UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)

 

[√]

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


For the quarterly period ended:  March 31, 20142015


or

 

[  ]

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


For the transition period from __________________ to ____________________


Commission file number:  000-52422

 

Hasco Medical, Inc.

(Exact name of registrant as specified in its charter)

 

Florida

65-0924471

(State or other jurisdiction of incorporation or organization)

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

 

15928 Midway Road, Addison, TX

75001

(Address of principal executive offices)

(Zip Code)


Registrant’s telephone number, including area code:  (214) 302-0930

 

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 (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:

 

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 registrant’s classes of common stock, as of the latest practicable date:  


999,757,6891,006,762,163 shares of common stock were issued and outstanding as of August 7, 2014.April 20, 2015.



Hasco Medical, Inc.

FORM 10-Q

TABLE OF CONTENTS


Index


PART I – FINANCIAL INFORMATION

4

 

 

 

ITEM 1.

FINANCIAL STATEMENTS.

4

ITEM 2.

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

15

14

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

19

18

ITEM 4.

CONTROLS AND PROCEDURES.

2019

 

 

 

PART II – OTHER INFORMATION

21

ITEM 1.

LEGAL PROCEEDINGS

21

ITEM 1A.

RISK FACTORS

21

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

21

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

21

ITEM 4.

MINE SAFETY DSICLOSURES.

21

ITEM 5.

OTHER INFORMATION.

2120

 

 

 

ITEM 6.

EXHIBITS

2220

 

 

 

SIGNATURES

2221


- 2 -


FORWARD–LOOKING STATEMENTS


This Report on Form 10-Q (including the section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations) and any documents incorporated by reference herein or therein may contain “forward-looking statements”. Forward-looking statements reflect management’s current view about future beliefs, plans, objectives, goals or expectations. When used in such documents, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to us or our management identify forward-looking statements. Such statements include, but are not limited to, statements relating to our business goals, business strategy, our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Our actual results may differ materially from those contemplated by these forward-looking statements. They are neither statements of historical fact nor guarantees or assurance of future performance.  Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events.


Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, a decline in general economic conditions nationally and internationally; decreased demand for our products and services; a change in the market acceptance of our products and services; our ability to protect our intellectual property rights; the impact of any infringement actions or other litigation brought against us; competition from other providers and products; our ability to develop and commercialize new and improved products and services; our ability to raise capital to fund continuing operations; changes in government regulation; our ability to complete customer transactions and capital raising transactions; and other factors (including the risks contained in the sections of our annual report on Form 10-K entitled “Risk Factors”) relating to our industry, our operations and results of operations or any businesses that may be acquired by us. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.


We file reports with the Securities and Exchange Commission (“SEC”). Our electronic filings with the United States Securities and Exchange Commission (including our Annual Reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports) are available free of charge on the Securities and Exchange Commission’s website at http://www.sec.gov. 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. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.


The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this annual report and other reports we have filed or will file with the SEC and which are incorporated by reference herein, including statements under the caption “Risk Factors” and “Forward-Looking Statements”.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these.


OTHER PERTINENT INFORMATION


When used in this quarterlyannual report, the terms “Hasco,” “the Company,” “we,” we,” “our,” and “us” refer to Hasco Medical, Inc., a Florida corporation, and our subsidiaries.  “Management” refers to the executive officers of Hasco Medical, Inc. and any of its subsidiaries.


- 3 -


PART I – FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS.


Hasco Medical, Inc. & Subsidiaries

Consolidated Balance Sheets


 

March 31,

 

 

 

 

March 31,

 

December 31,

 

 

2015

 

December 31,

 

 

2014

 

2013

 

 

(unaudited)

 

2014

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

909,004

 

$

150,313

 

 

$

210,791

 

$

509,924

 

Accounts receivable, net of allowance for doubtful accounts of $675,509 and $686,345, respectively

 

 

5,817,869

 

6,182,680

 

Inventory, net

 

 

10,981,334

 

11,572,060

 

Accounts receivable, net of allowance for doubtful accounts of $379,453 and $752,624, respectively

 

 

6,402,944

 

 

9,006,558

 

Inventory, net of inventory reserve of $106,449 and $109,993 respectively

 

 

15,668,718

 

 

16,641,806

 

Deferred tax asset, short term

 

 

413,193

 

413,193

 

 

 

448,877

 

 

448,877

 

Current portion of note receivable

 

 

25,525

 

 

25,515

 

Prepaid expenses and other current assets

 

 

654,411

 

504,819

 

 

 

776,109

 

 

603,699

 

Total current assets

 

 

18,775,811

 

 

18,823,065

 

 

 

23,532,964

 

 

27,236,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property & equipment, net of accumulated depreciation of $1,387,930 and $1,164,634, respectively

 

 

2,164,217

 

2,141,212

 

 

 

 

 

 

 

Intangible assets, net of accumulated depreciation of $21,223 and $10,192, respectively

 

 

6,203,003

 

6,214,034

 

Property & equipment, net of accumulated depreciation of $2,002,267 and $1,940,549, respectively

 

 

1,933,196

 

 

2,041,141

 

Intangible assets, net of accumulated depreciation of $37,774 and $31,108, respectively

 

 

6,146,452

 

 

6,153,118

 

Deferred tax asset, long term

 

 

149,204

 

149,204

 

 

 

194,669

 

 

194,669

 

Note receivable, net of current portion

 

 

80,086

 

 

88,631

 

Other non-current assets

 

 

586,930

 

604,965

 

 

 

599,625

 

 

591,609

 

Total Assets

 

$

27,879,165

 

$

27,932,480

 

 

$

32,486,992

 

$

36,305,547

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

2,361,956

 

$

1,849,702

 

 

$

2,092,768

 

$

2,842,626

 

Cash overdraft

 

 

—

 

175,572

 

 

 

187,089

 

 

—

 

Customer deposits and deferred revenue

 

 

389,305

 

388,433

 

 

 

865,331

 

 

465,167

 

Line of credit

 

 

928,810

 

2,303,143

 

 

 

3,918,885

 

 

2,738,878

 

Note payable - floor plan

 

 

12,655,167

 

12,174,639

 

 

 

11,704,519

 

 

15,584,949

 

Obligation under capital leases

 

 

321,712

 

366,658

 

 

 

574,800

 

 

434,142

 

Current portion of notes payable

 

 

382,966

 

376,685

 

 

 

389,989

 

 

402,546

 

Current portion note payable, related party

 

 

335,312

 

353,008

 

 

 

364,659

 

 

359,579

 

Other current liabilities

 

 

875,085

 

493,923

 

 

 

1,761,460

 

 

2,456,637

 

Total current liabilities

 

 

18,250,313

 

 

18,481,763

 

 

 

21,859,500

 

 

25,284,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligation under capital leases, net of current portion

 

 

960,816

 

817,828

 

 

 

604,081

 

 

870,176

 

Notes payable, net of current portion

 

 

3,947,856

 

4,075,802

 

 

 

3,550,136

 

 

3,667,125

 

Notes payable to related party, net of current portion

 

 

1,838,927

 

1,947,214

 

 

 

1,471,823

 

 

1,576,076

 

Total liabilities

 

 

24,997,912

 

 

25,322,607

 

 

 

27,485,540

 

 

31,397,901

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 3,000,000 shares authorized, none issued and outstanding

 

 

—

 

—

 

 

 

—

 

 

—

 

Common stock, $0.001 par value, 2,000,000,000 shares authorized; and 996,938,389 and 993,134,076 shares issued and outstanding, respectively

 

 

996,938

 

993,134

 

Common stock, $0.001 par value, 2,000,000,000 shares authorized; and 1,009,619,306 and 1,004,210,973 shares issued and outstanding, respectively

 

 

1,009,619

 

 

1,004,210

 

Additional paid-in capital

 

 

6,742,285

 

6,669,056

 

 

 

6,959,216

 

 

6,875,350

 

Accumulated deficit

 

 

(4,857,970

)

 

(5,052,317

)

 

 

(2,967,383

)

 

(2,971,914

)

Total stockholders’ equity

 

 

2,881,253

 

 

2,609,873

 

 

 

5,001,452

 

 

4,907,646

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

27,879,165

 

$

27,932,480

 

 

$

32,486,992

 

$

36,305,547

 


See accompanying notes to unaudited consolidated financial statements


- 4 -


Hasco Medical, Inc. & Subsidiaries

Consolidated Statements of Operations

(unaudited)


 

For the Three Months Ended
March 31,

 

 

For the Three Months ended
March 31,

 

 

2014

 

2013

 

 

2015

 

2014

 

 

 

 

 

 

 

 

Product sales

 

$

16,588,280

 

$

11,855,547

 

 

$

15,786,396

 

$

16,588,280

 

Rental revenue

 

245,005

 

 

273,395

 

 

399,325

 

245,005

 

Service and other

 

3,852,318

 

 

2,826,546

 

 

 

3,276,024

 

 

3,852,318

 

Total net revenues

 

20,685,603

 

 

14,955,488

 

 

19,461,745

 

20,685,603

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

15,425,817

 

 

11,415,351

 

 

 

14,846,915

 

 

15,425,817

 

 

 

 

 

 

 

 

Gross profit

 

