FUSE MEDICAL, INC., 10-Q/A filed on 12 Aug 19
v3.19.2
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
Apr. 29, 2019
Document And Entity Information [Abstract]    
Entity Registrant Name Fuse Medical, Inc.  
Entity Central Index Key 0000319016  
Document Type 10-Q/A  
Document Period End Date Mar. 31, 2019  
Amendment Flag true  
Amendment Description This Amendment No. 1 on Form 10-Q/A (“Amendment No. 1”) to the quarterly report (“Quarterly Report”) on Form 10-Q for the fiscal quarter ended March 31, 2019 (the “Original Filing”) of Fuse Medical, Inc. (“Fuse”), is being filed solely for the purpose of amending and restating in its entirety Part 1, Item 1 as follows: Amend the calculation of “Weighted average number of common shares outstanding – basic” and the resulting calculation of “Net loss per common share – basic” in the Condensed Consolidated Statements of Operations; Add the Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit); Amend disclosure regarding Fair Value Measurements and Revenue Recognition in Note 2. “Significant Accounting Policies;” Add unaudited pro forma information regarding the Maxim acquisition in Note 3. “Maxim Acquisition;” Amend disclosure regarding vesting of certain restricted stock awards in Note 8. “Stockholders’ Equity;” and Amend and restate Part I, Item 4 (together with the amendment to Part 1, Item 1, the “Amended Items”). In accordance with Rule 12b-15 under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”), the Amended Items of the Original Filing have been amended and restated in their entirety. This Amendment No. 1 does not amend or otherwise update any other information in the Original Filing. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing, which continues to speak as of the date of the Original Filing. Capitalized terms used in this explanatory note not otherwise defined herein have the meaning given to them in the Original Filing.  
Current Fiscal Year End Date --12-31  
Is Entity's Reporting Status Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding   74,600,181
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2019  
Trading Symbol FZMD  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
v3.19.2
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 851,751 $ 844,314
Accounts receivable, net of allowance of $832,605 and $667,963, respectively 3,220,296 5,225,999
Inventories, net of allowance of $1,741,315 and $1,711,871, respectively 10,999,763 11,075,889
Prepaid expenses and other current assets 32,218 29,553
Total current assets 15,104,028 17,175,755
Property and equipment, net 37,605 42,974
Deferred tax asset 886,021 760,993
Intangible assets, net 1,267,685 1,288,040
Goodwill 2,905,089 2,905,089
Total assets 20,200,428 22,172,851
Current liabilities:    
Accounts payable 1,518,415 2,712,919
Accrued expenses 2,353,520 2,784,271
Notes payable - related parties 150,000 150,000
Senior secured revolving credit facility 1,396,871 1,477,448
Total current liabilities 5,418,806 7,124,638
Earn-out liability 13,581,529 13,581,529
Total liabilities 19,000,335 20,706,167
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; 100,000,000 shares authorized, 74,600,181 shares issued and 71,489,066 shares outstanding as of March 31, 2019, and 74,600,181 shares issued and 71,489,066 shares outstanding as of December 31, 2018. 714,891 714,891
Additional paid-in capital 244,407  
Retained earnings 240,795 751,793
Total stockholders' equity 1,200,093 1,466,684
Total liabilities and stockholders' equity $ 20,200,428 $ 22,172,851
v3.19.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
Mar. 31, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Net of allowance, accounts receivable $ 832,605 $ 667,963
Net of allowance, inventories $ 1,741,315 $ 1,711,871
Preferred Stock Par Value $ 0.01 $ 0.01
Preferred Stock Shares Authorized 20,000,000 20,000,000
Preferred Stock Shares Issued 0 0
Preferred Stock Shares Outstanding 0 0
Common Stock Par Value $ 0.01 $ 0.01
Common Stock Shares Authorized 100,000,000 100,000,000
Common Stock Shares Issued 74,600,181 74,600,181
Common Stock Shares Outstanding 71,489,066 71,489,066
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Income Statement [Abstract]    
Net revenues $ 4,770,659 $ 6,004,048
Cost of revenues 1,975,345 3,123,502
Gross profit 2,795,314 2,880,546
Operating expenses:    
Selling, general, administrative and other 2,364,168 2,195,933
Commissions 1,005,531 1,579,186
Depreciation and amortization 25,724 2,079
Total operating expenses 3,395,423 3,777,198
Operating loss (600,109) (896,652)
Other expense:    
Interest expense 25,435 35,905
Total other expense 25,435 35,905
Operating loss before tax (625,544) (932,557)
Income tax benefit (114,546) (197,590)
Net loss $ (510,998) $ (734,967)
Net loss per common share - basic $ (0.01) $ (0.01)
Weighted average number of common shares outstanding - basic 70,221,566 65,890,808
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) - USD ($)
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings/ Accumulated Deficit [Member]
Beginning Balance, Amount at Dec. 31, 2017 $ (7,981,509) $ 671,583 $ (8,653,092)  
Beginning Balance, Shares at Dec. 31, 2017   69,158,308    
Restricted stock awards granted 79,083   79,083  
Stock options granted 59,003   59,003  
Net loss (734,967)     $ (734,967)
Ending Balance, Amount at Mar. 31, 2018 (8,578,390) $ 671,583 (8,515,006) (734,967)
Ending Balance, Shares at Mar. 31, 2018   69,158,308    
Beginning Balance, Amount at Dec. 31, 2018 1,466,684 $ 714,891   751,793
Beginning Balance, Shares at Dec. 31, 2018   74,600,181    
Stock options granted 244,407   244,407  
Net loss (510,998)     (510,998)
Ending Balance, Amount at Mar. 31, 2019 $ 1,200,093 $ 714,891 $ 244,407 $ 240,795
Ending Balance, Shares at Mar. 31, 2019   74,600,181    
v3.19.2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities    
Net loss $ (510,998) $ (734,967)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 25,724 2,079
Share-based compensation 244,407 138,086
Provision for bad debts and discounts 164,642 (247,125)
Benefits for deferred taxes (125,028) (208,392)
Changes in operating assets and liabilities:    
Accounts receivable 1,841,061 2,108,429
Inventories, net slow-moving and obsolescence reserves 76,126 373,509
Prepaid expenses and other current assets (2,665) 1,709
Accounts payable (1,194,504) (1,053,654)
Accrued expenses (430,751) 354,982
Net cash provided by operating activities 88,014 734,656
Cash flows from financing activities    
Payments on senior secured revolving credit facility, net (80,577) (741,568)
Net cash used in financing activities (80,577) (741,568)
Net increase (decrease) in cash and cash equivalents 7,437 (6,912)
Cash and cash equivalents - beginning of period 844,314 804,715
Cash and cash equivalents - end of period 851,751 797,803
Supplemental disclosure of cash flow information:    
Cash paid for interest $ 20,756 $ 29,698
v3.19.2
Nature of Operations
3 Months Ended
Mar. 31, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Nature of Operations

Note 1. Nature of Operations

Overview

Fuse Medical, Inc., a Delaware corporation (the “Company”) was initially incorporated in 1968 as GolfRounds, Inc., a Florida corporation.  During July 1999, GolfRounds, Inc. was re-domesticated to Delaware through a merger into its wholly-owned subsidiary GolfRounds.com, Inc. Effective May 28, 2014, GolfRounds.com, Inc. amended its certificate of incorporation to change its name to Fuse Medical, Inc. and merged with and into Fuse Medical, LLC, with Fuse Medical, LLC surviving as a wholly-owned subsidiary of Fuse Medical, Inc. The transaction was accounted for as a reverse merger. The Company was the legal acquirer, and Fuse Medical, LLC was deemed the accounting acquirer. During 2015, certificates of termination were filed for Fuse Medical, LLC and its two subsidiaries. 

On December 19, 2016 (the “Change-in-Control Date”), the Company entered into a Stock Purchase Agreement by and between the Company, NC 143 Family Holdings, LP, a Texas limited partnership (“NC 143”) which is controlled by Mark W. Brooks (“Mr. Brooks”), the Company’s Chairman of the Board of Directors (“Board”) and President; and Reeg Medical Industries, Inc., a Texas corporation (“RMI”), which is owned and controlled by Christopher C. Reeg, the Company’s Chief Executive Officer and Secretary (“Mr. Reeg”) (NC 143 and RMI, collectively, the “Investors”). The closing of the Stock Purchase Agreement resulted in a change in-control of the Company whereby the Investors beneficially acquired approximately 61.4% of the Company’s issued and outstanding shares of common stock, par value $0.01 per share (“Common Stock”), immediately after the Change-in-Control Date. The Company recorded an indefinite-lived goodwill asset of $820,650 to reflect the excess of the carrying value of the Company’s net assets over their fair value as implied by the purchase price paid by the Investors on the Change-in-Control Date.

