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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 September 30, 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.)


15928 Midway Road, Addison, TX 75001

(Address of principal executive office)


(214) 302-0930

(Registrant’s 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. 987,335,531 shares of common stock are issued and outstanding as of October 31, 2012.




HASCO MEDICAL, INC.

Form 10-Q

Quarterly period ended September 30, 2012


Index


Part I.

 

Financial Information

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011 (Audited)

 

3

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011 (Unaudited)

 

4

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (Unaudited)

 

5

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

6

 

 

Item 2.

 

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

 

19

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

 

 

Item 4.

 

Controls and Procedures

 

28

 

 

 

Part II.

 

Other Information

 

 

Item 1.

 

Legal Proceedings

 

29

 

 

Item 1A.

 

Risk Factors

 

29

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

29

 

 

Item 3.

 

Defaults Upon Senior Securities

 

29

 

 

Item 4.

 

Mine Safety Disclosures

 

29

 

 

Item 5.

 

Other Information

 

29

 

 

Item 6.

 

Exhibits

 

30


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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K, in “Management’s 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 SEC’s 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


 

 

September 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(unaudited)

 

(audited)

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash

 

$

320,749

 

$

212,460

 

Accounts receivable, net of allowance for doubtful accounts of $413,260 and $327,697, respectively

 

 

5,832,706

 

 

1,042,953

 

Inventory

 

 

12,664,680

 

 

2,444,563

 

Prepaid expenses

 

 

315,728

 

 

89.207

 

Total current assets

 

 

19,133,863

 

 

3,789,183

 

 

 

 

 

 

 

 

 

Property & equipment, net of accumulated depreciation of $888,787 and $634,857, respectively

 

 

1,538,075

 

 

526,571

 

 

 

 

 

 

 

 

 

Intangible property, net of accumulated amortization of $344,744 and $123,804, respectively

 

 

7,359,068

 

 

3,695,755

 

Other non-current assets

 

 

9,170

 

 

420

 

Total Assets

 

$

28,040,176

 

$

8,011,929

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

2,784,161

 

$

2,627,326

 

Other current liabilities

 

 

270,533

 

 

180,780

 

Customer deposits and deferred revenue

 

 

597,879

 

 

175,464

 

Note Payable - Floor Plan

 

 

8,194,289

 

 

 

Line of Credit

 

 

5,899,368

 

 

898,713

 

Current portion of Notes Payable

 

 

448,637

 

 

108,901

 

Current portion of loans and notes payable, related parties

 

 

167,628

 

 

154,346

 

Total current liabilities

 

 

18,362,495

 

 

4,145,530

 

 

 

 

 

 

 

 

 

Notes payable, net of current portion

 

 

4,902,506

 

 

1,947,994

 

Notes payable to related party, net of current portion

 

 

1,647,089

 

 

1,784,020

 

Total liabilities

 

 

24,912,090

 

 

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 987,085,531 and 757,426,583 shares issued and outstanding, respectively

 

 

987,086

 

 

794,579

 

Additional paid-in capital

 

 

6,550,496

 

 

4,007,004

 

Accumulated deficit

 

 

(4,409,496

)

 

(4,667,198

)

Total stockholders’ equity

 

 

3,128,086

 

 

134,385

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

28,040,176

 

$

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 September 30,

 

For the Nine Months Ended September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues, net

 

$

18,074,402

 

$

3,113,836

 

$

46,609,382

 

$

5,459,948

 

Cost of sales

 

 

13,099,483

 

 

1,883,919

 

 

33,563,372

 

 

3,287,036

 

Gross profit

 

 

4,974,919

 

 

1,229,917

 

 

13,046,010

 

 

2,172,912

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

1,126,228

 

 

 

 

2,851,398

 

 

 

General and administrative

 

 

3,559,466

 

 

962,703

 

 

9,149,955

 

 

2,082,072

 

Amortization and depreciation

 

 

171,738

 

 

106,736

 

 

449,744

 

 

135,947

 

Total operating expenses

 

 

4,857,432

 

 

1,069,439

 

 

12,451,097

 

 

2,218,019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

117,487

 

 

160,478

 

 

594,913

 

 

(45,107

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

163,965

 

 

20

 

 

397,515

 

 

80,092

 

Acquisition Fees

 

 

 

 

 

 

(26,740

)

 

 

Interest expenses

 

 

(269,384

)

 

(69,051

)

 

(654,398

)

 

(136,884

)

Total other income (expense)

 

 

(105,419

)

 

(69,031

)

 

(283,623

)

 

(56,792

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations before income taxes

 

 

12,068

 

 

91,447

 

 

311,290

 

 

(101,899

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

8,976

 

 

 

 

53,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

3,092

 

$

91,447

 

$

257,702

 

$

(101,899

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and dilutive

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and dilutive

 

 

984,657,699

 

 

757,426,583

 

 

956,118,332

 

 

753,386,076

 


See accompanying notes to unaudited consolidated financial statements


- 4 -



Hasco Medical, Inc. & Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)


 

 

