5
PROTO SCRIPT PHARMACEUTICAL CORP.
Condensed Consolidated Statements of Cash Flows
(Expressed in US dollars)
(unaudited)
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PROTO SCRIPT PHARMACEUTICAL CORP.
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Condensed Consolidated Statements of Cash Flows
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(unaudited)
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Nine Months Ended September 30,
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2016
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2015
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CASH FLOW FROM OPERATING ACTIVITIES:
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Net income (loss)
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$
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81,487
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$
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(76,421)
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Adjustments to reconcile net income (loss) to cash
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provided by operating activities:
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Depreciation and amortization expense
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3,576
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61,928
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Changes in operating assets and liabilities:
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Accounts receivable
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(73,273)
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85,931
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Other current assets
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(782)
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(607)
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Accounts payable
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(16,228)
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(31,507)
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Accrued liabilities
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-
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(900)
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Payroll liabilities
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8,444
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3,198
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Net cash provided by operating activities
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3,224
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41,622
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CASH FLOW FROM INVESTING ACTIVITIES:
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Purchase of property and equipment
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(3,000)
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(3,364)
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Net cash used in investing activities
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(3,000)
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(3,364)
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CASH FLOW FROM FINANCING ACTIVITIES:
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Cash overdraft
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46,075
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4,840
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Distributions to stockholder
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(59,593)
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(74,249)
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Advances from non-related party
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10,000
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-
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Net cash used in financing activities
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(3,518)
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(69,409)
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Net decrease in cash
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(3,294)
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(31,151)
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Cash at beginning of period
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9,090
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31,151
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Cash at end of period
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$
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5,796
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$
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-
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
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Cash paid for interest
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$
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-
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$
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-
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Cash paid for income taxes
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$
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-
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$
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-
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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6
PROTO SCRIPT PHARMACEUTICAL CORP.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2016 and 2015
(unaudited)
Note 1 - Organization and Basis of Presentation
Organization and Line of Business
Proto Script Pharmaceutical Corp. (formerly Yanex Group, Inc.) (the “Company” or “Proto Script”) was incorporated under the laws of the State of Nevada on November 18, 2010. On October 13, 2016, the Company changed its name from Yanex Group, Inc. to Proto Script Pharmaceutical Corp.
Proto-Script Pharmaceuticals, Corp. (“PSPC”) was incorporated under the laws of the state of California on June 27, 2001 and currently operates as PSP Homecare (dba). PSPC has contracts with Medicare, Medi-Cal, IEHP and various other state and governmental insurance providers. These contracts provide PSPC the right to sell and repair durable medical equipment (“DME”). PSP bills the insurance providers for payment. PSPC’s primary business is to repair power wheelchairs and scooters which are classified as DME products and reimbursable by healthcare insurance providers.
Effective June 29, 2016, the Company and PSPC entered into a share exchange agreement whereby the Company acquired 100% of the issued and outstanding shares of common stock of PSPC, in exchange for 300,000,000 shares of the Company’s common stock. Upon completion of the transaction, the Company had an aggregate of 330,480,000 shares of common stock issued and outstanding. As a result of the share exchange agreement, PSPC is now a wholly owned subsidiary of the Company.
The exchange of shares with PSPC was accounted for as a reverse acquisition under the purchase method of accounting since the Company had no net monetary assets and PSPC obtained control of the Company. Accordingly, the merger of PSPC into the Company was recorded as a recapitalization of PSPC, PSPC being treated as the continuing entity. The historical financial statements presented are the financial statements of PSPC. The equity of PSPC is presented as the equity of the combined company and the capital stock account of PSPC is adjusted to reflect the par value of the outstanding and issued common stock of the legal acquirer (Proto Script) after giving effect to the number of shares issued in the share exchange agreement. The share exchange agreement has been treated as a recapitalization and not as a business combination; therefore, no pro forma information is disclosed. At the date of this transaction, the net liabilities of the legal acquirer, Proto Script, were $106,262.
The Company’s health care insurance contracts allow it the ability to service patients nationally. The Company is seeking to expand its market through additional contracts and open several repair facilities throughout the continental United States. Currently the Company has repair facilities in Las Vegas, Nevada, Rancho-Cucamonga, and Anaheim, California.
The unaudited interim condensed consolidated financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2015. The results of the six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.