On December 31, 2017, the Company completed the acquisition of CPM Medical Consultants, LLC (“CPM”) pursuant to that certain purchase agreement dated December 15, 2017 (“CPM Acquisition Agreement” and such transaction the “CPM Acquisition”). The Company was the legal acquirer, and, for accounting purposes, CPM was deemed to have acquired the Company in the CPM Acquisition. CPM is the successor entity and becomes the reporting entity which combines the Company at the Change-in-Control Date, with the assets and liabilities of both companies combined at historical cost. Subsequent to the Change-in-Control Date, CPM and Company operations are consolidated. See “Note 4. CPM Acquisition.”

On July 30, 2018, the Company, entered into that certain securities purchase agreement (the “Maxim Purchase Agreement”), by and between the Company, Palm Springs Partners, LLC d/b/a Maxim Surgical, a Texas limited liability company (“Maxim”), RMI, Mr. Amir David Tahernia, an individual (“Tahernia”, together with RMI, the “Sellers”), and Tahernia in his capacity as the representative of the Sellers dated July 30, 2018, pursuant to which the Company agreed to purchase all of the outstanding equity securities of Maxim (“Maxim Interests”) from the Sellers (such transaction, the “Maxim Acquisition”) for aggregate consideration of approximately $3,400,000. Before the Maxim Acquisition, Mr. Reeg served as Maxim’s President.

On August 1, 2018 (“Maxim Closing Date”), the Company completed the Maxim Acquisition pursuant to the Maxim Purchase Agreement and Maxim operations are consolidated. See “Note 3, Maxim Acquisition.”

Basis of Presentation

The interim unaudited 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 the Company’s 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 in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company’s management believes the disclosures are adequate to make the information presented not misleading.

The audited condensed consolidated balance sheet information as of December 31, 2018, was derived from the Company’s 2018 Annual Report. These unaudited condensed consolidated financial statements should be read in conjunction with the 2018 Annual Report.

The results of operations for the three months ended March 31, 2019, are not necessarily indicative of the results to be expected for the entire fiscal year or for any other period as the Company has historically experienced seasonal trends with greater revenue and volume between the last two calendar quarters compared to the first two calendar quarters of the year.

v3.19.2
Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Significant Accounting Policies

Note 2. Significant Accounting Policies

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company, CPM, and Maxim, the Company’s wholly-owned subsidiaries of which the operations have been integrated with the Company. Intercompany transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in accordance with GAAP, requires the Company’s management to make estimates and assumptions that affect the Company’s reported amounts in the consolidated financial statements. Actual results could differ from those estimates. Significant estimates on the accompanying consolidated financial statements include the valuation of inventories, the Company’s effective income tax rate, and the recoverability of deferred tax assets, which are based upon the Company’s management expectation of future taxable income and allowable deductions and the fair value calculations of stock-based compensation and earn-out (“Earn-Out”) liability.

Segment Reporting

In accordance with Accounting Standards Update (“ASU”) No. 280, “Segment Reporting,” the Company uses the management approach for determining its reportable segments. The management approach is based upon the way that management reviews performance and allocates resources. The Company’s Chief Executive Officer serves as the Company’s chief operating decision maker, and his management team review operating results on a consolidated basis for purposes of allocating resources and evaluating the financial performance of the Company. The Company has integrated the operations of both CPM and Maxim. Accordingly, the Company has determined that it has one operating segment and, therefore, one reporting segment.

Net Loss Per Common Share

Basic net loss per common share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Shares of restricted stock are included in the basic weighted-average number of common shares outstanding from the time they vest. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury stock method.

The Company identified an error in the weighted average number of shares used in its calculation of earnings per share for the three month periods ended March 31, 2019 and March 31, 2018.

 

Three Months Ended March 31, 2019

 

As Previously

Reported

 

 

As Revised

 

Weighted average number of common shares outstanding

 

 

68,737,473

 

 

 

70,221,566

 

Net loss per share - basic

 

$

(0.01

)

 

$

(0.01

)

 

Three Months Ended March 31, 2018

 

As Previously

Reported

 

 

As Revised

 

Weighted average number of common shares outstanding

 

 

28,356,561

 

 

 

65,890,808

 

Net loss per share - basic

 

$

(0.03

)

 

$

(0.01

)

 

The Company performed a quantitative and qualitative analysis and determined that the error was not material to the previously reported quarterly results.

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.

In connection with the CPM Acquisition, the Company recorded a $19,244,543 liability related to the Earn-Out portion of the purchase consideration. See Note 4, “CPM Acquisition,” for further discussion of the Earn-Out liability. The Company has classified the Earn-Out liability as a Level 3 liability and the fair value of the Earn-Out liability will be evaluated each reporting period and changes in its fair value will be included in the Company’s earnings. The Earn-Out payments are based on the financial performance of the Company between the period of January 1, 2018, and December 31, 2034. The base amount of the Earn-Out is $16,000,000 with an additional bonus payment of $10,000,000. The payments of the base and bonus Earn-Out amounts are subject to the Company meeting certain earnings thresholds as detailed in the CPM Acquisition Agreement. The Earn-Out payments during the Earn-Out period specified above, ranges from $0 to $26,000,000.

The fair value of the Earn-Out liability was calculated using the Monte Carlo simulation, which was then applied to estimated Earn-Out payments with a discount rate of four percent (4%). To determine the fair value of the Earn-Out liability, the Company’s management evaluates assumptions that require significant judgement. Significant assumptions used for estimating the Earn-Out liability included gross margins of approximately forty-eight percent (48%), net income margins averaging nine percent (9%) per year, revenue growth of approximately five percent (5%) over a forecast horizon period of 11 years.

The Earn-Out liability, which represented contingent consideration associated with the CPM Acquisition, is recorded as a liability. This liability is subject to re-measurement to fair value at each reporting date until the contingency is resolved and the changes in fair value are recognized in the statement of operations at each reporting period since the arrangement is not subject to the accounting for hedging instruments.

For the year ended December 31, 2018, the Company has determined the earnings threshold as detailed in the CPM Acquisition Agreement was not met and therefore no payments for either the base or bonus Earn-Out tranches would be achieved, based on the Company’s 2018 financial performance. The Earn-Out was re-measured to fair value under the probability weighted income approach. As a result, the initial fair value of the Earn-Out liability was reduced by $5,663,014 from $19,244,543 to $13,581,529. The Earn-Out liability was reduced by $5,663,014 with the offset reflected as “Change in fair value of contingent purchase consideration” on the Company’s 2018 Annual Report.

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 values of notes payable approximate their respective fair values based upon their effective interest rates.

Reclassification

Certain amounts in the accompanying unaudited condensed consolidated statements of operations have been reclassified to conform to the current presentation. State income tax expense has been reclassified from selling, general, administrative and other expenses to income tax expense (benefit).

Cash and Cash Equivalents

The Company considers highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. There were no cash equivalents at March 31, 2019, and December 31, 2018. The Company’s cash is concentrated in two large financial institutions that at times may exceed federally insured limits of $250,000 per financial institution. The Company has not experienced any financial institution losses from the Change in Control Date through March 31, 2019. As of March 31, 2019, and December 31, 2018, there were deposits of $351,303 and $322,693, respectively, which were greater than federally insured limits.

Accounts Receivable and Allowances

Accounts receivable are non-interest bearing and are stated at gross invoice amounts less an allowance for doubtful accounts receivable and an allowance for contractual discount pricing. Credit is extended to customers based on an evaluation of their financial condition, industry reputation, and other judgmental factors considered by the Company’s management. The Company generally does not require collateral or other security interest to support accounts receivable. Based on trends and specific factors, the customer’s credit terms may be modified, including required payment upon delivery.

The Company performs regular on-going credit evaluations of its customers as deemed relevant. As events, trends, and circumstance, warrant, the Company’s management estimates the amounts that are more likely than not to be uncollectible; reflecting these amounts in the allowance for doubtful accounts along with an offset to bad debt expense is reflected within selling, general, administrative and other expenses on the Company’s accompanying unaudited condensed consolidated statements of operations.