For the Nine Months Ended
September 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income (loss)

 

$

257,702

 

$

(101,899

)

Adjustment to reconcile Net Income to net cash provided by operations:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

524,147

 

 

181,535

 

Gain on disposal of property and equipment

 

 

(123,288

)

 

 

Stock based compensation

 

 

102,978

 

 

 

Issuance of stock in settlement of services

 

 

93,132

 

 

85,286

 

Bad debt expense

 

 

(87,364

)

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(634,812

)

 

(652,512

)

Inventory

 

 

841,567

 

 

(1,771,706

)

Prepaid expenses

 

 

(11,573

)

 

(167,210

)

Intangibles

 

 

 

 

640,488

 

Other assets

 

 

249,905

 

 

(50,551

)

Accounts payable and accrued liabilities

 

 

667,071

 

 

1,113,260

 

Customer deposits and deferred revenue

 

 

(428,959

)

 

264,942

 

Other current liabilities

 

 

14,753

 

 

 

Net Cash (Used) Provided by Operating Activities

 

 

1,465,259

 

 

(458,367

)

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Proceeds from the sale of property and equipment

 

 

241,089

 

 

 

Purchase of property and equipment

 

 

(280,275

)

 

(262,237

)

Net Cash Provided by (Used in) Investing Activities

 

 

(39,186

)

 

(262,237

)

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Lines of credit and floor plan, net

 

 

18,858

 

 

 

Proceeds from sale of common stock

 

 

39,890

 

 

59,500

 

Proceeds from note and loan payable

 

 

 

 

982,206

 

Repayments of notes payable

 

 

(1,376,532

)

 

(133,630

)

Net cash provided (used) by financing activities financing activities

 

 

(1,317,784

)

 

908,076

 

 

 

 

 

 

 

 

 

Net increase/decrease in Cash

 

 

108,289

 

 

187,472

 

Cash at beginning of period

 

 

212,460

 

 

423

 

Cash at end of period

 

$

320,749

 

$

187,895

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

Interest

 

$

654,398

 

$

 

Income taxes

 

$

 

$

 

 

 

 

 

 

 

 

 

Non-Cash transactions:

 

 

 

 

 

 

 

Settlement of management fees in exchange for common stock

 

$

 

$

180,000

 

Intangibles and net assets acquired in Mobility Freedom acquisition

 

$

 

$

3,856,250

 

Promissory notes issued for the acquisition of assets

 

$

3,000,000

 

$

4,000,000

 

Intangibles and net assets acquired in Ride-Away acquisition

 

$

6,000,000

 

$

 


See accompanying notes to unaudited consolidated financial statements


- 5 -



HASCO MEDICAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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 payers.


For accounting purposes, HASCO Medical, Inc. accounted for the transaction as a reverse acquisition and HASCO was 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 Company’s historical financial statements reflect those of Southern Medical & Mobility, Inc.  Accordingly, the reverse acquisition was 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 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.  In the current quarter, the net assets and operations of Certified Auto were combined with Mobility Freedom and therefore the corporate entity Certified Auto no longer has any activity.


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 lines of business:


- 6 -



HASCO MEDICAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012 and 2011


 

·

Wheelchair Vans – 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 - 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 and Mobility Freedom 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 three and nine months ended September 30, 2012, approximately 16% and 15%, respectively, 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 VA’s 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, and Tampa, FL.  Mobility Freedom has five corporate owned stores which are located in Orlando, Largo, Clermont, Bunnell and Ocala, Florida.


Home Health Care


Southern Medical and Certified Medical are the two entities in this line of business. 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 patient’s home to deliver and to prepare the prescribed equipment. Company representatives coordinate the prescribed regimen with the patient’s physician and train the patient and caregiver in the correct use of the equipment. For patients renting equipment, Company representatives also make periodic follow-up visits to the home to provide additional instructions, perform required equipment maintenance, and deliver oxygen and other supplies. (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 and nine month periods ended September 30, 2012 and 2011; (b) the financial position at September 30, 2012; and (c) cash flows for the nine month periods ended September 30, 2012 and 2011, have been made.  Certain reclassifications have been made to current and prior year information for comparability purposes.  All significant intercompany transactions and balances have been eliminated in consolidation.  The consolidated entities are:


 

·

Ride-Away Handicap Equipment Corp.;

 

·

Mobility Freedom, Inc. (including Wheelchair Vans of America, a DBA of Mobility Freedom);

 

·

Southern Medical & Mobility, Inc.;

 

·

Certified Medical Systems II, Inc.


- 7 -



HASCO MEDICAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012 and 2011


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 Company’s financial position or operating results, but did expand certain disclosures.


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


 

Level 1:

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

 

 

 

 

Level 2:

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

 

 

 

 

Level 3:

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


Cash and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of September 30, 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 September 30, 2012 and December 31, 2011 , because of the relatively short-term maturity of these instruments and their market interest rates.


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.


