UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED MARCH 31, JUNE 30, 2014
 
OR

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number:Number: 22-3664872
 
Fuse Medical, Inc.
(Exact name of registrant as specified in its charter)

DELAWARE 000-10093
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
4770 Bryant Irvin Court, Suite 300, Fort Worth, TXTexas 76107
(Address of principal executive offices) (Zip Code)
 
(817) 439-7025
(Registrant’s telephone number, including area code)

August 31, 2013
(Former  fiscal year)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

Large accelerated filer¨Accelerated filer¨
Non-accelerated filer¨Smaller reporting companyx
(Do not check if a smaller reporting company)   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of July 17,August 18, 2014, 4,001,280 shares of common stock, par value $0.01 per share, and 0 shares of preferred stock, par value $0.01 per share, of the registrant were outstanding.

 
 
 
FUSE MEDICAL, INC.
TABLE OF CONTENTS

Part I. Financial Information    
      
Item 1.Financial Statements  3
F-1
 
      
 
Condensed Consolidated Balance Sheets at March 31,June 30, 2014 and December 31, 2013
  F-1
F-2
 
      
 
Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31,June 30, 2014 and 2013
  F-2
F-3
 
      
 
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the ThreeSix Months Ended March 31,June 30, 2014
  F-3
F-4
 
      
 
Condensed Consolidated Statements of Cash Flows for the ThreeSix Months Ended March 31,June 30, 2014 and 2013
  F-4
F-5
 
      
 Notes to the Condensed Consolidated Financial Statements  F-5F-6 
      
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations  43 
      
Item 3.Quantitative and Qualitative Disclosures About Market Risk  910 
      
Item 4.Controls and Procedures  910 
      
Part II. Other Information    
      
Item 1.Legal Proceedings  1011 
      
Item 1A.Risk Factors  1011
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds11
Item 3.Defaults upon Senior Securities11
Item 4.Mine Safety Disclosures11 
      
Item 5.Other Information  1011 
      
Item 6.Exhibits  1112 
      
Signatures  1213 
 
 
2
 
 
PART I.I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
Fuse Medical, Inc. Index to Consolidated Financial Statements
 
  Page 
Financial Statements   
Financial Statements
Condensed Consolidated Balance Sheets as of March 31,June 30, 2014 (Unaudited) and December 31, 2013
  F-1F-2 
Condensed Consolidated Statements of Operations for the three and six months ended March 31,June 30, 2014 and 2013 (Unaudited)
  F-2F-3 
Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the threesix months ended March 31,June 30, 2014 (Unaudited)
  F-3F-4 
Condensed Consolidated Statements of Cash Flows for the threesix months ended March 31,June 30, 2014 and 2013 (Unaudited)
  F-4F-5 
Notes to Condensed Consolidated Financial Statements (Unaudited)
  F-5F-6 
 
 
3F-1
 

FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED BALANCE SHEETS

  
June 30,
2014
  
December 31,
2013
 
  (Unaudited)    
Assets
Current assets:      
Cash and cash equivalents $876,632  $12,339 
Accounts receivable, net of allowance of $3,300 and $0, respectively  129,651   147,987 
Accounts receivable - related parties  2,538   2,538 
Inventories  277,606   243,115 
Advances to Golf Rounds.com, Inc.  -   95,000 
Prepaid expenses and other receivables  42,028   370 
Other receivables - related parties  11,524   32,382 
Total current assets  1,339,979   533,731 
         
Property and equipment, net  44,820   1,287 
Security deposit  2,489   - 
         
Total assets $1,387,288  $535,018 
         
Liabilities and Stockholders' Equity (Deficit)
         
Current liabilities:        
Accounts payable $235,230  $161,143 
Accounts payable - related parties  36,570   48,339 
Accrued expenses  32,589   63,400 
Line of credit  100,000   100,000 
Total current liabilities  404,389   372,882 
         
Notes payable  745,026   - 
Notes payable - related parties  784,238   60,000 
Total liabilities  1,933,653   432,882 
         
Commitments and contingencies        
         
Stockholders’ equity (deficit):        
Preferred stock, $0.01 par value; 20,000,000 shares authorized,        
zero shares issued and outstanding  -   - 
Common stock, $0.01 par value; 500,000,000 shares authorized,        
4,001,280 and 3,600,000 issued and outstanding, respectively  40,013   36,000 
Additional paid-in capital  75,587   79,600 
Subscriptions receivable (81,972 shares)  (500)  (500)
Accumulated deficit  (661,465)  (12,964)
Total stockholders’ equity (deficit)  (546,365)  102,136 
         
Total liabilities and stockholders’ equity (deficit) $1,387,288  $535,018 

  
March 31,
2014
  
December 31,
2013
 
  (Unaudited)    
Assets
Current assets:      
Cash and cash equivalents $658,701  $12,339 
Accounts receivable  110,082   147,987 
Accounts receivable - related parties  2,538   2,538 
Inventories  306,831   243,115 
Advances to Golf Rounds.com, Inc.  95,000   95,000 
Prepaid expenses and other receivables  5,622   370 
Other receivables - related parties  1,203   32,382 
Total current assets  1,179,977   533,731 
         
Property and equipment, net  45,749   1,287 
Security deposit  2,489   - 
         
Total assets $1,228,215  $535,018 
         
Liabilities and Stockholders' Equity (Deficit)
         
Current liabilities:        
Accounts payable $196,597  $161,143 
Accounts payable - related parties  53,956   48,339 
Accrued expenses  9,829   63,400 
Line of credit  100,000   100,000 
Total current liabilities  360,382   372,882 
         
Notes payable  247,801   - 
Notes payable - related parties  652,776   60,000 
Total liabilities  1,260,959   432,882 
         
Commitments and contingencies        
         
Stockholders’ equity (deficit):        
Preferred stock, $0.01 par value; 20,000,000 shares authorized,     
zero shares issued and outstanding  -   - 
Common stock, $0.01 par value; 500,000,000 shares authorized,     
3,600,000 issued and outstanding  36,000   36,000 
Additional paid-in capital  79,600   79,600 
Subscriptions receivable (81,972 shares)  (500)  (500)
Accumulated deficit  (147,844)  (12,964)
Total stockholders’ equity (deficit)  (32,744)  102,136 
         
Total liabilities and stockholders’ equity (deficit) $1,228,215  $535,018 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
F-1F-2
 
 
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

  For the Three  For the Three 
  Months Ended  Months Ended 
  March 31, 2014  March 31, 2013 
       
Revenues $161,563  $311,558 
Cost of revenues  58,823   60,130 
         
Gross profit  102,740   251,428 
         
Operating expenses:        
General, adminstrative and other  218,931   58,016 
Total operating expenses  218,931   58,016 
         
Operating income (loss)  (116,191)  193,412 
         
Other income (expense):        
Interest income  703   - 
Interest expense  (10,392)  (238)
Total other income (expense)  (9,689)  (238)
         
Net income (loss) $(125,880) $193,174 
         
Net income (loss) per common share -        
basic and diluted $(0.04) $0.07 
         
Weighted average number of common shares outstanding -        
 basic and diluted  3,518,028   2,621,292 
 
  For the Three  For the Three  For the Six  For the Six 
  Months Ended  Months Ended  Months Ended  Months Ended 
  June 30, 2014  June 30, 2013  June 30, 2014  June 30, 2013 
             
             
Revenues $263,307  $170,566  $424,870  $482,124 
Cost of revenues  104,681   51,970   163,504   112,100 
  Gross profit  158,626   118,596   261,366   370,024 
                 
Operating expenses:                
  General, adminstrative and other  365,816   102,673   541,461   160,689 
  Merger costs  226,207   -   269,493   - 
Total operating expenses  592,023   102,673   810,954   160,689 
                 
Operating income (loss)  (433,397)  15,923   (549,588)  209,335 
                 
Other income (expense):                
  Interest income  474   -   1,177   - 
  Interest expense  (20,704)  (82)  (31,096)  (320)
Total other income (expense)  (20,230)  (82)  (29,919)  (320)
                 
Net income (loss) $(453,627) $15,841  $(579,507) $209,015 
                 
Net income (loss) per common share - basic and diluted
 $(0.12) $0.01  $(0.16) $0.08 
                 
Weighted average number of common shares outstanding - basic and diluted
  3,663,547   2,873,232   3,591,190   2,747,958 

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
F-2F-3
 
 
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2014
(Unaudited)
 
        Additional          
  Common Stock  Paid-In  Subscriptions  Accumulated    
  Shares  Amount  Capital  Receivable  Deficit  Total 
                   
Balance, December 31, 2013  3,600,000  $36,000  $79,600  $(500) $(12,964) $102,136 
                         
Distributions  -   -   -   -   (9,000)  (9,000)
                         
Net loss  -   -   -   -   (125,880)  (125,880)
                         
Balance, March 31, 2014  3,600,000  $36,000  $79,600  $(500) $(147,844) $(32,744)
        Additional          
  Common Stock  Paid-In  Subscriptions  Accumulated    
  Shares  Amount  Capital  Receivable  Deficit  Total 
                   
Balance, December 31, 2013  3,600,000  $36,000  $79,600  $(500) $(12,964) $102,136 
                         
Issuance of common shares in connection                     
     with Golf Rounds.com, Inc. merger  401,280   4,013   (4,013)  -   (28,411)  (28,411)
                         
     Distributions  -   -   -   -   (40,583)  (40,583)
                         
     Net loss  -   -   -   -   (579,507)  (579,507)
                         
Balance, June 30, 2014  4,001,280  $40,013  $75,587  $(500) $(661,465) $(546,365)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
F-3F-4
 
 
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
  For the Three  For the Three 
  Months Ended  Months Ended 
  March 31, 2014  March 31, 2013 
Cash flows from operating activities:      
Net income (loss) $(125,880) $193,174 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
        
