UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 20202021

or

Commission File Number: 000-10093

Fuse Medical, Inc.

(Exact name of registrant as specified in its charter)

(469) 862-3030

Registrant’s telephone number, including area code

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

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

(Title of class)

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes    ☐ No

Indicate by check mark 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 definition of “large accelerated filer,” “accelerated filer,” “small reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has selected 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 or not the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $611,1731,086,529.

Indicate the number of shares outstanding of each of the registrant’s classes of Common Stock, as of the latest practicable date: As of March821, 2021, 73,124,4582022, 72,895,793 shares of the registrant’s Common Stock were outstanding.

INDEX

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In this Annual Report on Form 10-K (“Annual Report”), the terms “we,” “us,” “our” and “Fuse” mean Fuse Medical, Inc. and our subsidiaries.subsidiary, CPM Medical Consultants, LLC.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report and in particular, the descriptions of our “Business” set forth in “Item 1. Business,” “Item 1A. Risk Factors,” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, the (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, the (“Exchange Act”), including statements regarding:

Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future,” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms.

Forward-looking statements are not meant to predict or guarantee actual results, performance, events, or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates, and assumptions and are subject to a number of risks, uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Factors that may influence or contribute to the inaccuracy of the forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation: (i) our inability to obtain adequate debt or equity financing; (ii) the duration of, and government response to, the novel coronavirus SARS CoV-2 (“COVID-19”) pandemic, including limitations on performing elective surgeries; (iii) the significant length of time and resources associated with the development of our products and related insufficient cash flows and resulting illiquidity; (iv) our inability to expand our business; (v) significant government regulation of our business and the healthcare industry; (vi) lack of product diversification; (vii) existing or increased competition; (viii) results of arbitration and litigation; (ix) stock volatility and illiquidity; and (x) our failure to implement our business plans or strategies. Descriptions of some of the risks and uncertainties that could cause our actual results to differ materially from those described by the forward-looking statements in this Annual Report appear in “Item 1A, Risk Factors” (“Risk Factors”) and elsewhere in this 20202021 Annual Report.

Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them and to the Risk Factors. We disclaim any obligation to update the forward-looking statements contained in this Annual Report to reflect any new information, future events or circumstances, or otherwise.

Readers should read this Annual Report in conjunction with (i) the discussion under the caption Risk Factors, (ii) our audited consolidated financial statements as of December 31, 2020,2021, and 2019,2020, and the related notes therein included in this Annual Report, beginning on page F-1 (“Financial Statements”), and (iii) other documents which we may file from time to time with the SEC.

Explanatory Note

We are a “smaller reporting company” as that term is defined in Rule 12b-2 promulgated under the Exchange Act. Accordingly, this Annual Report will reflect the reporting requirements of smaller reporting companies as set forth in Regulation S-K,, promulgated under the Exchange Act.

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PART I

ITEM 1. BUSINESS.

Overview

We are a manufacturer and national distributor of medical devices.devices in the United States. We provide a broad portfolio of orthopedic implants including:

We also provide a wide array of osteo-biologics and regenerative products, which include human allografts, tendons, synthetic skin and bone substitute materials, and regenerative tissues, and fluids, which we refer to as (“Biologics”).

All of our medical devices are approved by the U.S. Food and Drug Administration (“FDA”) for sale in the United States, and all of our Biologics suppliers are licensed tissue banks accredited by the American Association of Tissue Banks. Additionally, we are licensed by the FDA for storage and distribution of human cells, tissues, and cellular and bone-based products (HCT/Ps), and an FDA-registered medical device specification developer and repackager/relabeler, and manufacturer of record, (a “Manufacturer”). We are seeking to grow our manufacturing operations, both by internal product development and by acquiring existing FDA approved devices and related intellectual property.

Impact of COVID-19

The novel coronavirus COVID-19 global pandemic has presented and continues to present significant risks to our business plan. During our first quarter 20202021, we were introduced to both the Delta and asOmicron Variants of COVID-19, each causing a responsesignificant surge in infection rates. This surge of COVID-19 cases across the country has had a negative impact on the medical device industry during these periods due to COVID-19, the Governoradverse impact on supply chains and the ability of Texas declared a state of disaster and issued an executive order requiring hospitalssurgeons to defer allschedule elective surgeries. The order was effective March 19, 2020 through April 22, 2020.

On April 17, 2020, the Governor of Texas issued an additional executive order permitting hospital facilities to resume elective surgeries effective April 22, 2020 with certain restrictions, including maintaining a percentage of available beds for potential COVID-19 related patients. The disaster declaration in Texas and similar declarations in other governmental jurisdictions, specifically the temporary deferral of all elective surgeries, adversely impacted our results of operations for the second quarter 2020, in particular, the periods prior to April 22, 2020.

A second executive order suspending elective surgeries and procedures was issued on June 30, 2020.  It was amended on July 9, 2020 to encompass all counties within the 11 Trauma Service Areas in Texas.    This executive order was lifted on September 17, 2020 and elective surgeries and procedures in these areas were resumed.  

During the secondthird quarter of 2020, we implemented strategic cost reductions in order to mitigate2021, the COVID-19 Delta Variant had a negative impact of COVID-19 on our business. Includedsales. We believe that the increase in these initiatives were company-wide salary reductionshospitalization rates during this period, and resulting decrease in the number of all our employees, including our executive officers. As ofelective surgeries, attributed to the overall reduction in revenue for the year ended December 31, 2020, a majority of the reduced salaries have been reinstated.2021 compared to 2020.

Despite the adverse effects of COVID-19 on our business in the secondthird quarter of 2020, our net income for the year ended December 31, 2020 increased over the year December 31, 2019. However, our revenue declined for the year ended December 31, 2020 compared to 2019. We2021, we believe that our revenues for the third and fourth quartersquarter of 20202021 were strengthened due to performance of deferred secondthird quarter elective surgeries in the third and fourth quarters of 2020.surgeries. However, the strength of those two quartersthe fourth quarter did not entirely compensate for the secondthird quarter deterioration due to COVID-19. The majority of our products support patient conditions which are degenerative in nature. While most of our products are used in procedures that are currently considered elective, the procedures are typically necessary for a patient to restore mobility, reduce pain and increase quality of life. Otherlife and, therefore, are not typically foregone entirely. Our other cases are emergency in nature, involving trauma.  trauma, and are not typically deferred.

Products

We believe our broad portfolio of Orthopedic Implants and Biologics provide high-quality products to assist surgeons with positive patient outcomes and are cost-effective solutions for our customers.

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Currently Marketed Products – Orthopedic Implants

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Currently Marketed Products – Biologics

Customers and Product Distribution Channels

Retail. Under our retail distribution model, (“RetailModel”), we sell directly to our end customers, which consist of hospitals and medical facilities, utilizing (i) our full-time sales representatives whom we employ or engage as independent contractors and (ii) independent sales representatives who work on a non-exclusive basis. In both instances, we pay the sales representative a commission with respect to sales made by the representative. We refer to sales through our Retail Model as Retail Cases (which are herein referred to as “Retail Cases”). For the years ended December 31, 20202021 and 2019,2020, our Retail Cases generated, in aggregate, approximately 89%92% and 83%89%, respectively, of our revenues.

Wholesale. Under our wholesale distribution model, (“Wholesale Model”), we sell our products directly to independent distributors rather than to hospitals and medical facilities who are the ultimate end customer. We do not pay commissions from any sales to independent distributor.distributors. We refer to our sales through our Wholesale Model as Wholesale Cases, (which are herein referred to as “Wholesale Cases”). For the years ended December 31, 20202021 and 2019,2020, our Wholesale Cases generated, in aggregate, approximately 11%8% and 17%11%, respectively, of our revenues.

For the year ended December 31, 2020,2021, our largest customer represented approximately 12.6%8.7% of our consolidated net revenues. We continue to develop and expand our customer portfolio through building relationships with key medical professionals in the expanding geographic areas we serve. For the year ended December 31, 2020, we were successful in adding 10 new distributors. For the three months ended March 31, 2021, we were successful in adding 7 new distributors. We provide on-going product training and support to our full-time sales representatives, independent sales representatives and contractors, and independent distributors, along with product manufacturer marketing materials to ensure customer satisfaction with the products we offer. We believe focusing on these key areas is essential to growing our customer base and increasing revenues;revenues, particularly with respect to Retail Cases.

Manufacture and Supply

We rely on third-party suppliers for the manufacturing or machining of all our products. Outsourcing product manufacturing reduces our need for capital investment and reduces operational expense. Additionally, outsourcing provides expertise and capacity necessary to scale up or down based on demand for our products. We select our suppliers to ensure that all of our products are safe, effective, adhere to all applicable regulations, are of the highest quality, and meet our high-quality standards and supply needs. We employ a rigorous supplier assessment, qualification, and selection process targeted to suppliers that meet the requirements of the FDA, and International Organization for Standardizations, (“ISO”), and quality standards supported by our internal policies and procedures. Our quality assurance process monitors and maintains supplier performance through qualification and periodic supplier reviews and audits.

Our suppliers consist of:

Manufacturers.We purchase product directly from the manufacturer on a wholesale basis and serve as a stocking distributor for the manufacturer with respect to the product. We then sell the product utilizing our Retail and Wholesale Models and determine the sales price to the end customer.

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Our primary supplier of Biologics is Vivex Biomedical, Inc. a biomedical company focused on cellular therapies that treat orthopedic, spine, wound, and soft tissue indications. With respect to Orthopedic Implants, our significant suppliers are Modal Manufacturing, LLC for lower extremities, FH Orthopedics, Inc. for shoulder replacement systems, and CoreLink Surgical, Inc. for medical devices used in spine surgeries.

Private label manufacturers. We purchase product directly from the manufacturer on an exclusive basis. We then sell the products under one of our own proprietary brands utilizing our Retail Model or our Wholesale Model. With respect to private label products, the manufacturer owns the applicable 510(k) which is an FDA clearance of a premarket notification requesting permission for commercial distribution under Section 510(k) of the Federal Food, Drug and Cosmetic Act (“FDCA”).

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We contract with Tyber Medical, LLC, Maruho Medical, LLC, Solco Biomedical Co., Ltd, and Modal Manufacturing, LLC, four manufacturersfor the manufacture of Orthopedic Implants, to develop and expand our private label initiatives, including our foot and ankle, and spine and sports medicine products. During 2020,2021, we expanded our private label products through key relationships and suppliers. Our Orthopedic Implants private label portfolio consists of:

During December 2020, we launched our amniotic and umbilical membrane product line, which includes FuseChoice^TM, FuseChoice^TM Plus, and FuseChoice^TM Max. We have three more additional Biologics launches planned for 2021 which include:

Private label tissue processors. We are also evaluatingpurchase product directly from the opportunity to license certain manufacturers’ technology fortissue processors on an exclusive basis. We then sell the products under one of our own branding opportunities that would allow usproprietary brands utilizing our Retail Model or our Wholesale Model. We contract with Vivex Biomedical to expandprocess our branded productregenerative tissues and viable bone matrices, and Pinnacle Transplant Technologies for osteobiologics, and demineralized bone matrices.

During 2021, we launched and expanded our diverse portfolio offerings.of biologics with the introduction of FuseChoice^TM DermNon-Fenestrated Dermal Matrix, FusePure^TM Demineralized Bone Matrix, and FuseTrilogy ^TM Viable Bone Matrix, an osteoconductive, osteoinductive & osteogenic DMSO-free bone void filler.

Contract manufacturers. For products for which we are the Manufacturer of record on the applicable 510(k), we outsource our manufacturing and machining needs to contract manufacturers. Our approved contract manufacturers are all ISO13485 certified and machine and produce our products to our specifications. All finished products go through quality and final inspection at our facility. We then sell the products under one of our own proprietary brands utilizing our Retail andModel or Wholesale Models.Model.  Our FDA cleared products for which we are the Manufacturer of record are:

ProductResearch and Development

To further our business objectives, we use our knowledge of the healthcare industry and leverage our relationships with key suppliers, manufacturers, facility materials managers, and distribution channels. In 2020,2021, we continued to utilize our Scientific Advisory Boards, (“SABs”), to assist with our product development and design input. Members of our SABs include the heads of teaching hospitals and universities, clinical residency programs, and clinical fellowship programs at some of the most respected institutions in the United States. Our SABs have provided valuable insight for both our products coming to market as well as the design and development of new products in our pipeline.pipeline that target unmet needs of the industry, or deficiencies of existing commercialized medical devices. In January of 2022, we formed a New SAB for Sports Medicine and Extremities, to assist with our internal design and development of new product lines utilizing a novel material with osseointegration and anti-bacterial properties. We continuously review our product lines, both internally and with our SABs, proactively evaluating product trends to ensure we offer a comprehensive, high-quality, and cost-effective selection of Orthopedic Implants. We believe these efforts will enable us to become a leader in our industry and to expand our existing customer base.

Public Recognition

Our strategic acquisitions of CPM Medical Consultants, LLC (“CPM”) and Palms Springs Partners, LLC d/b/a Maxim Surgical (“Maxim”) significantly expanded our product lines, operations, and competitive reach. For the third year in a row, Fuse was named

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and ranked (moving up 46 spaces from the previous year to number 43^rd in 2020) 2020 and 89^th in 2019 on Deloitte’s 2020 Technology Fast 500TM 500™, an annual ranking of the fastest growing North Americancompanies in the technology, media, telecommunications, life sciences and energy technologytechnologies sectors. We wereFuse was also named and ranked number 136 ofin the top 150 largest public companies by revenue in the Dallas-Fort Worth metropolitan area, by the Dallas Morning Newsfor the third year in a row.2018, 2019 and 2020.

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Competition

As a Manufacturer, distributor, and wholesaler of medical devices, we primarily compete with other distributors, as well as, large, vertically-integratedvertically integrated medical device manufacturers that enjoy well-established distribution channels, national sales networks, direct sales models, and participation in large group purchasing organizations (“GPOs”) contracted with major hospitals, and surgery centers.

We believe that our ability to offer a diverse selection of products across five different product categories, sets us apart from other distributors and gives us a competitive advantage against distributors who are not able to manufacture their own products, as well as manufacturers who are limited to distributing their own products within a specific product category.

Generally, we view Stryker Corporation, Smith & Nephew plc, and Orthofix Medical Inc., as examples of our large vertically-integratedvertically integrated competitors. We believe those competitors, and companies like them, only distribute products they manufacture and have significant costs related to new product research and development and organizational support. Conversely, in addition to our own products, we sell a broad portfolio of specialized third-party manufacturers’ products and have significantly lower costs related to research and development, for such third-party products, as well as significantly lower costs for organizational support. Thus, we believe our competitive advantage lies primarily with our single-source fulfillment sales model, allowing us to offer a broader assortment of several manufacturers’ products. We also believe that we generally realize higher gross margins than our competitors due to the lower product costs associated with being a Manufacturer and private labeler.a stocking distributor.