- 8 -



HASCO MEDICAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012 and 2011


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 physician’s 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 payers 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 $65,670 and $313,904 during the three and nine months ended September 30, 2012, 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 payers. Billing delays, generally ranging from several days to several weeks, can occur due to delays in obtaining certain required payor-specific documentation from internal and external sources, interim transactions occurring between cycle billing dates established for each customer within the billing system and business acquisitions awaiting assignment of new provider enrollment identification numbers. In the event that a third-party payor does not accept the claim for payment, the customer is ultimately responsible.


The Company performs analyses to evaluate the net realizable value of accounts receivable. Specifically, the Company considers historical realization data, accounts receivable aging trends, other operating trends and relevant business conditions. Because of continuing changes in the health care industry and third-party reimbursement, it is possible that our estimates could change, which could have a material impact on the Company’s 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 Company’s accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per institution. At times the Company’s 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.


- 9 -



HASCO MEDICAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012 and 2011


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 September 30, 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 management’s expectations.


Accounts Receivable


Accounts receivable includes receivables due from Medicare, Medicaid, and third party payers. The Company recorded a bad debt allowance of $413,260 and $327,697 as of September 30, 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 payers 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 and nine months ended September 30, 2012 totaled $1,126,228 and $2,851,398.  There were no advertising, marketing or selling expenses for the quarter or nine months ended September 30, 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.


- 10 -



HASCO MEDICAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012 and 2011


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 asset’s estimated fair value and its book value. The Company did not record any impairment charges for the three or nine months ended September 30, 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 Company’s 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 and nine months ended September 30, 2012, subsequent events were evaluated by the Company as of the date on which the consolidated financial statements for the three and nine months ended September 30, 2012 and 2011 were available to be issued.


Stock Based Compensation


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


- 11 -



HASCO MEDICAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012 and 2011


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 corporation’s 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 September 30, 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 September 30, 2012, the Company had an accumulated deficit of $4,409,496. 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.


NOTE 3 – INTANGIBLES


Intangible assets consist of the following:


 

 

 

September 30,

 

December 31,

 

 

Estimated

 

2012

 

2011

 

 

Life

 

(unaudited)

 

(audited)

 

Goodwill related to acquisition of Certified Medical and Certified Auto

Indeterminate

 

$

105,455

 

$

105,455

 

Goodwill related to acquisition of Ride-Away

Indeterminate

 

 

684,253

 

 

 

Customer List related to acquisition of Ride-Away

20 years

 

 

2,000,000

 

 

 

Trade name related to acquisition of Ride-Away

30 years

 

 

1,200,000

 

 

 

Sales team infrastructure related to acquisition of Mobility Freedom

20 years

 

 

1,857,052

 

 

1,857,052

 

Customer List related to acquisition of Mobility Freedom

20 years

 

 

1,857,052

 

 

1,857,052

 

Total

 

 

 

7,703,812

 

 

3,819,559

 

Accumulated amortization

 

 

 

(344,744

)

 

(123,804

)

Net

 

 

$

7,359,068

 

$

3,695,755

 


- 12 -



HASCO MEDICAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012 and 2011


For the nine months ended September 30, 2012 and 2011 amortization expense was $220,940 and $123,804, respectively.


NOTE 4 – PROPERTY AND EQUIPMENT


Property and equipment consisted of the following:


 

 

 

September 30,

 

December 31,

 

 

Estimated

 

2012

 

2011

 

 

Life

 

(unaudited)

 

(audited)

 

Building improvements

15-39 years

 

$

924,654

 

$

5,182

 

Office furniture and equipment

3-5 years

 

 

313,048

 

 

104,595

 

Rental equipment

13-36 months

 

 

1,026,888

 

 

929,829

 

Vehicles

5 years

 

 

162,272

 

 

121,822

 

Total

 

 

 

2,426,862

 

 

1,161,428

 

Accumulated depreciation

 

 

 

(888,787

)

 

(634,857

)

Net

 

 

$

1,538,075

 

$

526,571

 


For the nine months ended September 30, 2012 and 2011 depreciation expense amounted to $303,207 and $197,284, respectively of which $74,402 and $76,397 is included in cost of sales, respectively.


NOTE 5 – NOTES PAYABLE


Revolving Line of Credit


On November 1, 2012, the Company renewed its 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 30, 2013.  Payments due are interest only.  The interest rate is at Prime plus .25% as of September 30, 2012 and the effective interest rate was 3.75%.  The interest rate varies based on the Company’s leverage ratio.  The balance of the line of credit was $5,899,368 at September 30, 2012.


The Commercial Note discussed above replaced the Company’s 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.  At September 30, 2012 the Company had $8,194,289 outstanding under these lines.


- 13 -



HASCO MEDICAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012 and 2011


Installment Debt


Installment debts consist of the following:


 

 

September 30,

 

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

 

 

38,485

 

 

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 of Mobility Freedom.

