NOTES
TO FINANCIAL STATEMENTS
December
31, 2019 and 2018
NOTE
1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Canfield
Medical Supply, Inc. (the “Company”), was incorporated in the State of Ohio on September 3, 1992, and changed domicile
to Colorado on April 18, 2012. The Company is in the business of home health services, primarily the selling of durable medical
equipment and medical supplies to the public, nursing homes, hospitals and other end users.
Effective
June 21, 2019 WesBev LLC, a Nevada limited liability company ("WesBev"), acquired 8,000,000 shares of common stock
from Michael J. West, a founder, director and former principal shareholder of the Company, consisting of approximately 69.7% of
the issued and outstanding shares of the Company at the time of the purchase. As part of his agreement with WesBev, Mr. West undertook
to appoint or cause the appointment of up to three persons nominated by WesBev to the board of directors of the Company. Effective
June 21, 2019 the Company sold 336,000 shares of common stock to WesBev for $100,000. Following these stock purchases WesBev beneficially
owns 8,336,000 shares, or approximately 71% of the issued and outstanding shares of the Company and may be deemed to be in control
of the registrant.
On
December 31, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SBG
Acquisition Inc. (“Merger Sub”), a Nevada Corporation wholly-owned by the Company, and Splash Beverage Group, Inc.
a Nevada corporation (“Splash”) pursuant to which Merger Sub shall be merged with and into Splash (the “Merger”)
with Splash as the surviving company and a wholly-owned subsidiary of the Company. The closing of the Merger shall take place
on the first business day following satisfaction or waiver of the closing terms and conditions set forth in the Merger Agreement.
Completion
of the Merger is subject to customary closing terms and conditions including, among others:
|
●
|
the adoption of the Merger Agreement by Splash’s stockholders;
|
|
●
|
the representations and warranties of the respective parties being true and correct in all material respects as of the closing day of the Merger;
|
|
●
|
since June 1, 2019 through the closing of the Merger, Splash shall have raised from the aggregate sale of its equity securities not less than $1,500,000 which shall be available or was utilized for inventory purchases, reductions to accounts payable and for other general working capital purposes;
|
|
●
|
on the closing of the Merger liabilities of Splash debt shall not exceed $500,000;
|
|
●
|
Splash shall have entered into note conversion agreements with substantially all holders of its debt pursuant to which such debt is converted into shares Splash’s common stock at a conversion price of $1.00 per share;
|
|
●
|
designated shareholders of Splash shall have entered into lock-up/leak out agreements by which they will agree to restrict post-Merger sales of Canfield securities for a period of up to one year following the Merger, as more particularly described within the Merger Agreement;
|
|
●
|
the Company and Michael West, the Company’s former Chief Executive Officer, and a current director, shall have entered into a Business Transfer and Indemnity Agreement pursuant to which all operations, assets and liabilities of the Company’s home health services business shall be transferred and conveyed to Mr. West or an entity designated by Mr. West in exchange for his indemnifying the Company for certain liabilities and claims;
|
|
●
|
the Company shall not have any liabilities exceeding $50,000 in the aggregate;
|
|
●
|
the Company’s directors and officers shall have tendered their resignations;
|
|
●
|
Robert Nistico, Chief Executive Officer of Splash, shall be appointed as chief executive officer of the Company; and
|
|
●
|
the composition of the Company’s board of directors shall be as set forth in the Merger Agreement.
|
As of the date of this annual report, all conditions to closing have been completed, except for the fourth, and the seventh through
eleventh bulleted conditions listed above. The items listed in the seventh, ninth and tenth bulleted conditions above have been
finalized, but will not be delivered until the closing date.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”)
requires management to make estimates and assumptions that affect 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.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.
Accounts
Receivable
The
majority of the Company’s revenues are received from Medicare, Medicaid, and private insurance companies. As such, the Company
records revenues at allowable amounts, net of estimated allowances and discounts based on contracted prices and historical collection
rates. The Company reviews accounts receivable periodically for collectability and establishes an allowance for doubtful accounts
and records bad debt expense when deemed necessary. At December 30, 2019 and December 31, 2018, the Company has determined that
no allowance for doubtful accounts is necessary.
CANFIELD
MEDICAL SUPPLY, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2019 and 2018
NOTE
1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Property
and Equipment
Property
and equipment are recorded at cost and depreciated under straight line methods over each item's estimated useful life.
Inventory
The
Company carries inventory of durable medical equipment and medical supplies for resale. Inventory is accounted for on
a first–in first-out basis. Inventory consists of the following:
|
|
December 31, 2019
|
|
December 31, 2018
|
Durable medical equipment
|
|
$
|
22,759
|
|
|
$
|
33,570
|
|
Medical supplies
|
|
|
249
|
|
|
|
1,076
|
|
Enteral
|
|
|
7,551
|
|
|
|
7,049
|
|
TOTALS
|
|
$
|
30,559
|
|
|
$
|
41,695
|
|
Revenue
recognition
It
is the Company’s policy that revenues from product sales is recognized in accordance with ASC 606 "Revenue Recognition."
Five basic steps must be followed before revenue can be recognized; (1) Identifying the contract(s) with a customer that
creates enforceable rights and obligations; (2) Identifying the performance obligations in the contract, such as promising to
transfer goods or services to a customer; (3) Determining the transaction price, meaning the amount of consideration in a contract
to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer; (4) Allocating
the transaction price to the performance obligations in the contract, which requires the company to allocate the transaction price
to each performance obligation on the basis of the relative standalone selling prices of each distinct good or services promised
in the contract; and (5) Recognizing revenue when (or as) the entity satisfies a performance obligation by transferring a promised
good or service to a customer. The amount of revenue recognized is the amount allocated to the satisfied performance obligation.
For sales of our Company products, a purchase arrangement is evidenced by a written order, with delivery considered
as made after physical customer acceptance. Although rare, defective products may be returned, with other return issues considered
on a case by case basis. Services such as periodic scheduled deliveries are contracted in writing, and generally billed monthly.
Any service revenue earned by the Company for services such as safety and set up consulting or claims processing is recorded after
the service is performed. Rental of durable home medical equipment is evidenced by written contract, with revenue recognized when
rent is earned.
CANFIELD
MEDICAL SUPPLY, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2019 and 2018
NOTE
1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
The
Company’s primary source of revenue is reimbursement from Medicare, Medicaid, and private insurance companies for the procurement
and sale of medical equipment and supplies to patients. The amount of revenue earned from each classification as a percent of
total revenues is as follows:
|
|
December 31,
|
|
|
2019
|
|
2018
|
Medicare
|
|
|
19
|
%
|
|
|
29
|
%
|
Medicaid
|
|
|
7
|
%
|
|
|
9
|
%
|
Private pay/private insurance
|
|
|
73
|
%
|
|
|
58
|
%
|
Other
|
|
|
1
|
%
|
|
|
4
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
Advertising
Costs
Advertising
costs are expensed as incurred. The Company had advertising costs during the years ended December 31, 2019 and 2018 of $13,453
and $18,129, respectively.
Income
Tax
The
Company accounts for income taxes pursuant to ASC 740. Under ASC 740, deferred taxes are provided for using the liability method
whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards 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.
Through
February 2012, the Company was an S-Corporation for income tax purposes, and therefore a pass-through entity paying no income
tax at the corporate level. The Company had no material loss carryforwards as of December 31, 2011. Included in the Company’s
accumulated deficit from February 2012 forward is approximately $99,000 in undistributed S-Corporation losses. At December 31,
2019 and 2018 the Company had net operating loss carryforwards (NOL’s) of approximately $462,000 and $144,000 respectively,
which may be applied against future taxable income. However, if certain substantial changes in the Company’s ownership should
occur, there could be an annual limitation on the amount of net operating loss carryforwards that can be utilized. The amount
of and ultimate realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part,
upon the tax laws in effect, the future earnings of the Company, and other future events, the effects of which cannot be determined.
Because of the uncertainty surrounding the realization of the loss carryforwards, the Company has established a valuation allowance
equal to the tax effect (2019 and 2018: 21% federal and 5% state) of the loss carryforwards of approximately $120,000 and $37,440
at December 31, 2019 and 2018, respectively, and therefore, no deferred tax asset has been recognized for the loss carryforwards.
The change in valuation allowance is approximately $82,560 and ($19,760) for the periods ended December 31, 2019 and 2018, respectively.
The tax effect of remaining NOL’s and resulting deferred tax assets of $120,000 remain fully reserved by valuation allowance,
due to continued uncertainty as to their utilization.
CANFIELD
MEDICAL SUPPLY, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2019 and 2018
NOTE
1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Net
Income (Loss) per Share
Basic
net income per common share ("Basic EPS'') excludes dilution and is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted net income per common share ("Diluted
EPS'') reflects the potential dilution that could occur if stock options or other contracts to issue shares of common
stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of
securities that would have an anti-dilutive effect on net income per common share.
|
|
Year Ended
December 31, 2019
|
|
Year Ended December 31, 2018
|
Numerator
|
|
|
|
|
Net income (loss) applicable to common shareholders
|
|
$
|
(477,234
|
)
|
|
$
|
68,206
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
|
11,635,534
|
|
|
|
11,385,693
|
|
Stock options
|
|
|
300,000
|
|
|
|
—
|
|
Weighted average common shares outstanding, diluted
|
|
|
11,935,534
|
|
|
|
11,385,693
|
|
Net Income per share - Basic
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
Income per shares - Diluted
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
Financial
Instruments
The
carrying value of the Company’s financial instruments, as reported in the accompanying balance sheets, approximates fair
value.
Concentrations
Financial
instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents. The Company
places its cash and cash equivalents at well-known financial institutions, where at times, such balances may exceed FDIC insurance
limits.
The
Company receives a significant amount of its revenues in reimbursements from Medicare and Medicaid through competitive bidding processes.
There is no guarantee that the Company will be selected as a winning contract supplier under future bidding rounds.
Other
Selling, General and Administrative Expenses
Other
selling, general and administrative expenses included the following:
|
|
December 31,
|
|
|
2019
|
|
2018
|
Rent
|
|
$
|
27,504
|
|
|
$
|
27,504
|
|
Office expenses
|
|
|
25,765
|
|
|
|
40,727
|
|
Other SG&A
|
|
|
150,806
|
|
|
|
126,079
|
|
Total
|
|
$
|
204,075
|
|
|
$
|
194,310
|
|
CANFIELD
MEDICAL SUPPLY, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2019 and 2018
NOTE 1. ORGANIZATION,
OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Long-Lived
Assets
In
accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence
of facts or circumstances, both internally and externally, that suggest impairment. If impairment testing indicates a lack of
recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair
value. No impairment was noted during the years ended December 31, 2019 and 2018.
Products
and Services, Geographic Areas and Major Customers
The
Company’s business of medical supply sales constitutes one operating segment. All revenues each year were domestic and to
external customers.
Leases
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Lease (Topic 842),”
a new lease standard requiring lessees to recognize lease assets and lease liabilities for most leases classified as operating
leases under previous U.S. GAAP. A lessee should recognize in the statement of financial position a liability to make lease payments
(the lease liability) and a right-of-use asset (“ROU” asset) representing its right to use the underlying asset for
the lease term. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The
Company has adopted this standard effective January 1, 2019. The Company elected the optional transition method that permits adoption
of the new standard prospectively, as of the effective date, without adjusting comparative periods presented. See Note 6 for disclosure
required by ASC 842.
NOTE 2. EQUIPMENT
Property
and equipment are recorded at cost and consist of the following:
|
|
December 31,
|
|
|
2019
|
|
2018
|
Office equipment
|
|
$
|
2,934
|
|
|
$
|
2,934
|
|
Vehicles
|
|
|
70,208
|
|
|
|
70,208
|
|
Wheelchair rental pool
|
|
|
66,191
|
|
|
|
78,392
|
|
Total property and equipment
|
|
|
139,333
|
|
|
|
151,534
|
|
Accumulated depreciation
|
|
|
(95,488
|
)
|
|
|
(92,907
|
)
|
Net property and equipment
|
|
$
|
43,845
|
|
|
$
|
58,627
|
|
Depreciation
is computed using the straight-line method based upon estimated useful lives as follows:
Office
equipment
|
7 years
|
Vehicles
|
5 years
|
Wheelchair
rental pool
|
13 months
|
Depreciation
for 2019 and 2018 was $63,758 and $62,825, respectively.
The
wheelchair rental pool consists of wheelchairs rented to customers over the shorter of the 13 month use period as mandated by
Medicare and Medicaid, or the period over which the customer requires use of a wheelchair. At the end of the use period, the chair
is either returned to the pool to be rented to another customer, or title of the chair is transferred to the customer.
NOTE 3. LINE
OF CREDIT
At
December 31, 2019 and December 31, 2018, the Company owed a bank $69,534 and $66,181, respectively, under a revolving line of
credit. The line of credit is secured by all Company assets, is capped at $100,000, is due on demand, and bears interest at variable
rates approximating 7% on average. Interest expense under the note totaled $5,410 and $4,327 during the years ended December 31,
2019 and 2018, respectively. During 2019 and 2018, the Company made net borrowings $3,353 and $3,803, respectively.
CANFIELD
MEDICAL SUPPLY, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2019 and 2018
NOTE
4. RELATED PARTY LOAN
On June 21, 2019, the
Company entered into a short-term loan with Michael West, an officer of the Company, for $276,550. The loan has a one-year term
from June 21, 2019, and is non-interest bearing. The Company made payments of $78,701 on this loan, resulting in a loan balance
of $197,849 and $0 as of December 31, 2019 and December 31, 2018, respectively.
NOTE 5. LONG-TERM
DEBT
Long-term
debt consists of the following vehicle loans, which are collateralized by their underlying vehicles with net carrying values exceeding
the outstanding loan amounts:
|
|
December 31,
2019
|
|
December 31,
2018
|
|
|
|
|
|
3.53% installment note payable $352 monthly, including interest, through July 2019
|
|
$
|
—
|
|
|
$
|
2,782
|
|
|
|
|
|
|
|
|
|
|
3.79% installment note payable $299 monthly, including
|
|
|
|
|
|
|
|
|
interest, through July 2021
|
|
|
5,216
|
|
|
|
8,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.99% installment note payable $350 monthly, including interest, through August 2019
|
|
|
—
|
|
|
|
2,425
|
|
Total
|
|
|
5,216
|
|
|
|
13,739
|
|
|
|
|
|
|
|
|
|
|
Less principal due within one year
|
|
|
(3,152
|
)
|
|
|
(8,241
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LONG-TERM DEBT
|
|
$
|
2,064
|
|
|
$
|
5,498
|
|
Principal
payments due on long-term debt subsequent to December 31, 2019, are as follows:
|
2020
|
|
|
$
|
3,152
|
|
|
2021
|
|
|
|
2,064
|
|
|
TOTAL
|
|
|
$
|
5,216
|
|
CANFIELD
MEDICAL SUPPLY, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2019 and 2018
NOTE 6. STOCKHOLDERS’
EQUITY
Common
Stock
In
June 2019, the Company received net proceeds of $100,000 from the sale of 336,000 shares of no-par value common stock at $0.298
per share.
In
July 2018, the Company received net proceeds of $2,000 from the sale of 200,000 shares of no-par value common stock at $0.01 per
share.