We contract primarily with small- and medium-sized manufacturers of Orthopedic Implants and Biologics that are subject to FDA compliance and approval standards. We believe these manufacturers are highly innovative and cost effective because of their streamlined sales infrastructures and substantially lower research and development costs. Because of our organizational structure, large distribution footprint, and sales models, we tend to align well with our specialized suppliers’ competitive strategies, which we believe is the foundation for additional significant relationships with such suppliers thancompared to our competitors.

We believe the competition in our industry is primarily driven by continued mergers and acquisitions of smaller manufacturers and distributors by larger, vertically-integratedvertically integrated companies that produce, market and distribute medical devices, Orthopedic Implants, and Biologics. Our vertically-integratedvertically integrated competitors benefit from their ability to control costs for the devices they manufacture and distribute. Moreover, we believe the market in which we operate is sensitive to changes in third-party and government payor reimbursements and, competitive discount pricing. We believe that our industry will continue to see increased mergers and acquisitions because the market is significantly fragmented with numerous medical device manufacturers, distributors, and specialized suppliers offering similar product portfolios throughout the United States.

Intellectual Property

We maintain stocking distribution agreements providing for exclusive distribution rights in certain geographic areas and use of associated trademarks, service marks, and tradenames for the sale and promotion of the products we offer, which generallyoffer. In 2021 we entered into two new distribution agreements with Induce Biologics and BRM Extremities. Our distribution agreement with Induce Biologics includes exclusive distribution rights in the state of Texas for the Urist Natural Matrix Protein (“NMP”) bioimplant. Our distribution agreement with BRM Extremities includes exclusive distribution rights in the United States of the SilkToe® metatarsophalangeal joint arthroplasty system. Our stocking distribution agreements typically have durationsterms of one (1) to three (3) years, subject to renewal terms. Furthermore, we require employees, independent contractors, consultants, and advisors to execute agreements, with varying terms of one (1) to three (3) years, that assign to us the intellectual property existing and generated from their work. In 2020, we applied and were granted trademark approval for our Galen^TM and Kopis^TM suture anchors, part of our Fuse Suture Anchor product line. As of 2022, Galen^TMbecame a registered trademark of Fuse.

Government Regulation

Our products are subject to extensive regulation by the FDA and other U.S. federal and state regulatory bodies. Our products are subject to regulation under the FDCA, and in the case of our tissue products, also under the Public Health Service Act, (“PHSA”). To ensure that our products are safe and effective for their intended use, the FDA regulates, among other things, the following activities that we or our manufacturing and distribution partners perform and will continue to perform:

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Government Regulation – Medical Devices

FDA’s Premarket Clearance and Approval Requirements. Unless an exemption applies, each medical device we seek to commercially distribute in the United States requires either FDA clearance of a premarket notification requesting permission for commercial distribution under Section 510(k) of the FDCA (“510(k) Clearance”), or approval of a premarket approval application (“PMA”). The information that must be submitted to the FDA in order to obtain clearance or approval to market a new medical device varies depending on how the medical device is classified by the FDA. Under the FDCA medical devices are classified as Class I, Class II, or Class III depending on the degree of risk associated with the use of the device and the extent of manufacturer and regulatory controls deemed to be necessary by the FDA to reasonably ensure their safety and effectiveness.

Class I devices are those with the lowest risk to the patient for which safety and effectiveness can be reasonably assured by adherence to a set of regulations, referred to as General Controls, which require compliance with the applicable portions of the FDA’s Quality System Regulation (“QSR”), facility registration and product listing, reporting of adverse events and malfunctions, and appropriate, truthful and non-misleading labeling and promotional materials. Some Class I devices also require 510(k) Clearance by the FDA, though most Class I devices are exempt from the premarket notification requirements. Class II devices are those that are subject to the General Controls, as well as Special Controls, which can include performance standards, product-specific guidance documents and post-market surveillance. Manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA. Class III devices include devices deemed by the FDA to pose the greatest risk such as life-supporting or life-sustaining devices, or implantable devices, in addition to those deemed not substantially equivalent following the 510(k) process. The safety and effectiveness of Class III devices cannot be reasonably assured solely by compliance with the General Controls and Special Controls described above. Therefore, these devices must receive an approved PMA. Both 510(k)s and PMAs are subject to the payment of user fees at the time of submission for FDA review.

If the FDA determines that the device is not “substantially equivalent” to a predicate device following submission and review of a 510(k) premarket notification, or if the manufacturer is unable to identify an appropriate predicate device and the new device or new use of the device presents a moderate or low risk, the device sponsor may either pursue a PMA approval or seek reclassification of the device through the de novo process. The products we currently market in the U.S. are Class I and Class II devices marketed under FDA 510(k) clearance.

510(k) Clearance Pathway. To obtain 510(k) Clearance, we must submit a 510(k) premarket notification demonstrating that the proposed device is substantially equivalent to a device legally marketed in the United States. A predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class II or I, or a device that was found substantially equivalent through the 510(k) clearanceClearance process. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data is sometimes required to support substantial equivalence.

The FDA’s goal is to review and act on each 510(k) premarket notification within 90 days of submission, but the process usually takes from nine to twelve months, and it may take longer if the FDA requests additional information. Most 510(k) premarket clearances do not require supporting data from clinical trials, but the FDA may request such data. If the FDA agrees that the device is substantially equivalent, it will grant clearance to commercially market the device.

After a device receives 510(k) Clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended use, will require a new 510(k) Clearance or, depending on the modification, require premarket approval. The FDA requires each manufacturer to determine whether the proposed change requires the submission of a 510(k) premarket notification or PMA, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) Clearance or PMA is obtained. If the FDA requires us to seek a new 510(k) Clearance or PMA for any modifications to a previously cleared product, we may be required to cease marketing or recall the modified device until we obtain this clearance or approval. Also, in these circumstances, we may be subject to significant fines or penalties. We have made and plan to continue to make enhancements to our products for which we have not submitted 510(k)s premarket notifications or PMAs, and we will consider on a case-by-case basis whether a new 510(k) premarket notification or PMA is necessary.

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The FDA began to consider proposals to reform its 510(k) Clearance process in 2011, and such proposals could include increased requirements for clinical data and a longer review period. Specifically, in response to industry and healthcare provider concerns

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regarding the predictability, consistency and rigor of the 510(k) regulatory pathway, the FDA initiated an evaluation of the 510(k) program, and as part of the Food and Drug Administration Safety and Innovation Act (“FDASIA”), Congress reauthorized the Medical Device User Fee Amendments with various FDA performance goal commitments and enacted several “Medical Device Regulatory Improvements” and miscellaneous reforms, which are further intended to clarify and improve medical device regulation both pre- and post-clearance and approval. Further, in December 2016, the 21st Century Cures Act (“Cures Act”), was signed into law. The Cures Act, among other things, is intended to modernize the regulation of devices and spur innovation, but its ultimate implementation is unclear.

Pervasive and Continuing FDA Regulation. After a device is placed on the market, numerous FDA and other regulatory requirements continue to apply. These include:

Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following:

Our facilities, records and manufacturing processes are subject to periodic announced and unannounced inspections by the FDA to evaluate compliance with applicable regulatory requirements.

Regulation of Human Cells, Tissues, and Cellular and Tissue-based Products. Certain of our products are regulated as human cells, tissues, and cellular and tissue-based products (“HCT/Ps”). Section 361 of the PHSA authorizes the FDA to issue regulations to prevent the introduction, transmission or spread of communicable disease. HCT/Ps regulated as “361” HCT/Ps are subject to requirements relating to registering facilities and listing products with the FDA, screening and testing for tissue donor eligibility, or Good Tissue Practice, when processing, storing, labeling, and distributing HCT/Ps, including required labeling information, stringent record keeping, and adverse event reporting, among other applicable requirements and laws. If the HCT/P is minimally manipulated, is intended for homologous use only and meets other requirements, the HCT/P will not require 510(k) Clearance, PMA approval, a Biologics license application, or other premarket authorization from the FDA before marketing.

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Environmental Matters

Our facilities and operations are subject to extensive federal, state, and local environmental and occupational health and safety laws and regulations. These laws and regulations govern, among other things, air emissions; wastewater discharges; the generation, storage, handling, use and transportation of hazardous materials; the handling and disposal of hazardous wastes; the cleanup of contamination; and the health and safety of our employees. Under such laws and regulations, we are required to obtain permits from governmental authorities for some of our operations. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators. We could also be held responsible for costs and damages arising from any contamination at our past or present facilities or at third-party waste disposal sites. We cannot completely eliminate the risk of contamination or injury resulting from hazardous materials, and we may incur material liability as a result of any contamination or injury.

Compliance with Certain Applicable Statutes

We are subject to various federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws, false claims laws, criminal health care fraud laws, physician payment transparency laws, data privacy and security laws and foreign corrupt practice laws. Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, fines, imprisonment and, within the United States, exclusion from participation in government healthcare programs, including Medicare, Medicaid and Veterans Administration health programs. These laws are administered by, among others, the U.S. Department of Justice, the Office of Inspector General of the Department of Health and Human Services and state attorney generals. Many of these agencies have increased their enforcement activities with respect to medical device manufacturers in recent years.

The federal Anti-Kickback Statute, prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for or recommending a good or service, for which payment may be made in whole or in part under federal healthcare programs, such as the Medicare and Medicaid programs. The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. For example, the definition of “remuneration” has been broadly interpreted to include anything of value, including gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payments, ownership interests and providing anything at less than its fair market value. In addition, the Patient Protection and Affordable Health Care Act, which, as amended by the Health Care and Education Reconciliation Act (collectively referred to as “ACA”). ACA, among other things, amends the intent requirement of the federal Anti-Kickback Statute. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, ACA provides that the government may assert that a claim including items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act.

In implementing the Anti-Kickback Statute, the Department of Health and Human Services Office of Inspector General (“OIG”), has issued a series of regulations, known as the safe harbors, which began in July 1991. These safe harbors set forth provisions that, in circumstances where all the applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy all requirements of an applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the OIG. Penalties for violations of the Anti-Kickback Statute include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. Many states have anti- kickback laws that are similar to the federal law, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, and may also result in penalties, fines, sanctions for violations, and exclusions from state or commercial programs.

The federal False Claims Act prohibits persons from knowingly filing or causing to be filed a false or fraudulent claim to, or the knowing use of false statements to obtain payment from, the federal government. Private suits filed under the False Claims Act, known as qui tam actions, can be brought by individuals on behalf of the government. These individuals, sometimes known as “relators” or, more commonly, as “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. The number of filings of qui tam actions has increased significantly in recent years, causing more healthcare companies to have to defend a False Claim Act action. If an entity is determined to have violated the federal False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties of between $10,000 to $22,000 for each separate false claim and may be subject to exclusion from Medicare, Medicaid and other federal healthcare programs. Various states have also enacted similar laws modeled after the federal False Claims Act which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

The Health Insurance Portability and Accountability Act (“HIPAA”), created two new federal crimes: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. The ACA changed the intent requirement of the healthcare fraud statute to such that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. A violation of this statute is a felony and may result in fines, imprisonment or possible exclusion from Medicare, Medicaid and other federal healthcare programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or

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making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in similar sanctions.

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ACA also includes various provisions designed to significantly strengthen fraud and abuse enforcement in addition to those changes discussed above. Among these additional provisions include increased funding for enforcement efforts and new “sunshine” provisions that require us to report and discloseThe Physician Payments Sunshine Provision of the Affordable Care Act (Section 6002) (the “Sunshine Act”), requires public disclosure to the Centers for Medicare and Medicaid Services (“CMS”), any payment or “transferU.S. government of value” made or distributedpayments to physicians and teaching hospitals, including in-kind transfers of value, such as gifts or teaching hospitals. These sunshine provisionsmeals. The Sunshine Act also provides penalties for non-compliance. The Sunshine Act requires that we file an annual report on March 31st of a calendar year for the transfers of value incurred for the prior calendar year. The Sunshine Act also require certain GPOs, including physician-owned distributors, to disclose physician ownership information to CMS. WeCenters for Medicare and other device manufacturers are requiredMedicaid Services (“CMS”). In 2018, the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (the “SUPPORT Act”) was signed into law. The SUPPORT Act expands the reporting obligation under the Sunshine Act to collect and annually report specific data oninclude payments and other transfers of value made to physiciansphysician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and teaching hospitals.certified nurse midwives. These expanded reporting obligations are effective for payments reported in 2022, with payment tracking beginning in 2021. Non-compliance with the Sunshine Act or SUPPORT Act is subject to civil monetary penalties. There are various state laws and initiatives that require device manufacturers to disclose to the appropriate regulatory agency certain payments or other transfers of value made to physicians, and in certain cases prohibit some forms of these payments, with the risk of fines for any violation of such requirements.

HIPAA also includes privacy and security provisions designed to regulate the use and disclosure of “protected health information”, (“PHI”), which is health information that identifies a patient and that is held by a health care provider, a health plan or health care clearinghouse. We are not directly regulated by HIPAA, but our ability to access PHI for purposes such as marketing, product development, clinical research or other uses is controlled by HIPAA and restrictions placed on health care providers and other covered entities. HIPAA was amended in 2009 by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), which strengthened the rule, increased penalties for violations and added a requirement for the disclosure of breaches to affected individuals, the government and in some cases the media. We must carefully structure any transaction involving PHI to avoid violation of HIPAA and HITECH requirements.

Almost all states have adopted data security laws protecting personal information including social security numbers, state issued identification numbers, credit card or financial account information coupled with individuals’ names or initials. We must comply with all applicable state data security laws, even though they vary extensively, and must ensure that any breaches or accidental disclosures of personal information are promptly reported to affected individuals and responsible government entities. We must also ensure that we maintain compliant, written information security programs or run the risk of civil or even criminal sanctions for non-compliance as well as reputational harm for publicly reported breaches or violations.

If any of our operations are found to have violated or be in violation of any of the laws described above and other applicable state and federal fraud and abuse laws, we may be subject to penalties, among them being civil and criminal penalties, damages, fines, exclusion from government healthcare programs, and the curtailment or restructuring of our operations.