 

 

1,900,527

 

 

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

 

 

40,625

 

 

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.  Note is with the former owner of Ride-Away

 

 

2,922,237

 

 

 

 

 

 

 

 

 

 

 

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

 

 

449,269

 

 

 

 

 

 

 

 

 

 

 

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

 

 

1,814,717

 

 

1,938,366

 

 

 

 

 

 

 

 

 

Total debt

 

 

7,165,860

 

 

3,995,261

 

 

 

 

 

 

 

 

 

Current portion of long-term debt, notes payable

 

 

616,265

 

 

263,247

 

Long-term portion

 

$

6,549,595

 

$

3,732,014

 


Future debt amortization:


2012

$

616,265

 

2013

 

654,570

 

2014

 

689,055

 

2015

 

712,915

 

2016

 

676,127

 

thereafter

 

3,816,928

 

 

$

7,165,860

 


- 14 -



HASCO MEDICAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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 Company’s common stock in exchange for their Southern Medical & Mobility, Inc. share.


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


Prior to the merger, the Company was a shell company with no business operations. For accounting purposes, HASCO Medical, Inc. accounted for the transaction as a reverse acquisition and HASCO was the surviving entity as a publicly-traded company under the name HASCO Medical Inc. or together with its subsidiaries. The Company did not recognize goodwill or any intangible assets in connection with this transaction.


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


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


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 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

September 30, 2012 and 2011


NOTE 7 – STOCK OPTION AND STOCK GRANT PLANS


Under the Company’s 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.  On August 31, 2012, all outstanding grants under the plan were cancelled.


Stock option activity for the nine months ended September 30, 2012 is summarized as follows:


 

Number of
shares

 

Weighted average
exercise price

 

Outstanding at December 31, 2011

3,075,000

 

$

0.007

 

Granted

 

 

 

Exercised

 

 

 

Cancelled

3,075,000

 

 

 

Outstanding at September 30, 2012

 

$

0.007

 

 

 

 

 

 

 

Options exercisable at September 30, 2012

 

$

0.007

 

Weighted average fair value of options granted during the year

 

 

 


On June 30, 2012, the Company issued stock grants to four employees valued at a total of $90,000 which vest over a three year period and are contingent upon continued employment.


NOTE 8 – COMMITMENTS


Operating Leases


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:


Period ending September 30:

 

 

 

2012

$

706,219

 

2013

 

2,008,784

 

2014 and thereafter

 

4,336,237

 

 

$

7,051,240

 


Rent expense was $1,148,169 and $131,703 for the nine months ended September 30, 2012 and 2011, respectively.


- 16 -



HASCO MEDICAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012 and 2011


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 Company’s operating decision-maker is considered to be the chief executive officer (CEO). The CEO reviews financial information for purposes of making operating decisions and assessing financial performance. The financial information reviewed by the CEO in two operating segments: (i) Home Healthcare Products and Services segment and (ii) Wheelchair Conversion Vans and related products and services segment. For the periods ended September 30, 2012 and 2011 all material assets and revenues of the Company were in the United States.


 

Three Months Ended
September 30, 2012

 

Nine Months Ended
September 30, 2012

 

 

Total

 

Home
Healthcare

 

Wheelchair
Vans

 

Total

 

Home
Healthcare

 

Wheelchair
Vans

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

$

15,116,324

 

$

129,153

 

$

14,987,171

 

$

38,250,548

 

$

620,485

 

$

37,630,063

 

Rentals

 

417,944

 

 

116,786

 

 

301,158

 

 

1,195,879

 

 

377,097

 

 

818,782

 

Service and other

 

2,540,134

 

 

31,214

 

 

2,508,920

 

 

7,162,955

 

 

107,844

 

 

7,055,111

 

 

 

18,074,402

 

 

277,153

 

 

17,797,249

 

 

46,609,382

 

 

1,105,426

 

 

45,503,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs

 

13,084,849

 

 

58,785

 

 

13,026,064

 

 

33,488,970

 

 

263,742

 

 

33,225,228

 

Depreciation

 

14,634

 

 

14,634

 

 

 

 

74,402

 

 

74,402

 

 

 

 

 

13,099,483

 

 

73,419

 

 

13,026,064

 

 

33,563,372

 

 

338,144

 

 

33,225,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

4,974,919

 

 

203,734

 

 

4,771,185

 

 

13,046,010

 

 

767,282

 

 

12,278,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

1,126,228

 

 

8,980

 

 

1,117,248

 

 

2,851,398

 

 

36,126

 

 

2,815,272

 

General and administrative

 

3,559,466

 

 

304,565

 

 

3,254,901

 

 

9,149,955

 

 

1,053,817

 

 

8,096,138

 

Depreciation and amortization

 

171,738

 

 

257

 

 

171,481

 

 

449,744

 

 

6,929

 

 

442,815

 

 

 

4,857,432

 

 

313,802

 

 

4,543,630

 

 

12,451,097

 

 

1,096,872

 

 

11,354,225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

$

117,487

 

$

(110,068

)

$

227,555

 

$

594,913

 

$

(329,590

)

$

924,503

 


- 17 -



HASCO MEDICAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2012

(unaudited)


Revenues, net

$

56,402,126

 

Cost of sales

 

41,773,566

 

