U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the fiscal year ended December 31, 2019
     
  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________to _________

 

Commission File Number 000-55114

 

Canfield Medical Supply, Inc.

(Exact name of registrant as specified in its charter)

 

Colorado   34-1720075
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

4120 Boardman-Canfield Road, Canfield, Ohio   44406
(Address of principal executive offices)   (Zip Code)

 

Registrant's Telephone Number, including area code: (330) 533-1914

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol Name of each exchange on which registered
None    

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, No Par Value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes  ☒ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

☐ Yes   ☒ No

 

Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company,” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Act). ☐ Yes  ☒ No

 

The aggregate market value of the Registrant's common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant's most recently completed second fiscal quarter was $3,683,160.

 

On March 27, 2020, there were 11,813,200 shares of the Registrant's common stock outstanding.

 

     

 

 

 

 

CANFIELD MEDICAL SUPPLY, INC.

 

FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2019

 

TABLE OF CONTENTS

 

    Page
PART I
     
Item 1. Business 3
Item 1A. Risk Factors 9
Item 1B. Unresolved Staff Comments 9
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Mine Safety Disclosures 9
     
PART II
     
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 15
Item 9A. Controls and Procedures 15
Item 9B. Other Information 16
     
PART III
     
Item 10. Directors, Executive Officers and Corporate Governance 17
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 21
Item 13. Certain Relationships and Related Transactions and Director Independence 21
Item 14. Principal Accounting Fees and Services 21
     
PART IV
     
Item 15. Exhibits, Financial Statement Schedules 23
  Signatures 24

 

 

 

  2  

 

 

 

PART I

 

Item 1.  Business.

 

General Information

 

Canfield Medical Supply, Inc. ("the Company," "it", "we', "us" or "our") was incorporated in the State of Ohio on September 3, 1992.  On April 18, 2012 it changed its domicile to the State of Colorado by merging with a newly formed Colorado subsidiary.

 

We commenced our operations in September 1992.  Initially we operated as a compounding pharmacy providing Intradialytic Parenteral Nutrition (a means of providing additional nutrition to patients on dialysis) to patients with End Stage Renal Disease who had experienced excessive weight loss due to intestinal malabsorption.  We also provided pharmacy services to patients who required intravenous antibiotic therapy, home total parenteral nutrition and home enteral nutrition. (Enteral nutrition involves absorption of the drug through the gastrointestinal tract and parenteral nutrition involves administering the drug/nutrition in some way other than the digestive tract.)  We also provided various nebulizer medications for patients with chronic obstructive pulmonary disease. (A nebulizer is a device used to administer medication in the form of a mist inhaled into the lungs.) We ceased pharmacy operations in May 2002 in response to significant reductions in reimbursement by Medicare, Medicaid and Private Insurance Companies, and changed our focus to providing quality home medical equipment and supplies to patients in our geographical area. We have never been involved in any bankruptcy, receivership, or similar proceeding.

 

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 owned 8,336,000 shares, or approximately 71% of the issued and outstanding shares of the Company.

 

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.

 

At the closing of the Merger, each outstanding share of common stock, Series A Preferred Stock and Series B Preferred Stock of Splash, shall be converted into such amount of fully paid and non-assessable shares of common stock of the Company. Upon completion of the merger, shareholders of Splash as a group will own on a fully diluted basis approximately 85% of the Company and the current shareholders of the Company as a group will own on a fully diluted basis approximately 15% of the Company.

 

  3  

 

Business

 

We are a provider of home medical equipment, supplies and services (which relate to the equipment sales) in Ohio's Mahoning Valley, with an emphasis on providing for patients with mobility related limitations.  We also sell to patients in Western Pennsylvania and Northern West Virginia.  We typically provide equipment, supplies and services to people who have had strokes, hip or knee replacements, and other surgeries after they are discharged from a hospital or rehab center.  We provide almost any medical equipment and supplies these persons need to enable them to remain in their homes. We have been in the home health care business since 1992 and have developed relationships with many of the local physicians, discharge planners for hospitals and rehab facilities, nursing services, and home health agencies.

 

We operate in only one segment, which is home medical equipment and supplies.  We also provide the services described below along with the equipment and supplies, but most of our revenue is derived from the sale of equipment and supplies.  Most of the equipment and supplies that we sell are prescribed by a physician and are part of a care plan.  We provide substantial benefits to both patients and payors by allowing patients to receive necessary care and services in the comfort of their own home while reducing the cost of treatment.  Our services include:  

 

1. Providing in-home delivery, set-up, and maintenance of equipment;
2. Providing patients and caregivers with written instructions about home safety, self-care, and the proper use of equipment;
3. Processing claims to third-party payors and billing/collecting patient co-pays and deductibles.

 

We supply a wide range of home medical equipment to help improve the quality of life for patients with special needs, particularly those who face unique mobility challenges as they try to remain independent in their homes.  The use of home medical equipment provides a significant relative cost advantage to our patients and payors.  The basic categories of equipment we carry are:

 

1. Electric wheelchairs, scooters, and lift chairs
2. Manual wheelchairs and ambulatory equipment, such as wheeled walkers, canes, and crutches;
3. Hospital beds;
4. Bathroom equipment, such as bedside commodes, shower chairs, grab bars, and toilet risers;
5. Support surfaces, such as pressure pads and mattresses, for patients at risk for developing pressure sores or decubitus ulcers;
6. Threshold ramps, folding ramps, and lift systems for cars or vans that make it easy to exit the home or transport electric wheelchairs or scooters.

 

  4  

 

 

Our Competitive Strength

 

Our principal competitive strength is that we are an established local company in the Mahoning Valley with a reputation for good service and good quality.  If a patient has any problems with a piece of equipment they purchase from us, they can call us and we will take care of the problem. Historically we have not experienced significant returns or refunds. We contract with Medicare, Medicaid, most major health insurance companies, and a number of other payors.  We are especially known as a business that can provide almost anything a patient with reduced mobility needs, including home modifications necessary to remain independent in the home.

 

We also qualify as a "small supplier" under the Medicare competitive bidding program, since our annual revenues are less than $3.5 million.  The Medicare regulations have established a 30 percent target for small supplier participation, which improves our chances of winning small bids from Medicare.  As a supplier in the Medicare program, we are required to meet and adhere to certain standards set by Medicare.