Third-Party Reimbursement

In the United States, healthcare providers generally rely on third-party payors, principally private insurers and governmental payors such as Medicare and Medicaid, to cover and pay for all or part of the cost of a surgery in which our medical devices are used. We expect that sales volumes and prices of our products will depend in large part on the continued availability of reimbursement from such third-party payors. These third-party payors may deny reimbursement if they determine that a device used in a procedure was not medically necessary in accordance with cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved indication. Particularly in the United States, third-party payors continue to carefully review, and increasingly challenge, the prices charged for procedures and medical products. Medicare coverage and reimbursement policies are developed by CMS, the federal agency responsible for administering the Medicare program, and its contractors. CMS establishes these Medicare policies for medical products and procedures and such policies are periodically reviewed and updated. While private payors vary in their coverage and payment policies, the Medicare program is viewed as a benchmark. Medicare payment rates for the same or similar procedures vary due to geographic location, nature of the facility in which the procedure is performed (i.e., teaching or community hospital) and other factors. We cannot assure you that government or private third-party payors will cover and provide adequate payment for the procedures in which our products are used. ACA and other reform proposals contain significant changes regarding Medicare, Medicaid and other third-party payors.

Among these changes was the imposition of a 2.3% excise tax on domestic sales of medical devices that went into effect on January 1, 2013. This tax has resulted in a significant increase in the tax burden on our industry. In December 2015, the U.S. Congress adopted, and President Obama signed into law, the Consolidated Appropriations Act of 2016. Among other things, this legislation put in place a two-year moratorium on the device tax through the end of 2017. The moratorium was extended to an additional two years beginning January 1, 2019 and ending December 31, 2020. Other elementsElements of the ACA include numerous provisions to limit Medicare spending through reductions in various fee schedule payments and by instituting more sweeping payment reforms, such as bundled payments for episodes of care, the establishment of “accountable care organizations” under which hospitals and physicians will be able to share savings that result from cost control efforts, comparative effectiveness research, value-based purchasing, and the establishment of an independent payment advisory board.

We believe that the overall escalating cost of medical products and services has led to, and will continue to lead to, increased pressures on the healthcare industry to reduce the costs of products and services. We cannot assure you that government or private third-party payors will cover and provide adequate payment for the procedures using our products. In addition, it is possible that future

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legislation, regulation, or reimbursement policies of third-party payors will adversely affect the demand for procedures using our products or our ability to sell our products on a profitable basis. The unavailability or inadequacy of third-party payor coverage or reimbursement could have a significant adverse effect on our business, operating results and financial condition.

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Compliance Training

We maintain a company-wide compliance program for all employees, vendors, and contractors, which is managed by our Compliance Officer who is responsible for developing compliance programs, reviewing our policies, overseeing adherence to those policies, and advising management on possible risks. Our compliance policies include general ethical business practices as well as specific operating policies and training to ensure compliance with relevant and applicable healthcare laws and regulations, including the laws referenced above.

Employees

We engage AmBio Staffing, LLC (“AmBio”), a Texas licensed professional employment organization (“PEO”), to provide us with payroll processing, employee benefit administration, and related human capital services. As of March 8, 2021,21, 2022, AmBio supported approximately 4336 full time equivalents (“FTE”). Of those 4336 FTEs, 3532 FTEs directly support us, 7 3 FTEs support the operations of other companies, and we share 1 FTE with other related companies.

Corporate and Available Information

We are a Delaware corporation. We were initially incorporated in 1968 as American Metals Service, Inc., a Florida corporation. In July 1999, American Metals Service, Inc. changed its name to GolfRounds.com, Inc. and was redomiciled to Delaware through a merger. Effective May 28, 2014, GolfRounds.com amended its certificate of incorporation to change its name to Fuse Medical, Inc., Fuse Medical, LLC, an unrelated entity, then merged with and into a wholly-owned subsidiary of Fuse Medical, Inc. The transaction was accounted for as a reverse merger. Fuse Medical, Inc. was the legal acquirer, and Fuse Medical, LLC was deemed the accounting acquirer. During 2015, certificates of termination were filed for Fuse Medical, LLC and its two subsidiaries.  

On December 19, 2016 (the “Change-in-Control Date”), we entered into a stock purchase agreement (the “Stock Purchase Agreement”) by and between NC 143 Family Holdings, LP, a Texas limited partnership (“NC 143”) which is controlled by Mark W. Brooks (“Mr. Brooks”), the Chairman of our Board of Directors (“Board”) and our President; and Reeg Medical Industries, Inc., a Texas corporation, (“RMI”), which is owned and controlled by Christopher C. Reeg, (“Mr. Reeg”) our Chief Executive Officer and Secretary. The closing of the Stock Purchase Agreement resulted in a change-in-control of Fuse whereby Messrs. Brooks and Reeg beneficially acquired, immediately after the Change-In-Control Date, approximately 61.4% of our issued and outstanding shares of common stock, par value $0.01 per share (“Common Stock”).

On December 31, 2017, we completed the acquisition of CPM in which we purchased all outstanding membership units of CPM the (“CPM Acquisition”). In the CPM Acquisition, Fuse was the legal acquirer, and for accounting purposes, CPM was deemed to have acquired Fuse. As a result, CPM is consolidated with Fuse effective on the Change-in-Control Date.

On August 1, 2018, (“Maxim Closing Date”) we completed the acquisition of Maxim, the (“Maxim Acquisition”) for aggregate consideration of approximately $3,400,000. As of the Maxim Closing Date, Maxim and Fuse’s operations arewere consolidated. Maxim was subsequently dissolved and terminated on December 20, 2019.

Our principal executive office is located at 1565 N. Central Expressway, Suite 220, Richardson, Texas 75080. Our Internet address is www.fusemedical.com. We are not including information contained on our website as part of, or incorporated by reference into, this Annual Report. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available to you free of charge through the Investor Relations section of our website as soon as reasonably practicable after such materials have been electronically filed with, or furnished to, the SEC.

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ITEM 1A. RISK FACTORS.

Our business and an investment in our securities are subject to a variety of risks. The following risk factors describe some of the most significant events, facts, and circumstances that could have a material adverse effect upon our business, financial condition, results of operations, ability to implement our strategies and business plans, and the market price for our securities. Many of these events are outside of our control. If any of these events occur, our business, financial condition, or results of operations may be materially adversely affected, the trading price of our Common Stock could decline and investors in our Common Stock could lose all or part of their investments. We believe our Common Stock continues to be low volume traded and therefore, subject to significant volatility and liquidity.

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Risks Related to Our Financial Results, Credit and Certain Financial Obligations and Need for Financing

We may not be able to refinance, extend or repay our indebtedness owed to our secured lender, which would have a material adverse effect on our business, future operating results, and financial condition.

We expect to fund our future business development activities and our working capital needs largely from available cash, improved future operations, and other traditional financing sources, such as a revolving line of credit facility, term notes, or private placements, until such time sufficient funds are provided by operations. There can be no assurance that our financing efforts will be successful, or if we will be able to achieve sufficient revenue and profitability growth from operations. If an event of default occurs under our RLOCCredit Agreement with CNH Fund I, L.P. (the “Credit Agreement”) or our RLOCCredit Agreement terminates, we could be prohibited from borrowing or unable to borrow for our working capital needs or our borrowing capacity could be further reduced.needs. If the loans are accelerated and we do not have sufficient cash on hand to pay all amounts due, we could be required to sell assets, to refinance all or a portion of our indebtedness or to obtain additional financing. Refinancing may not be possible and additional financing may not be available on commercially reasonable terms, or at all. If we cannot borrow under the RLOC,Credit Agreement, we would need to seek additional financing, if available, or curtail our operations. Additional financing may include restrictions on our operations, or, with equity financing, may result in our stockholders’ ownership being diluted.

We may not be able to obtain waivers of potential defaults in the future from our lender and our borrowing capacity may be further reduced or restricted if we do not meet the covenants associated with our line of credit.

We executed amendments with our secured lender under the RLOC on November 19, 2018, May 9, 2019, December 18, 2019, May 21, 2020 and November 12, 2020 related to our inability to comply with certain required debt covenants. We cannot provide any assurance that our lender would provide us with a waiver should we not be in compliance in the future. A failure to maintain compliance along with our lender not agreeing to a waiver for the non-compliance would cause the outstanding borrowings to be in default and payable on demand and would adversely impact our business, future operating results, and financial condition.

Risks Related to Our Business and Industry

The COVID-19 outbreak may decrease demand for our products and disrupt our supply chain, and any decrease in demand or supply chain disruption resulting from COVID-19 would adversely affect our revenues and results of operations.

The COVID-19 global pandemic has presented and continues to present significant risks to our business plan. During ourthe first quarter of 2020 and as a response to COVID-19, the Governor of Texas declared a state of disaster and issued an executive order requiring hospitals to defer all elective surgeries. The order was effective March 19, 2020 through April 22, 2020. On April 17, 2020, the Governor of Texas issued an additional executive order permitting hospital facilities to begin elective surgeries effective April 22, 2020 with certain restrictions, including maintaining a percentage of available beds for potential COVID-19 related patients. The disaster declaration in Texas and similar declarations in other governmental jurisdictions, specifically the temporary deferral of all elective surgeries, adversely impacted our results of operations for the second quarter 2020, in particular, the periods prior to April 22, 2020.  Our revenues and results of operations may also be negatively and materially affected if: (i) our supply of our products or product components or ability to distribute our products, is materially reduced despite our efforts to manage potential supply-chain disruption; (ii) an outbreak materially impacts our headquarters or manufacturing operations for a sustained period of time; (iii) hospitals are again required to allocate resources to care offor patients with COVID-19 and defer treatment of procedures utilizing our products; and/or (iv) patients elect to defer treatment for procedures utilizing our products due to real or perceived concerns about the potential spread of coronavirus in hospital settings.settings; and/or (v) vendors or manufacturers have additional supply chain issues caused by material shortages and workforce reductions, which lead to additional lead times for the machining and/or delivery of product.  A significant percentage of our products are utilized in elective surgeries or procedures, which may be deferred or avoided altogether due to the COVID-19 outbreak.  Any prolonged decrease in demand for our products or disruption to our business resulting from the COVID-19 outbreak similar to what we incurred in the second quarter of 2020 would adversely affect our revenues and results of operations.

We have significant concentration in and dependence on a small number of customers.

In 2020,2021, our top customerfive (5) customers represented approximately 12.6%36% of our consolidated net revenues. If an existing contract with one of our top customers expires without being replaced or the customer terminates the contract prior to its expiration, we could lose that customer relationship, which would adversely impact our business, future operating results, and financial condition.

We are exposed to risks of obsolete and slow-moving inventory which may adversely impact our cash flow and liquidity.

Maintaining an optimal level of inventories is important to our business.   If we over-stock our inventories, our required working capital will increase.we might be exposed to increased slow-moving inventories.   Conversely, if we under-stock our inventories, we may be unable to meet customers’ demanddemand. In

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either case, our liquidity and consequently our results of operations may be adversely affected. For the years ended December 31, 20202021 and 2019,2020, the total amount of our inventories, net of allowance for slow-moving and obsolete inventory, were approximately $7.0$8.7 and $7.9$7.0 million, respectively, and accounted for approximately 39.9%47.7% and 42.7%39.9%, respectively, of our total assets for the same years. For the years ended December 31,

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2020 2021 and 2019,2020, we recorded a reserve for slow moving and obsolete inventory of $3.1$2.5 and $3.8$3.1 million, respectively.  Any increase in inventory may adversely affect our working capital. If we cannot manage our inventory level efficiently in the future, our liquidity and inventory may be adversely affected. Further, if we fail to stock appropriate medical devices and instruments to suitesuit customer demand in the future, the volume of our obsolete and slow moving inventory may increase, and we may need to either sell off such inventory at a lower price or write off such inventory, in the event of which our business, financial condition, results of operation and cash flows will be adversely affected.  

To grow revenues and profitability from certain products, we must expand our relationships with hospital systems, third-party distributors and independent sales representatives, whom we do not control.

We derive significant revenues through our relationships with hospital systems, distributors and independent sales representatives. If such a relationship terminated or otherwise was negatively impacted for any reason, it could materially and adversely affect our ability to generate revenues and profits. Because independent distributors often control the customer relationships within their territory, there is a risk that if our relationship with a distributor ends, we could lose our relationship with our ultimate customer.

Our success partially depends on our ability to retain and motivate our distributors and independent sales representatives to sell our products in certain territories. However, such parties may not be successful in implementing our strategies and marketing plans. Many of our independent distributors also market and sell the products of our competitors, and those competitors may have the ability to influence the products that our independent distributors choose to market and sell. Our competitors may be able, by offering higher commission payments or otherwise, to convince our independent distributors to terminate their relationships with us, carry fewer of our products or reduce their sales and marketing efforts of our products. We also may not be able to find additional distributors and independent sales representatives who will agree to market or distribute our products on commercially reasonable terms, if at all. If we are unable to establish new distribution and independent sales representative relationships or renew current distribution and sales agreements on commercially acceptable terms, our business, financial condition and results of operations could be materially and adversely affected.

Our revenue growth and profitability will depend in large part upon the effectiveness of our marketing strategies and investments.

Our future revenue growth and profitability will partially depend on the effectiveness of our marketing efforts and maintenance of appropriate cost structure, including our ability to:

Ineffective sales representatives, promotional efforts, and management of working capital could adversely affect our future results of operations and financial condition.

Our revenues will depend on our customers’ continued receipt of adequate reimbursement from private insurers and government sponsored healthcare programs.

Political, economic, and regulatory influences continue to change the healthcare industry in the United States. The ability of hospitals and medical facilities to pay fees for our products partially depends on the extent to which reimbursement for the costs of such materials and related treatments will continue to be available from private health coverage insurers and other similar organizations. We may have difficulty gaining market acceptance for the products we sell if third-party payors do not provide adequate coverage and reimbursement to hospitals and medical facilities.

Major third-party payors of hospitals and medical facilities, such as private healthcare insurers, periodically revise their payment methodologies based, in part, upon changes in government sponsored healthcare programs. We cannot predict these periodic revisions with certainty, and such revisions may result in stricter standards for reimbursement of hospital charges for certain specified products, potentially adversely impacting our business, results of operations, and financial conditions.

If pricing pressures cause us to decrease prices for our products and we are unable to compensate for such reductions through changes in our product mix or reductions to our expenses, our results of operations will suffer.

We have experienced and may continue to experience decreasing prices for the products we offer due to pricing pressure exerted by our customers in response to increased cost containment efforts from managed care organizations, other third-party payors and increased

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market power of our customers as the medical device industry consolidates. If we are unable to offset such price reductions through changes in our product mix or reductions in our expenses, our business, financial condition, results of operations and cash flows will be adversely affected.

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Consolidation in the healthcare industry could lead to demands for price concessions or to the exclusion of some suppliers from certain of our markets, which could have an adverse effect on our business, financial condition or results of operations.

