FZMD Fuse Medical Inc (PK)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: June 30, 2015 

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 000-10093

 

Fuse Medical, Inc.

(Exact name of registrant as specified in its charter) 

 

Delaware			59-1224913
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)
4770 Bryant Irvin Court, Suite 300, Fort Worth, TX			76107
(Address of principal executive offices)			(Zip Code)

 

(817) 439-7025

(Registrant’s telephone number, including area code)

 

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   (Do not check if smaller reporting company)

x

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 August 10, 2015, 5,890,808 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.

FORM 10-Q 

 

June 30, 2015 

 

INDEX

 

			PAGE
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements		F-1
	Condensed Consolidated Balance Sheets at June 30, 2015 and December 31, 2014		F-2
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014		F-3
	Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2015		F-4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014		F-5
	Notes to the Condensed Consolidated Financial Statements		F-6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			11
Item 4.	Controls and Procedures			11
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings			12
Item 1A.	Risk Factors			12
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			12
Item 3.	Defaults upon Senior Securities			12
Item 4.	Mine Safety Disclosures			12
Item 5.	Other Information			12
Item 6.	Exhibits			13
Signatures				14

 

2

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 

 

This Quarterly Report on Form 10-Q contains forward-looking statements, including, without limitation, in the section captioned “Management’s Discussion and Analysis of Financial Condition and Result of Operations” and elsewhere. Any and all statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future,” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Quarterly Report on Form 10-Q may include, without limitation, statements regarding: (i) the plans and objectives of management for future operations; (ii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items; (iii) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”); (iv) our beliefs regarding potential clinical and other health benefits of medical products we distribute; and (v) the assumptions underlying or relating to any statement described in points (i), (ii), (iii) or (iv) above.  

 

The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Factors that may influence or contribute to the inaccuracy of the forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation, our inability to obtain adequate financing, the significant length of time and resources associated with the development of our products and related insufficient cash flows and resulting illiquidity, our inability to expand our business, significant government regulation of our business and the healthcare industry, the results of clinical studies or trials, lack of product diversification, volatility in the price of our raw materials, existing or increased competition, results of arbitration and litigation, stock volatility and illiquidity, and our failure to implement our business plans or strategies.  

 

Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them and to the risk factors. We disclaim any obligation to update the forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect any new information or future events or circumstances or otherwise. 

 

Readers should read this Quarterly Report on Form 10-Q in conjunction with our financial statements and the related notes thereto in this Quarterly Report on Form 10-Q, and other documents which we may file from time to time with the SEC. 

 

3

 

PART I. FINANCIAL INFORMATION 

 

ITEM 1. FINANCIAL STATEMENTS

 

		Page
Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and December 31, 2014	F-2
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014 (Unaudited)	F-3
	Condensed Consolidated Statement of Changes in Stockholders' Equity for the six months ended June 30, 2015 (Unaudited)	F-4
	Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2015 and 2014 (Unaudited)	F-5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	F-6

 

F-1

 

FUSE MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		June 30, 2015				December 31, 2014
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	17,106			$	67,555
Accounts receivable, net of allowance of $3,704 and $220, respectively			315,574				196,236
Inventories			97,086				131,382
Prepaid expenses and other receivables			55,959				49,250
Other receivables - related parties			-				50,000
Total current assets			485,725				494,423
Property and equipment, net			36,161				48,961
Security deposit			2,489				2,489
Total assets		$	524,375			$	545,873
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	311,644			$	276,619
Accounts payable - related parties			21,403				43,134
Accrued expenses			20,466				10,366
Notes payable, current portion			17,250				17,250
Total current liabilities			370,763				347,369
Notes payable - related parties			100,000				-
Total liabilities			470,763				347,369
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 20,000,000 shares authorized,
no shares issued and outstanding			-				-
Common stock, $0.01 par value; 500,000,000 shares authorized,
5,890,808 and 5,510,808 issued and outstanding, respectively			58,908				55,108
Additional paid-in capital			1,843,093				1,656,893
Accumulated deficit			(1,848,389	)			(1,513,497	)
Total stockholders’ equity			53,612				198,504
Total liabilities and stockholders’ equity		$	524,375			$	545,873

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-2

 

FUSE MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three				For the Three				For the Six				For the Six
		Months Ended				Months Ended				Months Ended				Months Ended
		June 30, 2015				June 30, 2014				June 30, 2015				June 30, 2014
Revenues		$	487,347			$	263,307			$	749,861			$	424,870
Cost of revenues			178,266				104,681				271,645				163,504
Gross profit			309,081				158,626				478,216				261,366
Operating expenses:
General, adminstrative and other			424,971				365,816				809,645				541,461
Merger costs			-				226,207				-				269,493
Total operating expenses			424,971				592,023				809,645				810,954
Operating loss			(115,890	)			(433,397	)			(331,429	)			(549,588	)
Other income (expense):
Interest income			-				474				-				1,177
Interest expense			(1,884	)			(20,704	)			(3,463	)			(31,096	)
Total other income (expense)			(1,884	)			(20,230	)			(3,463	)			(29,919	)
Net loss		$	(117,774	)		$	(453,627	)		$	(334,892	)		$	(579,507	)
Net loss per common share -
basic and diluted		$	(0.02	)		$	(0.12	)		$	(0.06	)		$	(0.16	)
Weighted average number of common
shares outstanding - basic and diluted			5,884,434				3,663,547				5,796,664				3,591,190

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-3

 

FUSE MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2015

(Unaudited)

 

										Additional
		Common Stock								Paid-In				Accumulated
		Shares				Amount				Capital				Deficit				Total
Balance, December 31, 2014			5,510,808			$	55,108			$	1,656,893			$	(1,513,497	)		$	198,504
Common stock issued for cash			380,000				3,800				186,200				-				190,000
Net loss			-				-				-				(334,892	)			(334,892	)
Balance, June 30, 2015			5,890,808			$	58,908			$	1,843,093			$	(1,848,389	)		$	53,612

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-4

 

FUSE MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Six				For the Six
		Months Ended				Months Ended
		June 30, 2015				June 30, 2014
Cash flows from operating activities:
Net loss		$	(334,892	)		$	(579,507	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense			3,704				3,300
Depreciation			13,325				5,722
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			(123,042	)			15,036
Inventories			34,296				(34,491	)
Prepaid expenses and other receivables			(6,709	)			(31,063	)
Security deposit			-				(2,489	)
Accounts payable			35,025				51,821
Accounts payable - related parties			(21,731	)			(11,769	)
Accrued expenses			10,100				(30,942	)
Net cash used in operating activities			(389,924	)			(509,382	)
Cash flows from investing activities:
Purchases of property and equipment			(525	)			(49,255	)
Advances to Golf Rounds.com, Inc.			-				(10,000	)
Cash acquired in reverse merger			-				641
Net cash used in investing activities			(525	)			(58,614	)
Cash flows from financing activities:
Advances to related parties			(43,240	)			(25,050	)
Repayments received from related parties			93,240				45,908
Proceeds from issuance of promissory notes			-				727,776
Proceeds from issuance of promissory notes to related parties			100,000				724,238
Proceeds from sale of common stock			190,000				-
Distributions prior to the merger			-				(40,583	)
Net cash provided by financing activities			340,000				1,432,289
Net increase (decrease) in cash and cash equivalents			(50,449	)			864,293
Cash and cash equivalents - beginning of period			67,555				12,339
Cash and cash equivalents - end of period		$	17,106			$	876,632
Supplemental disclosure of cash flow information:
Interest paid		$	280			$	1,138
Non-cash investing and financing activities:
Assumption of net liabilities in reverse merger		$	141			$	(28,411	)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

F-5

 

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(Unaudited)

 

Note 1. Nature of Operations and Liquidity 

 

Overview

 

Fuse Medical, Inc. (together with its subsidiaries, the “Company” or “Fuse Medical”) was formed in Delaware on July 18, 2012 as Fuse Medical, LLC. Fuse Medical V, LP was formed in Texas on November 15, 2012 and 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 February 12, 2015, Certificates of Termination were filed for Fuse Medical V, LP and Fuse Medical VI, LP. On February 20, 2015, a Certificate of Cancellation was filed for 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 Fuse Medical, Inc. (the “Merger”). Accordingly, on May 28, 2014, the Company was recapitalized in a reverse merger. All references to the Company or Fuse Medical before May 28, 2014 are to Fuse Medical, LLC.

 

Fuse Medical distributes diversified healthcare products and supplies, including biologics, internal fixation products and bone substitute materials in several states. The Company strives to provide cost savings and clinical outcomes to its customers, which include physicians and medical facilities. 

 

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.  

 

The condensed consolidated balance sheet information as of December 31, 2014 was derived from the audited consolidated financial statements included in the Company’s Report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2015. These condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2014 and notes thereto included in the Company’s Report on Form 10-K for the year ended December 31, 2014. 

 

The results of operations for the three and six months ended June 30, 2015 and 2014 are not necessarily indicative of the results to be expected for the entire fiscal year or for any other period. 

 

Going Concern 

 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. As shown in the accompanying financial statements, we have incurred a net loss of $334,892 and used $389,924 of cash in our operating activities during the six months ended June 30, 2015. As of June 30, 2015, we had $17,106 of cash and cash equivalents on hand, stockholders’ equity of $53,612 and working capital of $114,962. While management expects operating trends to improve over the course of 2015, the Company’s ability to continue as a going concern is contingent on securing additional debt or equity financing from outside investors. As a result, the Company’s independent registered public accounting firm, in its report on the Company’s 2014 consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. 

 

F-6

 

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(Unaudited)

 

Management plans to continue to implement its business plan and to fund operations by raising additional capital through the issuance of debt and equity securities. Commencing with the fourth quarter of 2014, we began to ramp up our efforts to increase revenues derived from the sale of internal fixation products, which will increase the amount of gross profits from operations. Accordingly, we shall have increased spending on payroll expenses as we increase our professional staff in this effort. Since the beginning of 2015, we have received proceeds of: (i) $100,000 from a loan from a significant stockholder; (ii) $100,000 from the sale of common shares to a related party; and (iii) $90,000 from the sale of common shares in private offerings, of which we are seeking up to $2,000,000 from these private offerings. No assurance can be given that such financing will be available, or if available, at rates favorable to the Company or its stockholders.

