U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission File No. 333-182639
CANFIELD MEDICAL SUPPLY, INC.
(Name of registrant in its charter)
Colorado | 34-1720075 | |
| (State or other jurisdiction of incorporation or formation) | (I.R.S. employer identification number) |
4120 Boardman-Canfield Road, Canfield, Ohio 44406
(Address of principal executive offices)
(330) 533-1914
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
¨ Yes x No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ | |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. On November 18, 2014, there were 10,027,200 shares of Common Stock issued and outstanding.
CANFIELD MEDICAL SUPPLY, INC.
FORM 10-Q
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | Page | ||
| Item 1. | Financial Statements | 3 | |
| Condensed Balance Sheets (unaudited) | 3 | ||
| Condensed Statements of Operations (unaudited) | 4 | ||
| Condensed Statements of Cash Flows (unaudited) | 5 | ||
| Notes to Condensed Unaudited Financial Statements | 6-8 | ||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 9 | |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 11 | |
| Item 4. | Controls and Procedures | 11 | |
| PART II. OTHER INFORMATION | 11 | ||
| Item 1. | Legal Proceedings | 11 | |
| Item 1A. | Risk Factors | 11 | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 11 | |
| Item 3. | Defaults Upon Senior Securities | 11 | |
| Item 4. | Mine Safety Disclosures | 11 | |
| Item 5. | Other Information | 11 | |
| Item 6. | Exhibits | 11 | |
| Signatures | 13 | ||
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Item 1. Financial Statements.
CANFIELD MEDICAL SUPPLY, INC.
CONDENSED BALANCE SHEETS
September 30, 2014 | December 31, 2013 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 38,440 | $ | 669 | ||||
| Accounts receivable | 69,238 | 30,921 | ||||||
| Inventory | 35,417 | 12,542 | ||||||
| Total current assets | 143,095 | 44,132 | ||||||
| Equipment, net of accumulated depreciation of $7,110 and $1,912 | 38,106 | 23,857 | ||||||
| Total Assets | $ | 181,201 | $ | 67,989 | ||||
| LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 52,915 | $ | 43,043 | ||||
| Notes payable, related parties | - | 8,500 | ||||||
| Line of credit | 80,500 | 82,500 | ||||||
| Current portion of long-term debt | 7,298 | 3,537 | ||||||
| Total current liabilities | 140,713 | 137,580 | ||||||
| Long-term debt | 30,634 | 17,784 | ||||||
| Total Liabilities | 171,347 | 155,364 | ||||||
| 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; 10,027,200 (2014) and 9,750,800 (2013) shares issued and outstanding | 118,515 | 49,415 | ||||||
| Accumulated deficit | (108,661 | ) | (136,790 | ) | ||||
| Total Stockholders’ Equity (Deficit) | 9,854 | (87,375 | ) | |||||
| Total Liabilities and Stockholders' Equity (Deficit) | $ | 181,201 | $ | 67,989 | ||||
The accompanying notes are an integral part of the condensed unaudited financial statements.
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CANFIELD MEDICAL SUPPLY, INC.
CONDENSED STATEMENTS OF OPERATIONS
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Sales (net of returns) | $ | 139,738 | $ | 141,849 | $ | 465,029 | $ | 297,569 | ||||||||
| Cost of goods sold | 53,782 | 78,520 | 185,344 | 148,392 | ||||||||||||
| Gross profit | 85,956 | 63,329 | 279,685 | 149,177 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 89,428 | 73,335 | 242,364 | 170,737 | ||||||||||||
| Depreciation | 2,705 | - | 5,198 | - | ||||||||||||
| 92,133 | 73,335 | 247,562 | 170,737 | |||||||||||||
| Income (loss) from operations | (6,177 | ) | (10,006 | ) | 32,123 | (21,560 | ) | |||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 10 | 8 | 28 | 8 | ||||||||||||
| Interest expense | (477 | ) | (1,162 | ) | (4,022 | ) | (2,819 | ) | ||||||||
| (467 | ) | (1,154 | ) | (3,994 | ) | (2,811 | ) | |||||||||
| Income (loss) before provision for income taxes | (6,644 | ) | (11,160 | ) | 28,129 | (24,371 | ) | |||||||||
| Provision for income tax | - | - | - | - | ||||||||||||
| Net income (loss) | $ | (6,644 | ) | $ | (11,160 | ) | $ | 28,129 | $ | (24,371 | ) | |||||
| Net income (loss) per share | ||||||||||||||||
| (Basic and fully diluted) | $ | (0.00 | )* | $ | (0.00 | )* | $ | 0.00 | * | $ | (0.00 | )* | ||||
Weighted average number of common shares outstanding (Basic and fully diluted) | 10,240,476 | 9,625,400 | 9,928,193 | 9,541,800 | ||||||||||||
* denotes income or loss of less than $0.01 per share.
The accompanying notes are an integral part of the condensed unaudited financial statements.
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CANFIELD MEDICAL SUPPLY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
| September 30, | ||||||||
| 2014 | 2013 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net income (loss) | $ | 28,129 | $ | (24,371 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: | ||||||||
| Depreciation | 5,198 | - | ||||||
Movement in Operating Assets and Liabilities | ||||||||
| Accounts receivable | (38,317 | ) | (31,703 | ) | ||||
| Inventory | (22,875 | ) | - | |||||
| Accounts payable and accrued liabilities | 9,872 | 15,660 | ||||||
| Net cash provided by (used for) operating activities | (17,993 | ) | (40,414 | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| - | - | |||||||
| Net cash provided by (used for) investing activities | - | - | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Payments on line of credit | (2,000 | ) | (2,250 | ) | ||||
| Payments on notes payable, related parties | (8,500 | ) | 1,500 | |||||
| Payments on long-term debt | (2,836 | ) | - | |||||
| Proceeds from sales of common stock | 69,100 | 62,700 | ||||||
| Net cash provided by (used for) financing activities | 55,764 | 61,950 | ||||||
| Net Increase (Decrease) In Cash | 37,771 | 21,536 | ||||||
| Cash At The Beginning Of The Period | 669 | 7,352 | ||||||
| Cash At The End Of The Period | $ | 38,440 | $ | 28,888 | ||||
| Schedule Of Non-Cash Investing And Financing Activities | ||||||||
| Purchase of equipment with long-term debt | $ | 19,447 | $ | - | ||||
| Supplemental Disclosure | ||||||||
| Cash paid for interest | $ | 4,022 | $ | 2,819 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
The accompanying notes are an integral part of the condensed unaudited financial statements.
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CANFIELD MEDICAL SUPPLY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2014 AND 2013
(UNAUDITED)
NOTE 1. ORGANIZATION AND OPERATIONS
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 sells medical supplies to clinics, hospitals and other end users.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying financial statements have been prepared by the Company without audit in accordance with Securities and Exchange Commission (“SEC”) rules for quarterly reports on Form 10-Q. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2014, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the SEC on April 15, 2014. The results of operations for the periods ended September 30, 2014 and 2013 are not necessarily indicative of the operating results for the full years.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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.
Inventory
The Company carries inventory of medical equipment and supplies held for resale. Inventory is accounted for on a first–in first-out basis.
Property and equipment
Property and equipment are recorded at cost and depreciated under accelerated or straight line methods over each item's estimated useful life.
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CANFIELD MEDICAL SUPPLY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2014 AND 2013
(UNAUDITED)
Revenue recognition
The Company recognizes revenue using four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
Income tax
The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a 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. At September 30, 2014, the Company had net operating loss carryforwards sufficient to offset taxable income. Therefore, the provision for income taxes for the three and nine months ended September 30, 2014 and 2013 is $0.
Net income (loss) per share
The Company computes earnings or loss per share in accordance with ASC-260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. No potentially dilutive debt or equity instruments were issued or outstanding during the three and nine months ended September 30, 2014.
Financial instruments
The carrying value of the Company's financial instruments, as reported in the accompanying balance sheets, approximates fair value due to the short term duration of these financial instruments.
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-1ived asset exceeds its fair value.
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CANFIELD MEDICAL SUPPLY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2014 AND 2013
(UNAUDITED)
Recent accounting pronouncements
The Company does not believe that any recently issued but not yet adopted accounting pronouncements will have a material impact on its financial position, results of operations or cash flows.
NOTE 3. COMMON STOCK
During the nine months ended September 30, 2014, the Company sold a total of 276,400 shares at $0.25 per share for proceeds of $69,100.
NOTE 4. NOTES PAYABLE, RELATED PARTIES
During the nine months ended September 30, 2014, the Company repaid the outstanding notes payable to related parties as of December 31, 2013 of $8,500, together with accrued interest of $500.
NOTE 5. NOTES PAYABLE
On July 31, 2014, the Company acquired a new vehicle which was financed through the issuance of a note payable in the amount of $19,447. The note bears interest at the rate of 2.99% per year, requires 60 monthly payments of $349.78 and matures in August 2019.
NOTE 6. GOING CONCERN
While the Company has generated net income of $28,129 during the nine months ended September 2014 and has a working capital balance of $2,382 at September 30, 2014, it also used cash of $17,993 in operating activities during the same period and has accumulated a deficit of $108,661. 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 7. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date these financial statements were available to be issued of November 18, 2014 and determined that there are no other reportable subsequent events.
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The following discussion and analysis should be read in conjunction with the Financial Statements (unaudited) and Notes to Financial Statements (unaudited) filed herein.
BUSINESS OVERVIEW
We primarily provide products 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.
RESULTS OF OPERATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014 AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2013.
Revenues for the three months ended September 30, 2014 were $139,738 as compared to the revenues of $141,849 for the three months ended September 30, 2013. There is no significant reason for the very small decline in sales.
Cost of goods sold for the three months ended September 30, 2014 were $53,782 as compared to cost of goods sold for the three months ended September 30, 2013 of $78,520. The 32% decrease in the latest three month period was due to the fact that we had just won the Medicare competitive bidding near the beginning of the three months ended September 30, 2013, and our costs for some of the products we sell were higher when we first started increasing our orders during the 2013 quarter. The cost of goods sold for the most recent three month period should be more in line with our expectations for future quarters.
We incurred general and administrative expenses of $89,428 in the three months ended September 30, 2014 as compared to $73,335 for the three months ended September 30, 2013. This $16,093 increase was primarily due to our increased payroll resulting from the addition of one part-time employee and an increase in the hours worked by other employees.
The net loss for the three months ended September 30, 2014 was $6,177 as compared to a net loss of $10,006 for the three months ended September 30, 2013. The primary reason for the $3,829 improvement in profitability was the reduction in cost of goods sold.
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RESULTS OF OPERATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2013.
Revenues for the nine months ended September 30, 2014 were $465,029 as compared to the revenues of $297,569 for the nine months ended September 30, 2013. The 56% increase in sales is primarily due to winning the Medicare competitive bidding during the summer of 2013.
Cost of goods sold for the nine months ended September 30, 2014 were $185,344 as compared to cost of goods sold for the nine months ended September 30, 2013 of $148,392. The 25% increase in the latest nine month period was due to the increase in the sales volume. Cost of goods as a percent of sales dropped from 50% in the first nine months of 2013 to 40% in the first nine months of 2014 primarily because equipment sales, as compared to sales of supplies, represented a larger percent of sales during the most recent nine month period. Wheelchairs and other equipment have a much higher profit margin than supplies.
We incurred general and administrative expenses of $242,364 in the nine months ended September 30, 2014 as compared to $170,737 for the nine months ended September 30, 2013, an increase of 42%. The increase was due to a significant increase in hours worked by six hourly employees, the addition of two more part-time employees and the increase in the compliance costs associated with becoming a public company. Such costs include legal fees, accounting and audit fees, transfer agent expenses and printing.
The net income for the nine months ended September 30, 2014 was $28,129 as compared to a net loss of $24,371 for the nine months ended September 30, 2013. The primary reason for the $52,500 improvement in profitability was the 56% increase in sales and our increased profit margins on these increased sales.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2014, we had positive working capital of $2,382 compared to negative working capital of ($93,448) as of December 31, 2013.
Net cash used for operating activities during the nine months ended September 30, 2014 was ($17,993) as compared to net cash used for operating activities in the nine months ended September 30, 2013 of ($40,414). The primary reason for the change was the $52,500 improvement in profitability which was partially offset by the $22,875 increase in inventory.
Net cash provided by financing activities during the nine months ended September 30, 2014 was $55,764 as compared to $61,950 provided by financing activities in the nine months ended September 30, 2013. The Company sold shares of its common stock during the nine months ended September 30, 2014 to raise $69,100 to help pay for the costs associated with being a public company.
Due to the uncertainty of our ability to meet our operational expenses, in their report on our audited financial statements as of and for the years ended December 31, 2013 and 2012, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. There is substantial doubt about our ability to continue as a going concern as we had losses for the year ended December 31, 2012 of ($12,635), for the year ended December 31, 2013 of ($30,968) and a negative working capital and a stockholders' deficit.
CONTRACTUAL OBLIGATIONS
None.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S‑K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a "smaller reporting company" as defined by Item 8 of Regulation S-K, the Company is not required to provide information required by this Item.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
Our Chief Executive Officer and Principal Financial Officer have evaluated the effectiveness of the design and operations of our disclosure controls and procedures as of the end of the period covered by this quarterly report, and have concluded that our disclosure controls and procedures are adequate.
(b) Changes in Internal Control over Financial Reporting.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We were not subject to any legal proceedings during the three and nine months ended September 30, 2014 or 2013 and, to the best of our knowledge; no legal proceedings are pending or threatened.
Item 1A. Risk Factors.
As a "smaller reporting company" as defined by Item 8 of Regulation S-K, the Company is not required to provide information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable to our Company.
Item 5. Other Information.
None.
Item 6. Exhibits.
(a) Exhibits required by Item 601 of Regulation S-K.
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| Exhibit | Description | |
| 31.1 | Certification of CEO and Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) - Filed herewith electronically | |
| 31.2 | Certification of CFO and Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) - Filed herewith electronically | |
| 32.1 | Certification of CEO and Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Filed herewith electronically | |
| 32.2 | Certification of CFO and Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Filed herewith electronically | |
| 101.1 | Interactive Data File |
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Pursuant to the requirements 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. | ||
| Date: November 19, 2014 | By: | /s/ Michael J. West |
Michael J. West, President and CEO (Principal Executive Officer) | ||
| Date: November 19, 2014 | By: | /s/ Stephen H. West |
Stephen H. West, CFO (Principal Financial Officer and Principal Accounting Officer) |
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