Stock Split
On October 13, 2016, the Company affected a 10 for 1 forward stock split. All share and per share information has been retroactively restated to reflect this forward stock split.
7
PROTO SCRIPT PHARMACEUTICAL CORP.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2016 and 2015
(unaudited)
Note 2 – Summary of Significant Accounting Policies
Accounting Method
The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a fiscal year ending on December 31.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, PSPC, and PSPC’s wholly-owned subsidiary, Proto-Script Pharmaceuticals, Corp., a Nevada Corporation, and have been prepared in conformity with accounting principles generally accepted in the United States of America. All significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is possible that accounting estimates and assumptions may be material to the Company due to the levels of subjectivity and judgment involved.
Cash
Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. As of September 30, 2016 and December 31, 2015, the Company did not have any cash equivalents.
Concentration of Risk
The Company maintains various bank accounts at financial institutions located in California and Nevada. Accounts at each bank are temporarily insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. As of September 30, 2016 and December 31, 2015, the Company had no uninsured cash balances. The Company experienced no losses from such accounts and management believes it places its cash on deposit with financial institutions that are financially stable.
Accounts Receivable
Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Bad debt expense (loss recovery) for the nine months ended September 30, 2016 and 2015 was $0 and $0, respectively.
8
PROTO SCRIPT PHARMACEUTICAL CORP.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2016 and 2015
(unaudited)
Collectability
The Company is governed by Medicare standards and therefore agrees to accept the Medicare-approved amounts as the total payment for the service or item. The Company also agrees to bill Medicare and other or suppliers directly on behalf of the patient.
We report patient accounts receivable net of estimated allowances for doubtful accounts and adjustments. Patient accounts receivable are uncollateralized and primarily consist of amounts due from Medicare, other third-party payers and patients. Our process for estimating the allowance for doubtful accounts is based upon our assessment of historical and expected net collections and trends in reimbursement.
Revenue Recognition
The Company’s revenue recognition policies comply with FASB ASC Topic 605,
“Revenue Recognition.”
The Company recognizes revenue when it provided the services, shipped the products and billed its customers, insurance companies, and government agencies, and no other significant obligations of the Company exist and collectability is reasonably assured. The Company’s billings are subject to insurance company and government regulatory agency adjustments. The Company revises the amount of revenue recognized when the insurance company and government regulatory adjustments are known to the Company. The adjustments to the amounts the Company can bill are changed approximately every five years when the government asks companies to submit a new bid. There is approximately one year between the time the Company is notified of any price changes until the time the new amounts come into effect.
Inventory
The Company purchases inventory from third party vendors, which consists of wheelchairs and scooters. Inventory, when carried if at all, represents finished goods, which is stated at lower of cost or market. The Company periodically reviews the value of items held in inventory and provides for write-downs or write-offs based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. The Company generally purchases product when it has a firm sales or service order. At September 30, 2016 and December 31, 2015, the Company had no inventory on hand.
Long-Lived Assets
The Company applies the provisions of ASC Topic 360,
Property, Plant, and Equipment
, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. As September 30, 2016 and December 31, 2015, there were no impairment losses recognized for long-lived assets.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation is computed on the straight-line basis over 60 months, the estimated useful life.
9
PROTO SCRIPT PHARMACEUTICAL CORP.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2016 and 2015
(unaudited)
Property and equipment consists of:
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September 30,
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December 31,
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2016
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2015
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Computers & Equipment
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$
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2,300
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$
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2,300
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Furniture & Fixtures
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1,584
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1,584
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Machinery & Equipment
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4,430
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4,430
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Truck & Auto
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18,282
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15,282
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Total
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26,596
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23,596
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Less accumulated depreciation
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(11,71)
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(8,155)
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Property and equipment, net
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$
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14,865
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$
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15,441
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For the nine months ended September 30, 2016 and 2015, the Company recognized $3,576 and $2,762 in depreciation expense, respectively.
Intangible assets
Intangible assets with finite lives are amortized over their estimated useful life. The Company monitors conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization period. The Company tests its intangible assets with finite lives for potential impairment whenever management concludes events or changes in circumstances indicate that the carrying amount may not be recoverable. The original estimate of an asset's useful life and the impact of an event or circumstance on either an asset's useful life or carrying value involves significant judgment.