Depreciation  2,037   56 
Changes in operating assets and liabilities:        
Accounts receivable  37,905   81,329 
Inventories  (63,716)  (85,995)
Prepaid expenses and other receivables  (5,252)  - 
Security deposit  (2,489)  - 
Accounts payable  35,454   26,478 
Accounts payable - related parties  5,617   1,550 
Accrued expenses  (53,571)  - 
Net cash provided by (used in) operating activities  (169,895)  216,592 
         
Cash flows from investing activities:        
Purchases of property and equipment  (46,499)  (1,011)
Net cash used in investing activities  (46,499)  (1,011)
         
Cash flows from financing activities:        
Proceeds from line of credit, net  -   (25,000)
Advances to related parties  (13,049)  - 
Repayments received from related parties  44,228   - 
Proceeds from issuance of promissory notes  247,801   - 
Proceeds from issuance of promissory notes to related parties  592,776   - 
Capital contributions received  -   4,200 
Distributions  (9,000)  (31,222)
Net cash provided by (used in) financing activities  862,756   (52,022)
         
Net increase in cash and cash equivalents  646,362   163,559 
         
Cash and cash equivalents - beginning of period  12,339   100,029 
         
Cash and cash equivalents - end of period $658,701  $263,588 
         
Supplemental disclosure of cash flow information:        
Interest paid $563  $238 
  For the Six  For the Six 
  Months Ended  Months Ended 
  June 30, 2014  June 30, 2013 
Cash flows from operating activities:      
Net income (loss) $(579,507) $209,015 
Adjustments to reconcile net income (loss) to net cash        
provided by (used in) operating activities:        
Bad debt expense  3,300   - 
Depreciation  5,722   182 
Advances to Golf Rounds.com, Inc. expensed to merger costs  105,000   - 
Changes in operating assets and liabilities, net of effects of acquisition:        
Accounts receivable  15,036   99,315 
Inventories  (34,491)  (97,305)
Prepaid expenses and other receivables  (31,063)  - 
Security deposit  (2,489)  - 
Accounts payable  51,821   (57,267)
Accounts payable - related parties  (11,769)  9,233 
Accrued expenses  (30,942)  - 
Net cash provided by (used in) operating activities  (509,382)  163,173 
         
Cash flows from investing activities:        
Purchases of property and equipment  (49,255)  (1,763)
Advances to Golf Rounds.com, Inc.  (10,000)  - 
Cash acquired in reverse merger  641   - 
Net cash used in investing activities  (58,614)  (1,763)
         
Cash flows from financing activities:        
Proceeds from line of credit, net  -   15,000 
Advances to related parties  (25,050)  - 
Repayments received from related parties  45,908   - 
Proceeds from issuance of promissory notes  727,776   - 
Proceeds from issuance of promissory notes to related parties  724,238   - 
Capital contributions received  -   4,200 
Distributions  (40,583)  (127,222)
Net cash provided by (used in) financing activities  1,432,289   (108,022)
         
Net increase in cash and cash equivalents  864,293   53,388 
         
Cash and cash equivalents - beginning of period  12,339   100,029 
         
Cash and cash equivalents - end of period $876,632  $153,417 
         
Supplemental disclosure of cash flow information:        
Interest paid $1,138  $320 
         
Non-cash investing and financing activities:        
Assumption of net liabilities in reverse merger $(28,411) $- 

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
F-4F-5
 
 
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31,JUNE 30, 2014 AND 2013
 (Unaudited)

Note 1. Nature of Operations

Overview

Golf Rounds.com,Fuse Medical, Inc. (the(together with its subsidiaries, the “Company” or “Fuse Medical”) was incorporatedformed in 1968Delaware on July 18, 2012 as a Delaware corporation, which is also authorized to conduct businessFuse Medical, LLC. Fuse Medical V, LP was formed in New JerseyTexas on November 15, 2012 and Georgia. upon formation was owned 59% by Fuse Medical, LLC. Fuse Medical VI, LP was formed in Texas on January 31, 2013 and upon formation was owned 59% by Fuse Medical, LLC.

On December 18, 2013, Fuse Medical, LLC entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Golf Rounds.com, Inc. (the “Registrant”), Project Fuse LLC (a wholly-owned subsidiary of Golf Rounds.com, Inc.) (“Merger Sub”), and D. Alan Meeker, solely in his capacity as the representative of the members of Fuse Medical, LLC (the “Representative”). Effective as of May 28, 2014, prior to the consummation of the Merger, Golf Rounds.com, Inc. amended its certificate of incorporation to change its name from “GolfRounds.com, Inc.” to “Fuse Medical, Inc.” On May 28, 2014, the transactions contemplated by the Merger Agreement closed wherein Merger Sub merged with and into Fuse Medical, LLC, with Fuse Medical, LLC surviving as a wholly-owned subsidiary of Golf Rounds.com,Fuse Medical, Inc. (the “Merger”).

Effective as of May 28, 2014, prior to the consummation of the Merger, Golf Rounds.com, Inc. amended its certificate of incorporation to: (i) change its name from “GolfRounds.com, Inc.” to “Fuse Medical, Inc.”, (ii) increase its authorized capital stock from 12,000,000 shares of common stock to 500,000,000 shares of common stock and from zero shares of preferred stock to 20,000,000 shares of preferred stock, and to expressly authorize its board of directors to issue shares of the preferred stock, in one or more series, and to fix for each such series the voting powers, designations, preferences, or other special rights and the qualifications, limitations or restrictions, and (iii) effect a 14.62 to 1 reverse stock split (the “Reverse Stock Split”) whereby every 14.62 issued and outstanding shares of its common stock automatically converted into one share of common stock, subject to the treatment of fractional share interests. All references to shares of common stock of the Company herein are discussed Accordingly, on a post-Reverse Stock Split basis.

All of the units reflecting membership interests in Fuse Medical, LLC that were issued and outstanding immediately prior to the effective time of the Merger were cancelled and converted into 3,600,000 shares of Fuse Medical, Inc.’s common stock (on a post-Reverse Stock Split basis), representing 90% of the Registrant’s issued and outstanding common stock after giving effect to the Merger (the “Merger Consideration”). The Merger Consideration will be allocated among the members of Fuse Medical, LLC immediately prior to the effective time of the Merger (the “Holders”) in accordance with Fuse Medical’s limited liability company operating agreement.

The merger has been accounted for as a “reverse merger” and recapitalization since, immediately following the completion of the transaction, Fuse Medical, LLC has effective control of Fuse Medical, Inc. through the Holder’s 90% fully diluted stockholder interest in the consolidated entity. In addition, Fuse Medical, LLC has control of the consolidated entity through control of a substantial proportion of the Board by designating six of the seven board seats. Additionally, all of Fuse Medical LLC’s senior executive positions are continuing on as management of the consolidated entity after consummation of the Merger. For accounting purposes, Fuse Medical, LLC will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of Fuse Medical, LLC. Accordingly, Fuse Medical LLC’s assets, liabilities and results of operations have become the historical financial statements of the registrant, and Golf Rounds.com’s assets, liabilities and results of operations will be consolidated with Fuse Medical effective as of May 28, 2014, the date of the closing of the Merger. No step-upCompany was recapitalized in basis or intangible assets or goodwill will be recorded in this transaction. Reverse merger accounting is a recapitalization of an entity which requires the financial statements to be presented of the accounting acquirer (Fuse Medical, LLC) for periods before and after the reverse merger on a recapitalized basis. Moreover,(See Note 10). All references to the financial statements shall include the accounting acquiree (Golf Rounds.com, Inc.) commencing on the date of the merger (MayCompany or Fuse Medical before May 28, 2014). The financial statements herein2014 are presented on that basis.to Fuse Medical, LLC.

Fuse Medical is a physician-partnered company and a national distributor that provides diversified healthcare products and supplies, including biologics and bone substitute materials, while striving to document cost savings and clinical outcomes to its manufacturers, physicians, health insurers and medical facility partners. Fuse Medical, LLC has entered into partnership arrangements with physicians in order to distribute its products.

Basis of Presentation

The interim condensed consolidated financial statements included herein reflect all material adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) which, in the opinion of management, are ordinary and necessary for a fair presentation of results for the interim periods. Certain information and footnote disclosures required under generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company believes that the disclosures are adequate to make the information presented not misleading.

F-5
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(Unaudited)
The condensed consolidated balance sheet information as of December 31, 2013 is currently unaudited, but shall be audited as part of the audited consolidated financial statements that will be included in the Company’s Report on Form 10-K/T that is due to be filed with the Securities and Exchange Commission on or before August 26, 2014. These condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended August 31, 2013 and notes thereto included in the Company’s Report on the Form 8-K filed on May 29, 2014.

The results of operations for the three and six months ended March 31,June 30, 2014 and 2013 are not necessarily indicative of the results to be expected for the entire fiscal year or for any other period.

Note 2. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Fuse Medical, LLC, and its wholly-owned subsidiaries. Collectively, the entities are referred to as “the Company” or “Fuse Medical”. Intercompany transactions have been eliminated in consolidation.

F-6
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
 (Unaudited)
Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include the allowance for doubtful accounts and other receivables, valuation of notes receivable, valuation of inventories, the estimates of depreciable lives and valuation of property and equipment, and the valuation allowance on deferred tax assets.

Earnings (Loss) Per Share

The Company’s computation of earnings (loss) per share (“EPS”)(EPS) includes basic and diluted EPS. Basic EPS is computedcalculated by dividing the Company’s net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is similarreflects the potential dilution that would have occurred if securities or other contracts to basic EPS, but includes the dilutive effect on a per share basis of potentialissue common shares (e.g., warrants and options) as if they had been exercised or converted into common shares at the beginning of the periods presented,period, or issuance date, if later.later, and had shared in the net income (loss) of the Company. Diluted EPS is computed using the treasury stock method, which assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common shares at the average market price during the period. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

Loss per common share is computed by dividing the net loss by theThe weighted average number of common shares outstanding duringhas been retroactively restated for: (1) the period. Basicequivalent number of shares received by the accounting acquirer as a result of the reverse merger as if these shares had been outstanding as of the beginning of the earliest period presented and (2) the 14.62 to 1 reverse stock split that occurred May 28, 2014 (See Note 10).