When accounts are deemed uncollectible, they are often referred to the Company’s outside legal firm for litigation. Accounts deemed uncollectible are written-off in the period when the Company has exhausted its efforts to collect overdue and unpaid receivables or otherwise has evaluated other circumstances that indicate that the Company should abandon such efforts. Accounts deemed uncollectible are removed from the Company’s accounts receivable portfolio, with a corresponding offset to the allowance for doubtful accounts receivable. The Company may record additional allowances for doubtful accounts based on known trends and expectations to ensure the Company’s accounts receivable portfolio is recorded at net realizable value. Specific allowances are re-evaluated and adjusted as additional facts and information become available. Previously written-off accounts receivable subsequently collected are recognized as a reduction of bad debt expense when funds are received.

The Company’s management estimates its allowance for contractual discount pricing, by evaluating specific accounts where information indicates the customer is offered contractual pricing and discount allowances. In these arrangements, the Company’s management uses assumptions and judgement, based on the best available facts and circumstances to record a specific allowance for the amounts due from those customers. The allowance is offset by a corresponding reduction to revenue. These specific allowances are re-evaluated, analyzed, and adjusted as additional information becomes available to determine the total amount of the allowance. The Company may record additional allowances based on trends and expectations to ensure the Company’s accounts receivable portfolio is recorded at net realizable value.

Inventories

Inventories are stated at the lower of cost or net realizable value (first-in, first-out). Inventories consist entirely of finished goods and include internal and external fixation products; upper and lower extremity plating and total joint reconstruction; soft tissue fixation and augmentation for sports medicine procedures; spinal implants for trauma, degenerative disc disease, and deformity indications (collectively, “Orthopedic Implants”) and osteo-biologics and regenerative tissue which include human allografts, substitute bone materials and tendons, as well as regenerative tissues and fluids (collectively, “Biologics”). The Company reviews the market value of inventories whenever events and circumstances indicate that the carrying value of inventories may not be recoverable from the estimated future sales price less cost of disposal and normal gross profit. In cases where the market values are less than the carrying value, a write-down is recognized equal to an amount by which the carrying value exceeds the market value of inventories.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets per the following table. Expenditures for additions and improvements are capitalized while repairs and maintenance are expensed as incurred.

 

Category

 

Useful Life

Computer equipment and software

 

3 years

Furniture and fixtures

 

3 years

Office equipment

 

3 years

Software

 

3 years

 

Upon the retirement or disposition of property and equipment, the related cost and accumulated depreciation is removed. A gain is recorded when consideration received is more than the disposed asset’s cost, net of depreciation, and a loss is recorded when consideration received is less than the disposed asset’s cost, net of depreciation.

Long-Lived Assets

The Company reviews long-lived assets quarterly or whenever changes in circumstances indicate that the carrying amount of an asset might not be recoverable. Assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, which generally represents furniture and fixtures. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the consolidated cash flow measure monitored for indicators of impairment. As the cash flow measure reaches levels to indicate potential impairment, the Company estimates the future cash flows expected to be generated from the use of the asset and its eventual disposal. If the sum of undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Fair value is typically determined to be the value to repurchase furniture and fixtures.

Goodwill and Other Intangible Assets

Goodwill is determined based on an acquisition purchase price in excess of the fair value of identified net assets acquired.  Intangible assets with lives restricted by contractual, legal or other means are amortized over their useful lives. The Company tests goodwill at least annually for impairment using the fair value approach on a reporting unit basis. 

Since the Company is one reporting unit, potential goodwill impairment is evaluated by comparing the fair value of the Company to its carrying value. The fair value of the Company is determined using a market approach. If the carrying value of the Company exceeds fair value, a comparison of the fair value of goodwill against the carrying value of goodwill is made to determine whether goodwill has been impaired. The Company performs the annual assessment of the recoverability of goodwill during the fourth quarter of each fiscal year. 

The Company’s intangible assets subject to amortization consist primarily of acquired non-compete agreements and customer relationships. Amortization expense is calculated using the straight-line method over the asset’s expected useful life. See Note 3 – “Maxim Acquisition” for Goodwill and Other Intangibles for additional related disclosures.

Revenue Recognition

The Company’s revenues are generated from the sales of Orthopedic Implants and Biologics to support orthopedic surgeries. The Company obtains purchase orders from its customers for the sale of its products which sets forth the general terms and conditions including line item pricing and payment terms (generally due upon receipt). The Company recognizes revenue when its customers obtain control over the assets (generally when the title passes upon shipment or when a product is utilized in a surgery) and it is probable that the Company will collect substantially all the amounts due. Individual promised goods are the Company’s only performance obligation.

Products that have been sold are not subject to returns unless the product is deemed defective. Credits or refunds are recognized when they are probable and reasonably estimated. The Company’s management reduces revenue to account for estimates of the Company’s credits and refunds.

The Company included shipping and handling fees in net revenues. Shipping and handling costs are associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.

Revenue Differentiation

The Company measures sales volume based on medical procedures in which the Company’s products are sold and used (“Cases”). The Company considers Cases resulting from direct sales to medical facilities to be retail cases (“Retail Cases”) and Cases resulting from sales to third-parties, such as non-medical facilities, distributors, or sub-distributors, to be wholesale Cases (“Wholesale Cases”). Some of our sales for Wholesale Cases are on a consignment basis with a third-party. In our industry, Retail Cases are typically sold at a higher price than Wholesale Cases, resulting in greater revenue and profit per Case.

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

Category

 

 

 

 

 

 

 

 

Retail

 

$

3,652,312

 

 

$

4,012,784

 

Wholesale

 

 

1,118,347

 

 

 

1,991,264

 

Total

 

$

4,770,659

 

 

$

6,004,048

 

 

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 pro-rata 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

The Company considers the applicability and impact of all ASUs issued, both effective and not yet effective.

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02, “Leases”, which requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than twelve (12) months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The adoption of this ASU did not have a significant impact on our condensed consolidated financial statements.

In March 2018, the FASB issued ASU No.2018-05 “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” This new standard adds SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Tax Cuts and Jobs Act (H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018) was signed into law. ASU 2018-05 is effective upon inclusion in the FASB codification. The Company’s management is currently evaluating the impact that the adoption of ASU 2018-05 will have on its consolidated financial statements.

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

v3.19.2
Maxim Acquisition
3 Months Ended
Mar. 31, 2019
Maxim Surgical, LLC [Member]  
Acquisition

Note 3.  Maxim Acquisition

On the Maxim Closing Date, the Company completed the Maxim Acquisition pursuant to the Maxim Purchase Agreement. (See Note 1, “Nature of Operations – Overview.”)

The Company issued 4,210,526 restricted shares of its Common Stock to the Sellers in exchange for one-hundred percent (100%) of the outstanding Maxim Interests, at an agreed-upon value of $0.76 per share of Common Stock, which was equal to the 30-day volume-weighted average price of the Common Stock as of three (3) business days prior to the Maxim Closing Date.

The Company accounted for the Maxim Acquisition as a business combination and recorded the assets acquired and liabilities assumed at their respective estimated fair values as of the Maxim Closing Date. The assets acquired and liabilities assumed were recorded as of the Maxim Closing Date at their respective fair values and consolidated with those of the Company. The reported unaudited condensed consolidated balance sheet of the Company after completion of the acquisition reflects these fair values.

The transaction has been accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their estimated fair values as of the Maxim Closing Date of such acquisition. The following table summarizes the intangible assets acquired of Maxim as of the Maxim Closing Date:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

Amortization period

(years)

Intangible assets:

 

 

 

 

 

 

 

 

 

 

Non-compete agreements

 

$

61,766

 

 

$

61,766

 

 

2

510k product technology

 

 

704,380

 

 

 

704,380

 

 

Indefinite

Customer relationships

 

 

555,819

 

 

 

555,819

 

 

11

Goodwill

 

 

2,084,439

 

 

 

2,084,439

 

 

Indefinite

Total intangible assets

 

 

3,406,404

 

 

 

3,406,404

 

 

 

Less: accumulated amortization

 

 

(54,280

)

 

 

(33,925

)

 

 

Intangible assets, net

 

$

3,352,124

 

 

$

3,372,479

 

 

 

 

Amortization expense for the three months ended March 31, 2019, was $20,355. There was no amortization expense for the three months ended March 31, 2018.

