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.
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.
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.
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.
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.
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.
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.
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.
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.
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 12/31/13Outstanding 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 | |
| | | | | |
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.
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.
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.
ITEM 6. EXHIBITS
Exhibit No. | | Description |
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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). |
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3.2 | | Bylaws (filed as exhibit 3.2 to the Form 8-K filed on May 29, 2014, and incorporated herein by reference). |
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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. |
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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 |
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31.02 | | + Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.01 | | + Certification of the Chief Executive Officer and the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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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. |
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101.INS ** | | XBRL Instance Document |
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101.SCH ** | | XBRL Taxonomy Extension Schema Document |
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101.CAL ** | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF ** | | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB ** | | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE ** | | XBRL Taxonomy Extension Presentation Linkbase Document |
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* 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.
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) | |
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