5,259,786

 

 

3,540,137

 

 

4,614,830

 

5,259,786

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling and marketing

 

953,798

 

 

917,500

 

 

868,478

 

953,798

 

General and administrative

 

3,415,207

 

 

2,486,904

 

 

3,421,383

 

3,415,207

 

Amortization and depreciation

 

 

234,327

 

 

319,974

 

 

 

224,086

 

 

234,327

 

Total operating expenses

 

 

4,603,332

 

 

3,724,378

 

 

 

4,513,947

 

 

4,603,332

 

 

 

 

 

 

 

 

Income (loss) from operations

 

656,454

 

 

(184,241

)

Income from operations

 

100,883

 

656,454

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

176,649

 

20,989

 

Other income

 

20,989

 

 

49,192

 

Interest expense

 

 

(302,838

)

 

(193,577

)

 

 

(332,822

)

 

(302,838

)

Total other income (expense)

 

 

(281,849

)

 

(144,385

)

 

 

(156,173

)

 

(281,849

)

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

374,605

 

 

(328,626

)

 

(55,290

)

 

374,605

 

 

 

 

 

 

 

 

Provision for (benefit from) income taxes

 

170,218

 

 

(261,000

)

Provision (benefit) for income taxes

 

(59,821

)

 

170,218

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

204,387

 

 

(67,626

)

(Loss) from discontinued operations, net of income tax

 

 

(10,040

)

 

(131,086

)

Net income (loss)

 

$

194,347

 

$

(198,712

)

Income from continuing operations

 

4,531

 

204,387

 

 

Loss from discontinued operations, net of income tax

 

 

—

 

 

(10,040

)

 

Net income

 

 

4,531

 

 

194,347

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

Basic and dilutive-Continuing Operations

 

$

0.00

 

 

0.00

 

Basic and dilutive-Discontinued Operations

 

$

0.00

 

$

0.00

 

Basic and dilutive-continuing operations

 

$

—

 

$

—

 

Basic and dilutive-discontinued operations

 

$

—

 

$

—

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic and dilutive

 

 

994,619,535

 

 

988,069,704

 

 

 

1,009,024,984

 

 

994,619,535

 


See accompanying notes to unaudited consolidated financial statements


- 5 -


Hasco Medical, Inc. & Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)


 

For the Three Months Ended
March 31,

 

 

For the Three months Ended
March 31,

 

 

2014

 

2013

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income (loss)

 

$

194,347

 

$

(198,712

)

Adjustment to reconcile net income (loss) to net cash provided by (used in) operations:

 

 

 

 

 

 

 

Cash Flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

4,531

 

$

194,347

 

Adjustment to reconcile net income to net cash provided by operations:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

234,327

 

 

321,062

 

 

 

224,086

 

 

234,327

 

Stock based compensation

 

 

34,607

 

 

2,000

 

 

 

89,275

 

 

34,607

 

Loss on disposal of property and equipment

 

 

13,812

 

 

—

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

364,811

 

 

1,796,155

 

 

 

2,603,614

 

 

364,811

 

Inventory

 

 

590,726

 

 

(1,263,088

)

 

 

973,088

 

 

590,726

 

Deferred tax asset

 

 

—

 

 

(261,000

)

Prepaid expenses

 

 

(149,592

)

 

(182,989

)

 

 

(172,410

)

 

(149,592

)

Other assets

 

 

18,035

 

 

5,871

 

 

 

(8,016

)

 

18,035

 

Accounts payable and accrued expenses

 

 

512,254

 

 

(325,594

)

 

 

(749,858

)

 

512,254

 

Customer deposits and deferred revenue

 

 

872

 

 

(431,381

)

 

 

400,164

 

 

872

 

Other liabilities

 

 

381,162

 

 

231,609

 

 

 

(695,177

)

 

381,162

 

Net Cash provided by (used in) Operating Activities

 

 

2,181,549

 

 

(306,067

)

Net cash provided by operating activities

 

 

2,683,109

 

 

2,181,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Cash Flows from investing activities:

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(44,875

)

 

(121,999

)

 

 

(123,287

)

 

(44,875

)

Decrease in other assets

 

 

—

 

 

144,087

 

Net Cash provided by (used in) Investing Activities

 

 

(44,875

)

 

22,088

 

Proceeds from note receivable

 

 

8,535

 

 

—

 

Net cash used in investing activities

 

 

(114,752

)

 

(44,875

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Cash Flows from financing activities:

 

 

 

 

 

 

 

Proceeds from floor plan financing

 

 

10,751,664

 

 

7,964,524

 

 

 

8,751,989

 

 

10,751,664

 

Repayments of floor plan financing

 

 

(10,271,136

)

 

(6,598,718

)

 

 

(12,632,419

)

 

(10,271,136

)

Proceeds from line of credit

 

 

—

 

 

40,000

 

 

 

8,322,572

 

 

—

 

Repayments of line of credit

 

 

(1,374,333

)

 

(214,000

)

 

 

(7,142,565

)

 

(1,374,333

)

Repayments of note and loan payables

 

 

(121,665

)

 

(109,782

)

 

 

(129,546

)

 

(121,665

)

Repayments of loans payables – related party

 

 

(83,557

)

 

(41,642

)

 

 

(99,173

)

 

(83,557

)

Principal payments under capital lease obligations

 

 

(103,384

)

 

(261,641

)

 

 

(125,437

)

 

(103,384

)

Cash overdraft

 

 

(175,572

)

 

—

 

 

 

187,089

 

 

(175,572

)

Proceeds from issuance of stock

 

 

—

 

 

2,000

 

Net Cash provided by (used in) Financing Activities

 

 

(1,377,983

)

 

780,741

 

Net cash used in financing activities

 

 

(2,867,490

)

 

(1,377,983

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in cash

 

 

758,691

 

 

496,762

 

Net change in cash

 

 

(299,133

)

 

758,691

 

Cash at beginning of period

 

 

150,313

 

 

850,391

 

 

 

509,924

 

 

150,313

 

Cash at end of period

 

$

909,004

 

$

1,347,153

 

 

$

210,791

 

$

909,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

281,914

 

$

184,098

 

 

$

332,822

 

$

281,914

 

Income taxes

 

$

170,218

 

$

—

 

 

 

 

 

 

 

 

Income Taxes

 

$

—

 

$

170,218

 

Non-Cash transactions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan payments made through issuance of common stock

 

$

42,426

 

$

—

 

 

$

—

 

$

42,426

 

Vehicles purchased through capital lease

 

$

201,426

 

$

—

 

 

$

—

 

$

201,426

 


See accompanying notes to unaudited consolidated financial statements


- 6 -


Hasco Medical, Inc. & Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


NATURE OF OPERATIONS


Hasco Medical, Inc., formerly BBC Graphics of Palm Beach Inc., was incorporated in May 1999 under the laws of the State of Florida. Through a series of transactions, BBC Graphics of Palm Beach, Inc. (at the time an inactive corporation) became Hasco Medical, Inc. (Hasco).  Concurrently, Hasco Medical, Inc. acquired Southern Medical & Mobility.  In May, 2011, Hasco acquired Mobility Freedom, Inc. and Wheelchair Vans of America.  In November, 2011, Hasco acquired Certified Medical Systems II (Certified Medical).  A more detailed description of these transactions is contained in our 10-K filing with the Securities and Exchange Commission for the period ended December 31, 2013. On MarchSeptember 1, 2012, Hasco Medical, Inc. completed the acquisition of Ride-Away Handicap Equipment Corp., a closely-held New Hampshire corporation (Ride-Away).  On September 4, 2013, Hasco Medical, Inc. completed the acquisition of Auto Mobility Sales, Inc. (Auto Mobility).


Services and Products


Historically, our operations were focused on the provision of a diversified range of home health care services and products.  Following our May 2011 acquisition of Mobility Freedom, our March 2012 acquisition of Ride-Away and our September 2013 acquisition of Auto Mobility Sales, our operations are conducted within one major business unit:


·

Modified Mobility Vehicles – conducts sales of handicap accessible vans, parts and services as well as the rental of such vehicles.  This segment consists of Ride-Away Handicap Equipment Corp. which has twelvethirteen (13) locations from Maine to Florida, Mobility Freedom Inc. which has five (5) locations in Florida and includes “Wheelchair Vans of America” operating our van rental operations, and Auto Mobility Sales, Inc., which has two (2) locations in Florida.


With our acquisitions of Mobility Freedom, Ride-Away, and Auto Mobility Sales as well as the sale of Certified Medical, our Modified Mobility Vehicles segment comprises more than 97%100% of our consolidated revenues.  As a consequence and for purposes of consolidated financial statement presentation, our Home Health Care segment is no longer materially relevant when considering the consolidated financial statements as a whole.


Our corporate headquarters and principleprincipal corporate operations are conducted in Addison, Texas, a northern suburb of Dallas, Texas. We also house a portion of our corporate operations in Londonderry, New Hampshire.  Hasco Medical Inc. is a Florida corporation.


