TMCnet News
HASCO MEDICAL, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.(Edgar Glimpses Via Acquire Media NewsEdge) 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 quarter ended March 31, 2014 as compared to March 31, 2013: Quarter Ended March 31, 2014 2013 Net revenues $ 20,685,603 $ 14,955,488 Cost of sales 15,425,817 11,415,351 Operating expenses: Selling and marketing 953,798 917,500 General and administrative 3,415,207 2,486,904 Amortization and depreciation 234,327 319,974 Total operating expenses 4,603,332 3,724,378 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 ) Other Key Indicators: Quarter Ended March 31, 2014 2013 Cost of sales as a percentage of revenues 74.6% 76.3% Gross profit margin 25.4% 23.7% General and administrative expenses as a 16.5% 16.6% percentage of revenues Total operating expenses as a percentage of 22.3% 24.9% revenues The following table provides comparative data regarding the source of our net revenues in each of these periods: Quarter ended March 31, 2014 2013 Product Sales $ 16,588,280 $ 11,855,547 Rental Revenue 245,005 273,395 Service and other 3,852,318 2,826,546 Total Net Revenues $ 20,685,603 $ 14,955,488 Three Months ended March 31, 2014 and 2013 Net Revenues For the quarter ended March 31, 2014, we reported revenues of $20,685,603 as compared to revenues of $14,955,488 for the quarter ended March 31, 2013, an increase of $5,730,115 or approximately 38.3%. The increase is due to the increase in private pay business for van sales and the acquisition of Auto Mobility Sales. - 15 - -------------------------------------------------------------------------------- Product sales for the quarters ended March 31, 2014 and 2013 amounted to $16,588,280 and $11,855,547, respectively, an increase of $4,732,733 or 39.9%. Rental revenue for the quarters ended March 31, 2014 and 2013 amounted to $245,005 and $273,395, respectively, a decrease of $28,390 or 10.4%. Service and other revenue for the quarters ended March 31, 2014 and 2013 amounted to $3,852,318 and $2,826,546, respectively, an increase of $1,025,772 or 36.3%. These increases were due to the increase in private pay business for van sales and the acquisition of Auto Mobility Sales. We do not anticipate any significant price increases in 2014. Product sales comprise approximately 80.2% of the Company's sales for the quarter ended March 31, 2014 compared to 78.9% in the same period of 2013. Cost of Sales Our cost of sales consists of products purchased for resale, and service parts and labor. For the quarter ended March 31, 2014, cost of sales was $15,425,817, or approximately 74.6% of revenues, compared to $11,415,351, or approximately 76.3% of revenues, for the quarter ended March 31, 2013. The overall increase of cost of sales for our Modified Mobility Vehicle operations is due to the increase in revenue. We have a single vendor that represents 56% of our purchases. 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. Gross Profit Overall gross profit percentage increased to 25.4% for the quarter ended March 31, 2014 from 23.7 % for the quarter ended March 31, 2013 due to the greater buying power and utilization of capacity in service. Total Operating Expense Total operating expenses decreased as a percentage of revenues to 22.3% for the quarter ended March 31, 2014 from 24.9% for the quarter ended March 31, 2013. These changes include: Selling and Marketing Expense. For the quarter ended March 31, 2014, selling and marketing costs were $953,798 and $917,500 for the quarter ended March 31, 2013. The increase was due to the increase in marketing, advertising and print advertising programs initiatives, primarily in the modified mobility vehicle operations. General and Administrative Expense. For the quarter ended March 31, 2014, general and administrative expenses were $3,415,207 as compared to $2,486,904 for the quarter ended March 31, 2013, an increase of $928,303. The increase is due to the additional rent 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 departments as well as fully staffing the locations with management personnel. Depreciation and Amortization Expense. For the quarter ended March 31, 2014, depreciation and amortization expense amounted to $234,327 as compared to $319,974 for the quarter ended March 31, 2013, a decrease of $85,647. This decrease is due to the reduction in leased vehicles and retirement of assets. Income (Loss) From Operations We reported income from continuing operations of $374,605 for the quarter ended March 31, 2014 as compared to a net loss from continuing operations of $(328,626) for the quarter ended March 31, 2013. Other income (Expense) Other Income (Expense) for the quarter ended March 31, 2014 amounted to $(281,849) compared to $(144,385) for the quarter ended March 31, 2013. Other income and expense consists of Other Income and Interest Expense. Other Income consists primarily of discounts earned and totaled $20,989 for the quarter 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. This increase is due to the additional debt and capital lease obligations