 

The estimated costs of operations while we ramp up our revenues is substantially greater than the amount of funds we had available on June 30, 2015. The Company’s existence is dependent upon management’s ability to implement its business plan and/or obtain additional funding. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. Even if the Company is able to obtain additional financing, it may include undue restrictions on our operations in the case of debt, or cause substantial dilution for our stockholders in the case of equity financing. The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern. 

 

Note 2. Significant Accounting Policies 

 

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, 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) includes basic and diluted EPS. Basic EPS is calculated by dividing the Company’s net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would have occurred if securities or other contracts to issue common shares (e.g. warrants and options) had been exercised or converted into common shares at the beginning of the period, or issuance date, if 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. 

 

The weighted average number of common shares outstanding has been retroactively restated for: (i) the equivalent 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 (ii) the 14.62 to 1 reverse stock split that occurred May 28, 2014. 

 

As of June 30, 2015 and 2014, common stock equivalents included options to purchase 11,628 and 22,572 common shares, respectively. These instruments are not considered in the calculation of diluted loss per share because the effect would be anti-dilutive. 

 

F-7

 

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(Unaudited)

 

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 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. 

 

Income Taxes 

 

The Company uses the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. The Company has deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are subject to periodic recoverability assessments. Realization of the deferred tax assets, net of deferred tax liabilities, is principally dependent upon achievement of projected future taxable income. 

 

The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. As of June 30, 2015, the Company had no liabilities for uncertain tax positions. The Company's policy is to recognize interest and penalties related to income tax matters as a component of income tax expense. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. 

 

F-8

 

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(Unaudited)

 

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 (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing 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 interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures. 

 

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, “Compensation - Stock Compensation (Topic 718)”. The ASU was issued to clarify the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. ASU 2014-12 is effective for reporting periods beginning after December 15, 2015. The adoption of ASU 2014-12 is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.  

 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. ASU 2014-15 requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on the Company’s financial statements and disclosures. 

 

In November 2014, the FASB issued Accounting Standards Update No. 2014-16, “Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity”. The amendments in ASU 2014-16 do not change the current criteria in U.S. GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. ASU 2014-16 applies to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share and is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-16 on the Company’s financial statements and disclosures. 

 

F-9

 

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(Unaudited)

 

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis”. ASU 2015-02 provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after December 15, 2015. Early adoption is permitted. The adoption of ASU 2015-02 is not expected to have a material effect on the Company’s consolidated financial statements. 

 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs”. ASU 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented in the balance sheet as an asset. ASU 2015-03 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The Company is currently evaluating the impact of the adoption of ASU 2015-03 on the Company’s financial statements and disclosures. 

 

In July 2015, the FASB issued Accounting Standards Update 2015-11, “Simplifying the Measurement of Inventory”, which requires that inventory within the scope of ASU 2015-11 be measured at the lower of cost and net realizable value. Inventory measured using last-in, first-out (“LIFO”) and the retail inventory method are not impacted by the new guidance. ASU 2015-11 applies to all other inventory, which includes inventory that is measured using first-in, first-out (“FIFO”) or average cost. An entity should measure inventory within the scope of ASU 2015-11 at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for public business entities in fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2015-11 on the Company’s financial statements and disclosures. 

 

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.  

 

Note 3. Property and Equipment 

 

Property and equipment consisted of the following at June 30, 2015 and December 31, 2014: 

 

		June 30, 2015				December 31, 2014
Computer equipment		$	36,240			$	36,240
Furniture and fixtures			15,977				15,977
Equipment			525				-
Software			10,500				10,500
			63,242				62,717
Less: accumulated depreciation			(27,081	)			(13,756	)
Property and equipment, net		$	36,161			$	48,961

 

Depreciation expense for the three and six months ended June 30, 2015 and 2014 was $8,631, $3,685, $13,325 and $5,722, respectively. 

 

F-10

 

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(Unaudited)

 

Note 4. Notes Payable

 

Notes payable consisted of the following at June 30, 2015 and December 31, 2014: 

 

		June 30, 2015				December 31, 2014
Note payable - originating July 30, 2013; monthly interest payments required; bearing interest at 3.25%; maturing at July 29, 2015		$	6,000			$	6,000
Note payable - originating August 29, 2013; monthly interest payments required; bearing interest at 3.25%; maturing at August 28, 2015			11,250				11,250
Note payable - related party originating January 15, 2015; monthly interest payments required commencing in month 7; bearing interest at 7%; maturing at January 15, 2017 [A]			100,000				-
Total			117,250				17,250
Less: Current maturities			(17,250	)			(17,250	)
Amount due after one year		$	100,000			$	-

 

[A] - On January 15, 2015, the Company issued a two-year promissory note in exchange for cash proceeds of $100,000 from an entity of which 35% ownership is controlled by an individual that is a director and former Chief Executive Officer of the Company. 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 note includes 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).  

 

During the three and six months ended June 30, 2015 and 2014, interest expense of $1,884, $20,129, $3,463 and $29,958, respectively, was recognized on outstanding notes payable. As of June 30, 2015, accrued interest payable was $3,204, which is included in accrued expenses on the accompanying condensed consolidated balance sheet. 

 

Note 5. Commitments and Contingencies

 

Legal Matters 

 

On January 27, 2014, M. Richard Cutler and Cutler Law Group, P.C. (the “Plaintiffs”) filed a complaint in the District Court of Harris County, Texas, 2014-03355, against Fuse, Alan Meeker, Rusty Shelton, Jonathan Brown, Robert H. Donehew and Golf Rounds.com, Inc. (the “Defendants”). On April 21, 2014, the complaint was dismissed for “want of prosecution.” The Plaintiffs had 30 days from April 21, 2014 to file a motion to reinstate the 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 Defendants 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. Discovery in this matter ended on March 25, 2015 and Plaintiffs failed to file any discovery requests during the period or seek an extension of the period. On April 27, 2015, Defendants filed a motion for summary judgment in this matter for failure to prosecute. Also on April 28, 2015, Plaintiffs filed a Notice of Non-Suit, which effectively withdrew the lawsuit against the Defendants without prejudice to Plaintiffs’ right to refile the lawsuit at any time subject to the applicable statute of limitations. The Defendants believe the lawsuit was completely without merit and will continue to vigorously contest it in the event that Plaintiffs refile their complaint.  

 

F-11

 

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(Unaudited)

 

Richard Cutler is the sole principal of Plaintiff, 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 and Golf Rounds.com, Inc. (“Cutler’s Failed Transaction”). The Plaintiffs had alleged that Cutler’s Failed Transaction failed to materialize notwithstanding the efforts of Mr. Cutler and his law firm to document the transaction. The Plaintiffs further had alleged that the Defendants continued to pursue a similar transaction without Cutler’s Client or the Plaintiffs. The Plaintiffs had claimed that the Defendants were responsible for damages in the amount of (i) $46,465 plus interest because Plaintiffs were not paid their legal fees by Cutler’s Client nor receive equity in Golf Rounds.com, Inc. that Plaintiffs hoped would be issued from Cutler’s Failed Transaction; (ii) $46,465 plus interest due to Defendants being unjustly enriched from Plaintiffs’ legal services to Cutler’s Client; (iii) $1,186,000 plus interest, being the alleged value of shares that Plaintiffs 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 Defendants 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 Plaintiffs were not a party; (v) $1,000,000 for breach of fiduciary duty by the Defendants because they would have been directors and officers of the surviving corporation in Cutler’s Failed Transaction had it not failed and Defendants’ moving on to another transaction without Plaintiffs; and (vi) Plaintiffs’ attorneys fees and costs for having brought the action. 

 

Note 6. Stockholders’ Equity 

 

Common Stock 

 

On January 12, 2015, the Company sold 200,000 common shares for $100,000, or $0.50 per share, to an entity controlled by certain officers and directors of the Company. 

 

In March 2015, the Company began selling shares of its common stock at $0.50 per share in private offerings with the intent of raising up to $2,000,000 from these private offerings. As of June 30, 2015, the Company sold an aggregate of 180,000 common shares for aggregate proceeds of $90,000, or $0.50 per share, through these private offerings. 

 

Stock Options

 

A summary of the Company’s stock option activity during the six months ended June 30, 2015 is presented below: 

 

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
		No. of				Exercise				Contractual				Intrinsic
		Shares				Price				Term				Value
Balance outstanding at December 31, 2014			11,628			$	9.98
Granted			-
Exercised			-
Forfeited			-
Expired			-
Balance outstanding at June 30, 2015			11,628			$	9.98				1.5			$	-
Exercisable at June 30, 2015			11,628			$	9.98				1.5			$	-

 

F-12

 

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(Unaudited)

 

Note 7. 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, 2015. On January 1, 2013, the standard insurance amount of $250,000 per depositor, per bank, became effective. As of June 30, 2015, the Company’s bank balances did not exceed FDIC insured amounts. 

 

Concentration of Revenues, Accounts Receivable and Suppliers 

 

For the three and six months ended June 30, 2015 and 2014, 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, 2015				June 30, 2014				June 30, 2015				June 30, 2014
Customer 1			73.0	%			56.8	%			74.2	%			44.4	%
Customer 2			10.5	%			-				-				-
Customer 3			10.4	%			18.0	%			-				28.1	%
Customer 4			-				11.2	%			-				11.3	%
Customer 5			-				10.3	%			-				10.1	%
Totals			93.9	%			96.3	%			74.2	%			93.9	%

 

At June 30, 2015 and December 31, 2014, concentration of accounts receivable with significant customers representing 10% or greater of accounts receivable was as follows: 

 

		June 30, 2015				December 31, 2014
Customer 1			58.6	%			47.6	%
Customer 2			19.1	%			-
Customer 3			13.1	%			26.7	%
Totals			90.8	%			74.3	%

 

For the three and six months ended June 30, 2015 and 2014, 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, 2015				June 30, 2014				June 30, 2015				June 30, 2014
Supplier 1			70.8	%			88.6	%			76.9	%			69.1	%
Supplier 2			29.2	%			-				23.1	%			-
Supplier 3			-				11.4	%			-				30.9	%
Totals			100.0	%			100.0	%			100.0	%			100.0	%

 

F-13

 

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(Unaudited)

 

Note 8. Related Party Transactions 

 

During the three months ended March 31, 2015, the Company allocated an aggregate of $43,240 of compensation paid to the Company's General Counsel to an entity that is owned partially by certain officers and directors of the Company. During the six months ended June 30, 2015, the Company was reimbursed the entire amount of compensation of the Company's General Counsel that had been allocated to the entity that is owned partially by certain officers and directors of the Company during the prior two quarters in the amount of $93,240. The balance due from the entity was $0 and $50,000 as of June 30, 2015 and December 31, 2014, respectively. 