Gross Profit

 

14,628,560

 

 

 

 

 

Operating expenses:

 

 

 

Selling and marketing

 

3,628,164

 

General and administrative

 

10,372,218

 

Depreciation and amortization

 

428,269

 

Total operating expenses

 

14,428,651

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

199,909

 

 

 

 

 

Other income (expense)

 

(279,946

)

 

 

 

 

Income (loss) from operations before income taxes

 

(80,037

)

 

 

 

 

Provision for income taxes

 

58,875

 

 

 

 

 

Net income (loss)

$

(138,912

)

 

 

 

 

Earnings per share:

 

 

 

Basic and dilutive

$

 

 

 

 

 

Weighted average shares outstanding

 

 

 

Basic and dilutive

 

956,118,332

 


- 18 -



Item 2.

Management’s 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 lines of business:


- 19 -



 

·

Wheelchair Vans – 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 - 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 Company’s operating results and financial condition.


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


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


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


 

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 Company’s common stock, the expected dividend yield of our stock, the expected life of the options and the risk free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant.


Accounts Receivable - Management performs ongoing evaluations of its accounts receivable. Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity and uncertainty of reimbursement amounts for certain services from certain payers 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 asset’s 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 Payers


We derive a substantial portion (approximately15% for the nine months ended September 30, 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 payers, 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 payers 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.


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%, and for 2012 at $176.06, an increase of 1.6%.


Results of Operations


The following table provides an overview of certain key factors of our results of operations for the three and nine months ended September 30, 2012 as compared to September 30, 2011:


 

 

Three Months ended September 30,

 

Nine Months ended September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net Revenues

 

$

18,074,402

 

$

3,113,836

 

$

46,609,382

 

$

5,459,948

 

Cost of sales

 

 

13,099,483

 

 

1,883,919

 

 

33,563,372

 

 

3,287,036

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and Marketing

 

 

1,126,228

 

 

 

 

2,851,398

 

 

 

Amortization and Depreciation

 

 

171,738

 

 

106,736

 

 

449,744

 

 

135,947

 

General and administrative

 

 

3,559,466

 

 

962,703

 

 

9,149,955

 

 

2,082,072

 

Total operating expenses

 

 

4,857,432

 

 

1,069,439

 

 

12,451,097

 

 

2,218,019

 

Income (loss) from operations

 

 

117,487

 

 

160,478

 

 

594,913

 

 

(45,107

)

Total other income (expense)

 

 

(105,419

)

 

(69,031

)

 

(283,623

)

 

(56,792

)

Provision for income taxes

 

 

8,976

 

 

 

 

53,588

 

 

 

Net income (loss)

 

$

3,092

 

$

91,447

 

$

257,702

 

$

(101,899

)


- 22 -



Other Key Indicators:


 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Cost of sales as a percentage of revenues

 

72.5%

 

60.5%

 

72.0%

 

60.2%

 

Gross profit margin

 

27.5%

 

39.5%

 

28.0%

 

39.8%

 

General and administrative expenses as a percentage of revenues

 

19.7%

 

30.9%

 

19.6%

 

38.1%

 

Total operating expenses as a percentage of revenues

 

26.9%

 

34.3%

 

26.7%

 

40.6%

 


The following table provides comparative data regarding the source of our net revenues in each of these periods:


 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Product Sales

 

$

15,116,324

 

$

2,637,064

 

$

38,250,548

 

$

4,492,199

 

Rental Revenue

 

 

417,944

 

 

476,772

 

 

1,195,879

 

 

955,660

 

Service and other

 

 

2,540,134

 

 

 

 

7,162,955

 

 

12,089

 

Total Net Revenues

 

$

18,074,402

 

$

3,113,836

 

$

46,609,382

 

$

5,459,948

 


Three Month Period ended September 30, 2012 and 2011


Net Revenues


For the three months ended September 30, 2012, we reported revenues of $18,074,402 as compared to revenues of $3,113,836 for the three months ended September 30, 2011, an increase of $14,960,566 or approximately 480.5 %.


Product Sales Revenue - Product sales for the three months ended September 30, 2012 and 2011 amounted to $15,116,324 and $2,637,064, an increase of $12,479,260 or 473.2%.  Service revenue increased by $2,540,134.  Rental revenue decreased by $58,828 or 12.3%.  These increases were due to the acquisition of Mobility Freedom on May 13, 2011 and Ride-Away on March 1, 2012.  The decrease in rental revenue is due to declines in our Southern Medical and Mobility subsidiary.


Cost of Sales


Our cost of sales consists of products purchased for resale and the depreciation of rental assets. For the three months ended September 30, 2012, cost of sales was $13,099,483, or approximately 72.5% of revenues, compared to $1,883,919, or approximately 60.5% of revenues, for the three months ended September 30, 2011. During the three months ended September 30, 2012 cost of sales increased due to increased revenues related to our Wheelchair Van operations which has a higher cost of sales as a percentage of net revenues than the Home Healthcare operations.  The overall increase of cost of sales for our Wheelchair Van operations is due to the acquisition of Ride-Away Handicap Equipment Corp. on March 1, 2012 and Mobility Freedom Inc. on May 13, 2011.