During 2012, the Company purchased a competitor patient list for $230,000. The purchase price consisted of a cash payment of $35,000 and an installment purchase obligation of $195,000. At December 31, 2013, the installment purchase obligation was paid in full. The Company amortizes the patient list over its estimated useful life of 36 months.
During 2014, the Company purchased a competitor customer list for $10,000. Purchase price consisted of a cash payment of $10,000. The Company amortizes the customer list over its estimated useful life of 12 months.
Intangible assets consist of:
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September 30,
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December 31,
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2016
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2015
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Patient list
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$
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230,000
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$
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230,000
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Customer list
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10,000
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10,000
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Total
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240,000
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240,000
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Less accumulated amortization
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(240,000)
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(240,000)
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Intangible assets, net
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$
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-
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$
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-
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For the nine months ended September 30, 2016 and 2015, the Company recognized $0 and $59,166 in amortization expense, respectively.
10
PROTO SCRIPT PHARMACEUTICAL CORP.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2016 and 2015
(unaudited)
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, advances to suppliers, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
FASB ASC Topic 820,
Fair Value Measurements and Disclosures
, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825,
Financial Instruments
, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology us one or more unobservable inputs which are significant to the fair value measurement.
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480,
Distinguishing Liabilities from Equity
, and FASB ASC Topic 815,
Derivatives and Hedging
.
As of September 30, 2016 and December 31, 2015, respectively, the Company did not identify any assets and liabilities required to be presented on the balance sheet at fair value.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740,
Income Taxes
. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on the Company’s financial statements.
11
PROTO SCRIPT PHARMACEUTICAL CORP.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2016 and 2015
(unaudited)
Prior to the transaction described in Note 1, PSPC was taxed as an S corporation for income tax purposes as provided for under §1362 of the Internal Revenue Code of 1986, as amended. Therefore, all income is required to be reported on the individual stockholder’s income tax returns. An S corporation is not a taxpaying entity for federal income tax purposes. Accordingly, no federal income tax expense has been recorded in the financial statements prior to the June 29, 2016.
Basic and Diluted Earnings Per Share
Earnings per share is calculated in accordance with ASC Topic 260,
Earnings Per Share
. Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive convertible shares and stock warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. There were no potentially dilutive securities outstanding during 2016 and 2015; therefore, basic and diluted earnings (loss) per share are the same.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09,
Revenue from Contracts with Customers
, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. This pronouncement is effective for annual reporting periods beginning after December 15, 2016, and is to be applied using one of two retrospective application methods, with early application not permitted. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its financial statements.
In January 2015, the FASB issued ASU No. 2015-01 (Subtopic 225-20) -
Income Statement - Extraordinary and Unusual Items
. ASU 2015-01 eliminates the concept of an extraordinary item from GAAP. As a result, an entity will no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings-per-share data applicable to an extraordinary item. However, ASU 2015-01 will still retain the presentation and disclosure guidance for items that are unusual in nature and occur infrequently. ASU 2015-01 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-01 is not expected to have a material effect on the Company’s financial statements. Early adoption is permitted.
In February 2015, the FASB issued ASU No. 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis.
ASU 2015-02 provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company’s financial statements. Early adoption is permitted.
12
PROTO SCRIPT PHARMACEUTICAL CORP.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2016 and 2015
(unaudited)
In September 2015, the FASB issued ASU No. 2015-16,
Business Combinations (Topic 805).
Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the Update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is not expected to have a material effect on the Company’s financial statements.
In November 2015, the FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
. The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This update is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company does not anticipate the adoption of this ASU will have a significant impact on its financial position, results of operations, or cash flows.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840,
Leases (FAS 13)
. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its financial statements.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share Based Payment Accounting
, to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance will be effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of the adoption of this newly issued guidance to its financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future financial statements.
Note 3 – Other Payables
During the year ended December 31, 2014, the Company received $65,826 from two non-related parties, in order to fund working capital expenses. In addition, during the nine months ended September 30, 2016, the Company received and additional $10,000 from a non-related party. The amounts are unsecured and carry no interest rate or repayment terms. One of the non-related parties purchased a controlling interest in a publicly traded company. At September 30, 2016 and December 31, 2015, the amount outstanding was $75,826 and $65,826, respectively.