 

As of June 30, 2015 and December 31, 2014, $21,403 and $43,134, respectively, is owed to officers and directors of the Company or entities controlled by these individuals. This amount is included in accounts payable - related parties on the accompanying condensed consolidated balance sheet. 

 

On January 15, 2015, the Company issued a two-year promissory note in exchange for cash proceeds of $100,000 from an entity of which 35% ownership is controlled by an individual that is a director and former Chief Executive Officer of the Company. 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 note includes 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 4). 

 

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 an individual that is a director and former Chief Executive Officer of the Company. The individual serves as the Manager of Crestview Farm. Rent expense for these facilities was $0 and $500 for the six months ended June 30, 2015 and 2014, respectively. 

 

During the period from inception through June 30, 2015, 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 9. Subsequent Event

 

On July 17, 2015, Ross Eichberg, the General Counsel for the Company resigned. In connection with Mr. Eichberg's resignation, the Company granted Mr. Eichberg options to purchase 600,000 shares of the Company's common stock at $0.26 per share, which was equal to 90% of the 30-day trading average of the Company's common stock prior to the grant date of July 17, 2015. The options have a term of five years from the grant date. The options become exercisable as follows: 100,000 (1/6) of the options shall vest 13 months after the grant date and an additional 100,000 options (1/6) shall vest each of the following months for five months thereafter so that all of the options shall be vested as of 18 months after the grant date. The fair value of the stock options issued was $168,000, all of which will be recognized immediately as an expense because the stock options were fully vested as of the grant date.

   

F-14

 

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 our Annual Report on Form 10-K filed on April 15, 2015. 

 

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 “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 medical distribution industry is in a mature life-cycle phase. For most of the products we offer there are a number of integrated competitors, several of which are publically traded, that 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. 

 

4

 

Few competitive companies, however, are structured to allow for physician and key stakeholder equity and operational input in their companies. As a growth company, we 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-owned companies and other partnership models.
	·	Participation of physicians, both investor and non-investor, through our physician leadership structure, which includes the Chief Executive Officer and Chief Medical Officer and product and service line directors.
	·	Utilization and maintenance of a flat administrative organizational structure, thereby reducing our overhead costs.
	·	Installation of a customer relationship management system for managing the Company’s interactions with current and future customers, which allows the Company to better organize, automate, and synchronize sales, marketing, customer service, and technical support.
	·	Implementation of an independent sales representative model.
	·	Shadow pricing of competitor products that provide cost savings to our end customers.

 

Strategy

 

Our 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 that are conducive to our business model. The principal elements of our 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 products and services as well as the number of our 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; attraction of new services and customers by demonstrating product quality, customer service and cost value propositions; and attraction of new sales and service revenue in territories we feel may be underserved and provide ease of market penetration. We plan to increase the volume we collect from our end user by implementing specific sales programs and, in the future, increasing personnel dedicated to sales generation. 

 

5

 

On July 17, 2014, we entered into an Independent Representative Agreement with Vilex, Inc. (“Vilex”), a 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. 

 

On January 8, 2015, we entered into a Distribution and Supply Agreement with BioDlogics, LLC (“BioD”), pursuant to which we were appointed as a non-exclusive distributor of certain products of BioD and granted the right to promote and sell such products in the United States. The term of the agreement is from January 8, 2015, through December 31, 2016, unless earlier terminated in accordance with the agreement. The agreement sets forth a quota for the purchase of the products by us from BioD for the first year of the Agreement, which we agreed to use our best efforts to meet or exceed. 

 

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 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 the products, services and systems will be able to support an underserved market for western-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 a company’s financial condition and results of operations, and which require a 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 June 30, 2015 Compared to Three Months Ended June 30, 2014

 

Net Revenues

 

For the three months ended June 30, 2015, net revenues were $487,347, compared to $263,307 for the three months ended June 30, 2014, an increase of $224,040, or 85.1%. Commencing November 2013, we began selling larger order quantities of the same product (subject to minimums) at a discounted selling price. Thus, on an aggregate basis, the average selling prices of our products will vary from period to period depending on the product mix. The increase in net revenues is primarily the result of increased sales of biologics to existing customers as well as the addition of commissions received from internal fixation products. 

 

6

 

Cost of Revenues

 

For the three months ended June 30, 2015, our cost of revenues was $178,266, compared to $104,681 for the three months ended June 30, 2014, representing an increase of $73,585, or 70.3%. During the periods presented, 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 three months ended June 30, 2015 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. Cost of revenues includes costs to purchase goods, transportation, storage, sales representatives and account management. 

 

Gross Profit

 

For the three months ended June 30, 2015, we generated a gross profit of $309,081, compared to $158,626 for the three months ended June 30, 2014, an increase of $150,455, or 94.8%. The increase in gross profit was primarily due to the increase in net revenues. Gross margins were 63.4% in the current year period compared to 60.2% for the comparable prior year period. The increase in gross margin percentage is primarily the result of the increase in net revenues derived from biologics having higher gross margins as well as commissions received from the sale of internal fixation products partially offset by the amount of revenues derived from the sale of larger order quantities at a discounted selling price. The Company’s gross margin percentage will vary depending upon the relative product mix of sales made on the gross basis and the net basis due to the varying cost and profit margins on the products distributed by the Company. 

 

Operating Expenses

 

General, Administrative and Other

 

For the three months ended June 30, 2015, general, administrative and other operating expenses increased to $424,971 from $365,816 for the three months ended June 30, 2014, representing an increase of $59,155, or 16.2%. This increase is primarily attributable to an increase in payroll and related costs of $151,016. Further, 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, 2015 consisted primarily of payroll and related costs, legal and professional fees, consulting expense and travel expenses. 

 

Merger Costs

 

For the three months ended June 30, 2015, merger costs decreased to $0 from $226,207 for the three months ended June 30, 2014. 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, 2015, interest expense decreased to $1,884 from $20,704 for the three months ended June 30, 2014, representing a decrease of $18,820, or 90.9%. Interest expense decreased due to a lower amount of notes payable outstanding during the current year period that resulted from the conversion, on December 31, 2014, of outstanding notes payable having a principal balance of $1,512,014 and accrued interest of $57,893 into 1,509,528 common shares of the Company. Interest expense for the prior year period also included $575 of interest on the Company’s line of credit that was fully repaid and closed in October 2014. 

 

Net Income (Loss)

 

For the three months ended June 30, 2015, the Company incurred a net loss of $117,774 compared to a net loss of $453,627 for the three months ended June 30, 2014. The decrease in the net loss is primarily due to the elimination of merger costs and the increase in gross profit. 

 

7

 

Six Months Ended June 30, 2015 Compared to Six Months Ended June 30, 2014

 

Net Revenues

 

For the six months ended June 30, 2015, net revenues were $749,861, compared to $424,870 for the six months ended June 30, 2014, an increase of $324,991, or 76.5%. Commencing November 2013, we began selling larger order quantities of the same product (subject to minimums) at a discounted selling price. Thus, on an aggregate basis, the average selling prices of our products will vary from period to period depending on the product mix. The increase in net revenues is primarily the result of increased sales of biologics to existing customers as well as the addition of commissions received from internal fixation products. 

 

Cost of Revenues

 

For the six months ended June 30, 2015, our cost of revenues was $271,645, compared to $163,504 for the six months ended June 30, 2014, representing an increase of $108,141, or 66.1%. During the six months ended June 30, 2015, we increased the allowance for inventory obsolescence by $2,310. Excluding the increase in the allowance for obsolescence recognized during the current year period, our cost of revenues increased by $105,831, or 64.7%. During the periods presented, 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, 2015 compared to the prior year period. Accordingly, excluding the increase to the allowance for inventory obsolescence, 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 as well as the increase to the reserve for inventory obsolescence. Cost of revenues includes costs to purchase goods, transportation, storage, sales representatives and account management. 

 

Gross Profit

 

For the six months ended June 30, 2015, we generated a gross profit of $478,216, compared to $261,366 for the six months ended June 30, 2014, an increase of $216,850, or 83.0%. The increase in gross profit was primarily due to the increase in net revenues. Excluding the increase in the allowance for inventory obsolescence in the current year period, gross margins were 64.1% in the current year period compared to 61.5% for the comparable prior year period. The increase in gross margin percentage is primarily the result of the increase in net revenues derived from biologics having higher gross margins as well as commissions received from the sale of internal fixation products partially offset by the amount of revenues derived from the sale of larger order quantities at a discounted selling price. The Company’s gross margin percentage will vary depending upon the relative product mix of sales made on the gross basis and the net basis due to the varying cost and profit margins on the products distributed by the Company.

 

Operating Expenses

 

General, Administrative and Other

 

For the six months ended June 30, 2015, general, administrative and other operating expenses increased to $809,645 from $541,461 for the six months ended June 30, 2014, representing an increase of $268,184, or 49.5%. This increase is primarily attributable to an increase in payroll and related costs of $395,436. Further, 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, 2015 consisted primarily of payroll and related costs, legal and professional fees, consulting expense and travel expenses. 

 

Merger Costs

 

For the six months ended June 30, 2015, merger costs decreased to $0 from $269,493 for the six months ended June 30, 2014. Merger costs were incurred for the reverse merger with Golf Rounds.com, Inc. that closed on May 28, 2014. 