Gross Profit


Overall gross profit percentage declined from 39.5% for the three months ended September 30, 2011 to 27.5% for the three months ended September 30, 2012, due to the lower gross profit percentage earned in our wheelchair van segment.  For the three months ended September 30, 2012, approximately 98.5% of the company’s revenues was generated by the Wheelchair Van operations 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 26.9% for the three months ended September 30, 2012 from 34.3% for the three months ended September 30, 2011.  These changes include:


·           Marketing and Selling. For the three months ended September 30, 2012, marketing and selling costs were $1,126,228 and there were none for the three months ended September 30, 2011. The increase was due to marketing, advertising and print advertising programs initiatives, primarily in the wheelchair van operations.


- 23 -



·           Depreciation and amortization expense. For the three months ended September 30, 2012, depreciation and amortization expense amounted to $171,738 as compared to $106,736 for the three months ended September 30, 2011, an increase of $65,002.  Of this increase, $81,424 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 decrease is offset by increases in depreciation classified in Cost of Sales.


·           General and administrative expense. For the three months ended September 30, 2012, general and administrative expenses were $3,559,466 as compared to $962,703 for the three months ended September 30, 2011, an increase of $2,596,763. For the three months ended September 30, 2012 and 2011 general and administrative expenses consisted of the following:


 

 

Three Months Ended September 30,

 

 

 

2012

 

2011

 

Rent

 

$

442,344

 

$

67,272

 

Employee compensation

 

 

2,303,297

 

 

670,020

 

Professional fees

 

 

86,229

 

 

282

 

Internet/Phone

 

 

66,317

 

 

18,818

 

Travel/Entertainment

 

 

82,872

 

 

25,669

 

Insurance

 

 

93,437

 

 

51,125

 

Other general and administrative

 

 

484,970

 

 

129,517

 

 

 

$

3,559,466

 

$

962,703

 


 

·

For the three months ended September 30, 2012, Rent expense increased by $375,072 over the same period in 2011.  The increase is due to the market leases on the Ride-Away which are not included in the 2011 totals as the acquisition had not yet taken place. 

 

 

 

 

·

For the three months ended September 30, 2012, employee compensation, related taxes and stock-based compensation expenses was $2,303,297, an increase of $1,633,277 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 September 30, 2012, professional fees increased to $86,229 as compared to $282 for the three months ended September 30, 2011; an increase of $85,947.

 

 

 

 

·

For the three months ended September 30, 2012, internet/telephone expense increased to $66,317 as compared to $18,818 for the same period in 2011, an increase of $47,499.  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 September 30, 2012, travel and entertainment expense increased to $82,872 as compared to $25,669 for the same period in 2011, an increase of $57,203.  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 September 30, 2012 insurance expense increased to $93,437 as compared to $51,125 for the three months ended September 30, 2011, an increase of $42,312.  This increase is due to the addition of the Ride-Away and Mobility Freedom locations.

 

 

 

 

·

For the three months ended September 30, 2012, other general and administrative expense increased to $484,970 as compared to $129,517 for the three months ended September 30, 2011, an increase of $355,453.  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 $117,487 for the three months ended September 30, 2012 as compared to income from operations of $160,478 for the three months ended September 30, 2011.

 

OTHER INCOME (EXPENSES)

 

Other income (expense) for the three months ended September 30, 2012 amounted to $(105,419) compared to $(69,031) for the three months ended September 30, 2011.


- 24 -



Acquisition fees for the three months ended September 30, 2012 and 2011 were both zero.  These are the various legal and professional fees incurred in the acquisition of Ride-Away which occurred on March 1, 2012, in the first quarter.


Interest expense for the three months ended September 30, 2012 amounted to $(269,384) as compared to $(69,051) for the three months ended September 30, 2011, an increase of $200,333.  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 $3,092 for the three months ended September 30, 2012 compared to net income of $91,447 for the three months ended September 30, 2011.


Nine Month Period ended September 30, 2012 and 2011


Net Revenues


For the nine months ended September 30, 2012, we reported revenues of $46,609,382 as compared to revenues of $5,459,948 for the nine months ended September 30, 2011, an increase of $41,149,434 or approximately 753.7 %.


Product sales for the nine months ended September 30, 2012 and 2011 amounted to $38,250,548 and $4,492,199, respectively. Service revenue for the nine months ended September 30, 2012 totaled $7,162,955 versus $12,089 for the nine months ended September 30, 2011.  Rental revenue for the nine months ended September 30, 2012 and 2011 was $1,195,879 and $12,089, respectively.  The overall increase of revenue is due to the acquisition of Ride-Away Handicap Equipment Corp. on March 1, 2012 and Mobility Freedom Inc. on May 13, 2011. Approximately 15% of our wheelchair van segment revenue was derived from veterans receiving benefits from VA.