As of June 30, 2014, common stock equivalents included options to purchase 22,572 common shares. These instruments are not considered in the calculation of diluted loss per share because the effect would be anti-dilutive. As of June 30, 2013, the Company had no potentially dilutive instruments and, accordingly, basic and diluted net lossearnings per common share isare the same for all periods presented with a net loss because all potentially dilutive securities outstanding are anti-dilutive.

For the three months ended March 31, 2014 and 2013, there were no potential dilutive securities.same.

Fair Value Measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The Company classifies assets and liabilities recorded at fair value under the fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. The fair value measurements are classified under the following hierarchy:
 
Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets and liabilities in active markets;
Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets and liabilities in active markets;
Level 2—Observable inputs, other than quoted market prices, that are either directly or indirectly observable in the marketplace for identical or similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities; and
Level 3—Unobservable inputs that are supported by little or no market activity that are significant to the fair value of assets or liabilities.
 
 
F-7
 
 
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31,JUNE 30, 2014 AND 2013
(Unaudited)
 
Level 2—Observable inputs, other than quoted market prices, that are either directly or indirectly observable in the marketplace for identical or similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities; and
Level 3—Unobservable inputs that are supported by little or no market activity that are significant to the fair value of assets or liabilities.

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The recorded value of notes payable approximates their fair value based upon their effective interest rates.

Accounts Receivable and Allowance for Doubtful Accounts Receivable

Accounts receivables are non-interest bearing and are stated at gross invoice amounts less an allowance for doubtful accounts receivable. The Company generally does not require collateral or other security to support accounts receivable. The Company estimates its allowance for doubtful accounts by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations, such as bankruptcy proceedings and receivable amounts outstanding for an extended period beyond contractual terms. In these cases, the Company uses assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are reevaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. The Company may also record a general allowance as necessary. Accounts deemed uncollectible are written off in the period when the Company has exhausted its efforts to collect overdue and unpaid receivables or otherwise has evaluated other circumstances that indicate that the Company should abandon such efforts. Previously written-off accounts receivable subsequently collected are recognized as a reduction of bad debt expense when funds are received.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories consist entirely of finished goods and include biologics, bone substitute material, and tendon anchor systems. The Company reviews the market value of inventories whenever events and circumstances indicate that the carrying value of inventories may not be recoverable from the estimated future sales price less cost of disposal and normal gross profit. In cases where the market values are less than the carrying value, a write down is recognized equal to an amount by which the carrying value exceeds the market value of inventories.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets per the following table.

Category  Amortization Period
Computer equipment  3 years
Furniture and fixtures  5 years

Upon the retirement or disposition of property and equipment, the related cost and accumulated depreciation and amortization are removed and a gain or loss is recorded in the consolidated statements of operations. Repairs and maintenance costs are expensed in the period incurred.
F-8
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)

Revenue Recognition and Deferred Revenue

The Company recognizes revenue when: (i) persuasive evidence of an arrangement exists; (ii) the fees are fixed or determinable; (iii) no significant Company obligations remain; and (iv) collection of the related receivable is reasonably assured. The Company reports revenues for transactions in which it is the primary obligor on a gross basis and revenues in which it acts as an agent (earning a fixed percentage of the sale) on a net basis, (net of related costs).

The following policies reflect specific criteria for the various revenue streams of the Company.

Medical supply and product revenue is comprised of medical biologics, bone substitute materials and other medical supplies. For customers that order products as needed (i.e. for specific cases), the Company invoices the customer on the date the product is utilized. This includes customers (i.e. certain hospitals) that maintain the Company’s products on consignment. For customers that order larger quantities of the same product (subject to minimums) at a reduced selling price, the Company invoices the customers when the products are shipped. Payment terms are net 30 days after the invoice date.

Development and consulting fee revenue is recognized on a monthly basis pursuant to an agreement. This revenue is recorded in the period the services have been provided.

Products that have been sold are not subject to returns unless the product is deemed defective. Credits or refunds are recognized when they are determinable and estimable. Net revenues have been reduced to account for sales returns, rebates and other incentives.

Stock-Based Compensation

Stock-based compensation expense is measured at the grant date fair value of the award and is expensed over the requisite service period. For employee stock-based awards, the Company calculates the fair value of the award on the date of grant using the Black-Scholes option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based awards represent the Company's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. For non-employee stock-based awards, the Company calculates the fair value of the award on the date of grant in the same manner as employee awards, however, the awards are revalued at the end of each reporting period and the prorata compensation expense is adjusted accordingly until such time the non-employee award is fully vested, at which time the total compensation recognized to date shall equal the fair value of the stock-based award as calculated on the measurement date, which is the date at which the award recipient’s performance is complete. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers (Topic 606)”. ASU 2014-09 will eliminate transaction-specific and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. Entities can transition to the standard either retrospectively or as a cumulative effect adjustment as of the date of adoption. Management is currently assessing the impact the adoption of ASU 2014-09 and has not determined the effect of the standard on our ongoing financial reporting.

F-9
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
 (Unaudited)
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-08 (“ASU 2014-08”), “Presentation of Financial Statements” (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”. ASU 2014-08 amends the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations or that have a major effect on the Company's operations and financial results should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014, and interim periods within those years. The Company is currently evaluating the impact of adopting ASU 2014-08 on the Company's results of operations or financial condition.

We have implemented all new accounting standards that are in effect and that may impact our consolidated financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our consolidated financial position or results of operations.

F-8
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(Unaudited)
Note 3. Advances to Golf Rounds.com, Inc.

On October 18, 2013, the Company advanced $39,000 to Golf Rounds.com, Inc., a publicly-held company, in exchange for a six-month promissory note receivable due April 15, 2014. On November 4, 2013, the Company advanced an additional $24,000 to Golf Rounds.com, Inc. in exchange for a six-month promissory note receivable due May 5, 2014. On December 26, 2013, the Company advanced an additional $32,000 to Golf Rounds.com, Inc. in exchange for a six-month promissory note receivable due June 26, 2014. On April 1, 2014, advances in the aggregate amount of $63,000 due from Golf Rounds.com, Inc. maturing April 15, 2014 and May 5, 2014 were amended whereby the maturity date was extended to June 26, 2014. On May 2, 2014, the Company advanced an additional $10,000 to Golf Rounds.com, Inc. in exchange for a promissory note receivable due June 26, 2014. The advances were unsecured, required interest at a rate of 3.0% per annum and would have required payment of principal and interest at maturity. On April 1, 2014, the advances maturing April 15, 2014 and May 5, 2014 were amended whereby the maturity date was extended to June 26, 2014.

On May 28, 2014, as a result of the closing of the Merger, these advances became partthe aggregate amount of the considerationadvances of $105,000 were expensed to merger costs to acquire Golf Rounds.com, Inc. (See Notes 1 and 12)10).

During the three and six months ended March 31,June 30, 2014, interest income of $703$474 and $1,177, respectively, was recognized on these advances. As of March 31, 2014, accrued interest receivable was $1,073, which is included in prepaid expenses and other receivables on the accompanying condensed consolidated balance sheet.

Note 4. Other ReceivableReceivables – Related Parties

During the threesix months ended March 31,June 30, 2014, the Company advanced an aggregate of $13,049$25,050 to and received an aggregate of $44,228$45,908 from three entities that are owned partially by the officers of the Company. The advances are unsecured, non-interest bearing and are due on demand. The balance due tofrom the three entities was $1,203$11,524 and $32,382 as of March 31,June 30, 2014 and December 31, 2013, respectively.respectively (See Note 12).
F-10

FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
 (Unaudited)
Note 5. Property and Equipment

Property and equipment consisted of the following at March 31,June 30, 2014 and December 31, 2013:

  
June 30,
2014
  
December 31,
2013
 
       
Computer equipment $36,240  $1,763 
Furniture and fixtures  14,778   - 
   51,018   1,763 
Less: accumulated depreciation  (6,198)  (476)
Property and equipment, net $44,820  $1,287 
  
March 31,
2014
  December 31, 2013 
       
Computer equipment $35,509  $1,763 
Furniture and fixtures  12,753   - 
   48,262   1,763 
Less: accumulated depreciation  (2,513)  (476)
Property and equipment, net $45,749  $1,287 

Depreciation expense for the threesix months ended March 31,June 30, 2014 and 2013 was $2,037$5,722 and $56,$182, respectively. Accumulated depreciation amounted to $2,513 and $476 as of March 31, 2014 and December 31, 2013, respectively.

Note 6. Accrued Expenses

Accrued expenses consisted of the following at June 30, 2014 and December 31, 2013:

  
June 30,
2014
  
December 31,
2013
 
       
Accrued interest $29,979  $- 
Other accrued expenses  2,610   - 
Accrued compensation  -   63,400 
Accrued expenses $32,589  $63,400 

Note 7. Line of Credit

Since October 10, 2012, the Company has maintained a line of credit with a bank, up to a maximum credit line of $100,000. The line of credit bears interest equal to 2.25% per year based on a year of 360 days. The line of credit requires minimum monthly payments consisting of interest only. The line of credit is secured by a money market account having an approximate balance of $105,000 that is: (i) owned by an entityindividual that is both an officer and a memberdirector of the Company and his spouse and (ii) is maintained at the bank extending the line of credit. The line of credit is due on demand or, if no demand is made, all outstanding principal and accrued interest on the line of credit is due October 10, 2014. During the three and six months ended March 31,June 30, 2014 and 2013, interest expense of $563$575, $82, $1,138 and $238,$320, respectively, was recognized on the line of credit. The balance due on the line of credit as of MarchJune 30, 2014 and December 31, 20142013 was $100,000. The unused amount under the line of credit available to the Company at March 31,June 30, 2014 was $0. The line of credit remains open.open.