 

8

 

Interest Expense

 

For the six months ended June 30, 2015, interest expense decreased to $3,463 from $31,096 for the six months ended June 30, 2014, representing a decrease of $27,633, or 88.9%. Interest expense decreased due to a lower amount of notes payable outstanding during the current year period that resulted from the conversion, on December 31, 2014, of outstanding notes payable having a principal balance of $1,512,014 and accrued interest of $57,893 into 1,509,528 common shares of the Company. Interest expense for the prior year period also included $1,138 of interest on the Company’s line of credit that was fully repaid and closed in October 2014. 

 

Net Income (Loss)

 

For the six months ended June 30, 2015, the Company incurred a net loss of $334,892 compared to a net loss of $579,507 for the six months ended June 30, 2014. The decrease in the net loss is primarily due to the elimination of merger costs and the increase in gross profit. 

 

Liquidity and Capital Resources

 

Net cash used in operating activities during the six months ended June 30, 2015 totaled $389,924 and resulted primarily from a net loss of $334,892 and an increase in accounts receivable of $123,042, offset by an increase in accounts payable of $35,025 and a decrease in inventories of $34,296. 

 

Net cash used in investing activities during the six months ended June 30, 2015 totaled $525. 

 

Net cash provided by financing activities during the six months ended June 30, 2015 was $340,000 and resulted from proceeds from the sale of our common stock of $190,000, proceeds from the issuance of a promissory note to a related party of $100,000 and repayments received from related parties of $93,240, offset by advances to related parties of $43,240. 

 

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, some of which may require the purchase of inventory while others 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 to fund increased inventories, accounts receivable and 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 operations and an increase in our net borrowings, sale of our securities or a combination thereof. 

 

Historically, our primary sources of liquidity have been from the issuances of debt and equity securities. Since the beginning of 2015, we have received proceeds of: (i) $100,000 from a loan from WHIG, LLC, a significant stockholder and an entity of which 35% ownership is controlled by an individual that is a director and former Chief Executive Officer of the Company; (ii) $100,000 from the sale of common shares to Cooks Bridge II, LLC, an entity controlled by certain officers and directors of the Company; and (iii) $90,000 from the sale of common shares in private offerings. 

 

9

 

At June 30, 2015, we had working capital of $114,962, including $17,106 in cash and cash equivalents. As of August 10, 2015, the Company had approximately $63,000 in available cash. The Company is currently attempting to raise up to $2,000,000 from private offerings (of which $90,000 has been raised to date) in order to fund operations. 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, we believe that, with our current available cash along with anticipated revenues, we will need to reduce operating expenses. In fact, during June 2015, the number of employees decreased. Depending on our cash position, we may spend up to $100,000 in capital expenditures over the next 12 months. These capital expenditures will be allocated across growth initiatives, including expansion of inventories and fixed assets. Depending on the results of management’s ability to implement its business plan, 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 estimated costs of operations while we work to increase our revenues is substantially greater than the amount of funds we had available on June 30, 2015. The Company’s existence is dependent upon management’s ability to implement its business plan and/or obtain additional funding. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern. 

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of June 30, 2015, the Company has had losses from operations for the last several quarters. During June 2015, the number of employees decreased and efforts have been focused on increasing revenues from our most profitable products in order to sustain operations and eventually resume profitable operations. Management plans to raise additional funds through offering our shares of common stock in private and/or public offerings and through debt financing, if available and needed. There can be no assurances, however, that the Company will be able to obtain any financings or that such financings will be sufficient to sustain our business operations or permit the Company to implement its intended business strategy. The Company plans to become profitable by increasing the sale of diversified healthcare products and supplies, including biologics, internal fixation products and bone substitute materials that it markets, distributes and sells. 

 

In their report dated April 15, 2015, our independent registered public accounting firm included an emphasis-of-matter paragraph with respect to our financial statements for the year ended December 31, 2014 concerning the Company’s assumption that we will continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of current working capital requirements and recurring losses from operations. 

 

The Company has financed its operations from the issuance of notes payable and equity securities. On December 31, 2014, outstanding notes payable having a principal balance of $1,512,014 and accrued interest of $57,893 were converted into 1,509,528 common shares of the Company. On July 29, 2015, the outstanding note payable to PharmHouse Pharmacy having a principal balance of $6,000 was repaid in full. 

 

As of August 10, 2015, the aggregate notes payable are $100,000 to WHIG, LLC, and $11,250 to PharmHouse Pharmacy. The maturity dates and amounts of each individual notes payable are as follows: 

 

Outstanding Notes Payable

 

Note		Maturity Date			Amount
PharmHouse Pharmacy		08/28/2015			$	11,250
WHIG, LLC		01/15/2017				100,000
Total notes payable as of August 10, 2015					$	111,250

 

On May 28, 2014, as part of the Merger, the Company assumed an aggregate of $17,250 (of which $6,000 was repaid on July 29, 2015) of promissory notes payable to PharmHouse Pharmacy. The remaining note is unsecured, bears interest at 3.25% and requires quarterly payments of interest only. The outstanding principal balance along with all accrued and unpaid interest is due at maturity. 

 

10

 

On January 15, 2015, the Company issued a promissory note payable in the amount of $100,000 to WHIG, LLC. The note payable is for a term of twenty-four (24) months and is unsecured, bears interest at 7.0% and requires 18 monthly payments of interest that commence at the beginning of month seven. The first six months of interest is deferred until maturity. The note includes a provision that upon an 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 six months ended June 30, 2015, the Company had material capital expenditures of $525. The Company has no material commitments for capital expenditures as of June 30, 2015. 

 

Commitments and Contractual Obligations

 

As a “smaller reporting company” as defined by Rule 12b-2 of 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. 

 

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

 

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. 

 

11

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

Refer to Note 5 - “Commitments and Contingencies” in our consolidated financial statements included in this Report on Form 10-Q. 

 

ITEM 1A. RISK FACTORS.

 

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

 

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

 

On April 29, 2015, the Company issued 20,000 shares of common stock to Adam C. Brown, at a purchase price of $0.50 per share, or an aggregate amount of $10,000. The Company intends to use the net proceeds from this offering for general working capital purposes. The Company issued the shares pursuant to the registration exemptions of the Securities Act afforded under Section 4(2) thereunder. The Company relied upon representations from the investor that it was an “accredited investor” within the meaning of Rule 501(a) under the Securities Act as a basis for the exemption. 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 

 

None. 

 

ITEM 4. MINE SAFETY DISCLOSURES. 

 

Not applicable. 

 

ITEM 5. OTHER INFORMATION. 

 

None. 

 

12

 

ITEM 6. EXHIBITS. 

 

Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated as of December 18, 2013, by and among Golf Rounds.com, Inc. (now known as Fuse Medical, Inc.), Project Fuse LLC, Fuse Medical, LLC and D. Alan Meeker, solely in his capacity as the representative of the Fuse members, as amended by First Amendment to Agreement and Plan of Merger, dated as of March 3, 2014 and Second Amendment to Agreement and Plan of Merger, dated as of April 11, 2014 (filed as exhibit 2.1 to the Form 8-K/A filed on August 29, 2014, and incorporated herein by reference).
3.1		Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to our Current Report on Form 8-K, filed on September 15, 2014, and incorporated herein by reference).
3.2		Bylaws (filed as Exhibit 3.2 to our Current Report on Form 8-K, filed on May 29, 2014, and incorporated herein by reference).
3.3		Certificate of Merger, as filed with the Secretary of State of the State of Delaware on May 28, 2014 (filed as Exhibit 3.3 to the Form 8-K filed on May 29, 2014).
10.1*+		Distribution and Supply Agreement dated January 8, 2015 by and between Fuse Medical, Inc. and BioDlogics, LLC.
31.1*		Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of the Chief Executive Officer and the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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

_______________ 

+	Certain provisions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for Confidential Treatment.
*	Filed herewith.
**	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.

 

13

 

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.
Date: August 12, 2015	By:	/s/ Christopher Pratt
		Christopher Pratt
		Interim Chief Executive Officer  (Principal Executive Officer)

 

Date: August 12, 2015	By:	/s/ David Hexter
		David Hexter
		Interim Chief Financial Officer  (Principal Financial and Accounting Officer)

 

 

 

14

---

EXHIBIT 10.1

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

DISTRIBUTION AND SUPPLY AGREEMENT 

 

This DISTRIBUTION AND SUPPLY AGREEMENT is made and entered into by and between BIODLOGICS, LLC, a Delaware limited liability company ("BioD"), and Fuse Medical, INC, a Delaware limited liability company ("Distributor"), dated this 8^th day of January, 2015 (the "Effective Date"). BioD and Distributor may be referred to herein as a "Party" or, collectively, as the "Parties." 

 

WHEREAS, BioD is engaged in the recovery and processing of fetal after-birth tissue for the production of various wound covering products for clinical use; and 

 

WHEREAS, BioD desires to supply the products and Distributor desires to obtain and distribute such products on the terms and conditions set forth herein; and 

 

WHEREAS, capitalized terms used herein and not otherwise defined shall have the meanings set forth in Article X hereof. 

 

NOW, THEREFORE, in consideration of the covenants and obligations set forth herein, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, the Parties agree as follows: 

 

ARTICLE I 

APPOINTMENT

 

1.1 Appointment of Distributor. BioD hereby appoints Distributor, and Distributor accepts such appointment, as a non-exclusive distributor of the Products in the Field in the Territory, with the right to promote, market and distribute the Products on the terms and conditions set forth herein to health care facilities with which BioD or Distributor has contracted in connection with the clinical use of the Products. 

 

1.2 Reservation of Rights. Except as expressly provided in this Agreement, no right, title or interest is granted, whether express or implied, by BioD to Distributor with respect to any other products or any Intellectual Property of BioD, and nothing in this Agreement shall be deemed to restrict BioD's right to exploit technology, know-how, patents or any other Intellectual Property relating to the Products. The license conferred herein docs not convey any right to manufacture, modify, duplicate, reproduce or improve any of the Products for use within or outside the Territory. 