Cost of Sales


Our cost of sales consists of products purchased for resale and the depreciation of rental assets. For the nine months ended September 30, 2012, cost of sales was $33,563,372, or approximately 72.0% of revenues, compared to $3,287,036, or approximately 60.2% of revenues, for the nine months ended September 30, 2011. During the nine months ended September 30, 2012 cost of sales increased due to increased revenues related to our wheelchair van sales which have a higher cost of sales as a percentage of net revenues than the home healthcare portion of our business.  The overall increase of cost of sales for our wheelchair vans 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 nine months ended September 30, 2012, cost of sales as a percentage of net revenues for our home healthcare operations had a small decrease due to increased rental revenues as compared to the nine months ended September 30, 2011.


Gross Profit


Overall gross profit percentage declined from 39.8% for the nine months ended September 30, 2011 to 28.0% for the nine months ended September 30, 2012, due to the lower gross profit percentage earned in our wheelchair van operations.  For the nine months ended September 30, 2012, approximately 97.6% of the company’s revenue was generated by the sale of wheelchair vans at this lower margin percentage thus negatively impacting the overall margin percentage.


Total Operating Expense


Total operating expenses decreased as a percentage of revenues to26.7% for the nine months ended September 30, 2012 from 40.6% for the nine months ended September 30, 2011.  These changes include:


·           Marketing and Selling. For the nine months ended September 30, 2012, marketing and selling costs were $2,851,398 and there were none for the nine months ended September 30, 2011. The increase was due to marketing, advertising and print advertising programs initiatives, primarily in the wheelchair van segment.


·           Depreciation and amortization expense. For the nine months ended September 30, 2012, depreciation and amortization expense amounted to $449,744 as compared to $135,947 for the nine months ended September 30, 2011, an increase of $313,797.  Of this increase, $220,940 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.


- 25 -



·           General and administrative expense. For the nine months ended September 30, 2012, general and administrative expenses were $9,149,955 as compared to $2,082,072 for the nine months ended September 30, 2011, an increase of $7,067,883. For the nine months ended September 30, 2012 and 2011 general and administrative expenses consisted of the following:


 

 

Nine Months Ended September 30,

 

 

 

2012

 

2011

 

Rent

 

$

1,148,169

 

$

131,703

 

Employee compensation

 

 

5,899,346

 

 

1,497,666

 

Professional fees

 

 

177,234

 

 

180,214

 

Internet/Phone

 

 

168,800

 

 

54,219

 

Travel/Entertainment

 

 

244,010

 

 

46,368

 

Insurance

 

 

246,162

 

 

115,143

 

Other general and administrative

 

 

1,266,234

 

 

56,759

 

 

 

$

9,149,955

 

$

2,082,072

 


 

·

For the nine months ended September 30, 2012, Rent expense increased by $1,016,466 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 nine months ended September 30, 2012, employee compensation, related taxes and stock-based compensation expenses was $5,899,346, an increase of $4,401,680 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 nine months ended September 30, 2012, professional fees decreased to 177,234 as compared to $180,214 for the same period in 2011 a decrease of $2,980.

 

 

 

 

·

For the nine months ended September 30, 2012, internet/telephone expense increased to $168,800 as compared to $54,219 for the same period in 2011, an increase of $114,581.  This increase is due to the addition of the Ride-Away and Mobility Freedom subsidiaries and their operations and locations. 

 

 

 

 

·

For the nine months ended September 30, 2012, travel and entertainment expense increased to $244,010 as compared to $46,368 for the same period in 2011, an increase of $197,642.  This increase is due to the increased travel necessitated by the addition of the Ride-Away and Mobility Freedom subsidiaries.

 

 

 

 

·

For the nine months ended September 30, 2012 insurance expense increased to $246,162 as compared to $115,143 for the nine months ended September 30, 2011, an increase of $131,019.  This increase is due to the addition of the Ride-Away and Mobility Freedom locations.

 

 

 

 

·

For the nine months ended September 30, 2012, other general and administrative expense increased to $1,266,234 as compared to $56,759 for the nine months ended September 30, 2011, an increase of $1,209,475.  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 $594,913 for the nine months ended September 30, 2012 as compared to a loss from operations of $(45,107) for the nine months ended September 30, 2011.

 

OTHER INCOME (EXPENSES)

 

Other income (expense) for the nine months ended September 30, 2012 amounted to $(283,623) compared to $(56,792) for the nine months ended September 30, 2011.


Acquisition fees for the nine months ended September 30, 2012 amounted to $26,740 as compared with no such fees for the nine months ended September 30, 2011.  These are the various legal and professional fees incurred in the acquisition of Ride-Away which occurred on March 1, 2012.