The Company recorded the excess of the aggregate purchase price over the estimated fair values of the identifiable assets acquired as goodwill, which is not deductible for tax purposes. Goodwill is primarily attributable to the benefits the Company expects to realize by expanding its product offerings and addressable markets, thereby contributing to an expanded revenue base. The assets and liabilities assumed in the acquisition have been included in the Company’s unaudited condensed consolidated balance sheets as of March 31, 2019. The results of Maxim operations are included in the Company’s unaudited condensed consolidated statements of operations subsequent to the Maxim Closing Date.

The following unaudited pro forma summary financial information presents the consolidated results of operations for the Company as if the Maxim Acquisition had occurred on January 1, 2018. The pro forma results are shown for illustrative purposes only and do not purport to be indicative of the results that would have been reported if the Maxim Acquisition had occurred on the date indicated or indicative of the results that may occur in the future.

Unaudited pro forma information for the three months ended March 31, 2018 is as follows:

 

 

Three Months Ended March 31, 2018 - Unaudited

 

 

Historical Fuse

Medical, Inc.

 

 

Historical

Maxim Surgical

 

 

Pro forma

Adjustments

 

 

Pro forma

Combined

 

Revenue

$

6,004,048

 

 

$

330,592

 

 

$

(171,608

)

 

$

6,163,032

 

Net (loss) income

 

(734,967

)

 

 

60,566

 

 

 

-

 

 

 

(674,401

)

Net loss per common share - basic

$

(0.01

)

 

$

-

 

 

$

-

 

 

$

(0.01

)

 

The supplemental pro forma earnings were adjusted to exclude $171,608 of intercompany transactions for the three months ended March 31, 2018. The number of shares outstanding used in calculating the net loss per common share – basic was 65,890,808 for the three months ended March 31, 2018.

The Company is managed and operates in one segment, as Maxim Surgical integrated into the Company’s existing operations.

v3.19.2
CPM Acquisition
3 Months Ended
Mar. 31, 2019
CPM [Member]  
Acquisition

Note 4. CPM Acquisition

On December 29, 2017, the Company completed the previously-announced CPM Acquisition, pursuant to the CPM Acquisition Agreement. The Company issued 50 million shares of its Common Stock, par value $0.01 per share, in exchange for one-hundred percent (100%) of the outstanding membership interests of CPM, at an agreed-upon value of $0.20 per share of Common Stock, equaling a value of $10,000,000. The remaining $26,000,000 of the purchase price consideration will be paid by the Company to NC 143 in the form of contingent Earn-Out payments based on the Company achieving certain future profitability targets for years after 2017. The effective date of the CPM Acquisition was December 31, 2017 (the “CPM Effective Date”).

The Company’s management engaged an independent third-party valuation specialist to calculate the fair value of the Earn-Out liability. The Company recorded $19,244,543 as a contingent liability related to the fair value of the $26,000,000 Earn-Out liability at its fair value as of the CPM Effective Date, with a corresponding offset to additional paid-in capital on the Company’s accompanying unaudited condensed consolidated balance sheets. For the year ended December 31, 2018, the Company’s has determined the earnings threshold as detailed in the CPM Acquisition Agreement were not met and therefore no payments for either the base or bonus Earn-Out tranches would be achieved, based on the Company’s 2018 financial performance.

As of December 31, 2018, the Earn-Out was re-measured to fair value under the probability weighted income approach. As a result, the initial fair value of the Earn-Out liability was reduced by $5,663,014 from $19,244,543 to $13,581,529. The Earn-Out liability was reduced by $5,663,014 with the offset reflected as “Change in fair value of contingent purchase consideration” on the Company’s 2018 Annual Report. The Company’s management will evaluate the estimated fair value of the Earn-Out liability each reporting period. See Note 2, “Fair Value Measurements.”

The CPM Purchase Agreement provides for a working capital post-closing adjustment (“CPM Post-Closing Adjustment”) for certain changes in CPM’s current assets and current liabilities pursuant to the CPM Acquisition Agreement. The CPM Post-Closing Adjustment was calculated to be $397,463 and was paid in cash on June 27, 2018, to NC 143, with a corresponding offset to additional paid-in capital on the Company’s accompanying unaudited condensed consolidated balance sheets.

v3.19.2
Property and Equipment
3 Months Ended
Mar. 31, 2019
Property Plant And Equipment [Abstract]  
Property and Equipment

Note 5. Property and Equipment

Property and equipment consisted of the following at March 31, 2019, and December 31, 2018:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Computer equipment and software

 

$

41,840

 

 

$

41,840

 

Furniture and fixtures

 

 

5,047

 

 

 

5,047

 

Office equipment

 

 

21,913

 

 

 

21,913

 

Property and equipment costs

 

 

68,800

 

 

 

68,800

 

Less: accumulated depreciation

 

 

(31,195

)

 

 

(25,826

)

Property and equipment, net

 

$

37,605

 

 

$

42,974

 

 

Depreciation expense for the three months ended March 31, 2019, and 2018 was $5,369 and $2,079, respectively.

v3.19.2
Senior Secured Revolving Credit Facility
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Senior Secured Revolving Credit Facility

Note 6. Senior Secured Revolving Credit Facility

On December 29, 2017, the Company became party to a Senior Secured Revolving Credit Facility (“RLOC”) with ZB, N.A., d/b/a Amegy Bank (“Amegy Bank”). The RLOC established an asset-based senior secured revolving credit facility in the amount of $5,000,000. The RLOC contains customary representation, warranties, covenants, events of default, and is collateralized by substantially all of the Company’s assets. The Company’s Chairman of the Board and President personally guarantees fifty percent (50%) of the outstanding RLOC amount.

On November 19, 2018 the Company executed the Second Amendment to the RLOC with Amegy Bank (the “Second Amendment”).

The Second Amendment (i) waived the Company’s events of default under the RLOC, (ii) reduced the aggregate limit of the RLOC to $4,000,000, (iii) extended the maturity date to November 4, 2019, (iv) revised the variable interest rate to the one-month LIBOR rate plus four percent (4.00%) per annum, and (v) amended the financial covenants to state that the Company will not permit: the Fixed Charge Coverage Ratio of any calendar quarter end from and after the quarter ending June 30, 2019, to be less than 1.25 to 1.00; EBITDA to be less than $700,000 for the fiscal quarter ending December 31, 2018, and $100,000 for the fiscal quarter ending March 31, 2019; modified the event of default related to consecutive quarterly losses to be applicable from and after the quarter ending June 30, 2019.

The Company was not in compliance with the minimum quarterly EBITDA requirement of $100,000 for the three months ended March 31, 2019 and has requested a waiver for this event of default from Amegy Bank. “See Note 12. Subsequent Events.”

The outstanding balance of the RLOC was $1,396,871 and $1,477,448 at March 31, 2019 and December 31, 2018, respectively. Interest expense incurred on the RLOC was $18,778 and $29,247 for the three months ended March 31, 2019 and 2018, respectively, and is reflected in interest expense on the Company’s accompanying unaudited condensed consolidated statements of operations. Accrued interest on the RLOC at March 31, 2019 and December 31, 2018 was $2,371 and $4,350, respectively, and is reflected in accrued expenses on the Company’s accompanying unaudited condensed consolidated balance sheets. At March 31, 2019, the effective interest rate was calculated to be 6.48%.

v3.19.2
Notes Payable - Related Parties
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Notes Payable - Related Parties

Note 7. Notes Payable – Related Parties

During July 2016 through October 2016, the Company obtained three working capital loans from NC 143 and RMI in the form of convertible promissory notes (“Notes”) in the aggregate amount of $150,000 bearing ten percent (10%) interest per annum until December 31, 2016 (“Maturity Date”), and eighteen percent (18%) interest per annum for periods subsequent to the Maturity Date. The Notes’ principal and interest shall be due and payable, upon demand of the payee and at the holder’s sole discretion. The Notes’ holders have the right to convert all or any portion of the then unpaid principal and interest balance into shares of the Company’s Common Stock at a conversion price of $0.08 per share.