 

1.3 Sales Responsibility. Distributor shall be responsible for Product sales to customers in the Territory. Pursuant to its appointment as a distributor for the Products, Distributor agrees to use its best efforts to: 

 

(i) Develop the market for, and promote the sale of, the Products in the Territory and diligently engage in the marketing, distribution, and sale thereof; 

 

(ii) Maintain a marketing, sales and distribution presence in the Territory properly trained to support the distribution of the Products in accordance with the terms of this Agreement and providing appropriate education and training to physicians and other medical professionals desiring to use the Products; 

 

(iii) Issue to BioD on or before the first day of each month a rolling three (3) month non-binding forecast; and 

 

(iv) Attend sales meetings or training sessions (at Distributor's sole expense) as reasonably requested by BioD from time to time. 

 

1

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

1.4 Individual Sales Reps. Subject to the terms and conditions of' this Agreement, Distributor may enter into one or more agreements with individual sales representatives to assist it in fulfilling its obligations hereunder. Distributor is responsible for ensuring that each of its sales representatives are properly trained in connection with the clinical use and promotion of the Products and that all activities of such sales representatives are in compliance with all terms and conditions of this Agreement including, without limitation, all confidentiality obligations set forth in Article VI hereof and all regulatory requirements set forth in Article VII. Distributor represents and warrants to BioD that (i) no acts, agreements, proposals or commitments of Distributor or between Distributor and any such individual sales representative shall inappropriately or unlawfully interfere with any contractual or other business relationship between any such sales representative and any other party; and (ii) neither Distributor nor any of its sales representatives shall use, share, disseminate or disclose any confidential information or trade secrets of any other party, including BioD, in violation of any contractual or other obligation to maintain the confidentiality thereof. 

 

1.5 Subdistributors. Distributor acknowledges and agrees that it does not have the right to appoint third party subdistributors in connection with the promotion, distribution and sale of the Products without the prior written consent of BioD. Distributor is responsible for ensuring that each of its subdistributors are properly trained in connection with the clinical use and promotion of the Products and that all activities of such subdistributors are in compliance with all terms and conditions of this Agreement, including, without limitation, all confidentiality obligations set forth in Article VI hereof and all regulatory requirements set forth in Article VII. Distributor represents and warrants to BioD that (i) no acts, agreements, proposals or commitments of Distributor or between Distributor and any such subdistributor shall inappropriately or unlawfully interfere with any contractual or other business relationship between any such subdistributor and any other party; and (ii) neither Distributor nor any of its subdistributors shall use, share, disseminate or disclose any confidential information or trade secrets of any other party, including BioD, in violation of any contractual or other obligation to maintain the confidentiality thereof. 

 

1.6 Training, Promotion and Marketing. All training, marketing and promotion efforts including, without limitation, any Internet marketing or reference to the Products on Distributor's website, shall be conducted in compliance with all Laws governing the promotion, marketing, use, sale and distribution of the Products. BioD shall provide Distributor with a reasonable quantity of its marketing literature and promotional material for the Products at no cost to Distributor that Distributor may use and disseminate in connection with its promotion and sales activities hereunder. The cost of additional marketing literature and promotional material requested by Distributor shall be charged to Distributor. Distributor shall submit or arrange to be submitted to BioD for its written approval prior to release, any training, advertising, public relations material, technical descriptions or Product claims, whether oral, written or electronic, prepared by or for Distributor or any customers which discuss, mention or make reference to the Product or use or bear a BioD trade name, logo or trademarks (collectively, the "BioD Marks"). Unless approved in advance by BioD, Distributor shall not promote or market the Product for any use outside the Field or outside the Territory. Distributor shall not make any false or misleading representation to customers or others regarding BioD or any Product or make any claims, statements or representations that are inconsistent with or broader than the representations made by BioD to Distributor with respect to each Product. Upon notice from BioD of objections regarding training materials, marketing literature or promotional materials, Distributor shall discontinue the use of such literature or material until the Parties mutually agree that they are acceptable in form and substance. 

 

1.7 Prohibition with respect to Competing Products. Distributor agrees to use its best efforts in the promotion, marketing, distribution and sale of the Products in the Territory and further agrees that any effort to promote, market or distribute any Birth Tissue Products that have not been provided by BioD would create a conflict of interest with respect to Distributor's obligations under this Agreement. Accordingly, Distributor represents and warrants to BioD that it is not engaged in the promotion, marketing, distribution and/or sale of any Birth Tissue Product, other than those supplied by BioD, and that it shall not, during the Term of this Agreement, engage in any such activity without BioD's prior written consent. Notwithstanding the foregoing, Distributor is currently distributing a competitive Birth Tissue Product. Distributor intends to use best commercial efforts to transition all of its current clients to BioD Birth Tissue Product as soon as is commercially feasible (hereinafter known as the "Transition Plan"). BioD, by initialing this page and executing this Agreement hereby consents to the Transition Plan. 

 

2

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

1.8 Territory and Field Restrictions. Distributor shall not directly or indirectly market, promote, advertise, sell or distribute the Products outside of either the Field or Territory, and shall refer to BioD all inquiries and leads related to the Products that are outside of either the Field or the Territory. Furthermore, Distributor shall not knowingly permit the use by its end users of the Products outside of either the Field or the Territory. Distributor shall notify BioD of any such use within ten (10) days of becoming aware of such use. 

 

1.9 Quota. Distributor's Quotas for the first year of the Initial Term of this Agreement are set forth on Exhibit E. Distributor agrees to use its best efforts to meet or exceed its Quotas for each period specified. Failure to meet the Quotas shall be deemed a material breach of this Agreement. BioD shall establish annual Quotas at the beginning of each calendar year in consultation with Distributor. 

 

1.10 Rebate Program. In the event Distributor achieves the yearly sales Quota as outlined in Exhibit E, BioD shall credit Distributor's account with a rebate applicable to future purchases, in the amount determined pursuant to Exhibit E. 

 

1.11 Prohibition against Entering Into GPO Contracts. Distributor acknowledges and agrees that it shall not initiate negotiations with, submit pricing to, or enter into any contract in connection with the use of the Products with any group purchasing organization including the federal government without the prior written consent of BioD. 

 

ARTICLE II

MANUFACTURE AND SUPPLY 

 

2.1 Manufacture and Supply of the Product. Distributor shall obtain the Product exclusively from BioD for distribution in the Territory during the Term. BioD shall use commercially reasonable efforts to manufacture or cause to be manufactured the Products in finished dosage form for delivery to Distributor hereunder. The Parties acknowledge and agree that BioD may use Third Parties to perform any of its obligations under this Agreement. 

 

2.2 Exclusive Use of Trademarks. Distributor agrees that it shall promote, market and distribute the Products only under BioD' s trademarks, service marks, logos, trade names, labels and/or other marks (hereinafter referred to as the "Marks") and shall have no right to private label or otherwise alter the Marks. 

 

2.3 Shipping Terms. BioD shall ship Products directly to the end-user per customer shipping information provided by Distributor. Sales shall be f.o.b. point of shipment at BioD's designated manufacturing facility. Title and risk of loss shall pass to Distributor upon delivery of the Products to Federal Express. Distributor shall pay freight charges from the point of shipment to the point of delivery in accordance with the following flat rate fees: 

 

Product:	1-4 Cryo  Units	5-10 Cryo  Units	Membrane
FedEx First Overnight  (Delivery by 8:30 am)	$195.00	$249.00	$130.00
FedEx Priority Overnight  (Delivery by 10:30 am)	$119.00	$174.00	$40.00
FedEx Standard Overnight  (Delivery by 3:00 pm)	$99.00	$150.00	$30.00
FedEx Second Day	N/A	N/A	$25.00

 

3

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

ARTICLE III

COMMERCIAL TERMS 

 

3.1 Transfer Price for Products. The Transfer Price schedule for Products is set forth on Exhibit A attached hereto (the "Transfer Prices"). Transfer Prices may he changed by BioD from time to time in its sole discretion to reflect changed market conditions; provided, however, in no event may BioD increase such prices: (i) more frequently than annually; and (ii) by more than 10% in any given calendar year. The Transfer Prices will remain unchanged in calendar year two of the Initial Term if Distributor achieves on or above 90% of the yearly sales Quota, as set forth on Exhibit E. 

 

3.2 Payment Terms. Payment for orders received from Distributor shall be payable in full within thirty (30) days of Product shipment. All payments due shall be without set-off or counterclaim unless mutually agreed to in writing. Purchase orders received from Distributor arc final and binding upon acceptance by BioD. Distributor acknowledges that the tissue preparation cycle for the Products may be as long as forty-five (45) days after recovery of the tissue from a qualified donor and, accordingly, will provide appropriate lead time for the delivery of Product hereunder. BioD reserves the right to require prepayment of orders (i) in excess of $15,000; (ii) if Distributor's account is past due; (iii) if aggregate outstanding invoices payable to BioD exceed $25,000; or (iv) if BioD otherwise believes a credit risk exists. 

 

3.3 Late Payment Charges. If Distributor fails to make timely payment of any amounts due hereunder, then in addition to any other right that BioDlogics may have, Distributor shall pay to BioDlogics a late payment charge at the lower of 1.5% per month or the highest rate permitted by law, compounded daily and calculated on the basis of the number of days actually elapsed in a 365 day year, beginning on the due date and ending on the day prior to the day on which payment is made in full. Interest accruing under this Section shall be due on demand. The accrual or receipt by either Party of interest under this Section shall not constitute a waiver by that Party of any right it may otherwise have to declare a breach of or a default under this Agreement. 

 

3.4 Returns. All Product returns shall be subject to BioD's then current return policy, a copy of which is set forth on Exhibit D attached hereto. The Parties agree that Exhibit D shall be updated from time to time to reflect any changes made to the return policy. 

 

3.5 Exclusive Terms and Conditions. The Parties agree that no purchase order received shall be effective unless expressly accepted by BioD and that all purchase orders shall he subject to the terms and conditions of this Agreement exclusively. Neither the standard terms and conditions of Distributor's purchase orders nor the standard terms and conditions of BioD acceptance or acknowledgements shall have effect. 