F-9
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(Unaudited)
Note 7.8. Notes Payable

Notes Payable

OnDuring the period from January 14, 2014 and February 6,through May 23, 2014, the Company issued twothree two-year promissory notes in exchange for aggregate cash proceeds of $247,801$727,776 from a non-related party. The notes are unsecured, bear interest at 7.0% and require 18 monthly payments of interest only commencing at the beginning of month seven. The notes include a provision that in the event of default the interest rate would increase to the default interest rate of 18%. The first six months of interest is deferred until maturity. The outstanding principal balance along with all accrued and unpaid interest is due at maturity.
F-11
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
 (Unaudited)

On May 28, 2014, as part of the merger with Golf Rounds.com, Inc., the Company assumed an aggregate of $17,250 of outstanding two-year promissory notes payable maturing July 29, 2015 through August 28, 2015 as well as accrued interest payable of $21. The notes are unsecured, bear interest at 3.25% and require quarterly payments of interest only. The notes include a provision that in the event of default the interest rate would increase to the default interest rate of 18%. The first six months of interest is deferred until maturity. The outstanding principal balance along with all accrued and unpaid interest is due at maturity.

Notes Payable – Related Parties

During the period from January 15, 2014 through March 4,June 16, 2014, the Company issued several two-year promissory notes in exchange for aggregate cash proceeds of $592,776.$724,238. The funds were received from entities controlled by officers of the Company. The officers also owned or partially owned the entities from which the funds were received. The notes are unsecured, bear interest at 7.0% and require 18 monthly payments of interest only commencing at the beginning of month seven. The notes include a provision that in the event of default the interest rate would increase to the default interest rate of 18%. The first six months of interest is deferred until maturity. The outstanding principal balance along with all accrued and unpaid interest is due at maturity.maturity (See Note 12).

During the three and six months ended March 31,June 30, 2014, interest expense of $9,829$20,129 and $29,958, respectively, was recognized on outstanding notes payable. As of March 31,June 30, 2014, accrued interest payable was $9,829,$29,979, which is included in accrued expenses on the accompanying condensed consolidated balance sheet.

Notes payable consisted of the following at March 31,June 30, 2014:

 
June 30,
2014
 
Note payable - originating July 30, 2013; monthly interest payments required; bearing interest at 3.25%; maturing at July 29, 2015 [A] $6,000 
    
Note payable - originating August 29, 2013; monthly interest payments required; bearing interest at 3.25%; maturing at August 28, 2015 [A]  11,250 
 March 31, 2014     
Note payable - related party originating December 31, 2013; monthly interest payments required commencing in month 7; bearing interest at 7%; maturing at December 30, 2015 $60,000   60,000 
        
Note payable - related party originating January 15, 2014; monthly interest payments required commencing in month 7; bearing interest at 7%; maturing at January 14, 2016  131,024   131,024 
        
Note payable - originating January 14, 2014; monthly interest payments required commencing in month 7; bearing interest at 7%; maturing at January 15, 2016  131,024   131,024 
        
Note payable - related party originating February 1, 2014; monthly interest payments required commencing in month 7; bearing interest at 7%; maturing at January 31, 2016  116,777   116,777 
        
Note payable - originating February 6, 2014; monthly interest payments required commencing in month 7; bearing interest at 7%; maturing at February 5, 2016  116,777   116,777 
        
Note payable - related party originating February 10, 2014; monthly interest payments required commencing in month 7; bearing interest at 7%; maturing at February 9, 2016  193,535   193,535 
        
Note payable - related party originating March 4, 2014; monthly interest payments required commencing in month 7; bearing interest at 7%; maturing at March 4, 2016  87,670   87,670 
        
Note payable - related party originating March 4, 2014; monthly interest payments required commencing in month 7; bearing interest at 7%; maturing at March 4, 2016  63,770   63,770 
    
Note payable - related party originating May 8, 2014; monthly interest payments required commencing in month 7; bearing interest at 7%; maturing at May 8, 2016  75,000 
    
Note payable - originating May 23, 2014; monthly interest payments required commencing in month 7; bearing interest at 7%; maturing at May 23, 2016  479,975 
    
Note payable - related party originating June16, 2014; monthly interest payments required commencing in month 7; bearing interest at 7%; maturing at June 16, 2016  56,462 
Total  900,577   1,529,264 
Less: Current maturities  -   - 
Amount due after one year (includes $652,776 to related parties) $900,577 
Amount due after one year (includes $784,238 to related parties) $1,529,264 
 
Future maturities of the
[A] - notes payable areacquired as follows:

part of merger with Golf Rounds.com, Inc. on May 28, 2014 (See Notes 1 and 10).
Year Ending December 31,   
2015 $60,000 
2016  840,577 
  $900,577 
 
F-10F-12
 
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31,JUNE 30, 2014 AND 2013
(Unaudited)
 
Future maturities of the notes payable are as follows:
Year Ending December 31,    
2015 $77,250 
2016  1,452,014 
  $1,529,264 
Note 8.9. Commitments and Contingencies

Legal Matters

On January 27, 2014, M. Richard Cutler and Cutler Law Group, P.C., the plaintiffs, (the “Plaintiffs”) filed a complaint in the District Court of Harris County, Texas, 2014-03355, against Fuse, Medical, LLC, Alan Meeker, Rusty Shelton, Jonathan Brown, Robert H. Donehew and Golf Rounds.com, Inc. (the “Defendants”). On April 21, 2014, the Company,complaint was dismissed for “want of prosecution.” The Plaintiffs had 30 days from April 21, 2014 to file a motion to reinstate the defendants.case and no timely action was taken by the Plaintiffs. However, the Plaintiffs did file a motion to reinstate on May 22, 2014 and it was granted. The defendantsDefendants argued a Motion to Dismiss before the court on July 25, 2014 and, on July 28, 2014, the court granted the motion and dismissed the Plaintiffs' (i) breach of fiduciary duty claim against all Defendants, (ii) suit on sworn account claim against all Defendants except Fuse, and (iii) quantum meruit claim against all Defendants except Fuse. The Defendants were also awarded attorneys' fees in the amount of $4,343. The Defendants believe the lawsuit to be completely without merit and accordingly, filed a Motionare continuing to Dismiss on April 11, 2014. On April 21, 2014,vigorously defend against the complaint was dismissed for "want of prosecution"; however, the case was reinstated by the court on June 13, 2014. The court has set a hearing on the Motion to Dismiss for July 25, 2014.remaining claims.

Richard Cutler is the sole principal of plaintiffPlaintiff, Cutler Law Group, which provided legal representation to its client, Craig Longhurst (“Cutler’s Client”), that was interested in engaging in a transaction with Fuse Medical and the CompanyGolf Rounds.com, Inc. (“Cutler’s Failed Transaction”). The plaintiffsPlaintiffs had alleged that Cutler'sCutler’s Failed Transaction failed to materialize notwithstanding the efforts of Mr. Cutler and his law firm to document the transaction. The plaintiffsPlaintiffs further had alleged that the defendantsDefendants continued to pursue a similar transaction without Cutler’s Client or the plaintiffs.Plaintiffs. The plaintiffsPlaintiffs had claimed that the defendantsDefendants were responsible for damages in the amount of (i) $46,465 plus interest because plaintiffsPlaintiffs were not paid their legal fees by Cutler’s Client nor receive equity in the companyGolf Rounds.com, Inc. that plaintiffsPlaintiffs hoped would be issued from Cutler’s Failed Transaction; (ii) $46,465 plus interest due to defendantsDefendants being unjustly enriched from plaintiffs’Plaintiffs’ legal services to Cutler’s Client; (iii) $1,186,000 plus interest, being the alleged value of shares that plaintiffsPlaintiffs claimed to be entitled from Cutler’s Failed Transaction, which amount should allegedly be tripled as exemplary damages as a result of intentional fraud and/or negligent representations that some or all of the defendantsDefendants allegedly committed and that such conduct allegedly constitutes conspiracy to commit fraud; (iv) $1,186,000, allegedly arising from a breach of a Non-Competition and Non-Disclosure Agreement to which plaintiffsPlaintiffs were not a party; (v) $1,000,000 for breach of fiduciary duty by the defendantsDefendants because they would have been directors and officer of the surviving corporation in Cutler’s Failed Transaction had it not failed and defendants’Defendants’ moving on to another transaction without plaintiffs;Plaintiffs; and (vi) plaintiffs’Plaintiffs’ attorneys fees and costs for having brought the action.

F-13
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
 (Unaudited)
Operating Leases

Commencing January 1, 2013 through January 31, 2014, the Company occupied office space on a month-to-month basis for its corporate headquarters for $500 a month from Crestview Farm, an entity controlled by the Company’s Chief Executive Officer (“CEO”). The Company's CEO serves as the Manager of Crestview Farm. Rent expense for these facilities was $500 and $1,500$3,000 for the threesix months ended March 31,June 30, 2014 and 2013, respectively (See Note 11)12).

Effective February 1, 2014, the Company entered into a two-year lease agreement for its corporate headquarters in Fort Worth, Texas. The lease agreement requires base rent payments of $2,489 per month plus common area maintenance and expires January 31, 2016.

Commencing April 1, 2014, the Company began reimbursing an officer on a month-to-month basis for a corporate apartment located in Fort Worth, Texas. The monthly payments for the corporate apartment include base rent payments of $2,060 per month plus common area maintenance and utilities.

Rent expense was $5,478$19,233 and $1,500$3,000 for the threesix months ended March 31,June 30, 2014 and 2013, respectively.

Consulting Agreements

On May 1, 2014, the Company entered into a one-year consulting agreement with an individual who is a director of the Company whereby the individual shall be the Company’s Podiatric Medical Director and shall receive compensation of $16,667 per month (See Note 9.12).

On May 1, 2014, the Company entered into a one-year consulting agreement with an individual whereby the individual shall be a Medical Director and shall receive compensation of $9,000 per month (See Note 12).