During the three months ended March 31, 2019, and 2018, interest expense of $6,658 and $6,658, respectively, is reflected in interest expense on the Company’s accompanying unaudited condensed consolidated statements of operations. As of March 31, 2019, and December 31, 2018, accrued interest was $65,753 and $59,096, respectively, which is reflected in accrued expenses on the Company’s accompanying unaudited condensed consolidated balance sheets.

v3.19.2
Stockholders' Equity
3 Months Ended
Mar. 31, 2019
Stockholders Equity Deficit [Abstract]  
Stockholders' Equity

Note 8. Stockholders’ Equity

Stock Incentive Plans

The 2018 Equity Incentive Plan of Fuse Medical, Inc. (“2018 Equity Plan”), is the Company’s stock-based compensation plan, which the Company’s Board adopted on April 5, 2017, and subsequently amended and restated on December 13, 2018. The 2018 Equity Plan provides for the granting of equity awards, including qualified incentive and non-qualified stock options, stock appreciation awards, and restricted stock awards to employees, directors, consultants, and advisors. Awards granted pursuant to the 2018 Equity Plan are subject to a vesting schedule as set forth in individual agreements.

The Company’s management estimates that the fair value of stock-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of the Company’s stock price over the expected option term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates. The Company’s management believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC Topic 718 requirements. These amounts are the estimates made by the Company’s management and thus, may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes compensation on a straight-line basis over the requisite service period for each award.

The Company’s management utilizes the simplified method to estimate the expected life for stock options granted to employees, as the Company does not have sufficient historical data regarding stock option exercises. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected life of the related option at the time of the grant. Dividend yield is based on historical trends. While the Company’s management believes these estimates are reasonable, the compensation expense recorded would increase if the expected life was increased, a higher expected volatility was used, or if the expected dividend yield increased.

For the three months ended March 31, 2019, the Board granted, in the aggregate, 900,000 non-qualified stock option awards (“NQSO”) to the Company’s product advisory board members, certain key employees and marketing representatives. For the three months ended March 31, 2019, and 2018, the Company amortized $244,407 and $59,003 relating to the vesting of NQSOs, which is included in selling, general, administrative, and other expenses on the Company’s accompanying unaudited condensed consolidated statement of operations. The Company will recognize $2,250,943 as an expense in future periods as the NQSOs vest. The Company recognizes stock compensation expense on a straight-line basis over the requisite service period for each award, which are subject to a vesting schedule as set forth in individual agreements.

A summary of the Company’s NQSO activity for the three months ended March 31, 2019, is presented below:

 

 

No. of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

 

 

Aggregate

Intrinsic

Value

 

Balance outstanding at December 31, 2018

 

 

3,915,000

 

 

$

0.78

 

 

 

7.0

 

 

$

443,000

 

Granted

 

 

900,000

 

 

 

0.75

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance outstanding at March 31, 2019

 

 

4,815,000

 

 

$

0.78

 

 

 

7.3

 

 

$

417,000

 

Exercisable at March 31, 2019

 

 

1,700,000

 

 

$

0.42

 

 

 

3.7

 

 

$

417,000

 

The weighted-average grant-date fair value of options granted during the three months ended March 31, 2019, was $0.69.

Restricted Stock Award

For the three months ended March 31, 2019, the Company did not have restricted stock awards (“RSAs”) to amortize. The Company amortized an expense relating to the vesting of RSAs of $79,083 for the three months ended March 31, 2018.

The following table summarizes RSAs activity:

 

Number of

Shares

 

 

Fair Value

 

 

Weighted Average Grant Date Fair Value

 

Non-vested, December 31, 2018

 

4,378,615

 

 

$

2,060,000

 

 

$

0.47

 

Granted

 

-

 

 

 

-

 

 

 

-

 

Vested

 

-

 

 

 

-

 

 

 

-

 

Forfeited

 

-

 

 

 

-

 

 

 

-

 

Non-vested, March 31, 2019

 

4,378,615

 

 

$

2,060,000

 

 

$

0.47

 

 

The non-vested RSAs, as of March 31, 2019, were granted to the Company’s Board members as compensation. Certain awards vest only upon: (i) the occurrence of a Change in Control, listing of the Company’s Common Stock on a national exchange or, the director’s termination of Continuous Service, and (ii) the director’s notification to the Company of such accelerating events, within a specified period (“Triggering Events”). Certain other awards vest only upon the occurrence of a Change in Control or listing of the Company’s Common Stock on a national exchange. On August 7, 2019, to reflect its original intent, the Company’s Board modified certain award agreements to remove the director’s termination of continuous service as Triggering Event, thereby all non-vested RSAs are now structured with uniform vesting conditions with effective dates of December 13, 2018 and December 31, 2018.

v3.19.2
Income Taxes
3 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

Note 9. Income Taxes

The Company is subject to U.S. federal income taxes, in addition to state and local income taxes.

The components of income tax expense (benefit) are as follows:

 

 

For the

Three Months Ended

March 31, 2019

 

 

For the

Three Months Ended

March 31, 2018

 

Current:

 

 

 

 

 

 

 

 

Federal

 

$

-

 

 

$

-

 

State

 

 

10,482

 

 

 

10,802

 

Income tax expense

 

 

10,482

 

 

 

10,802

 

Deferred:

 

 

 

 

 

 

 

 

Federal

 

 

(125,028

)

 

 

(208,392

)

State

 

 

-

 

 

 

-

 

Income tax benefit

 

 

(125,028

)

 

 

(208,392

)

Total income tax expense (benefit), net

 

$

(114,546

)

 

$

(197,590

)

 

Significant components of the Company's deferred income tax assets and liabilities are as follows:

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Net operating loss carryover

 

$

224,581

 

 

$

216,793

 

Accounts receivable

 

 

174,847

 

 

 

140,272

 

Compensation

 

 

284,119

 

 

 

232,793

 

Inventory

 

 

391,576

 

 

 

383,744

 

Other

 

 

33,259

 

 

 

28,128

 

Total deferred tax assets

 

 

1,108,382

 

 

 

1,001,730

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Intangibles

 

 

(218,427

)

 

 

(232,835

)

Property and equipment

 

 

(3,934

)

 

 

(7,902

)

Total deferred tax liabilities

 

 

(222,361

)

 

 

(240,737

)

 

 

 

 

 

 

 

 

 

Net deferred tax asset

 

$

886,021

 

 

$

760,993

 

 

As of March 31, 2019, the Company recognized a net deferred tax asset of $886,021, or an increase of $125,028 recognized at December 31, 2018. Consistent with the one-year period and the current business trends and expectations, the Company’s management does not deem a valuation allowance to be appropriate as of March 31, 2019.

At March 31, 2019, the Company estimates it has approximately $1,069,434 of net operating loss carryforwards which will expire during 2019 through 2037. The Company’s management believes its tax positions are highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of March 31, 2019, the Company’s tax years 2016 through 2018 remain open for Internal Revenue Service (“IRS”) audit. The Company has not received a notice of audit from the IRS for any of the open tax years.

A reconciliation of income tax computed at the U.S. statutory rate to the effective income tax rate is as follows:

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

Expected U.S. federal incomes as statutory rate

 

21.0%

 

 

21.0%

 

State and local income taxes, net of federal benefit

 

-1.3%

 

 

-1.1%

 

Permanent differences

 

-0.6%

 

 

-0.6%

 

Other

 

-0.8%

 

 

0.0%

 

Effective tax rate

 

18.3%

 

 

19.3%

 

 

v3.19.2
Concentrations
3 Months Ended
Mar. 31, 2019
Nature Of Operations And Going Concern [Abstract]  
Concentrations

Note 10. Concentrations

Concentration of Revenues, Accounts Receivable and Suppliers

For the three months ended March 31, 2019, and 2018, the following significant customers had an individual percentage of total revenues equaling ten percent (10%) or greater:

 

 

For the Three Months Ended

 

 

March 31, 2019

 

 

March 31, 2018

 

Customer 1

 

11.8

%

 

 

15.8

%

Totals

 

11.8

%

 

 

15.8

%

 

At March 31, 2019 and December 31, 2018, there were no significant customers that had a concentration of accounts receivable representing ten percent (10%) or greater of accounts receivable:

 

For the three months ended March 31, 2019 and 2018, the following significant suppliers represented ten percent (10%) or greater of goods purchased:

 

 

For the Three Months Ended

 

 

March 31, 2019

 

 

March 31, 2018

 

Supplier 1

 

21.2

%

 

 

9.3

%

Totals

 

21.2

%

 

 

9.3

%

 

v3.19.2
Related Party Transactions
3 Months Ended
Mar. 31, 2019
Related Party Transactions [Abstract]  
Related Party Transactions

Note 11. Related Party Transactions

Lease with 1565 North Central Expressway, LP

For its principal executive office, the Company leases an aggregate of approximately 11,500 square-foot space at 1565 North Central Expressway, Suite 220, Richardson, Texas 75080 from 1565 North Central Expressway, LP, a real estate investment company that is owned and controlled by Mr. Brooks. The Company’s lease arrangement includes (1) the lease acquired pursuant to the CPM Acquisition effective January 1, 2013 and (2) a lease effective July 14, 2017 entered-into to support the Company’s relocation of its Fort Worth, Texas corporate offices to CPM’s executive offices. Both leases terminated December 31, 2017, with month-to-month renewals. For the three months ended March 31, 2019, and 2018, the Company paid approximately $42,000 and $42,000 in rent expense, which is reflected in selling, general, administrative, and other expenses in the Company’s accompanying unaudited condensed consolidated statements of operations.