Because healthcare costs have risen significantly over the past decade, numerous initiatives and reforms initiated by legislators, regulators and third-party payors to curb these costs have resulted in a consolidation trend in the healthcare industry to create new companies with greater market power, including hospitals. As the healthcare industry consolidates, competition to provide products and services to industry participants has become and will continue to become more intense. This in turn has resulted and will likely continue to result in greater pricing pressures and the exclusion of certain suppliers from important market segments as GPOs, independent delivery networks and large single accounts continue to use their market power to consolidate purchasing decisions for some of our customers. We expect that market demand, government regulation, third-party reimbursement policies and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers, which may reduce competition, exert further downward pressure on the prices of our products and may adversely impact our business, financial condition and results of operations.

Our operating earnings are dependent on certain significant suppliers.

As of December 31, 2020,2021, we distributed products from 5856 suppliers. We are dependent on these suppliers for the continuing supply of products. In 2020,2021, purchases of products from our largest supplier accounted for approximately 26%20% of purchases. We rely on suppliers to provide agreeable purchasing and delivery terms and performance incentives. Our ability to sustain adequate operating earnings has been, and will continue to be, dependent upon our ability to obtain favorable terms and incentives from suppliers, as well as suppliers’ continuing use of third-party distributors to sell and deliver their products. An unforeseen delay in raw material supplies, a change in terms by a significant supplier, or a decision of such a supplier to distribute its products directly to healthcare providers rather than through third-party distributors could have a material adverse effect on our results of operations and financial condition.

Interruption of manufacturing operations could adversely affect our business.

Our suppliers have manufacturing facilities for certain product lines that may be concentrated in one or more plants. Damage to these facilities or issues in our manufacturing arising from a failure to follow specific internal protocols and procedures, compliance concerns relating to quality systems regulations, equipment breakdown or malfunction, among other factors, could adversely affect the availability of our products. In the event of an interruption in manufacturing of certain products, we may be unable to quickly shift to alternate means of production to meet customer demand. In the event of a significant interruption, we may experience lengthy delays in resuming production of affected products due to the need for regulatory approvals. We may experience loss of market share, additional expense, or harm to our reputation.

Additionally, we contract with only one supplier for the raw materials (polymers) that we use to produce our own FDA cleared products. While we have not experienced a shortage of polymers in the past and believe that it is unlikely that there will be one in the future, if there were a shortage of polymers, it could either increase the cost of production for or prevent us from being able to produce some of our products, which could adversely affect our future results of operations and financial condition.

If we or our suppliers fail to comply with the FDA’s quality system and good tissue practice regulations, the manufacturing of our products could be delayed.

We and our suppliers are required to comply with the FDA’s QSR, which covers, among other things, the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, record keeping, storage and shipping of our products. In addition, suppliers and processors of products derived from HCT must comply with the FDA’s current good tissue practice requirements, or cGTPs, which govern the methods used in and the facilities and controls used for the manufacture of HCT/Ps, record keeping and the establishment of a quality program. The FDA audits compliance with the QSR and cGTPs through inspections of manufacturing and other facilities. If we or our suppliers have significant non-compliance issues or if any corrective action plan is not sufficient, we or our suppliers could be forced to halt the manufacturing of our products until such problems are corrected to the FDA’s satisfaction, which could have a material adverse effect on our business, financial condition and results of operations. Further, our products could be subject to recall if the FDA determines, for any reason, that our products are not safe or effective. Any recall or FDA requirement demanding that we seek additional approvals or clearances could result in delays, costs associated with modification of a product, loss of revenue and potential operating restrictions imposed by the FDA, all of which could have a material adverse effect on our business, financial condition and results of operations.

Future business combinations or acquisitions may be difficult to integrate, which could cause us to shift our attention away from our primary business and its operations.

We may pursue future business combinations with other companies or strategic acquisitions of complementary businesses, product lines, or technologies. There can be no assurance that such acquisitions will be available at all, or on terms acceptable to us. These transactions may require additional capital, which may increase our indebtedness or outstanding shares, resulting in a dilution to our stockholders or

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stockholders or a reduction in working capital. The inability to obtain such future capital may inhibit our growth and operating results. Integration of acquisitions or additional products can be costly, time-consuming, and complicated which could significantly impact operating results. Furthermore, the integration of any acquisition may disproportionally divert our executive team’s time and resources from our primary business and its operations. We may sell some or all of our product lines to other companies or we may agree to merge with another company. There can be no assurance that future transactions will ultimately benefit our Company. If we face difficulty integrating future acquisitions or if our executive team’s attention is diverted, our future results of operations may negatively impact our business, results of operations, and financial condition.

If the statutes and regulations in our industry change, our business could be adversely affected.

The U.S. healthcare industry has undergone significant changes designed to improve patient safety, improve clinical outcomes, and increase access to medical care. These changes include enactments and repeals of various healthcare related laws and regulation. Our operations and economic viability may be adversely affected by the changes in such regulations, including: (i) federal and state fraud and abuse laws; (ii) federal and state anti-kickback statutes; (iii) federal and state false claims laws; (iv) federal and state self-referral laws; (v) state restrictions on fee splitting; (vi) laws regarding the privacy and confidentiality of patient information; and (vii) other laws and government regulations.

If there are changes in laws, regulations, or administrative or judicial interpretations, we may have to change our business practices, or our existing business practices could be challenged as unlawful, which could have a material adverse effect on our business, financial condition, and results of operations.

U.S. federal and state governmental regulation could restrict our ability to sell the products.

Our business is subject to highly complex and evolving regulatory and licensing requirements that are subject to uncertainty, rapid change, differing interpretations, and rigorous regulatory enforcement. Failure to comply with such regulatory requirements may result in civil or criminal penalties, including the loss of licenses or the exclusion from future participation in government healthcare programs. There can be no assurance that federal or state regulatory or enforcement authorities will not investigate or challenge our current or future activities under these laws. Any state or federal regulatory or enforcement review of us, regardless of the outcome, would be costly and time consuming. Additionally, we cannot predict the impact of any changes in these laws, whether these changes are retroactive or will affect us on a going-forward basis only. Any investigation or challenge could have a material adverse effect on our reputation, business, financial condition, and results of operations.

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The FDA regulates the manufacturers and suppliers of the products that we sell, market, manufacture, and distribute, and regulatory compliance is costly and could contribute to delays in the availability of our products.

Under FDA regulations, we are subject to the same FDA regulation as the manufacturers and suppliers tofor whom we distribute. These regulations govern (i) the manufacturing and processing of cellular and tissue products; (ii) the introduction of new medical devices; (iii) the observance of certain standards with respect to the design, manufacturing, testing, labeling, promotion, and sales of the devices; (iv) the maintenance of certain records; (v) the ability to track devices; (vi) the reporting of potential product defects; (vii) the importing and exporting of devices; and (viii) various other matters. Furthermore, manufacturers that create the products we market face an increasing amount of scrutiny and compliance costs as more states implement regulations governing medical devices and Biologics. In addition, we are subject to ongoing compliance concerning our products with 510(k) Clearance, as well as potential onsite inspections by the FDA. Being found in violation and failing to correct an FDA compliance issue, could potentially result in product recall, product seizure, or the withdrawal of the 510(k) Clearance. These types of FDA regulations could affect many of the products we market, impacting our revenues and profitability, results of operations, and working capital.

Future regulatory action remains uncertain.

We operate in a highly-regulated and evolving environment with rigorous regulatory enforcement. Any legal or regulatory action could be time-consuming and costly. If we or the manufacturers or distributors that supply or distribute our products fail to comply with all applicable laws, standards, and regulations, action by the FDA or other regulatory agencies could result in significant restrictions, including restrictions on the marketing or use of the products we sell or the withdrawal of the products we sell from the market. Any such restrictions or withdrawals could materially affect our reputation, business, financial conditions, and results of operations.

If we fail to obtain, or experience significant delays in obtaining, FDA clearances or approvals for our future products or modifications to our products, our ability to commercially distribute and market our products could suffer.

Our medical devices are subject to extensive regulation by the FDA and numerous other federal and state governmental authorities. The process of obtaining regulatory clearances or approvals to market a medical device, particularly from the FDA, can be costly and time consuming, and there can be no assurance that such clearances or approvals will be granted on a timely basis, if at all. In particular, the

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FDA permits commercial distribution of most new medical devices only after the devices have received clearance under Section 510(k) of the FDCA, or 510(k), or are the subject of an approved premarket approval application, or a PMA. The 510(k) process generally takes three to nine months, but can take significantly longer, especially if the FDA requires a clinical trial to support the 510(k) application. Currently, we do not know whether the FDA will require clinical data in support of any 510(k)s that we intend to submit for other products in our pipeline. In addition, the FDA continues to re-examine its 510(k) Clearance process for medical devices and published several draft guidance documents that could change that process. Any changes that make the process more restrictive could increase the time it takes for us to obtain clearances or could make the 510(k) process unavailable for certain of our products. A PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process or is not exempt from premarket review by the FDA. A PMA must be supported by extensive data, including results of preclinical studies and clinical trials, manufacturing and control data and proposed labeling, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use. The PMA process is more costly and uncertain than the 510(k) Clearance process, and generally takes between one and three years, if not longer. In addition, any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) Clearance or, possibly, a PMA.

Intellectual property litigation and infringement claims could cause us to incur significant expenses or prevent us from selling certain of our products.

The medical device industry is characterized by extensive intellectual property litigation and, from time to time, we may become the subject of claims of infringement or misappropriation. Regardless of outcome, such claims are expensive to defend and divert management and operating personnel from other business issues. A successful claim or claims of patent or other intellectual property infringement against us could result in payment of significant monetary damages and/or royalty payments or negatively impact our ability to sell current or future products in the affected category.

We operate our business in regions subject to natural disasters and other catastrophic events, and any disruption to our business resulting from natural disasters would adversely affect our revenue and results of operations.

We operate our business in regions subject to severe weather and natural disasters including tornadoes, hurricanes, floods, fires, earthquakes, and other catastrophic events. Any natural disaster could adversely affect our ability to conduct business and provide products and services to our customers, and the insurance we maintain may not be adequate to cover our losses resulting from any business interruption resulting from a natural disaster or other catastrophic event.

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We cannot be certain that our internal controls over financial reporting and procedures will be sufficient in the future. This uncertainty could have a material adverse effect on our investors’ confidence in our reported financial information. There is no guarantee that our internal controls over financial reporting and procedures will not fail in the future.

Effective internal controls over financial reporting and disclosure controls and procedures are necessary to provide reliable financial reports and to detect and prevent fraud. Our significant assessment and remediation measures we have taken may not be sufficient to maintain investors’ confidence, and a damage to our reputation may result in an adverse impact to our financial position and results of operations. Our disclosure controls and internal controls over financial reporting may not prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, as opposed to absolute, assurances that the objectives of the control system will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our business 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 errors or mistakes. Individual acts can also circumvent these controls through collusion of two or more people or through our executive’s override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may have occurred and may not have been detected. A failure in any of our internal controls and procedures may result in (i) enforcement actions by the SEC or other governmental or regulatory bodies; (ii) litigation; (iii) loss of reputation; (iv) loss of investor confidence; (v) inability to acquire capital; or (vi) other material adverse effects on our Company.

A cyber security incident could cause a violation of HIPAA, breach of customer and patient privacy, or other negative impacts.

We rely extensively on our information technology (“IT”) systems to manage scheduling and financial data, communicate with customers and their patients, vendors, and other third parties and summarize and analyze operating results. In addition, we have made significant investments in technology, including the engagement of a third-party IT provider. A cyber-attack that bypasses our IT security systems could cause an IT security breach, a loss of protected health information, or other data subject to privacy laws, a loss of proprietary business information, or a material disruption of our IT business systems. This in turn could have a material adverse impact on our business and result of operations. In addition, our future results of operations, as well as our reputation, could be adversely

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impacted by theft, destruction, loss, or misappropriation of public health information, other confidential data or proprietary business information.

Computer malware, viruses, and hacking and phishing attacks by third parties have become more prevalent in our industry, have occurred on our systems in the past, and may occur on our systems in the future. Because techniques used to obtain unauthorized access to or sabotage systems change frequently and generally are not recognized until successfully launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. As cyber-security threats develop and grow, it may be necessary to make significant further investments to protect data and infrastructure. If an actual or perceived breach of our security occurs, (i) we could suffer severe reputational damage adversely affecting customer or investor confidence, (ii) the market perception of the effectiveness of our security measures could be harmed, (iii) we could lose potential sales and existing customers, our ability to deliver our products or operate our business may be impaired, (iv) we may be subject to litigation or regulatory investigations or orders, and (v) we may incur significant liabilities. Our insurance coverage may not be adequate to cover the potentially significant losses that may result from security breaches. Additionally, while we currently do not have cybersecurity coverage, we plan to evaluate options for this type of coverage in 2021.2022.

We depend on the knowledge and skills of our executives and other key employees, and if we are unable to retain and motivate them or recruit additional qualified personnel, our business may suffer.

We benefit substantially from the leadership and performance of our executives and certain key employees. For example, key members of our executive team have experience with successfully scaling an early stageearly-stage medical device company to achieve profitability. Our success will depend on our ability to retain our current executives and key employees, and to attract and retain qualified personnel in the future. Competition for executives and key employees in our industry is intense and we cannot guarantee that we will be able to retain our personnel nor attract new, qualified personnel. This uncertainty may be especially true during periods in which we face challenges such as financial difficulties or a reduced stock price. The loss of the services of certain members of our executives or key employees could prevent or delay the implementation and completion of our strategic objectives or divert management’s attention to seeking qualified replacements. Each member of the executive team and our key employees may terminate employment without notice and without cause or good reason. The members of our executive team are not subject to non-competition or employment agreements. Accordingly, the adverse effect resulting from the loss of certain members of the executive team could be compounded by our inability to prevent them from competing with us.

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We may be adversely affected by product liability claims, unfavorable court decisions or legal settlements.

We are exposed to potential product liability risks inherent in the design, manufacturing, and marketing of medical devices, many of which are implanted in the human body for long periods of time or indefinitely. These matters are subject to many uncertainties and outcomes are not predictable. In addition, we may incur significant legal expenses regardless of whether we are found to be liable.

While we maintain product liability insurance, there can be no assurance that such coverage is sufficient to cover all product liabilities that we may incur. We are not currently subject to any product liability proceedings, and we have no reserves for product liability disbursements. However, we may incur material liabilities relating to product liability claims in the future, including product liability claims arising out of the usage and delivery of our products. Should we incur product-related liabilities exceeding our insurance coverage, we would be required to use available cash or raise additional cash to cover such liabilities.

Uncertainty in future changes to tax legislation, regulatory reform, or policies could have a material adverse effect on our business.