Note 10. Stockholders’ Equity (Deficit)

Authorized Capital

Effective as of May 28, 2014, prior to the consummation of the Merger, Golf Rounds.com, Inc. amended its certificate of incorporation to increase its authorized capital stock from 12,000,000 shares of common stock having a par value of $0.01 per share to 500,000,000 shares of common stock having a par value of $0.01 per share and from zero shares of preferred stock to 20,000,000 shares of preferred stock having a par value of $0.01 per share, and to expressly authorize its board of directors to issue shares of the preferred stock, in one or more series, and to fix for each such series the voting powers, designations, preferences, or other special rights and the qualifications, limitations or restrictions.

Reverse Stock Split

Effective as of May 28, 2014, prior to the consummation of the Merger, Golf Rounds.com, Inc. amended its certificate of incorporation to effect a 14.62 to 1 reverse stock split (the “Reverse Stock Split”) whereby every 14.62 issued and outstanding shares of its common stock automatically converted into one share of common stock, subject to the treatment of fractional share interests. All references to shares of common stock of the Company herein are discussed on a post-Reverse Stock Split basis for all periods presented.

 
F-11F-14
 
 
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31,JUNE 30, 2014 AND 2013
(Unaudited)

Recapitalization

On May 28, 2014 (the “recapitalization date”), Fuse Medical, LLC was acquired by Fuse Medical, Inc. (formerly Golf Rounds.com, Inc.), an inactive publicly-held company, in a reverse merger transaction accounted for as a recapitalization of Fuse Medical, LLC (the “Recapitalization” or the “Reverse Merger”). All of the units reflecting membership interests in Fuse Medical, LLC that were issued and outstanding immediately prior to the effective time of the Merger were cancelled and converted into 3,600,000 shares of Fuse Medical, Inc.’s common stock (on a post-Reverse Stock Split basis), representing 90% of the Registrant’s issued and outstanding common stock after giving effect to the Merger (the “Merger Consideration”). The Merger Consideration was allocated among the members of Fuse Medical, LLC immediately prior to the effective time of the Merger (the “Holders”) in accordance with Fuse Medical’s limited liability company operating agreement. Prior to the Merger, and effective on and as of the business day immediately prior to the effective time of the Merger, the general partners in Fuse Medical V, LP and Fuse Medical VI, LP agreed to surrender their interests and the individual physicians that owned the remaining limited partnership interests in Fuse Medical V, LP and Fuse Medical VI, LP agreed to exchange their interest to corresponding interests in Fuse Medical, LLC, each becoming one of the Holders.

For accounting purposes, Fuse Medical, LLC is the acquirer and Fuse Medical, Inc. is the acquired company because, immediately following the completion of the transaction, Fuse Medical, LLC acquired both voting and management control of the consolidated entity. The Company is deemed to have issued 401,280 common shares to the original stockholders of the publicly-held entity. Accordingly, after completion of the recapitalization, the historical operations of the Company are those of Fuse Medical, LLC and the operations since the recapitalization date are those of Fuse Medical, LLC and Fuse Medical, Inc. The assets and liabilities of both companies are combined at historical cost on the recapitalization date. No step-up in basis or intangible assets or goodwill was recorded in this transaction. As a result of the closing of the Merger, the Company now has 500,000,000 shares of common stock, par value $0.01 per share, and 20,000,000 shares of preferred stock, par value $0.01 per share authorized. The assets acquired and liabilities assumed from the publicly-held company have been accounted for as an adjustment to accumulated deficit upon the recapitalization and were as follows (See Notes 3 and 8):

Cash and cash equivalents $641 
Current assets  10,595 
Liabilities assumed  (39,647)
Net $(28,411)

Distributions

During the three months ended March 31,period from January 1, 2014 through May 28, 2014, distributions of $9,000$40,583 were made.

Note 10. Concentrations
Concentrationmade to the general partners in Fuse Medical V, LP and Fuse Medical VI, LP and the individual physicians that owned the remaining limited partnership interests in Fuse Medical V, LP and Fuse Medical VI, LP prior to the closing of Revenues, Accounts Receivable and Suppliers

For the three months ended March 31, 2014 and 2013, the Company had significant customers with individual percentage of total revenues equaling 10% or greater as follows:
  For the Three  For the Three 
  Months Ended  Months Ended 
  
March 31,
2014
  
March 31,
2013
 
 Customer 1  44.9%  25.5%
 Customer 2  22.3%  - 
 Customer 3  11.4%  16.0%
 Customer 4  -   23.0%
 Totals  78.6%  64.5%
At March 31, 2014 and December 31, 2013, concentration of accounts receivable with significant customers representing 10% or greater of accounts receivable was as follows:
  
March 31,
2014
  December 31, 2013 
 Customer 1  47.5%  44.6%
 Customer 2  23.4%  12.8%
 Customer 3  -   10.2%
 Totals  70.9%  67.6%
For the three months ended March 31, 2014 and 2013, the Company had significant suppliers representing 10% or greater of goods purchased as follows:
  For the Three  For the Three 
  Months Ended  Months Ended 
  
March 31,
2014
  
March 31,
2013
 
 Supplier 1  57.1%  100.0%
 Supplier 2  42.9%  - 
 Totals  100.0%  100.0%
reverse merger transaction.
 
 
F-12F-15
 
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31,JUNE 30, 2014 AND 2013
(Unaudited)

Stock Options

A summary of the Company’s stock option activity during the six months ended June 30, 2014 is presented below:

        Weighted    
     Weighted  Average    
     Average  Remaining  Aggregate 
  No. of  Exercise  Contractual  Intrinsic 
  Shares  Price  Term  Value 
Balance outstanding at December 31, 2013  -          
Granted [A]  22,572  $9.96       
Exercised  -           
Forfeited  -           
Expired  -           
Balance outstanding at June 30, 2014  22,572  $9.96   1.3  $- 
Exercisable at June 30, 2014  22,572  $9.96   1.3  $- 
[A] - stock options acquired as part of merger with Golf Rounds.com, Inc. on May 28, 2014 (See Note 1).
Note 11. Concentrations

Concentration of Credit Risk

The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses in such accounts through June 30, 2014. On January 1, 2013, the standard insurance amount of $250,000 per depositor, per bank, became effective. As of June 30, 2014, the Company’s bank balances exceeded FDIC insured amounts by approximately $633,000.

Concentration of Revenues, Accounts Receivable and Suppliers

For the three and six months ended June 30, 2014 and 2013, the Company had significant customers with individual percentage of total revenues equaling 10% or greater as follows:

  For the Three  For the Three  For the Six  For the Six 
  Months Ended  Months Ended  Months Ended  Months Ended 
  June 30, 2014  June 30, 2013  June 30, 2014  June 30, 2013 
Customer 1  56.8%  -   44.4%  - 
Customer 2  18.0%  43.8%  28.1%  32.0%
Customer 3  11.2%  18.6%  11.3%  17.0%
Customer 4  10.3%  -   10.1%  - 
Customer 5  -   11.4%  -   - 
Customer 6  -   10.7%  -   - 
Customer 7  -   -   -   14.9%
Totals  96.3%  84.5%  93.9%  63.9%
F-16
FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(Unaudited)

At June 30, 2014 and December 31, 2013, concentration of accounts receivable with significant customers representing 10% or greater of accounts receivable was as follows:

  
June 30,
2014
  
December 31,
2013
 
Customer 1  32.9%  44.6%
Customer 2  32.5%  12.8%
Customer 3  11.0%  10.2%
Customer 4  10.1%  - 
Totals  86.5%  67.6%

For the three and six months ended June 30, 2014 and 2013, the Company had significant suppliers representing 10% or greater of goods purchased as follows:

  For the Three  For the Three  For the Six  For the Six 
  Months Ended  Months Ended  Months Ended  Months Ended 
  June 30, 2014  June 30, 2013  June 30, 2014  June 30, 2013 
Supplier 1  88.6%  26.9%  69.1%  77.9%
Supplier 2  11.4%  -   30.9%  - 
Supplier 3  -   73.1%  -   22.1%
Totals  100.0%  100.0%  100.0%  100.0%

Note 11.12. Related Party Transactions

As of March 31,June 30, 2014 and December 31, 2013, $2,538 is due from an entity owned by an officer of the Company. This amount is included in accounts payable – related parties on the accompanying condensed consolidated balance sheet.

AsDuring the six months ended June 30, 2014, the Company advanced an aggregate of March 31,$25,050 to and received an aggregate of $45,908 from three entities that are owned partially by the officers of the Company. The advances are unsecured, non-interest bearing and are due on demand. The balance due from the three entities was $11,524 and $32,382 as of June 30, 2014 and December 31, 2013, $53,956respectively (See Note 4).
F-17

FUSE MEDICAL, INC. AND SUBSIDIARIES
(FORMERLY GOLF ROUNDS.COM, INC. AND SUBSIDIARY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
 (Unaudited)
As of June 30, 2014 and December 31, 2013, $36,570 and $48,339, respectively, is owed to officers of the Company or entities controlled by officers of the Company. This amount is included in accounts payable – related parties on the accompanying condensed consolidated balance sheet.

During the period from January 15, 2014 through June 16, 2014, the Company issued several two-year promissory notes in exchange for aggregate cash proceeds of $724,238. The funds were received from entities controlled by officers of the Company. The officers also owned or partially owned the entities from which the funds were received. The notes are unsecured, bear interest at 7.0% and require 18 monthly payments of interest only commencing at the beginning of month seven. The notes include a provision that in the event of default the interest rate would increase to the default interest rate of 18%. The first six months of interest is deferred until maturity. The outstanding principal balance along with all accrued and unpaid interest is due at maturity (See Note 8).

Commencing January 1, 2013 through January 31, 2014, the Company occupied office space on a month-to-month basis for its corporate headquarters for $500 a month from Crestview Farm, an entity controlled by the Company’s Chief Executive Officer (“CEO”). The Company's CEO serves as the Manager of Crestview Farm. Rent expense for these facilities was $500 and $1,500$3,000 for the threesix months ended March 31,June 30, 2014 and 2013, respectively.respectively (See Note 9).
On May 1, 2014, the Company entered into a one-year consulting agreement with an individual who is a director of the Company whereby the individual shall be the Company’s Podiatric Medical Director and shall receive compensation of $16,667 per month (See Note 9).