Modified Mobility Vehicles


Ride-Away, Mobility Freedom and Auto Mobility serve individuals with physical limitations that need specialty equipment in order to safely operate their vehicle.  We also provide products for families and care-givers with transport requirements for those under care. In certain circumstances both the van itself and its specialty equipment is paid for directly by a federal or state agency.  For the periods ended March 31, 2015 and 2014, approximately 18% and 2013, approximately 24% and 13%, respectively, of the Modified Mobility Vehicles segments revenue was derived from veterans receiving benefits from the United States Department of Veterans Affairs (the “VA”).  Mobility Freedom and Ride-Away are both a VA and Vocational Rehabilitation (VR) certified vendors in all the states in which we operate.


Ride-Away has twelvethirteen 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 Brooklyn, NY and Astoria, NY.Parkville, MD.  Mobility Freedom has five corporate owned stores located in Orlando, Largo, Clermont, Bunnell and Ocala, Florida.  Auto Mobility Sales has locations in Fort Lauderdale and Lake Worth, Florida.


Wheelchair Vans of America specializes in renting conversion vans to disabled individuals, and is located in Orlando, Florida. Our rental operations compliment the retail products we provide through our Mobility Freedom, Auto Mobility Sales and Ride-Away subsidiaries.


Discontinued Operations


During the second quarter of 2013,2014, the Company initiated a plan to liquidatesell the division of SouthernCertified Medical and Mobility.Systems II, Inc. These operations were originally reported in the home health care segment. The Company assessed the fair value of the operations lessat the disposal costs and concluded there is no impairmenttime of the carrying valuedisposition and sale of the assets.entity.  Management has also determined that the amount of assets continued to be realized is immaterial and therefore not separately disclosed.


- 7 -


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Basis of Presentation and Accounting Policy


In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly the consolidated financial position as of March 31, 20142015 and the consolidated statements of operations, and cash flows for the three month periods ended March 31, 20142015 and  March 31, 20132014 of Hasco Medical Inc. (“Hasco” or the “Company”).


The significant accounting policies followed by the Company are set forth in Note 1 to the Company’s consolidated financial statements in the December 31, 2013,2014, Hasco Medical Inc. Annual Report on Form 10-K, , which should be read in conjunction with these financial statements.  The results of operations for the periodperiods ended March 31, 20142015 are not necessarily indicative of the result to be expected for the full year.


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. All significant intercompany transactions and balances have been eliminated in consolidation.  The consolidated entities are:


·

Hasco Holdings,Medical, Inc.;

·

Southern Medical & Mobility, Inc.; (discontinued operations)

·

Mobility Freedom, Inc.;

·

Ride Away Handicapped Equipment, Inc.;

·

Auto Mobility Sales, Inc.;

·

Certified Medical Systems II, Inc.; and  

·

Certified Medical Auto Division, Inc. (inactive). (discontinued operations)


Reclassifications


Prior period financial statement amounts have been reclassified to conform to current period presentation.


Use of Estimates


Management’s Discussion and Analysis or Plan of Operations is based upon our audited consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. Management bases its use of 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 significantly from these estimates under different assumptions or conditions.


Revenue Recognition


The Company recognizes revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 605, “Revenue Recognition”, and with the guidelines of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition”. Under SAB 104, four conditions must be met before revenue can be recognized: (i) there is persuasive evidence that an arrangement exists, (ii) delivery has occurred or service has been rendered, (iii) the price is fixed or determinable, and (iv) collection is reasonably assured.  Revenues consist of the sales of new and used vehicles, sales of parts and automotive services, commissions from finance and insurance products, and vehicle rentals, sales of durable medical equipment and home health care services.rentals.  The Company recognizes revenue in the period in which products are sold or the services are rendered and only if there is reasonable expectation of collection.  For vehicles, a sale is recorded only when title has transferred and the vehicle has been delivered.  Rebates received from manufacturers are recorded as a reduction of the costs of each vehicle and recognized upon the sale of the vehicle or when earned under a specific manufacturer program.


Rental fees for vehicles are recognized over the course of the rental or service term, with unbilled amounts accrued at period end in cases where the rental term extends beyond the end of a period.  


In certain instances, customers place deposits on vehicles or special order parts for service and conversions.  Deposits are not recognized as revenue until the related vehicle or part is sold.


- 8 -


The Company arranges financing for customers through various institutions and receives financing fees based on the difference between the loan rates charged to customers and wholesale financing rates set by the financing institution.  The Company also receives fees from the sale of extended service contracts, warranties and vehicle security systems.


- 8 -


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 at these institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000.  From time to time and for the three month periods ended March 31, 20142015 and December 31, 2013,2014, the Company reached bank balances exceeding the FDIC insurance limit. 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.


Related Parties


Parties are considered to be related to the Company if the parties, 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.


Earnings Perper Share


Earnings per common share are calculated under the provisions of ASC 260. 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 if they would be anti-dilutive. There were no stock options which could potentially dilute earnings per share for the periods ended March 31, 20142015 and 2013,2014, respectively.


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


 

 

Three Months ended
March 31, 2014

 

Three Months ended
March 31, 2013

 

Numerator:

 

 

 

 

 

 

 

Net income (loss)

 

$

194,347

 

$

(198,712

)

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

Denominator for basic income per share

 

 

 

 

 

 

 

(weighted-average shares)

 

 

994,619,535

 

 

988,069,704

 

 

 

 

 

 

 

 

 

Denominator for dilutive income per share

 

 

 

 

 

 

 

(adjusted weighted-average)

 

 

994,619,535

 

 

988,069,704

 

 

 

 

 

 

 

 

 

Basic and diluted income per share from continuing operations

 

$

0.00

 

$

0.00

 

 

 

For The Three Months ended
March 31,

 

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Net income

 

$

4,531

 

$

194,347

 

 

 

 

 

 

 

 

 

Basic weighted average outstanding shares of common stock

 

 

1,009,024,984

 

 

994,619,535

 

Diluted weighted average common stock

 

 

1,009,024,984

 

 

994,619,535

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

Basic and diluted

 

$

0.00

 

$

0.00

 


The number of outstanding shares of our common stock as of March 31, 20142015 was 996,938,389.1,009,619,306.


Recently Issued Accounting Pronouncements


From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.


- 9 -


NOTE 2 – ACCOUNTS RECEIVABLE


Accounts receivable consisted of the following:


 

March 31, 2014
(unaudited)

 

%

 

December 31, 2013

 

%

 

March 31, 2015
(unaudited)

 

%

 

December 31, 2014

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade receivables

 

$

2,566,890


 39.5

 

$

2,993,757

 

43.6

 

$

2,497,182

 

36.8

 

$

4,457,010

 

45.7

Government receivables

 

 

3,926,488


 60.5

 

 

3,875,268

 

56.4

 

 

4,285,215

 

63.2

 

 

5,302,172

 

54.3

 

 

6,493,378


 100.0

 

 

6,869,025

 

100.0

 

6,782,397

 

100.0

 

 

9,759,182

 

100.0

Less: allowances for doubtful accounts

 

 

(675,509

)

 

 

 

(686,345

)

 

 

 

(379,453

)

 

 

 

(752,624

)

 

Total

 

$

5,817,869

 

 

 

$

6,182,680

 

 

 

$

6,402,944

 

 

 

$

9,006,558

 

 


Trade receivables represent amounts due for van sales, van rentals, and medical supplies that have been delivered or sold. Government receivables represent receivables from the VA and other Government bodies related to van sales and rentals listed above.  The Company does not bill Medicare or Medicaid for any vehicle-related sales or service.


NOTE 3 – INVENTORY


Inventory consists of the following:


 

March 31, 2014
(unaudited)

 

December 31, 2013

 

 

March 31, 2015
(unaudited)

 

December 31, 2014

 

Vehicles

 

$

9,864,877

 

$

10,859,361

 

 

$

14,267,837

 

$

15,254,709

 

Work in Process

 

398,804

 

 

474,850

 

Equipment and supplies

 

980,250

 

 

1,008,996

 

 

1,108,526

 

 

1,022,240

 

Work in Process

 

574,258

 

 

412,829

 

Inventory reserve

 

 

(438,051

)

 

(709,126

)

 

 

(106,449

)

 

(109,993

)

 

$

10,981,334

 

$

11,572,060

 

 

$

15,668,718

 

$

16,641,806

 


NOTE 4 – PROPERTY AND EQUIPMENT


Property and equipment consisted of the following:


 

 

March 31,

 

 

 

Estimated

 

2015

 

December 31,

 

Life

 

(unaudited)

 

2014

 

Estimated
Life

 

March 31, 2014
(unaudited)

 

December 31, 2013

 

 

 

 

 

 

 

 

 

Building improvements

varies

 

$

899,530

 

$

899,530

 

Varies

 

$

955,602

 

$

949,478

 

Office furniture and equipment

5 years

 

 

303,561

 

 

303,561

 

5 years

 

 

265,207

 

 

306,331

 

Rental equipment

13-36 months

 

 

479,834

 

 

434,959

 

13-36 months

 

 

623,833

 

 

581,245

 

Vehicles

5 years

 

 

91,521

 

 

91,521

 

5 years

 

 

231,060

 

 

161,786

 

Capitalized leases

Varies

 

 

1,777,701

 

 

1,576,275

 

Varies

 

 

1,859,761

 

 

1,982,850

 

Total

 

 

 

3,552,147

 

 

3,305,846

 

 

 

 

3,935,463

 

 

3,981,690

 

Accumulated depreciation

 

 

 

(1,387,930

)

 

(1,164,634

)

 

 

 

(2,002,267

)

 

(1,940,549

)

Net

 

 

$

2,164,217

 

$

2,141,212

 

 

 

$

1,933,196

 

$

2,041,141

 


For the three months ended March 31, 20142015 and 20132014 depreciation expense amounted to $217,420 and $223,296 and $313,752, respectively of which $0 and $14,410 is included in discontinued operations, respectively.