Tax laws, regulations, and policies in various jurisdictions may be subject to significant change due to economic, political and other conditions. The recently enacted U.S. tax reform legislation referred to as the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform Law”), significantly changes how the U.S. taxes corporations, and many of those changes went into effect for the first time for the 2018 tax year. The U.S. Treasury Department, the Internal Revenue Service (“IRS”), and other standard-setting bodies could interpret or issue guidance on how provisions of the U.S. Tax Reform Law will be applied or otherwise administered that is different from our interpretation. As we complete our analysis of the U.S. Tax Reform Law, collect and prepare necessary data, and interpret any additional guidance, we may adjust the provisional amounts that we have recorded, which may materially impact our provision for income taxes in the period in which the adjustments are made. In addition, state or local jurisdictions may enact tax laws in response to the U.S. Tax Reform Law that could result in further changes to taxation and materially affect our financial position and results of operations.

We do business with companies that are owned or controlled by our Chief Executive Officer and Chairman of the Board and President, which could create actual or potential conflicts of interest.

MembersMessrs. Reeg and Brooks, members of our executive team, including Messrs. Reeg and Brooks, have economic interests in other companies with which we do business. These relationships could create, or appear to create potential conflicts of interest. Such a conflict of interest could potentially cause a member of our executive team to seek to advance his economic interests above ours. Moreover, transactions with related parties may not be on terms as favorable to us as they would have been if they had been negotiated among unrelated parties.

While we have policies and procedures in place to prevent conflicts of interest resulting in a transaction that is unfavorable to our Company, there can be no assurance that our policies and procedures will prevent us from entering into a transaction that is not in our best interests or the best interests of our stockholders. If we do enter into an agreement with a related party with terms less favorable to us than we could have negotiated with an unrelated party, it could have a material adverse effect on our results of operations and financial condition.

Some members of our executive team may dedicate inadequate time and attention to our Company.

Our Chief Executive Officer and Chairman of the Board and President, may become distracted by other matters, reducing the amount of time they allocate to the affairs of our Company. For example, Mr. Reeg and Mr. Brooks both own other companies, and they may allocate more of their time to the operations of those companies. If members of our executive team devote more substantial amounts of

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their time to those matters in the future, their ability to devote sufficient time to our operations may be limited and could negatively impact our business.

General economic conditions may adversely affect demand for our products and services.

Poor or deteriorating economic conditions in the U.S. could adversely affect the demand for healthcare services and consequently, the demand for our products. Poor economic conditions also could lead our suppliers to offer less favorable terms of purchase, which would negatively affect our cash flows and profitability. These and other possible consequences of financial and economic decline could have material adverse effect on our business, results of operations, and financial condition.

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Risks Related to Ownership of Our Common Stock

We are subject to significant corporate regulation as a public company and failure to comply with all applicable regulations could subject us to liability or negatively affect our stock price.

As a publicly-traded company, we are subject to a significant body of regulation, including the Sarbanes-Oxley Act of 2002. While we have developed and instituted a corporate compliance program based on what we believe are the current best practices in corporate governance and continue to update this program in response to newly implemented or changing regulatory requirements, we cannot provide assurance that we are or will be in compliance with all potentially applicable corporate regulations.

For example, we cannot provide assurance that, in the future, our executive team will not find a material weakness in connection with its periodic review of our internal controls and processes over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We also cannot provide assurance that we could correct any such weakness to allow our executive team to assess the effectiveness of our internal controls over financial reporting as of the end of our fiscal year with enough time to state that such assessment will have been fairly stated in our Annual Report, or state that we have maintained effective internal controls over financial reporting as of the end of our fiscal year. If we fail to comply with any of these regulations, we could be subject to a range of regulatory actions, fines or other sanctions or litigation. If we disclose any material weakness in our internal controls over financial reporting, our stock price could decline and erode investors’ confidence.

Because the market for our Common Stock is limited, persons who purchase our Common Stock may not be able to resell their shares at or above the purchase price they paid.

Our Common Stock trades on the Over-the-Counter markets (“OTC Markets”), which are not highly liquid securities markets, and is designated as OTC Pink, Current Information Tier. With some limited exceptions, there has not been an active public market for our Common Stock. We cannot provide an assurance that an active public market for our Common Stock will develop or be sustained in the future. If an active market for our Common Stock does not develop or is not sustained, the price may decline, and our stockholders may lose their investment in our Common Stock.

Historically, the market price for our Common Stock has been highly volatile and trades at low volumes. From time to time, the market has experienced significant price and volume fluctuations, which we believe are unrelated to our operating performance. Fluctuations in the trading price or liquidity of our Common Stock may reduce the value of an investment in our Common Stock.

Factors that may have a significant impact on the market price and marketability of our Common Stock include:

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In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has frequently been instituted. These lawsuits often seek unspecified damages, and as with any litigation proceeding, we cannot predict with certainty the eventual outcome of pending litigation. Furthermore, we may have to incur substantial expenses related to any securities class

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action lawsuits and our executive team’s attention and resources could shift away from operating our business to responding to any such litigation. We maintain certain levels of insurance to cover these types of risks for our Company, our directors, and our officers. Our insurance coverage and policies are subject to high deductibles to reduce premium expenses, and there is no guarantee that our insurance will cover any specific claim that we currently face or may face in the future, or that our insurance will be adequate to cover all potential liabilities and damages or that we will have sufficient working capital or funds.

Our current executive team can exert significant influence over our Company and make decisions that are not in the best interests of all stockholders.

As a group, our executives and directors beneficially own approximately 92.8%89.78% of our outstanding shares of Common Stock. Because of this ownership, these stockholders can assert significant influence over all matters requiring stockholder approval, including the election and removal of directors and any change-in-control. Such concentration of ownership of our outstanding Common Stock could delay or prevent a change-in-control, or otherwise discourage or prevent a potential acquirer from attempting to obtain control of our Company, possibly negatively affecting the market price of our Common Stock. This significant ownership could also prevent our stockholders from realizing a premium over the market prices for their shares of Common Stock. Moreover, the interests of executives and directors may not always coincide with the interests of our Company or the interests of other stockholders causing us to enter into transactions or agreements that we would not otherwise consider.

Under our charter documents and Delaware law, we could issue “blank check” preferred stock without stockholder approval, which would dilute our then current stockholders’ interests and impair such stockholders’ voting rights, discouraging a takeover that our stockholders may consider favorable.

Our certificate of incorporation provides that we may authorize and issue up to 20,000,000 shares of “blank check” preferred stock with designations, rights, and preferences as may be determined from time to time by our Board. Our Board is empowered, without stockholder approval, to issue one or more series of preferred stock with dividend, liquidation, conversion, voting, or other rights, which could dilute the interest of or impair the voting power of our holders of Common Stock. The issuance of a series of preferred stock could be used as a method of discouraging, delaying, or preventing a change in control. For example, it would be possible for our Board to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our Company.

If our Common Stock becomes subject to a “chill” or a “freeze” imposed by the Depository Trust Company (“DTC”) our stockholders’ ability to sell shares may be limited.

The DTC acts as a depository or nominee for street name shares or stock that investors deposit with their brokers. Although through DTC our Common Stock is eligible for electronic settlement, historically DTC has imposed a chill or freeze on the deposit, withdrawal, and transfer of common stock of issuers whose common stock trades on the OTC Markets. Depending on the type of restriction, it can prevent our stockholders from buying or selling our shares of Common Stock and prevent us from raising money. A chill or freeze may remain imposed on a security for a few days or an extended period. While we have no reason to believe a chill or freeze will be imposed against our Common Stock, if DTC did so, our stockholders’ ability to sell their shares would be limited.

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ITEM 1B. UNRESOLVEDUNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

Our principal executive office is approximately 11,500 square feet and is located at 1565 North Central Expressway, Suite 220, Richardson, Texas, 75080. We lease our executive office space pursuant to two separate leases with 1565 North Central Expressway, LP (“NCE, LP”). The lease between CPM, a wholly-owned subsidiary, and NCE, LP (“CPM Lease”) was effective January 1, 2013, and the second lease between Fuse and NCE, LP (“Fuse Lease”) was effective July 14, 2017. Both the CPM Lease and Fuse Lease terminated December 31, 2017, with month-to-month renewals. We believe our present business property is adequate and suitable to support our mid-term strategies and initiatives for growth. We have currently decided to continue on a month-to-month lease with the option of renegotiating a long-term lease renewal or relocation in the future.

Our leased property does not have material costs of complying with environmental laws.

ITEM 3. LEGAL PROCEEDINGS.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

2221

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our Common Stock trades and is quoted on the OTC Markets designated as OTC Pink, Current Information Tier, under the trading symbol OTCPINK: FZMD. There is no established public trading market for our Common Stock, as the trading market for our Common Stock has been extremely limited and sporadic.

Below is a table indicating the range of high and low bid information for our Common Stock as reported by the OTC Markets interdealer quotation system for the periods listed. Bid prices represent interdealer prices and do not include retail mark-ups, retail mark-downs, or any commission to a broker-dealer. In addition, these prices may not necessarily reflect actual transactions.

Holders of Record

As of March 8, 2021,21, 2022, there were 357353 account holders of record of our Common Stock listed with our transfer agent, American Stock Transfer and Trust Company, LLC.

Dividends

We have not paid or declared any dividends on our Common Stock during the past two (2)three (3) fiscal years and we do not intend to pay any dividends on our Common Stock for the foreseeable future.

ITEM 6. SELECTED FINANCIAL INFORMATION.

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion highlights our results of operations and the principal factors that have affected our consolidated financial condition, our liquidity and our capital resources for the periods described. The discussion also provides information that our management believes is relevant for an assessment and understanding of our consolidated financial condition and results of operations presented herein. The following discussion and analysis are based on our Financial Statements contained in this Annual Report, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The discussion and analysis should be read in conjunction with our Financial Statements and the related notes therein.

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Explanatory Note

As described in “Item 1. Business, Corporate and Available Information,” and elsewhere in this Annual Report, our Financial Statements include the accounts of our Company and our wholly-owned subsidiaries, CPM and, prior to its dissolution, Maxim. Intercompany transactions have been eliminated in consolidation.

Overview

We are a Manufacturer, distributor, and wholesaler of medical devices offering a broad portfolio of Orthopedic Implants, Biologics,, and other medical devices. A more detailed description of our business operation can be found in “Item 1. Business” within this Annual Report.

We believe 20202021 proved pivotal for our growth as a Manufacturer and innovative product developer. Our focus to shift our business model from a sole distributor to an integrated Manufacturer and distributor has seen successful results in 2020,2021, with continued growth and success leading into 2021.2022. Highlights of our 20202021 strategic milestones include the following:

Severe Weather Conditions

During February 2021, the state of Texas experienced record-breaking winter weather which resulted in dangerous road conditions, widespread power outages, water outages and contamination of the water supply, causing significant disruptions through-out Texas, including our corporate office and distribution center for several days.

Our executive management team immediately focused on the health and wellbeing of our employees, while also working to minimize the impact on our customers. We resumed full operations on March 1, 2021 and are currently working to address the Cases, sales support, and administrative functions backlog. Generally, surgical cases canceled due to the severe weather have been rescheduled to subsequent weeks .2021. (See Item 1A. “Risk Factors- Risks Related to Our Business and Industry”, for additional information).

Impact of COVID-19 to Fuse

TheBeginning in the first quarter of 2020, the novel coronavirus SARS CoV-2 (“COVID-19”)SARS-CoV-2 global pandemic ("COVID-19") has presentedsignificantly impacted Texas, the United States and continuesglobal economies. The COVID-19 pandemic has significantly affected our customers, employees, and business operations. In Texas and in the United States generally, the pandemic has led to present significant risks to our business plan. During ourthe cancellation or deferral of elective surgeries and procedures with certain hospitals, ambulatory surgery centers, and other medical facilities; restrictions on travel; the implementation of physical distancing measures; and the temporary or permanent closure of businesses. Since the first quarter of 2020, and as ain response to COVID-19, the Governor of Texas declared a stateseveral executive orders limiting elective surgeries based on hospital facility capacity. During January 2021, certain of disaster and issued an executive order requiring hospitals to defer allour hospital facility customers temporarily restricted elective surgeries. The order was effective March 19, 2020 through April 22, 2020.Generally, these surgical cases were deferred and rescheduled to subsequent months.

On April 17, 2020, theIn August 2021, Texas Governor ofGregg Abbott sent a letter to all hospitals in Texas issued an additional executive order permitting hospital facilities to resumerequesting that they voluntarily defer elective surgeries effective April 22, 2020in connection with certain restrictions, including maintainingthe rise of COVID-19 cases due to the Delta variant.

In November 2021, the World Health Organization designated a percentagenew variant, Omicron, which surged throughout the fourth quarter of available beds for potential2021 and into 2022.

At this time, the future trajectory of the COVID-19 related patients. The disaster declarationpandemic remains uncertain, both in Texasthe U.S. and similar declarations in other governmental jurisdictions, specificallymarkets. Progress has been made on therapeutic treatments and the temporary deferraldevelopment and distribution of all elective surgeries, adversely impacted our resultsvaccines, though the efficacy, timing, and adoption of operations for the second quarter 2020, in particular, the periods priorvarious treatments and vaccines is uncertain, particularly with respect to April 22, 2020.

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A second executive order suspending elective surgeries and procedures was issued on June 30, 2020.  It was amended on July 9, 2020 to encompass all counties within the 11 Trauma Service Areas in Texas.    This executive order was lifted on September 17, 2020 and elective surgeries and procedures in these areas were resumed.  

During the second quarter of 2020, we implemented strategic cost reductions in order to mitigate the impactnew variants of COVID-19 onwhich have emerged and will likely continue to, emerge.

Given these various uncertainties, it is unclear the extent to which lingering slowdowns in elective procedures will affect our business. Included in these initiatives were company-wide salary reductions of all our employees, including our executive officers. As of December 31, 2020, a majority ofbusiness during 2022 and beyond. We expect that the reduced salaries have been reinstated.

Despite the adverse effects of COVID-19 on our business will depend on various factors including (i) the magnitude and length of increased case waves in markets we serve, including from new variants of COVID-19, (ii) the second quartercomfort level of 2020, our net income forpatients in returning to clinics and hospitals, (iii) the year ended December 31, 2020 increased overextent to which localized elective surgery shutdowns occur, (iv) the year December 31, 2019. However, our revenue declined forunemployment rate’s effect on potential patients lacking medical insurance coverage, and (v) general hospital capacity constraints occurring because of the year ended December 31, 2020 comparedneed to 2019. We believe that our revenues for the third and fourth quarters of 2020 were strengthened due to performance of deferred second quarter elective surgeries in the third and fourth quarters of 2020. However, the strength of those two quarters did not entirely compensate for the second quarter deterioration due to COVID-19. Our products support patient conditions which are degenerative in nature. While most of our products are used in procedures that are currently considered elective, the procedures are typically necessary for a patient to restore mobility, reduce pain and increase quality of life.  Other cases are emergency in nature involving trauma.  treat COVID-19 patients.

