April 27, 2018
Via E-mail
Christopher Reeg
Chief Executive Officer
Fuse Medical, Inc.
1565 North Central Expressway, Suite 220
Richardson, TX 75080
Re: Fuse Medical, Inc.
Form 10-K for Fiscal Year Ended December 31, 2017
Filed April 6, 2018
File No. 000-10093
Dear Mr. Reeg:
We have limited our review of your filing to the financial statements
and related
disclosures and have the following comments. In some of our comments, we may
ask you to
provide us with information so we may better understand your disclosure.
Please respond to these comments within ten business days by providing
the requested
information or advise us as soon as possible when you will respond. If you do
not believe our
comments apply to your facts and circumstances, please tell us why in your
response.
After reviewing your response to these comments, we may have additional
comments.
Form 10-K for Fiscal Year Ended December 31, 2017
Item 9A. Controls and Procedures, page 25
1. We note that your chief executive officer and your chief financial
officer, with the
participation of your board, believe that your disclosure controls and
procedures, as of
December 31, 2017, are significantly improved since December 31, 2016.
Please provide
your conclusion as of December 31, 2017 regarding the effectiveness of
your disclosure
controls and procedures pursuant to Item 307 of Regulation S-K. The
conclusion should
specify if the disclosure controls and procedures are `effective' or `not
effective' as of
December 31, 2017.
2. Please provide management's annual report on internal control over
financial reporting
pursuant to the requirements in Item 308 of Regulation S-K.
Christopher Reeg
Fuse Medical, Inc.
April 27, 2018
Page 2
Changes in Internal Control of Financial Reporting, page 25
3. We note that you integrated your functions with the operations of CPM in
2017. Please
identify and disclose any material changes in your internal control over
financial
reporting or provide a statement to the effect that, other than the
changes noted in regard
to the integration of functions, there were no other changes in internal
control over
financial reporting.
Note 3. Acquisition, page F-13
4. Your disclosure in the third paragraph of Note 3 indicates that you
recognized goodwill
of $820,000 in connection with the transaction in which NC 143 acquired
5 million
shares of common stock for a purchase price of $400,000 and RMI acquired
4 million
shares of common stock for $320,000. Since NC 143 or RMI did not
individually
acquire control of the Company in this transaction or could be
considered the accounting
acquirer, please tell us why believe this transaction represents a
business combination in
which goodwill should be recognized. Refer to the guidance in ASC
805-10-25.
5. Your disclosure indicates that the CPM Acquisition Agreement provides
for earn-out
payments to NC 143 subject to certain sales and profitability targets
being met by the
Company for years after 2017, and the fair value of the earn-out was
recorded at
$19,244,543 at the effective date of the merger. Please revise to
explain in further detail
the significant terms of the earn-out arrangement including an estimate
of the range of
possible outcomes. Refer to the disclosure requirements outlined in ASC
805-30-50-1(c).
Also, your disclosures on page F-9 explaining how you valued the
earn-out obligation are
general and do not provide much insight into how the fair value of this
obligation was
determined. Please explain in further detail the methods and assumptions
that were used
to determine the fair value of this obligation at the acquisition date.
6. Please explain how you considered the guidance in ASC 805-10-55-24 and
805-10-55-25
in determining that the earn-out payment should not be accounted for as
profit sharing or
compensation expense in your financial statements since the earn-out
payments will
benefit Mark W. Brooks, your principal shareholder, President, and
Chairman of the
Board of Directors.
7. You indicate in the first paragraph on page F-9 that adjustments to the
earn-out liability
may occur as a result of changes in your estimates and any adjustments
to the liability
will be recorded as a non-cash gain or loss to additional
paid-in-capital. Please explain
why your adjustments to the earn-out liability will not be reflected in
your earnings
pursuant to the guidance in ASC 805-30-35-1(b).
Christopher Reeg
Fuse Medical, Inc.
April 27, 2018
Page 3
Note 11. Related Party Transactions
CPM Acquisition, page F-22
8. Your disclosure in Note 11 indicates that because NC 143 and RMI had
combined
majority control of your issued and outstanding common stock and they
jointly have the
power to appoint a majority of the members of your Board, the CPM
acquisition was
accounted for as a reverse acquisition of an entity under common
control. Given that
both NC 143 and RMI each owned less than a majority of your common
shares at the
date of CPM acquisition and therefore neither entity individually
controlled the Company
at this date, please explain in further detail why you believe it was
appropriate to account
for the merger with CPM as a merger of entities under common control.
Refer to the
guidance outlined in ASC 805-50-15.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Blaise Rhodes at (202) 551-3774 or Linda Cvrkel at (202)
551-3813
with any questions.
Sincerely,
/s/Craig Arakawa
for
Rufus Decker
Accounting Branch
Chief
Office of
Beverages, Apparel and
Mining