 

3.6 Taxes. All payments required under this Agreement are exclusive of any applicable 

 

federal, state and local taxes payable by Distributor. Distributor shall be responsible for collecting and remitting to the appropriate federal, state or local authorities any sales, use or other taxes, if any, imposed in connection with the distribution of Products under this Agreement. 

 

ARTICLE IV

TERM AND TERMINATION 

 

4.1 Term. This Agreement shall begin on the Effective Date and shall continue until December 31, 2016 unless earlier terminated in accordance with this Article IV (the "Initial Term"). 

 

4.2 Termination for Cause. Either Party may terminate this Agreement immediately upon written notice to the other Party in the event: 

 

4

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

(a) The other Party becomes the subject of a Bankruptcy Event; or

 

(b) A material breach or default by the other Party of any provision of this Agreement occurs, and such Party fails to remedy such breach or default within fifteen (15) days after receipt of notice thereof; or 

 

(c) Either Party effects a Change of Control; or 

 

(d) Either Party ceases to actively engage in the business of supplying or distributing one or more of the Products in the Field or if BioD experiences a Product shortage and is unable to deliver Product to Distributor for any sixty (60) day period; or 

 

(e) Any governmental entity or regulatory body determines that one or more of the Products require pre-market approval by the FDA prior to engaging in the marketing or sale thereof or otherwise does not meet the criteria to be regulated as a Section 361 tissue; or 

 

(f) Either Party becomes aware that one or more of the Products infringes upon an issued United States patent. Any such notice of termination under this subpart (h) shall include identification of both the infringed patent and the allegedly infringing Product; or 

 

(g) Distributor fails to achieve 80% of the applicable Quotas for two consecutive quarters; or 

 

(h) Distributor fails to achieve at least 90% of the annual Quota; or 

 

(i) Either Party elects to terminate pursuant to Section 7.1 hereof; or 

 

(j) BioD elects to terminate pursuant to Section 7.2 hereof. 

 

4.3 Effect of Termination. Upon termination of this Agreement, this Agreement shall thereafter have no effect, except that (a) the provisions of Articles IV, V, VI, VII, VIII, and IX shall apply, (b) payment obligations that have accrued and have been invoiced prior to the date of termination shall remain due and payable in accordance with the terms of this Agreement, (c) payment obligations that have accrued but have not been invoiced as of the date of termination shall be invoiced and paid in full within thirty (30) days of receipt of such invoice, (d) all rights and licenses granted by BioD to Distributor shall immediately cease, (e) all rights and licenses granted by Distributor to BioD shall immediately cease and (f) except as otherwise set forth herein, neither Party shall be relieved from liability for any breach of any representation, warranty or agreement hereunder occurring prior to such termination. 

 

ARTICLE V

DISPUTE RESOLUTION 

 

5.1 Negotiation and Escalation. If any controversy or claim arises relating to this Agreement, the Parties will attempt in good faith to negotiate a solution to their differences. If the representatives of the Parties primarily involved in the controversy or claim cannot resolve the dispute, then such controversy or claim shall be escalated to the presidents of BioD and Distributor. If negotiation does not result in a resolution within thirty (30) days of when one Party first notifies the other of the controversy or claim, either Party may elect to pursue arbitration under Section 5.2. 

 

5.2 Arbitration. Any controversy or claim between the Parties arising out of or relating to this Agreement or a breach thereof which cannot be resolved by negotiation pursuant to Section 5.1 will be resolved by binding arbitration administered by the American Arbitration Association (the "AAA") under this Section 5.2 and the AAA's then-current Commercial Arbitration Rules. If any part of this Section 5.2 is held to be unenforceable, it will be severed and will not affect either the duty to arbitrate or any other part of this Section 5.2. The arbitration will be held in Atlanta, Georgia, before a sole disinterested arbitrator who is a former federal or state trial court judge experienced in handling commercial disputes. The arbitrator shall be appointed jointly by the Parties hereto within thirty (30) days following the date on which the arbitration is instituted. If the Parties are unable to agree upon the arbitrator within such thirty (30) day period, the arbitrator shall be appointed in accordance with the AAA's rules for the appointment of an arbitrator from the AAA panel. The award of the arbitrator shall be final and binding upon the Parties and judgment on the award may be entered in any court having jurisdiction thereof. The arbitrator will not have the power to award punitive or exemplary damages, or any damages excluded by, or in excess of, any damage limitations expressed in this Agreement; provided, however, the Arbitrator may, upon evaluating the entirety of the controversy or claim, award reasonable attorney's fees and the cost associated with the arbitration to the prevailing party. Issues of arbitrability will be determined by the Arbitrator in accordance solely with the federal substantive and procedural laws relating to arbitration; in all other respects, the arbitrator will be obligated to apply and follow the substantive law of the State of Delaware. 

 

5

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

5.3 Equitable Relief. Notwithstanding the provisions of Sections 5.1 and 5.2 above, either of the Parties may seek from a court of competent jurisdiction any interim or provisional equitable relief necessary to protect the rights or property of such Party without the necessity of proving actual damages or posting of bond or any other security. 

 

ARTICLE VI

CONFIDENTIALITY 

 

6.1 Confidentiality Obligations. Except as permitted elsewhere under this Agreement, each Party shall (a) receive and maintain the Confidential Information of the other Party in strict confidence, (b) not disclose such Confidential Information to any Third Parties and (c) promptly notify the disclosing Party upon learning of any Law, rule, regulation or court order that purports to compel disclosure of any Confidential Information of the disclosing Party and to reasonably cooperate with the disclosing Party in the exercise of the disclosing Party's right to protect the confidentiality of such Confidential Information. Neither Party hereto shall use all or any part of the Confidential Information of the other Party for any purpose other than to perform its obligations under this Agreement. Each Party shall ensure that its employees, representatives and agents comply with this provision. 

 

6.2 Exclusions. Nothing contained herein shall prevent a Party from disclosing Confidential Information pursuant to any Law, provided, that such Party complies with the notice provisions of Section 6.1(c) to the extent permissible under Law. Such disclosure shall not alter the status of such information hereunder for all other purposes as Confidential Information. 

 

6.3 Termination. Upon termination of this Agreement, all Confidential Information shall be returned to the disclosing Party or destroyed unless otherwise specified or permitted elsewhere under this Agreement. The confidentiality obligations contained in this Article VI shall survive termination of this Agreement for a period of three (3) years. 

 

6.4 Injunction. Each Party acknowledges and agrees that the provisions of this Article VI are reasonable and necessary to protect the other Party's interests in its Confidential Information, that any breach of the provisions of this Article VI may result in irreparable harm to such other Party and that the remedy at law for such breach may be inadequate. Accordingly, in the event of any breach or threatened breach of the provisions of this Article VI by a Party hereto, the other Party, in addition to any other relief available to it at law, in equity or otherwise, shall be entitled to seek temporary and permanent injunctive relief restraining the breaching Party from engaging in or continuing any conduct that would constitute a breach of this Article VI, without the necessity of proving actual damages or posting a bond or other security. 

 

6.5 Publicity. Except as may be required by Laws (including those arising under any securities laws), neither Party will originate any publicity, news release or other public announcement, written or oral, whether to the public press or otherwise, concerning the relationship between the Parties or the transactions described in this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. In the event disclosure is required by Law, then the Party required to so disclose such information shall, to the extent possible, provide to the other Party for its approval (such approval not to be unreasonably withheld) a written copy of such public announcement at least five (5) Business Days prior to disclosure. Notwithstanding the foregoing, either Party shall have the right to make a press release with respect to its entering into this Agreement, provided, that such Party provides to the other Party a copy of the proposed press release no less than five (5) Business Days prior to its proposed release and that the contents of such press release shall be subject to the other Party's consent, which consent shall not be unreasonably delayed or withheld. 

 

6

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

ARTICLE VII

REGULATORY COMPLIANCE 

 

7.1 Regulation Under 21 C.F.R. Part 1271. The Products have been developed to be regulated under 21 C.F.R. Part 1271 as human cellular and tissue based products. TO THE EXTENT REQUIRED BY LAW, IF DISTRIBUTOR TAKES PHYSICAL POSSESSION AND/OR WAREHOUSES THE PRODUCT, Distributor shall obtain and maintain at its expense appropriate registration as a tissue bank or distributor of human cellular and tissue based products and follow all regulations pertaining to 21 C.F.R. Part 1271. In the event of changes in Laws, the Parties shall cooperate to determine what actions, if any, are required to meet any new Laws and shall negotiate in good faith changes to this Agreement. In the event that the Parties fail to agree upon the terms of an amendment to this Agreement within a commercially reasonable time to comply with changes in Laws, either Party shall have the right to terminate this Agreement. 

 

7.2 Compliance with American Association of Tissue Banks Standards. Both Parties agree to comply with all standards or procedure and operation required by the American Association of Tissue Banks, whether or not accredited by the American Association of Tissue Banks. During the Term of this Agreement, if BioD determines that Distributor will not comply with the American Association of Tissue Banks standards, after giving reasonable time to comply with said standards, BioD shall have the right to terminate this Agreement. 

 

7.3 Complaints. BioD and Distributor shall each provide the other with written notification of any complaint or adverse claim related to any Product within five (5) working days of such party's receipt of such complaint or claim. Each Party agrees to provide reasonable assistance and cooperation to the other Party in the investigation and resolution of any such complaint or claim. BioD shall have final authority for all communications with Distributors and end-users. 

 

7.4 Recall. In the event BioD believes that it may be necessary to conduct a recall, field correction, market withdrawal, stock recovery, or other similar action with respect to any Product (a "Recall"), BioD shall have sole authority with respect to such Recall and the Parties shall work together to safely and effectively conduct such Recall as quickly and efficiently as possible. The costs of any such Recall shall be allocated between the Parties in proportion to their relative responsibility for such Recall. 

 

ARTICLE VIII

LIMITATION OF LIABILITY 

 

8.1 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, BIOD HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCT, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND NON- INFRINGEMENT. 