the Company has incurred in the acquisition of the Auto Mobility subsidiary and the increase in volume on the GE floor plan agreement. Net Income (Loss) Our net income was $194,347 for the quarter ended March 31, 2014 compared to net loss of $(198,712) for the quarter ended March 31, 2013. ASSETS AND LIABILITIES Assets were $27,879,165 as of March 31, 2014. Assets consisted of cash of $909,004, accounts receivable of $5,817,869, inventory of $10,981,334, prepaid expense of $654,411, short-term deferred tax asset of $413,193, long-term deferred tax asset of $149,204, property and equipment of $2,164,217, intangible assets of $6,203,003, and other non-current assets of $586,930. Liabilities were $24,997,912 as of March 31, 2014. Liabilities consisted primarily of accounts payable and accrued expenses of $2,361,956, customer deposits and deferred revenue of $389,305, line of credit of $928,810, notes payable - floor plan of $12,655,167, obligation under capital leases short term of $321,712, current portion of notes payable of $382,966, related party short-term notes payable of $335,312, other current liabilities of 875,085, obligation under capital leases long term of $960,816, long-term notes payable of $3,947,856, related party long-term notes payable of $1,838,927. STOCKHOLDERS' EQUITY Stockholders' equity was $2,881,253 as of March 31, 2014. Stockholder's equity consisted primarily of shares issued for acquisitions, fundraising, employee compensation, and settlement of services totaling $7,739,223, offset primarily by the deficit accumulated of $4,857,970 at March 31, 2014. 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 March 31, December 31, $ % 2014 2013 Change Change Working capital surplus $ 525,498 $ 341,302 $ 184,196 54.0 Cash 909,004 150,313 758,691 504.7 Accounts receivable, net 5,817,869 6,182,680 (364,811 ) (5.9 ) Inventory 10,981,334 11,572,060 (590,726 ) (5.1 ) Total current assets $ 18,775,811 $ 18,823,065 $ (47,254 ) (0.3 ) Property and equipment, net 2,164,217 2,141,212 23,005 1.1 Intangible assets, net 6,203,003 6,214,034 (11,031 ) (0.2 ) Total assets $ 27,879,165 $ 27,932,480 $ (53,315 ) (0.2 ) Accounts payable and accrued liabilities $ 2,361,956 $ 1,849,702 $ 512,254 27.7 Cash overdraft - 175,572 (175,572 ) (100.0 ) Customer deposits and deferred revenue 389,305 388,433 872 .2 Line of credit 928,810 2,303,143 (1,374,333 ) (59.7 ) Note Payable - Floor Plan 12,655,167 12,174,639 480,528 3.9 Current portion of capital leases 321,712 366,658 (44,946 ) (12.3 ) Notes payable-current 382,966 376,685 6,281 1.7 Notes payable, related party-current 335,312 353,008 (17,696 ) (5.0 ) Total current liabilities $ 18,250,313 $ 18,481,763 $ (231,450 ) (1.3 ) Capital lease obligations 960,816 817,828 142,988 17.5 Notes payable-long term 3,947,856 4,075,802 (127,946 ) (3.1 ) Notes payable, related party-long term 1,838,927 1,947,214 (108,287 ) (5.6 ) Total liabilities $ 24,997,912 $ 25,322,607 $ (324,695 ) (1.3 ) Accumulated deficit (4,857,970 ) (5,052,317 ) 193,347 (3.9 ) Stockholders' equity $ 2,881,253 $ 2,609,873 $ 271,380 10.4 - 17 - -------------------------------------------------------------------------------- Overall, we had an increase in cash of $758,691 in the quarter ending March 31, 2014 resulting from cash provided by operating activities of $2,181,549, offset partially by cash used in investing activities of $44,875, and cash used in financing activities of $1,377,983. 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, 2014 2013 Cash at beginning of period $ 150,313 $ 850,391 Net cash provided by (used in) operating activities 2,181,549 (306,067 ) 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 Cash at end of period $ 909,004 $ 1,347,153 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. 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, 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 quarter ended March 31, 2014 was $44,875 as compared to net cash provided by investing activities of $22,088 for the quarter ended March 31, 2013. During the quarter ended March 31, 2014, cash was used for the purchase of property and equipment. 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, 2014 we had a working capital surplus (current assets in excess of current liabilities) of $525,498 and accumulated deficit of $(4,857,970). 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"), and there can be no assurance that we will not require additional funding in the future. - 18 - -------------------------------------------------------------------------------- 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 quarter ended March 31, 2014 and 2013: For the quarter ended March 31, 2014: Net Usage Facility Additions Payments 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: Net Usage Facility Additions Payments Increase (decrease) Floor plan $ 7,964,524 $ 6,598,718 $ 1,365,806 Line of credit 40,000 214,000 (174,000 ) Total $ 8,004,524 $ 6,812,718 $ 1,191,806 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 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. |