13
PROTO SCRIPT PHARMACEUTICAL CORP.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2016 and 2015
(unaudited)
Note 4 – Related Party Transactions
Loan to stockholder
The Company advances and borrows money from time to time to/from a related party. As of December 31, 2014, the Company was owed $161,770 from the Company’s CEO and stockholder. These advances are unsecured and carry no interest or repayment terms. Provision for loan to stockholder at December 31, 2014 was $135,973 resulting in a net balance of $25,797.
At September 30, 2015, the balance owed to the Company from its CEO was $100,046. At September 30, 2015, the Company’s board of directors approved such amount outstanding as a distribution to stockholder in compensation for services provided by the CEO. In addition, during the quarter ended December 31, 2015, the Company advanced the CEO and additional $15,980. At December 31, 2015, the Company’s board of directors approved $15,980 as a distribution to stockholder in compensation for services provided by the CEO.
During the nine months ended September 30, 2016, the Company made distributions to stockholder of $59,593.
The loan to stockholder balance at September 30, 2016 and December 31, 2015 was $0 and $0, respectively.
Due to related party
At September 30, 2016, $99,290 is due to a former director of the Company. The amount is unsecured, non-interest bearing and due on demand.
Note 5 – Stockholders’ Equity
In connection with the reverse merger transaction described in Note 1, the Company issued 30,480,000 shares for net liabilities of $106,262.
The Company prior to the reverse merger made a distribution to its sole stockholder of $59,593. Also $83,987 was reclassified from retained earnings to additional paid in capital as a result of PSPCs S corporation status being terminated.
On October 13, 2016, the Company affected a 10 for 1 forward stock split. All share and per share information has been retroactively restated to reflect this forward stock split.
Note 6 – Commitments and Contingencies
The Company leases its office/warehouse space from various third parties.
·
Rancho Cucamonga, California - $2,700/month. Combined office and warehouse space of approximately 4,000 sq. ft. The lease has expired and the Company continues to lease the office and warehouse space on a month-to-month basis.
·
Las Vegas, Nevada - $1,370/month. Combined office and warehouse space of approximately 1,600 sq. ft. The lease has expired and the Company continues to lease the office and warehouse space on a month-to-month basis.
·
Anaheim, California - $1,222/month. Combined office and warehouse space of approximately 950 sq. ft. The lease has expired and the Company continues to lease the office and warehouse space on a month-to-month basis.
For the nine months ended September 30, 2016 and 2015, the Company recognized $68,791 and $50,377, respectively, in rental or lease expense included in selling, general and administrative expense.
14
PROTO SCRIPT PHARMACEUTICAL CORP.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2016 and 2015
(unaudited)
Litigation
The Company is subject to other potential liabilities under government regulations and various claims and legal actions that may be asserted. Matters may arise in the ordinary course and conduct of the Company’s business, as well as through its acquisition of certain intangible assets. Claim estimates that are probable and can be reasonably estimated are reflected as liabilities of the Company. The ultimate resolution of these matters is subject to many uncertainties. It is reasonably possible that matters, which may be asserted, could ultimately be decided unfavorably for the Company. During the nine months ended September 30, 2016 and 2015, the Company did not face any claims or litigation.
15
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Safe Harbor Statement
This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.
These forward-looking statements involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs, and risk of declining revenues. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and we assume no obligation to update such forward-looking statements. The following discusses our financial condition and results of operations based upon our financial statements which have been prepared in conformity with accounting principles generally accepted in the United States. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.
The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Form 10-Q. The discussions of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future.
Overview
Proto Script Pharmaceutical Corp. (formerly Yanex Group, Inc.) (“we” or “Proto Script”) was incorporated under the laws of the State of Nevada on November 18, 2010. On October 13, 2016, we changed our name from Yanex Group, Inc. to Proto Script Pharmaceutical Corp.
Proto-Script Pharmaceuticals, Corp. (“PSPC”) was incorporated under the laws of the state of California on June 27, 2001 and currently operates as PSP Homecare (dba). PSPC has contracts with Medicare, Medi-Cal, IEHP and various other state and governmental insurance providers. These contracts provide PSPC the right to sell and repair durable medical equipment (“DME”). PSP bills the insurance providers for payment. PSPC’s primary business is to repair power wheelchairs and scooters which are classified as DME products and reimbursable by healthcare insurance providers.