AmBio Contract

The Company engaged AmBio Staffing, LLC (“AmBio”), a Texas licensed Professional Employment Organization, to provide payroll processing, employee benefit administration, and related human capital services effective January 1, 2017. Mr. Brooks owns and controls AmBio. As of March 31, 2019, AmBio operations support approximately 63 full time equivalents (“FTE”). Of those 63 FTEs, 43 FTEs directly support the Company, 13 FTEs support the operations of other companies, and 7 FTEs are shared between the Company and other companies.

As of March 31, 2019, and December 31, 2018, the Company owed amounts to AmBio of approximately $0.00 and $180,000, respectively, which is reflected in the accounts payable on the Company’s unaudited condensed consolidated balance sheets. For the three months ended March 31, 2019, and 2018, the Company paid approximately $51,000 and $47,000, respectively, to AmBio in administrative fees, which is reflected in selling, general, administrative, and other expenses in the Company’s accompanying unaudited condensed consolidated statements of operations.  

Operations

Historically, the Company conducts various related-party transactions with entities that are owned by or affiliated with Mr. Brooks and Mr. Reeg. These transactions are based on wholesale contractual agreements, that the Company’s management believes are on terms and conditions substantially similar to other third-party contractual arrangements. As described more fully below, these transactions include: selling and purchasing of inventory on wholesale basis, commissions earned and paid, and shared-service fee arrangements.

MedUSA Group, LLC

MedUSA Group, LLC (“MedUSA”) is a sub-distributor owned and controlled by Mr. Brooks and Mr. Reeg.

During the three months ended March 31, 2019, and 2018, the Company:

 

sold Orthopedic Implants and Biologics products to MedUSA in the amounts of approximately $300,000 and $828,000, respectively, which is reflected in net revenues in the Company’s accompanying unaudited condensed consolidated statements of operations;

 

 

purchased approximately $0.00 and $97,000, respectively, of Orthopedic Implants, medical instruments, and Biologics from MedUSA, which is reflected in inventories in the Company’s accompanying unaudited condensed consolidating balance sheets; and

 

 

incurred approximately $617,000 and $317,000, respectively, in commission costs, which is reflected in commissions in the Company’s accompanying unaudited condensed consolidated statements of operations.

As of March 31, 2019, and December 31, 2018, the Company has outstanding balances due from MedUSA of approximately $327,000 and $389,000, respectively. These amounts are reflected in accounts receivable in the Company’s accompanying unaudited condensed consolidated balance sheets.

As filed with the 2018 Annual Report on March 21, 2019 as Exhibit 10.48, payment terms per the stocking and distribution agreement are 30 days from receipt of invoice.

Texas Overlord, LLC

Texas Overlord, LLC (“Overlord”) is an investment holding-company owned and controlled by Mr. Brooks.

During the three months ended March 31, 2019, and 2018 the Company:

 

purchased approximately $25,000 and $439,000, respectively, in Orthopedic Implants and medical instruments, and Biologics from Overlord, which is reflected within inventories on the Company’s accompanying unaudited condensed consolidating balance sheets; and

 

incurred approximately $0.00 and $287,000, respectively, in commission costs to Overlord, which is reflected in commissions in the Company’s accompanying unaudited condensed consolidated statements of operations.

As of March 31, 2019, and December 31, 2018, the Company had outstanding balances owed to Overlord of approximately $0.00 and $2,000, respectively. These amounts are reflected in accounts payable in the Company’s accompanying unaudited condensed consolidated balance sheets.

NBMJ, Inc.

NBMJ, Inc. d/b/a Incare Technology (“NBMJ”) is a durable medical equipment, wound care, and surgical supplies distributor owned and controlled by Mr. Brooks.

During the three months ended March 31, 2019, and 2018, the Company sold Biologics products to NBMJ in the amounts of approximately $122,000, and $34,000, respectively, which are reflected in net revenues in the Company’s accompanying unaudited condensed consolidated statements of operations.

As of March 31, 2019, and December 31, 2018 the Company has outstanding balances due from NBMJ of approximately $252,000 and $155,000, respectively. These amounts are reflected in accounts receivable in the Company’s accompanying unaudited condensed consolidated balance sheets.

As filed with the 2018 Annual Report on March 21, 2019 as Exhibit 10.52, payment terms per the stocking and distribution agreement are 30 days from receipt of invoice.

Bass Bone and Spine Specialists

 

Bass Bone & Spine Specialists (“Bass”) operates as a sub-distributor of surgical implants and is owned and controlled by Mr. Brooks.

 

During the three months ended March 31, 2019, and 2018, the Company:

 

 

sold Orthopedic Implants and Biologics products to Bass in the amounts of approximately $62,000 and $117,000, respectively, which is reflected in net revenues in the Company’s accompanying unaudited condensed consolidated statements of operations;

 

incurred approximately $9,000 and $0.00, respectively, in commission costs to Bass, which is reflected in commissions in the Company’s accompanying unaudited condensed consolidated statements of operations.

 

As of March 31, 2019, and December 31, 2018, the Company has outstanding balances due from Bass of approximately $5,000 and $179,000, respectively. These amounts are reflected in accounts receivable in the Company’s accompanying unaudited condensed consolidated balance sheets.

As filed with the 2018 Annual Report on March 21, 2019 as Exhibit 10.56, payment terms per the stocking and distribution agreement are 30 days from receipt of invoice.

Sintu, LLC

Sintu, LLC (“Sintu”) operates as a sub-distributor of surgical implants and is owned and controlled by Mr. Brooks.

During the three months ended March 31, 2019, and 2018, the Company incurred approximately $78,000 and $249,000, respectively, in commission costs to Sintu, which is reflected in commissions on the Company’s accompanying unaudited condensed consolidated statement of operations.

Tiger Orthopedics, LLC

 

Tiger Orthopedics, LLC (“Tiger”) operates as a sub-distributor of surgical implants and is owned and controlled by Mr. Brooks.

 

During the three months ended March 31, 2019, and 2018, the Company sold Orthopedic Implants and Biologics products to Tiger in the amounts of approximately $50,000 and $109,000, respectively, which is reflected in net revenues in the Company’s accompanying unaudited condensed consolidated statements of operations;

 

As of March 31, 2019, and December 31, 2018, the Company has outstanding balances due from Tiger of approximately $35,000 and $5,000, respectively. These amounts are reflected in accounts receivable in the Company’s accompanying unaudited condensed consolidated balance sheets.

As filed with the 2018 Annual Report on March 21, 2019 as Exhibit 10.57, payment terms per the stocking and distribution agreement are 30 days from receipt of invoice.

v3.19.2
Subsequent Events
3 Months Ended
Mar. 31, 2019
Subsequent Events [Abstract]  
Subsequent Events

Note 12. Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through April 29, 2019, the date the financial statements were available to be issued.

 

On April 26, 2019, the Company’s management obtained a waiver from Amegy Bank with respect to the event of default for the three months ended March 31, 2019, to comply with the terms of the RLOC. The Company’s management expects to execute a Third Amendment to the RLOC with Amegy Bank during the second quarter 2019. See Note 6, “Senior Secured Revolving Credit Facility.”

The Company’s management concluded there are no other material events or transactions for potential recognition or disclosure.

v3.19.2
Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Principles of Consolidation

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company, CPM, and Maxim, the Company’s wholly-owned subsidiaries of which the operations have been integrated with the Company. Intercompany transactions have been eliminated in consolidation.