2019
Stock Options Granted
On
November 26, 2019, the Board granted stock options to each of two officers, one director, and one advisor for
the purchase of 300,000 shares of the common stock of the Company. The options expire
in five years from the issuance date, have an exercise price of $0.55, and were immediately vested and exercisable. On
the grant date, total recognized compensation of $160,786 was recorded as salaries and wages.
|
|
For
the year ended
December
31, 2019
|
Number of shares
|
|
|
300,000
|
|
Fair market value per share
|
|
$
|
0.54
|
|
Stock based compensation recognized
|
|
$
|
160,786
|
|
As
of December 31, 2019, total unrecognized compensation remaining to be recognized in future periods totaled $0. The fair value
of each option award above is estimated using the Black-Scholes option-pricing model with
the following assumptions at the measurement date, which was deemed to be the November 26, 2019 grant date:
|
|
Measurement date
|
Dividend yield
|
|
|
0
|
%
|
Expected volatility
|
|
|
314.95
|
%
|
Risk-free interest rate
|
|
|
1.58
|
%
|
Expected life (years)
|
|
|
2
|
|
Stock Price
|
|
$
|
0.55
|
|
Exercise Price
|
|
$
|
0.55
|
|
A
summary of the activity for the Company's stock options is as follows:
|
|
December 31, 2019
|
|
|
Shares
|
|
Weighted Average
Exercise Price
|
Outstanding, beginning of year
|
|
|
0
|
|
|
$
|
0
|
|
Granted
|
|
|
300,000
|
|
|
$
|
0.55
|
|
Exercised
|
|
|
0
|
|
|
$
|
0
|
|
Canceled
|
|
|
0
|
|
|
$
|
0
|
|
Outstanding, end of year
|
|
|
300,000
|
|
|
$
|
0.55
|
|
Weighted average fair value of options granted
|
|
|
|
|
|
$
|
0.55
|
|
CANFIELD
MEDICAL SUPPLY, INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2019 and 2018
NOTE 7. LEASE
COMMITMENTS
The
Company rents office space under a non-cancellable lease through September 2020 with monthly payments of approximately $2,292.
Pursuant to ASC 842, an operating lease right-of-use (“ROU”) asset and liability were recognized at January 1, 2019
based on the present value of lease payments over the remaining lease term. The ROU asset represents the Company’s right
to use the underlying office space asset for the lease term, and the lease liability represents the Company’s obligation
to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable
and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The operating lease
ROU asset includes any lease payments made and excludes lease incentives. The Company recognized $27,504 in lease expense during
each of the years ended December 31, 2019 and 2018.
Remaining lease term at December 31, 2019 (in months)
|
|
|
9
|
|
Discount rate
|
|
|
5
|
%
|
|
|
Year Ended December 31, 2019
|
Operating lease expense
|
|
$
|
27,504
|
|
Cash paid for amounts included in measurement of lease liability
|
|
$
|
27,504
|
|
The
supplemental balance sheet information related to leases for the period is as follows:
Right-of-Use Asset
|
|
|
ROU Asset, January 1, 2019
|
|
$
|
43,677
|
|
Amortization of ROU Asset
|
|
|
(24,959
|
)
|
ROU Asset, December 31, 2019
|
|
$
|
18,718
|
|
Maturities
of the Company’s lease liabilities are as follows:
Year Ending
|
|
Payments
|
|
2020
|
|
|
$
|
20,628
|
|
|
Less: Imputed interest/present value discount
|
|
|
|
(1,910
|
)
|
|
Present value of lease liability at December 31, 2019
|
|
|
$
|
18,718
|
|
NOTE 8. GOING
CONCERN
The
Company has suffered losses from operations and has working capital and stockholders’ equity deficits. In all likelihood,
the Company will be required to make significant future expenditures in connection with marketing efforts along with general administrative
expenses. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The
Company may raise additional capital through the sale of its equity securities, through an offering of debt securities, or through
borrowings from financial institutions or related parties. By doing so, the Company hopes to generate sufficient capital to execute
its business plan of selling medical supplies on an ongoing basis. Management believes that actions presently being taken to obtain
additional funding provide the opportunity for the Company to continue as a going concern.
NOTE 9. SUBSEQUENT
EVENTS
The
Company has evaluated subsequent events through the date these financial statements were issued and determined that there are
no reportable subsequent events.