 

8.2 Limitation of Liability. NEITHER PARTY WILL BE LIABLE FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT, HOWEVER CAUSED AND UNDER ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL BIOD'S LIABILITY FOR DAMAGES UNDER THIS AGREEMENT EXCEED THE TOTAL CASH CONSIDERATION PAYABLE TO DISTRIBUTOR PURSUANT TO SECTION 3.1 HEREOF. 

 

7

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

8.3 Essential Part of Bargain. The Parties acknowledge that the disclaimers and limitations set forth in this Article VIII are an essential element of this Agreement between the Parties and that the Parties would not have entered into this Agreement without such disclaimers and limitations. 

 

8.4 Insurance. During the term of this Agreement each of the Parties shall obtain and maintain, at its sole cost and expense, such insurance as is reasonable and customary in the industry for companies of comparable size and activity. 

 

ARTICLE IX

FORCE MAJEURE 

 

9.1 Performance Delay. The performance of a Party impacted by a Force Majeure Event, other than the satisfaction or payment obligations that have accrued under this Agreement, is delayed, without liability, for the duration of a Force Majeure Event. 

 

9.2 Notice. The Party whose performance is affected by a Force Majeure Event (the "Affected Party") shall give prompt notice to the other Party stating the details and expected duration of the event. Once notice is given of a Force Majeure Event, the Parties shall keep each other appraised of the situation until the force Majeure Event terminates or this Agreement is terminated, whichever occurs first. If the performance of the Affected Party does not resume within six (6) months of the occurrence of a Force Majeure Event, the other Party shall have the right to terminate this Agreement without penalty. Each Party has full management discretion in dealing with its own labor issues. 

 

9.3 No Additional Obligation. Notwithstanding Section 9.2, BioD shall have no obligation to obtain Product from a Third Party in order to replace BioD's excused contractual shortfall. 

 

ARTICLE X

DEFINITIONS 

 

10.1 "Affected Party" shall have the meaning ascribed thereto in Section 9.2. 

 

10.2 "Affiliate" shall mean, when used with reference to a Party, any individual or entity directly or indirectly controlling, controlled by or under common control with such Party. For purposes of this definition, "control" means (a) the direct or indirect ownership of at least 50% of the outstanding voting securities of an entity, (b) the right to control the policy decisions of such entity or (c) has the power to elect or appoint at least 50% of the members of the governing body of the entity. 

 

10.3 "Agreement" shall mean this Distribution and Supply Agreement including its Exhibits attached hereto as such may be amended from time to time. 

 

10.4 "Bankruptcy Event" shall mean the person or entity in question becomes insolvent, or voluntary or involuntary proceedings by or against such person or entity are instituted in bankruptcy or under any insolvency law, or a receiver or custodian is appointed for such person or entity, or proceedings are instituted by or against such person or entity for corporate reorganization or the dissolution or such person or entity, which proceedings, if involuntary, shall not have been dismissed within sixty (60) days after the date of filing, or such person or entity makes an assignment for the benefit of its creditors, or substantially all of the assets of such person or entity are seized or attached and not released within sixty (60) days thereafter. 

 

8

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

10.5 "Birth Tissue Product" shall mean any product derived, in whole or in part (whether membrane, fluid, tissue or cells), from human amnion, chorion, placental membrane, wharton’s jelly, umbilical cord, other afterbirth or human fetal material. 

 

10.6 "Business Day" shall mean any day that is not a Saturday, Sunday or United States federal holiday. 

 

10.7 "Change of Control" means and includes the occurrence of any one of the following events by Distributor, BioD or their parent entity: (a) the consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the company (a "Reorganization"), or (b) the sale or other disposition of all or substantially all of the company's assets, or a majority of the company's capital stock or member units (a "Sale"), or (c) the acquisition of assets, stock or member units of another corporation (an "Acquisition"), unless immediately following such Reorganization, Sale or Acquisition all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding company capital stock or member units and outstanding company voting securities immediately prior to such Reorganization, Sale or Acquisition beneficially own, directly or indirectly, more than 50% of (i) the then outstanding shares of capital stock or member units, and (ii) the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Reorganization, Sale or Acquisition. 

 

10.8 "Confidential Information" shall mean all proprietary and confidential information of a Party, including, without limitation, trade secrets, technical information, business information, sales information, customer and potential customer lists and identities, product sales plans, sublicense agreements, inventions, developments, discoveries, software, know-how, methods, techniques, formulae, data, processes and other trade secrets and proprietary ideas, whether or not protectable under patent, trademark, copyright or other areas of law, that the other Party has access to or receives but does not include information that (a) is or becomes publicly available through no fault of the receiving Party, (b) was already known to the receiving Party at the time it was disclosed to the receiving Party, as evidenced by written records of the receiving Party, or (c) is received from a Third Party who is under no obligation of confidentiality to the disclosing Party. For the avoidance of doubt, information concerning any Product and know-how associated therewith, including, but not limited to, composition of any Product, methods of handling and storing of any Product, and methods of delivering any Product to patients shall be considered the Confidential Information of BioD. 

 

10.9 "FDA" shall mean the United States Food and Drug Administration of the United States Department of Health and Human Services and any successor agency or entity that may be established hereafter. 

 

10.10 "FDCA" shall mean the Federal Food, Drug and Cosmetic Act (21 U.S. C. section 301 et seq.), as amended from time to time and any successor acts, together with any rules and regulations or national laws promulgated thereunder. 

 

10.11 "Field'' shall mean the homologous use of the Products as a wound covering in those clinical specialties set forth on Exhibit B attached hereto . The Parties agree that BioD may, from time to time, reduce or expand the clinical specialties included in the field by providing not less than thirty (30) days written notice thereof to Distributor. The Parties further agree that the field shall not include physician office call points for ENT, sports medicine, general surgery, plastics and cosmetics, dental, or urology procedures without the prior written consent of BioD. 

 

10.12 "Force Majeure Event" shall mean any event beyond the reasonable control of the Party affected by such circumstance, including, but not limited to, an act of God, delay or loss in transportation, fire, flood, earthquake, storm, war, riot, revolt, act of a public enemy, embargo, explosion, civil commotion, strike, labor dispute, loss or shortage of power, impossibility of obtaining or shortage in supply of raw materials or finished Product, or any adverse determination with respect to any law, rule, regulation, or order, or any other action by any Third Party, public authority or regulatory body that prohibits or materially impairs either Party from performing its obligations under this Agreement. 

 

9

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

10.13 "Governmental Authority" shall mean any applicable domestic federal, state, municipal, local, territorial or other governmental department, regulatory authority, judicial or administrative body, including, but not limited to, the FDA. 

 

10.14 "Intellectual Property" shall mean any and all trade secrets, patents, copyrights, trademarks, service marks, trade names, domain names, trade dress, URLs, brand features, know-how and similar rights of any type under the laws of any applicable Governmental Authority, including, without limitation, all applications and registrations relating to any of the foregoing. 

 

10.15 "Law" or "Laws" shall mean any applicable declaration, decree, directive, legislative enactment, statute, law, order, ordinance, regulation, rule or other binding restriction of or by any Governmental Authority, as amended from time to time, including, but not limited to, the FDCA. 

 

10.16 "Notice" shall have the meaning ascribed thereto in Section 11.5. 

 

10.17 "Product" or "Products" shall mean the human placental derived products described on Exhibit A attached hereto. The Parties agree that BioD may, from time to time, change or amend Exhibit A to expand or reduce the Products available to Distributor hereunder, or the sizes of such Products, by providing not less than fifteen (15) days written notice thereof to Distributor and substituting a new Exhibit A to this Agreement. 

 

10.18 "Product Samples" shall mean those human placental derived products described on Exhibit A attached hereto which are intended for human transplantation and provided to physicians and/or end-users on a no-charge basis. 

 

10.19 "Quota" shall mean the Distributor order level relating to the specific Product, Territory or Field as set forth in Exhibit E attached hereto for the calendar years stated. 

 

10.20 "Transfer Prices" shall have the meaning ascribed thereto in Section 3.1. 

 

10.21 "Term" shall have the meaning ascribed thereto in Section 4.1. 

 

10.22 "Territory'' shall mean the geographic areas or metropolitan statistical service areas set forth on Exhibit C attached hereto. The Parties agree that BioD may, from time to time, reduce or expand the geographic area where Distributor has a right to promote and sell the Products by providing not less than thirty (30) days written notice thereof and substituting a new Exhibit C and Exhibit E to this Agreement. 

 

10.23 "Third Party" shall mean any individual or entity other than a Party or an Affiliate of a Party. 

 

ARTICLE XI

MISCELLANEOUS 

 

11.1 Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Delaware, without regard to its conflicts of law provisions. 

 

11.2 No Assignment. Except as otherwise set forth herein, Distributor shall not transfer, assign or cede any rights or delegate any obligations hereunder, in whole or in part, whether voluntarily or by operation of law, without the prior written consent of BioD, which consent may be withheld at BioD's reasonable business discretion. BioD may transfer this Agreement without prior written consent of Distributor to an Affiliate or in connection with a merger or sale of all or substantially all of the stock or assets of BioD relating to this Agreement. The obligations of the Parties hereunder shall be binding upon their respective permitted successors. 

 

10

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

11.3 Disparaging Remarks. Neither Party shall make any disparaging remarks regarding the other Party under any circumstances. 

 

11.4 Independent Contractors. In connection with this Agreement, each Party is an independent contractor. This Agreement does not, and shall not be construed to, create an employer-employee, agency, joint venture or partnership relationship between the Parties. Neither Party shall have any authority to act for or to bind the other Party in any way, to alter any of the terms or conditions of any of the other Party's standard forms of invoices, sales agreements, warranties or otherwise, or to warrant or to execute agreements on behalf of the other or to represent that it is in any way responsible for the acts, debts, liabilities or omissions of the other Party. BioD reserves the right to accept or reject any order or to enter into, modify, rescind or decline to enter into any agreement or arrangement with respect to sales of the Products on such terms and conditions as it deems advisable in its sole and absolute discretion. 