Use of Estimates

Use of Estimates

The preparation of the consolidated financial statements in accordance with GAAP, requires the Company’s management to make estimates and assumptions that affect the Company’s reported amounts in the consolidated financial statements. Actual results could differ from those estimates. Significant estimates on the accompanying consolidated financial statements include the valuation of inventories, the Company’s effective income tax rate, and the recoverability of deferred tax assets, which are based upon the Company’s management expectation of future taxable income and allowable deductions and the fair value calculations of stock-based compensation and earn-out (“Earn-Out”) liability.

Segment Reporting

Segment Reporting

In accordance with Accounting Standards Update (“ASU”) No. 280, “Segment Reporting,” the Company uses the management approach for determining its reportable segments. The management approach is based upon the way that management reviews performance and allocates resources. The Company’s Chief Executive Officer serves as the Company’s chief operating decision maker, and his management team review operating results on a consolidated basis for purposes of allocating resources and evaluating the financial performance of the Company. The Company has integrated the operations of both CPM and Maxim. Accordingly, the Company has determined that it has one operating segment and, therefore, one reporting segment.

Net Loss Per Common Share

Net Loss Per Common Share

Basic net loss per common share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Shares of restricted stock are included in the basic weighted-average number of common shares outstanding from the time they vest. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury stock method.

The Company identified an error in the weighted average number of shares used in its calculation of earnings per share for the three month periods ended March 31, 2019 and March 31, 2018.

 

Three Months Ended March 31, 2019

 

As Previously

Reported

 

 

As Revised

 

Weighted average number of common shares outstanding

 

 

68,737,473

 

 

 

70,221,566

 

Net loss per share - basic

 

$

(0.01

)

 

$

(0.01

)

 

Three Months Ended March 31, 2018

 

As Previously

Reported

 

 

As Revised

 

Weighted average number of common shares outstanding

 

 

28,356,561

 

 

 

65,890,808

 

Net loss per share - basic

 

$

(0.03

)

 

$

(0.01

)

 

The Company performed a quantitative and qualitative analysis and determined that the error was not material to the previously reported quarterly results.

Fair Value Measurements

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.

In connection with the CPM Acquisition, the Company recorded a $19,244,543 liability related to the Earn-Out portion of the purchase consideration. See Note 4, “CPM Acquisition,” for further discussion of the Earn-Out liability. The Company has classified the Earn-Out liability as a Level 3 liability and the fair value of the Earn-Out liability will be evaluated each reporting period and changes in its fair value will be included in the Company’s earnings. The Earn-Out payments are based on the financial performance of the Company between the period of January 1, 2018, and December 31, 2034. The base amount of the Earn-Out is $16,000,000 with an additional bonus payment of $10,000,000. The payments of the base and bonus Earn-Out amounts are subject to the Company meeting certain earnings thresholds as detailed in the CPM Acquisition Agreement. The Earn-Out payments during the Earn-Out period specified above, ranges from $0 to $26,000,000.

The fair value of the Earn-Out liability was calculated using the Monte Carlo simulation, which was then applied to estimated Earn-Out payments with a discount rate of four percent (4%). To determine the fair value of the Earn-Out liability, the Company’s management evaluates assumptions that require significant judgement. Significant assumptions used for estimating the Earn-Out liability included gross margins of approximately forty-eight percent (48%), net income margins averaging nine percent (9%) per year, revenue growth of approximately five percent (5%) over a forecast horizon period of 11 years.

The Earn-Out liability, which represented contingent consideration associated with the CPM Acquisition, is recorded as a liability. This liability is subject to re-measurement to fair value at each reporting date until the contingency is resolved and the changes in fair value are recognized in the statement of operations at each reporting period since the arrangement is not subject to the accounting for hedging instruments.

For the year ended December 31, 2018, the Company has determined the earnings threshold as detailed in the CPM Acquisition Agreement was not met and therefore no payments for either the base or bonus Earn-Out tranches would be achieved, based on the Company’s 2018 financial performance. The Earn-Out was re-measured to fair value under the probability weighted income approach. As a result, the initial fair value of the Earn-Out liability was reduced by $5,663,014 from $19,244,543 to $13,581,529. The Earn-Out liability was reduced by $5,663,014 with the offset reflected as “Change in fair value of contingent purchase consideration” on the Company’s 2018 Annual Report.

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 values of notes payable approximate their respective fair values based upon their effective interest rates.

Reclassification

Reclassification

Certain amounts in the accompanying unaudited condensed consolidated statements of operations have been reclassified to conform to the current presentation. State income tax expense has been reclassified from selling, general, administrative and other expenses to income tax expense (benefit).

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. There were no cash equivalents at March 31, 2019, and December 31, 2018. The Company’s cash is concentrated in two large financial institutions that at times may exceed federally insured limits of $250,000 per financial institution. The Company has not experienced any financial institution losses from the Change in Control Date through March 31, 2019. As of March 31, 2019, and December 31, 2018, there were deposits of $351,303 and $322,693, respectively, which were greater than federally insured limits.

Accounts Receivable and Allowances

Accounts Receivable and Allowances

Accounts receivable are non-interest bearing and are stated at gross invoice amounts less an allowance for doubtful accounts receivable and an allowance for contractual discount pricing. Credit is extended to customers based on an evaluation of their financial condition, industry reputation, and other judgmental factors considered by the Company’s management. The Company generally does not require collateral or other security interest to support accounts receivable. Based on trends and specific factors, the customer’s credit terms may be modified, including required payment upon delivery.

The Company performs regular on-going credit evaluations of its customers as deemed relevant. As events, trends, and circumstance, warrant, the Company’s management estimates the amounts that are more likely than not to be uncollectible; reflecting these amounts in the allowance for doubtful accounts along with an offset to bad debt expense is reflected within selling, general, administrative and other expenses on the Company’s accompanying unaudited condensed consolidated statements of operations.

When accounts are deemed uncollectible, they are often referred to the Company’s outside legal firm for litigation. Accounts deemed uncollectible are written-off in the period when the Company has exhausted its efforts to collect overdue and unpaid receivables or otherwise has evaluated other circumstances that indicate that the Company should abandon such efforts. Accounts deemed uncollectible are removed from the Company’s accounts receivable portfolio, with a corresponding offset to the allowance for doubtful accounts receivable. The Company may record additional allowances for doubtful accounts based on known trends and expectations to ensure the Company’s accounts receivable portfolio is recorded at net realizable value. Specific allowances are re-evaluated and adjusted as additional facts and information become available. Previously written-off accounts receivable subsequently collected are recognized as a reduction of bad debt expense when funds are received.

The Company’s management estimates its allowance for contractual discount pricing, by evaluating specific accounts where information indicates the customer is offered contractual pricing and discount allowances. In these arrangements, the Company’s management uses assumptions and judgement, based on the best available facts and circumstances to record a specific allowance for the amounts due from those customers. The allowance is offset by a corresponding reduction to revenue. These specific allowances are re-evaluated, analyzed, and adjusted as additional information becomes available to determine the total amount of the allowance. The Company may record additional allowances based on trends and expectations to ensure the Company’s accounts receivable portfolio is recorded at net realizable value.

Inventories

Inventories

Inventories are stated at the lower of cost or net realizable value (first-in, first-out). Inventories consist entirely of finished goods and include internal and external fixation products; upper and lower extremity plating and total joint reconstruction; soft tissue fixation and augmentation for sports medicine procedures; spinal implants for trauma, degenerative disc disease, and deformity indications (collectively, “Orthopedic Implants”) and osteo-biologics and regenerative tissue which include human allografts, substitute bone materials and tendons, as well as regenerative tissues and fluids (collectively, “Biologics”). The Company reviews the market value of inventories whenever events and circumstances indicate that the carrying value of inventories may not be recoverable from the estimated future sales price less cost of disposal and normal gross profit. In cases where the market values are less than the carrying value, a write-down is recognized equal to an amount by which the carrying value exceeds the market value of inventories.

Property and Equipment

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets per the following table. Expenditures for additions and improvements are capitalized while repairs and maintenance are expensed as incurred.

 

Category

 

Useful Life

Computer equipment and software

 

3 years

Furniture and fixtures

 

3 years

Office equipment

 

3 years

Software

 

3 years

 

Upon the retirement or disposition of property and equipment, the related cost and accumulated depreciation is removed. A gain is recorded when consideration received is more than the disposed asset’s cost, net of depreciation, and a loss is recorded when consideration received is less than the disposed asset’s cost, net of depreciation.