On May 1, 2014, the Company entered into a one-year consulting agreement with an individual whereby the individual shall be a Medical Director and shall receive compensation of $9,000 per month (See Note 9).

During the period from inception through March 31,June 30, 2014, several members of the Company’s management provided services at no charge to the Company. The financial statements do not include an estimate of the fair value of these services.

Note 12.13. Subsequent Events

Advances to Golf Rounds.com, Inc.

On April 1, 2014, advances in the aggregate amount of $63,000 due from Golf Rounds.com, Inc. maturing April 15, 2014 and May 5, 2014 were amended whereby the maturity date was extended to June 26, 2014. On May 2, 2014, the Company advanced an additional $10,000 to Golf Rounds.com, Inc. in exchange for a promissory note receivable due June 26, 2014. The advance was unsecured, required interest at a rate of 3.0% per annum and required payment of principal and interest at maturity. On May 28, 2014, as a result of the closing of the Merger, the advances became part of the consideration to acquire Golf Rounds.com, Inc.

Note Agreements

On May 8, 2014 and June 16, 2014, the Company issued two two-year promissory notes in exchange for aggregate cash proceeds of $131,462 from a related party. The funds were received from entities controlled by officers of the Company. The officers also owned or partially owned the entities from which the funds were received. The notes are unsecured, bear interest at 7.0% and require 18 monthly payments of interest only commencing at the beginning of month seven. The first six months of interest is deferred until maturity. The outstanding principal balance along with all accrued and unpaid interest is due at maturity.

On May 23, 2014, the Company issued a two-year promissory note in exchange for cash proceeds of $479,975 from a non-related party. The note is unsecured, bears interest at 7.0% and requires 18 monthly payments of interest only commencing at the beginning of month seven. The first six months of interest is deferred until maturity. The outstanding principal balance along with all accrued and unpaid interest is due at maturity.

Other Matters

On May 1, 2014, the Company entered into two one-year consulting agreements requiring aggregate monthly payments of $25,667. On July 1, 2014, the Company entered into a five-year consulting agreement requiringwith an individual whereby the individual shall be the Company’s General Counsel and shall receive compensation of $25,000 per month as well as a signing bonus of $61,000 and monthly payments of $25,000.$61,000.

On May 28,During the period from July 18, 2014 through August 4, 2014, the Company consummated a merger with Golf Rounds.com, Inc. that results in the issuancereceived aggregate cash proceeds of 401,280 shares of common stock to the existing shareholders of Golf Rounds.com, Inc. as of that date. (See Note 1).$500 from outstanding subscriptions receivable.
 
 
F-13F-18
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking statements

When used in this Report, words or phrases such as “will likely result,” “management expects,” “we expect,” “will continue,” “is anticipated,” “estimated” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any such forward-looking statements, each of which speaks only at the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We have no obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements. Forward-looking statements involve a number of risks and uncertainties including, but not limited to, general economic conditions, competitive factors and other risk factors as set forth in the our Current Report on Form 8-K8-K/A filed on May 29, 2014.August 6, 2014.

The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes included in this Report.
Explanatory Note
As used in this Quarterly Report on Form 10-Q, "we", "us", "our", and the "Company" refer to Fuse Medical, Inc.

Overview

On May 28, 2014 the Company consumated a merger with(the “recapitalization date”), Fuse Medical, LLC was acquired by Fuse Medical, Inc. (formerly Golf Rounds.com, Inc. (see Note 1)), an inactive publicly-held company, in a reverse merger transaction accounted for as a recapitalization of Fuse Medical, LLC (the “Recapitalization” or the “Reverse Merger”). All of the units reflecting membership interests in Fuse Medical, LLC that were issued and outstanding immediately prior to the effective time of the Merger were cancelled and converted into 3,600,000 shares of Fuse Medical, Inc.’s common stock (on a post-Reverse Stock Split basis), representing 90% of the Registrant’s issued and outstanding common stock after giving effect to the Merger (the “Merger Consideration”). The Merger Consideration was allocated among the members of Fuse Medical, LLC immediately prior to the effective time of the Merger (the “Holders”) in accordance with Fuse Medical’s limited liability company operating agreement. Prior to the Merger, and effective on and as of the business day immediately prior to the effective time of the Merger, the general partners in Fuse Medical V, LP and Fuse Medical VI, LP agreed to surrender their interests and the individual physicians that owned the remaining limited partnership interests in Fuse Medical V, LP and Fuse Medical VI, LP agreed to exchange their interest to corresponding interests in Fuse Medical, LLC, each becoming one of the Holders.

For accounting purposes, Fuse Medical, LLC is the acquirer and Fuse Medical, Inc. is the acquired company because, immediately following the completion of the transaction, Fuse Medical, LLC acquired both voting and management control of the consolidated entity. The Company is deemed to have issued 401,280 common shares to the original stockholders of the publicly-held entity. Accordingly, after completion of the recapitalization, the historical operations of the Company are those of Fuse Medical, LLC and the operations since the recapitalization date are those of Fuse Medical, LLC and Fuse Medical, Inc. The assets and liabilities of both companies are combined at historical cost on the recapitalization date. No step-up in basis or intangible assets or goodwill was recorded in this transaction. As a result of the closing of the Merger, the Company now has 500,000,000 shares of common stock, par value $0.01 per share, and 20,000,000 shares of preferred stock, par value $0.01 per share authorized.

The medical distribution industry is in a mature life-cycle phase. For most of the products the Company offerswe offer there are a number of integrated competitors, several of which are publically traded where they not only manufacture and produce their own products, but also have established distribution and sales networks and participate in large group purchasing organizations within the medical industry. Most of these competitors have linked physicians to their entities by engaging select physician and surgical specialties through consulting agreements, clinical trials remuneration and other compensation models. As mature companies, they also have extensive legacy systems and expensive administrative and sales commission cost structures. In addition, there are numerous independent medical distributorships primarily focused on limited geographic markets and products located across the United States.
3

Few competitive companies, however, are structured to allow for physician and key stakeholder equity, profit participation and operational input in their companies. As a growth company, the Company willwe currently compete through the following means:

·
Partnering with both established and new manufacturers and suppliers who are seeking to have access to a national distribution network for their products.
·Engagement of physician investment in the Company through private market placements, acquisition of physician ownedphysician-owned companies and other partnership models.

·
Participation of physicians, both investor and non-investor, through our physician leadership structure, which includes the Chief Medical Officer, product and service line directors as well as national, regional, divisiondivisional and sectional medical directors.
·Utilization and maintenance of a flat administrative organizational structure, thereby reducing our overhead cost structure.

·
Installation of technologically advanced information systems platforms that allowa customer relationship management system for managing the processingCompany's interactions with current and tracking of product pricingfuture customers, which allows the Company to better organize, automate, and revenue capture while providing labor cost savingssynchronize sales, marketing, customer service, and reduced inventory.technical support.
·
Implementation of a minimum sales representative model.
·Shadow pricing of competitor products that provide cost savings to our end consumers.customers.

·Engagement of our physician investors to assist in introducing our cost savingcost-saving products in healthcare facilities within their service area.
 
Concentration of Revenues
4
During the six months ended June 30, 2014, the Company had a concentration of revenues to a limited number of hospital and surgical facilities. Revenues to the top four client facilities totaled $398,786, or 93.9% of total revenues.

Concentration of Suppliers

During the six months ended June 30, 2014, the Company had a concentration of suppliers with a limited number of manufacturers and supply distributors whom the Company purchased its products. Purchases from the top two suppliers totaled $197,996, or 100.0% of the total goods purchased. Our distributor agreements with these manufacturers and supply distributors are both exclusive and non-exclusive and allow for the Company to market and distribute nationally. These same manufacturers and distributors have the option to provide their own direct sales and distributor networks that may compete with the Company and its products.

Strategy

The Company’sOur strategy is to continue to expand our end customer, physician, manufacturer and supplier partnership base, both in the regions we currently serve and in new regions across North America whichthat are conducive to our business model. The principal elements of theour business strategy are to:

Integrate and Increase Profits

We intend to continue integrating and implementing best practices across all aspects of our operating facilities and product service lines, including financial, staffing, technology, products and packaging, distribution network and compliance.
 
4

Our customers and partners require high levels of regulatory compliance, which we intend to accomplish through employee training, facility policies and procedures coupled with ongoing analysis of operating performance. We intend to implement new accounting, invoicing, and logistics management and information technology systems. We believe all of these measures will increase the quality of service we can provide to our customers, increase the visibility of the Company, and maximize profitability.

Expand Services and Supply Volume

We intend to expand our product and services supply volume as well as our number of facility clients by growing our relationships with product manufacturers and suppliers. We plan to increase the volume we sell and distribute in the following ways: continued development of our sales and account management representative network structure to drive physician and facility relationships; growth of our partnership model with other healthcare manufacturers and providers who bring incremental service lines, strategic value and synergy; attractattraction of new services and customers by demonstrating product quality, customer service and cost value propositions; and attractattraction of new sales and service revenuerevenues in territories we feel may be underserved and provide ease of market penetration. We plan to increase the volume we collect from our end usercustomer by implementing specific sales programs and, in the future, increasing personnel dedicated to sales generation.

In January 2014, the Companywe executed a distributorship agreement with Flower Orthopedics Corporation (“Flower”), a national orthopedic internal fixation manufacturer. This national semi-exclusive agreement allowsallowed for direct product sales to acute care hospitals under both consignment and stock and bill arrangements. In addition, the agreement allowsallowed for profit participation for ambulatory surgical centers and physician offices business that the Company iswas responsible for developing in conjunction with another national medical supply and distribution company. On July 16, 2014, we terminated the distributorship agreement with Flower.