The Company has entered into various financing arrangements in connection with the acquisition of delivery vehicles (see Note 6 below).


- 10 -


NOTE 5 – INTANGIBLE ASSETS


Intangible assets consist of the following:


 

 

March 31,

 

 

 

Estimated

 

2015

 

December 31,

 

Estimated
Life

 

 

March 31, 2014
(unaudited)

 

 

December 31, 2013

 

Life

 

(unaudited)

 

2014

 

Goodwill related to acquisition of Mobility Freedom

Indefinite

 

 

1,641,303

 

 

1,641,303

 

Indefinite

 

 

1,641,303

 

 

1,641,303

 

Goodwill related to acquisition of Ride-Away

Indefinite

 

 

1,888,710

 

 

1,888,710

 

Indefinite

 

 

1,888,710

 

 

1,888,710

 

Trade name related to acquisition of Mobility Freedom

Indefinite

 

 

400,000

 

 

400,000

 

Indefinite

 

 

400,000

 

 

400,000

 

Trade name related to acquisition of Ride-Away

Indefinite

 

 

990,000

 

 

990,000

 

Indefinite

 

 

990,000

 

 

990,000

 

Primary market area related to acquisition of Mobility Freedom

Indefinite

 

 

280,000

 

 

280,000

 

Indefinite

 

 

280,000

 

 

280,000

 

Primary market area related to acquisition of Ride-Away

Indefinite

 

 

470,000

 

 

470,000

 

Indefinite

 

 

470,000

 

 

470,000

 

Goodwill related to acquisition of Auto Mobility Sales

Indefinite

 

 

284,213

 

 

284,213

 

Indefinite

 

 

284,213

 

 

284,213

 

Trade name related to acquisition of Auto Mobility Sales

2.32 years

 

 

40,000

 

 

40,000

 

Primary market area related to acquisition of Auto Mobility Sales

Indefinite

 

 

150,000

 

 

150,000

 

Indefinite

 

 

150,000

 

 

150,000

 

Non-compete agreements area related to acquisition of Auto Mobility Sales

3 years

 

 

80,000

 

 

80,000

 

3 years

 

 

80,000

 

 

80,000

 

Subtotal

 

 

 

6,224,226

 

 

6,224,226

 

 

 

 

6,184,226

 

 

6,184,226

 

Accumulated amortization

 

 

 

(21,223

)

 

(10,192

)

 

 

 

(37,774

)

 

(31,108

)

Total

 

 

$

6,203,003

 

$

6,214,034

 

 

 

$

6,146,452

 

$

6,153,118

 


For the three months ended March 31, 20142015 and 20132014 amortization expense was $6,666 and $11,031 and $0, respectively.


NOTE 6 – NOTES PAYABLE AND DEBT


Revolving Line of Credit


On November 1, 2012,October 31, 2013, 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 with an interest calculation of the prime rate plus 0.25% which reflected an interest rate of 3.50% as of March 31, 2014.2015.  The agreement is secured against all property of the borrowers assets, on demand with an annual review as of December 31, 2013.2014 and expires on October 31, 2016.  Payments due are interest only and the interest rate varies based on the Company’s leverage ratio.  The balance of the line of credit was $928,810$3,918,885 at March 31, 20142015 and $2,303,143$2,738,878 at December 31, 2013.2014.


TheAcquisitions Term Loan Draw Facility


On February 27, 2015, the Company was in compliancecontracted with itsa bank for a term loan draw facility to be used solely as an acquisitions line of credit covenantscredit.  Borrowing on this agreement is up to $1,000,000 for up to 50% of the acquisition amount of any US company in the Modified Mobility Vehicle industry.  These draws will be charged 6% interest per annum, at the one (1) year anniversary date of each given draw amount, a 48 month term loan is then granted at the same 6% interest amount and the facility is renewed to the full $1,000,000 availability.  This agreement expires on March 31, 2014 and December 31, 2013.27, 2020.


Note Payable – Floor Plan


The Company has a floor plan line of credit with General Electric Credit Corporation with a maximum borrowing capacity of $11,250,000 for Ride-Away, $3,850,000 for Mobility Freedom, and $1,750,000 for Auto Mobility Sales at March 31, 2014.2015.  The borrowing capacity was increased by $5 million on May 20, 2013.2014.  Amounts borrowed for vehicles under this line bear no interest for 60 days and then bear interest at the 90 day LIBOR plus 6.0% for Ride-Away and at the 90 day LIBOR plus 5.5% for Mobility Freedom and Auto Mobility Sales.  The loan balance on the vehicle is due when the vehicle is fully funded or paid by the customer.  If the vehicle is not fully funded or paid within nine months of being purchased by the Company and funded by the floor plan, a graduated percentage of the balance is due with the entire balance due at twelve months. The note is secured by the vehicles financed. At March 31, 20142015 and December 31, 2013,2014, the Company had $12,655,167$11,704,519 and $12,174,639$15,584,949 respectively, outstanding under these lines.


With the discretionary nature of this loan agreement, the Lender or the Company can terminate this agreement with a thirty (30)sixty (60) day written notice at any time.


Subsequent to March 31, 2014, the Company was notified of a default under this floor plan agreement for lack of timeliness of financial statements. This default has been remedied by a “Notice of Covenant Waiver” of such default from the lender.   


- 11 -


Installment Debt


Installment debts consist of the following:


 

 

March 31, 2014
(unaudited)

 

December 31, 2013

 

 

 

 

 

 

 

 

 

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

 

 

23,562

 

 

25,918

 

 

 

 

 

 

 

 

 

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

 

 

1,753,924

 

 

1,785,953

 

 

 

 

 

 

 

 

 

Note Payable to related party, dated May 13, 2011, associated with the acquisition of Mobility Freedom, original amount of $2 million, ten years (120 months), 5% interest rate, commenced August 1, 2011, matures on July 1, 2021, monthly installment payments of $22,204

 

 

1,545,373

 

 

1,618,387

 

 

 

 

 

 

 

 

 

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

 

 

18,660

 

 

21,785

 

 

 

 

 

 

 

 

 

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

 

 

2,534,675

 

 

2,618,831

 

 

 

 

 

 

 

 

 

Note payable to related party, 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

 

 

310,091

 

 

342,143

 

 

 

 

 

 

 

 

 

Promissory Note payable to a related party, dated September 4, 2013, issued for the acquisition of Auto Mobility Sales, original amount of $210,000 , five years (60 months), 5% interest rate, commenced November 1, 2013, matures October 1, 2018, monthly installment payments of $3,963

 

 

191,265

 

 

205,877

 

 

 

 

 

 

 

 

 

Promissory Note payable to a related party, dated September 4, 2013, issued for the acquisition of Auto Mobility Sales, original amount of $140,000 , five years (60 months), 5% interest rate, commenced November 1, 2013, matures October 1, 2018, monthly installment payments of $2,642

 

 

127,511

 

 

133,815

 

 

 

 

 

 

 

 

 

Total debt

 

 

6,505,061

 

 

6,752,709

 

 

 

 

 

 

 

 

 

Current portion of long-term debt, notes payable

 

 

718,278

 

 

729,692

 

Long-term portion

 

$

5,786,783

 

$

6,023,017

 


- 12 -

 

 

March 31,
2015
(unaudited)

 

December 31,
2014

 

 

 

 

 

 

 

 

 

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

 

 

12,566

 

 

14,923

 

 

 

 

 

 

 

 

 

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

 

 

1,653,914

 

 

1,679,480

 

 

 

 

 

 

 

 

 

Note Payable to related party, dated May 13, 2011, associated with the acquisition of Mobility Freedom, original amount of $2 million, ten years (120 months), 5% interest rate, commenced August 1, 2011, matures on July 1, 2021, monthly installment payments of $22,204

 

 

1,363,965

 

 

1,415,737

 

 

 

 

 

 

 

 

 

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

 

 

—

 

 

18,660

 

 

 

 

 

 

 

 

 

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 September 1, 2012, matures on May 2, 2022, monthly installment payments of $31,820.  Note is with the former owner of Ride-Away

 

 

2,273,645

 

 

2,356,573

 

 

 

 

 

 

 

 

 

Note payable to related party, dated March 1, 2012, issued for the acquisition of 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

 

 

218,532

 

 

244,010

 

 

 

 

 

 

 

 

 

Promissory Note payable to a related party, dated September 4, 2014, issued for the acquisition of Auto Mobility Sales, original amount of $210,000, five years (60 months), 5% interest rate, commenced November 1, 2014, matures October 1, 2018, monthly installment payments of $3,963

 

 

152,391

 

 

165,565

 

 

 

 

 

 

 

 

 

Promissory Note payable to a related party, dated September 4, 2014, issued for the acquisition of Auto Mobility Sales, original amount of $140,000, five years (60 months), 5% interest rate, commenced November 1, 2014, matures October 1, 2018, monthly installment payments of $2,642

 

 

101,594

 

 

110,378

 

 

 

 

 

 

 

 

 

Total debt

 

 

5,776,607

 

 

6,005,326

 

 

 

 

 

 

 

 

 

Current portion of long-term debt, notes payable

 

 

754,648

 

 

762,125

 

Long-term portion

 

$

5,021,959

 

$

5,243,201

 



NOTE 7 – STOCKHOLDERS’ EQUITY


During quarterthe three months ended March 31, 2014, 750,0002015, 5,408,333 shares of common stock valued at $15,000$89,275 were issued to key employees as employee compensation and 1,020,414 shares of common stock valued at $19,607 were issued to directors as board compensation.


