare services, medical equipment and supplies to patients pursuant to a physicians prescription. The insurance company reimburses us for these services and products at agreed upon rates. The balance remaining for product or service costs becomes the responsibility of the patient. A systematic process is employed to ensure that sales are recorded at net realizable value and that any required adjustments are recorded on a timely basis. We have established an allowance to account for contractual sales adjustments that result from differences between the amount remitted for reimbursement and the expected realizable amount. Due to the nature of the industry and the reimbursement environment in which we operate, certain estimates are required to record net revenue 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. The Company reports revenues in our financial statements net of such adjustments. The Company recorded contractual adjustments of $161,489 and $180,794 during the three months ended March 31, 2012 and 2011, respectively.
Certain home health care 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.
Included in accounts receivable are earned but unbilled receivables for home health care items. 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.
- 9 -
HASCO MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
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 the Companys operations and cash flows.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company places its cash with high credit quality financial institutions. The Companys accounts are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000 per institution. At times the Companys balance may exceed the federally insured limits. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.
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 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 March 31, 2012 and December 31, 2011, and, generally, does not require collateral. The Company maintains reserves for potential credit losses and such losses have been within managements expectations.
Accounts Receivable
Accounts receivable includes receivables due from Medicare, Medicaid, and third party payers. The Company recorded a bad debt allowance of $417,850 and $328,177 as of March 31, 2012 and December 31, 2011, respectively. Management performs ongoing evaluations of its accounts receivable.
Due to the nature of the home health care industry and the reimbursement environment in which that segment of 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
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 three months ended March 31, 2012 totaled $557,541. There were no advertising, marketing or selling expenses for the quarter ended March 31, 2011.
- 10 -
HASCO MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
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. Depreciation of rental equipment is computed using the straight-line method over the estimated useful lives, generally one to three years. Such depreciation of rental equipment is charged to cost of sales. 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
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 assets estimated fair value and its book value. The Company did not record any impairment charges for the three months ended March 31, 2012 and 2011.
Income Taxes
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 carry forward periods.
Pursuant to accounting standards 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 Companys consolidated financial statements.
Subsequent Events
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 three months ended March 31, 2012, subsequent events were evaluated by the Company as of the date on which the consolidated financial statements for the three ended March 31, 2012 and 2011 were available to be issued.
- 11 -
HASCO MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
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 Companys 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.
Recently Issued Accounting Pronouncements
We have reviewed the FASB issued Accounting Standards Update (ASU) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporations reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration. Reference is made to these recent accounting pronouncements as if they are set forth therein in their entirety.
Earnings (Loss) Per Share
Earnings per common share are calculated under the provisions of a FASB issued new guidance, which established new accounting standards for computing and presenting earnings per share. The accounting standard requires the Company to report both basic earnings per share, which is based on the weighted-average number of common shares outstanding, and diluted earnings per share, which is based on the weighted-average number of common shares outstanding plus all potential dilutive common shares outstanding. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding as they would be anti-dilutive. As of March 31, 2012, there were 3,075,000 stock options which could potentially dilute future earnings per share.
NOTE 2 GOING CONCERN CONSIDERATIONS
The accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern. At March 31, 2012, the Company had an accumulated deficit of approximately $4,616,000. The ability of the Company to continue as a going concern is dependent upon increasing sales and obtaining additional capital and financing to support its recent acquisition. During the quarter ended March 31, 2012, the Company secured a working capital line of credit in the amount of $8 million, replacing the previous line of $2.75 million and the previous line of $6 million of Ride-Away. While the Company believes in the viability of its strategy to increase sales volume and in its ability to raise additional funds, there can be no assurances to that effect.
- 12 -
HASCO MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
| March 31, |
| December 31, |
| ||
| Estimated |
| 2012 |
| 2011 |
| ||
| Life |
| (unaudited) |
| (audited) |
| ||
Building improvements | 15-39 years |
| $ | 922,395 |
| $ | 5,182 |
|
Office furniture and equipment | 5 years |
|
| 217,221 |
|
| 104,595 |
|
Rental equipment | 13-36 months |
|
| 1,033,943 |
|
| 929,829 |
|
Vehicles | 5 years |
|
| 148,809 |
|
| 121,822 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
| 2,4015,633 |
|
| 1,161,428 |
|
Accumulated depreciation |
|
|
| (708,221 | ) |
| (634,857 | ) |
Net |
|
| $ | 1,697,412 |
| $ | 526,571 |
|
For the three months ended March 31, 2012 and 2011 depreciation expense amounted to $74,279 and $26,901, respectively of which $34,750 and $19,794 is included in cost of sales, respectively.
NOTE 4 NOTES PAYABLE
Revolving Line of Credit
On March 1, 2012, the Company entered into a Commercial Note agreement with a bank for advances of funds for working capital purposes under a line of credit arrangement for $8,000,000. The agreement is secured against all property of the borrowers assets, on demand with an annual review as of June 2012. Payments due are interest only. The interest rate is at Prime plus .25% as of March 31, 2012 and the effective interest rate was 3.75%. The interest rate varies based on the Companys leverage ratio. The balance of the line of credit was $6,481,928 at March 31 2012.