Long-Lived Assets

Long-Lived Assets

The Company reviews long-lived assets quarterly or whenever changes in circumstances indicate that the carrying amount of an asset might not be recoverable. Assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, which generally represents furniture and fixtures. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the consolidated cash flow measure monitored for indicators of impairment. As the cash flow measure reaches levels to indicate potential impairment, the Company estimates the future cash flows expected to be generated from the use of the asset and its eventual disposal. If the sum of undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Fair value is typically determined to be the value to repurchase furniture and fixtures.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Goodwill is determined based on an acquisition purchase price in excess of the fair value of identified net assets acquired.  Intangible assets with lives restricted by contractual, legal or other means are amortized over their useful lives. The Company tests goodwill at least annually for impairment using the fair value approach on a reporting unit basis. 

Since the Company is one reporting unit, potential goodwill impairment is evaluated by comparing the fair value of the Company to its carrying value. The fair value of the Company is determined using a market approach. If the carrying value of the Company exceeds fair value, a comparison of the fair value of goodwill against the carrying value of goodwill is made to determine whether goodwill has been impaired. The Company performs the annual assessment of the recoverability of goodwill during the fourth quarter of each fiscal year. 

The Company’s intangible assets subject to amortization consist primarily of acquired non-compete agreements and customer relationships. Amortization expense is calculated using the straight-line method over the asset’s expected useful life. See Note 3 – “Maxim Acquisition” for Goodwill and Other Intangibles for additional related disclosures.

Revenue Recognition

Revenue Recognition

The Company’s revenues are generated from the sales of Orthopedic Implants and Biologics to support orthopedic surgeries. The Company obtains purchase orders from its customers for the sale of its products which sets forth the general terms and conditions including line item pricing and payment terms (generally due upon receipt). The Company recognizes revenue when its customers obtain control over the assets (generally when the title passes upon shipment or when a product is utilized in a surgery) and it is probable that the Company will collect substantially all the amounts due. Individual promised goods are the Company’s only performance obligation.

Products that have been sold are not subject to returns unless the product is deemed defective. Credits or refunds are recognized when they are probable and reasonably estimated. The Company’s management reduces revenue to account for estimates of the Company’s credits and refunds.

The Company included shipping and handling fees in net revenues. Shipping and handling costs are associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.

Revenue Differentiation

The Company measures sales volume based on medical procedures in which the Company’s products are sold and used (“Cases”). The Company considers Cases resulting from direct sales to medical facilities to be retail cases (“Retail Cases”) and Cases resulting from sales to third-parties, such as non-medical facilities, distributors, or sub-distributors, to be wholesale Cases (“Wholesale Cases”). Some of our sales for Wholesale Cases are on a consignment basis with a third-party. In our industry, Retail Cases are typically sold at a higher price than Wholesale Cases, resulting in greater revenue and profit per Case.

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

Category

 

 

 

 

 

 

 

 

Retail

 

$

3,652,312

 

 

$

4,012,784

 

Wholesale

 

 

1,118,347

 

 

 

1,991,264

 

Total

 

$

4,770,659

 

 

$

6,004,048

 

 

Stock-Based Compensation

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 pro-rata 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

Recent Accounting Pronouncements

The Company considers the applicability and impact of all ASUs issued, both effective and not yet effective.

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-02, “Leases”, which requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than twelve (12) months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The adoption of this ASU did not have a significant impact on our condensed consolidated financial statements.

In March 2018, the FASB issued ASU No.2018-05 “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” This new standard adds SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Tax Cuts and Jobs Act (H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018) was signed into law. ASU 2018-05 is effective upon inclusion in the FASB codification. The Company’s management is currently evaluating the impact that the adoption of ASU 2018-05 will have on its consolidated financial statements.

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

v3.19.2
Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Error Identified in Weighted Average Number of Shares Used in Calculation of Earnings per Share

The Company identified an error in the weighted average number of shares used in its calculation of earnings per share for the three month periods ended March 31, 2019 and March 31, 2018.

 

Three Months Ended March 31, 2019

 

As Previously

Reported

 

 

As Revised

 

Weighted average number of common shares outstanding

 

 

68,737,473

 

 

 

70,221,566

 

Net loss per share - basic

 

$

(0.01

)

 

$

(0.01

)

 

Three Months Ended March 31, 2018

 

As Previously

Reported

 

 

As Revised

 

Weighted average number of common shares outstanding

 

 

28,356,561

 

 

 

65,890,808

 

Net loss per share - basic

 

$

(0.03

)

 

$

(0.01

)

Estimated Useful Lives of Assets

 

Category

 

Useful Life

Computer equipment and software

 

3 years

Furniture and fixtures

 

3 years

Office equipment

 

3 years

Software

 

3 years

 

Schedule of Revenue Differentiation

The Company measures sales volume based on medical procedures in which the Company’s products are sold and used (“Cases”). The Company considers Cases resulting from direct sales to medical facilities to be retail cases (“Retail Cases”) and Cases resulting from sales to third-parties, such as non-medical facilities, distributors, or sub-distributors, to be wholesale Cases (“Wholesale Cases”). Some of our sales for Wholesale Cases are on a consignment basis with a third-party. In our industry, Retail Cases are typically sold at a higher price than Wholesale Cases, resulting in greater revenue and profit per Case.

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

Category

 

 

 

 

 

 

 

 

Retail

 

$

3,652,312

 

 

$

4,012,784

 

Wholesale

 

 

1,118,347

 

 

 

1,991,264

 

Total

 

$

4,770,659

 

 

$

6,004,048

 

v3.19.2
Maxim Acquisition (Tables)
3 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Summary of Intangible Assets Acquired The following table summarizes the intangible assets acquired of Maxim as of the Maxim Closing Date:

 

 

March 31,

2019

 

 

December 31,

2018

 

 

Amortization period

(years)

Intangible assets:

 

 

 

 

 

 

 

 

 

 

Non-compete agreements

 

$

61,766

 

 

$

61,766

 

 

2

510k product technology

 

 

704,380

 

 

 

704,380

 

 

Indefinite

Customer relationships

 

 

555,819

 

 

 

555,819

 

 

11

Goodwill

 

 

2,084,439

 

 

 

2,084,439

 

 

Indefinite

Total intangible assets

 

 

3,406,404

 

 

 

3,406,404

 

 

 

Less: accumulated amortization

 

 

(54,280

)

 

 

(33,925

)

 

 

Intangible assets, net

 

$

3,352,124

 

 

$

3,372,479

 

 

 

 

Schedule of Unaudited Pro Forma Information

Unaudited pro forma information for the three months ended March 31, 2018 is as follows:

 

 

Three Months Ended March 31, 2018 - Unaudited

 

 

Historical Fuse

Medical, Inc.

 

 

Historical

Maxim Surgical

 

 

Pro forma

Adjustments

 

 

Pro forma

Combined

 

Revenue

$

6,004,048

 

 

$

330,592

 

 

$

(171,608

)

 

$

6,163,032

 

Net (loss) income

 

(734,967

)

 

 

60,566

 

 

 

-

 

 

 

(674,401

)

Net loss per common share - basic

$

(0.01

)

 

$

-

 

 

$

-

 

 

$

(0.01

)

v3.19.2
Property and Equipment (Tables)
3 Months Ended
Mar. 31, 2019
Property Plant And Equipment [Abstract]  
Property and Equipment

Property and equipment consisted of the following at March 31, 2019, and December 31, 2018:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Computer equipment and software

 

$

41,840

 

 

$

41,840

 

Furniture and fixtures

 

 

5,047

 

 

 

5,047

 

Office equipment

 

 

21,913

 

 

 

21,913

 

Property and equipment costs

 

 

68,800

 

 

 

68,800

 

Less: accumulated depreciation

 

 

(31,195

)

 

 

(25,826

)

Property and equipment, net

 

$

37,605

 

 

$

42,974

 

v3.19.2
Stockholders' Equity (Tables)
3 Months Ended
Mar. 31, 2019
Stockholders Equity Deficit Tables [Abstract]  
Summary of Non-qualified Stock Option Activity

A summary of the Company’s NQSO activity for the three months ended March 31, 2019, is presented below:

 

 

No. of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

 

 

Aggregate

Intrinsic

Value

 

Balance outstanding at December 31, 2018

 

 

3,915,000

 

 

$

0.78

 

 

 

7.0

 

 

$

443,000

 

Granted

 

 

900,000

 

 

 

0.75

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-