During quarter ended March 31, 2014, the Company issued 2,032,899 shares of common stock valued at $42,426, in lieu of payments for notes payable-related party.- 12 -


NOTE 8 – CONTINGENCIES


Company operations involve the handling and disposal of waste and hazardous material within a highly regulated oversight structure.  The Company is subjected to inspections by OSHA and other regulatory bodies.  Management believes that there are no current regulatory claims that would have a material effect on the Company’s financial position or results of operations.


NOTE 9 – INCOME TAXES


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


As of March 31, 20142015 and 2013,2014, the Company had netno loss carry forwards available to reduce its future federal taxable income of approximately $0 and $1,263,000, respectively. These loss carryovers, if unused, expire through 2030. These losses may be subject to limitation under Internal Revenue Code Section 382 in the event of a more than 50% owner shift.income.


The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows for income for continuing operations for the periodsthree months ended March 31, 20142015 and 2013:2014:


 

For The Three Months Ended
March 31,

 

 

For The Three months Ended
March 31,

 

 

2014

 

2013

 

 

2015

 

2014

 

Expected federal income tax expense (34%)

 

$

127,184

 

$

(34,000

)

Expected federal income tax expense (benefit) (34%)

 

$

1,540

 

$

127,184

 

State tax expense, net of federal tax effect

 

 

23,427

 

 

(4,000

)

 

 

—

 

 

23,427

 

Other

 

 

19,607

 

 

—

 

 

 

(61,361

) 

 

19,607

 

 

 

170,218

 

 

(38,000

)

 

 

(59,821

) 

 

170,218

 

Change in valuation allowance

 

 

—

 

 

(223,000

)

 

 

—

 

 

—

 

Net income tax expense(benefit)

 

 

170,218

 

 

(261,000

)

Net income tax expense (benefit)

 

 $

(59,821

)

 $

170,218

 


NOTE 10 – SEGMENT REPORTING


Accounting standards for the Disclosure about Segments of an Enterprise and Related Information 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.


According to such standards, management determined that, as a consequence of our Home Healthcare Segment now comprising less than 5%1% of our Gross Revenue,gross revenue, the reporting of segment operating results is no longer relevant when considering the financial statement as a whole.


NOTE 11 – SUBSEQUENT EVENTSDIVESTITURE OF CERTIFIED MEDICAL


On June 30, 2014 the Company entered into an agreement with a related party and completed the sale of its Certified Medical business in exchange for a note receivable in the amount of $124,618.  In April 2014, 666,667 sharesconnection with the sale, the Company recognized a gain of common stock valued at $10,000 were issued to a key employee$92,653.  In accordance with ASC 205-20, the results of operations for the Home Healthcare business segment through March 31, 2015, and for all applicable prior periods, are reported as employee compensation.


- 13 -


NOTE 12 – ACQUISITIONS AND PROFORMA FINANCIAL INFORMATION


Auto Mobility Sales Acquisition


The following table summarized the impact of the acquisition as if the acquisition date were January 1, 2013.


Hasco Medical, Inc. and Subsidiaries

Consolidated Pro Forma Statements of Operations

discontinued operations.  For the three months ended March 31, 2013

(unaudited)2015, income or loss from discontinued operations from Certified Medical was $0.


 

 

March 31, 2013

 

Revenues, net

 

$

16,971,050

 

Cost of sales

 

 

12,910,141

 

Gross Profit

 

 

4,060,909

 

 

 

 

 

 

Operating expenses:

 

 

 

 

Selling and marketing

 

 

917,500

 

General and administrative

 

 

2,977,496

 

Depreciation and amortization

 

 

319,974

 

Total operating expenses

 

 

4,214,970

 

 

 

 

 

 

(Loss) from operations

 

 

(154,061

)

 

 

 

 

 

Other income (expense)

 

 

(144,385

)

 

 

 

 

 

(Loss) from operations before income taxes

 

 

(298,446

)

 

 

 

 

 

Benefit for income taxes

 

 

(261,000

)

 

 

 

 

 

(Loss) from continued operations

 

 

(37,446

)

 

 

 

 

 

(Loss) from discontinued operations, net of tax

 

 

(131,086

)

 

 

 

 

 

Net (loss)

 

$

(168,532

)

 

 

 

 

 

Earnings per share:

 

 

 

 

Basic and dilutive

 

$

0.00

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

Basic and dilutive

 

 

988,069,704

 

Concurrent with the sale of its Certified Medical business, the Company and the buyer entered into a transition services agreement pursuant to which each of the parties will provide certain transitional, administrative, and support services to the other party for a period up to nine months, which may be extended upon mutual agreement. Such services provided to the buyer by the Company will be recorded as contra-expense since the Company will be reimbursed for the service cost incurred. Activity associated with transitional service is not considered significant relative to the condensed consolidated financial statements of the Company.


- 1413 -


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


Results of Operations


The results of operations presented on a historical comparative basis require consideration in the nature of the change in business activity and the acquisition of business entity in 2013.  Any such comparison requires a careful examination of the change in the nature of the Company’s business activity in conjunction with numerical comparisons of quarter-to-quarter results.


The following table provides an overview of certain key factors of our results of continuing operations for the quarterthree months ended March 31, 20142015 as compared to March 31, 2013:2014:


 

Quarter Ended March 31,

 

 

Three Months Ended March 31,

 

 

2014

 

2013

 

 

2015

 

2014

 

Net revenues

 

$

20,685,603

 

$

14,955,488

 

 

$

19,461,745

 

$

20,685,603

 

Cost of sales

 

 

15,425,817

 

 

11,415,351

 

 

 

14,846,915

 

 

15,425,817

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

953,798

 

 

917,500

 

 

 

868,478

 

 

953,798

 

General and administrative

 

 

3,415,207

 

 

2,486,904

 

 

 

3,421,383

 

 

3,415,207

 

Amortization and depreciation

 

 

234,327

 

 

319,974

 

 

 

224,086

 

 

234,327

 

Total operating expenses

 

 

4,603,332

 

 

3,724,378

 

 

 

4,513,947

 

 

4,603,332

 

Income (loss) from operations

 

 

656,454

 

 

(184,241

)

Total other income (expense)

 

 

(281,849

)

 

(144,385

)

Provision for (benefit from) income taxes

 

 

170,218

 

 

(261,000

)

Income (loss) from continuing operations

 

 

204,387

 

 

(67,626

)

(Loss) from discontinued operations

 

 

(10,040

)

 

(131,086

)

Net Income

 

$

194,347

 

$

(198,712

)

Income from operations

 

 

100,883

 

 

656,454

 

Total other income

 

 

(156,173

) 

 

(281,849

)

Provision for income taxes

 

 

(59,821

) 

 

170,218

 

Income from continuing operations

 

 

4,531

 

 

204,387

 

Income (loss) from discontinued operations

 

 

—

 

 

(10,040

)

Net income from continuing operations

 

$

4,531

 

$

194,347

 


Other Key Indicators:


Quarter Ended March 31,

Three Months Ended March 31,

2014

 

2013

2015

 

2014

Cost of sales as a percentage of revenues

74.6%

 

76.3%

76.3%

 

74.6%

Gross profit margin

25.4%

 

23.7%

23.7%

 

25.4%

General and administrative expenses as a percentage of revenues

16.5%

 

16.6%

17.6%

 

16.5%

Total operating expenses as a percentage of revenues

22.3%

 

24.9%

23.2%

 

22.3%


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


 

Quarter ended March 31,

 

 

Three Months ended March 31,

 

 

2014

 

2013

 

 

2015

 

2014

 

Product Sales

 

$

16,588,280

 

$

11,855,547

 

 

$

15,786,396

 

$

16,588,280

 

Rental Revenue

 

245,005

 

 

273,395

 

 

399,325

 

 

245,005

 

Service and other

 

3,852,318

 

 

2,826,546

 

 

 

3,276,024

 

 

3,852,318

 

Total Net Revenues

 

$

20,685,603

 

$

14,955,488

 

 

$

19,461,745

 

$

20,685,603

 


Three Months ended March 31, 20142015 and 20132014


Net Revenues


For the quarterthree months ended March 31, 2014,2015, we reported revenues of $20,685,603$19,461,745 as compared to revenues of $14,955,488$20,685,603 for the quarterthree months ended March 31, 2013, an increase2014, a decrease of $5,730,115$1,223,858 or approximately 38.3%.5.9% over prior year.  The increasedecrease is due to the increaseinclement weather in private pay businessJanuary and February 2015 in the northeastern region of the United States which caused a high number of closure days for the retail units.  Also the weather deterred our customers from traveling in the elements for service repairs and new van sales and the acquisition of Auto Mobility Sales.purchases.