The Commercial Note discussed above replaced the Companys November 1, 2011 Commercial Note agreement with the same bank for $2,750,000 and the Commercial Note agreement Ride-Away had with Citizens Bank for $6,000,000. This agreement was also secured against all property of the borrowers assets, on demand with one year maturity. Payments due were interest only. The interest rate was at Prime plus .5%, as of December 31, 2011 the effective interest rate was 4.37%. The balance of the line of credit was $898,713 at December 31, 2011.
Note Payable Floor Plan
The Company has a floor plan line of credit with GECC with a maximum borrowing capacity of $8,500,000 for the Ride-Away subsidiary and $2,600,000 for the Mobility Freedom subsidiary. Amounts borrowed for vehicles under this line bear no interest for 60 days and then bear interest at the 90 day LIBOR plus 7% for Ride-Away and at the 90 day LIBOR plus 6.25% for Mobility Freedom. The balance is due when the vehicle is sold. If the vehicle is not sold within six months, 10% of the balance is due with the rest of the balance due at twelve months. The note is secured by the vehicles financed and the principle is due upon sale of the financed vehicles. At March 31, 2012 the Company had $8,561,501 outstanding under these lines.
- 13 -
HASCO MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
Installment Debt
Installment debts consist of the following:
|
| March 31, |
| December 31, |
| ||
|
| 2012 |
| 2011 |
| ||
|
| (unaudited) |
| (audited) |
| ||
|
|
|
|
|
|
|
|
Vehicle Note Payable, dated August 18, 2011, vehicle financing arrangement for tow truck, original amount of $47,124, 5 years (60 months), 0% interest rate, commenced October 1, 2011, matures on October 1, 2016, monthly installment payments of $785 |
|
| 43,197 |
|
| 41,626 |
|
|
|
|
|
|
|
|
|
Note Payable, dated May 13, 2011, issued for the acquisition of Mobility Freedom, original amount of $2 million, fifteen years (180 months), 6% interest rate, commenced August 1, 2011, matures on July 1, 2026, monthly installment payments of $16,877 secured by grantee from the majority shareholder |
|
| 1,944,010 |
|
| 1,965,269 |
|
|
|
|
|
|
|
|
|
Note Payable, dated November 16, 2011, issued for the acquisition of Certified Auto, original amount of $50,000, four years (16 quarters), 0% interest rate, commenced January 16, 2012, matures on November 16, 2015, quarterly installment payments of $3,125 |
|
| 46,875 |
|
| 50,000 |
|
|
|
|
|
|
|
|
|
Note Payable, dated March 1, 2012, issued for the acquisition of Ride-Away, original amount of $3,000,000, ten years (120 months), 5% interest rate, commences June 1, 2012, matures on May 2, 2022, monthly installment payments of $31,820 |
|
| 3,000,000 |
|
| |
|
|
|
|
|
|
|
|
|
Commercial Note payable, dated March 1, 2012, issued for the acquisition or Ride-Away, original amount of $500,000 , five years (60 months), 6% interest rate, commenced April 1, 2012, matures March 1, 2017, monthly installment payments of $9,685 |
|
| 492,899 |
|
| |
|
|
|
|
|
|
|
|
|
Note Payable to related party, dated May 13, 2011, issued for the acquisition of Mobility Freedom, original amount of $2 million, ten years (120 months), 6% interest rate, commenced August 1, 2011, matures on July 1, 2021, monthly installment payments of $22,204 |
|
| 1,895,447 |
|
| 1,938,366 |
|
|
|
|
|
|
|
|
|
Total debt |
|
| 7,422,428 |
|
| 3,995,261 |
|
Current portion of long-term debt, notes payable |
|
| 599,630 |
|
| 263,247 |
|
Long-term portion |
| $ | 6,822,798 |
| $ | 3,732,014 |
|
Future debt amortization:
2012 | $ | 402613 |
|
2013 |
| 619,569 |
|
2014 |
| 653,233 |
|
2015 |
| 684,556 |
|
2016 |
| 709,952 |
|
thereafter |
| 4,352,505 |
|
| $ | 7,422,428 |
|
- 14 -
HASCO MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
NOTE 6 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 Companys 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 Companys 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 Companys common stock. The value of the Companys common stock that was issued to HASCO Medical, Inc.s shareholders was the historical cost of the Companys 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.
On May 13, 2011 Hasco Medical, Inc. completed the acquisition of Mobility Freedom, Inc and Wheel Chair Vans of America (a DBA of Mobility freedom, Inc.). Mobility Freedom was founded in 1999 in Clermont, Florida. Mobility Freedom is a quality full service dealership of conversion vans and other mobility products that would help the disabled become mobile. Wheelchair Vans of America specializes in renting conversion vans to disabled individuals. Pursuant to the terms of the transaction, HASCO paid the selling shareholders of Mobility Freedom Inc. and Wheelchair Vans of America $1,850,000 in cash and a $2,000,000 Promissory Note with a 15 year term for a total consideration of $3,850,000 along with 250,000 shares of HASCO Medical, Inc. common stock.
On November 16, 2011 Hasco Medical, Inc completed the acquisition of Certified Medical Systems II, Inc. (Certified Medical) and Certified Medical Auto Division, Inc.(Certified Auto). Certified Medical is in the same business segment as Southern Medical & Mobility, Inc. and Certified Auto is in the same business segment as Mobility Freedom, Inc. Pursuant to the terms of the transaction, HASCO paid the selling shareholders $50,000 in cash and a $50,000 Promissory Note with a 4 year term for a total consideration of $100,000 along with 2,857,143 shares of HASCO Medical, Inc. common stock. The equity of Certified as well as the amount the Company paid for its assets was less than 10% of the total assets of HASCO and its consolidated subsidiaries.