Effective June 29, 2016, we and PSPC entered into a share exchange agreement whereby we acquired 100% of the issued and outstanding shares of common stock of PSPC, in exchange for 300,000,000 shares of our common stock. Upon completion of the transaction, we had an aggregate of 330,480,000 shares of common stock issued and outstanding. As a result of the share exchange agreement, PSPC is now our wholly owned subsidiary.
The exchange of shares with PSPC was accounted for as a reverse acquisition under the purchase method of accounting since we had no net monetary assets and PSPC obtained control of us. Accordingly, the merger of PSPC into us was recorded as a recapitalization of PSPC, PSPC being treated as the continuing entity. The historical financial statements presented are the financial statements of PSPC. The equity of PSPC is presented as the equity of the combined company and the capital stock account of PSPC is adjusted to reflect the par value of the outstanding and issued common stock of the legal acquirer (Proto Script, formerly Yanex) after giving effect to the number of shares issued in the share exchange agreement. The share exchange agreement has been treated as a recapitalization and not as a business combination; therefore, no pro forma information is disclosed. At the date of this transaction, the net liabilities of the legal acquirer, Proto Script (formerly Yanex), were $106,262.
Our health care insurance contracts allow us the ability to service patients nationally. We are seeking to expand our market through additional contracts and open several repair facilities throughout the continental United States. Currently we have repair facilities in Las Vegas, Nevada, Rancho-Cucamonga, and Anaheim, California.
Our independent registered public accountant has issued an audit opinion which includes a statement expressing substantial doubt as to our ability to continue as a going concern during the audit of our financial statements for the year ended December 31, 2015. Our common stock trades on the OTC Pink Sheets under the symbol “PSCR”.
Our principal office is located at 9830 6th Street, Suite 103, Rancho Cucamonga, California 91730. Our telephone number is (855) 476-7679. Our fiscal year end is December 31.
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Recent Developments
On April 28, 2016, we were awarded a contract by the Center for Medicare & Medicaid Services that begins on July 1, 2016 and expires on December 31, 2018. The contract requires us to furnish certain items of Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) under the Medicare DMEPOS Competitive Bidding Program. Our revenue is expected to increase because of the contract.
Results of Operations
Comparison of Results of Operations for the Three Months Ended September 30, 2016 and 2015
Sales
For the three months ended September 30, 2016, our net sales were $213,826 an increase of $91,557 compared to net sales of $122,269 for the same period in 2015. The increase is due to a new contract that were we awarded that began on July 1, 2016.
Cost of goods sold
For the three months ended September 30, 2016, our cost of goods sold were $39,396 an increase of $33,181 compared to $6,215 for the same period in 2015. The increase is due to the increase in net sales.
Operating expenses
For the three months ended September 30, 2016, our operating expenses were $174,281 an increase of $486 compared to $173,795 for the same period in 2015. The increase is not significant.
Net income (loss)
We generated net income of $149 for the three months ended September 30, 2016, compared to a net loss of $57,741 for the same period in 2015. This increase was due to an increase in sales.
Comparison of Results of Operations for the Nine Months Ended September 30, 2016 and 2015
Sales
For the nine months ended September 30, 2016, our net sales were $688,611 an increase of $20,911 compared to net sales of $667,700 for the same period in 2015. The increase is due to a new contract that were we awarded that began on July 1, 2016.
Cost of goods sold
For the nine months ended September 30, 2016, our cost of goods sold were $124,758 a decrease of $36,992 compared to $161,750 for the same period in 2015. The decrease lower product costs.
Operating expenses
For the nine months ended September 30, 2016, our operating expenses were $482,366 a decrease of $100,005 compared to $582,371 for the same period in 2015. The decrease is due to a decrease in amortization expense related to our intangible assets and a decrease in payroll and related costs.
Net income (loss)
We generated net income of $81,487 for the nine months ended September 30, 2016, compared to a net loss of $76,421 for the same period in 2015. This increase was due to lower cost of sales and lower operating expenses.
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Liquidity and Capital Resources
As of September 30, 2016, we had $5,796 in cash.
At September 30, 2016, we had current assets of $254,261 and current liabilities of $291,252 resulting in a working capital deficit of $36,991. We had a working capital surplus of $46,801 at December 31, 2015. The change in working capital is principally a result of approximately $106,000 liabilities assumed in the reverse merger transaction. See Note 1 to the financial statements.