 

11.5 Notices. All notices, reports, payments and other communications required or permitted to be given under this Agreement (each, a "Notice") shall be in writing and shall be given either by personal delivery against a signed receipt, certified mail confirmed by return receipt, or by express delivery using a nationally recognized overnight courier service. All Notices shall be properly addressed as follows, or to such other addresses as may be specified in a Notice given hereunder: 

 

If to BioD: 

 

BioD, LLC 

Renaissance Center 

1715 Aaron Brenner Drive, Suite 204 

Memphis, TN 38120 

Attention: General Counsel 

 

If to Distributor:

 

Fuse Medical, INC 

4770 Bryant Irvin Court 

Suite 300 

Fort Worth, TX 76107 

Attention: Alan Meeker 

 

A Notice shall be deemed to be effective upon personal delivery or, if sent via overnight delivery, upon receipt thereof. 

 

11.6 Amendment or Modification. No amendment, modification or waiver of any of the provisions of this Agreement shall be effective unless in writing and signed by the Parties. 

 

11.7 Entire Agreement. This Agreement and the exhibits attached hereto sets out the entire agreement between the Parties with respect to the subject matter of this Agreement and supersedes all prior agreements, proposals, arrangements and communications, whether oral or written, with respect to the subject matter hereof. In the event that there is a conflict between the Exhibits and the Agreement, the terms of the Agreement shall govern followed by those of the Exhibits. 

 

11.8 Severability. If any provision of this Agreement is held by a tribunal of competent jurisdiction to be illegal, invalid or otherwise unenforceable in any jurisdiction, then to the fullest extent permitted by law (a) the same shall not affect the other provisions of this Agreement, (b) such provision shall be deemed modified to the extent necessary in the tribunal's opinion to render such provision enforceable, and the rights and obligations of the Parties shall be construed and enforced accordingly, preserving to the fullest extent the intent and agreements of the Parties set forth herein and (c) such finding of invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of such provision in any other jurisdiction. 

 

11

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

11.9 No Waiver. Failure to enforce any term of this Agreement is not a waiver of future enforcement of that or any other term. No term or provision of this Agreement will be deemed waived and no breach excused unless such waiver or excuse is in writing and signed by the Party against whom enforcement or such waiver or excuse is sought. 

 

11.10 No Third Party Beneficiaries. Nothing in this Agreement is intended to confer benefits, rights or remedies unto any person or entity other than the Parties and their permitted successors and assigns. 

 

11.11 Non-Solicitation. During the Term and for one year thereafter, Distributor agrees that it shall not, directly or indirectly, induce, solicit, recruit, or engage any employee, consultant, agent or distributor of BioD or any or its Affiliates with whom it has come in contact in conducting activities under this Agreement for the purpose of (a) being employed by or working for, with, or on behalf of Distributor or any other party, or (b) interfering with or terminating his or her employment or other relationship with BioD, for any purpose or no purpose; provided, however, that the foregoing provisions shall not apply to (i) general advertisement or solicitation program that is not specifically targeted at such persons or (ii) the solicitation of any employee more than one year after such time as such employee's employment has been terminated by BioD or its Affiliate. Distributor further agrees that during the Term and for one year thereafter, it shall not, directly or indirectly, take, attempt to take or otherwise interfere with any business relationship or customer of BioD with which Distributor has had contact pursuant to Distributor's obligations hereunder. 

 

11.12 Headings. The headings appearing at the beginning of the Sections contained in this Agreement have been inserted for identification and reference purposes only and shall not be used to determine the construction or interpretation of this Agreement. The nomenclature of the defined terms in this Agreement shall only be used for the construction of this Agreement and are not to be used for any other purpose, including, but not limited to, interpretation for accounting purposes. 

 

11.13 Execution in Counterparts, Facsimiles. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. This Agreement shall become binding when any one or more counterparts hereof; individually or taken together, bear the signatures of both Parties hereto. For the purposes hereof, a facsimile copy of this Agreement, including the signature pages hereto, shall be deemed an original. 

 

IN WITNESS WHEREOF, the Parties to the Agreement by their duly authorized representatives have executed this Agreement as of the date first written above. 

 

BIODLOGICS, LLC			FUSE MEDICAL, INC
	/s/ Russ Olsen			/s/ D. Alan Meeker
Name:	Russ Olsen		Name:	D. Alan Meeker
Title:	CEO		Title:	CEO
Date:	January 8, 2015		Date:	January 8, 2015

 

12

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

EXHIBIT A

Products &Transfer Prices 

 

BioDFenceÒ - Resorbable Adhesion Barrier 

 

BioD Part#	Size (cm2)	Transfer Price	Recommended  Minimum Price	Recommended  List Price
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]

 

BioDDryFlexÒ - Resorbable Adhesion Barrier 

(Sterile Packaged DRY with BioD's DRYFLEXprocessing Technology) 

 

BioD Part#	Size	Transfer Price	Recommended  Minimum Price	Recommended  List Price
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]

 

BioDFactorÒ - Viable Tissue Matrix 

 

BioD Part#	Size	Transfer Price	Recommended  Minimum Price	Recommended  List Price
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]

 

BioDRestore^TM- Elemental Tissue Matrix 

 

BioD Part#	Size	Transfer Price	Recommended  Minimum Price	Recommended  List Price
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]

 

13

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

EXHIBIT B 

 

Field

 

All Medical Fields* 

 

*Notwithstanding the forgoing, Fuse may not sell BioD products set forth in Exhibit A to treat dermal wounds. 

 

14

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

EXHIBIT C 

 

Territory

 

United States of America 

 

15

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

EXHIBIT D 

 

Product Return Policy 

 

No products may be returned to BioD unless a Return Authorization (RA) number has been issued. Returned product without an RA number is considered unauthorized and may need to be rerouted back to the shipper. 

 

RA numbers are obtained by contacting the Customer Service department and at a minimum, the RA number should be printed on the outside of the return packaging. 

 

Customer Service

Hours of Operation: 6:00AM CST -6:00PM CST

Toll Free - 1-877-675-4149

Fax - 901-417-7871

Email: contact@biodllc.com

 

Cryopreserved Tissue Products 

 

1. In order to maintain strict quality control protocols, cryopreserved tissue products may not be returned. 

 

2. Claims for order discrepancies or product outer package damage during shipment must be reported within one (1) day of receipt to be eligible for credit. 

 

3. If the scheduled procedure for which the product was to be used is cancelled, BioD may, at its sole discretion, accept the return of the product. The product must be returned in the original shipping container unopened and prior to the packaging expiration noted on the container. All authorized returns must be shipped freight prepaid. 

 

All Other Tissue Products 

 

Shipment Error I Order Discrepancy 

 

1. Claims for order shipment errors/order discrepancies must be reported within five (5) days of receipt to be eligible for return for full credit. 

 

2. Claims for shipment errors/order discrepancies reported between six (6) and thirty (30) days of receipt will be eligible for return and subject to a restocking charge of 25% of the price of the tissue. 

 

3. Claims for shipment errors/order discrepancies reported after thirty (30) days of receipt will not be eligible for return. 

 

Product Outer Package Damage During Shipment 

 

1. Claims for packaging damage must be reported within five (5) days of receipt to be eligible for return for full credit. 

 

2. Claims for packaging damage reported between six (6) and thirty (30) days of receipt will be eligible for return and subject to a restocking charge of 25% of the price of the tissue. 

 

3. Claims for packaging damage reported after thirty (30) days of receipt will not be eligible for return. 

 

All Other Return Claims 

 

1. Return requests received within five (5) days of receipt and in resalable condition are eligible for return and will receive full credit. Freight charges will not be credited. 

 

2. Return requests received between six (6) and thirty (30) days of receipt and in resalable condition are eligible for return and subject to a restocking charge of 25% of the price of the tissue. Freight charges will not be credited. 

 

3. Return requests received after thirty (30) days of receipt are not eligible for return. 

 

4. All products must be returned in the original packaging. Credit will not be issued for any product returned in an opened package or if the original packaging has been altered. 

 

5. All authorized returns must be shipped freight prepaid. 

 

Shipping 

 

All authorized returns for BioD products must be shipped to: 

 

BioDlogics, LLC 

Attn: Returns Department 

7740A Trinity Road, Suite 107 

Cordova, TN 38018

 

16

 

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH “**” AND BRACKETS AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

EXHIBIT E 

 

Quota 

 

Q1 2015	Q2 2015	Q3 2015	Q4 2015
15K	25K	30K	35K

 

 

2016 Quota TBD 

 

 

 

17

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EXHIBIT 31.1

 

CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 

 

I, Christopher Pratt, certify that: 

 

1.	I have reviewed this Report on Form 10-Q of Fuse Medical, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: August 12, 2015	By:	/s/ Christopher Pratt
		Christopher Pratt
		Interim Chief Executive Officer

 

EXHIBIT 31.2 

 

CERTIFICATION PURSUANT TO 18 USC, SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 

 

I, David Hexter, certify that: 

 

1.	I have reviewed this Report on Form 10-Q of Fuse Medical, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: August 12, 2015	By:	/s/ David Hexter
		David Hexter
		Interim Chief Financial Officer

 

EXHIBIT 32.1 

 

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

 

Pursuant to the requirements set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Christopher Pratt, the Interim Chief Executive Officer of Fuse Medical, Inc. (the “Company”), and David Hexter, the Chief Financial Officer of the Company, each hereby certifies as of the date hereof and solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code that, to the best of his knowledge: 

 

1.	The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2015, to which this Certification is attached as Exhibit 32.1 (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, as applicable; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and results of operations of the Company for the periods covered in the financial statements in the Report.

 

Dated: August 12, 2015 

 

By:	/s/ Christopher Pratt		By:	/s/ David Hexter
	Christopher Pratt			David Hexter
	Interim Chief Executive Officer			Interim Chief Financial Officer

 

Note:

This certification accompanies the Report pursuant to 18 U.S.C. Section 1350 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Exchange Act, or incorporated by reference into any filing of the Company under the Exchange Act or the Securities Act of 1933, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.