On March 1, 2012, Hasco Medical, Inc. completed the acquisition of Ride-Away Handicap Equipment Corp., a closely-held New Hampshire corporation (Ride-Away). Pursuant to the terms and conditions of the Stock Purchase Agreement, Hasco Medical paid the sole selling shareholder of Ride-Away $500,000 in cash and a $3,000,000 Promissory Note bearing 5% simple interest, principle and interest payable monthly over 10 years., along with 165,944,450 shares of HASCO Medical, Inc. common stock, valued at $2,500,000, for a total consideration of $6,000,000.
- 15 -
HASCO MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
NOTE 7 STOCK OPTION PLAN
Under the Companys stock option plan, 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 422 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 options to purchase an aggregate of 4,075,000 shares of common stock at $0.007 per share which vest at the end of two years, to four officers and three directors of the Company. The options, which expire on the fifth anniversary of the date of grant, 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%. During 2011, 1,000,000 options were forfeited.
Stock option activity for the three months ended March 31, 2012 is summarized as follows:
| Number of |
| Weighted average |
| ||
Outstanding at December 31, 2011 | 3,075,000 |
| $ | 0.007 |
| |
Granted | |
|
| |
| |
Exercised | |
|
| |
| |
Cancelled | |
|
| |
| |
Outstanding at March 31, 2012 | 3,075,000 |
| $ | 0.007 |
| |
|
|
|
|
|
| |
Options exercisable at March 31, 2012 | 3,075,000 |
| $ | 0.007 |
| |
Weighted average fair value of options granted during the year | 0 |
|
| 0 |
|
|
Stock options outstanding at March 31, 2012 as disclosed in the above table have $19,998 intrinsic value at March 31, 2012.
The following table summarizes the Company's stock options outstanding at March 31, 2012:
Options Outstanding |
| Options Exercisable | |||||||||
| Range of Exercise Price |
| Number Outstanding |
| Weighted Average Remaining Contractual Life |
| Weighted Average |
| Number Exercisable |
| Weighted Average |
$ | 0.007 |
| 3,075,000 |
| 2.5 Years | $ | 0.007 |
| 3,075,000 | $ | .007 |
NOTE 8 COMMITMENTS
Operating Lease
The Ride-Away division leases office space in twelve locations from Maine to Florida under two to twenty-one year operating leases that expire in varying dates from September 30, 2012 to January 15, 2025.. The Mobility Freedom division leases office space in four Florida locations under two to five year operating leases that expire at varying dates from September 30, 2012 to April 30, 2014. The Certified Mobility and Certified Auto division leases office space in Ocala, Florida under a five-year operating lease that expires on April 30, 2014. The Company leases office space in Mobile, Alabama under a five-year operating lease that expires on December 31, 2012. The office lease agreements have 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:
- 16 -
HASCO MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
Period ending March 31: |
|
|
|
2012 |
| 1.615.044 |
|
2013 |
| 1.586.727 |
|
2014 and thereafter |
| 9,136,477 |
|
| $ | 12,338,248 |
|
Rent expense was $208,719 and $17,141 for the three months ended March 31, 2012 and 2011, respectively.
NOTE 9 SEGMENT REPORTING
Pursuant to accounting standards related to the Disclosure about Segments of an Enterprise and Related Information which establishes standards for the reporting by business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way that management organizes the operations of the Company for making operational decisions and assessments of financial performance.
The Companys 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 in two operating segments: Home Healthcare Products and Services segment and (ii) Wheelchair Conversion Vans and related products and services segment. For the periods ended March 31, 2012 and 2011 all material assets and revenues of the Company were in the United States.