On July 17, 2014, we entered into an Independent Representative Agreement with Vilex, Inc. (“Vilex”), another national orthopedic internal fixation manufacturer, pursuant to which the Company was appointed as a representative of Vilex to promote and sell Vilex’s products in the United States. Under the agreement, the Company is a non-exclusive representative of Vilex, except for certain specified customers. The term of the Agreement is five years, and will automatically renew for additional one-year periods at the expiration of the original term unless terminated as provided therein. The Company will be paid a commission based on its net sales.

Improve our Corporate Office

The Company has completed improvements to its leased corporate officeoffices and has relocated its executive and senior management team members. We feel this will provide for greater integration of our planning, operating and reporting systems.

Pursue Selective Strategic Relationships or Acquisitions

In the United States, the Company will continue to explore additional mergers and acquisitions and seek strategic alliances on a national basis with other companies that are developing, producing or distributing healthcare products and services. We plan to focus on partnerships and acquisitions that not only add revenue,revenues, cash flow and profitability to our financial position, but those that provide short and long-term growth potential and support the strategic goals and objectives of the Company.

5
Explore International Markets

Internationally, we are exploring strategic partnerships and business models to penetrate the healthcare sectors for the products and services the Company provides. As a long-term objective, the Company will continue to explore the expansion of our operations and products into international markets. We have developed several relationships in markets where we believe ourthe products, services and systems will be able to support an underserved market for western basedwestern-based healthcare including the Middle East and Asia. We believe that moving into international markets will further establish the Company as a leader in our industry sector and will add incremental net income to the organization.

5
Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions. We have identified in Note 2 - “Significant Accounting Policies” to the Company’s financial statements contained in this Report certain critical accounting policies that affect the more significant judgments and estimates used in the preparation of the financial statements.

Three Months Ended March 31,June 30, 2014 Compared to Three Months Ended March 31,June 30, 2013

Net SalesRevenues

For the three months ended March 31,June 30, 2014, net salesrevenues were $161,563,$263,307, compared to $311,558$170,566 for the three months ended March 31,June 30, 2013, a decreasean increase of $149,995,$92,741, or 48.1%54.4%. The decrease in net sales was primarily due to the reduction in revenues from reduced contract pricing from customers. Our pricing for certain productsamniotics was high when we initially began distributingselling them. Subsequently, the reimbursable amounts received by our customers from insurance companies were found to be much lower than we anticipated. During April 2013 through June 2013, we reduced significantly our retail pricing in order for our prices to align better with reimbursable amounts from insurance companies received by our customers. AsOn an aggregate basis, the selling prices of our products decreased by approximately 23.4% during the current year period. The decrease in selling prices had no effect on outstanding accounts receivable for sales made prior to April 2013. Selling prices were changed prospectively and no bad debt occurred as a result evenof the decreased selling prices. Even though the number of units sold decreased only slightlyincreased substantially (see cost of revenues below) during the current year period compared to the prior year period, this was offset by the decrease in contract pricing extended to our customers primarily accounted forcustomers. Accordingly, the decreaseincrease in net revenues was not commensurate with the increase in costs of revenues.

Cost of Revenues

For the three months ended March 31,June 30, 2014, our cost of revenues was $58,823,$104,681, compared to $60,130$51,970 for the three months ended March 31,June 30, 2013, representing a decreasean increase of $1,307$52,711, or 2.2%101%. The decrease in costDuring the period from April to June 2013, the costs of revenues was due to a decrease in the number of units sold.our individual inventory items did not materially change. Our cost of revenues, on a per unit basis, did not changeincrease significantly during the three months ended March 31, 2014.June 30, 2014 compared to the prior year period. Accordingly, the percentage increase in costs of revenues represented approximately the same percentage increase in the number of units sold. The increase in cost of revenues was due to an increase in the number of units sold. Cost of revenues includes costs to purchase goods, transportation, storage, sales representatives and account management.

Gross Profit

For the three months ended March 31,June 30, 2014, we generated a gross profit of $102,740,$158,626, compared to $251,428$118,596 for the three months ended March 31,June 30, 2013, a decreasean increase of $148,688,$40,030, or 59.1%33.8%. The decreaseincrease in gross profit was primarily due to an increase in the number of units sold, partially offset by the decrease in net revenues, which resulted primarilycontract pricing extended to our customers during the period from a reduction in contracted prices in client facilities.April to June 2013.

6
Operating Expenses

General, Administrative and Other

For the three months ended March 31,June 30, 2014, general, administrative and other operating expenses increased to $218,931$365,816 from $58,016$102,673 for the three months ended March 31,June 30, 2013, representing an increase of $160,915,$263,143, or 277%256%. This increase is primarily attributable to the costs associated with being a public company whereas there were no such costs in the closing of the reverse merger.prior year period. In particular, legal and professional fees increased $93,210. In addition,$181,636 and salaries and wages increased $27,205.$46,758. Additionally, this increase is attributable to the Company’s expansion strategy and related costs to fund operations. General, administrative and other operating expenses during the three months ended June 30, 2014 consisted primarily of legal and professional fees, salaries and wages, travel expenses, rent as well as other general and administrative expenses.
6

Interest Expense Merger Costs

For the three months ended March 31,June 30, 2014, merger costs increased to $226,207 from $0 for the three months ended June 30, 2013. Merger costs were incurred for the reverse merger with Golf Rounds.com, Inc. that closed on May 28, 2014.

Interest Expense

For the three months ended June 30, 2014, interest expense increased to $10,392$20,704 from $238$82 for the three months ended March 31,June 30, 2013, representing an increase of $10,154,$20,622, or 4,266%25,149%. Interest expense increased due to the issuance of an aggregate of $840,577$1,452,014 of promissory notes payable during the current period.since January 1, 2014. Interest expense also includes interest on the Company’s line of credit.credit, which is described in "Liquidity and Capital Resources".

Net Income (Loss)

For the three months ended March 31,June 30, 2014, the Company generated a net loss of ($125,880)453,627) compared to net income of $193,174$15,841 for the three months ended March 31,June 30, 2013. The change from net income to net loss is primarily due to the increase in operating expenses.

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

Net Revenues

For the six months ended June 30, 2014, net revenues were $424,870, compared to $482,124 for the six months ended June 30, 2013, a decrease of $57,254, or 11.9%. Our pricing for amniotics was high when we initially began selling them. Subsequently, the reimbursable amounts received by our customers from insurance companies were found to be much lower than we anticipated. During April 2013 through June 2013, we reduced significantly our retail pricing in order for our prices to align better with reimbursable amounts from insurance companies received by our customers. On an aggregate basis, the selling prices of our products decreased by approximately 39.6% during the current year period. The decrease in selling prices had no effect on outstanding accounts receivable for sales made prior to April 2013. Selling prices were changed prospectively and no bad debt occurred as a result of the decreased selling prices. Even though the number of units sold increased substantially (see cost of revenues below) during the current year period compared to the prior year period, this was more than offset by the decrease in contract pricing extended to our customers. Accordingly, net revenues anddecreased while the costs of revenues increased.

Cost of Revenues

For the six months ended June 30, 2014, our cost of revenues was $163,504, compared to $112,100 for the six months ended June 30, 2013, representing an increase of $51,404, or 45.9%. During the period from April to June 2013, the costs of our individual inventory items did not materially change. Our cost of revenues, on a per unit basis, did not increase significantly during the six months ended June 30, 2014 compared to the prior year period. Accordingly, the percentage increase in costs of revenues represented approximately the same percentage increase in the number of units sold. The increase in cost of revenues was due to an increase in the number of units sold. Cost of revenues includes costs to purchase goods, transportation, storage, sales representatives and account management.

Gross Profit

For the six months ended June 30, 2014, we generated a gross profit of $261,366, compared to $370,024 for the six months ended June 30, 2013, a decrease of $108,658, or 29.4%. The decrease in gross profit was primarily due lower contract pricing extended to our customers during the current year period, partially offset by an increase in the number of units sold.
7

Operating Expenses

General, Administrative and Other

For the six months ended June 30, 2014, general, administrative and other operating expenses increased to $541,461 from $160,689 for the six months ended June 30, 2013, representing an increase of $380,772, or 237%. This increase is primarily attributable to the costs associated with being a public company whereas there were no such costs in the prior year period. In particular, legal and professional fees increased $227,028 and salaries and wages increased $90,990. Additionally, this increase is attributable to the Company’s expansion strategy and related costs to fund operations. General, administrative and other operating expenses during the six months ended June 30, 2014 consisted primarily of legal and professional fees, salaries and wages, travel expenses, rent as well as other general and administrative expenses.

Merger Costs

For the six months ended June 30, 2014, merger costs increased to $269,493 from $0 for the six months ended June 30, 2013. Merger costs were incurred for the reverse merger with Golf Rounds.com, Inc. that closed on May 28, 2014.

Interest Expense

For the six months ended June 30, 2014, interest expense increased to $31,096 from $320 for the six months ended June 30, 2013, representing an increase of $30,776, or 9,618%. Interest expense increased due to the issuance of an aggregate of $1,452,014 of promissory notes payable since January 1, 2014. Interest expense also includes interest on the Company’s line of credit, which is described in "Liquidity and Capital Resources".

Net Income (Loss)

For the six months ended June 30, 2014, the Company generated a net loss of ($579,507) compared to net income of $209,015 for the six months ended June 30, 2013. The change from net income to net loss is primarily due to the increase in operating expenses.

Liquidity and Capital Resources

As of March 31,June 30, 2014, the Companywe had $1,179,977$1,339,979 in current assets, consisting of $658,701 in$876,632 of cash $112,620 inand cash equivalents, $132,189 of accounts receivable, $95,000 due from Golf Rounds.com, Inc., $306,831 in$277,606 of inventories, $42,028 of prepaid expenses and $6,825 in other current assets. The Companyreceivables and $11,524 of other receivables – related parties. We had total current liabilities of $360,382$404,389, consisting of $271,800 for accounts payable, of $250,553,$32,589 for accrued expenses of $9,829 and $100,000 for a line of creditcredit. Accordingly, as of $100,000.June 30, 2014, we had working capital of $935,590.