- 26 -



Interest expense for the nine months ended September 30, 2012 amounted to $654,398 as compared to $136,884 for the nine months ended September 30, 2011, an increase of $517,514.  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 $257,702 for the nine months ended September 30, 2012 compared to a loss of $(101,899) for the nine months ended September 30, 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 September 30, 2012 and December 31, 2011:


 

 

 

September 30,
2012

 

 

December 31,
2011

 

 

$
Change

 

 

 

 

 

 

 

 

 

 

 

 

Working capital surplus (deficit)

 

 

771,368

 

 

(356,347

)

 

1,127,715

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

320,749

 

 

212,460

 

 

108,289

 

Accounts receivable, net

 

 

5,832,706

 

 

1,042,953

 

 

4,789,753

 

Inventory

 

 

12,664,680

 

 

2,444,563

 

 

10,220,117

 

Total current assets

 

 

19,133,863

 

 

3,789,183

 

 

15,344,680

 

Property and equipment, net

 

 

1,538,075

 

 

526,471

 

 

1,011,604

 

Total assets

 

 

28,010,176

 

 

8,011,929

 

 

19,998,247

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable & accrued liabilities

 

 

2,784,161

 

 

2,627,326

 

 

156,835

 

Note Payable – Floor Plan

 

 

8,194,289

 

 

 

 

8,194,289

 

Notes payable-current

 

 

448,637

 

 

108,901

 

 

339,736

 

Total current liabilities

 

 

18,362,495

 

 

4,145,530

 

 

14,216,965

 

Notes payable-long term

 

 

6,549,595

 

 

3,732,014

 

 

2,817,581

 

Total liabilities

 

 

24,912,090

 

 

7,877,544

 

 

17,034,546

 

Accumulated deficit

 

 

(4,409,496

)

 

(4,667,198

)

 

257,702

 

Stockholders’ equity

 

 

3,128,086

 

 

134,385

 

 

2,993,701

 


Net cash provided by operating activities was $1,465,259 for the nine months ended September 30, 2012 as compared to net cash used by operating activities of $(458,367) for the nine months ended September 30, 2011, an increase of $1,923,626 primarily attributable to the acquisition of Ride-Away at March 1, 2012.  For the nine months ended September 30, 2012, we had net income of $257,702 offset by non-cash items such as depreciation and amortization of $524,147 and increases from changes in assets and liabilities of $697,952.

 

Net cash used in investing activities for the nine months ended September 30, 2012 was $(39,186) as compared to $(262,237) for the nine months ended September 30, 2011. During the nine months ended September 30, 2012, we used cash for property and equipment purchases.

 

Net cash used by financing activities for the nine months ended September 30, 2012 was $(1,317,784) as compared to net cash provided by financing activities of $908,076 for the nine months ended September 30, 2011. This decrease is due primarily to proceeds from a loan in the nine months ended September 30, 2011 and increases in the lines of credit and floor plan in the nine months ended September 30, 2012 due to the acquisition of Ride-Away.


At September 30, 2012 we had a working capital surplus of $771,368 and accumulated deficit of $(4,409,496).


Contractual Obligations and Off-Balance Sheet Arrangements

 

Contractual Obligations

 

The following tables summarize our contractual obligations as of September 30, 2012.


- 27 -



 

 

Payments Due by Period

 

 

 

Total

 

Less than

1 year

 

2-3 Years

 

4-5 Years

 

5 Years +

 

Contractual Obligations:

 

 

 

 

 

 

 

 

 

 

 

Operating Lease

 

$

7,051,240

 

$

706,219

 

$

3,323,461

 

$

1,873,970

 

$

1,147,590

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Line of Credit

 

 

5,899,368

 

 

5,899,368

 

 

 

 

 

 

 

Note Payable – Floor Plan

 

 

8,194,289

 

 

8,194,289

 

 

 

 

 

 

 

Notes payable

 

 

5,351,143

 

 

448,637

 

 

982,201

 

 

989,690

 

 

2,930,615

 

Notes payable – related party

 

 

1,814,717

 

 

167,628

 

 

361,424

 

 

399,352

 

 

886,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Contractual Obligations:

 

$

28,310,757

 

$

15,416,141

 

$

4,667,086

 

$

3,263,012

 

$

4,964,518

 


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 stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.


Recently Issued Accounting Pronouncements


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 corporation’s 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 September 30, 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.


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 September 30, 2012.


- 28 -



Management’s Report on Internal Control over Financial Reporting


Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(F) and 15d-15(F) under the Securities Exchange Act.  Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) 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


The Company had two private placements of sales of stock.  The shares were issued in reliance upon the exemption provided by Section 4 (2) of the Securities and Exchange Commission Act of 1933 as described below.


Date

Relationship

Number of Shares

Total Sale ($)

8/13/12

Employee

284,091

5,000

8/31/12

Outside party who provides tax services

1,488,095

25,000


Item 3.

Defaults Upon Senior Securities


None.


Item 4.

Mine Safety Disclosures


Not Applicable.


Item 5.

Other Information


None.


- 29 -



Item 6.

Exhibits


Exhibit

Number

Description

 

 

31.1

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

31.2

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

32.1

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

32.2

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

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.

November 13, 2012

Hal Compton, Jr.,

 

Chief Executive Officer, principal executive officer

 

 

 

By: /s/ Robyn Priest

November 13, 2012

Robyn Priest

 

Chief Financial Officer, principal financial and accounting officer


- 30 -