- 15 -


Product sales for the quartersthree months ended March 31, 20142015 and 20132014 amounted to $15,786,396 and $16,588,280, and $11,855,547, respectively, an increasea decrease of $4,732,733$801,884 or 39.9%4.8%.  Rental revenue for the quartersthree months ended March 31, 20142015 and 20132014 amounted to $399,325 and $245,005, and $273,395, respectively, a decreasean increase of $28,390$154,320 or 10.4%63.0%.  Service and other revenue for the quartersthree months ended March 31, 20142015 and 20132014 amounted to $3,276,024 and $3,852,318, and $2,826,546, respectively, an increasea decrease of $1,025,772$576,294 or 36.3%15.0%.  These increases wereThe decrease is due to the increaseinclement weather in private pay businessJanuary and February 2015 in the northeastern region of the United States which caused a high number of closure days for the retail units over prior year.  Also the weather deterred our customers from traveling in the elements for service repairs and new van sales and the acquisition of Auto Mobility Sales.  We do not anticipate any significant price increases in 2014.  purchases.


- 14 -


Product sales comprise approximately 80.2%81.1% of the Company’s sales for the quarterthree months ended March 31, 20142015 compared to 78.9%80.2% in the same period of 2013.2014.


Cost of Sales


Our cost of sales consists of products purchased for resale, and service parts and labor. For the quarterthree months ended March 31, 2014,2015, cost of sales was $14,846,915, or approximately 76.3% of revenues, compared to $15,425,817, or approximately 74.6% of revenues, compared to $11,415,351, or approximately 76.3% of revenues, for the quarterthree months ended March 31, 2013.2014. The overall increasedecrease of cost of sales for our Modified Mobility Vehicle operations is due to the increasedecrease in revenue.


We have a single vendor that represents 56%37% of our purchases.Cost of Sales.  Our relationship with this vendor is excellent and we do not anticipate any change in the status of that relationship.  Should there be any such change, management believes that substantially similar products are available from other competitive vendors at terms that will not have a substantial effect on our financial condition.results of operations.


Gross Profit


Overall gross profit percentage increaseddecreased to 25.4%23.7% for the quarterthree months ended March 31, 2015 from 25.4 % for the three months ended March 31, 2014 from 23.7 % for the quarter ended March 31, 2013 due to the greater buying power and utilization of capacitya decrease in service.our service revenue, which provides higher margins than product revenues.


Total Operating Expense


Total operating expenses decreasedincreased as a percentage of revenues to 23.2% for the three months ended March 31, 2015 from 22.3% for the quarterthree months ended March 31, 2014 from 24.9% for the quarter ended March 31, 2013.2014.  These changes include:


Selling and Marketing Expense. For the quarterthree months ended March 31, 2014,2015, selling and marketing costs were $953,798$868,478 and $917,500$953,798 for the quarterthree months ended March 31, 2013.2014. The increasedecrease was due to the increasedecrease in marketing, advertising and print advertising programs initiatives, primarily in the modified mobility vehicleModified Mobility Vehicle operations.


General and Administrative Expense. For the quarterthree months ended March 31, 2014,2015, general and administrative expenses were $3,415,207$3,421,383 as compared to $2,486,904$3,415,207 for the quarterthree months ended March 31, 2013,2014, an increase of $928,303.$6,176. The increase is due to the additional rentannual rental increases for our land and professional fees associated with the acquisition of business entities in 2013, additional personnel associated with the acquisition of Auto Mobility Sales, and additions of staff in the accounting and sales departmentsbuilding leases as well as fully staffing the locations with management personnel.increase in salaries as we continue to fill in needed positions.


Depreciation and Amortization Expense. For the quarterthree months ended March 31, 2014,2015, depreciation and amortization expense amounted to $234,327$224,086 as compared to $319,974$234,327 for the quarterthree months ended March 31, 2013,2014, a decrease of $85,647.  This decrease is due to the reduction in leased vehicles and retirement of assets.$10,241.


Income (Loss) Fromfrom Continuing Operations before Taxes


We reported income (loss) from continuing operations of $(55,290) for the three months ended March 31, 2015 as compared to income from continuing operations of $374,605 for the quarterthree months ended March 31, 2014 as compared to a net loss from continuing operations of $(328,626) for the quarter ended March 31, 2013.2014.


Other incomeIncome (Expense)


Other Income (Expense)expense for the quarterthree months ended March 31, 20142015 amounted to $(281,849)$(156,173) compared to $(144,385)$(281,849) for the quarterthree months ended March 31, 2013.2014.  Other income and expense consists of Other Incomeother income and Interest Expense.interest expense.


Other Income consists primarily of expense pricing discounts earned which totaled $176,649 for the three months ended March 31, 2015 and totaled $20,989 for the quarterthree months ended March 31, 2014.


Interest expense for the three months ended March 31, 2015 amounted to $332,822 as compared to $302,838 for the three months ended March 31, 2014, and $49,192 for the quarter ended March 31, 2013.  The decrease is due to additional discounts earned in 2013 with the acquisition of the Ride-Away subsidiary.


- 16 -


Interest expense for the quarter ended March 31, 2014 amounted to $302,838 as compared to $193,577 for the quarter ended March 31, 2013, an increase of $109,261.$29,984.  This increase is due to the additional debt and capital lease obligations the Company has incurred in the acquisition of the Auto Mobility subsidiary andwith the increase in purchase volume in 2015 and the remaining inventory on the GE floor plan agreement.


Net Income (Loss)


Our net income was $4,531 for the three months ended March 31, 2015 as compared to net income of $194,347 for the quarterthree months ended March 31, 2014 compared to net loss of $(198,712) for the quarter ended March 31, 2013.2014.


- 15 -


ASSETS AND LIABILITIESAssets and Liabilities


Assets were $27,879,165$32,486,992 as of March 31, 2014.2015.  Assets consisted of cash of $909,004,$210,791, accounts receivable of $5,817,869,$6,402,944, inventory of $10,981,334,$15,668,718, current portion of notes receivable of $25,525, prepaid expense of $654,411,$776,109, short-term deferred tax asset of $413,193,$448,877, long-term deferred tax asset of $149,204,$194,669, property and equipment of $2,164,217,$1,933,196, intangible assets of $6,203,003,$6,146,452, long term notes receivable of $80,086, and other non-current assets of $586,930.$599,625.  Liabilities were $24,997,912$27,485,540 as of March 31, 2014.2015. Liabilities consisted primarily of accounts payable and accrued expenses of $2,361,956,$2,092,768, cash overdraft of $187,089, customer deposits and deferred revenue of $389,305,$865,331, line of credit of $928,810,$3,918,885, notes payable – floor plan of $12,655,167,$11,704,519, obligation under capital leases short term of $321,712,$574,800, current portion of notes payable of $382,966,$389,989, related party short-term notes payable of $335,312, other current liabilities of 875,085, obligation under$364,659, long-term capital leases long term of $960,816,$604,081, long-term notes payable of $3,947,856,$3,550,136, related party long-term notes payable of $1,838,927.$1,471,823, and other current liabilities of $1,761,460.


STOCKHOLDERS’ EQUITYStockholders’ Equity


Stockholders’ equity was $2,881,253$5,001,452 as of March 31, 2014.2015.  Stockholder’s equity consisted primarily of shares issued for acquisitions, fundraising, employee compensation, and settlement of services totaling $7,739,223,$7,968,835, offset primarily by the deficit accumulated of $4,857,970$2,967,383 at March 31, 2014.2015.


The results of operations presented on a historical comparative basis require consideration in the nature of the change in business activity and the acquisition of business entities in 2013.  Any such comparison requires a careful examination of the change in the nature of the Company’s business activity in conjunction with numerical comparisons of year-to-year results.