The Company maintains a $100,000 line of credit with Trinity Bank bearing interest of 2.25% per year, based on a 360-day year. The line of credit requires minimum monthly payments of interest only. The line of credit is secured by a money market account in the name ofowned by Dr. and Mrs. Christopher and Cesily Pratt that is also maintained at Trinity Bank. Dr. Pratt is a co-founder andthe Chief Medical Officer and a director of the Company. The balance due on the line of credit as of March 31, 2014 wasis $100,000 and it is fully utilized. The line of credit is due upon demand of the lender or, if no demand is made, October 10, 2014.

During the period from January 1, 2014 through May 28, 2014, Fuse made cash distributions of $40,583 to the minority interest owners of Fuse Medical V, LP and Fuse Medical VI, LP. Pursuant to the partnership agreements of Fuse Medical V, LP and Fuse Medical VI, LP, available cash flow distributions were to be paid within 30 days of month-end. Prior to the Merger, and effective on and as of the business day immediately prior to the effective time of the Merger, the general partners in Fuse Medical V, LP and Fuse Medical VI, LP agreed to surrender their interests and the individual physicians that owned the remaining limited partnership interests in Fuse Medical V, LP and Fuse Medical VI, LP agreed to exchange their interest to corresponding interests in Fuse Medical, LLC, each becoming one of the Holders. Accordingly, as of May 28, 2014, the distributions to the minority interest owners of Fuse Medical V, LP and Fuse Medical VI, LP ceased. We do not anticipate declaring any dividends prior to regaining profitability. The payment of dividends will be contingent upon our revenues and earnings, if any, our capital requirements and our general financial condition. The payment of any dividends will be within the discretion of our board of directors. We presently intend to retain all earnings, if any, for use in our business operations and, accordingly, we do not anticipate declaring any dividends in the foreseeable future.
8

We intend to increase our revenues by expanding our client base as well as growing the number of manufacturers and suppliers from which we obtain products. We plan to increase the number of facility clients and physicians offering our products by utilizing our existing sales and account management representative network structure to drive physician and facility relationships. Our plans to increase the number of product lines available for sale will result in entering into agreements with manufacturers or suppliers and some of those agreements may require the purchase of inventory while other agreements may involve consigned inventory or a commission structure not requiring the purchase of inventory. In sum, our expansion strategy will likely require an increase in our working capital in order to fund increased inventories and accounts receivable as well as operating costs including salaries and case coverage costs, legal fees, information technology platforms, and travel and marketing expenses, offset by any increases in our accounts payable to the product manufacturers and suppliers. The working capital needed for this expansion shall be derived from an increase in our net borrowings.

Historically, our primary source of liquidity is cash receipts from the sale of medical supplies and products and the issuances of debt and equity securities. During the six months ended June 30, 2014, the primary uses of cash were legal and professional fees, salaries and wages, merger costs and travel expenses. Since January 1, 2014, we raised gross proceeds of $1,452,014 (of which $724,238 was from related parties) through the issuance of two-year promissory notes payable. The notes are unsecured, bear interest at 7.0% and require 18 monthly payments of interest only commencing at the beginning of month seven. Our outstanding notes payable have maturity dates commencing December 2015. As of July 31, 2014, the Company had borrowed all $100,000 available under its line of credit and had approximately $672,000 in available cash. The Company may consider future financing or equity transactions for operations, if needed. These proceeds will be used to meet cash flow deficits during the next 12 months and to accelerate the growth of the business. If we are unable to raise capital by other means, we believe that, with our current available cash along with anticipated revenues, we will need to reduce operating expenses. Depending on our cash position, we may spend up to $300,000 in capital expenditures over the next 12 months. These capital expenditures will be allocated across growth initiatives including expansion of amniotics relationships. Depending on the results of management’s efforts to realize efficiencies in technology development and utilize our physician network, our capital expenditures may be less than anticipated. Our cash balances are kept liquid in order to support our growing infrastructure needs. The majority of our cash is concentrated in a large financial institution.

The Company believes it currently has sufficient capital or access to capital to sustain its current operations for the next 12 months. The Company has financed its operations from on-going operations, a line of credit and borrowings discussed below.

7
The Company has secured capital through multiple borrowings. In addition, on May 28, 2014, we acquired $17,250 of notes payable due to PharmHouse Pharmacy. As of July 17,August 18, 2014, the aggregate notes payable are $727,776 to World Health Industries, $466,933 to Cooks Bridge LLC, $317,305 to Jar Financing, LLC, $466,933and $17,250 to Cooks Bridge LLC, and $727,776 to World Health Industries.PharmHouse Pharmacy. The maturity dates and amounts of each individual notes payable are as follows:

Notes Payable Issued Since 12/31/13
Outstanding Notes Payable
Note  Maturity Date Amount 
PharmHouse Pharmacy 07/29/2015 $6,000 
PharmHouse Pharmacy 08/28/2015  11,250 
Jar Financing, LLC 12/30/2015  60,000 
World Health Industries 01/14/2016  131,024 
Cooks Bridge, LLC 01/15/2016  131,024 
Cooks Bridge, LLC 01/31/2016  116,777 
World Health Industries 02/05/2016  116,777 
Jar Financing, LLC 02/09/2016  193,535 
Cooks Bridge, LLC 03/04/2016  87,670 
Jar Financing, LLC 03/04/2016  63,770 
Cooks Bridge, LLC 05/08/2016  75,000 
World Health Industries 05/23/2016  479,975 
Cooks Bridge, LLC 06/16/2016  56,462 
Total notes payable as of August 18, 2014 $1,529,264 

9
 
Note
 
Date
 
Amount
 
Jar Financing, LLC 12/31/2013 $60,000 
World Health Industries 01/14/2014  131,024 
Cooks Bridge LLC 01/15/2014  131,024 
Cooks Bridge LLC 02/05/2014  116,777 
World Health Industries 02/06/2014  116,777 
Jar Financing, LLC 02/10/2014  193,535 
Cooks Bridge LLC 03/04/2014  87,670 
Jar Financing, LLC 03/04/2014  63,770 
Cooks Bridge LLC 05/08/2014  75,000 
World Health Industries 05/23/2014  479,975 
Cooks Bridge LLC 06/16/2014  56,462 
Total notes payable as of July 17, 2014 $1,512,014 
On May 28, 2014, as part of the Merger, the Company assumed an aggregate of $17,250 of promissory notes payable to PharmHouse Pharmacy. The notes are unsecured, bear interest at 3.25% and require quarterly payments of interest only. The notes include a provision that in the event of default the interest rate would increase to the default interest rate of 18%. The first six months of interest is deferred until maturity. The outstanding principal balance along with all accrued and unpaid interest is due at maturity.

The remaining promissory notes payable are for a term of twenty-four (24) months, are unsecured, bear interest at 7.0% and require 18 monthly payments of interest only commencing at the beginning of month seven. The first six months of interest is deferred until maturity. The notes include a provision that in the event of default the interest rate would increase to the default interest rate of 18%. The outstanding principal balance along with all accrued and unpaid interest is due at maturity.

Capital Expenditures

For the threesix months ended March 31,June 30, 2014, the Company had material capital expenditures of $46,499.$49,255. The Company has no material commitments for capital expenditures as of March 31,June 30, 2014.

Commitments and Contractual Obligations

As a “smaller reporting company” as defined by Item 10Rule 12b-2 of Regulation S-K,the Exchange Act, the Company is not required to provide this information.

Off-balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not Applicable.As a "smaller reporting company" as defined by Rule 12b-2 of the Exchange Act, the Company is not required to provide this information.

ITEM 4. CONTROLS AND PROCEDURES

Disclosures Controls and Procedures

Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based on their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 
910
 

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to Note 8-“Commitments9 - “Commitments and Contingencies” in our Consolidated Financial Statementsconsolidated financial statements included in this Report on Form 10-Q.

ITEM 1A. RISK FACTORS

Omitted.None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.

As a "smaller reporting company" as defined by Rule 12b-2 of the Exchange Act, the Company is not required to provide this information.
ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

 
1011
 

ITEM 6. EXHIBITS

Exhibit No. Description
3.1 Amended Certificate of Incorporation.Incorporation (filed as exhibit 3.1 to the Form 10-Q filed on July 18, 2014, and incorporated herein by reference).
   
3.2 Bylaws (filed as exhibit 3.2 to the Form 8-K filed on May 29, 2014, and incorporated herein by reference).
   
10.1 * Form of Registration Rights+ Independent Representative Agreement, dated as of May 28,July 17, 2014, by and between the Company and certain stockholders of the Company (filed as exhibit 10.1 to the Form 8-K filed on May 29, 2014, and incorporated herein by reference).Vilex, Inc.
   
10.231.01 Form of Lock-Up Agreement, dated as of May 28, 2014, by and between the Company and certain stockholders of the Company (filed as exhibit 10.2 to the Form 8-K filed on May 29, 2014, and incorporated herein by reference).
31.01
+ Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.02
 
+ Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.01
 
+ Certification of the Chief Executive Officer and the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
101
 
The following materials from the registrant’s Report on Form 10-Q for period from JanuaryApril 1, 2014 to March 31,June 30, 2014, formatted in Extensible Business Reporting Language (XBRL), include: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Stockholders’ Equity (Deficit), (iv) the Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements.
_______________
101.INS **XBRL Instance Document
101.SCH **XBRL Taxonomy Extension Schema Document
101.CAL **XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF **XBRL Taxonomy Extension Definition Linkbase Document
101.LAB **XBRL Taxonomy Extension Label Linkbase Document
101.PRE **XBRL Taxonomy Extension Presentation Linkbase Document
____________
+
Filed herewith.
* Certain provisions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 
1112
 
 
Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 FUSE MEDICAL, INC. 
    
Dated: July 18,August 19, 2014
By:
/s/ D. Alan Meeker 
  
D. Alan Meeker
 
  
Chief Executive Officer
 
    
Dated: July 18,August 19, 2014
By:
/s/ David Hexter 
  
David Hexter
 
  
Chief Financial Officer
 
  
(Principal Financial and Accounting Officer)
 
 
 
1213