 

We also participate in the Ohio Medicaid program.  Our agreement with the Ohio Department of Jobs and Family Services expires on July 31, 2020 at which time we must apply for a new agreement.

 

Organization and Operations

 

Organization.  Our only facility is our office/showroom located at 4120 Boardman-Canfield Road in Canfield, Ohio, about eight miles southwest of Youngstown, Ohio.  From this location we deliver our home healthcare products and services to patients in their homes and to other care sites using our delivery vehicles and our employees.

 

Payors.  We derive substantially all of our revenues from third-party payors, including private insurers, Medicare, Medicaid, and managed care organizations.  For the year ended December 31, 2019, approximately 29% of our net revenues were derived from Medicare and Medicaid.  Generally, each third-party payor has specific requirements, which must be met before claim submission will result in payment.  We have procedures in place to manage the claims submission process, including verification procedures to facilitate complete and accurate documentation.  Notwithstanding these measures, violation of these requirements may still occur and could result in the termination of a contract with a payor, the repayment of amounts previously received, or other potentially significant liability.  When the third-party payor is a governmental entity, violations of these requirements could subject us to civil, administrative, and criminal enforcement actions.  We are subject to periodic audits by Medicare and Medicaid, the results of which have not identified any violations by us of these governmental entities' claim submission requirements.

 

Medicare Claims.  Most Medicare claims are paid within 30 to 60 days of submission. High dollar claims such as power chairs and pressure reduction surfaces require increased scrutiny by Medicare.  Such high dollar claims frequently are singled out for pre-payment audits, which require all hard copy documentation of the patient's condition by the physician be sent in to Medicare prior to receiving payment.  These claims take a minimum of 60 days to process and denials must be appealed.  All subsequent claims to Medicare for rental payments for the denied equipment continue to be denied until the appeal process is finished.  All of these claims require additional time to be completed and sometimes require phone calls to patients and doctors to reconcile.  Management is constantly reviewing unpaid claims to determine their status and claims are not written off until all attempts to collect payment from Medicare have been exhausted.  We historically write off approximately 5% of Medicare payments due to unsuccessful collection attempts.

 

Medicaid Claims.  Based on our results for the last three years, approximately 70% of our Medicaid claims are paid within 30 days.  Any claims not paid within 30 days usually have a billing error that has not been resolved by management and end up getting resolved and paid within an additional 30 to 60 days.

 

Self-pay Claims.  Approximately 12% of our business during the year ended December 31, 2019 was comprised of self-pay business.  This business represents persons who come into our store and purchase items not covered by insurance and patients who already may be purchasing something from us that is covered by insurance and they desire to purchase something additional that is not covered by insurance.  Some of these customers pay for their product at the time of purchase and we send or deliver invoices to the others.  These invoices request payment on receipt of the invoice.  We consider these receivables delinquent once they are 180 days late.  We rely on our past collection experience with other patients for similar or different products to determine if any of such receivables are still collectible.  At December 31, 2019, we determined that no allowance for such items was necessary.

 

With respect to our claims submitted to third party payors, our billing system generates contractual adjustments based on fee schedules for the patient's insurance plan for each claim.

 

 

  5  

 

  

Receivables Management.  We operate in an environment with complex requirements governing billing and reimbursement for our products and services.  We are expanding our use of technology in areas such as electronic claims submission and electronic funds transfer whenever we can to more efficiently process business transactions.  This use of technology can expedite claims processing and reduce the administrative cost associated with this activity for both us and our customers/payors.  Our policy is to collect co-payments from the patient or applicable secondary payor.  In the absence of a secondary payor, we generally require the co-payment at the time the patient is initially established with the product/service.  Subsequent months' co-payments are billed to the patient.

 

With respect to rentals of power chairs, once initial delivery of rental equipment is made to the patient, a monthly billing cycle is established based on the initial date of delivery.  The Company recognizes rental revenue ratably over the 13-month service period.  Routine maintenance and servicing of the equipment is the responsibility of the Company.

 

Marketing

 

We market our products and services primarily to physicians, discharge planners for hospitals and rehab facilities, nursing services, companies that provide home care companions and aides, home health agencies, and case managers.  Our marketing is primarily done by Michael West, our former President who has developed relationships with many of the persons to whom we market in the course of his dealings with prior patients who purchased our products or services over the past 25 years that we have been in business.  Most of our marketing consists of face-to-face meetings and in-service education with the staff at facilities to which we provide services.  We also provide educational pamphlets and product specific brochures to go along with marketing materials such as pens, scratch pads, calendars, and prescription pads.

 

One of the marketing steps we have taken is to be accredited by The Joint Commission, which is a nationally recognized organization that develops standards for various healthcare industry segments and monitors compliance with those standards through voluntary surveys of participating providers.  We have been accredited by The Joint Commission since 2008, with on-site accreditation renewal every three years and online recertification every year.  As the home healthcare industry has grown and accreditation has become a mandatory requirement for Medicare DMEPOS providers, the need for objective quality measurements has increased.  Accreditation is also widely considered a prerequisite for entering into contracts with managed care organizations and is required for Medicare competitive bidding.  Because accreditation is expensive and time consuming, not all providers choose to undergo the process.

 

Sales

 

Our President has primary responsibility for generating new referrals and for maintaining existing relationships for our products and services.  Our customers are typically the patients who purchase and utilize our products and services, but these patients are usually referred to us by physicians and their staffs, the discharge planners in hospitals and rehab facilities, nursing services and services that provide home care companions, and aides.  We have several rehabilitation facilities that refer a significant amount of patients to us that account for in excess of 25% of our gross revenues.  These facilities include Park Vista Rehabilitation, Sunrise Senior Living, and Whispering Pines Village Assisted & Independent Living.  However, these facilities also refer business to other providers. 

 

  6  

 

 

Website

 

We currently have a website which shows pictures of most of the products we sell with links to the manufacturers/suppliers of the products.  This allows viewers to obtain more information on the products.  The website is not designed to be used for online sales, and instead it is used more to show new or existing patients what products we can obtain and sell to them.  There is also no product pricing on the website.

 

We intend to enhance this website so that online sales can be made on the website once we have funding available.  We intend to contract with a leading web store builder program that offers a wealth of features to expand our business and provide support as our business grows.  This program will make it easy to launch and maintain our web store.  We hope to build a state-of-the-art e-commerce site that reflects our brands and puts our Company on a fast track to leveraging the sales opportunities on the Internet.  This whole process could be accomplished in only a manner of weeks once funding is available, and will not require the purchase of new computers or software licenses, or hiring of additional staff.

 

Competition

 

The segment of the healthcare market in which we compete is highly competitive.  In our line of products and services, there are a limited number of national providers and numerous regional and local providers.  The competitive factors most important in our local market are:

 

1. Reputation with referral sources, including local physicians and hospital-based professionals;
2. Price of products and services;
3. Accessibility and overall ease of doing business;
4. Quality of patient care and associated services;
5. Range of home healthcare products and services;
6. Ability to provide local maintenance service on products sold.

 

The primary national provider with which we compete is Apria Healthcare Group, Inc., and the primary regional providers with which we compete in Northeastern Ohio and Western Pennsylvania are Boardman Medical Supply, Inc., Community Home Medical, Inc., and Seeley Medical, Inc.  Depending on their business strategies and financial position, a very large percentage of our competitors have access to significantly greater financial and marketing resources than we do.  This may increase pricing pressure and limit our ability to maintain or increase our market share.

 

Government Regulation

 

We are subject to extensive government regulation, including numerous laws directed at regulating reimbursement of our products and services under various government programs and preventing fraud and abuse, as more fully described below. We maintain certain safeguards intended to reduce the likelihood that we will engage in conduct or enter into arrangements in violation of these restrictions.  All contracts with Insurance Companies are fairly standard and do not require legal opinions, and all our policies and procedures have been reviewed by The Joint Commission and meet Industry standards and requirements.  Federal and state laws require that we obtain facility and other regulatory licenses and that we enroll as a supplier with federal and state health programs.  Notwithstanding these measures, due to changes in and new interpretations of such laws and regulations, and changes in our business, among other factors, violations of these laws and regulations may still occur, which could subject us to civil and criminal enforcement actions; licensure revocation, suspension, or non-renewal; severe fines and penalties; and even the termination of our ability to provide services, including those provided under certain government programs such as Medicare and Medicaid.

 

Medicare and Medicaid Revenues.  In the years ended December 31, 2019 and 2018, approximately 29% of our net revenues were reimbursed by the Medicare and state Medicaid programs, respectively.  No other third-party payor represented more than 10% of our total net revenues for the year ended December 31, 2019.  The majority of our revenues are derived from sales of equipment and supplies we sell to patients for patient care under fee-for-service arrangements.   Fee-for-service is a payment model where services are unbundled and paid for separately, and occurs when doctors and other health care providers receive a fee for each service, such as an office visit, test, or procedure.  Since most of the manufacturers of the products we sell do not provide direct patient care, our services primarily involve providing in-home-delivery, set-up, and maintenance of home medical equipment.  All of these services are included in our service under a single claim, and cannot be billed separately. We do not have ongoing arrangements with patients or medical providers, other than rental agreements that we have for wheel chairs and hospital beds.

 

 

  7  

 

 

Medicare Reimbursement. There are a number of legislative and regulatory initiatives in Congress and at CMS that affect or may affect Medicare reimbursement policies for products and services we provide. Specifically, a number of important legislative changes that affect our business were included in the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("MMA"); the Deficit Reduction Act of 2005 ("DRA"); MIPPA, which became law in 2008; and the comprehensive healthcare reform law signed in March 2010 ("the Reform Package").  These Acts and their implementing regulations and guidelines contain numerous provisions that are significant to us and continue to have an impact on our operations today.

 

Employees

 

As of December 31, 2019, we had four full-time and five part-time employees.

 

 

  8  

 

 

 

Item 1A.   Risk Factors.

 

As a smaller reporting company, we are not required to provide the information required by this item.

 

Item 1B.  Unresolved Staff Comments.

 

None.

 

Item 2.    Properties.

 

Our offices are located at 4120 Boardman-Canfield Road, Canfield, Ohio 44406.  We rent our offices pursuant to a three-year lease extension which expires in September 2020.  Our monthly rent is approximately $2,700, plus costs.

 

Item 3.    Legal Proceedings.

 

No legal proceedings are currently pending or threatened to the best of our knowledge.

 

Item 4.    Mine Safety Disclosures.

 

Not applicable.

 

 

  9  

 

 

PART II

 

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Price Ranges of Common Stock

 

Our stock is quoted on the OTCQB under the symbol “CNMF.” We were listed on July 10, 2018. There are 11,813,200 shares outstanding as of March 27, 2020. The below table provides the high and low bid prices of our common stock for each quarterly period during the previous two fiscal years.

 

   

Year ended

December 31, 2019

    High   Low
Fourth Quarter   $ 1.50     $ 0.54  
Third Quarter   $ 8.99     $ 0.60  
Second Quarter   $ 1.37     $ 0.45  
First Quarter   $ 0.07     $ 0.01  

 

   

Year ended

December 31, 2018

    High   Low
Fourth Quarter     $ 0.70         $ 0.01  
Third Quarter     $ 0.01         $ 0.01  
Second Quarter     $ N/A       $   N/A  
First Quarter     $ N/A       $   N/A  

 

Aggregate Number of Holders of Common Stock

 

The number of record holders of our common stock on December 31, 2019 was 133.

 

Dividends

 

Holders of our common stock are entitled to receive dividends as may be declared from time to time by our Board of Directors. We have not paid any cash dividends on our common stock and do not anticipate paying any in the foreseeable future. Management's current policy is to retain earnings, if any, for use in our operations and for expansion of the business.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

None.

 

Equity Compensation Plan Information

 

We do not have any compensation plans or stock option plans.

 

Recent Sales of Unregistered Securities

 

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.  

 

The above listed sales were made pursuant to the exemption from registration available under Section 4(a)(2) of the Securities Act of 1933.

 

Item 6.    Selected Financial Data.

 

This item is not required for Smaller Reporting Companies.

 

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis should be read in conjunction with the Financial Statements and Notes to Financial Statements filed herein.

 

  10  

 

 

Business Overview

 

We primarily provide services to the rehabilitation market, which consists primarily of home medical equipment and supplies.  More than 50% of our revenues are derived from the sale and rental of durable home medical equipment including such items as wheeled walkers, manual and power wheelchairs, hospital beds, ramps, bedside commodes, and miscellaneous bathroom equipment.  The balance of our revenue is from the sale of various home medical supplies including diabetic testing, incontinence, ostomy, wound care, and catheter care.  Our emphasis is on helping patients with mobility related limitations, but our overall business is aimed at helping patients remain in their homes instead of having to go to hospitals, rehab centers, and other similar facilities.  Most of the equipment and supplies that we sell are prescribed by a physician as part of an overall care plan.

 

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 owned 8,336,000 shares, or approximately 71% of the issued and outstanding shares of the Company.

 

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.

 

At the closing of the Merger, each outstanding share of common stock, Series A Preferred Stock and Series B Preferred Stock of Splash, shall be converted into such amount of fully paid and non-assessable shares of common stock of the Company. Upon completion of the merger, shareholders of Splash as a group will own on a fully diluted basis approximately 85% of the Company and the current shareholders of the Company as a group will own on a fully diluted basis approximately 15% of the Company.

 

Results of Operation for the year ended December 31, 2019 as compared to the year ended December 31, 2018

 

Revenues for the year ended December 31, 2019 were $1,017,833 as compared to the revenues of $1,309,178 for the year ended December 31, 2018.  The $291,345 decrease in sales is due to a decrease in the number of expensive complex rehab powerchairs sold as well as custom manual wheelchairs sold in the year ended December 31, 2019 as compared to the year ended December 31, 2018.

 

Cost of goods sold for the year ended December 31, 2019 were $508,874 as compared to cost of goods sold for the year ended December 31, 2018 of $605,273.  The $96,399 decrease in cost of goods sold during the year ended December 31, 2019 is primarily due to our decreased sales of powerchairs and manual wheelchairs. As our sales of those products decreased, our costs associated with the sale of those products correspondingly decreased.

 

Operating expenses for the year ended December 31, 2019 were $927,209 as compared to $637,230 for the year ended December 31, 2018.  The $289,979 increase in operating expenses was primarily due to an $82,026 increase in our professional fees due to change in control, a $36,469 increase in salaries and wages, and issuance of stock options valued at $160,786.

 

Our net loss for the year ended December 31, 2019 was $477,234 as compared to net income of $68,206 for the year ended December 31, 2018. The primary reasons for the change to a net loss for 2019 versus net income in 2018 was our $291,349 decrease in revenue for the year ended December 31, 2019, coupled with our $342,125 increase in operating expenses during the period.

 

 

  11  

 

 

Liquidity and Capital Resources

 

As of December 31, 2019, we had a working capital deficit of $260,888 compared to a working capital deficit of $55,788 as of December 31, 2018.

 

Net cash used for operating activities during the year ended December 31, 2019 was $228,405 as compared to net cash provided by operating activities for the year ended December 31, 2018 of $62,392. The primary reasons for the change in our cash related to operating activities was the decrease in revenue and the increase in operating expenses as explained above.

 

Net cash used for investing activities during the year ended December 31, 2019 was $47,939, which consisted of $54,385 used for the purchase of equipment which was offset by $6,446 received from the sale of equipment as compared to net cash used for investing activities of $67,569 for the year ended December 31, 2018, which consisted of $75,633 used for the purchase of equipment offset by $8,064 received from the sale of equipment.

 

Net cash provided by financing activities during the year ended December 31, 2019 was $292,679 as compared to $5,764 used for financing activities for the year ended December 31, 2018. The Company sold shares of its common stock during the years ended December 31, 2019 and 2018 for proceeds of $100,000 and $2,000, respectively. The Company also paid $8,523 and $11,567 in debt principal during the years ended December 31, 2019 and 2018, respectively. In addition, during the year ended December 31, 2019, an officer lent the Company net proceeds of $197,849 in cash to be used for working capital.

 

We believe that our recent public and private offerings will provide sufficient capital in the short term for our current level of operations.  Additional resources will be needed to build our web store and to otherwise increase advertising and marketing.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Critical Accounting Policies and Estimates

 

See Note 1 to the accompanying financial statements for complete disclosure of our critical accounting policies and estimates.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the 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.

 

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.

 

  12  

 

 

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.

 

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.

 

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.

 

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 1 to the accompanying financial statements for disclosure required by ASC 842.

 

Item 7A.   Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable for smaller reporting companies.

 

Item 8.    Financial Statements and Supplementary Data. 

 

 

  13  

 

 

CANFIELD MEDICAL SUPPLY, INC.

Financial Statements

 

TABLE OF CONTENTS

 

 

  Page
   
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS F-1
   
FINANCIAL STATEMENTS  
   
     Balance Sheets F-2
     Statements of Operations F-3
     Statements of Changes in Stockholders' Deficit F-4
     Statements of Cash Flows F-5
     Notes to Financial Statements F-6 - F-13

 

 

  14  

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

Canfield Medical Supply, Inc.

Canfield, OH

 

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Canfield Medical Supply, Inc. (the Company) as of December 31, 2019 and 2018, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Consideration of the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses and has working capital and stockholders' equity deficits, which raise substantial doubt about its ability to continue as a going concern. Management's plans regarding these matters are described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Pinnacle Accountancy Group of Utah

We have served as the Company’s auditor since 2018.

Pinnacle Accountancy Group of Utah

(a DBA of Heaton & Co., PLLC)

Farmington, Utah

March 27, 2019 

 

 

  F-1  

 

  

CANFIELD MEDICAL SUPPLY, INC.

BALANCE SHEETS

 

    December 31,   December 31,
    2019   2018
ASSETS                
Current Assets                
Cash   $ 23,315     $ 6,980  
Accounts receivable     309,622       300,993  
Inventory     30,559       41,695  
Right-of-use asset     18,718       —    
Total Current Assets     382,214       349,668  
                 
                 
Other Assets                
Equipment, net of accumulated depreciation of $95,488 and $92,907     43,845       58,627  
         Total Assets   $ 426,059     $ 408,295  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                
                 
Current Liabilities                
Accounts payable and accrued liabilities   $ 353,849     $ 331,034  
Line of credit     69,534       66,181  
Due to officer     197,849       —    
Lease liability     18,718       —    
Current portion of long-term debt     3,152       8,241  
Total Current Liabilities     643,102       405,456  
Long-term liabilities                
Long-term debt     2,064       5,498  
Total Long-term Liabilities     2,064       5,498  
          Total Liabilities     645,166       410,954  
                 
Stockholders' Equity (Deficit)                
Preferred stock, no par value; 5,000,000 shares authorized; no shares issued and outstanding     —         —    
 Common stock, no par value; 100,000,000 shares authorized; 11,813,200 (December 31, 2019) and 11,477,200 (December 31, 2018) shares  issued and outstanding     345,515       245,515  
Additional paid-in capital     160,786       —    
Accumulated deficit     (725,408 )     (248,174 )
Total Stockholders' Equity (Deficit)     (219,107 )     (2,659 )
Total Liabilities and Stockholders' Equity (Deficit)   $ 426,059     $ 408,295  

 

The accompanying footnotes are an integral part of these financial statements.

 


  F-2  

 

 

CANFIELD MEDICAL SUPPLY, INC.

STATEMENTS OF OPERATIONS

 

    Year Ended   Year Ended
    December 31, 2019   December 31, 2018
         
Sales (net of returns)   $ 1,017,833     $ 1,309,178  
Cost of goods sold     508,874       605,273  
Gross profit     508,959       703,905  
                 
Operating expenses:                
Salaries and wages     517,725       320,470  
Professional fees     193,797       59,625  
Depreciation     63,758       62,825  
Other selling, general and administrative     204,075       194,310  
    Total operating expenses     979,355       637,230  
                 
Income (loss) from operations     (470,396 )     66,675  
                 
Other income (expense):                
Interest income     501       —    
Interest expense     (8,376 )     (5,715 )
Gain on sale of fixed assets     1,037       7,246  
   Total other income (expense)     (6,838 )     1,531  
                 
Income (loss) before provision for income taxes     (477,234 )     68,206  
Provision for income tax     —         —    
                 
Net income (loss)   $ (477,234 )   $ 68,206  
                 
Net income (loss) per share applicable to common shareholders - basic   $ (0.04 )   $ 0.01  
Net income (loss) per share applicable to common shareholders - diluted     (0.04 )   $ 0.01  
                 
Weighted average number of common shares outstanding - basic     11,635,534       11,385,693  
Weighted average number of common shares outstanding - diluted     11,935,534       11,385,693  

 

The accompanying footnotes are an integral part of these financial statements.

 

  F-3  

 

 

 

CANFIELD MEDICAL SUPPLY, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

 

    Common Stock (No Par)   Additional Paid-in   Accumulated   Stockholders'
    Shares   Amount   Capital   Deficit   Equity (Deficit)
                     
Balances at December 31, 2017     11,277,200     $ 243,515     $ —       $ (316,380 )   $ (72,865 )
                                         
Common stock issued for cash     200,000       2,000                       2,000  
                                         
Net income for the year                             68,206       68,206  
                                         
Balances at December 31, 2018     11,477,200     $ 245,515     $ —       $ (248,174 )   $ (2,659 )
                                         
Common stock issued for cash     336,000       100,000                       100,000  
                                         
Stock options granted and vested                     160,786               160,786  
                                         
Net (loss) for the year                             (477,234 )     (477,234 )
                                         
Balances at December 31, 2019     11,813,200     $ 345,515     $ 160,786     $ (725,408 )   $ (219,107 )

  

The accompanying footnotes are an integral part of these financial statements

 

  F-4  

 

  

CANFIELD MEDICAL SUPPLY, INC.

STATEMENTS OF CASH FLOWS

 

    December 31,   December 31,
    2019   2018
         
Cash Flows from Operating Activities:                
Net income (loss)   $ (477,234 )   $ 68,206  
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:                
Gain on disposal of fixed assets     (1,037 )     (7,246 )
Depreciation     63,758       62,825  
Stock-based compensation     160,786       —    
Changes in current assets and liabilities                
Increase in accounts receivable     (8,629 )     (149,731 )
(Increase) decrease in inventory     11,136       (16,486 )
Increase in accounts payable and accrued liabilities     22,815       104,824  
     Net cash provided by (used for) operating activities     (228,405 )     62,392  
                 
Cash Flows From Investing Activities:                
Proceeds from sale of fixed assets     6,446       8,064  
Purchase of property and equipment     (54,385 )     (75,633 )
     Net cash (used for) investing activities     (47,939 )     (67,569 )
                 
Cash Flows from Financing Activities:                
Net borrowings on line of credit     3,353       3,803  
Proceeds from officer     276,550       —    
Payments to officer     (78,701 )     —    
Payments on long-term debt     (8,523 )     (11,567 )
Proceeds from sales of common stock.     100,000       2,000  
       Net cash provided by (used for) financing activities     292,679       (5,764 )
                 
Net Increase (Decrease) in Cash     16,335       (10,941 )
Cash at the Beginning of the Period     6,980       17,921  
Cash at the End of the Period   $ 23,315     $ 6,980  
                 
Schedule Of Non-Cash Investing And Financing Activities                
Recognition of right-of use asset and lease liability   $ 43,677     $ —    
Amortization of right-of-use asset   $ 24,959     $ —    
                 
Supplemental Disclosure                
Cash paid for interest   $ 8,376     $ 5,715  
Cash paid for income taxes   $ —       $ —    

 

The accompanying footnotes are an integral part of these financial statements.

 

  F-5  

 

 

CANFIELD MEDICAL SUPPLY, INC.

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.

 

 

 

  F-6  

 

 

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. 

 

  F-7  

 

 

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.

 

 

  F-8  

 

  

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  

 

  

  F-9  

 

 

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.

 

  F-10  

 

  

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  

 

 

  F-11  

 

  

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  

 

 

  F-12  

 

 

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.

 

 

  F-13  

 

 

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A.  Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-l5(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Our management, under the supervision and with the participation of our CEO and Chief Financial Officer ("CFO"), has evaluated the effectiveness of our disclosure controls and procedures as defined in SEC Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report. Based on such evaluation, management identified deficiencies that were determined to be a material weakness.

 

Management’s Annual Report on Internal Controls over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-l5(f) of the Securities Exchange Act). Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013). Based on that assessment, management believes that, as of December 31, 2019, the Company’s internal control over financial reporting was ineffective based on the COSO criteria, due to the following material weaknesses listed below.

 

The specific material weaknesses identified by the company’s management as of end of the period covered by this report include the following:

 

we have not performed a risk assessment and mapped our processes to control objectives;
we have not implemented comprehensive entity-level internal controls;
we have not implemented adequate system and manual controls; and
we do not have sufficient segregation of duties.

 

Despite the material weaknesses reported above, our management believes that our consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

 

This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Commission that permit us to provide only management’s report in this report.

 

Management's Remediation Plan

 

The weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff. Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible.

 

However, we plan to take steps to enhance and improve the design of our internal control over financial reporting.  During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above.  To remediate such weaknesses, we plan to implement the following changes in the current fiscal year as resources allow:

 

(i) appoint additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies;

 

  15  

 

 

The remediation efforts set out herein will be implemented in the current 2020 fiscal year.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

 

Management believes that despite our material weaknesses set forth above, our consolidated financial statements for the year ended December 31, 2019 are fairly stated, in all material respects, in accordance with U.S. GAAP.

 

Changes in Internal Control over Financial Reporting

 

There were no changes to our internal control over financial reporting that occurred during our fourth fiscal quarter of our fiscal year ended December 31, 2019.

 

Item 9B.  Other Information.

 

None.

 

  16  

 

 

PART III

 

Item 10.   Directors, Executive Officers and Corporate Governance.

 

Each of our directors is elected by the stockholders to a term of one year and serves until his successor is elected and qualified. Each of our officers is elected by the board of directors to a term of one year and serves until his or her successor is duly elected and qualified, or until he or she is removed from office.

 

The name, age and position of our officers and directors is set forth below:

 

Name   Age   Position(s) with the Company
Amy Joanne Atkinson     57     Director
Heather Kearns(1)     41     Former Principal Executive Officer, Former Principal Financial Officer and Former Principal Accounting Officer
John Matthias Lepo     78     Principal Executive Officer, Principal Financial Officer Director
Michael Long     66     Director
Michael J. West     65     Director
Stephen H. West     63     Director

 

(1) Heather Kearns resigned from all officer positions with the Company effective November 19, 2019.

 

The persons named above are expected to hold said offices/positions until the next annual meeting of our stockholders. These officers and directors are our only officers, directors, promoters and control persons.

 

Background Information about Our Officers and Directors

 

Amy Joanne Atkinson

Ms Atkinson has since 2005 been Fund Manager/Director of Operations of Kirby Enterprise Capital Management, LLC where since 2012 she has managed a special situations fund and coordinates private placements and monitors investment activity. She has been responsible for integrating and updating accounting systems, developing operating procedures, preparing financial reporting, managing quarterly partnership reporting, coordinating private placements and ensuring compliance in all areas. Ms Atkinson attended Colorado State University.

Heather Kearns, CPA, MBA

Ms. Kearns has since 2011 been an independent certified public accountant specializing in corporate accounting matters and finance services for those companies needing financial expertise to meet critical business objectives. Ms Kearns received Bachelor of Science in Business Administration and a Master of Business Administration degrees from Auburn University. She is licensed as a CPA in Colorado.

John Matthias Lepo

Mr. Lepo has since 1998 been President of Battersea Capital Inc. offering consulting services to small businesses including corporate finance and advisory functions as well as advising on businesses entering the public markets. Mr. Lepo has a Bachelor of Science in Economics from Saint Mary’s University of Minnesota.

Michael Long

Mr. Long has been the chief executive officer of AnyDATA Corporation, from 2017 to the present. AnyDATA Corporation designs and manufactures OBD-2 devices for consumer automotive, commercial fleet and automotive manufacturing markets. From 2013 to 2014 he was vice president of Giant Magellan Telescope Organization (GMTO) a scientific partnership established to build and operate a 25-meter telescope at the Las Campana Observatory in Chile. From 1992 to 2013 he was president and founder of Premier Wireless, Inc. which designed and manufactured wireless communications products for the broadcast, security and military markets. He has since 2012 been a member of the Board of Trustees of Carnegie Institute of Science and received an AB, majoring in physics, from University of Chicago. 

  17  

 

 Michael J. West 

Mr. West co-founded our Company with his wife in September 1992 and served as Vice-President, Secretary and a Director until September 2004 when he became the President and sole Director.  He also founded Medical Billing Assistance, Inc. ("Medical Billing") in 1994.  Medical Billing was involved in electronic billing of medical claims to Medicare.  Medical Billing completed an acquisition of FCID Medical, Inc. in December 2010 and Mr. West resigned from all positions with Medical Billing at that time.  Mr. West received a Bachelor of Arts Degree in Biology from Wittenberg University in 1977.  Mr. West resigned from all executive officer positions with the Company on June 28, 2019, but is currently a member of our board of directors, and serves as the president of our medical supply business division. We believe that Mr. Michael West's 24 years of experience serving as either our President or Vice President enables him to make valuable contributions to our Board of Directors.

 

Stephen H. West

 

Mr. West served as Secretary, Treasurer, CFO and a Director of our company since September 2011, until his resignation from his officer positions on June 28, 2019.  He is the brother of Michael J. West.  He has been involved in the computer data storage market since 1978.  He spent twenty-two years at Storage Technology Corporation where he held positions as Director of Sales for their telecommunications region, Vice President and General Manager of the Western Region and Vice President of Global Accounts.  He co-founded PeakData Inc., a computer data storage company which focuses on sales and integration of enterprise storage solutions for Fortune 1000 companies in March 2001 and served as its Executive Vice president of Sales until January 2009.  Since January 2009, he has served as Director of Sales of Net Source, a computer storage company. From May 2007 until December 2010 he served as Secretary and a Director of Medical Billing Assistance, Inc. and he continued as a Director until April 2011.  Mr. West graduated from the University of Cincinnati with a BBA in 1978.  He plans to devote approximately 5 to 10 hours per month to our affairs.  We believe that Mr. Stephen West's 38 years of sales and executive experience in the technology industry and his knowledge of our Company's history qualify him to serve as a member of our Board of Directors.

 

Family Relationships

 

Except for Michael J. West, a director and our former CEO, and Stephen West, a director and our former CFO, Secretary and Treasurer, who are brothers, there are no family relationships among any of our directors, executive officers or key employees.

 

Committees of the Board of Directors

 

Our shares are currently quoted on the OTCQB under the symbol “CNFM.”   We have no separately designated standing audit committee, compensation committee, nominating committee, executive committee or any other committees of our Board of Directors. The functions of those committees are currently undertaken by our Board of Directors.  

 

Our Board of Directors believes that, considering our size, decisions relating to director nominations can be made on a case-by-case basis by all members of the Board of Directors without the formality of a nominating committee or a nominating committee charter. To date, we have not engaged third parties to identify or evaluate or assist in identifying potential nominees, although we reserve the right to do so in the future.

 

The Board of Directors does not have an express policy with regard to the consideration of any director candidates recommended by stockholders since the Board of Directors believes that it can adequately evaluate any such nominees on a case-by-case basis; however, the Board of Directors will evaluate stockholder recommended candidates under the same criteria as internally generated candidates. Although the Board of Directors does not currently have any formal minimum criteria for nominees, substantial relevant business and industry experience would generally be considered important, as would the ability to attend and prepare for board, committee and stockholder meetings. Any candidate must state in advance his or her willingness and interest in serving on the board of directors.

 

Meetings of the Board of Directors

 

Our Board held one meeting during the year ended December 31, 2019 and also acted via board consent. We held no annual meeting of stockholders during the year ended December 31, 2019.

 

Director Independence

 

The OTCQB imposes no director independence requirements. For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2). The NASDAQ definition of “Independent Director” means a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company's Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. 

 

  18  

 

 

Involvement in Certain Legal Proceedings

 

During the past ten years no current or incoming director, executive officer, promoter or control person of the Company has to its knowledge been involved in any of the following:

 

(1) A petition under the Federal bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

 

(2) Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

(3) Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

 

i. Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

 

ii. Engaging in any type of business practice; or

 

iii. Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or Federal commodities laws;

 

(4) Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;

(5) Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

 

(6) Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

 

(7) Such person was the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 

i. Any federal or state securities or commodities law or regulation; or

 

ii. Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

 

iii. Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

(8) Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Board leadership structure and role in risk oversight

 

Our Board consists of five directors, Michael J. West, our former CEO, Stephen J. West, our former CFO, Amy Atkinson, John M. Lepo, our current CEO and CFO, and Michael Long. 

 

  19  

 

 

Item 11.   Executive Compensation.

 

The following table sets forth information for our two most recently completed fiscal years concerning all of the compensation awarded to, earned by or paid to the executive officers named below.  No other employees earned a salary over $100,000 in the last two completed fiscal years.

 

Name and Principal Position   Year   Salary
($)
  Bonus
($)
  Stock
Awards($)
  Option
Awards($)
  Non-Equity
Incentive Plan
Compensation
($)
  Nonqualified
Deferred
Compensation
Earnings($)
  All Other
Compensation
($)
  Total($)
                                     
Michael West     2019       72,908       —         —         —         —         —         —       $ 72,908  
      2018       72,775       —         —         —         —         —         —       $ 72,775  
                                                                         
Steve West     2019       —         —         —         —         —         —         —       $ —    
      2018       —         —         —         —         —         —         —       $ —    
                                                                         
Amy J. Atkinson     2019       —         —         —         24,118       —         —         —       $ 24,118  
      2018       —         —         —         —         —         —         —       $ —    
                                                                         
John M. Lepo     2019       —         —         —         64,315       —         —         —       $ 64,315  
      2018                                                                  
                                                                         
Michael Long     2019       —         —         —         24,118       —         —         —       $ 24,118  
      2018       —         —         —         —         —         —         —       $ —    
                                                                         
Heather Kearns(1)     2019       —         —         —         —         —         —         —       $ —    
      2018       —         —         —         —         —         —         —       $ —    

 

(1) Heather Kearns resigned from all officers positions with the Company effective November 19, 2019.

 

Directors Compensation

 

Our directors have not been paid any compensation for serving as Directors of the Company and there are no present plans or understandings with respect to future compensation.

 

Outstanding Equity Awards at Fiscal Year-End

 

Option Awards Stock Awards
Name     Number of Securities Underlying Unexercised Options (#) Exercisable     Number of Securities Underlying Unexercised Options (#) Unexercisable   Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)     Option Exercise Price ($)     Option Expiration Date   Number of Shares or Units of Stock That Have Not Vested (#)   Market Value of Shares or Units of Stock That Have Not Vested ($)   Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)   Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
J. Matthias Lepo     120,000     —     —     $ 0.55     11/28/24                
Amy Joanne Atkinson     45,000     —     —     $ 0.55     11/28/24                
Michael Long     45,000     —     —     $ 0.55     11/28/24                

 

 

  20  

 

 

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth the beneficial ownership of our common stock as of March 27, 2020, by (i) each person or entity who is known by us to own beneficially more than 5% of the outstanding shares of common stock, (ii) each of our Directors, (iii) each of the Executive Officers named in the Summary Compensation Table, and (iv) all of our Officers and Directors as a Group. Unless otherwise listed, the address for each of our offices and directors is 4120 Boardman-Canfield Road, Canfield, OH 44406.

 

Name and Address of Beneficial Owner  

Beneficial

Ownership(1)(2)

 

Approximate

Percent Owned

         
Michael J. West     344,000       2.9 %
Stephen H. West     300,000       2.5 %
Amy J. Atkinson     344       *  
John M. Lepo     —         —    
Michael Long     —         —    
Heather Kerns(3)     —         —    
All Officers and Directors as a group
(5 persons)
    644,344       5.5 %
                 
5% or greater owners:                
WesBev LLC(4)     8,336,000       70.6 %

 

* less than one percent.

 

(1) This table is based upon 11,813,200 shares of common stock issued and outstanding as of March 27, 2020.
   
(2) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power with respect to the shares. Shares of Common Stock subject to options or warrants currently exercisable or exercisable within 60 days are deemed outstanding for computing the percentage of the person holding such options or warrants, but are not deemed outstanding for computing the percentage of any other person.
   
(3) Heather Kearns resigned from all officer positions with the Company effective November 19, 2019.
   
(4) WesBev LLC is controlled by Justin Yorke.  The address for WesBev LLC is 4 Richland Place, Pasadena, CA 91103.  

 

Item 13.   Certain Relationships and Related Transactions and Director Independence.

 

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 owned 8,336,000 shares.

 

On June 21, 2019, the Company entered into a short-term loan with Michael West, an officer of the company for $276,550. The Company made payments of $78,701 on this loan. The loan has a one-year term from June 21, 2019, and is non-interest bearing. As of December 31, 2019 and December 31, 2018 the loan had a balance of $197,849 and $0, respectively

 

Item 14.   Principal Accounting Fees and Services.

 

Approval of Services

 

Pending establishment of an audit committee, the Board of Directors pre-approves all engagements for audit and non-audit services provided by the Company's principal registered accounting firm, Pinnacle Accountancy Group of Utah, a dba of Heaton & Company, PLLC.

 

  21  

 

  

Audit Fees

 

The aggregate fees billed during the fiscal years ended December 31, 2019 and 2018 for professional services rendered by our principal accounting firm, Pinnacle Accountancy Group of Utah (a DBA of Heaton & Co., PLLC), for the audit of the financial statements included in Form 10-K, and for the review of the interim condensed financial statements included in Form 10-Q, were approximately $34,600 and $34,500, respectively.

 

Audit Related Fees

 

The aggregate fees billed during the fiscal years ended December 31, 2019 and 2018 for audit related services rendered by our principal accounting firm, Pinnacle Accountancy Group of Utah (a DBA of Heaton & Co., PLLC), were approximately $0 and $0, respectively. 

 

Tax Compliance/Preparation Fees

 

The aggregate fees billed during the fiscal years ended December 31, 2019 and 2018 for professional services rendered by our principal accounting firm, Pinnacle Accountancy Group of Utah, a dba of Heaton & Company, PLLC, for tax compliance, tax advice, and tax planning were approximately $0 and $0, respectively. Tax compliance services include the preparation of income tax returns filed with the Internal Revenue Service. Tax advice and planning services included assistance with implementation of tax planning strategies and consultation on other tax matters.

 

All Other Fees

 

The aggregate fees billed during the fiscal years ended December 31, 2019 and 2018 for all other professional services rendered by our principal accounting firm, Pinnacle Accountancy Group of Utah, a dba of Heaton & Company, were $0 and $0, respectively.

 

Board of Directors Pre-Approval Process, Policies and Procedures

 

Our principal auditors have performed their audit procedures in accordance with pre-approved policies and procedures established by our Board of Directors. Our principal auditors have informed our Board of Directors of the scope and nature of each service provided. With respect to the provisions of services other than audit, review, or attest services, our principal accountants brought such services to the attention of our Board of Directors prior to commencing such services. 

 

  22  

 

  

PART IV

 

Item 15.   Exhibits and Financial Statement Schedules.

 

The following documents are filed as part of this Annual Report on Form 10-K:

 

1.           Financial Statements.  See the Financial Statements starting on page 14.

 

2.           Exhibits.  The exhibits listed in the Exhibit Index, which appears immediately following the signature page and is incorporated herein by reference, and filed as part of this Annual Report on Form 10-K.

 

 

 

  23  

 

 

SIGNATURES

 

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

 

   

CANFIELD MEDICAL SUPPLY, INC.

(Registrant)

     
     
Date:  March 27, 2020   By: /s/ John Mathias Lepo                                          
   

Name:  John Mathias Lepo

Title:    President and CEO (Principal Executive Officer), CFO (Principal Financial Officer, Principal Accounting Officer)

     

 

 

Pursuant to the requirements of the Securities Act of 1934 this Annual Report on Form 10-K was signed by the following persons on behalf of the Registrant and in the capacities and on the dates stated:

 

Name   Title Date
                           
       
/s/ Michael J. West                 Director March 27, 2020
Michael J. West      
       
/s/ Stephen H. West                Director March 27, 2020
Stephen H. West      
       
/s/ John Mathias Lepo                 President, CEO, CFO, Director March 27, 2020
John Mathias Lepo      

 

/s/ Michael Long                 Director March 27, 2020
Michael Long      

 

/s/ Amy Joanne Atkinson                 Director March 27, 2020
Amy Joanne Atkinson      

 

  24  

 

 

 

EXHIBIT INDEX

 

Exhibit

Number

 

Description

 
     
2.1 Agreement and Plan of Merger dated December 31, 2019 by and among Canfield Medical Supply, Inc., SBG Acquisition, Inc., and Splash Beverage Group, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K dated January 6, 2020)  
     
3.1 Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 filed with  Form S-1 filed with the SEC on July 12, 2012)  
     
3.2 Bylaws (incorporated by reference herein to Exhibit 3.2 filed with Form S-1 filed with the SEC on July 12, 2012)  
     
31.1 Certification by CEO (filed herewith electronically)  
     
31.2 Certification by CFO (filed herewith electronically)  
     
32.1 Certification of CEO pursuant to 18. U.S.C. Section 1350 as adopted, pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (filed herewith electronically)  
     
32.2 Certification of CFO pursuant to 18. U.S.C. Section 1350 as adopted, pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (filed herewith electronically)  
     
*101.INS Inline XBRL Instance Document (filed herewith)
*101.SCH Inline XBRL Taxonomy Extension Schema (filed herewith)
*101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
*101.LAB Inline XBRL Taxonomy Extension Label Linkbase (filed herewith)
*101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
*101.DEF Inline XBRL Taxonomy Definition Linkbase (filed herewith)
*104 Cover Page Interactive Data File (embedded within the Inline XBRL document filed as Exhibit 101)
   
 
     
*   Interactive data files are furnished but not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the Securities Exchange Act of 1934, as amended.
           

 

  25  

 

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