Liquidity and Capital Resources


General – Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. The following table provides an overview of certain selected balance sheet comparisons between March 31, 2015 and December 31, 2014:


March 31,
2014

 

December 31,
2013

 

$
Change

 

%
Change

 

March 31,
2015

 

December 31,
2014

 

$
Change

 

%
Change

 

Working capital surplus

$

525,498

 

$

341,302

 

$

184,196

 

54.0

 

$

1,673,464

 

$

1,951,855

 

$

(278,391

) 

(14.3

) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

909,004

 

150,313

 

 

758,691

 

504.7

 

 

210,791

 

 

509,924

 

 

(299,133

) 

(58.7

) 

Accounts receivable, net

 

5,817,869

 

6,182,680

 

 

(364,811

)

(5.9

)

 

6,402,944

 

 

9,006,558

 

 

(2,603,614

) 

(28.9

) 

Inventory

 

10,981,334

 

11,572,060

 

 

(590,726

)

(5.1

)

 

15,668,718

 

 

16,641,806

 

 

(973,088

) 

(5.8

) 

Total current assets

$

18,775,811

 

$

18,823,065

 

$

(47,254

)

(0.3

)

$

23,532,964

 

$

27,236,379

 

$

(3,703,415

) 

(13.6

) 

Property and equipment, net

 

2,164,217

 

2,141,212

 

 

23,005

 

1.1

 

 

1,933,196

 

 

2,041,141

 

 

(107,945

)

(5.3

)

Intangible assets, net

 

6,203,003

 

6,214,034

 

 

(11,031

)

(0.2

)

 

6,146,452

 

 

6,153,118

 

 

(6,666

)

(0.1

)

Total assets

$

27,879,165

 

$

27,932,480

 

$

(53,315

)

(0.2

)

$

32,486,992

 

$

36,305,547

 

$

(3,818,555

) 

(10.5

) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

$

2,361,956

 

$

1,849,702

 

$

512,254

 

27.7

 

$

2,092,768

 

$

2,842,626

 

$

(749,858

) 

(26.4

) 

Cash overdraft

 

—

 

175,572

 

 

(175,572

)

(100.0

)

 

187,089

 

 

—

 

 

187,089

 

100.0

 

Customer deposits and deferred revenue

 

389,305

 

388,433

 

 

872

 

.2

 

 

865,331

 

 

465,167

 

 

400,164

 

86.0

 

Line of credit

 

928,810

 

2,303,143

 

 

(1,374,333

)

(59.7

)

 

3,918,885

 

 

2,738,878

 

 

1,180,007

 

43.1

 

Note Payable – Floor Plan

 

12,655,167

 

12,174,639

 

 

480,528

 

3.9

 

 

11,704,519

 

 

15,584,949

 

 

(3,880,430

) 

(24.9

) 

Current portion of capital leases

 

321,712

 

366,658

 

 

(44,946

)

(12.3

)

 

574,800

 

 

434,142

 

 

140,658

 

32.4

 

Notes payable-current

 

382,966

 

376,685

 

 

6,281

 

1.7

 

 

389,989

 

 

402,546

 

 

(12,557

) 

(3.1

) 

Notes payable, related party-current

 

335,312

 

353,008

 

 

(17,696

)

(5.0

)

 

364,659

 

 

359,579

 

 

5,080

 

1.4

 

Total current liabilities

$

18,250,313

 

$

18,481,763

 

$

(231,450

)

(1.3

)

$

21,859,500

 

$

25,284,524

 

$

(3,425,024

) 

(13.5

) 

Capital lease obligations

 

960,816

 

817,828

 

 

142,988

 

17.5

 

Capital lease obligations long term

 

604,081

 

 

870,176

 

 

(266,095

)

(30.6

) 

Notes payable-long term

 

3,947,856

 

4,075,802

 

 

(127,946

)

(3.1

)

 

3,550,136

 

 

3,667,125

 

 

(116,989

)

(3.2

)

Notes payable, related party-long term

 

1,838,927

 

1,947,214

 

 

(108,287

)

(5.6

)

 

1,471,823

 

 

1,576,076

 

 

(104,253

)

(6.6

)

Total liabilities

$

24,997,912

 

$

25,322,607

 

$

(324,695

)

(1.3

)

$

27,485,540

 

$

31,397,901

 

$

(3,912,361

) 

(12.5

) 

Accumulated deficit

 

(4,857,970

)

 

(5,052,317

)

 

193,347

 

(3.9

)

 

(2,967,383

)

 

(2,971,914

)

 

4,531

 

(0.2

)

Stockholders’ equity

$

2,881,253

 

$

2,609,873

 

$

271,380

 

10.4

 

$

5,001,452

 

$

4,907,646

 

$

93,806

 

1.9

 


- 1716 -


Overall, we had an increasea decrease in cash flows of $758,691$299,133 in the quarterthree months ending March 31, 20142015 resulting from cash provided by operating activities of $2,181,549, offset partially by$2,683,109 and cash used in investing activities of $44,875,$114,752, and cash used in financing activities of $1,377,983.$2,867,490.


The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities during the periods indicated:


 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

2014

 

2013

 

 

2015

 

2014

 

Cash at beginning of period

 

$

150,313

 

$

850,391

 

 

$

509,924

 

$

150,313

 

Net cash provided by (used in) operating activities

 

 

2,181,549

 

(306,067

)

 

2,683,109

 

 

2,181,549

 

Net cash provided by (used in) investing activities

 

 

(44,875

)

 

22,088

 

Net cash provided by (used in) financing activities

 

 

(1,377,983

)

 

780,741

 

Net cash (used in) investing activities

 

(114,752

)

 

(44,875

)

Net cash provided by financing activities

 

 

(2,867,490

) 

 

(1,377,983

) 

Cash at end of period

 

$

909,004

 

$

1,347,153

 

 

$

210,791

 

$

909,004

 


Net cash provided by operating activities was $2,683,109 for the three months ended March 31, 2015. For the three months ended March 31, 2015, we had net income of $4,531, non-cash items such as depreciation and amortization expense of $224,086, stock-based compensation of $89,275, loss on disposal of property of 13,812, the changes in operating assets and liabilities of $2,351,405.  The changes in operating assets and liabilities were primarily due to increases customer deposits and deferred revenue of 400,164, decreases in accounts receivable of $2,603,614, and inventory of $973,088; offset partially by the increase in prepaid expenses of $172,410, other assets of $8,016, accounts payable and accrued expenses of $749,858, and other current liabilities of $695,177.


Net cash provided by operating activities was $2,181,549 for the three months ended March 31, 2014. For the three months ended March 31, 2014, we had net income of $194,347, non-cash items such as depreciation and amortization expense of $234,327 and stock-based compensation of $34,607, and the changes in operating assets and liabilities of $1,353,457.$1,718,268.  The changes in operating assets and liabilities were primarily due to decreases in inventory of $590,726, accounts payable and accrued expenses of $512,254, customer deposits and deferred revenue of $872, other current liabilities of $381,152,$381,162, other assets of $18,035, and accounts receivable of $364,811, offset partially by the increases in prepaid expenses of $149,592.


The decrease in net cash used in operating activities was $(306,067) for the quarter ended March 31, 2013 was primarily due to a net loss of $198,712, and the changes in operating assets and liabilities of $430,417, offset partially by depreciation and amortization expense of $321,062, and stock based compensation of $2,000. The changes in operating assets and liabilities were primarily due to increases in other current liabilities of $231,609, inventory of $1,263,088, and customer deposits and deferred revenue of $431,381, offset partially by the decreases in, accounts receivable of $1,796,155, and other assets of $5,871, deferred tax asset of $261,000, prepaid expenses of $182,989, accounts payable and accrued expenses of $325,594.


Net cash used in investing activities for the quarterthree months ended March 31, 2015 was $114,752 which consists primarily of purchases of fixed assets of $123,287 offset by proceeds from notes receivable of $8,535.  Net cash used in investing activities for the three months ended March 31, 2014 was $44,875 as compared to net$44,875.


Net cash providedused by investingfinancing activities of $22,088 for the quarterthree months ended March 31, 2013. During2015 was $2,867,490. This consisted of principal and interests payments under capital lease obligations of $125,437, repayments of related party notes payable of $99,173, net draws and repayments on our floor plan of $3,880,430, and repayments on our notes payable of $129,546, offset partially by net draws and repayments on our line of credit of $1,180,007 and the quarter ended March 31, 2014, cash was used for the purchaseoverdraft of property and equipment.$187,089.


Net cash used in financing activities for the three months ended March 31, 2014 was $1,377,983. This consisted of net draws and repayments on our floor plan of $480,528, net draws and repayments on our line of credit of $1,374,333, repayments on our notes payable of $121,665, principal payments under capital lease obligations of $103,384, repayments of related party notes payable of $83,557, and a cash overdraft of $175,572.


Net cash provided by financing activities for the quarter ended March 31, 2013 was $780,741. This consisted of net draws and repayments on our floor plan of $1,365,806, offset partially by net draws and repayments on our lines of credit of $174,000, repayments on our notes payable of $109,782, repayments of related party notes payable of $41,642, and principal payments under capital lease obligations of $261,641 and proceed for issuance of stock of $2,000.


At March 31, 20142015 we had a working capital surplus (current assets in excess of current liabilities) of $525,498$1,673,464 and accumulated deficit of $(4,857,970)$(2,967,383).


Financing – We believe our current working capital position, together with our expected future cash flows from operations will be adequate to fund our operations in the ordinary course of business, anticipated capital expenditures, debt and floor plan payment requirements, and other contractual obligations for at least the next twelve months.  However, this belief is based upon many assumptions and is subject to numerous risks (see “Risk Factors”) in our annual report on Form 10-K), and there can be no assurance that we will not require additional funding in the future.


- 1817 -


As we attempt to expand and develop our operations, there exists a potential for net negative cash flows from future operations in amounts not now determinable, and we may be required to obtain additional financing in support of these plans. We have and expect to continue to have substantial capital expenditures and working capital needs.  We expect that the additional financing will (if available) take the form of a private placement of equity, bank borrowings and seller-financed acquisitions, although we may be constrained to obtain additional debt financing in lieu thereof. We are maintaining an on-going effort to consolidate sources of additional funding, without which we may not be able to continue our expansion efforts.  There are no assurances that we will be able to obtain or continue adequate financing.  If we are able to obtain and continue our required financing, future operating results depend upon a number of factors that are outside such financing considerations.