Net cash provided by operating activities was $3,224 during the nine months ended September 30, 2016, compared to $41,622 in net cash used during the nine months ended September 30, 2015. The decrease in cash provided by operating activities is due to changes in accounts receivable.
Cash flows used in investing activities were $3,000 during the nine months ended September 30, 2016 compared to $3,364 during the nine months ended September 30, 2015. The decrease in cash used in investing activities is fewer purchases of property and equipment.
Cash flows used in financing activities were $3,518 during the nine months ended September 30, 2016 compared to $69,409 during the nine months ended September 30, 2015. The decrease in cash used in financing activities is due an increase in cash overdraft and advances from non-related party offset by a reduction in distributions to stockholder.
Inflation
The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
Off-Balance Sheet Arrangements
As of September 30, 2016, we had no off-balance sheet transactions that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is possible that accounting estimates and assumptions may be material to the Company due to the levels of subjectivity and judgment involved.
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Accounts Receivable
Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Bad debt expense (loss recovery) for the nine months ended September 30, 2016 and 2015 was $0 and $0, respectively.
Collectability
The Company is governed by Medicare standards and therefore agrees to accept the Medicare-approved amounts as the total payment for the service or item. The Company also agrees to bill Medicare and other or suppliers directly on behalf of the patient.
We report patient accounts receivable net of estimated allowances for doubtful accounts and adjustments. Patient accounts receivable are uncollateralized and primarily consist of amounts due from Medicare, other third-party payers and patients. Our process for estimating the allowance for doubtful accounts is based upon our assessment of historical and expected net collections and trends in reimbursement.
Revenue Recognition
The Company’s revenue recognition policies comply with FASB ASC Topic 605,
“Revenue Recognition.”
The Company recognizes revenue when it provided the services, shipped the products and billed its customers, insurance companies, and government agencies, and no other significant obligations of the Company exist and collectability is reasonably assured. The Company’s billings are subject to insurance company and government regulatory agency adjustments. The Company revises the amount of revenue recognized when the insurance company and government regulatory adjustments are known to the Company. The adjustments to the amounts the Company can bill are changed approximately every five years when the government asks companies to submit a new bid. There is approximately one year between the time the Company is notified of any price changes until the time the new amounts come into effect.
Long-Lived Assets
The Company applies the provisions of ASC Topic 360,
Property, Plant, and Equipment
, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then assets are written down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. As September 30, 2016 and December 31, 2015, there were no impairment losses recognized for long-lived assets.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740,
Income Taxes
. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on the Company’s financial statements.
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Prior to the transaction described in Note 1, PSPC was taxed as an S corporation for income tax purposes as provided for under §1362 of the Internal Revenue Code of 1986, as amended. Therefore, all income is required to be reported on the individual stockholder’s income tax returns. An S corporation is not a taxpaying entity for federal income tax purposes. Accordingly, no federal income tax expense has been recorded in the financial statements prior to the June 29, 2016.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.
ITEM 4. CONTROLS AND PROCEDURES.
Management's Report on Internal Control over Financial Reporting.
Our Internal control over financial reporting is a process that, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, was designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our trustees; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting August not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that our controls August become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures August deteriorate.
As management, it is our responsibility to establish and maintain adequate internal control over financial reporting. As of September 30, 2016, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting using criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our evaluation, we concluded that the Company maintained effective internal control over financial reporting as of September 30, 2016, based on criteria established in the Internal Control Integrated Framework issued by the COSO.
This quarterly report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this quarterly report.
Evaluation of disclosure controls and procedures.
As of September 30, 2016, the Company's Chief Executive Officer and Chief Financial Officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the date of filing this annual report applicable for the period covered by this report.
Changes in internal controls.
During the period covered by this report, no changes occurred in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS
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EXHIBIT
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NUMBER
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DESCRIPTION
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31.1
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Certification pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32.1
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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101.INS
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XBRL Instance Document*
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101.SCH
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XBRL Taxonomy Extension Schema Document*
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document*
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document*
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document*
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document*
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on January 5, 2017.
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PROTO SCRIPT PHARMACEUTICAL CORP.
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By:
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/s/ Michelle Rico
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Michelle Rico , Principal Executive Officer
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By:
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/s/ Michelle Rico
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Michelle Rico , Principal Financial Officer and Principal Accounting Officer
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