Current Trends and Outlook

Seasonality

We are subject to seasonal fluctuations in sales, which cause fluctuations in quarterly results of operations. Because of the seasonality of our business, results for any quarter are not necessarily indicative of results that may be achieved in other quarters or for a full fiscal year.

Historically, we have experienced greater revenue and greater sales volume, as a percentage of revenue, during the last two calendar quarters of our fiscal year compared to the first two calendar quarters of the year. We believe this revenue trend is primarily due to the increase in elective surgeries during the last two quarters of the calendar year, which are partially satisfied by patient annual healthcare deductibles being met in those two quarters. We use this seasonality trend to assist us in enterprise-wide resource planning, such as purchasing, product inventory logistics, and human capital demands.

Subsequent to the government-imposed shelter-in-place mandates and prohibitions on elective surgeries in response to COVID-19, revenues for the third quarter of 2020 were higher than our historical seasonality trends due to surgeries deferred in the second quarter of 2020 due to elective surgery restrictions being performed in the third and fourth quarters.

For the years ended December 31, 2021 and 2020, approximately $10.3 million (50.5%) and 2019, approximately $12.8 million (60%) and $13.1 million (57%) of revenues were generated during the third and fourth quarters of 2021 and 2020, and 2019, respectively. We use this seasonality trend to assist us in enterprise-wide resource planning such as purchasing, product inventory logistics, and human capital management.

Retail and Wholesale Cases

We believe our comprehensive selection of Orthopedic Implants and Biologics products is pivotal to our ability to acquire new customers, increase sales to existing customers and increase overall sales volume, revenues, and profitability. We continue to review and evaluate our product lines, ensuring we maintain a high-quality and cost-effective selection of Orthopedic Implants and Biologics.

We measure sales volume based on medical procedures in which our products were sold and used (each a Case). We consider Cases resulting from direct sales to hospitals and medical facilities to be Retail Cases and Cases resulting from sales to third-parties, such as distributors, or sub-distributors, to be Wholesale Cases. Some of our sales for Wholesale Cases are on a consignment basis with the third-party. (See “Item 1. Business” for additional information).

Retail Cases in our industry command higher revenue price points than Wholesale Cases. Because Retail Cases involve direct sales to our end customers, we typically receive a higher gross profit margin due to the absence of any third party in the sales process. However, we may pay commissions to our full time or independent sales representatives with respect to Retail Sales increasing our commission expenses. Retail Cases generally generate substantially more gross profit than Wholesale Case transactions but are subject to commission expenses which we do not incur with respect to Wholesale Cases.

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Wholesale Cases in our industry command lower revenue price-points than Retail Cases as the third-party reseller must build in its own profit margin. Because Wholesale Cases involve sales to third parties who sell our products to end customers, our profit margins are reduced for these Cases due to the lower sales price. Consequently, our Wholesale Cases generate substantially lower gross profit than our Retail Cases. OurCases, which is offset in part by the fact that we do not incur any commission costs on Wholesale Case business is highly dependent on minimum volume sales levels to generate revenues in excess of our fixed costs of revenues in order to achieve appropriate profitability.Cases.

Pricing Pressures

Pricing pressure has increased in our industry due to (i) continuous consolidation among healthcare providers, (ii) trends toward managed care healthcare, (iii) increased government oversight of healthcare costs, and (iv) new laws and regulations that address healthcare reimbursement and pricing. Pricing pressure, reductions in reimbursement levels or coverage, or other cost containment measures can significantly impact our business, future operating results and financial condition.

To offset pricing pressure, we employ strategies to optimize revenue per Case. During 2020,2021, we believe we were successful in minimizingpartially mitigated the impact of pricing pressures as reflected with average revenue per Case of $4,886 for 2021 and $5,583 for 2020, and $4,228 for 2019.or an approximate 12.5% reduction. During 2020,2021, our strategy to emphasize our Retail Model proved successful as Retail Cases represented approximately 89%92% of revenue, or an approximate 6%3% increase over 2019.2020.

Compensation Initiatives

We expect to continue to offer compensation and other valuable long-term incentives, such as equity incentives, to key distributors, executives, and employees as a means to expand our strategic partnerships and industry relationships. During 2020,2021, our Board granted equity incentives to our Scientific Advisory Board members (SABs), key distributors, independent contractors and employees. (Seeof Directors. (See “Item 1. Business” for additional information).

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Results of Operations

Year Ended December 31, 20202021 Compared to Year Ended December 31, 20192020

The following table sets forth certain financial information from our consolidated statements of operations along with a percentage of net revenue and should be read in conjunction with the Financial Statements and related notes included in this report. 

Net Revenues

For the year ended December 31, 2020,2021, our net revenues were $21,398,936$20,414,268 compared to $22,900,277$21,398,936 for the year ended December 31, 2019,2020, a decrease of $1,501,341,$984,668, or approximately 6.6%4.6%.

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For the year ended December 31, 2020,2021, Retail Case volume increased approximately 11%, while the average revenue per Retail Case decreased approximately 14%11%, compared to the year ended December 31, 2019, and2020, resulting in revenues from Retail Cases decreaseddecreasing by approximately 0.01% 2% compared to revenues from Retail Cases for the year ended December 31, 2019.2020. Revenues from Retail Cases as a percentage of total revenues increased to 92% of revenues for the year ended December 31, 2021, from 89% of revenues for the year ended December 31, 2020, from 83% of revenues for the year ended December 31, 2019.2020. We believe the increase in revenue from Retail Cases as a percent of total revenues reflects the execution of our strategies to shift more of our business to higher margin Retail Cases through improvement of our supply chain management.  Therefore,Consequently, wholesale revenue as a percent of total revenue has decreased.

As discussed above in “Current Trends and Outlook”, we believe that as our industry faces increased pricing pressures, we will need to focus on increased volume of Retail Cases to maintain gross profit levels. We intend to increase our Retail Case volume by increasing sales volumes with our existing retail customer base, as well as expanding our national distribution by on-boarding new medical facilities, surgeons, and distributors.

The FDA issued guidance in November 2017 in connection with a comprehensive policy framework for the development and oversight of regenerative medicine products, including human cell and tissue products (HCT/P). Prior to this, it was believed that amniotic fluid was a HCT/P Regulated under 21 CFR 1271.3(d)(1) and Section 361 of the PHS Act. In this 2017 guidance, the FDA determined that amniotic fluid would be regulated as a Section 351 Biologic and require an approved Biologics License Application (BLA) for it to be commercialized. However, the FDA allowed a 36-month grace period, which was later extended to May 31, 2021, during which the FDA exercised enforcement discretion. In April 2021, the FDA announced no further extensions would be granted and we discontinued all sales of amniotic fluid as of May 31, 2021. The loss of this product line in 2021 resulted in a decrease in revenues. Consequently, until either a BLA is granted, or regulations are reconsidered, we will explore alternative options to replace this revenue stream.

Cost of Revenues

For the year ended December 31, 2020,2021, our cost of revenues was $8,694,713$8,478,561 compared to $11,762,790$8,694,713 for the year ended December 31, 2019,2020, which is a decrease of $3,068,077,$216,152, or approximately 26%2.5%.

As a percentage of revenues, cost of revenues was approximately 42% for the year ended December 31, 2021, compared to 41% for the year ended December 31, 2020 compared to 51% for the year ended December 31, 2019.2020. As a percentage of revenues, this reductionincrease was primarily driven by (a)(i) an approximate 7% reduction3% increase in medical instruments purchased, for the launch of new product lines, (ii) an approximate 1% increase in cost of revenues primarily driven by a reductionproduct mix; offset in Case volume product mix, (a)(ii)part by, an approximate 6%3% decline in the inventory loss provision for slow-moving and obsolescence and inventory shrink; offset in part by, (b)(i) an approximate 2%shrink.

The increase in medical instruments purchased is due to our investment into new product lines in 2021 that require instrumentation to sell to both retail and (b)(ii) approximately 1%wholesale consumers. We expect investment into medical instruments to continue in net shipping2022 and beyond, which could negatively impact gross profit. However, once the new product lines are commercialized, the medical instrument expense other supply chains related costs.is expected to decline significantly and increase overall gross profit.

27Also due to the reduction in revenue trend we have experienced in 2020 and 2021, we have increased cost of revenues from expiring product that may have been utilized if revenues had remained consistent or had increased. If revenues increase in the future our costs associated with expired and obsolete inventory may be minimized and increase gross profit.

Gross Profit

For the year ended December 31, 2020,2021, our gross profit was $12,704,223$11,935,707 compared to $11,137,487$12,704,223 for the year ended December 31, 2019,2020, representing an increasea decrease of $1,566,736,$768,516, or approximately 14%6.0%.

As a percentage of revenues, gross profit increased 10%decreased 1% to approximately 58% from approximately 49% to approximately 59% for the years ended December 31, 20202021 and 2019.2020. As a percentage of revenues, the increasedecrease primarily resulted from those items discussed in Cost of Revenues.

Selling, General, Administrative and Other

For the year ended December 31, 2020,2021, our selling, general, administrative, and other expenses (SG&A) were $6,541,659$7,013,297 compared to SG&A of $8,466,077 $6,541,659 for the year ended December 31, 2019,2020, representing a decreasean increase of $1,924,418$471,638 or 23%7.2%.

As a percentage of net revenues, SG&A accounted for approximately 35% for the year ended December 31, 2021, and 31% for the year ended December 31, 2020, and 37% for the year ended December 31, 2019.2020. As a percentage of revenues, the reductionincrease of approximately 6%4% was primarily driven by: (a)(i) a $817,039 decline$475,110 increase in leased staffing costs,  (a)(ii) a $474,845 reduction$162,236 increase in bad debt expense,other administrative expenses, (a)(iii) a $465,586 decline$158,157 increase in travel, entertainment, and marketing, and (a)(iv) a $13,563 increase in professional fees, (a)(iv) a $100,350 reduction in travel and entertainment, and (a)(v) a $74,494 reduction in stock based compensation;fees; offset, in part by, (b)(i) a $7,896$295,271 reduction in stock based compensation, and (b)(ii) a $42,157 reduction in bad debt expense.

In 2020, to mitigate the negative impacts of COVID-19, the salaries of key employees were reduced. In 2021, the majority of the reduced salaries were reinstated, thus attributing to increased leased staffing costs. We also evaluated the competitiveness of our key employees’ salaries in 2021. As increased information and technology emerged to address treatment and prevention of COVID-19, we were able to

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strengthen our workforce and resume business growth initiatives, reflected in the increase in other administrative expensestravel, entertainment, and other.

The reductionsmarketing expenses. We believe that our reinvestment in leased staffing costretaining key employees and growth initiatives as well as marketing and commercializing the new product lines will drive sales in later periods, as the adverse economic and social impacts of $817,039, the decrease of $465,586 in professional fees, the decrease of $354,166 in SAB costs, and the $100,350 reduction in travel and entertainment costs reflects our commitment to our strategic cost containment initiatives.COVID-19 diminish.

Commissions

For the year ended December 31, 2020,2021, our commissions expense increaseddecreased to $7,086,335$7,050,278 from $5,982,075$7,086,335 for the year ended December 31, 2019, an increase2020, a decrease of $1,104,260,$36,057, or approximately 18.5%0.5%.

As a percentage of net revenues, commissions expense accounted for approximately 35% for the year ended December 31, 2021, and 33% for the year ended December 31, 2020, and 26%2020. The overall reduction of commissions expense directly relates to the reduction of revenue for the year ended December 31, 2019. This increase is primarily driven by an approximate three percent (3%)2021, compared to the year ended December 31, 2020, however the increase in revenues eligible for commissions and an approximately fourexpense as a percent (4%) increase inof revenue is a result of higher average commission rates of the total revenues.

Depreciation and Amortization

For the year ended December 31, 2021, our depreciation and amortization expense decreased to $67,638 from $104,143 for the year ended December 31, 2020, compared to the year ended December 31, 2019.

Depreciation and Amortization

For the year ended December 31, 2020, our depreciation and amortization expense decreased to $104,143 from $107,073 for the year ended December 31, 2019, a decrease of $2,930.$36,505. The decrease is primarily the result of an approximate (a)(i) $12,882$11,440 reduction in amortization of intangible assets which were fully amortized, such as noncompete agreements and customer relationships, acquired pursuant to the Maxim Acquisition (see Note 4 of our accompanying consolidated Financial Statements, entitled “Goodwill and Intangible Assets”), offset, in part, by (b)(i)and (a)(ii) an approximate $9,952 increase$25,065 decrease in depreciation expense as a result of investment in IT infrastructure such as additional and replacement user workstations.

Goodwill Impairment

During 2020, we assessed the recoverability of the carrying value of our goodwill as a result of (i) the continuation of adverse economic and business trends, and (ii) revisions to our anticipated future operating results. There was no impairment of goodwill as of December 31, 2020. For further information on goodwill impairment, please see Note 2 of our accompanying Financial Statements, entitled “Significant Accounting Policies, Goodwill and Other Intangible Assets.”  fully depreciated fixed assets.

Change in Fair Value of Contingent Purchase Consideration

For the year ended December 31, 2020,2021, we determined that the earnings thresholds, as detailed in the CPM Acquisition Agreement, were not met for payments under the earn-out (“Earn-Out”). Therefore, based on our 20202021 financial performance, we will make no payments to NC 143 for either the base Earn-Out or the bonus Earn-Out for 2020.2021.

As of December 31, 2020,2021, the fair value of the Earn-Out liability was re-measured to fair value under the probability weighted income approach, as further explainedexplained in Note 2 of our accompanying consolidated Financial Statements, entitled “Significant Accounting Policies,, Fair Value Measurements.” As a result, the current fair value of the Earn-Out liability was increasedreduced by $290,635,$342,168, from $11,645,365$11,936,000 to $11,936,000.$11,593,832. For more information on the change in the fair value of contingent purchase consideration, please see Note 2 on our accompanying Financial Statements, entitled “Significant Accounting Policies, Fair Value Measurements.”