Vehicle Floorplans and Lines of Credit – Vehicle floorplans and line of credit reflect the amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventories with our corresponding manufacturers.  Changes in our vehicle floorplan and credit lines are reported in the financing cash flow section.  Below is a listing of our gross usage and payments on the company’s floorplan and credit lines for the quarterthree months ended March 31, 20142015 and 2013:2014:


For the quarterthree months ended March 31, 2015:


Facility

 

Additions

 

Payments

 

Net Usage
Inc (Dec)

 

Floor plan

 

$

8,751,989

 

$

12,632,419

 

$

(3,880,430

) 

Line of credit

 

 

8,322,572

 

 

7,142,565

 

 

1,180,007

 

Total

 

$

17,074,561

 

$

19,774,984

 

$

(2,700,423

) 


For the three months ended March 31, 2014:


Facility

 

Additions

 

Payments

 

Net Usage
Increase (decrease)

 

Floor plan

 

$

10,751,664

 

$

10,271,138

 

$

480,528

 

Line of credit

 

 

—

 

 

1,374,333

 

 

(1,374,333

)

Total

 

$

10,751,664

 

$

11,645,471

 

$

(893,807

)


For the quarter ended March 31, 2013:


Facility

 

Additions

 

Payments

 

Net Usage
Increase (decrease)

 

 

Additions

 

Payments

 

Net Usage
Inc (Dec)

 

Floor plan

 

$

7,964,524

 

$

6,598,718

 

$

1,365,806

 

 

$

10,751,664

 

$

10,271,136

 

$

480,528

 

Line of credit

 

 

40,000

 

 

214,000

 

 

(174,000

)

 

 

—

 

 

1,374,333

 

 

(1,374,333

)

Total

 

$

8,004,524

 

$

6,812,718

 

$

1,191,806

 

 

$

10,751,664

 

$

11,645,469

 

$

(893,805

) 


Contractual Obligations and Off-Balance Sheet Arrangements


Contractual Obligations


With reference to SEC Regulation S-K Item 303(d), tables summarizing our contractual obligations are not required.


Off-balance Sheet Arrangements


The Company’s management considers all liabilities stated on the financial statement contained herein disclose all liabilities and potential liabilities in every material respect.  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 in support to such activity. We do not have any determinable or 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


From time to time, new accounting pronouncements are issued by the FASBFinancial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


There have been no material changes in our quantitative and qualitative market risks since the prior reporting period.


- 1918 -


ITEM 4.  CONTROLS AND PROCEDURES.


The Company is exempt from the reporting requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.Disclosure Controls and Procedures


As a resultrequired by Rule 13a-15 under the Securities Exchange Act of 1934, as of December 31, 2014, the end of the misstatements in the financial statements for the years ended December 31, 2013 and 2012, and in connection with theyear covered by this report, our management concluded its evaluation of the effectiveness of the design and operation of our disclosure controls and procedures.


Disclosure controls and procedures forrefer to controls and other procedures designed to ensure that information required to be disclosed in the year ended December 31, 2013reports we have determinedfile or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that we have material weaknesses insuch 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, as more fully described below.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.


A material weakness in internal control over financial reporting is defined in Section 210.1-02(4) of Regulation S-X as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.  A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the Company’s financial reporting.


We have become aware that we:


A)

had failed to properly record the purchase price allocations related to the May 13, 2011 acquisition of Mobility Freedom, Inc. and the March 1, 2012 acquisition of Ride-Away Handicap Equipment Corp. and the effects of these corrections on amortization expense and other income accounts.  The error had a significant effect on our previously issued consolidated financial statements for the year ended December 31, 2012, and for each of the quarters for the year ended December 31, 2012.

B)

had failed to properly classify direct labor and overhead as cost of goods sold for the year ended December 31, 2012. We previously classified the direct labor and overhead as a component of general and administrative expenses, a line item in the consolidated statements of operations of our previously issued consolidated financial statements.

C)

had failed to properly depreciate leasehold improvements over the shorter of  either the useful life of the improvement or the lease term.

D)

had failed to properly relieve inventory for sold vehicles

E)

had failed to record impairment of all of the goodwill associated with the Home Healthcare reporting unit in the quarter ended December 31, 2012.

F)

had failed to properly account for certain Home Healthcare revenues using the Net Revenue method.  We previously used the Gross Revenue method.


As a result of identifying these errors, we concluded that accounting adjustments were necessary to correct the previously issued financial statements for the years ended December 31, 2012 and 2011, for each of the quarters for the year ended December 31, 2012, for the quarters ended June 30, 2011, September 30, 2011 and December 31, 2011, and that the reports we filed with the SEC that included the financial statements that reported the erroneous information for those periods should no longer be relied upon.  Accordingly, we restated our financial statements for the year ended December 31, 2012.  In addition, audit adjustments were necessary in the preparation of the 2013 financial statements.


We determined that these failures and related restatements and reclassification demonstrated the following weakness in our internal control over financial reporting:


·

Accounting and Finance Personnel Weakness — As of the years ended December 31, 2013 and 2012, the Company lacked appropriate resources within the accounting function.  The accounting staff is comprised of few people and, as of December 31, 2012, the staff did not have an adequate number of personnel with the expertise and training to meet the Company’s reporting demands.


Remediation Plan for Material Weakness in Internal Control over Financial Reporting


During 2013, we added additional experienced staff to the accounting department.  During 2014 we will continue to assess the needs of our accounting department, hire additional staff as needed and monitor the staff’s continuing education.  We believe that these factors will substantially decrease the possibility of the occurrence of errors in our financial statements.


- 20 -


Management has discussed these material weaknesses with our Audit Committee and Board of Directors and will continue to review progress on these activities on a consistent and ongoing basis at the senior management level in conjunction with our Board of Directors.


We cannot assure you at this time that the actions and remediation efforts we have taken or ultimately will implement will effectively remediate the material weaknesses described above or prevent the incidence of other significant deficiencies or material weaknesses in our internal control over financial reporting in the future.  Our management including our principal executive officer and principal accounting officer, does not expect that our disclosure controls or internal controls over financial reportingand procedures will prevent all errors even asand all fraud.  As previously discussed, management is aware of the aforementioned remediation measureslimitations of current system of control and procedures.  A control system, no matter how well designed and operated, can provide only reasonable and not absolute assurance that the control system’s objectives will be met. Further, the design of a control system must reflect that there are implementedresource constraints, and further improvedthe benefits of controls must be considered relative to addresstheir costs. Because of the inherent limitations in all deficiencies.control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving ourits stated goals under all potential future conditions.


The implementationIdentification of Significant Deficiencies in Controls and Procedures


In connection with the evaluation of our remediation plan will require substantial expenditures, could takecontrols and procedures for the year ended December 31, 2014 we have determined that we have significant deficiencies in our controls and procedures, as more fully described below.


A significant deficiency is a significant perioddeficiency, or a combination of timedeficiencies, in internal control over financial reporting that is less severe than a material weakness; yet important enough to complete, and could distract our officers and employees frommerit attention by those responsible for oversight of the operation of our business.  Company’s financial reporting.


We have become aware that we need strengthened controls regarding:


A)

Controls over the selection and application of accounting principles that are in conformity with generally accepted accounting principles. Having sufficient expertise in selecting and applying accounting principles is an aspect of such controls.

B)

Antifraud programs and controls.

C)

Controls over non-routine and nonsystematic transactions.


With respect to the fiscal period endingquarter ended March 31, 2014,2015, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934. Based upon our evaluation regarding the period ending March 31, 2014,2015, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, has concluded that its disclosure controls and procedures were not effective.


There were no changes in our internal control over financial reporting during the quarter ended March 31, 20142015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


- 19 -


PART II – OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS


From time to time the Company is made to answer various legal disputes arising out of the ordinary course of doing business.  It is the opinion of management, in consultation with our attorneys, that to the extent such parties may have a reasonable possibility of prevailing against us, such potential awards or judgments would be of immaterial financial relevance when considering the financial statements as a whole.


ITEM 1A.    RISK FACTORS


There has been no material change in the risk factors set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013.


ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.


None.


ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.


None.


ITEM 4.  MINE SAFETY DSICLOSURES.


Not applicable.


ITEM 5.  OTHER INFORMATION.


None.


- 21 -



ITEM 6.   EXHIBITS


Attached hereto and incorporated by reference are the following 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*

99.1

Form 8K, dated January 7, 2013**

99.2

Form 8K, dated April 8, 2013**

101

Interactive Data Files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q.***


* Filed herein

**   Previously filed and incorporated by reference

*** 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.”


- 20 -


SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



 

Hasco Medical, Inc.

 

 

 

By:/s/ Hal Compton, Jr.

August 19, 2014May 14, 2015

Hal Compton, Jr.,

 

Chief Executive Officer, principal executive officer

 

 

 

 

 

By:/s/ Shane Jorgenson

August 19, 2014May 14, 2015

Shane Jorgenson

 

Chief Financial Officer, principal financial and accounting officer


- 2221 -