|
| Three Months Ended |
|
|
|
|
| |||
|
| Total |
| Home Healthcare |
| Wheelchair Vans |
| |||
Revenue |
|
|
|
|
|
|
|
|
|
|
Product sales |
| $ | 7,364,235 |
| $ | 288,456 |
| $ | 7,075,779 |
|
Rentals |
|
| 330,725 |
|
| 135,024 |
|
| 195,701 |
|
Service and other |
|
| 1,130,270 |
|
| 27,522 |
|
| 1,102,748 |
|
|
|
| 8,825,230 |
|
| 451,002 |
|
| 8,374,228 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
Direct costs |
|
| 6,248,059 |
|
| 113,441 |
|
| 6,134,618 |
|
Depreciation |
|
| 34,749 |
|
| 30,260 |
|
| 4,490 |
|
|
|
| 6,282,809 |
|
| 143,701 |
|
| 6,139,107 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 2,542,241 |
|
| 307,300 |
|
| 2,235,121 |
|
|
|
| 28.8% |
|
| 68.1% |
|
| 26.7% |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
| 557,541 |
|
| 29,523 |
|
| 528,018 |
|
General and administrative |
|
| 1,714,223 |
|
| 384,274 |
|
| 1,329,949 |
|
Depreciation and amortization |
|
| 97,623 |
|
| 3,336 |
|
| 94,286 |
|
|
|
| 2,369,387 |
|
| 417,133 |
|
| 1,952,254 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income ( loss) |
| $ | 173,034 |
| $ | (109,833 | ) | $ | 282,867 |
|
- 17 -
HASCO MEDICAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and 2011
NOTE 10 PROFORMA FINANCIAL INFORMATION
On March 1, 2012 Hasco Medical, Inc. completed the acquisition of Ride-Away Handicap Equipment Corp. The Company accounted for the assets, liabilities and ownership interests in accordance with the provisions of ASC 805, Business Combinations for acquisitions occurring in years beginning after December 15, 2008 (formerly SFAS No. 141R, Business Combinations). As such, the recorded assets and liabilities acquired have been recorded at fair value and any difference in the net asset values and the consideration given has been recorded as a gain on acquisition or as goodwill. Pro forma results of operations for the three months ended March 31, 2012 as though this acquisition had taken place at January 1, 2012 are as follows:
Hasco Medical, Inc. and Subsidiaries
Consolidated Pro Forma Statements of Operations
For the three months Ended March 31, 2012
(unaudited)
Revenues, net | $ | 18,617,973 |
|
Cost of sales |
| 14,419,186 |
|
Gross Profit |
| 4,198,787 |
|
|
|
|
|
Operating expenses: |
|
|
|
Selling and marketing |
| 1,316,396 |
|
General and administrative |
| 2,973,402 |
|
Depreciation and amortization |
| 128,946 |
|
Total operating expenses |
| 4,418,744 |
|
|
|
|
|
Income (loss) from operations |
| (219,957 | ) |
|
|
|
|
Other income (expense) |
| (108,118 | ) |
|
|
|
|
Income (loss) from operations before income taxes |
| (328,075 | ) |
|
|
|
|
Provision for income taxes |
| 16,883 |
|
|
|
|
|
Net income (loss) | $ | (344,958 | ) |
|
|
|
|
Earnings per share: |
|
|
|
Basic and dilutive | $ | 0.00 |
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
Basic and dilutive |
| 971,763,782 |
|
- 18 -
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to the risks discussed in this report.
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. In May 2009, we changed our fiscal year end from September 30 to December 31.
On January 12, 2009 HASCO Holdings, LLC acquired 75% of the outstanding shares of common stock of the Company from two of its shareholders for total consideration of $150,000. 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 former shareholder of Southern Medical & Mobility, Inc. was issued a total of 554,676,000 shares of our common stock in exchange for its Southern Medical & Mobility, Inc. shares.
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, the company was a shell company with no business operations.
On May 13, 2011, the Company completed the acquisition of Mobility Freedom Inc. and Wheelchair Vans of America. Mobility Freedom is a Florida Corporation founded in 1999. A few years after the business started Mobility Freedom, Inc. purchased a van rental company, which now does business under the name Wheelchair Vans of America. Pursuant to the terms of the transaction, HASCO paid the selling shareholders of Mobility Freedom Inc. and Wheelchair Vans of America $1,850,000 in cash and a $2,000,000 Promissory Note with a 15 year term for a total consideration of $3,850,000 along with 250,000 shares of HASCO Medical, Inc. common stock.
On November 16, 2011, the Company acquired Certified Medical Systems II (Certified Medical) and Certified Auto (Certified Auto) (together Certified). Pursuant to the terms of the transaction, HASCO paid the selling shareholders $50,000 in cash and a $50,000 Promissory Note with a 4 year term for a total consideration of $100,000 along with 2,857,143 shares of HASCO Medical, Inc. common stock. The equity of Certified as well as the amount the Company paid for its assets was less than 10% of the total assets of HASCO and its consolidated subsidiaries.
On March 1, 2012, Hasco Medical, Inc. completed the acquisition of Ride-Away Handicap Equipment Corp., a closely-held New Hampshire corporation (Ride-Away). Pursuant to the terms and conditions of the Stock Purchase Agreement, Hasco Medical paid the sole selling shareholder of Ride-Away $500,000 in cash and a $3,000,000 Promissory Note bearing 5% simple interest, principle and interest payable monthly over 10 years, along with 165,944,450 shares of HASCO Medical, Inc. common stock, valued at $2,500,000, for a total consideration of $6,000,000.
Services and Products
Historically, our operations were focused on the provision of a diversified range of home health care services and products. Following our 2011 acquisitions of Mobility Freedom and the Certified subsidiaries, and our March 2012 acquisition of Ride-Away, our operations are conducted within two business segments:
- 19 -
| · | Wheelchair Vans - which conducts sales of handicap accessible vans, parts and service and rental operations. This segment consists of Ride-Away which has eleven locations from Maine to Florida, Mobility Freedom including its rental operations conducted under the trade name “Wheelchair Vans of America” and Certified Medical Auto, which are located in Florida; and |
|
|
|
| · | Home Health Care - which conducts sales of medical equipment and supplies This segment consists of Southern Medical & Mobility located in Mobile Alabama and Certified Medical located in Ocala, Florida |
Our objective is to continue to grow both intrinsically and through acquisitions in areas that we currently offer products and services in, as well in areas that are complementary. As Ride-Away is significantly larger than the other subsidiaries, we anticipate that the results of operations of Ride-Away will drive our near term financial results.
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, 2011 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 Companys 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 consolidated financial statements.
Use of Estimates - Managements 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:
| I) | Wheelchair Vans |
|
|
|
| · | We recognize revenue when the earnings process is complete, generally either at the time of sale to a customer or upon delivery to a customer. We recognize used vehicle revenue when a sales contract has been executed and the vehicle has been delivered. A reserve for vehicle returns is recorded based on historical experience and trends, and results could be affected if future vehicle returns differ from historical averages. |
|
|
|
| · | Vehicles are rented to individuals and are invoiced at the date of service. A reserve for receivables is recorded based on historical experience and trends, and results could be affected if future vehicle returns differ from historical averages. |
- 20 -
| II ) | Home Health Care | |
|
|
| |
| · | 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. | |
|
|
| |
| · | Revenues are recognized on an accrual basis at the time services and related products are provided to patients and collections are reasonably assured, and are recorded at amounts estimated to be received under healthcare contracts with third-party payers, including private insurers, Medicaid, and Medicare. | |
|
|
|
|
| · | 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 Companys 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.
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 assets estimated fair value and its book value.
Goodwill and Other Intangible Assets - In accordance with ASC 350- 30-65 Goodwill and Other Intangible Assets, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:
- 21 -
| 1. | Significant underperformance relative to expected historical or projected future operating results; |
|
|
|
| 2. | Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and |
|
|
|
| 3. | Significant negative industry or economic trends. |
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.
Reimbursement by Third Party Payors
We derive a substantial portion (approximately 25% for the three months ended March 31, 2012) of our wheelchair van segment revenue from the United States Department of Veterans Affairs (the VA)
We derive substantially all of our home health care segment 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 and government agencies legislation.
The health care industry is subject to extensive regulation by a number of governmental entities at the federal, state and local levels. The industry also is subject to frequent legislative and regulatory changes. Our business is impacted not only by those laws and regulations that are directly applicable to us, but also by certain laws and regulations that are applicable to our managed care payors and patients. State laws also govern, among other things, pharmacies, nursing services, distribution of medical equipment and certain types of home health activities and apply to those locations involved in such activities. If we fail to comply with the laws and regulations applicable to our business, we could suffer civil and/or criminal penalties and we could be excluded from participating in Medicare, Medicaid and other federal and state health care programs.
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 beneficiarys 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.
- 22 -
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (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. Patient Protection and Affordable Care Act (PPACA),was signed into law on March 23, 2010. Together with the Health Care and Education Reconciliation Act of 2010 (signed into law on March 30, 2010) which amended the statute, PPACA is a comprehensive health care law that is intended to expand access to health insurance, reform the health insurance market to provide additional consumer protections, and improve the health care delivery system to reduce costs and produce better outcomes through a combination of cost controls, subsidies and mandates. These legislative provisions, as currently in effect and when fully implemented, have had and will have a material adverse effect on our business, financial condition, operating results and cash flows. 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.
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). On July 15, 2008, Congress enacted the MIPPA legislation which retroactively delayed the implementation of competitive bidding and reduced Medicare prices nationwide by 9.5% beginning in 2009 for the product categories, including oxygen, that were initially included in competitive bidding. As a result of the delay, CMS cancelled all contract awards retroactively to June 30, 2008. In January 2009, CMS reinstituted the bidding process in the nine largest MSA markets. Reimbursement rates from the re-bidding process were publicly released by CMS on June 30, 2010. CMS announced average savings of approximately 32% off the current payment rates in effect for the product categories included in competitive bidding. These payment rates are now in effect in the nine markets only, as of January 1, 2011. CMS will undertake a second round of competitive bidding in up to 91 additional markets, with contracts expected to be effective as of July 2013. It is not certain at this time whether CMS intends to implement competitive bidding in all 91 markets simultaneously, or whether the program will be phased in over several years. The PPACA legislation requires CMS to expand competitive bidding further to all geographic markets (certain markets may be excluded at the discretion of CMS) or to use competitive bid pricing information to adjust the payment amounts otherwise in effect for areas that are not competitive acquisition areas by January 1, 2016. We will continue to monitor developments regarding the implementation of the competitive bidding program. While we cannot predict the outcome of the competitive bidding program on our business when fully implemented nor the Medicare payment rates that will be in effect in future years for the items subjected to competitive bidding, it is likely that the program will materially adversely affect our financial position and operating results.
On July 15, 2008, Congress enacted the MIPPA legislation which reduced Medicare payment rates nationwide for certain DME items, including oxygen equipment, by 9.5% beginning in 2009. In addition to the 9.5% reduction, CMS subjected the monthly payment amount for stationary oxygen equipment to additional cuts of 2.3% in 2009, thereby reducing the monthly payment rate from $199.28 in 2008 to $175.79 in 2009. The monthly payment amount was reduced by 1.5% in 2010, to $173.17. We estimate that this reduction negatively impacted our revenues in 2010. The stationary oxygen payment rate for 2011 has been established by CMS at $173.31 per month, an increase of 0.1%.
(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.
- 23 -
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.
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.
(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 DRAs 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 suppliers or manufacturers warranty)
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 suppliers 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 beneficiarys 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 needed
oxygen equipment and contents for liquid or gaseous equipment after the 36-month rental cap until the end of the equipments 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 equipments 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.
- 24 -
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 provides an overview of certain key factors of our results of operations for the three months ended March 31, 2012 as compared to March 31, 2011:
|
| Three months ended |
| ||||
|
| 2012 |
| 2011 |
| ||
Net Revenues |
| $ | 8,825,230 |
| $ | 484,329 |
|
Cost of sales |
|
| 6,287,809 |
|
| 155,839 |
|
Operating Expenses: |
|
|
|
|
|
|
|
Selling and Marketing |
|
| 557,541 |
|
| 0 |
|
Amortization and Depreciation |
|
| 97,623 |
|
| 7,108 |
|
General and administrative |
|
| 1,714,223 |
|
| 468,455 |
|
Total operating expenses |
|
| 2,369,387 |
|
| 475,563 |
|
Income (loss) from operations |
|
| 173,034 |
|
| (147,073 | ) |
Total other income (expense) |
|
| (111,779 | ) |
| (8,583 | ) |
Provision for income taxes |
|
| 9,605 |
|
| 0 |
|
Net income (loss) |
| $ | 51,650 |
| $ | (155,656 | ) |
Other Key Indicators:
|
| Three months ended |
| ||
|
| 2012 |
| 2011 |
|
Cost of sales as a percentage of revenues |
| 71.2% |
| 32.2% |
|
Gross profit margin |
| 28.8% |
| 67.8% |
|
General and administrative expenses as a percentage of revenues |
| 19.4% |
| 96.7% |
|
Total operating expenses as a percentage of revenues |
| 26.8% |
| 98.2% |
|
The following table provides comparative data regarding the source of our net revenues in each of these periods:
|
| Three months ended | ||||
|
| 2012 |
| 2011 | ||
Wheelchair Vans |
|
|
|
|
|
|
Product Sales |
| $ | 7,075,779 |
| $ | 0 |
Rental Revenue |
|
| 195,701 |
|
| 0 |
Service and other |
|
| 1,102,748 |
|
| 0 |
Home Healthcare |
|
|
|
|
|
|
Product Sales |
|
| 288,456 |
|
| 378,538 |
Rental Revenue |
|
| 135,024 |
|
| 105,791 |
Service and other |
|
| 27,522 |
|
| 0 |
Total Net Revenues |
|
| 8,825,230 |
|
| 484,329 |
- 25 -
Three Month Period ended March 31, 2012 and 2011
Net Revenues
For the three months ended March 31, 2012, we reported revenues of $8,825,230 as compared to revenues of $484,329 for the three months ended March 31, 2011, an increase of $8,340,901 or approximately 1,722 %.
Wheelchair Van Revenue - Product sales and Rental revenue for the three months ended March 31, 2012 amounted to $7,075,779 and $195,701, respectively. Additionally, Service revenue for our Wheelchair Conversion Van segment for the three months ended March 31, 2012 totaled $1,102,748. The overall increase of revenue for our Wheelchair Van segment is due to the acquisition of Ride-Away Handicap Equipment Corp. on March 1, 2012 and Mobility Freedom Inc. on May 13, 2011. Approximately 25% of our wheelchair van segment revenue was derived from veterans receiving benefits from VA.
Home Health Care Revenue - Product sales for our Home Healthcare segment for the three months ended March 31, 2012 decreased by $90,082, or approximately 24% as compared to the three months ended March 31, 2011. Rental revenue for our Home Healthcare segment for the three months year ended March 31, 2012 increased by $29,233 or approximately 28% as compared to the three months ended March 31, 2011. The overall decrease of product sales for our Home Healthcare segment is due to the impact of the 9.5% Medicare Improvement for Patients and Providers Act of 2008 (MIPPA) reduction, lower reimbursement rates from third party payors and lower hospital, hospice and nursing home census levels. The increase in rental revenue for our Home Healthcare segment is primarily attributable the revision by Medicare on the power wheelchair payment rule whereby instead of a purchase option, Medicare requires that the power chair is rented over a period of 13 months and after the 13th month ownership of the chair will transfer to the patient.
Cost of Sales
The following table provides comparative data regarding Cost of Sales for our two segments in each of these periods:
|
| Three months ended | ||
Cost of sales as a Percentage of Net Revenues |
| 2012 |
| 2011 |
Home Healthcare Segment |
| 31.9% |
| 32.2% |
Wheelchair Van Segment |
| 73.3% |
| % |
Our cost of sales consists of products purchased for resale and the depreciation of rental assets. For the three months ended March 31, 2012, cost of sales was $6,282,809, or approximately 71.1% of revenues, compared to $155,839, or approximately 32.2% of revenues, for the three months ended March 31, 2011. During the three months ended March 31, 2012 cost of sales increased due to increased revenues related to our Wheelchair Van Segment which has a higher cost of sales as a percentage of net revenues than the Home Healthcare Segment. The overall increase of cost of sales for our Wheelchair Van segment is due to the acquisition of Ride-Away Handicap Equipment Corp. on March 1, 2012 and Mobility Freedom Inc. on May 13, 2011. During the three months ended March 31, 2012, cost of sales as a percentage of net revenues for our Home Healthcare Segment had a small decrease due to increased rental revenues as compared to the three months ended March 31, 2011.
Gross Profit
Overall gross profit percentage declined from 67.8% for the three months ended March 31, 2011 to 28.8% for the three months ended March 31, 2012, due to the lower gross profit percentage earned in our wheelchair van segment. For the three months ended March 31, 2012, approximately 95% of the companys revenues was generated by the Wheelchair Van segment at this lower margin percentage thus negatively impacting the overall margin percentage.
Total Operating Expense
Total operating expenses decreased as a percentage of revenues to 26.8% for the three months ended March 31, 2012 from 98.2% for the three months ended March 31, 2011. These changes include:
Marketing and Selling. For the three months ended March 31, 2012, marketing and selling costs were $557,541 and there were none for the three months ended March 31, 2011. The company believes that the increase was due to marketing, advertising and print advertising programs initiatives, primarily in the wheelchair van segment.
- 26 -
Depreciation and amortization expense. For the three months ended March 31, 2012, depreciation expense amounted to $97,623 as compared to $7,108 for the three months ended March 31, 2011, an increase of $90,515. Of this increase, $58,093 is due to the amortization of the identified intangibles recorded as a result of the acquisitions of Ride-Away and Mobility Freedom. The balance of the increase is primarily due to the depreciation on the tangible assets acquired in these acquisitions, primarily rental vans.
General and administrative expense. For the three months ended March 31, 2012, general and administrative expenses were $1,714,223 as compared to $475,563 for the three months ended March 31, 2011., an increase of $1,238,660. For the three months ended March 31, 2012 and 2011 general and administrative expenses consisted of the following:
| Three Months Ended March 31, Fiscal Q1 | ||||
| 2012 |
| 2011 | ||
Rent | $ | 208,719 |
| $ | 17,141 |
Employee compensation |
| 1,122,209 |
|
| 331,324 |
Professional fees |
| 56,220 |
|
| 52,555 |
Internet/Phone |
| 47,894 |
|
| 8,384 |
Travel/Entertainment |
| 72,439 |
|
| 3,306 |
Insurance |
| 73,797 |
|
| 13,183 |
Other general and administrative |
| 132,945 |
|
| 42,562 |
| $ | 1,714,223 |
| $ | 468,455 |
| | For the three months ended March 31, 2012, Rent expense increased by $191,578 over the same period in 2011. The increase is due to the market leases on the Ride-Away and Mobility Freedom locations which are not included in the 2011 totals as the acquisitions had not yet taken place. |
|
|
|
| | For the three months ended March 31, 2012, employee compensation, related taxes and stock-based compensation expenses was $1,122,209, an increase of $790,885 over the same period in 2011. The increase relates primarily to the personnel added with the acquisition of Ride-Away and Mobility Freedom and to the addition of several key positions in anticipation of these acquisitions. |
|
|
|
| | For the three months ended March 31, 2012, professional fees increased to $56,220 as compared to $52,555 for the same period in 2011 an increase of $3,665 or 7.0%. |
|
|
|
| | For the three months ended March 31, 2012, internet/telephone expense increased to $47,894 as compared to $8,383 for the same period in 2011, an increase of $39,510. This increase is due to the addition of the Ride-Away and Mobility Freedom subsidiaries and their operations and locations. |
|
|
|
| | For the three months ended March 31, 2012, travel and entertainment expense increased to $72,439 as compared to $3,306 for the same period in 2011, an increase of $69,133. This increase is due to the increased travel necessitated by the addition of the Ride-Away and Mobility Freedom subsidiaries. |
|
|
|
| | For the three months ended March 31, 2012 insurance expense increased to $73,797 as compared to $13,183 for the three months ended March 31, 2011, an increase of $60,614. This increase is due to the addition of the Ride-Away and Mobility Freedom locations. |
|
|
|
| | For the three months ended March 31, 2012, other general and administrative expense increased to $132,945 as compared to $42,562 for the three months ended March 31, 2011, an increase of $90,383. This increase is due to the addition of the Ride-Away and Mobility Freedom subsidiaries. |
INCOME (LOSS) FROM OPERATIONS
We reported income from operations of $173,034 for the three months ended March 31, 2012 as compared to a loss from operations of $(147,073) for the three months ended March 31, 2011.
OTHER INCOME (EXPENSES)
Other income for the three months ended March 31, 2012 amounted to $72.709. There was no other income for the three months ended March 31, 2011. This income is primarily early pay and trade discounts earned by Ride-Away.
- 27 -
Acquisition frees for the three months ended March 31, 2012 amounted to $27,740 as compared with no such fees for the three months ended March 31, 2011. These are the various legal and professional fees incurred in the acquisition of Ride-Away which occurred on March 1, 2012.
Interest expense for the three months ended March 31, 2012 amounted to $156,748 as compared to $8,583 for the three months ended March 31, 2011, an increase of $148,165. This increase is due to the additional debt the company has incurred in the acquisition of the Ride-Away and Mobility Freedom subsidiaries.
NET INCOME (LOSS)
Our net income was $51,650 for the nine months ended September 30, 2011 compared to net loss of $(155,656) for the three months ended March 31, 2011.
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 March 31, 2012 and December 31, 2011:
|
|
| March 31, |
|
| December 31, |
|
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
Working capital surplus (deficit) |
|
| $ 46,728 |
|
| $ (356,347 | ) |
| 403,075 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
| 686,907 |
|
| 212,460 |
|
| 474,447 |
|
Accounts receivable, net |
|
| 4,896,833 |
|
| 1,042,953 |
|
| 3,853,880 |
|
Inventory |
|
| 15,016,879 |
|
| 2,444,563 |
|
| 12,572.316 |
|
Total current assets |
|
| 21,017,887 |
|
| 3,789,183 |
|
| 17,228,704 |
|
Property and equipment, net |
|
| 1,697,412 |
|
| 526,571 |
|
| 1,170,841 |
|
Total assets |
|
| 30,498,424 |
|
| 8,011,929 |
|
| 22,486,495 |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable & accrued liabilities |
|
| 4,042,939 |
|
| 599,008 |
|
| 3,443,931 |
|
Note Payable Floor Plan |
|
| 8,561,501 |
|
| 2,028,318 |
|
| 6,533,183 |
|
Notes payable-current |
|
| 7,081,558 |
|
| 1,161,960 |
|
| 5,919,598 |
|
Total current liabilities |
|
| 20,971,159 |
|
| 4,145,530 |
|
| 16,825,629 |
|
Notes payable-long term |
|
| 6,822,798 |
|
| 3,732,014 |
|
| 3,090,784 |
|
Total liabilities |
|
| 27,793,958 |
|
| 7,877,544 |
|
| 19,916,414 |
|
Accumulated deficit |
|
| (4,615,548 | ) |
| (4,667,198 | ) |
| 51,650 |
|
Stockholders equity |
|
| 2,704,467 |
|
| 134,385 |
|
| 2,570,082 |
|
Net cash provided by operating activities was $ 794,874 for the three months ended March 31, 2012 as compared to net cash used by operating activities of $120,898 for the three months ended March 31, 2011, an increase of $915,772 primarily attributable to the acquisition of Ride-Away in the current quarter. For the three months ended March 31, 2012, we had net income of $51,650 offset by non-cash items such as depreciation and amortization expense of $132,372 and stock-based compensation of $9,250 and increases from changes in assets and liabilities of $ 627,169.
Net cash used in investing activities for the three months ended March 31, 2012 was $94,093 as compared to net cash used in investing activities of $29,232 for the three months ended March 31, 2011. During the three months ended March 31, 2012 and 2011, we used cash for property and equipment purchases.
Net cash used by financing activities for the three months ended March 31, 2012 was $226,334 as compared to net cash provided of 153,639 for the three months ended March 31, 2011. This decrease is due primarily to proceeds from a loan in the three months ended March 31, 2011 and a reduction of the lines of credit and floor plan in the three months ended March 31, 2012.
At March 31, 2012 we had a working capital surplus of $46,728 and accumulated deficit of $(4,615,548).
- 28 -
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
The following tables summarize our contractual obligations as of March 31, 2012.
|
| Payments Due by Period |
| |||||||||||||
|
| Total |
| Less than 1 year |
| 2-3 Years |
| 4-5 Years |
| 5 Years + |
| |||||
Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Operating Lease |
| $ | 12,338,248 |
|
| 1,615,044 |
|
| 2,752,085 |
|
| 1,931,282 |
| $ | 6,039,837 |
|
Line of Credit |
|
| 6,481,928 |
|
| 6,481,928 |
|
| |
|
| |
|
| |
|
Note Payable Floor Plan |
|
| 8,561,501 |
|
| 8,561,501 |
|
| |
|
| |
|
| |
|
Notes payable |
|
| 5,526,981 |
|
| 280,757 |
|
| 924,654 |
|
| 1,009,825 |
|
| 3,311,745 |
|
Notes payable related party |
|
| 1,895,447 |
|
| 121,856 |
|
| 348,148 |
|
| 384,683 |
|
| 1,040,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations: |
| $ | 34,804,105 |
|
| 17,061,086 |
|
| 4,024,8878 |
|
| 3,325,790 |
|
| 10,392,342 |
|
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 stockholders 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
We have reviewed the FASB issued Accounting Standards Update (ASU) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporations reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration. Reference is made to these recent accounting pronouncements as if they are set forth therein in their entirety.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not required for smaller reporting companies.
Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
Our management, including Hal Compton, Jr., our chief executive officer, and Robyn Priest our chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2012.
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 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.
- 29 -
Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based on that evaluation, our management, including Mr. Compton and Ms. Priest, concluded that because of the significant deficiencies in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of March 31, 2012.
Managements 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) on an annual basis. As previously reported on our Form 10-K for the year ended December 31, 2011, management identified significant deficiencies related to (i) our internal audit functions and (ii) a lack of segregation of duties within accounting functions.
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.
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.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. | Legal Proceedings |
None.
Item 1A. | Risk Factors |
Not required for smaller reporting companies.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
As of the date of filing this report, we have failed to meet certain financial covenants of both our Commercial Line of Credit and our Note Payable for floor planning. As a result, both of these lines are subject to being withdrawn. We are currently working with both lenders to resolve this, but there can be no assurance of the companys ability to do so.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
None.
- 30 -
Item 6. | Exhibits |
Exhibit Number | Description |
|
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * | |
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * | |
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * | |
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * | |
101 | Interactive Data Files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q ** |
* Filed herein
** In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed "furnished" and not "filed."
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HASCO MEDICAL, INC. |
|
|
| By: /s/ Hal Compton, Jr. |
May 14, 2012 | Hal Compton, Jr., |
| Chief Executive Officer, principal executive officer |
|
|
| By: /s/ Robyn Priest |
May 14, 2012 | Robyn Priest |
| Chief Financial Officer, principal financial and accounting officer |
- 31 -