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Interest

For the year ended December 31, 2020,2021, our interest expense declined to $94,953$78,230 from $121,633$94,953 for the year ended December 31, 2019,2020, which is a reduction of $26,680,$16,723, or approximately 22%17.6%. ThisThe decline in interest expense isof $16,723 was primarily attributable todriven by (a)(i) an approximate $21,748 reduction$15,140 decrease in interest rates onrelated to our RLOC,Credit Agreement, (a)(ii) an approximate $11,850 reduction due$5,439 decrease related to lower average borrowingsaccrued interest on our RLOC,PPP Loan; offset, in part by, (b)(i) $407an approximate $3,763 increase related to accrued interest on our EIDL Loan, and (b)(ii) an approximate $94 increase in interest expense related to the notes payable – related party notes, (b)(ii) $2,720 increaseparties. The decrease of $15,140 in interest expense on our RLOC is primarily driven by (a)(i) an approximate $15,594 reduction in interest related to the Paycheck Protection Program Loan (“PPP Loan”), andtotal borrowings, offset, in part, by (b)(iii) $3,791(i) an approximate $454 increase in interest related to the Economic Injury Disaster Loan (“EIDL Loan”).interest rates

IncomeTax

For the year ended December 31, 2020,2021, we recognized a tax expense of $18,993,$17,723, compared to $781,085$18,993 for the year ended December 31, 2019.2020. The tax expense recognized in 2019reduction of $1,270, or approximately 6.7%, is a result of recognition of a valuation allowance for deferred tax assets based on management’s determinationprimarily attributable to the factors previously discussed that it is more likely than not that all or a portion of the deferred tax asset will not be realized. increase our operating loss before income taxes. For additional information, please see Note 11 of our accompanying consolidated Financial Statements, entitled “Income Taxes.”

Net Loss

For the year ended December 31, 2020,2021, we had a net loss of $1,432,495,$1,587,891, compared to net loss of $3,316,495 for the year ended December 31, 2019, reflecting a reduction in our net loss of $1,884,000, or approximately 57%.  The primary drivers for our reduction in net loss$1,432,495 for the year ended December 31, 2020, were (a)(i) a $1,566,736reflecting an increase in gross profit, (a)(ii) $1,924,418 reduction in selling, general, administrative, and other, (a)(iii) $932,203 reduction in goodwill impairment, (a)(iv) $762,092 reduction in income tax, (a)(v) $26,680 reduction in interest expense, and (a)(vi) $2,930 reduction in depreciation and amortization, offset, in part, by (b)(i) $2,226,799 increase in change in fair valueour net loss of contingent purchase consideration, and (b)(ii) $1,104,260 increase in commissions.$155,396, or approximately 10.8%, as a result of factors discussed previously.

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Liquidity and Capital Resources

Cash Flows

A summary of our cash flows is as follows:

Net Cash Provided by/(Used In) Operating Activities

Our net cash provided byused in operating activities was $236,654$1,778,328 for year ended December 31, 20202021, compared to net cash provided by operating activities of $236,654 for the year ended December 31, 2020. The increase of cash used in operating activities of $4,739 for the year ended December 31, 2019. The increase of $241,393$2,014,982 primarily resulted from: (a)(i) a $1,884,000 reductionan approximate $2,783,395 of cash used for non-cash adjustments, (a)(ii) an approximate $2,770,992 increase in net loss, (a)(ii) a $827,623 reduction in account receivable, a $476,333 reduction incash used for inventories, (a)(iii) a $443,803 increasean approximate $155,396 decrease in accounts payable, (a)(iv) a $25,944 reduction in prepaid expenses and other current assets;cash provided by net loss, offset in part by, (b)(i) a $1,248,200 reductionan approximate $1,380,212 increase in accrued expenses, (b)(ii)  a $1,187,436 increase incash provided by long term accounts receivable, (b)(ii) an approximate $1,031,504 increase in cash provided by accrued expenses, (b)(iii) an approximate $741,311 increase in cash provided by accounts payable, (b)(iv) an approximate $539,139 increase in cash provided by account receivables, and (b)(iii) $980,674(v) an approximate $2,635 increase in non-cash adjustments.cash provided by prepaid expenses and other current assets.

Net Cash Used In Investing Activities

Our net cash used in investing activities for the year ended December 31, 20202021, was $20,757zero compared to $15,318$20,757 for the year ended December 31, 2019.2020. This increasedecrease of $5,439$20,757 was primarily driven by previous year investment in information technology related to new and replacement user workstations.

Net Cash Provided by (Used in)In) Financing Activities

Our net cash provided by financing activities was $1,144,060 for the year ended December 31, 2021, compared to net cash used in financing activities wasof $127,749 for the year ended December 31, 2020, compared to net cash provided by financing activities of $275,053 for the year ended December 31, 2019.2020. This decrease of $402,802$1,271,809 is primarily driven by (a)(i)

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$1,114,202 reduction $74,203 increase in net borrowings from ourcash used for paying Amegy RLOC; offset in part, by (b)(i) $361,400 reduction in proceeds from the PPP, (b)(ii) $200,000 reduction in proceeds from notes payable – related parties, and (b)(iii) $150,000$300,000 increase in proceeds fromcash used for payment of the EIDL Loan.Loan, (b)(iv) $11,000 increase in cash provided by stock option exercises, (b)(v) 2,432,770 increase in cash provided by new credit agreement, (b)(vi) 236,358 increase in cash used for obtaining new credit facility.   

Liquidity

Our primary sources of liquidity are cash from our operations and our RLOCthe Credit and Security Agreement (the “Credit Agreement”) with Amegy Bank. AtCNH Finance Fund I, L.P., a Delaware limited partnership (“CNH”) described below. On December 31, 2020,2021, our current assets exceeded our current liabilities by $5,372,651 (our$2,882,802 (our “Working Capital”), which included $1,187,458$553,190 in cash and cash equivalents. CashWe believe cash from our operations and net borrowings on our RLOCCredit Agreement supports our Working Capital needs.needs for 2022. Beyond 2022, we believe that we will be able to support itself through our Credit Agreement until the we are able to support ourself solely from the cash provided by operations. 

On December 29, 2017,14, 2021, we became party toentered into the Credit Agreement with CNH. The Credit Agreement provides for a RLOC with Amegy Bank. The RLOC established an asset-based senior secured revolving credit facility maturing on January 1, 2025 (the “Facility”) with an initial maximum principal in the amount of $5,000,000.  The RLOC contains customary representation, warranties, covenants, eventsBorrowings under the Facility are subject to a borrowing base as set forth in the Credit Agreement.

We used borrowings under the Facility to repay in full (i) our Amended and Restated Business Loan Agreement, dated December 31, 2017, among ZB, N.A. (d/b/a Amegy Bank) as amended (the “RLOC”), and (ii) the U.S. Small Business Administration Loan Authorization and Agreement, dated May 12, 2020, with the U.S. Small Business Association, as amended. Borrowings under the Credit Agreement may be used for working capital and payment of default,fees, costs and is collateralizedexpenses incurred in connection with the Credit Agreement.

Borrowings under the Facility bear interest at a floating rate, which will be at the Prime Rate plus 1.75%.  Under the Facility, we must pay certain fees as set forth in the Credit Agreement. Our obligations with respect to the Credit Agreement are secured by a pledge of

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substantially all of our assets, including accounts receivables, deposit accounts, intellectual property, investment property, inventory, equipment and provides thatequity interests in our Chairmansubsidiaries.  

The Credit Agreement contains customary affirmative and negative covenants, including limitations on our ability to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, pay subordinated indebtedness and enter into affiliate transactions. In addition, the Credit Agreement contains financial covenants requiring us on a consolidated basis to maintain, as of the Boardlast day of each calendar month (i) a current ratio of not less than 1.0 to 1.0, (ii) a fixed charge coverage ratio of not less than 1.0 to 1.0, (iii) a loan turnover rate of not greater than 60, and President personally guarantee a portion(iv) minimum liquidity of not less than $175,000, provided that if we comply with the outstanding RLOC amount.

On September 21, 2018, we executedfixed charge coverage ratio for twelve consecutive months, the First Amendmentminimum liquidity covenant shall cease to the RLOC with Amegy Bank (the “First Amendment”).be effective. The First Amendment (i) waived ourCredit Agreement also includes events of default undercustomary for facilities of this type and upon the RLOC through the fiscal quarter ended September 30, 2018, and (ii) added a covenant that we achieve quarterly net income of $700,000 or more for the fiscal quarter ending on September 30, 2018.

On November 19, 2018, we executed the Second Amendment to the RLOC with Amegy Bank (“Second Amendment”). The Second Amendment (i) waived our events of default under the RLOC, (ii) reduced the aggregate limit of the RLOC to $4,000,000, (iii) extended the maturity date to November 4, 2019, (iv) revised the variable interest rate to the one-month LIBOR rate plus four percent (4.00%) per annum, and (v) amended the financial covenants to state that we will not permit: the Fixed Charge Coverage Ratiooccurrence of any calendar quarter end from and after the quarter ending June 30, 2019, to be less than 1.25 to 1.00; earnings before interest, taxes, depreciation and amortization (“EBITDA”) to be less than $700,000 for the fiscal quarter ending December 31, 2018, and $100,000 for the fiscal quarter ending March 31, 2019; modified thesuch event of default, related to consecutive quarterly losses toall outstanding loans under the Facility may be applicable fromaccelerated and/or the lenders’ commitments terminated.

The foregoing description does not constitute a complete summary of the terms of the Credit Agreement and after the quarter ending June 30, 2019.

On May 9, 2019, we executed the Third Amendmentis qualified in its entirety by reference to the RLOC with Amegy Bank (the “Third Amendment”). Pursuant to the Third Amendment, Amegy Bank (i) waived our events of default under the RLOC, (ii) reduced the aggregate limitfull text of the RLOCCredit Agreement, which is filed as Exhibit [10.45] to $3,500,000, (iii) reduced the limit of credit card exposure to $500,000, (iv) reduced the borrowing base component of Inventory to 30%, (v) amended the financial covenants to state that we will not permit EBITDA to be less than $100,000 for the fiscal quarter ending June 30, 2019 and $500,000 for the fiscal quarter ending September 30, 2019 and (vi) rescinded the loan sweep feature, requiring us to give notice of each requested loan by delivery of advance request to Amegy Bank.

On December 18, 2019, we executed the Fourth Amendment to the RLOC with Amegy Bank (the “Fourth Amendment”). Pursuant to the Fourth Amendment, Amegy Bank (i) waived our events of default under the RLOC, (ii) reduced the aggregate limit of the RLOC to $2,750,000, (iii) reduced and limited the annual salary of our Chairman of the Board and President, Mr. Brooks, to not exceed $550,000, (iv) amended the financial covenants to state that we will not permit EBITDA to be less than $600,000 for the fiscal quarter ending December 31, 2019 and $125,000 for the fiscal quarter ending March 31, 2020, (v) extended the termination date of the RLOC to May 4, 2020, and (vi) provides for our Chairman of the Board and President to personally guarantee one-hundred percent (100%) of the outstanding RLOC amount.

On May 21, 2020, we executed the Fifth Amendment to our RLOC with Amegy Bank (the “Fifth Amendment”). Pursuant to the Fifth Amendment, Amegy Bank (i) waived our events of default under the RLOC, (ii) amended the financial covenants to state that we will not permit EBITDA to be less than $25,000 for the fiscal quarters ending June 30, 2020 and September 30, 2020, and (iii) extended the termination date of our RLOC until November 4, 2020.

In conjunction with obtaining the Fifth Amendment, we obtained an additional $200,000 in capital in the form of subordinated debt from affiliates of Messrs. Brooks and Reeg. Specifically, on May 6, 2020, we borrowed $180,000 from NC 143, a limited partnership controlled by Mr. Brooks, and $20,000 from RMI, a company owned and controlled by Mr. Reeg, in exchange for two promissory notes which are unsecured and bear interest at 0.25% per annum until May 6, 2022, the maturity date, and 10.0% per annum after the maturity date.  Principal and interest are due and payable on the maturity date, provided, however, any payment of principal and interest on the loans is subordinated to payment of all indebtedness under the RLOC.  

On November 12, 2020 we executed a Sixth Amendment to the RLOC with Amegy Bank (“Sixth Amendment”), which extended the termination date of our RLOC to May 4, 2021. The Company was in compliance with all RLOC covenants as of December 31, 2020. (See Note 5, “Senior Secured Revolving Credit Facility” of our accompanying consolidated notes to our Financial Statements, beginning on page F-1).this Form 10-K.

We rely on the RLOCCredit Agreement for capital expenditures and day-to-day Working Capital needs. As of March 8, 2021,21, 2022, we had approximately $1,375,335$530,544 in available cash, and $698,047$412,400 available on our RLOCCredit Agreement for borrowing (subject to certain borrowing base limitations). Borrowings on our RLOCCredit Agreement are repaid from cash generated from our operations.

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Payroll Protection Program

On April 11, 2020, we received approval from the U.S. Small Business Administration (“SBA”) to fund our request for a PPP Loan created as part of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the SBA. In connection with the PPP Loan, we entered into a promissory note in the principal amount of $361,400. In accordance with the requirements of the CARES Act, we used the proceeds from the PPP Loan primarily for payroll costs.  The Company has filedWe applied for and received forgiveness offor the entire balance.   The PPP Loan is reflected in short term liabilities in our accompanying consolidated balance sheets on F-1 as we expecttotal amount of the PPP Loan will be forgiven during the second quarter of 2021. (See Note 7, “Payroll Protection Program” of our accompanying consolidated notes to our Financial Statements, beginning on page F-1).

Economic Injury Disaster Loan

On May 12, 2020, we executed the standard loan documents required for securing an EIDL Loan from the SBA in light of the impact of the COVID-19 pandemic on our business. Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the principal amount of the EIDL Loan was $150,000, with proceeds to be used for working capital purposes. In connection therewith, we received a $10,000 advance, which does not have to be repaid and is reflected as an offset in Selling, General, Administrative and Other Expenses in our accompanying consolidated statements of operations.operations in 2020. (See Note 8, “Economic Injury Disaster Loan” of our accompanying consolidated notes to our Financial Statements, beginning on page F-1).

On September 24, 2021, the Company executed the standard loan documents with the SBA for an amended and restated loan and authorization and agreement (“A&R SBA Loan Agreement”) required for securing an increase in the Company’s Original Note from the SBA EIDL Loan. Pursuant to the A&R SBA Loan Agreement, the principal amount for the EIDL Loan was increased by $350,000 to $500,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum. Installment payments, including principal and interest, are due monthly beginning May 12, 2022 (twenty-four months from the date of the Original Note) in the amount of $2,515. The balance of principal and interest is payable thirty years from the date of the A&R SBA Loan Agreement.

The A&R SBA Loan Agreement was paid in full in conjunction with entering into the Credit Agreement.

Our strategic growth plan provides for capital investment for new product launches, private label branding, and the upgrade of our financial systems which support our infrastructure. We deem these investments essential to support our growth and expansion objectives. We estimate the range of this type of investment to be approximately $2 million to $3 million and anticipate these investments to occur primarily during the calendar year 2022. We expect sources of capital for these investments to be derived from cash from operations and additional debt financing.

Off-Balance Sheet Arrangement

As of December 31, 2020, we had no off-balance sheet arrangements.utilizing the maximum limit with our new credit facility.

Impact of Inflation

We do not believe the effect of inflation, as measured by fluctuations in the U.S. Consumer Price Index, has had a material impact on our Financial Statements for the year ended December 31, 2020.2021.

Critical Accounting Policies and Estimates

The preparation of our Financial Statements and the related disclosures in conformity with GAAP, requires our management to make judgments, assumptions, and estimates that affect the amounts of revenue, expenses, income, assets, and liabilities, reported in our

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Financial Statements and accompanying notes. Understanding our accounting policies and the extent to which our management uses judgment, assumptions, and estimates in applying these policies is integral to understanding our Financial Statements.

We describe our most significant accounting policies in “Note 2, Significant Accounting Policies”Policies” of our consolidated notes to our Financial Statements and found elsewhere in this Annual Report.Report. These policies are considered critical because they may result in fluctuations in our reported results from period to period due to the significant judgments, estimates, and assumptions about highly complex and inherently uncertain matters. In addition, the use of different judgments, assumptions, or estimates could have a material impact on our financial condition or results of operations. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions.

There have been no material changes to our critical accounting policies during the period covered by this report.

Recent Accounting Pronouncements

We describe recent accounting pronouncements in Note 2, “Significant Accounting Policies” of our consolidated notes to our Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Report of our independent registered public accounting firm, our consolidated Financial Statements, the accompanying notes to our Financial Statements, that are filed as part of this Annual Report are listed under “Item 15. Exhibits and Financial Statements Schedules” and are set forth in our Financial Statements, immediately following the signature pages of this Annual Report.

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 that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our Board, including our Chief Executive Officer, and Interim Chief Financial Officer, we conducted an evaluation (pursuant to Rule 13a-15(b) promulgated under the Exchange Act) of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of December 31, 2020.2021. Based on this evaluation, our Chief Executive Officer, and Interim Chief Financial Officer concluded that as of December 31, 2020,2021, our disclosure controls and procedures were not effective. There was a transition from the previous CFO and certain key controls were not performed during that transition. If the controls had been performed, they were designed to effectively prevent or detect material misstatements in the financial statements. There were other controls that we were unable to test and were unable to confirm their operating effectiveness.

Management’s Annual Report on Internal Control over Financial Reporting

Our Chief Executive Officer and Interim Chief Financial Officer are responsible for establishing and maintaining adequate internal control over financial reporting, (as defined in Rule 13a-15(f) promulgated under the Exchange Act). Our internal control over financial reporting is a process designed to ensure the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Under the supervision and with the participation of our Board, including our Chief Executive Officer and our Interim Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020.2021. In making this assessment, our Chief Executive Officer and Interim Chief Financial Officer used the criteria that have been set forth by COSO in Internal Control – Integrated Framework (2013). Based on evaluation by our Chief Executive Officer and Interim Chief

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Financial Officer and under the COSO criteria, our Chief Executive Officer and Interim Chief Financial Officer concluded that our internal control over financial reporting as of December 31, 2020 is2021 was not effective.

Changes in Internal Control over Financial Reporting

NoOn December 3, 2021, pursuant to our agreement with CFO Consulting Partners, LLC John Gross became the Company’s Interim Chief Financial Officer. The Company believes it was not materially affected or is reasonably likely to be materially affected by this change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting..

ITEM 9B. OTHER INFORMATION.

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Executive Officers and Directors

The names and ages of our directors and executive officers are set forth below. William E. McLaughlin resigned his position as Chief Financial Officer, Treasurer and Director effective November 29, 2021. All directors are elected annually by the stockholders to serve until the next annual meeting of the stockholders and until their successors are duly elected and qualified. The officers are appointed by our Board. On December 3, 2021, we engaged CFO Consulting Partners, LLC to provide interim Chief Financial Officer (CFO) services, which include oversight and support to our current financial and operational processes and capabilities, while we search for a permanent CFO. Mr. John Gross, age 71, serves as the representative of CFO Consulting Partners in this capacity. There is no other agreement or understanding between us and any director or executive officer pursuant to which they were selected as an officer or director.

Christopher C. Reeg

Mr. Reeg has served as our Chief Executive Officer and a member of our Board since December 19, 2016. Effective January 18, 2018, our Board appointed Mr. Reeg to the additional role of Secretary. Mr. Reeg has also served as the Chief Executive Officer of CPM since 2017 and Maxim since 2018. Mr. Reeg founded Maxim in 2011 and served as its President until we acquired Maxim in August 2018. Mr. Reeg led the design, development, and successful commercialization of a spinal implant that received the approval of the FDA in 2013 and is currently manufactured and distributed by Fuse. Prior to forming Maxim, Mr. Reeg founded LMI Ortho, a distributor of spine and Orthopedic Implants purchased from domestic and international manufacturers and suppliers. While at LMI Ortho, Mr. Reeg acquired importation rights for a total joint orthopedic portfolio. Working with surgeons in the United States, Mr. Reeg expanded implant product lines and developed effective growth strategies based on design and market intelligence. Before entering the orthopedic industry with LMI Ortho in 1996, Mr. Reeg formed Spectramed, Inc., a multi-state home respiratory company where he served as its President until the sale of Spectramed, Inc., to a national healthcare company in 2001. Having founded two medical implant manufacturing and distributing companies and served as an executive officer in those companies, Mr. Reeg brings significant experience and knowledge regarding how to successfully navigate the medical device industry.

Mark W. Brooks

Mr. Brooks has served as our director and Chairman of the Board since December 19, 2016. Effective January 18, 2018, our Board appointed Mr. Brooks to the additional role as President of the Company. Prior to the acquisition by our Company of all of the outstanding membership interest of CPM, Mr. Brooks served as the Chief Executive Officer of CPM, a privately-owned national distributor of medical devices and regenerative tissue. Prior to forming CPM in 2002, Mr. Brooks partnered with Mr. Reeg during the formation and growth of Home Health Equipment, Inc. (“Home Health”), a durable medical equipment provider contracting with acute home health agencies and hospitals in several states. In 1996, Messrs. Brooks and Reeg sold Home Health to predecessor companies of Tenet Healthcare Corporation. Having successfully served as Chief Executive Officer of a national distributor of medical devices, Mr. Brooks brings considerable expertise in the strategic management and growth of medical device distribution to our Board.

Renato V. Bosita, Jr., MD

Dr. Bosita has served as an independent member of our Board since his appointment on August 1, 2017. Dr. Bosita is a spine fellowship-trained orthopedic surgeon based in Plano, Texas. He attended Stanford University where he received a degree in biological sciences in 1992. He then attended the University of Chicago Pritzker School of Medicine and completed his residency in orthopedic surgery at Loyola University Medical Center. While a resident at Loyola University Medical Center in 2001, Dr. Bosita earned a Master of Business Administration degree from the Northwestern University J. L. Kellogg Graduate School of Management. Dr. Bosita completed his spine fellowship at University Hospitals of Cleveland in 2002. Dr. Bosita currently practices as a spine surgeon at Texas Back Institute, headquartered in Plano, Texas. Additionally, Dr. Bosita is the Chairman of the Board of Managers for Texas Health Presbyterian Hospital of Rockwall, and he is also member of its finance committee. Dr. Bosita was appointed to the Board for his experience in the healthcare industry and business acumen.

William E. McLaughlin, III32

John S. Gross

Mr. McLaughlinGross has served as a member of our Board since December 19, 2016, as Interim Chief Financial Officer from March 31, 2017 until January 18, 2018, whenDecember 3, 2021, pursuant to our Board appointedagreement with CFO Consulting Partners, LLC described above. Mr. McLaughlin, to his current positionGross has 35 years of previous public and private company Chief Financial Officer experience across several industries including technology, software and Treasurer.consumer products. Mr. McLaughlin is a certified public accountant licensed in the State of TexasGross held senior financial positions at PepsiCo, Cadbury Schweppes, and has over 26 years of experience in accountingReader’s Digest. He also held CFO positions at FactSet Research Systems, Rare Medium, and financial reporting for private and large public companies traded on the New York Stock Exchange (“NYSE”) and NASDAQ Stock Market (“NASDAQ”) in additionTradingScreen, Inc. prior to his work for “big-four” public accounting firms. Mr. McLaughlinjoining CFO Consulting Partners in 2016 where he has also

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served as Chief Financial Officerheld several Interim CFO positions. He started his career at PricewaterhouseCoopers, earned his MBA at the Stern School of CPM since 2014Business, and Maxim since 2018. Mr. McLaughlin joined CPM as Vice President Finance, Controllera CPA in 2013. From 2006 until he joined CPM, Mr. McLaughlin served as Vice President Finance, Controller for Caris Life Sciences, Inc., a $180 million international, anatomic pathology, and molecular biotechnology laboratories and multi-state physician practices enterprise. Having over 26 years of experience in accounting and financial reporting for private and public companies, Mr. McLaughlin brings considerable financial expertise to our Board.New York.

Family Relationships

There are no family relationships among our existing or incoming directors or officers.

Involvement in Certain Legal Proceedings

None of our executive officers or directors is a party in a legal proceeding adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries. No executive officer or director has been involved in the last ten (10) years in any of the following:

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than ten percent (10%) of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities. Officers, directors, and greater than ten percent stockholders are required by SEC rules to furnish us with copies of all Section 16(a) reports that they file.

We believe that, during 2020,2021, our directors, executive officers, and ten percent (10%) stockholders complied with all Section 16(a) filing requirements.requirements, except that Form 5s filed on February 23, 2022 by Messrs. Brooks and Reeg were filed nine days after the February 14 deadline due to expired EDGAR codes.

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Corporate Governance

Board Committees

We do not believe that with the current size of our Company, it is necessary for us to have a separately-designated standing audit committee, therefore our entire Board serves as the audit committee. William E. McLaughlin III servesserved as our “audit committee financial expert,” as such term is defined under the rules promulgated under the Exchange Act. Due to Mr. McLaughlin meets the requirements of servingMcLaughlin’s resignation, we are seeking a new director to serve as our “audit committee financial expert” from his extensive backgroundand in accounting and financial reporting for both private and large public companies.the interim John Gross is advising the Board in this capacity. For more information on Mr. McLaughlin,Gross, please see “Item 10. Executive Officers and Directors” in this Annual Report.

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We are not required to have and currently do not have a compensation committee. Due to the low volume of compensation matters that come before our Board, our entire Board has sufficient time to review such matters, so we do not believe it is necessary for our Board to appoint a separate compensation committee at this time.

Our entire Board participates in matters related to executive officer and director compensation. Our Board will consider the recommendations of our Chief Executive Officer when determining compensation for our other executive officers. Our Chief Executive Officer has no role in determining his own compensation. We have not paid fees to or engaged any compensation consultants.

We are also not required to have and do not have a nominating committee. Given the limited scope of our operations, our Board believes appointing a nominating committee would be premature and of little assistance until our business operations are at a more advanced level.

On November 4, 2021, the Board established the Clinical Evaluation Committee, whose purpose is to oversee and advise the Board on the Company’s goals, strategies, and commitments related to the clinical evaluation of Natural Matrix Proteins (“NMP”). Dr. Bosita was elected to serve as the initial and sole director of the Clinical Evaluation Committee.

We have not made any material changes to the procedures to which the security holders may recommend Board candidates to our Company during the year ended December 31, 2020.2021.

Board Leadership Structure Oversight

Our Board does not have a policy as to whether the roles of Chairman of the Board and Chief Executive Officer should be separate or combined. Currently, our Chairman of the Board is Mark W. Brooks, who is also our President, and our Chief Executive Officer is Christopher C. Reeg. Our Board has determined that this current structure, with separate roles for our Chairman of the Board and our Chief Executive Officer is in our best interests and our stockholders’ best interests at this time. Several factors support the leadership structure chosen by our Board, including, among others:

Board Assessment of Risk

Our Board’s primary function is one of oversight. Our Board has responsibility for risk oversight and reviews management’s risk assessment and risk management policies and procedures. Our Board considers and reviews, with our independent registered public accounting firm and our executive management team, the adequacy of our internal controls, including the processes for identifying significant risks and exposures, and our Board elicits recommendations for the improvements of such procedures where desirable. Members of our executive management team have the day-to-day responsibility for risk management and establishing risk management practices, and they are expected to report matters directly to our Board. The executive management team has an open line of communication to our Board and has the discretion to raise issues from time-to-time in any manner they deem appropriate. Members of our executive team regularly attend our Board meetings, and often discuss risks related to our business.

Code of Ethics

Our Board has adopted a code of ethics (the “Code of Ethics”) that applies to all our employees, including our Chief Executive Officer and Chief Financial Officer. The Code of Ethics provides written standards that we believe are reasonably designed to (i) deter wrongdoing; (ii) promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (iii) encourage full, fair, accurate, timely, and understandable disclosure and compliance with laws, rules, and regulations, including insider trading, corporate opportunities, and whistle-blowing; and (iv) facilitate the prompt

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reporting of illegal or unethical behavior. We will provide a copy of the Code of Ethics to any person without charge, upon request. The request for a copy can be made in writing to Fuse Medical, Inc., 1565 North Central Expressway, Suite 220, Richardson TX, 75080, Attention: Corporate Secretary.

Stockholder Communications

Although we do not have a formal policy regarding communications with our Board, our stockholders may communicate with our Board by writing to us at Fuse Medical, Inc., 1565 North Central Expressway, Suite 220, Richardson, TX 75080, Attention: Investor Relations, or, by facsimile (469) 862-3035, or by email IR@fusemedical.com. Stockholders who would like their submission directed to a specific member of our Board may so specify, and the communication will be forwarded, as appropriate.

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ITEM 11. EXECUTIVE COMPENSATION.

Executive Compensation Discussion and Analysis

The following discussion and analysis of our compensation arrangements with our named executive officers (“Named Executive Officers”) should be read together with the compensation tables and related disclosures set forth elsewhere in this Annual Report. Our Named Executive Officers for the year ended December 31, 2020,2021, were:

This discussion contains forward-looking statements that are based on our current plans and expectations regarding future compensation programs.

In place of having a separate compensation committee, which is not required based on the size of our Company, our Board is charged with the responsibility for establishing, implementing, and monitoring adherence to our compensation philosophy and ensuring that our executives and key management personnel are effectively compensated. Our Board is also responsible for reviewing the compensation of directors.

Executive Compensation Philosophy and Objectives   

Our Board’s overall philosophy in terms of executive compensation is to attract, retain, and motivate highly-qualified individuals to achieve our business goals and link their professional performance with stockholder interests. Our compensation plans are designed to motivate and reward our employees for achievement of positive business results and to promote and enforce accountability. We also compensate our executives through our equity incentive plan, which reflects the long-term performance of our Common Stock.

Setting Executive Compensation

Our Board is responsible for establishing and periodically reviewing the compensation of our executive officers and approving all equity awards, including those to our executive officers. Our Board also reviews the performance of our executive officers and determines whether salary adjustments are necessary or recommended.

Elements of Compensation

The total compensation program for our executive officers consists of the following elements: