Fuse Medical, Inc. (Form: 10-K, Received: 03/20/2017 16:10:40)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2016

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

For the Transition Period from to

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 incorporation or organization)		(I.R.S. Employer Identification No.)


1300 Summit Avenue, Suite 670, Fort Worth, Texas		76102
(Address of principal executive offices)		(Zip Code)

(817) 439-7025

Registrant's telephone number, including area code

Securities registered pursuant to section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
None		None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No

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 past 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 ☐ 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 (§229.405 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 ☐ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K ☐

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

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $147,604 .

Indicate the number of shares outstanding of each of the registrant’s classes of Common Stock, as of the latest practicable date: As of March 17 , 2017, 15,890,808 shares of the registrant’s Common Stock were outstanding.

INDEX

PART I

ITEM 1.	BUSINESS.	4
ITEM 1A.	RISK FACTORS.	6
ITEM 1B.	UNRESOLVED STAFF COMMENTS.	11
ITEM 2.	PROPERTIES.	12
ITEM 3.	LEGAL PROCEEDINGS.	12
ITEM 4.	MINE SAFETY DISCLOSURES.	12

PART II

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES.	13
ITEM 6.	SELECTED FINANCIAL INFORMATION.	13
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	14
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	19
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.	19
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.	19
ITEM 9A.	CONTROLS AND PROCEDURES.	19
ITEM 9B.	OTHER INFORMATION.	20

PART III

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.	21
ITEM 11.	EXECUTIVE COMPENSATION.	24
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.	26
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.	27
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES.	28

PART IV

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.	29
SIGNATURES		32

EXPLANATORY NOTE

Fuse Medical, Inc. (the “Company”) is the latest successor company to GolfRounds, Inc. which was incorporated in 1968 as 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 Medial, LLC and surviving as a wholly-owned subsidiary of Fuse Medical, Inc. During 2015, certificates of termination were filed for Fuse medical, LLC and its two subsidiaries.

During July 2016 through October 2016, we obtained three short-term loans in the aggregate amount of $150,000 in exchange for promissory notes bearing 10% interest per annum (attached hereto as Exhibits 10.31, 10.32, and 10.33 ) , which principal shall be due and payable, upon demand of the payee, at any time after the earlier of: (i) December 31, 2016; or (ii) or upon a change in control of the Company. The promissory notes were issued as follows: $100,000 to NC 143, a family limited partnership controlled by Mark W. Brooks, our Chairman of the Board; and $50,000 to RMI, an investment holding company owned and controlled by Christopher C. Reeg, our Chief Executive Officer. On or after January 16, 2017, at the holder’s sole discretion, the holder has the right to convert all or any portion of the then unpaid principal and interest balance of the promissory notes into shares of our Common Stock at a conversion price of $0.08 per share. On each respective date of issuance, the conversion price of each of the promissory notes was less than the market price of our Common Stock. Subsequent to the issuance of the notes, affiliates of the noteholders entered into the Stock Purchase Agreement (the “Purchase Agreement”) with us. On December 19, 2016 (the “Closing Date”), we entered into a definitive Purchase Agreement by and among the Company, NC 143 Family Holdings, LP, a family limited partnership controlled by Mark W. Brooks (“NC 143”), and Reeg Medical Industries, Inc., an investment holding company owned and controlled by Christopher C. Reeg (“RMI” and, together with NC 143, the “Investors”), pursuant to which NC 143 acquired 5,000,000 shares of our Common Stock, par value $0.01 per share (“Common Stock”), for a purchase price of $400,000 and RMI acquired 4,000,000 shares of our Common Stock for a purchase price of $320,000 (such shares issued pursuant to the Purchase Agreement, the “Investor Shares”), effective as of the Closing Date.

The closing of the Purchase Agreement resulted in a change in control of the Company whereby the Investors acquired a majority of our issued and outstanding equity securities, Mark W. Brooks became our Chairman of the Board and Christopher C. Reeg became our Chief Executive Officer, as described in the Company’s Current Report on Form 8-K, filed on December 23, 2016 (the “Purchase Agreement 8-K”), which is herein incorporated by reference.

During June 2016, we transferred inventory having a net book value of $8,467 to CPM Medical Consultants, LLC (“CPM”), which is one of our suppliers and is majority owned and controlled by our Chairman of the Board (who is also one of the Investors), in exchange for cash proceeds of $100,000. As the transfer of inventory was completed pursuant to a letter of intent between us and the Investors, the profit of $91,533, which had been deferred in the prior two quarters, was, on December 19, 2016 considered a contribution of capital by the Investors.

We are a “smaller reporting company” as that term is defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, this Annual Report will reflect the reporting requirements of smaller reporting companies as set forth in Regulation S-K, promulgated under the Exchange Act.

PART I

ITEM 1. BUSINESS.

Historical Company Information

Golf Rounds, Inc. was incorporated in 1968 as a Florida corporation.

On May 28, 2014, and through a series of related, subsequent transactions (the “Merger” and such agreement effectuating the Merger, the “Merger Agreement”), we merged with Fuse Medical, LLC, a Delaware limited liability company (“Legacy Fuse”). As a result of the Merger, we acquired Legacy Fuse and the business of Legacy Fuse became our business. For more information on the Merger, see the Company’s Form 8-K/A filed on August 29, 2014, which is herein incorporated by reference.

On the Closing Date, we entered into the Purchase Agreement, as described in the section of this Annual Report above entitled “Explanatory Note,” which is incorporated herein by reference.

Overview

Historically our business has been to market, distribute and sell orthopedic and foot and ankle surgical implants, osteobiologics, regenerative amniotic tissues, and other related surgical products for use during surgical procedures conducted at medical facilities (ambulatory surgical centers and hospitals) where orthopedic surgeons treat patients and perform operations. We market, distribute and sell a variety of existing FDA-approved and/or state licensed products and services manufactured or produced by other organizations where we are considered a distributor and/or a stocking distributor. Currently, these products consist of plates and screws for internal fixation of small bone fractures, human allografts of bone chips and tendons, and regenerative amniotic tissues and fluids. The amniotic products are derived from the inner layer of the human placenta or harvested from amniotic fluid. The tissues are then processed by accredited tissue banks resulting in FDA-approved allografts, which are indicated to decrease inflammation and scarring in surgical procedures. Amniotic products have historically made up over 50% of our revenues.

We have recently expanded our product portfolio of surgical implants to now include multiple manufacturers’ offerings of not only foot and ankle internal and external fixation products, but also upper extremity plating for elective orthopedic trauma, soft tissue fixation and augmentation for sports medicine procedures, total joint reconstruction for both upper and lower extremities, and full spinal implants for trauma, degenerative disc disease and deformity indications.

We believe that by expanding our product lines, a comprehensive selection of orthopedic, sports medicine and spinal implant products, we can be more relevant to our customers and also have the ability to rapidly grow upon our existing customer base.

We utilize our physician relationships, corporate partners, facility relationships, and distribution channels, as well as their knowledge of the healthcare industry to further our business objectives. We believe all sales are made in compliance with both the Stark Law and the federal Anti-Kickback Statute, as further discussed below.

Product Distribution Channels and Customer Base

We utilize multiple distribution models including representative networks and independent contractors. Our largest customers are hospitals and surgical facilities. We distribute some products on behalf of manufacturers and, in some cases, receive a commission related to sales numbers. In most cases, we purchase products directly from manufacturers or authorized distributors and resell the products from existing inventory. We are attempting to build a network of specialists in select clinical specialties, many of whom we believe are leaders in their field, and anticipate they will clinically utilize the Company’s products. These network specialists may include heads of teaching hospitals, universities and clinical resident and fellowship programs at some of the most respected institutes in the nation.

For products we sell on a commission basis, we receive payment from the manufacturer or distributor. For products sold from our inventory, we receive payment directly from our customers. In the year ended December 31, 2016, 87% of our revenues were derived from two customers. Amniotic products have historically made up the largest portion of our business. We recognize that the diversification and growth of our customer base will be instrumental to our long-term strategic and financial success.

Our principal supplier for our amniotic products is CPM, which is majority owned and controlled by our Chairman of the Board. We entered into a distributor agreement with CPM effective August 2, 2012, pursuant to which we act as a non-exclusive distributor of certain amniotic membrane products. The term of the agreement is one year and renews on each annual anniversary date for successive one-year terms unless it is terminated in writing by either party. During December 2015 through May 2016, we purchased certain amniotic membrane products from SLR Medical Consulting, LLC (“SLR”) under a December 15, 2015 distributor agreement

with SLR pursuant to which we act as a non-exclusive distributor. The term of the agreement is one yea r and renews on each annual anniversary date for successive one-year terms unless it is terminated in writing by either party. During 2016 and 2015, we generated revenues of approximately $383,000 and $1,202,000, respectively, from the CPM and SLR distribu tor agreements.

On July 17, 2014, we entered into an Independent Representative Agreement with Vilex, Inc. (“Vilex”) pursuant to which we were appointed as a representative of Vilex to promote and sell Vilex products in the United States. The Vilex products include certain plates, screws, and related equipment. Under the terms of the agreement with Vilex, we were a non-exclusive representative of Vilex, except for certain specified customers. The agreement with Vilex was for a term of five years and it would have automatically renewed for additional one-year periods at the expiration of the original term unless terminated as provided therein. We were paid a commission based on net sales. During 2016 and 2015, we generated approximately $22,000 and $46,000, respectively, from Vilex for commissions under this agreement. On November 15, 2016, due to low sales volume resulting from Vilex being excluded from a hospital purchasing contract, Vilex terminated this agreement.

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 with BioD is from January 8, 2015, through December 31, 2016, unless earlier terminated in accordance with the agreement. The BioD agreement set forth a quota for the purchase of the products by us from BioD for the first year of the agreement, which the Company exceeded. During 2016 and 2015, we generated approximately $153,000 and $420,000, respectively, of revenues from this agreement. We have not been provided notice from BioD as to whether BioD intends to renew this agreement.

For each of our suppliers, we are dependent upon their ability to obtain raw materials to manufacture the products that they supply to us to market, distribute and sell.

Competition

With respect to sales and distribution of most of the products we offer, we have numerous vertically integrated competitors, several of which are publicly 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. Most of these competitors have linked physicians to their entities by engaging select physician and surgical specialists through consulting agreements, clinical trials remuneration and other compensation models. In addition, there are numerous independent medical distributorships primarily focused on limited geographic markets and products located across the United States.

Intellectual Property

We hold no registered intellectual property, patents or trademarks.

Regulatory Issues

There are both federal and state regulations that may impact our ability to fully implement our strategic plan.

FDA Regulations

The manufacturers and suppliers of the products we market are subject to extensive regulation by the U.S. Food and Drug Administration (“FDA”), other federal governmental agencies and by state authorities. These laws and regulations govern the approval of, clearance of or license to commercialize medical devices, biological products and human cellular and tissue products; including compliance with the standards and requirements related to the design, testing, manufacture, labeling, promotion and sales of the products, record keeping requirements, tracking of devices, reporting of potential product defects and adverse events, conduct of corrections and recalls, and other matters. As a distributor and marketer of such FDA-regulated products, we are subject to independent requirements to register and list certain products, we may be required to obtain state licensure or certifications and we may be subject to inspections, in addition to complying with requirements applicable to the manufacturers of the products we market. Failure to comply with applicable requirements could result in a wide variety of enforcement actions ranging from warning letters to more severe sanctions such as: fines and civil penalties, operating restrictions, injunctions and criminal prosecutions.

Fraud, Abuse and False Claims

We are directly and indirectly subject to certain federal and state laws governing relationships with healthcare providers and pertaining to healthcare fraud and abuse. The federal Anti-Kickback Statute (the “AKS”) is a criminal statute that prohibits the knowing and willful offer, payment, solicitation or receipt of remuneration, in cash or otherwise, in return for referrals of federal healthcare beneficiaries. The Department of Health and Human Services (“DHHS”) has promulgated certain safe harbors that offer protection

from liability under the AKS for arrangements that fall within very specific parameters. The Company intends to utilize the “small investment interest safe harbor” in the AKS as a business model.

The Stark Law prohibits a provider of designated health services (“DHS”) from billing Medicare for any DHS that a physician refers to the provider if the physician or an immediate family member has a financial relationship (either via a compensation arrangement or ownership interest) directly or indirectly with or in that provider. We are not a provider of DHS and therefore we believe the Stark Law does not apply to us.

Employees

As of March 20, 2017, the Company had two employees and one independent contractor.

ITEM 1A. RISK FACTORS.

Our business and an investment in our securities are subject to a variety of risks. The following risk factors describe some of the most significant events, facts or circumstances that could have a material adverse effect upon our business, financial condition, results of operations, ability to implement our business plan and the market price for our securities. Many of these events are outside of our control. If any of these risks actually occur, our business, financial condition or results of operations may be materially adversely affected. In such case, the trading price of our Common Stock could decline and investors in our Common Stock could lose all or part of their investment.

Risks Related to Our Businesses and Industries

U.S. and state governmental regulation could restrict our ability to sell the products.

The AKS is a criminal statute that prohibits the payment or receipt of remuneration, in cash or otherwise, in exchange for referrals of services or goods paid under federal healthcare insurance programs. DHHS has promulgated certain safe harbors that offer protection from liability under the AKS for arrangements that fall within very specific parameters.

Many states also include laws similar to the AKS or the Stark Law to which we may be subject. If it is determined that our business arrangements fail to comply with the AKS, the Stark Law or similar state laws, we could face significant civil and/or criminal penalties.

The scope and enforcement of these laws is uncertain and subject to rapid change, especially in light of the lack of applicable precedent. There can be no assurance that federal or state regulatory or enforcement authorities will not investigate or challenge our current or future activities under these laws. Any investigation or challenge could have a material adverse effect on our business, financial condition and results of operations. Any state or federal regulatory or enforcement review of us, regardless of the outcome, would be costly and time consuming. Additionally, we cannot predict the impact of any changes in these laws, whether these changes are retroactive or will have effect on a going-forward basis only.

If there are any changes to the statutes and regulations placed on our industry, the changes may have an adverse effect on our business and your investment.

The ability of the Company to operate legally and at a profit may be adversely affected by the changes in governmental regulations, including federal and state fraud and abuse laws, federal and state anti-kickback statutes, the federal and state False Claims Acts, federal and state self-referral laws, state restrictions on fee splitting, the federal Health Insurance Portability and Accountability Act of 1996, as amended, and other laws and government regulations. Changes to these laws and regulations may adversely affect the economic viability of the Company.

There is ongoing scrutiny of arrangements between health care providers and potential referral sources (e.g., physicians) by Congress, state legislatures, government agencies and the courts in order to ensure such arrangements are not designed as a mechanism to exchange remuneration for patient care referrals and opportunities. While it is the Company’s intent to ensure it is in compliance with federal and state laws, failure to do so could result in liability for the Company. Government authorities have demonstrated a willingness to look behind the formalities to determine the underlying purpose of payments between health care providers and potential referral sources. No assurance can be given that the Company will not be reviewed and challenged by enforcement authorities, and if so challenged, no assurance can be given that the Company will prevail. If there is a change in law, regulation, or administrative or judicial interpretations, we may have to change our business practices; otherwise our existing business practices could be challenged as unlawful, which could have a material adverse effect on our business, financial condition and results of operations.

We have not been his torically or currently profitable and we may need to raise additional funds in the future or become profitable ; however, additional funds may not be available on acceptable terms, or we may not be successful in executing our business strategies .

We have historically incurred substantial operating expenses associated with the sales and marketing of the products we sell and administrative costs incurred. These expenses primarily include wages and travel costs. We anticipate funding sales, marketing expenses, and administrative costs from operating cash flows or, if necessary, from working capital. We have no assurances that we will have sufficient access to liquidity or cash flow to meet our operating expenses and other obligations. If we do not increase our revenues and profitability or reduce our expenses, we will need to raise additional capital, which would result in dilution to our stockholders, or seek additional borrowings. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. If adequate funds are not otherwise available, we would be forced to curtail operations significantly, including reducing our sales and marketing expenses and administrative costs which could negatively impact product sales and we could even be forced to cease operations, liquidate our assets and possibly even seek bankruptcy protection.

Many competitive products exist and more will be developed, and we may not be able to successfully compete because we are smaller and have fewer financial and human capital resources.

Our business is in a very competitive and evolving field. Rapid new developments in this field have occurred over the past few years, and are expected to continue to occur. Other companies already have competing products available or may develop products to compete with ours. Many of these products have short regulatory timeframes and our competitors, many with more substantial development resources, may be able to develop competing products that are equal to or better than the ones we market. This may make the products we market obsolete or undesirable by comparison and reduce our revenues and profitability.

Product pricing is subject to regulatory control.

The pricing and profitability of the products we sell may become subject to control by third-party payors. The continuing efforts of governmental and other third-party payors to contain or reduce the cost of healthcare through various means may adversely affect our ability to successfully commercialize our products. We expect that there will continue to be federal and state proposals to implement similar governmental control though it is unclear which proposals will ultimately become law, if any. Changes in prices, including any mandated pricing, could impact our revenues and profitability and financial performance.

Future regulatory action remains uncertain.

We operate in a highly-regulated environment, and any legal or regulatory action could be time-consuming and costly. If we, or the manufacturers or distributors that supply us products, fail to comply with all applicable laws, standards and regulations, action by the FDA or other regulatory agencies could result in significant restrictions, including restrictions on the marketing or use of the products we sell or the withdrawal of the products we sell from the market. Any such restrictions or withdrawals could materially affect our business and operations.

Our revenues will depend upon our customers receiving prompt and adequate reimbursement from private insurers and national health systems.

Political, economic and regulatory influences are fundamentally changing the healthcare industry in the United States. The ability of hospitals to pay fees for our products depends in part on the extent to which reimbursement for the costs of such materials and related treatments will continue to be available from private health coverage insurers and other organizations. We may have difficulty gaining market acceptance for the products we sell if third-party payors do not provide adequate coverage and reimbursement to hospitals.

Major third-party payors of hospital services and hospital outpatient services, such as private healthcare insurers, annually revise their payment methodologies. These annual revisions can result in stricter standards for reimbursement of hospital charges for certain medical procedures or the elimination of reimbursement. Further, private healthcare insurer cutbacks could create downward price pressure on our products.

Pricing pressure and cost containment measures could have a negative impact on our future operating results.

Pricing pressure has increased in our industry due to continued consolidation among healthcare providers, trends toward managed care, the recent shift towards government becoming the primary payer of healthcare expenses, and government laws and regulations relating to reimbursement and pricing generally. Pricing pressure, reductions in reimbursement levels or coverage or other cost containment measures could unfavorably affect our future operating results and financial condition.

Our ability to continue as a going concern is dependent on obtaining adequate new debt or equity financing and achieving sufficient sales and profitability .

We incurred net losses of approximately $586,000 in 2016 and $802,000 in 2015. We anticipate these losses will continue for the foreseeable future. We have not reached a profitable level of operations, which raises substantial doubt about our ability to continue as a going concern. We believe our current cash balance provides us with enough working capital to sustain operations for 12 to 24 months. Our continued existence is dependent upon our achieving sufficient sales and profitability of our products and sustaining adequate working capital. If we are unsuccessful in generating sufficient sales and profitability or raising adequate capital, we will have to significantly reduce administrative costs or cease our operations and your investment may be lost.

Our growth and profitability will depend in large part upon the effectiveness of our marketing strategies and expenditures.

Our future growth and profitability will depend in large part upon our marketing performance and appropriate cost structure, including our ability to:

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create greater awareness of the products we sell and the excellent quality control and customer service of the Company;

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identify and utilize the most effective sales representatives who understand the advantages of our products and who can effectively communicate that to physicians; and

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effectively manage marketing and administrative expenditures.

Ineffective sales representatives and/or our promotional efforts and management of working capital will adversely affect our future results of operations and financial condition.

There may be fluctuations in our operating results, which will impact our stock price.

Our volume of revenues, the timing of new product or service announcements, releases by us and our competitors in the marketplace of new products or services, seasonality, general economic conditions, and other factors, may cause significant annual and quarterly fluctuations in our results of operations. There can be no assurance that the level of revenues and profitability achieved by us in any particular reporting period will not be significantly lower than in other comparable reporting periods. For example, our January sales are ordinarily significantly less than those of the fourth quarter months. Our expense levels are based, in part, on our expectations as to future revenues and profitability. If future revenues and profitability are below expectations, this may disproportionately affect our results from operations as any corresponding reduction in expenses may not be proportionate to the reduction in revenues and profitability.

Future business combinations or acquisitions may be difficult to integrate and cause our attention to be diverted.

We may pursue various business combinations with other companies or strategic acquisitions of complementary businesses, product lines or technologies. There can be no assurance that such acquisitions will be available at all, or on terms acceptable to us. These transactions may require additional capital which may increase our indebtedness or outstanding shares, resulting in dilution to stockholders or reduction in working capital. The inability to obtain such future capital may inhibit our growth and operating results. Integration of acquisitions or additional products can be time consuming, difficult and expensive and may significantly impact operating results. Furthermore, the integration of any acquisition may disproportionally divert management’s time and resources from our core business. We may sell some or all of our product lines to other companies or may agree to combine with another company. Selling some of our product lines without appropriate cost structures may inhibit our ability to generate positive operating results going forward.

Our executive management team, including our Chief Executive Officer, may dedicate less time and attention to the company .

Members of our executive management team, including Mr. Reeg, our Chief Executive Officer, are also in management positions with other companies. Each of these individuals may allocate their time between the affairs of the Company and the affairs of other companies. This situation presents the potential for conflicts of interest in determining the respective percentages of the time they devote to the affairs of the Company and the affairs of other companies. In addition, if the affairs of these other companies require members of our management team to devote more substantial amounts of their time to the affairs of the other companies in the future, it could limit their ability to devote sufficient time to our affairs and could have a negative impact on our business.

We may be subject to future product liability litigation that could be expensive, and we do not carry product liability insurance coverage.

We are not currently subject to any product liability proceedings and we have no reserves for product liability disbursements. However, we may incur material liabilities relating to product liability claims in the future, including product liability claims arising out of the usage of our products. We do not currently carry product liability insurance. Our insurance coverage and any reserves we may maintain in the future for product related liabilities may not be adequate and our business could suffer material adverse consequences as a result.

The FDA regulates manufacturers and suppliers of the products we purchase and market to continuing regulatory compliance is costly and likely contributes to delays in the commercialization of the products.

The manufacturers and suppliers of the products we market are subject to FDA regulation. These regulations govern manufacturing of cellular and tissue products as well as the introduction of new medical devices, the observance of certain standards with respect to the design, manufacturing, testing, labeling, promotion and sales of the devices, the maintenance of certain records, the ability to track devices, the reporting of potential product defects, the importing and exporting of devices and other matters. Further, the manufacturers that create the products we market are facing an increasing amount of scrutiny and compliance costs as more states are implementing regulations governing medical devices, pharmaceuticals and/or biologics and these regulations could affect many of the products we market, which could impact our revenues and profitability, results of operations, and working capital.

As a distributor, the FDA and similar state authorities require us to list and register certain products.

As a distributor and marketer of such FDA-regulated products, we are subject to independent requirements to register and list certain products, may be required to obtain state licensure or certifications and may be subject to inspections, in addition to complying with derivative requirements applicable to the manufacturers of the products we market. Failure to comply with applicable requirements could result in a wide variety of enforcement actions ranging from warning letters to more severe sanctions such as significant costly fines and civil penalties, operating restrictions, injunctions and criminal prosecutions, all of which could adversely impact our business.

We have no established internal sales staff and marketing structure.

Our future success depends, in part, on our ability to generate new revenues and profitability. Because our growth strategy depends on independent contractors to generate new revenues and profitability, we do not anticipate that we will hire sales staff. Consequently, in the event that our independent contractor strategy is not effective, the lack of sales staff means we may have limited ability to increase our revenues and profitability, which could adversely impact our business.

Risks Related to Ownership of Our Common Stock

Because the market for our Common Stock is limited, persons who purchase our Common Stock may not be able to resell their shares at or above the purchase price paid by them.

Our Common Stock trades on the OTC Markets, Inc. (the “OTC Markets”), which is not a liquid market. With some limited exceptions, there has not been an active public market for our Common Stock. We cannot assure you that an active public market for our Common Stock will develop or be sustained in the future. If an active market for our Common Stock does not develop or is not sustained, the price may decline and you may lose your investment in our Common Stock.

The market price for our securities historically has been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of our company. Fluctuations in the trading price or liquidity of our Common Stock may reduce the value of your investment in our Common Stock.

Factors that may have a significant impact on the market price and marketability of our securities include:

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announcements of technological innovations or new commercial products by our collaborative partners or our present or potential competitors;

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our issuance of debt, equity or other securities, which we may need to pursue to generate additional funds to further invest in our business model to achieve profitability to cover our operating expenses;

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our quarterly operating results;

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developments or disputes concerning patent or other proprietary rights;

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developments in our relationships with employees, suppliers or collaborative partners;

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acquisitions or divestitures;

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litigation and government proceedings;

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adverse legislation, including changes in governmental regulation;

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third-party reimbursement policies;

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changes in securities analysts’ recommendations;

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short selling;

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changes in national health care policies and practices;

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economic and other external factors; and

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general market conditions.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. These lawsuits often seek unspecified damages, and as with any litigation proceeding, one cannot predict with certainty the eventual outcome of pending litigation. Furthermore, we may have to incur substantial expenses in connection with any such lawsuits and our management’s attention and resources could be diverted from operating our business as we respond to any such litigation. We maintain insurance to cover these risks for us and our directors and officers. Our insurance coverage and policies are subject to high deductibles in order to reduce premium expense, and there is no guarantee that the insurance will cover any specific claim that we currently face or may face in the future, or that it will be adequate to cover all potential liabilities and damages or that we will have sufficient working capital or funds.

Our current management can exert significant influence over us and make decisions that are not in the best interests of all stockholders.

Our executive officers and directors beneficially own as a group approximately 72% of our outstanding shares of Common Stock. As a result, these stockholders will be able to assert significant influence over all matters requiring stockholder approval, including the election and removal of directors and any change in control. This concentration of ownership of our outstanding shares of Common Stock could have the effect of delaying or preventing a change in control, or otherwise discouraging or preventing a potential acquirer from attempting to obtain control. This, in turn, could have a negative effect on the market price of our Common Stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of Common Stock. Moreover, the interests of the owners of this concentration of ownership may not always coincide with our interests or the interests of other stockholders and, accordingly, could cause us to enter into transactions or agreements that we would not otherwise consider.

Due to recent changes in management, we cannot be certain our internal controls over financial reporting and procedures are sufficient. Although we are taking significant remedial measures (as explained elsewhere in this Annual Report), our uncertainty could have a material adverse effect on our investors’ confidence in our reported financial information. There is no guarantee that our internal controls over financial reporting and procedures will not fail in the future.

Effective internal controls over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial reports and to detect and prevent fraud. In the past, our internal controls and procedures may not have been adequate. The remedial measures being taken by us may not be sufficient to maintain the confidence of investors or any loss of reputation, which could in turn affect our finances and operations. Our disclosure controls and internal controls over financial reporting may not prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent

limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and in stances of fraud, if any, within our business have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error s or mistake s . Controls can also be cir cumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any d esign may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the i nherent limitation of a cost-effective control system, misstatements due to error or fraud may have occur red and not have be en detected. A failure in any of our internal controls and procedures, may result in enforcement actions by the SEC or other governm ent and regulatory bodies, litigation, loss of reputation , loss of investor confidence, inability to acquire capital , and other material adverse effects on the Company .

We do not anticipate paying dividends in the foreseeable future; you should not buy our stock if you expect dividends.

We currently intend to retain our future earnings to support operations and to invest in our expansion strategies, therefore, we do not anticipate paying cash dividends on our Common Stock.

Because we are subject to the “penny stock” rules, brokers cannot generally solicit the purchase of our Common Stock which adversely affects its liquidity and market price.

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our Common Stock on the OTC Markets has been substantially less than $5.00 per share and, therefore, we are currently considered a “penny stock” according to SEC rules. This designation requires any broker-dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules limit the ability of broker- dealers to solicit purchases of our Common Stock and, therefore, reduces the liquidity of the public market for our shares.

Moreover, because of apparent regulatory pressure from the SEC and the Financial Industry Regulatory Authority, a growing number of broker-dealers decline to permit investors to re-sell shares of penny stocks like the Company. This may have had and may continue to have a depressive effect upon our Common Stock price.

We could issue “blank check” preferred stock without stockholder approval with the effect of diluting then current stockholder interests and impairing their voting rights, based on our charter documents and Delaware law which could discourage a takeover that stockholders may consider favorable.

Our certificate of incorporation provides for the authorization to issue up to 20,000,000 shares of “blank check” preferred stock with designations, rights and preferences as may be determined from time to time by our Board. Our Board is empowered, without stockholder approval, to issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which could dilute the interest of, or impair the voting power of, our Common Stock holders. The issuance of a series of preferred stock could be used as a method of discouraging, delaying or preventing a change in control. For example, it would be possible for our Board to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our company. In addition, advanced notice is required prior to stockholder proposals, which might further delay a change of control.

If our Common Stock becomes subject to a “chill” or a “freeze” imposed by the Depository Trust Company, or “DTC”, your ability to sell your shares may be limited.

The DTC acts as a depository or nominee for street name shares or stock that investors deposit with their brokers. Although through DTC our Common Stock is eligible for electronic settlement rather than delivery of paper certificates, DTC in the last several years has imposed a chill or freeze on the deposit, withdrawal and transfer of Common Stock of issuers whose Common Stock trades on the OTC Markets. Depending on the type of restriction, it can prevent stockholders from buying or selling our shares and prevent us from raising money. A chill or freeze may remain imposed on a security for a few days or an extended period (in at least one instance a number of years). While we have no reason to believe a chill or freeze will be imposed against our Common Stock, if it were your ability to sell your shares would be limited.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PR OPERTIES.

Our only facility is our 2,016-sq. ft. leased principal executive office, located at 1300 Summit Avenue, Suite 670, Fort Worth, Texas 76102. Our lease for the facility terminates on September 30, 2018. We believe that our present business property is adequate and suitable to meet our current needs. If we were required to move, we believe that there is a large supply of commercial property available in the general area which we could lease at comparable prices.

ITEM 3. LEGAL PROCEEDINGS.

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 Legacy Fuse, Alan Meeker, Rusty Shelton, Jonathan Brown, Robert H. Donehew and GolfRounds.com, Inc. (the “Defendants”). On April 21, 2014, the complaint was dismissed for “want of prosecution.” On September 18, 2015, Plaintiffs refiled a complaint in the District Court of Harris County, Texas, Cause No. 2015-55652 and added PH Squared, LLC as an additional Plaintiff, as more fully described in “Legal Matters” included in Note 6 in our audited financial statements contained in this Annual Report, which is herein incorporated by reference. We anticipate incurring approximately $70,000 of additional legal fees regarding this matter. The trial date for the above matter has been moved to July 24, 2017 in order to allow for additional discovery.

The parties are currently conducting discovery to determine the viability of the Plaintiffs’ claims, although we continue to believe that the lawsuit is completely without merit and will vigorously contest it and protect our interests. However, the outcome of this legal action cannot be predicted.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our Common Stock trades on the Over-The-Counter (“OTC”) market and is quoted on the OTC Markets designated as OTC Pink Current Information, under the trading symbol FZMD. The trading market for our Common Stock has been extremely limited and sporadic.

Below is a table indicating the range of high and low bid information for our Common Stock as reported by the OTC Bulletin Board for the periods listed. Bid prices represent prices between broker-dealers and do not include retail mark-ups and mark-downs or any commission to broker-dealers. In addition, these prices do not necessarily reflect actual transactions.

	High		Low
Fiscal 2016
First Quarter	$	0.19	$	0.15
Second Quarter	0.15			0.11
Third Quarter	0.15			0.12
Fourth Quarter	0.16			0.11
Fiscal 2015
First Quarter	$	1.00	$	0.50
Second Quarter		0.65		0.29
Third Quarter		0.29		0.25
Fourth Quarter		0.32		0.17

Holders of Record

As of March 17, 2017, there were 340 holders of record of our Common Stock.

Dividends

We have not paid or declared any dividends on our Common Stock during the past two fiscal years and we do not intend to pay any dividends on our Common Stock.

Recent Sales of Unregistered Securities

On December 19, 2016, we sold an aggregate of 9,000,000 shares of our Common Stock for gross proceeds of $720,000, or $0.08 per share, to two entities owned and controlled by the Investors pursuant to the Purchase Agreement, as more fully described in this Annual Report above entitled “Explanatory Note,” which discussion is herein incorporated by reference and in the Purchase Agreement 8-K.

Issuer Purchases of Equity Securities

We did not make any purchases of equity securities.

ITEM 6. SELECTED FINANCIAL INFORMATION.

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.

ITEM 7. MANAGEMEN T’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion highlights our results of operations and the principal factors that have affected our consolidated financial condition as well as our liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of our consolidated financial condition and results of operations presented herein. The following discussion and analysis are based on our audited financial statements contained in this Annual Report, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). You should read the discussion and analysis together with such financial statements and the related notes thereto.

Overview

Our revenues and profitability are typically lowest during the first quarter of the year and are highest during the fourth quarter of the year. We believe this seasonality is primarily attributed to the reset of annual healthcare insurance deductibles. Many health insurance plans require an insured beneficiary to pay a certain amount (the annual deductible) before insurance pays. The deductibles are generally reset annually on January 1 ^s ^t . We believe individuals sometimes choose to forgo or delay non- emergency medical procedures until their respective annual deductibles are met.

During 2016, we experienced increased competition and pricing pressures for biologics sold in larger order quantities and, accordingly, we were forced to decrease our pricing for these products. Our revenues from biologics sold at the retail level also declined. Accordingly, we attempted to increase our revenues from biologics by consigning a limited quantity of biologic units to each of several new facilities allowing them to utilize the products on a trial basis. Generally, several facilities were unable to obtain adequate reimbursement from third party payors. This negatively affected our revenues and profitability while this strategy was in place, which we have since discontinued.

During 2016, our revenues from commissions received from the sale of internal fixation products also declined and in November our products were excluded from a hospital’s newly implemented system-wide exclusive contract. As a result, one of our distribution agreements was terminated in November 2016.

In late 2016, as a new product category offering, we began selling sports medicine soft tissue fixation products which were obtained from CPM.

During the first quarter of 2017, we experienced a continued decline in revenues and profitability from the sale of biologics after our largest customer utilizing these products encountered less than anticipated reimbursement from third party payors.

In addition, we have added volume users of both soft tissue fixation products and extremity trauma plating, as well as primary and revision total knee replacement implants. We feel this trend will continue as we engage more surgeons within our growing network of contacts and independent contractors.

On February 10, 2017, our Vice President of Sales resigned. While we are currently evaluating this position, we do not believe that lack of doing so, in the short-term, will affect our revenues and profitability in a negative manner. We believe our newly expanded product portfolio and extensive network of independent contractor relationships that the new management team has brought with them will become a greater asset to the Company and will be realized with additional new surgeon utilizers of our implants and biologics.

We believe the decline in our revenues and profitability is primarily attributable to biologic sales and reduced reimbursement at the hospital level. The overall seasonality of our industry, and loss of a supplier of internal fixation products, there can be no assurance revenues and profitability shall increase an adequate amount to cover the cost of operations. However, as our biologics revenues and profitability have decreased, our revenues and profitability from other surgical implant product categories have increased. Our new leadership team has added multiple new suppliers of internal and external fixation products for upper and lower extremities, as well as product offerings in all specialties of orthopedics, sports medicine and spine. We believe our expanded product offerings will prove instrumental in our ability to acquire new customers to utilize our products.

Results of Operations

Revenues and profitability have declined during 2016 compared to 2015. We anticipate that we will be able to reverse this trend during 2017 by leveraging our newly expanded product portfolio and extensive network of independent contractor relationships possessed by our new leadership team.

Year Ended Decem ber 31, 2016 Compared to Year Ended December 31, 2015

Net Revenues

For the year ended December 31, 2016, net revenues were $567,607, compared to $1,676,609 for the year ended December 31, 2015, a decrease of $1,109,002, or 66.1%, largely resulting from decreased prices due to a competitive marketplace. Commencing in the second quarter of 2015, we focused our efforts on increasing revenues and profitability derived from the sale of biologics, especially those products sold at the retail level in order to increase the amount of gross profits from operations. During 2016, we experienced decreased revenues and profitability because our largest customers had difficulties getting reimbursed from third party payors. Also, our revenues and profitability from biologics sold at the retail level declined because we lost a major customer. Accordingly, we attempted to increase our revenues and profitability from biologics by consigning a limited quantity of biologic units to each of several new facilities allowing them to utilize the products and only required the facilities to pay for the products provided they were able to get reimbursed by insurance. In many cases, the facilities experienced lower reimbursement than expected, negatively affecting our revenues and profitability while this strategy was in place. On November 15, 2016, due to low sales volume resulting from Vilex being excluded from a hospital purchasing contract, the agreement with Vilex was terminated.

Cost of Revenues

For the year ended December 31, 2016, our cost of revenues was $204,044, compared to $664,266 for the year ended December 31, 2015, representing a decrease of $460,222, or 69.3%. During the year ended December 31, 2016, we did not alter our allowance for inventory obsolescence compared to $35,985 for the year ended December 31, 2015. The decrease in cost of revenues is commensurate with the decrease in net revenues. Commencing in July 2015, our largest supplier of amniotics increased our pricing for amniotics by approximately 10%. This increase in the cost of revenues during the second half of 2015 was partially offset by a greater amount of revenues derived from biologics sold at the retail level. From December 2015 through May 2016, we switched to another supplier for amniotics with pricing that matched the earlier pricing from the first half of 2015. In June 2016, we switched back to our former supplier upon their agreeing to revert back to their previously lower pricing. Excluding the changes in our allowance for inventory obsolescence, the percentage decrease in costs of revenues was consistent with the percentage decrease in the number of units sold. Cost of revenues includes costs to purchase goods and freight and shipping costs for items sold to customers.

Gross Profit

For the year ended December 31, 2016, we generated a gross profit of $363,563, compared to $1,012,343 for the year ended December 31, 2015, a decrease of $648,780, or 64.1%. The decrease in profitability was primarily due to decreased revenues derived from the sale of biologics from both the wholesale and retail sales level as well as decreased commissions from the sale of internal fixation products. Our profitability will vary depending upon the product mix between wholesale versus retail amniotic revenues.

General, Administrative and Other Expenses

For the year ended December 31, 2016, general, administrative and other operating expenses decreased to $854,050 from $1,804,371 for the year ended December 31, 2015, representing a decrease of $950,321, or 52.7%. This decrease is primarily attributable to the decrease in personnel that occurred in June 2015. In particular, salaries and wages (including independent contractors) and related costs decreased by $634,183, stock-based compensation decreased by $105,000, travel expenses decreased by $72,235 and legal and professional fees decreased by $51,872. Further, this decrease is attributable to the Company’s cost-cutting measures implemented to conserve working capital used to fund operations. General, administrative and other operating expenses during the year ended December 31, 2016 consisted primarily of salaries and wages and related costs, legal and professional fees, stock-based compensation, rent and insurance.

Interest Expense

For the year ended December 31, 2016, interest expense increased to $129,385 from $7,112 for the year ended December 31, 2015, representing an increase of $122,273, primarily due to the three short-term loans in the aggregate amount of $150,000 during 2016 bearing interest at 10% per annum as more fully described previously in the “Explanatory Note.” The resulting beneficial conversion feature in the aggregate amount of $117,500 was treated as a discount to each of the promissory notes and amortized over the term of each respective promissory note through December 31, 2016. Subsequent to the issuance of the notes, affiliates of the noteholders entered into the Purchase Agreement with the Company. The increase in interest expense was partially offset when, on December 19, 2016, an outstanding note dated January 15, 2015 made by the Company in favor of WHIG Enterprises, LLC along with all accrued and unpaid interest of $4,169 was forgiven.

Net Loss

For the year ended December 31, 2016, we generated a net loss of $585,935 compared to a net loss of $801,547 for the year ended December 31, 2015. The decrease in the net loss is primarily due to the decrease in operating expenses, partially offset by the decrease in profitability and the increase in interest expense.

Liquidity and Capital Resources

A summary of our cash flows is as follows:

	12 Months Ended December 31,
	2016			2015
Net cash used in operating activities	$	(237,906	)	$	(375,140	)
Net cash provided by (used in) investing activities		300			(7,008	)
Net cash provided by financing activities		896,924			322,750
Net increase (decrease) in cash and cash equivalents	$	659,318		$	(59,398	)

Net Cash Used in Operating Activities

Net cash used in operating activities during the year ended December 31, 2016 resulted primarily from a net loss of $585,935, a decrease in accounts payable of $128,252, partially offset by a decrease in accounts receivable of $239,946, amortization of debt discount of $117,500, stock-based compensation of $63,000 and a decrease in inventories of $55,883.

Net cash used in operating activities during the year ended December 31, 2015 resulted primarily from a net loss of $801,547 and an increase in accounts receivable of $116,920, partially offset by stock-based compensation of $418,000 and a decrease in inventories of $50,173 (resulting primarily from an increase in the reserve for obsolescence of $35,985).

Net Cash Used in Investing Activities

Net cash used in investing activities for the year ended December 31, 2016 related to $300 of purchases of property and equipment.

Net cash used in investing activities for the year ended December 31, 2015 related to $8,308 of purchases of property and equipment, offset by cash proceeds from the disposal of property and equipment of $1,300.

Net Cash Provided by Financing Activities

Net cash provided by financing activities during the year ended December 31, 2016 resulted from proceeds of $655,391 from the sale of our Common Stock, proceeds of $150,000 in aggregate from the issuance of convertible promissory notes from the Investors. Net cash provided by capital contributions of $91,533 by stockholders resulting from the transfer of inventory to CPM, as described in Item 13 “Certain Relationships And Related Transactions, And Director Independence” below and in the Purchase Agreement 8-K.

Net cash provided by financing activities during the year ended December 31, 2015 resulted primarily from proceeds of $190,000 from the sale of our Common Stock, and proceeds of $100,000 from the issuance of a promissory note to an entity that is controlled by an individual that was a former director and Chief Executive Officer of the Company.

Liquidity

As an emerging business, our primary sources and uses of liquidity have been from the issuances of debt and equity securities, and payroll and related costs, legal and professional fees, rent, and insurance, respectively.

From December 31, 2013 through June 16, 2014, we raised gross proceeds of $1,512,014 through the issuance of two-year promissory notes payable. The notes were unsecured, bore interest at 7.0% and required 18 monthly payments of interest only commencing at the beginning of month seven. Our outstanding notes payable had maturity dates commencing December 2015. On December 31, 2014, the outstanding principal balance of notes payable of $1,512,014 and accrued interest of $57,893 was converted into 1,509,528 shares of our Common Stock.

During 2015, we received proceeds of: (i) $100,000 from a loan from a significant stockholder; (ii) $100,000 from the sale of shares of our Common Stock to a related party; and (iii) $90,000 from the sale of shares of our Common Stock in private offerings.

During 2016, we received proceeds of: (i) $720,000 from the sale of our C ommon Stock in private offerings; (ii) $150,000 in aggregate from the issuance of promissory notes to entities that are controlled by the Investors ; and (iii) $91,533 of capital contributions resulting from the transfer of inventory to CPM, as described in Item 13 “ Certain Relationships And Related Transactions, And Director Independence ” below and in the Purchase Agreement 8-K .

At December 31, 2016, we had working capital of $437,862, including $667,475 in cash and cash equivalents. As of March 20, 2017, we had approximately $500,000 in available cash. Our cash is concentrated in a large financial institution. We believe our current cash balance is enough to sustain current operations and investment in growth strategies for approximately 18 months. For a more complete discussion, please see the risk factor entitled “Our ability to continue as a going concern is in doubt absent obtaining adequate new debt or equity financing and achieving sufficient sales and profitability levels.” on page 8.

Our existence is dependent upon management’s ability to grow our business and its profitability and/or obtain additional funding. If our Board determines to raise capital and is unsuccessful and we are unable to increase revenues and profitability, we believe that we will need to reduce operating expenses and administrative costs or cease operations. There can be no assurance that our efforts will result in profitable operations or the resolution of our liquidity problems.

In their report dated March 20, 2017, our independent registered public accounting firm included an emphasis-of-matter paragraph with respect to our financial statements for the year ended December 31, 2016. This paragraph is concerning our assumption that we will continue as a going concern, which is primarily being driven from our recurring decline in revenues and losses from operations

We have primarily financed our operations from the issuance of notes payable and equity securities. As of December 31, 2016, all notes payable other than those listed below have been converted into shares of our Common Stock, repaid in full or been forgiven.

During July 2016 through October 2016, we obtained three short-term loans in the aggregate amount of $150,000 bearing interest at 10% per annum as more fully described previously in the “Explanatory Note.” The resulting beneficial conversion feature in the aggregate amount of $117,500 was treated as a discount to each of the promissory notes and amortized over the term of each respective promissory note through December 31, 2016. Subsequent to the issuance of the notes, affiliates of the noteholders entered into the Purchase Agreement with the Company. The increase in interest expense was partially offset when, on December 19, 2016, an outstanding note dated January 15, 2015 made by the Company in favor of WHIG Enterprises, LLC along with all accrued and unpaid interest of $4,169 was forgiven.

Off-balance Sheet Arrangement

We have no off-balance sheet arrangements.

Related Party Transactions

During July 2016 through October 2016, we obtained three short-term loans in the aggregate amount of $150,000 in exchange for promissory notes bearing 10% interest per annum, which principal shall be due and payable, upon demand of the payee, at any time after the earlier of: (i) December 31, 2016; or (ii) upon a change in control of the Company. The promissory notes were issued as follows: $100,000 to NC 143, a family limited partnership controlled by Mark W. Brooks, our Chairman of the Board; and $50,000 to RMI, an investment holding company owned and controlled by Christopher C. Reeg, our Chief Executive Officer. On or after January 16, 2017, at the holder’s sole discretion, the holder has the right to convert all or any portion of the then unpaid principal and interest balance of the promissory notes into shares of our Common Stock at a conversion price of $0.08 per share. On each respective date of issuance, the conversion price of each of the promissory notes was less than the market price of our Common Stock. This resulted in a beneficial conversion feature in the aggregate amount of $117,500, which was treated as a discount to each of the promissory notes and amortized over the term of each respective promissory note. Subsequent to the issuance of the notes, affiliates of the noteholders entered into the Purchase Agreement with us.

On the Closing Date, we entered into the Purchase Agreement, as described in the section of this Annual Report above entitled “Explanatory Note,” which is incorporated herein by reference.

On December 19, 2016, we sold an aggregate of 9,000,000 shares of our Common Stock for gross proceeds of $720,000, or $0.08 per share, to two entities owned and controlled by the Investors, pursuant to which NC 143 acquired 5,000,000 shares of our Common Stock for a purchase price of $400,000 and RMI acquired 4,000,000 shares of our Common Stock for a purchase price of $320,000. As detailed in the Company’s Current Report on Form 8-K, filed on December 23, 2016, these transactions resulted in a change in control of the Company whereby the Investors acquired a majority interest in us, Mark W. Brooks became our Chairman of the Board and Christopher C. Reeg became our Chief Executive Officer. Direct offering costs of the Company were $64,609 in connection with the offer and sale of the Investor Shares, and, net proceeds from the offer and sale of the Investor Shares were $655,391.

During June 2016, we transferred inventory having a net book value of $8,467 to CPM , in exchange for cas h proceeds of $100,000. As the transfer of inventory was completed pursuant to a letter of intent between us and the Investors, the profit of $91,533, which had been deferred in the prior two quarters, was, on December 19, 2016 considered a contribution of capital by the Investors .

Our principal supplier for our amniotic products is CPM. We entered into a distributor agreement with CPM effective August 2, 2012, pursuant to which we act as a non-exclusive distributor of certain amniotic membrane products. The term of the agreement is one year and renews on each annual anniversary date for successive one-year terms unless it is terminated in writing by either party. During the years ended December 31, 2016 and 2015 , we purchased $103,578 and $431,102, respectively, of our products from CPM. The balances due to this supplier at December 31, 2016 and 2015 were $77,178 and $48,400, respectively.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S., (or “GAAP”), requires our management to make judgments, assumptions and estimates that affect the amounts of revenue, expenses, income, assets and liabilities, reported in our consolidated financial statements and accompanying notes. Understanding our accounting policies and the extent to which our management uses judgment, assumptions and estimates in applying these policies is integral to understanding our financial statements. We describe our most significant accounting policies in Note 2, “Significant Accounting Policies” in the notes to the consolidated financial statements beginning on page F-1 found elsewhere herein. We have identified the following accounting policies as those that require significant judgments, assumptions and estimates and that have a significant impact on our financial condition and results of operations. These policies are considered critical because they may result in fluctuations in our reported results from period to period due to the significant judgments, estimates and assumptions about highly complex and inherently uncertain matters and because the use of different judgments, assumptions or estimates could have a material impact on our financial condition or results of operations. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions.

Revenue Recognition

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

Revenues are sales of orthopedic, sports medicine and spinal implant products as well as osteobiologics, and regenerative amniotic tissues. For customers that purchase products as needed, we invoice the customers on the date the product is utilized. For customers that have consigned product, we invoice the customers when the products are utilized. Payment terms are net 30 days after the invoice date.

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

Accounts Receivable and Allowance for Doubtful Accounts Receivable

Accounts receivables are non-interest bearing and are stated at gross invoice amounts less an allowance for doubtful accounts receivable. Credit is extended to customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for potential bad debts.

We estimate our allowance for doubtful accounts by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations, such as bankruptcy proceedings and receivable amounts outstanding for an extended period beyond contractual terms. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are reevaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as necessary.

Accounts deemed uncollectible are written off in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise have evaluated other circumstances that indicate that we should abandon such efforts. Previously written-off accounts receivable that are subsequently collected are recognized as an increase in allowance for doubtful accounts when funds are received.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories consist entirely of finished goods and include biologics and internal fixation products. We review 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, we recognize a write-down equal to an amount by which the carrying value exceeds the market value of inventories.

Cautionary Note Regarding Forward Looking Statements

This report contains forward-looking statements including the statements regarding capital expenditures, and liquidity.

The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements are contained in Item 1A. Risk Factors above. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For more information regarding some of the ongoing risks and uncertainties of our business, see Item 1A. Risk Factors and our other filings with the SEC.

ITEM 7A . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The requirements of this Item can be found beginning on page F-1 found elsewhere herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Based upon the evaluation required by Section 13a-13(b) of the Securities Exchange Act of 1934, as amended, our Chief Executive Officer and Chief Financial Officer, with the participation of our Board of Directors , have not been able to conclude that our disclosure controls and procedures , as of December 31, 2016, were effective.

The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting of the Company. Due to the Chief Executive Officer’s short tenure during the Reporting Period, management was unable to make a complete assessment regarding the establishment and maintenance of adequate internal controls over financial reporting of the Company using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework . Due to the lack of such analysis, management cannot determine that the internal controls over financial reporting were effective as of that date. Management believes that control of certain accounting functions, including certain IT assets, may not have been adequately secured from unauthorized intrusion, which management believes may have constituted a material weakness in these internal controls.

Changes in Internal Control over Financial Reporting

Effective January 1, 2017, we moved our accounting and other back office functions to CPM’s headquarters, which is where our Chief Executive Officer is based. Management believes this move will permit increased internal controls over reporting disclosures and procedures. Management cannot yet conclude until a thorough evaluation has been completed, which it expects to perform during 2017.

ITEM 9B. OTHER INFORMATION.

On December 15, 2016, in connection with our proposed entry into the Purchase Agreement, Dr. Christopher C. Pratt, DO notified the Company of his decision to resign as our Chief Executive Officer and Chief Medical Officer and Robert H. Donehew notified us of his decision to resign as our Chief Operating Officer and Chairman of the Board, effective as of the Closing Date. The Board accepted Dr. Pratt’s resignation as our Chief Executive Officer and Chief Medical Officer and Mr. Donehew’s resignation as our Chief Operating Officer and Chairman of the Board effective as of the Closing Date. Both Dr. Pratt and Mr. Donehew will continue to serve as members of the Board.

On December 15, 2016, in connection with our proposed entry into the Purchase Agreement and the voting agreement, Rusty Shelton and Randall L. Dei notified the Company of their decision to resign as members of our Board, effective as of the Closing Date. Such resignations were not in connection with any disagreement with us or our accounting policies or procedures.

On December 19, 2016, pursuant to the Purchase Agreement, by unanimous written consent, the Board appointed Mr. Reeg as our Chief Executive Officer and Mr. Brooks as our Chairman of the Board, effective as of the Closing Date, accepted Mr. Shelton’s and Mr. Dei’s resignations from the Board and elected Mr. Brooks, Mr. Reeg, and William E. McLaughlin, III to be members of the Board, effective as of the Closing Date. See pages 23-24 for biographies on Messrs. Brooks, Reeg, and McLaughlin.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Executive Officers and Directors

The following table sets forth information regarding our current executive officers and directors. Except with respect to the Purchase Agreement, there is no agreement or understanding between the Company and each director or executive officer pursuant to which he was selected as an officer or director.

Name	Age	Position
Christopher C. Reeg	53	Chief Executive Officer and Director
David A. Hexter	48	Chief Financial Officer and Treasurer
Mark W. Brooks	51	Director and Chairman of the Board
William E. McLaughlin, III	53	Director
Christopher C. Pratt	46	Director
Robert H. Donehew	65	Director

Christopher C. Reeg has served as Chief Executive Officer of the Company and a member of its Board since December 19, 2016. Mr. Reeg currently serves as the President of Maxim Surgical, a manufacturer and distributor of spinal and orthopedic implants that he founded in 2011. Mr. Reeg led the design, development and successful commercialization of a spinal implant that received FDA approval in 2013 and is currently manufactured and distributed by Maxim Surgical. Prior to forming Maxim Surgical, Mr. Reeg founded LMI Ortho, a distributor of spine and orthopedic implants purchased from domestic and international manufacturers and suppliers. While at LMI Ortho, Mr. Reeg worked with U.S. surgeons and acquired exclusive importation rights for the total joint orthopedic portfolio, expanded implant product lines and developed effective growth strategies based on design and market intelligence. Before entering the orthopedic industry with LMI Ortho in 1996, Mr. Reeg formed Spectramed, Inc., a multi-state home respiratory company where he served as its President until the sale of the company to a national healthcare company in 2001. Having founded two medical implant manufacturing and distributing companies and served as President for one medical implants manufacturing and distributing company, Mr. Reeg brings to our Board significant experience and knowledge regarding how to successfully navigate the medical device industry.

David A. Hexter has served as Chief Financial Officer and Treasurer of the Company since May 2014. Mr. Hexter has also served as the principal of David A. Hexter, CPA, P.A. since December 2005. Mr. Hexter comes to the Company as a result of a reverse merger with GolfRounds.com, Inc. where he was assisted with financial reporting as a consultant since 2006. Mr. Hexter has been licensed as a certified public accountant in the state of Florida since 1999.

Mark W. Brooks has served as Director and Chairman of the Board of the Company since December 19, 2016. Mr. Brooks currently serves as Chief Executive Officer of CPM, a privately-owned national distributor of medical devices and regenerative tissue. Prior to forming CPM in 2002, Mr. Brooks partnered with Mr. Reeg during the formation and growth of Home Health Equipment, Inc., a durable medical equipment provider contracting with acute home health agencies and hospitals in several states (“Home Health”). In 1996, Messrs. Brooks and Reeg sold Home Health to predecessor companies of Tenet Healthcare Corporation. Having successfully served as Chief Executive Officer of a national distributor of medical devices, Mr. Brooks brings considerable expertise in the strategic management and growth of medical device distributors to our Board.

William E. McLaughlin, III has served as Director of the Company since December 19, 2016. Mr. McLaughlin is a Certified Public Accountant licensed in the State of Texas and has over 25 years of experience in accounting and financial reporting positions for private and large public companies traded on the NYSE and NASDAQ, in addition to “Big-Four” public accounting. Mr. McLaughlin has served as Chief Financial Officer of CPM since 2014. Mr. McLaughlin joined CPM as Vice President Finance, Controller in 2013. From 2006 until he joined CPM, Mr. McLaughlin served as Vice President Finance, Controller for Caris Life Sciences, Inc., a $180 million international, multi-location laboratory, physician practices, and molecular biotechnology emerging enterprise. Mr. McLaughlin will not be employed by the Company and satisfies the requirements for independent directors and audit committee financial experts, and he will lead the Company’s efforts to establish an audit committee. Having over 25 years of experience in accounting and financial reporting for private and public companies, Mr. McLaughlin brings considerable financial expertise to our Board.

Christopher C. Pratt , DO co-founded Legacy Fuse in 2012 and currently serves as a member of the Company’s Board of Directors. From 2012 through December 19, 2016, Dr. Pratt served as the Company’s Chief Medical Officer. The Company initially appointed Dr. Pratt to the Board upon the closing of the reverse merger with GolfRounds.com, Inc. on May 28, 2014. From April 23, 2015 through December 19, 2016, Dr. Pratt served as interim Chief Executive Officer of the Company. He was integral in development of Physicians Surgical Center in 2004, served on the board, and negotiated the transition to a Baylor USPI entity in January 2010. Dr. Pratt has served as the Chairman of the Board for the Baylor USPI surgery center in Fort Wort h since 2010, and facilitated the merger with Orthopedic Surgery Pavilion. He also co-founded and developed Granbury Surgical Center in 2007, and facilitated the transition to a Baylor USPI entity in 2009.

Dr. Pratt has served as an adjunct faculty member for the University of North Texas health science Center in both family practice and pain medicine since 2008. He also served as a faculty member for UT Southwestern training the pain fellows through the Physical Medicine and Rehabilitation Division Pain Fellowship at John Peter Smith Hospital from 2007 to 2012. Since 2008, Dr. Pratt has been a member of Texas Health Care, a multi-specialty physician group based in Fort Worth, Texas. Dr. Pratt works closely with the orthopedic surgeons, spine surgeons and neurosurgeons in the Fort Worth area providing interventional spine and pain management services. Dr. Pratt received his undergraduate degree in Biology from Hendrix College in 1993 prior to earning his medical degree from the Texas College of Osteopathic Medicine University of North Texas Health Science Center in 1997.

Dr. Pratt’s appointment to our Board was provided for in the Merger Agreement. Dr. Pratt brings to our Board significant experience in the medical field, both clinical and administrative. He offers a background of strong leadership, with the highest ethical standards. His continued involvement as an active practitioner provides great value to the Board in this ever-changing healthcare environment.

Robert H. Donehew has served as member of our Board since February 2000, as President and Treasurer of the Company since November 2000 and as the Secretary of the Company since December 2005. From August 2015 through December 19, 2016, Mr. Donehew served as the Company’s Chief Operating Officer. Effective upon completion of the reverse merger with GolfRounds.com, Inc., Mr. Donehew resigned as President, Treasurer and Secretary of the Company, but remains as a member of the Board. Mr. Donehew’s appointment to our Board was provided for in the Merger Agreement. From May 2, 2015 through December 19, 2016, Mr. Donehew was our Chairman of the Board.

Since May 2008, Mr. Donehew has been the Chief Financial Officer and a member of the Board of Directors of EndogenX, Inc., a specialty pharmaceutical company. Since July 1996, Mr. Donehew has been the Chief Executive Officer of Donehew Capital, LLC, the general partner of Donehew Fund Limited Partnership, a private investment partnership specializing in the securities market. Since 1983, he has also served as Chief Financial Officer of R.D. Garwood, Inc. and Dogwood Publishing Company, Inc.

Mr. Donehew has over 35 years of financial, managerial, and general business experience. Mr. Donehew’s significant experience is extremely valuable to the Board.

Family Relationships

There are no family relationships among the Company’s existing or incoming directors or officers.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and the other equity securities. Officers, directors and greater than ten percent stockholders are required by SEC rules to furnish us with copies of all Section 16(a) reports they file.

We believe that, during 2016, our directors, executive officers, and ten percent stockholders complied with all Section 16(a) filing requirements, with one exception noted below.

•

A late Form 5 report was filed for Robert H. Donehew on February 12, 2016 to report the acquisition of 250,000 shares of Common Stock that occurred on August 27, 2015.

In making these statements, we have relied upon examination of the copies of Forms 3, 4, and 5, and amendments to these forms provided to us, and the written representations of our directors, executive officers, and ten percent stockholders.

Code of Ethics

Our Board has adopted a code of ethics (the “Code of Ethics”) that applies to all our employees, including our Chief Executive Officer and Chief Financial Officer. The Code of Ethics provides written standards that we believe are reasonably designed to deter

wrongdoing and promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, full, fair, accurate, timely and understandable disclosure and compliance with laws, rules and regulations, including insid er trading, corporate opportunities and whistle-blowing or the prompt reporting of illegal or unethical behavior. We will provide a copy of the Code of Ethics to any person without charge, upon request. The request for a copy can be made in writing to Fuse Medical, Inc., 1300 Summit Avenue, Suite 670, Fort Worth, Texas, 76102, Attention: Corporate Secretary.

Corporate Governance

The entire Board of directors serves as the audit committee. William E. McLaughlin, III serves as our “audit committee financial expert,” as such term is defined under the rules promulgated under the Exchange Act. We believe that three of our directors would be considered “independent,” applying the NASDAQ listing standards for independence for members of an audit committee.

We are not required to have and do not have a compensation committee. We do not believe it is necessary for the Board to appoint a compensation committee because the volume of compensation matters that will come before the Board for consideration permits the entire Board to give sufficient time and attention to such matters to be involved in all decision making.

The entire Board participates in matters related to executive officer and director compensation. The Board will consider the recommendations of the Chief Executive Officer when determining compensation for the other executive officers. The Chief Executive Officer has no role in determining his own compensation. We have not paid fees to or engaged any compensation consultants.

We are also not required to have and do not have a nominating committee. Given the limited scope of our operations, the Board believes appointing a nominating committee would be premature and of little assistance until our business operations are at a more advanced level.

Stockholder Communications

Although we do not have a formal policy regarding communications with our Board, stockholders may communicate with the Board by writing to us at Fuse Medical, Inc., 1300 Summit Ave, Suite 670, Fort Worth, TX 76102, Attention: Corporate Secretary, or by facsimile (817) 887-1730. Stockholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.

Board Leadership Structure Oversight

Our Board does not have a policy as to whether the roles of Chairman of the Board and Chief Executive Officer should be separate or combined. Currently, the Chairman of the Board position is held by Mark W. Brooks and our Chief Executive Officer is Christopher C. Reeg. Our Board has determined that its current structure, with separate Chairman of the Board and Chief Executive Officer roles is in the best interests of the Company and its stockholders at this time. A number of factors support the leadership structure chosen by the Board, including, among others:

•

The Board believes this governance structure promotes balance between the Board's independent authority to oversee our business and the Chief Executive Officer and his management team who manage the business on a day-to-day basis.

•

The current separation of the Chairman of the Board and Chief Executive Officer roles allows the Chief Executive Officer to focus his time and energy on operating and managing the Company and leverage the experience and perspectives of the Chairman of the Board.

Board Assessment of Risk

The Board’s primary function is one of oversight. The Board as a whole has responsibility for risk oversight and reviews management’s risk assessment and risk management policies and procedures. The Board considers and reviews with our independent public accounting firm and our executive management team the adequacy of our internal controls, including the processes for identifying significant risks and exposures, and elicits recommendations for the improvements of such procedures where desirable. Members of our executive management have day-to-day responsibility for risk management and establishing risk management practices, and are expected to report matters directly to the Board as a whole. Members of our executive management have an open line of communication to the Board and have the discretion to raise issues from time-to-time in any manner they deem appropriate, and management’s reporting on issues relating to risk management typically occurs through direct communication with directors as matters requiring attention arise. Members of our executive management regularly attend portions of the Board’s meetings, and often discuss the risks related to our business. Presently, our largest risk is the inability to generate sufficient revenues and profitability to support our operations. The Board actively interfaces with executive management on seeking solutions.

ITEM 11. EXECUTIV E COMPENSATION.

The following information is related to the compensation paid, distributed or accrued by us for 2016 and 2015 to our Chief Executive Officer (Principal Executive Officer) and the other most highly compensated executive officers serving at the end of the last fiscal year whose compensation exceeded $100,000, which we refer to as “Named Executive Officers.”

2016 Summary Compensation Table

										Non-Equity		Non- Qualified
										Incentive Plan		Deferred Compen-		All Other
Name and						Stock		Option		Compen-		sation		Compen-
Principal Position	Year	Salary		Bonus		Awards		Awards		sation		Earnings		sation		Total
(a)	(b)	($)(c)		($)(d)		($)(e)(1)		($)(f)(1)		($)(g)		($)(h)		($)(i)		($)(j)
Christopher C. Reeg ⁽²⁾	2016		—		—		—		—		—		—		—		—
Chief Executive Officer
Christopher C. Pratt ⁽³⁾	2016		—		—		—		27,000		—		—		—		27,000
Chief Executive Officer	2015		—		—		121,819		—		—		—		—		121,819
Alan Meeker ⁽⁴⁾	2015		—		—		—		—		—		—		—		—
Chief Executive Officer
David A. Hexter ⁽⁵⁾	2016		180,000		—		—		—		—		—		—		180,000
Chief Financial Officer	2015		180,000		—		40,606		—		—		—		—		220,606

(1)	Amounts reflect the aggregate grant date fair value, without regard to forfeitures, computed in accordance with ASC 718.

(2)	Appointed December 19, 2016.

(3)

Appointed April 23, 2015. Resigned December 19, 2016. On December 10, 2016, the Company issued Dr. Pratt 300,000 fully-vested stock options for services rendered as an executive officer. On August 27, 2015, the Company issued Dr. Pratt 450,000 fully-vested shares of our Common Stock for services rendered as an executive officer.

(4)	Resigned April 21, 2015.

(5)	On August 27, 2015, the Company issued Mr. Hexter 150,000 fully-vested shares of our Common Stock for services rendered as an executive officer.

Termination Provisions

No Named Executive Officer is entitled to any severance rights.

Other Executive Compensation Arrangements

Since October 1, 2014, Mr. David A. Hexter has been paid a salary of $180,000 per year.

Outstanding Awards at Fiscal Year End

None.

As of December 31, 2016, there were no options or shares of Common Stock which had not vested which had been granted to our Named Executive Officers required to be disclosed in accordance with Item 402(a)(3).

On December 10, 2016, the Company awarded Christopher C. Pratt, the Company’s former Chief Executive Officer and Chief Medical Officer, Robert H. Donehew the Company’s former Chief Operating Officer and Chairman of the Board, Dr. Randall Dei, a former Director, and Rusty Shelton, a former Director, 300,000, 300,000, 50,000 and 50,000 stock options, respectively. The stock options have an exercise price of $0.11 per share, have a term of five years from the grant date, and vested immediately.

On August 27, 2015, the Company issued Christopher C. Pratt, the Company’s former Chief Executive Officer and Chief Medical Officer, Robert H. Donehew, the Company’s former Chief Operating Officer and Chairman of the Board, and David A. Hexter, the Company’s Chief Financial Officer, 450,000, 250,000 and 150,000 fully vested restricted shares of our Common Stock, respectively. The shares were granted for services rendered as executive officers.

Compensation of Directors

We do not pay cash compensation to our directors for service on our Board. The following table details director compensation; however, any compensation paid to a Named Executive Officer is described in the above Summary Compensation Table and, therefore, Named Executive Officers who were also directors have been omitted from this table.

									Change in Pension
									Value and Nonqualified
	Fees Earned or						Non-Equity Incentive		Deferred Compen-		All Other
	Paid in		Stock		Option		Plan		sation		Compen-
Name	Cash		Awards		Awards		Compensation		Earnings		sation		Total
(a)	($)(b)		($)(c)		($)(d)(1)		($)(e)		($)(f)		($)(g)		($)(j)
Mark W. Brooks		—		—		—		—		—		—		—
William E. McLaughlin, III		—		—		—		—		—		—		—
Robert H. Donehew (2)		—		—		—		—		—		—		—
Randall L. Dei (3)		—		—	4,500			—		—		—	4,500
Rusty Shelton (4)		—		—	4,500			—		—		—	4,500

(1)	Amounts reflect the aggregate grant date fair value, without regard to forfeitures, computed in accordance with ASC 718.

(2 )

On December 10, 2016, the Company issued Mr. Donehew 300,000 fully-vested stock options for services rendered as an executive officer. Because Mr. Donehew did not receive these shares for his service as a director, the compensation amount related to the grant has not been included in this table. As of December 31, 2016, Mr. Donehew had options to purchase 303,420 shares of our Common Stock pursuant to option awards.

(3)	On December 10, 2016, the Company issued Randall Dei 50,000 fully-vested stock options for services rendered as a director. As of December 31, 2016, he had options to purchase 50,000 shares of our Common Stock pursuant to option awards.

(4)	On December 10, 2016, the Company issued Mr. Shelton 50,000 fully-vested stock options for services rendered as a director. As of December 31, 2016, Mr. Shelton had options to purchase 50,000 shares of our Common Stock pursuant to option awards.

Risk Assessment Regarding Compensation Policies and Practices

Our compensation program for employees does not create incentives for excessive risk taking by our employees or involve risks that are reasonably likely to have a material adverse effect on the Company. Our compensation has the following risk-limiting characteristics:

•

Our base pay programs consist of competitive salary rates that represent a reasonable portion of total compensation and provide a reliable level of income on a regular basis, which decreases incentive on the part of our executives to take unnecessary or imprudent risks;

•

Awards are not tied to formulas that could focus executives on specific short-term outcomes;

•

Equity awards may be recovered by us should a restatement of earnings occur upon which incentive compensation awards were based, or in the event of other wrongdoing by the recipient; and

•

We believe equity awards, generally should be, multi-year vesting which aligns the long-term interests of our executives with those of our stockholders and, again, discourages the taking of short-term risk at the expense of long-term performance.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWN ERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Equity Compensation Plan Information

The following chart reflects the number of awards granted under equity compensation plans approved and not approved by stockholders and the weighted average exercise price for such plans as of December 31, 2016.

Name of Plan

Number of

securities

to be issued upon

exercise of

outstanding

options, warrants and

rights

(a)

Weighted

average

exercise price

of outstanding

options, warrants and

rights

(b)

Number of securities

remaining available

for future issuance

under equity

compensation plans

(excluding securities

reflected in column

(a))

(c)

Equity compensation plans approved by security

holders

None

—

Equity compensation plans not approved by

security holders

Non-Equity Incentive Plan

—

Total

As of December 31, 2016, there were stock options to purchase 1,304,788 shares of our Common Stock at a weighted average exercise price of $0.22 per share outstanding that were not subject to any equity compensation plan.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth the number of shares of our Common Stock beneficially owned as of the March 17, 2017 by: (i) those persons known by us to be owners of more than 5% of our Common Stock; (ii) each director; (iii) our Named Executive Officers for 2016; and (iv) all of our executive officers and directors as a group. Unless otherwise specified in the notes to this table, the address for each person is: c/o Fuse Medical, Inc. 1300 Summit Avenue, Suite 670, Fort Worth, Texas 76102.

		Amount and
	Name and Address of	Nature of Beneficial Percent of
Title of Class	Beneficial Owner	Ownership (1)		Class (1)
Directors and Named Executive Officers:
Common Stock	Mark W. Brooks (2)		6,291,438		36.6	%
Common Stock	Christopher C. Reeg (3)		4,647,260		28.1	%
Common Stock	Christopher C. Pratt (4)		1,475,476		9.1	%
Common Stock	Robert H. Donehew (5)		670,922		4.1	%
Common Stock	David A. Hexter (6)		160,461		1.0	%
Common Stock	All directors and executive officers as a group (5 persons) (7)		13,245,557		71.9	%
5% Stockholders:
Common Stock	Jonathan Brown (8)		1,463,903		9.2	%
Common Stock	Rusty Shelton (9)		847,904		5.3	%

(1)

Applicable percentages are based on 15,890,808 shares of Common Stock outstanding as of March 17, 2017. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of Common Stock underlying options and warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within 60 days (of the filing date) are deemed outstanding for computing the percentage of the person holding such securities, but are not deemed outstanding for computing the percentage of any other person. Unless otherwise indicated in the footnotes to this table, we believe that each of the stockholders named in the table has sole voting and investment power with respect to the shares of Common Stock indicated as beneficially owned by them. The table includes shares of Common Stock, options and warrants and convertible notes exercisable or convertible into Common Stock and vested or vesting within 60 days (of the filing date).

(2)	Mark W. Brooks. Mr. Brooks is a director. Includes 5,000,000 shares of Common Stock owned by NC 143 Family Holdings, LP (“NC 143”), of which Mr. Brooks is the Sole General Partner; and 1,291,438 shares issuable upon the conversion of convertible promissory notes held by NC 143.

(3)	Christopher C. Reeg. Mr. Reeg is an executive officer and a director. Includes 4,000,000 shares of Common Stock owned by Reeg Medical Industries, Inc. (“RMI”), of which Mr. Reeg is the President ; and 647,260 shares issuable upon the conversion of convertible promissory notes held by RMI.

(4)

Christopher C. Pratt. Dr. Pratt is a director. Includes 648,000 shares of Common Stock owned by CCEP Holdings, LLC, of which Dr. Pratt is the sole member; 51,536 shares held by Cooks Bridge, LLC, of which Dr. Pratt and Mr. Shelton are two of its managers; 25,940 shares held by Cooks Bridge II, LLC, of which Dr. Pratt and Mr. Shelton are two of its managers; and 300,000 shares of Common Stock issuable upon exercise of exercisable options.

(5)

Robert H. Donehew. Mr. Donehew is a director. Includes 6,840 shares of Common Stock owned by Donehew Fund Limited Partnership, of which Donehew Capital LLC, a Georgia limited liability company, is the general partner and Mr. Donehew is the manager of Donehew Capital LLC; 9,803 shares held by Cooks Bridge, LLC, of which Mr. Shelton and Dr. Pratt are two of its managers; 4,660 shares held by Cooks Bridge II, LLC, of which Mr. Shelton and Dr. Pratt are two of its managers; and 303,420 shares of Common Stock issuable upon exercise of exercisable options.

(6)	David A. Hexter. Mr. Hexter is an executive officer.

(7)	All directors and officers as a group. This ownership disclosure includes only the ownership of current executive officers and directors.

(8)

Jonathan Brown . Includes 1,206,000 shares of Common Stock owned by Twelve Global, LLC, of which Mr. Brown is the sole member; 105,969 shares owned by JAR Financing, LLC, of which Mr. Shelton serves as one of its three managers; 102,934 shares held by Cooks Bridge, LLC, of which Mr. Shelton and Dr. Pratt are two of its managers; and 49,000 shares held by Cooks Bridge II, LLC, of which Mr. Shelton and Dr. Pratt are two of its managers.

( 9)

Rusty Shelton. Includes 540,000 shares of Common Stock owned by ReSurge Hospitals, Inc., of which Mr. Shelton is the sole stockholder; 105,970 shares owned by JAR Financing, LLC, of which Mr. Shelton serves as one of its three managers; 102,934 shares held by Cooks Bridge, LLC, of which Mr. Shelton and Dr. Pratt are two of its managers; 49,000 shares held by Cooks Bridge II, LLC, of which Mr. Shelton and Dr. Pratt are two of its managers; and 50,000 shares of Common Stock issuable upon exercise of exercisable options.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

During July 2016 through October 2016, we obtained three short-term loans in the aggregate amount of $150,000 in exchange for promissory notes bearing 10% interest per annum, which principal shall be due and payable, upon demand of the payee, at any time after the earlier of: (i) December 31, 2016; or (ii) or upon a change in control of the Company. The promissory notes were issued as follows: $100,000 to NC 143, a family limited partnership controlled by Mark W. Brooks, our Chairman of the Board; and $50,000 to RMI, an investment holding company owned and controlled by Christopher C. Reeg, our Chief Executive Officer. On or after January 16, 2017, at the holder’s sole discretion, the holder has the right to convert all or any portion of the then unpaid principal and interest balance of the promissory notes into shares of our Common Stock at a conversion price of $0.08 per share. On each respective date of issuance, the conversion price of each of the promissory notes was less than the market price of our Common Stock. This resulted in a beneficial conversion feature in the aggregate amount of $117,500, which was treated as a discount to each of the promissory notes and amortized over the term of each respective promissory note. Subsequent to the issuance of the notes, affiliates of the noteholders entered into the Purchase Agreement with us.

On the Closing Date, we entered into the Purchase Agreement, as described in the section of this Annual Report above entitled “Explanatory Note,” which is incorporated herein by reference.

On December 19, 2016, we sold an aggregate of 9,000,000 shares of our Common Stock for gross proceeds of $720,000, or $0.08 per share, to two entities owned and controlled by the Investors, pursuant to which NC 143 acquired 5,000,000 shares of our Common Stock for a purchase price of $400,000 and RMI acquired 4,000,000 shares of our Common Stock for a purchase price of $320,000. As detailed in the Company’s Current Report on Form 8-K, filed on December 23, 2016, these transactions resulted in a change in control of the Company whereby the Investors acquired a majority interest in us, Mark W. Brooks became our Chairman of the Board and Christopher C. Reeg became our Chief Executive Officer. Direct offering costs of the Company were $64,609 in connection with the offer and sale of the Investor Shares.

During June 2016, we transferred inventory having a net book value of $8,467 to CPM, in exchange for cash proceeds of $100,000. As the transfer of inventory was completed pursuant to a letter of intent between us and the Investors, the profit of $91,533, which had been deferred in the prior two quarters, was, on December 19, 2016 considered a contribution of capital by the Investors.

Our principal supplier for our amniotic products is CPM. We entered into a distributor agreement with CPM effective August 2, 2012, pursuant to which we act as a non-exclusive distributor of certain amniotic membrane products. The term of the agreement is one year and renews on each annual anniversary date for successive one-year terms unless it is terminated in writing by either party. During the years ended December 31, 2016 and 2015, we purchased $103,578 and $431,102 of our products from CPM. The balanc es due to this supplier at December 31, 2016 and 2015 were $77,178 and $48,400, respectively.

On January 15, 2015, we issued a two-year promissory note in exchange for cash proceeds of $100,000 from WHIG, LLC, which is owned 15% by ShennaCo Investment Corporation, Inc. Mr. Meeker is the President of ShennaCo Investment Corporation, Inc., of which the sole stockholder is the David Alan Meeker Family Investment Trust (the “DAMFIT”). Mr. Meeker does not serve as a trustee nor is he the beneficiary of the DAMFIT. The note was unsecured, bore interest at 7.0% and required 18 monthly payments of interest only commencing at the beginning of month seven. On December 19, 2016, the outstanding principal balance along with all accrued and unpaid interest of $4,169 was forgiven.

On January 12, 2015, we entered into a securities purchase agreement with Cooks Bridge II, LLC. Pursuant to the terms of the agreement, Cooks Bridge II, LLC purchased 200,000 of our Common Stock at a purchase price of $0.50 per share, or an aggregate amount of $100,000. Cooks Bridge II, LLC is owned (directly or indirectly) by our affiliates, including Christopher C. Pratt, Rusty Shelton and Robert H. Donehew.

Director Independence

We utilize the definition of “independent” set forth in the listing standards of The NASDAQ Stock Market, LLC. Currently, we believe that three of our directors would be considered independent.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Our Board pre-approves audit and permissible non-audit services performed by its independent registered public accounting firm, as well as the fees charged for such services. All of the services related to audit fees and audit-related fees charged by Weinberg & Company, P.A., if any, were pre-approved by our Board. The following table shows the fees for the years ended December 31, 2016 and 2015.

	2016 ($)		2015 ($)
Audit Fees ⁽¹⁾		38,000		46,518
Audit Related Fees		—		—
Tax Fees		—		—
All Other Fees		—		—
Total		38,000		46,518

(1)	Audit related fees consisted principally of services related to our assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our annual and quarterly financial statements as well as the review of our registration statements.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.

(a)	Documents filed as part of the report.


	(1)	Financial Statements. See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The financial statements listed in the accompanying Index to Consolidated Financial Statements are filed herewith in response to this Item.
	(2)	Financial Statements Schedules. All schedules are omitted because they are not applicable or because the required information is contained in the consolidated financial statements or notes included in this report.
	(3)	Exhibits. The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this report.

(b)

Exhibits.

Exhibit No.		Description

2.1		Agreement and Plan of Merger, dated as of December 18, 2013, by and among GolfRounds.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		Amendment to the Amended and Restated Certificate of Incorporation of the Company (filed as Annex A to our Information Statement, filed on December 4, 2015, and incorporated herein by reference).

3.3		Bylaws (filed as Exhibit 3.2 to our Current Report on Form 8-K, filed on May 29, 2014, and incorporated herein by reference).

3.4		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).

3.5		Amendment No. 1 to the Bylaws (filed as Exhibit 3.1 to our Current Report on Form 8-K, filed on December 19, 2016, and incorporated herein by reference).

4.1		Amended and Restated Agreement dated November 27, 2013 by and among Fuse Medical, LLC and Eva Lou Holding, LLC (filed as Exhibit 4.2 to the Form 8-K/A filed August 29, 2014).

4.2		Voting Agreement, filed as of December 19, 2016, by and among the Company Christopher C. Pratt, Robert H. Donehew, Reeg Medical Industries, Inc., and NC 143 Family Holdings, LP (filed as Exhibit 4.1 to our Current Report on Form 8-K, filed on December 19, 2016, and incorporated herein by reference).

10.1		Form of Registration Rights Agreement, dated as of May 28, 2014, by and between the Company and certain stockholders of the Company (filed as Exhibit 4.2 to the Form 8-K/A filed August 29, 2014).

10.2		Form of Lock-Up Agreement, dated as of May 28, 2014, by and between the Company and certain stockholders of the Company (filed as Exhibit 10.2 to the Form 8-K filed May 29, 2014).

10.3		Medical Director Agreement dated May 1, 2014, by and between Fuse Medical, LLC and Dr. Stephen Corey (filed as Exhibit 10.3 to the Form 8-K/A filed August 29, 2014).

10.4		Medical Director Agreement dated May 1, 2014, by and between Fuse Medical, LLC and Dr. Randall L. Dei (filed as Exhibit 10.4 to the Form 8-K/A filed August 29, 2014).

10.5		General Counsel Agreement dated July 1, 2014, by and between the Company and Ross Eichberg, P.C. (filed as Exhibit 10.5 to the Form 8-K/A filed August 29, 2014).

10.6		Interim CFO Services Agreement dated June 1, 2014 by and between the Company and David A. Hexter (filed as Exhibit 10.6 to the Form 8-K/A filed August 29, 2014).

10.7		Assignment of Lease dated February 15, 2014 by and between JAR Financial, LLC and Fuse Medical, LLC (filed as Exhibit 10.7 to the Form 8-K/A filed August 29, 2014).

Exhibit No.		Description


10.8		Agreement dated November 27, 2013, by and among Fuse Medical, LLC, Fuse Management V, LLC, and Fuse Management VI, LLC (filed as Exhibit 10.8 to the Form 8-K/A filed August 29, 2014).

10.9		Promissory Note dated December 31, 2013 payable to JAR, LLC from Fuse Medical, LLC in the amount of $60,000 (filed as Exhibit 10.9 to the Form 8-K/A filed August 29, 2014).

10.10		Promissory Note dated March 4, 2014 payable to JAR Financing, LLC from Fuse Medical, LLC in the amount of $63,769.63 (filed as Exhibit 10.10 to the Form 8-K/A filed August 29, 2014).

10.11		Promissory Note dated February 10, 2014 payable to JAR, LLC from Fuse Medical, LLC in the amount of $193,535.47 (filed as Exhibit 10.11 to the Form 8-K/A filed August 29, 2014).

10.12		Promissory Note dated March 4, 2014 payable to Cooks Bridge, LLC from Fuse Medical, LLC in the amount of $87,670.49 (filed as Exhibit 10.12 to the Form 8-K/A filed August 29, 2014).

10.13		Promissory Note dated January 15, 2014 payable to Cooks Bridge, LLC from Fuse Medical, LLC in the amount of $131,023.65 (filed as Exhibit 10.13 to the Form 8-K/A filed August 29, 2014).

10.14		Promissory Note dated June 16, 2014 payable to Cooks Bridge, LLC from Fuse Medical, LLC in the amount of $56,461.88 (filed as Exhibit 10.14 to the Form 8-K/A filed August 29, 2014).

10.15		Promissory Note dated February 1, 2014 payable to Cooks Bridge, LLC from Fuse Medical, LLC in the amount of $116,777.25 (filed as Exhibit 10.15 to the Form 8-K/A filed August 29, 2014).

10.16		Promissory Note dated May 8, 2014 payable to Cooks Bridge, LLC from Fuse Medical, LLC in the amount of $75,000 (filed as Exhibit 10.16 to the Form 8-K/A filed August 29, 2014).

10.17		Promissory Note dated February 6, 2014 payable to World Health Industries, Inc. and WHIG, LLC from Fuse Medical, LLC in the amount of $116,777.24 (filed as Exhibit 10.17 to the Form 8-K/A filed August 29, 2014).

10.18		Promissory Note dated May 23, 2014 payable to World Health Industries, Inc. and WHIG, LLC from Fuse Medical, LLC in the amount of $479,975.58 (filed as Exhibit 10.18 to the Form 8-K/A filed August 29, 2014).

10.19		Promissory Note dated January 14, 2014 payable to World Health Industries, Inc. and WHIG, LLC from Fuse Medical, LLC in the amount of $131,023.66 (filed as Exhibit 10.19 to the Form 8-K/A filed August 29, 2014).

10.20		Promissory Note dated October 10, 2013 from Fuse Medical, LLC in an amount up to $100,000 payable to Trinity Bank, N.A. (filed as Exhibit 10.20 to the Form 8-K/A filed August 29, 2014).

10.21		Commission Agreement dated August 19, 2012 by and between Gulf Coast Surgical Solutions, LLC and Fuse Medical, LLC (filed as Exhibit 10.21 to the Form 8-K/A filed August 29, 2014).

10.22		Independent Representative Agreement, dated as of July 17, 2014, by and between the Company and Vilex, Inc. (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q/A, filed on October 1, 2014, and incorporated herein by reference).

10.23		Form of Indemnification Agreement (filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on September 15, 2014, and incorporated herein by reference).

10.24		Debt Assumption and Release Agreement dated December 31, 2014, by and among World Health Industries, Inc., WHIG, LLC, Fuse Medical, LLC, and Fuse Medical, Inc. (filed as Exhibit 10.1 to the Form 8-K filed January 6, 2015).

10.25		Debt Assumption and Release Agreement dated December 31, 2014, by and among Cooks Bridge, LLC, Fuse Medical, Inc., and Fuse Medical, LLC. (filed as Exhibit 10.2 to the Form 8-K filed January 6, 2015).

10.26		Debt Assumption and Release Agreement dated December 31, 2014, by and among JAR Financing, LLC, Fuse Medical, Inc., and Fuse Medical, LLC. (filed as Exhibit 10.3 to the Form 8-K filed January 6, 2015).

10.27		Debt Conversion Agreement dated December 31, 2014, by and among World Health Industries, Inc., WHIG, LLC, and Fuse Medical, Inc. (filed as Exhibit 10.4 to the Form 8-K filed January 6, 2015).

10.28		Debt Conversion Agreement dated December 31, 2014, by and between Cooks Bridge, LLC, and Fuse Medical, Inc. (filed as Exhibit 10.5 to the Form 8-K filed January 6, 2015).

10.29		Debt Conversion Agreement dated December 31, 2014, by and between JAR Financing, LLC and Fuse Medical, Inc. (filed as Exhibit 10.6 to the Form 8-K filed January 6, 2015).

Exhibit No.		Description

10.30		Securities Purchase Agreement dated January 12, 2015, by and between Cooks Bridge II, LLC and Fuse Medical, Inc. (filed as Exhibit 10.1 to the Form 8-K filed January 30, 2015).

10.31*		Amended and Restated Promissory Note dated October 19, 2016 payable to NC 143 Family Holdings, LP from the Company in the amount of $50,000.00.

10.32*		Amended and Restated Promissory Note dated October 19, 2016 payable to Reeg Medical Industries, Inc. from the Company in the amount of $50,000.00.

10.33*		Promissory Note dated October 19, 2016 payable to NC 143 Family Holdings, LP from the Company in the amount of $50,000.00.

10.34		Amended and Restated Registration Rights Agreement, dated as of December 19, 2016 by and among the Company, Reeg Medical Industries, Inc. and NC 143 Family Holdings, LP (filed as Exhibit 10.2 to our Current Report on Form 8-K, filed on December 19, 2016, and incorporated herein by reference).

10.35		Indemnification Agreement, dated as of December 19, 2016, by and between the Company and Mark W. Brooks (filed as Exhibit 10.3 to our Current Report on Form 8-K, filed on December 19, 2016, and incorporated herein by reference).

10.36		Indemnification Agreement, dated as of December 19, 2016, by and between the Company and Christopher C. Reeg (filed as Exhibit 10.4 to our Current Report on Form 8-K, filed on December 19, 2016, and incorporated herein by reference).

10.40		Stock Purchase Agreement, dated as of December 19, 2016, by and among the Company, Reeg Medical Industries, Inc. and NC 143 Family Holdings, LP (filed as Exhibit 10.1 to our Current Report on Form 8-k, filed on December 19, 2016, and incorporated herein by reference).

10.50*		Professional Employer Organization Client Service Agreement, dated January 1, 2017 by and between the Company and AmBio Staffing, 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

* Filed Herewith

SIGNAT URES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

		FUSE MEDICAL, INC.

Date: March 20, 2017	By:	/s/ Christopher C. Reeg
		Christopher C. Reeg
		Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: March 20, 2017

By:

/s/ Christopher C. Reeg

Christopher C. Reeg

Chief Executive Officer and Director

(Principal Executive Officer)

Date: March 20, 2017

By:

/s/ David A. Hexter

David A. Hexter

Chief Financial Officer

(Principal Accounting Officer)

Date: March 20, 2017

By:

/s/ Mark W. Brooks

Mark W. Brooks

Director and Chairman of the Board

Date: March 20, 2017

By:

/s/ William E. McLaughlin, III

William E. McLaughlin, III

Director

Date: March 20, 2017

By:

/s/ Christopher C. Pratt

Christopher C. Pratt

Director

Date: March 20, 2017

By:

/s/ Robert H. Donehew

Robert H. Donehew

Director

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

		Page
Financial Statements
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2016 and 2015		F-3
Consolidated Statements of Operations for the years ended December 31, 2016 and 2015		F-4
Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 2016 and 2015		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015		F-6
Notes to Consolidated Financial Statements		F-7

F-1

REPORT OF INDEPENDENT REGIS TERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Fuse Medical, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Fuse Medical, Inc. and Subsidiaries (the "Company") as of December 31, 2016 and 2015, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Fuse Medical, Inc. and Subsidiaries as of December 31, 2016 and 2015, and the results of their consolidated operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company incurred a significant net loss and negative cash flows from operations during the year ended December 31, 2016. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Weinberg and Company

Los Angeles, California

March 20 , 2017

F-2

FUSE MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31, 2016			December 31, 2015
Assets
Current assets:
Cash and cash equivalents	$	667,475		$	8,157
Accounts receivable, net of allowance of $0 and $15,145, respectively		58,065			298,011
Inventories		25,326			81,209
Prepaid expenses and other current assets		3,528			18,828
Total current assets		754,394			406,205
Property and equipment, net		8,931			24,978
Security deposit		3,822			3,822
Total assets	$	767,147		$	435,005
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	83,410		$	247,179
Accounts payable - related parties		77,178			70,602
Accrued expenses		5,944			12,267
Convertible notes payable - related parties		150,000			—
Total current liabilities		316,532			330,048
Note payable - related party		—			100,000
Total liabilities		316,532			430,048
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; 15,890,808 and 6,890,808 shares issued and outstanding, respectively		158,908			68,908
Additional paid-in capital		3,192,686			2,251,093
Accumulated deficit		(2,900,979	)		(2,315,044	)
Total stockholders’ equity		450,615			4,957
Total liabilities and stockholders’ equity	$	767,147		$	435,005

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

F-3

FUSE MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Year Ended December 31, 2016			For the Year Ended December 31, 2015
Net revenues	$	567,607		$	1,676,609
Cost of revenues (including $103,578 and $431,102, respectively, purchased from a related party)		204,044			664,266
Gross profit		363,563			1,012,343
Operating expenses:
General, administrative and other		854,050			1,804,371
Loss on disposal of property and equipment		1,580			2,407
Total operating expenses		855,630			1,806,778
Operating loss		(492,067	)		(794,435	)
Other income (expense):
Interest expense		(129,385	)		(7,112	)
Gain on settlement of accounts payable		35,517			—
Total other income (expense)		(93,868	)		(7,112	)
Net loss	$	(585,935	)	$	(801,547	)
Net loss per common share - basic and diluted	$	(0.08	)	$	(0.13	)
Weighted average number of common shares outstanding - basic and diluted		7,185,890			6,189,329

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

F-4

FUSE MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

	Common Stock				Additional 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
Fair value of vested stock options		—		—		168,000		—			168,000
Common stock issued for services rendered		1,000,000		10,000		240,000		—			250,000
Net loss		—		—		—		(801,547	)		(801,547	)
Balance, December 31, 2015		6,890,808		68,908		2,251,093		(2,315,044	)		4,957
Recognition of beneficial conversion feature on convertible promissory notes issued		—		—		117,500		—			117,500
Fair value of vested stock options		—		—		63,000		—			63,000
Common stock issued for cash		9,000,000		90,000		565,391		—			655,391
Contribution of capital by stockholders		—		—		91,533		—			91,533
Forgiveness of note payable - related party and accrued interest		—		—		104,169		—			104,169
Net loss		—		—		—		(585,935	)		(585,935	)
Balance, December 31, 2016		15,890,808	$	158,908	$	3,192,686	$	(2,900,979	)	$	450,615

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

F-5

FUSE MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year Ended December 31, 2016			For the Year Ended December 31, 2015
Cash flows from operating activities:
Net loss	$	(585,935	)	$	(801,547	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount		117,500			—
Share-based compensation		63,000			418,000
Depreciation		14,167			25,073
Loss on disposal of property and equipment		1,580			2,407
Gain on settlement of accounts payable		(35,517	)		—
Bad debt expense		—			15,145
Transfer of property and equipment as part of expense reimbursement		—			6,000
Changes in operating assets and liabilities:
Accounts receivable		239,946			(116,920	)
Inventories		55,883			50,173
Prepaid expenses and other current assets		15,300			30,422
Security deposit		—			(3,822	)
Accounts payable		(128,252	)		15,897
Accounts payable - related parties		6,576			(17,869	)
Accrued expenses		(3,002	)		1,901
Deferred rent		848			—
Net cash used in operating activities		(237,906	)		(375,140	)
Cash flows from investing activities:
Purchases of property and equipment		—			(8,308	)
Proceeds from the disposal of property and equipment		300			1,300
Net cash provided by (used in) investing activities		300			(7,008	)
Cash flows from financing activities:
Proceeds from issuance of promissory notes to related party		150,000			100,000
Proceeds from sale of common stock, net of offering costs		655,391			190,000
Contribution of capital by stockholders		91,533			—
Advances to related parties		—			(43,240	)
Repayments received from related parties		—			93,240
Repayments of promissory notes		—			(17,250	)
Net cash provided by financing activities		896,924			322,750
Net increase (decrease) in cash and cash equivalents		659,318			(59,398	)
Cash and cash equivalents - beginning of period		8,157			67,555
Cash and cash equivalents - end of period	$	667,475		$	8,157
Supplemental disclosure of cash flow information:
Cash paid for interest	$	6,416		$	3,337
Non-cash investing and financing activities:
Recognition of beneficial conversion feature on convertible
promissory notes issued to related parties	$	117,500		$	—
Forgiveness of note payable - related party and accrued interest	$	104,169		$	—
Transfer security deposit as part of expense reimbursement	$	—		$	2,489

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

F-6

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 1. Nature of Operations and Going Concern

Overview

The Company was initially incorporated in 1968 as Golf Rounds.com, Inc., a Delaware corporation. Effective May 28, 2014, the Company amended its certificate of incorporation to change its name from “GolfRounds.com,Inc.” to “Fuse Medical, Inc.” (the “Company”). Then, also on May 28, 2014, the Company merged with and into Fuse Medical, LLC, with Fuse Medical, LLC surviving as a wholly owned subsidiary of Fuse Medical, Inc. The transaction accounted was accounted for as a reverse merger with Fuse Medical, Inc. deemed the legal acquirer, and Fuse Medical, LLC deemed the accounting acquirer. During 2015, Certificates of Termination were filed for Fuse Medical, LLC and its two subsidiaries.

On December 19, 2016 (the “Closing Date”), the Company entered into a definitive Stock Purchase Agreement (the “Purchase Agreement”) by and among the Company, NC 143 Family Holdings, LP, a family limited partnership controlled by Mark W. Brooks (“NC 143”), and Reeg Medical Industries, Inc., an investment holding company owned and controlled by Christopher C. Reeg (“RMI” and, together with NC 143, the “Investors”), pursuant to which NC 143 acquired 5,000,000 shares of the Company’s common stock for a purchase price of $400,000 and RMI acquired 4,000,000 shares of the Company’s common stock for a purchase price of $320,000, effective as of the Closing Date. As direct offering costs amounted to $64,609, net proceeds from the sale of these shares were $655,391. The closing of the Purchase Agreement resulted in a change in control of the Company whereby the Investors acquired a majority interest in the Company. Effective as of the Closing Date Mark W. Brooks became the Chairman of the Board and Christopher C. Reeg became the Chief Executive Officer of the Company (See Notes 7 and 10).

The Company distributes a broad portfolio of healthcare products and supplies, including medical biologics, internal fixation products, and bone substitute materials. The Company’s principal supplier for amniotic products is CPM Medical Consultants, LLC (“CPM”). The Company strives to provide cost savings and quality products to its customers, which include physicians and medical facilities.

Going Concern

The accompanying 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 $585,935 and used $237,906 of cash in our operating activities during the year ended December 31, 2016. As of December 31, 2016, we had $667,475 of cash on hand, stockholders’ equity of $450,615 and working capital of $437,862. While the Company’s management expects operating trends to improve over the course of 2017, the Company’s ability to continue as a going concern is contingent on successful execution of its business plans and, if needed, securing additional funding through debt and or equity from investors. These matters raise substantial doubt about the Company's ability to continue as a going concern.

Commencing with the second quarter of 2015, the Company’s management began to refocus their efforts to increase revenues and profitability derived from the sale of biologics, which they expect will increase the amount of profitability from operations. During July 2016 through October 2016, the Company received aggregate proceeds of $150,000 from the issuance of promissory notes payable (See Note 5). During December 2016, the Company received gross proceeds of $720,000 from the sale of common shares in a private offering (See Note 7). No assurance can be given that such additional funding will be available, or with conditions favorable to the Company and its stockholders.

The Company’s existence is dependent upon the Company’s ability to execute its business plans. There can be no assurance the Company’s efforts will result in profitable operations or resolution of the Company’s liquidity requirements. If the Company is able to obtain additional funding, it may include conditional restrictions on the Company’s operations, or cause substantial dilution for the Company’s stockholders. The accompanying consolidated financial statements do not include adjustments should the Company be unable to continue as a going concern.

Note 2. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions have been eliminated in consolidation.

F-7

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

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.

As of December 31, 2016 and 2015, common stock equivalents included options to purchase 1,304,788 and 609,576 common shares, respectively. These instruments are not considered in the calculation of diluted loss per share because the effect would be anti-dilutive.

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.

Reclassifications

Certain amounts in the accompanying 2015 financial statements have been reclassified in order to conform to the 2016 presentation.

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 December 31, 2016 and 2015. The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits of $250,000 per financial institution. The Company has not experienced any losses in such accounts from inception through December 31, 2016. As of December 31, 2016 and 2015, there were deposits of $421,636 and $0 , respectively, greater than federally insured limits.

F-8

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Accounts Receivable and Allowance for Doubtful Accounts Receivable

Accounts receivables are non-interest bearing and are stated at gross invoice amounts less an allowance for doubtful accounts receivable. Credit is extended to customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential bad debts.

The Company estimates its allowance for doubtful accounts by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations, such as bankruptcy proceedings and receivable amounts outstanding for an extended period beyond contractual terms. In these cases, the Company uses assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are reevaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. The Company may also record a general allowance as necessary.

Accounts deemed uncollectible are written off in the period when the Company has exhausted its efforts to collect overdue and unpaid receivables or otherwise has evaluated other circumstances that indicate that the Company should abandon such efforts. Previously written-off accounts receivable subsequently collected are recognized as a reduction of bad debt expense when funds are received.

Inventories

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

Property and Equipment

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

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

Upon the retirement or disposition of property and equipment, the related cost and accumulated depreciation and amortization are removed and a gain or loss is recorded in the consolidated statements of operations.

Long-Lived Assets

The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, a significant decline in the Company’s stock price for a sustained period of time, and changes in the Company’s business strategy. An impairment loss is recorded when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds fair value and is recorded as a reduction in the carrying value of the related asset and an expense to operating results. Based upon management’s assessment, there were no indicators of impairment of its long-lived assets at December 31, 2016 and 2015.

F-9

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Revenue Recognition

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

Revenues are sales of orthopedic, sports medicine and spinal implant products as well as osteobiologics, and regenerative amniotic tissues. For customers that purchase products as needed, the Company invoices the customers on the date the product is utilized. For customers that have consigned product, the Company invoices the customers as each unit of the product is utilized. Payment terms are net 30 days after the invoice date.

Cost of Revenues

Cost of revenues consists of cost of goods sold and freight and shipping costs for items sold to customers.

Shipping and Handling Fees

The Company includes shipping and handling fees billed to customers in revenues and the related costs in cost of revenues.

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 December 31, 2016, 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.

Segment Information

The Company operates in one reportable segment including medical products and supplies. The Company's chief operating decision maker, its Chief Executive Officer, manages the Company's operations as a whole, and does not evaluate revenue, expense or operating income information on any component level.

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.

F-10

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 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 February 2016, the FASB issued Accounting Standards Update 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 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 into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of the adoption of ASU 2016-02 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 December 31, 2016 and 2015:

	December 31, 2016			December 31, 2015
Computer equipment	$	29,290		$	31,053
Furniture and fixtures		6,347			9,315
Leasehold improvements		6,728			6,728
Office equipment		1,580			1,580
Software		—			10,500
		43,945			59,176
Less: accumulated depreciation		(35,014	)		(34,198	)
Property and equipment, net	$	8,931		$	24,978

During the year ended December 31, 2016, the Company sold furniture and fixtures having a net book value of $1,880 for cash proceeds of $300, resulting in loss on disposals of property and equipment of $1,580. During 2016, the Company also disposed of computer equipment and software that had been fully depreciated.

On September 1, 2015, the Company transferred a security deposit of $2,489 and property and equipment having a net book value of $3,062 in order to settle $6,000 of expense reimbursement to an individual that was a former director and former Chief Executive Officer of the Company, resulting in a gain on disposition of $449 (See Note 10).

During the year ended December 31, 2015, the Company sold furniture and fixtures having a net book value of $4,156 for cash proceeds of $1,300, resulting in loss on disposals of property and equipment of $2,856.

Depreciation expense for the years ended December 31, 2016 and 2015 was $14,167 and $25,073, respectively.

F-11

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 4. Notes Payable

On May 28, 2014, as part of the merger with Golf Rounds.com, Inc., the Company assumed an aggregate of $17,250 of outstanding two-year promissory notes payable maturing July 29, 2015 through August 28, 2015 as well as accrued interest payable of $21. The notes were unsecured, bore interest at 3.25% and required quarterly payments of interest only. During the year ended December 31, 2015, interest expense of $400 was recognized on these notes. The outstanding principal balance along with all accrued and unpaid interest was paid at maturity during 2015 and no additional amounts are due on these notes payable.

Note 5. Notes Payable – Related Parties

On January 15, 2015, the Company issued a two-year promissory note in exchange for cash proceeds of $100,000 from an entity controlled by an individual that was a former director and former Chief Executive Officer of the Company. The note was unsecured, bore interest at 7.0% per annum and required 18 monthly payments of interest only commencing at the beginning of month seven. On December 19, 2016, the outstanding principal balance along with all accrued and unpaid interest of $4,169 was forgiven. Accordingly, the Company recognized the forgiveness of debt of $104,169 as a contribution of capital by a stockholder during the year ended December 31, 2016 (See Note 10).

During July 2016 through October 2016, the Company obtained three short-term loans in the aggregate amount of $150,000 in exchange for promissory notes bearing 10% interest per annum, which principal shall be due and payable, upon demand of the payee, at any time after the earlier of: (i) December 31, 2016; or (ii) or upon a change in control of the Company. Notwithstanding, on or after January 16, 2017, at the holder’s sole discretion, the holder has 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. On each respective date of issuance, the conversion price of each of the promissory notes was less than the market price of the Company’s common stock. This resulted in a beneficial conversion feature in the aggregate amount of $117,500, which was treated as a discount to each of the promissory notes and amortized over the term of each respective promissory note. Subsequent to the issuance of the notes, affiliates of the noteholders entered into the Purchase Agreement with the Company (See Notes 1 and 10).

Notes payable – related parties consisted of the following at December 31, 2016 and 2015:

	December 31, 2016			December 31, 2015
Notes payable originating July 15, 2016 through October 19, 2016; no monthly payments required; bearing interest at 10%; due on December 31, 2016, convertible on demand	$	150,000		$	—
Note payable originating January 15, 2015; 18 monthly payments required at the beginning of month seven; bearing interest at 7%; maturing at January 15, 2017		—			100,000
Total		150,000			100,000
Less: current maturities		(150,000	)		—
Amount due after one year	$	—		$	100,000

During the year ended December 31, 2016 and 2015, interest expense of $129,385 (of which $117,500 was the amortization of beneficial conversion features) and $6,712, respectively, was recognized on outstanding notes payable – related parties. As of December 31, 2016 and 2015, accrued interest payable was $5,096 and $3,796, respectively, which is included in accrued expenses on the accompanying consolidated balance sheets.

Note 6. 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, 201 4-03355, 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 the case ended on March 25, 2015 and Plaintiffs failed to file any discovery requests during the period or seek an extension of the period. On

F-12

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

April 27, 2015, Defendants filed a motion for summary judgment in this matter for failure to prosecute and on the grounds that the claims were not legally viable. 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.

On September 18, 2015, Plaintiffs refiled a complaint in the District Court of Harris County, Texas, Cause No. 2015-55652 and added PH Squared, LLC as an additional Plaintiff. Thereafter, the term “Plaintiffs” collectively refers to M. Richard Cutler, Cutler Law Group, P.C. and PH Squared, LLC. The new complaint asserts essentially the same claims as the original nonsuited complaint: (i) suit on sworn account against Fuse; (ii) fraud against all Defendants; and (iii) breach of contract against all Defendants for allegedly violating a non-circumvention/non-disclosure agreement. Richard Cutler is the sole principal of Cutler Law Group, P.C., which provided legal representation to its clients, Craig Longhurst and PH Squared, LLC d/b/a PharmHouse Pharmacy (“Cutler’s Client”), during a failed merger attempt between Fuse and Golf Rounds.com, Inc. (the “Failed Transaction”). The Plaintiffs have alleged that the Failed Transaction failed to materialize notwithstanding the efforts of Mr. Cutler, his law firm and PH Squared, LLC. The Plaintiffs have further alleged that the Defendants continued to pursue a similar transaction without Cutler’s Client or the Plaintiffs. The Plaintiffs claim that the Defendants are responsible for damages in the amount of $46,465 plus interest for the breach of contract claim because Plaintiffs were not paid their legal fees by Cutler’s Client and Plaintiffs did not receive equity in the merged company that would have resulted from the Failed Transaction. Plaintiffs are also asking for undisclosed damages related to the fraud and breach of contract claims, and are asking for exemplary damages as a result of allegedly intentional fraud that some or all of the Defendants allegedly committed. Plaintiffs also seek their attorneys’ fees and costs for having brought the action. On November 18, 2015, Fuse filed a counterclaim against PH Squared, LLC for breach of contract and further asserted a counterclaim and third party claim against PH Squared, LLC’s principle, Craig Longhurst, for fraud in the inducement. Fuse also seeks a declaratory judgment on the intended third party beneficiary status of Plaintiffs Cutler and Cutler Law Group related to a non-circumvention/non-disclosure agreement. The trial date for the above matter was scheduled for May 1, 2017, but it has been moved to July 24, 2017 in order to allow for some additional discovery.

The parties are currently conducting discovery to determine the viability of the Plaintiff’s claims, although the Defendants continue to believe that the lawsuit is completely without merit and will vigorously contest it and protect their interests. However, the outcome of this legal action cannot be predicted, but management believes any amounts due, if any, would not materially affect the financial statements.

Operating Leases

Effective September 1, 2015, the Company began occupying space at its new corporate headquarters in Fort Worth, Texas on a month-to-month basis at the rate of $3,822 per month. Effective December 31, 2015, the Company entered into a sublease agreement expiring September 30, 2018 (the “Initial Term”) for this space. The sublease agreement renews automatically for additional one-year periods unless written notice of the intent to not renew is provided at least 60 days prior to the end of the Initial Term. Notwithstanding, the sublease shall not extend beyond September 30, 2020 unless the landlord extends its lease and the parties enter into a written agreement to extend the duration of the sublease. The sublease agreement requires base rent payments of $3,822 per month through September 30, 2016; $3,906 per month through September 30, 2017 and $3,990 per month through September 30, 2018, plus a pro rata share of electricity and common area maintenance. Rent for one month shall be abated when the Company performs its initial improvements to the subleased premises. The sublease includes a relocation and surrender clause whereby the landlord has the right to cause the Company to surrender: (i) with at least 30 days’ notice: (a) one of the offices for a corresponding 15% reduction in rent; or (b) two of the offices for a corresponding 30% reduction in rent (either (a) or (b) deemed a “partial surrender”); or (ii) with at least 6 months’ notice, all of the office space in which the landlord shall reimburse the Company for all relocation costs not to exceed $5,000.

Rent expense was $53,465 and $33,791 for the years ended December 31, 2016 and 2015, respectively.

The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2016:

Year ending December 31,
2017		47,124
2018		35,910
	$	83,034

F-13

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Settlement of Accounts Payable

On July 26, 2016, the Company settled outstanding accounts payable of $60,517 owed to its former legal counsel for $25,000. Accordingly, the Company recognized a gain on settlement of $35,517 during the year ended December 31, 2016.

Note 7. Stockholders’ Equity

Authorized Capital

Effective December 29, 2015, the Company amended its certificate of incorporation to decrease its authorized common shares from 500,000,000 shares to 100,000,000 shares.

The Company has authorized 20,000,000 shares of preferred stock having a par value of $0.01 per share, and its board of directors is authorized to issue shares of the preferred stock, in one or more series, and to fix for each such series the voting powers, designations, preferences, or other special rights and the qualifications, limitations or restrictions.

Common Stock

On December 19, 2016, the Company entered into the Purchase Agreement by and among the Company, NC 143, and RMI, pursuant to which NC 143 acquired 5,000,000 shares of the Company’s common stock for a purchase price of $400,000 and RMI acquired 4,000,000 shares of the Company’s common stock for a purchase price of $320,000 , effective as of the Closing Date. As direct offering costs amounted to $64,609, net proceeds from the sale of these shares were $655,391. (See Notes 1 and 10)

During June 2016, the Company transferred inventory having a net book value of $8,467 to CPM, in exchange for cash proceeds of $100,000. As the transfer of inventory was completed pursuant to a letter of intent between the Company and the Investors, the profit of $91,533, which had been deferred in the prior two quarters, was, on December 19, 2016 considered a contribution of capital by the Investors (See Note 10).

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 then officers and directors of the Company (See Note 10).

In March 2015, the Company’s Board of Directors authorized private placement offerings of its common stock at $0.50 per share up to $2,000,000. During March and April 2015, the Company issued private placements of 180,000 common shares to investors for aggregate proceeds of $90,000, or $0.50 per share.

On August 27, 2015, the Company awarded the following common shares to four employees for services rendered: (i) 450,000 common shares to the then Chief Executive Officer; (ii) 250,000 common shares to the then Chief Operating Officer; (iii) 150,000 common shares to the Chief Financial Officer; and (iv) 150,000 common shares to the Vice President of Sales. The closing price of the Company’s common stock on the trading day immediately preceding the awarding of the common shares was $0.25. Accordingly, an aggregate of $250,000 of expense was recognized in association with the issuance of these common shares.

Stock Options

On December 10, 2016, the Company awarded the following stock options to its four directors for services rendered: (i) 300,000 stock options each to the then Chief Executive Officer and the then Chief Operating Officer; and (ii) 50,000 stock options each to the remaining two then directors. The stock options have an exercise price of $0.11 per share, have a term of five years from the grant date, and vested immediately. Accordingly, an aggregate of $63,000 of expense was recognized in association with the issuance of these stock options.

On July 17, 2015, the General Counsel for the Company resigned. In connection with this resignation, the Company granted the former General Counsel 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 vested immediately, but become exercisable as follows: 100,000 (1/6) of the options shall become exercisable 13 months after the grant date and an additional 100,000 options (1/6) shall become exercisable each of the following five months thereafter so that all of the options shall become exercisable as of 18 months after the grant date. The fair value of the stock options issued was $168,000, all of which was recognized immediately as an expense because the stock options were fully vested as of the grant date.

F-14

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

The Company estimates the f air value of share-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 ris k-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 believes this valuation methodology is appropriate for estimating the fair value of s tock options granted to employees and directors which are subject to ASC Topic 718 requirements. These amounts are the Company’s estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these gran ts. The Company recognizes compensation on a straight-line basis over the requisite service period for each award. The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted to employees d uring the years ended December 31, 2016 and 2015:

Assumptions	For the Year Ended December 31, 2016			For the Year Ended December 31, 2015
Expected term (years)		2.5			3.2
Expected volatility		162	%		223	%
Weighted-average volatility		162	%		223	%
Risk-free interest rate		1.43	%		1.05	%
Dividend yield		0.0	%		0.0	%
Expected forfeiture rate	n/a			n/a

The Company’s management utilized 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 expected volatility is based on historical volatility of the Company’s common stock subsequent to the closing of the merger on May 28, 2014. 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.

A summary of the Company’s stock option activity during the year ended December 31, 2016 is presented below:

	No. of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Balance outstanding at December 31, 2015		609,576		$	0.42
Granted		700,000		$	0.11
Exercised		—
Forfeited		—
Expired		(4,788	)	$	8.77
Balance outstanding at December 31, 2016		1,304,788		$	0.22		4.3	$	35,000
Exercisable at December 31, 2016		1,204,788		$	0.22		4.3	$	35,000

The weighted-average grant-date fair value of options granted during the years ended December 31, 2016 was $0.09 and $0.28, respectively.

F-15

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Note 8. Income Taxes

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

	For the Year Ended December 31, 2016		For the Year Ended December 31, 2015
Current:
Federal	$	—	$	—
State		—		—
		—		—
Deferred:
Federal		—		—
State		—		—
		—		—
Total Income tax expense (benefit)	$	—	$	—

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

	December 31, 2016			December 31, 2015
Deferred tax assets:
Net operating loss carryover	$	224,381		$	623,287
Accounts receivable		—			5,301
Compensation		80,850			58,800
Inventories		—			12,594
Total deferred tax assets		305,231			699,982
Deferred tax liabilities:
Property and equipment		2,795			731
Total deferred tax liabilities		2,795			731
Deferred tax assets, net		308,026			700,713
Valuation allowance:
Beginning of year		(700,713	)		(432,730	)
(Increase) decrease during year		392,687			(267,983	)
Ending balance		(308,026	)		(700,713	)
Net deferred tax asset	$	—		$	—

A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. The Company recorded a valuation allowance in 2016 and 2015 due to the uncertainty of realization. The Company’s management believes that based upon its projection of future taxable operating income for the foreseeable future, it is more likely than not that the Company will not be able to realize the tax benefit associated with deferred tax assets. The net change in the valuation allowance during the years ended December 31, 2016 and 2015 was a decrease of $392,687 and an increase of $ 267,983, respectively.

At December 31, 2016, the Company had $ 641,088 of net operating loss carryforwards which will expire from 2017 to 2036. . These carry forward benefits may be subject to annual limitations due to the ownership change limitations imposed by the Internal Revenue Code and similar state provisions. The annual limitation, if imposed, may result in the expiration of net operating losses before utilization. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of December 31, 2016, tax years 2012 through 2015 remain open for IRS audit. The Company has received no notice of audit from the Internal Revenue Service for any of the open tax years.

F-16

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

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

	For the Year Ended December 31, 2016			For the Year Ended December 31, 2015
Statutory U.S. federal income tax rate		35.0	%		35.0	%
Permanent differences		-0.2	%		-0.5	%
Other reconciling items		-101.8	%		-1.2	%
Change in valuation allowance		67.0	%		-33.3	%
Effective income tax rate		0.0	%		0.0	%

Note 9. Concentrations

Concentration of Revenues, Accounts Receivable and Suppliers

For the years ended December 31, 2016 and 2015, the following significant customers had an individual percentage of total revenues equaling 10% or greater:

	For the Year Ended December 31, 2016			For the Year Ended December 31, 2015
Customer 1		67.7	%		70.6	%
Customer 2		18.9	%		12.3	%
Totals		86.6	%		82.9	%

At December 31, 2016 and 2015, the following significant customers had a concentration of accounts receivable representing 10% or greater of accounts receivable:

	December 31, 2016			December 31, 2015
Customer 1		57.4	%		62.7	%
Customer 2		32.3	%		—
Customer 3		10.3	%		—
Customer 4		—			13.0	%
Totals		100.0	%		75.7	%

For the years ended December 31, 2016 and 2015, the following significant suppliers represented 10% or greater of goods purchased:

	For the Year Ended December 31, 2016			For the Year Ended December 31, 2015
Supplier 1		55.1	%		69.4	%
Supplier 2		23.8	%		22.5	%
Supplier 3		21.1	%		—
Totals		100.0	%		91.9	%

Supplier 1 is majority owned and controlled by the Chairman of the Board of the Company (See Note 10).

Note 10. Related Party Transactions

During the year ended December 31, 2015, the Company allocated an aggregate of $43,240 of compensation paid to the Company's former General Counsel to an entity owned partially by certain then officers and directors of the Company. During the year ended December 31, 2015, the Company was reimbursed the entire amount of $93,240 due from three entities owned partially by certain then officers and directors of the Company. The balance due from the three entities was $0 as of December 31, 2016 and 2015, respectively.

F-17

FUSE MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

On September 1, 2015, the Company transferred a security deposit of $2,489 and property and equipment having a net book value of $3,062 in order to settle $6,000 of expense reimbursement to an individual that was a former director and Chief Executive Officer of the Company, resulting in a gain on disposition of $449 (See Note 3).

On January 15, 2015, the Company issued a two-year promissory note in exchange for cash proceeds of $100,000 from an entity controlled by an individual that was a former director and Chief Executive Officer of the Company. The note was unsecured, bore interest at 7.0% and required 18 monthly payments of interest only commencing at the beginning of month seven. On December 19, 2016, the outstanding principal balance along with all accrued and unpaid interest of $4,169 was forgiven. Accordingly, the Company recognized the forgiveness of debt of $104,169 as a contribution of capital by a stockholder during the year ended December 31, 2016 (See Note 5).

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 then officers and directors of the Company (See Note 7).

The Company entered into a distributor agreement with CPM effective August 2, 2012, pursuant to which the Company acts as a non-exclusive distributor of certain amniotic membrane products. The term of the agreement is one year and renews on each annual anniversary date for successive one-year terms unless it is terminated in writing by either party (See Note 1).

During the years ended December 31, 2016 and 2015, the Company purchased $103,578 and $431,102, respectively, of its products from CPM (See Note 9). The balance due to CPM at December 31, 2016 and 2015 was $77,178 and $48,400, respectively.

As of December 31, 2016 and 2015, $0 and $22,202, respectively, was owed to officers of the Company or entities controlled by officers of the Company. This amount is included in accounts payable – related parties on the accompanying consolidated balance sheets.

F-18

Exhibit 10.31

THIS AMENDED AND RESTATED PROMISSORY NOTE (THIS “NOTE”) AND THE SHARES UNDERLYING THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE FEDERAL OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR HYPOTHECATED IN ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS AS MAY BE APPLICABLE OR, AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT AN EXEMPTION FROM SUCH APPLICABLE LAWS EXISTS.

AMENDED AND RESTATED PROMISSORY NOTE

$50,000.00

October 19, 2016

FOR VALUE RECEIVED, the undersigned, Fuse Medical, Inc., a Delaware corporation (“Maker”), hereby promises to pay to the order of NC 143 Family Holdings, LP, a Texas limited partnership, or its assigns (“Payee”), at 1565 North Central Expressway, 2nd Floor, Richardson, Texas 75080, the principal amount of Fifty Thousand and no/100 Dollars ($50,000.00), together with interest at a rate per annum equal to ten percent (10%). Interest payable under this Note shall be computed on the basis of a 365-day year and actual days elapsed. All past due principal shall bear interest from the date of maturing thereof at a rate equal to the lesser of eighteen percent (18%) per annum or the maximum rate of interest permitted from time to time by applicable law.

All unpaid principal and interest shall be due and payable, upon the demand of Payee, at any time on or after the earlier of: (i) December 31, 2016; or (ii) the closing of that certain Securities Purchase Agreement contemplated to be executed by and between Maker and an affiliate of Payee for the purchase of shares of common stock of Maker that will, upon issuance, represent a majority of the then issued and outstanding common stock of Maker. Notwithstanding anything herein to the contrary, on or after January 16, 2017, Payee, at Payee’s sole and absolute discretion, by providing written notice to Maker, shall have the right to convert all or any portion of the then unpaid principal and interest balance of this Note into common stock of the Maker at a conversion price equal to $0.08 per share of common stock, subject to proportional increase or decrease, as applicable, for any combination or stock split.

Maker, and each surety, endorser, guarantor, and, other party now or hereafter liable for the payment of any sums of money payable on this Note, jointly and severally waive presentment, demand for payment, protest, demand for past due payments, notice of intention to accelerate, notice of nonpayment, diligence in enforcement, and any and all other notices or demands in connection with the delivery, acceptance, performance, default or enforcement of this Note, and expressly consent and agree that their liability on this Note shall not be affected at any time, whether before or after maturity, by any indulgence, or any partial payments, renewals, or extensions hereof (whether one or more), or any release or discharge of any person against whom any such party may have a right of recourse, regardless of whether the holder hereof expressly reserves any rights against any such party.

All amounts payable hereunder by the Maker shall be payable to the Payee at the address set forth above or at such other place as the Payee or the holder hereof may, from time to time, indicate in writing to the Maker, and shall be made by the Maker in lawful money of the United States by check or in cash at such place of payment.

This Note may be prepaid in whole or in part at any time and from time to time without premium or penalty. Any partial prepayments shall be applied first to any accrued but unpaid interest and then to the outstanding principal installments in inverse order of maturity.

If any payment required to be made hereunder becomes due and payable on a non-business day, the maturity thereof shall extend to the next business day and interest shall be payable at the rate applicable thereto during such extension. The term “business day” shall mean a calendar day excluding Saturdays, Sundays or other days on which banks in the State of Texas are required or authorized to remain closed.

If this Note is placed in the hands of an attorney for collection, Maker agrees to pay attorneys’ fees and costs and expenses of collection, including but not limited to court costs.

Upon either: (i) the failure of prompt and timely payment when due of any installment of principal or interest under this Note; (ii) the occurrence of any default or failure to perform any covenant, agreement or obligation under any document, instrument, or agreement evidencing security for this Note or under any other agreement between Maker and Payee; or (iii) the commencement of any proceeding under any bankruptcy, insolvency, or debtor relief law against Maker, then the holder hereof, at its option, may declare the entire unpaid balance of principal and accrued interest hereunder to be immediately due and payable.

AMENDED AND RESTATED PROMISSORY NOTE - Page 1

This Note shall be governed by and construed in accordance with the laws of the State of Texas and applicable laws of the United States.

In no contingency or event whatsoever shall the amount paid or agreed to be paid by Maker, received by Payee, or requested or demanded to be paid by Maker exceed the maximum amount permitted by applicable law. In the event any such sums paid to Payee by Maker would exceed the maximum amount permitted by applicable law, Payee shall automatically apply such excess to the unpaid principal amount of this Note or, if the amount of such excess exceeds the unpaid principal amount of this Note, such excess automatically shall be applied by Payee to the unpaid principal amount of other indebtedness, if any, owed by Maker to Payee, or if there be no such other indebtedness, such excess shall be paid to Maker. All sums paid or agreed to be paid by Maker, received by Payee, or requested or demanded to be paid by Maker which are or hereafter may be construed to be or in respect of compensation for the use, forbearance, or detention of money shall, to the extent permitted by applicable law, be amortized, prorated, spread and allocated throughout the full term of all indebtedness of Maker to Payee, to the end that the actual rate of interest hereon shall never exceed the maximum rate of interest permitted from time to time by applicable law.

This Note amends, restates and supersedes in its entirety that certain Promissory Note dated July 15, 2016 made by Maker and payable to Mark Brooks in the original principal amount of Fifty Thousand and 00/100 Dollars ($50,000.00) (the “Original Note” ), the original of which shall be promptly returned to Maker. This Note shall hereafter constitute evidence of but one debt and the terms, covenants, agreements, rights, obligations and conditions contained in this Note shall supersede in their entirety all of the terms, covenants, agreements, rights, obligations and conditions of the Original Note.

NO ORAL AGREEMENTS . THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

FUSE MEDICAL. INC.,
a Delaware corporation

By:		/s/ David Hexter
		David Hexter, CFO

AMENDED AND RESTATED PROMISSORY NOTE - Page 2

Exhibit 10.32

AMENDED AND RESTATED PROMISSORY NOTE

$50,000.00

October 19, 2016

FOR VALUE RECEIVED, the undersigned, Fuse Medical, Inc., a Delaware corporation (“Maker”), hereby promises to pay to the order of Reeg Medical Industries, Inc., a Texas limited liability company, or its assigns (“Payee”), at 3024 Westminster Avenue, Dallas, Texas 75205, the principal amount of Fifty Thousand and no/100 Dollars ($50,000.00), together with interest at a rate per annum equal to ten percent (10%). Interest payable under this Note shall be computed on the basis of a 365-day year and actual days elapsed. All past due principal shall bear interest from the date of maturing thereof at a rate equal to the lesser of eighteen percent (18%) per annum or the maximum rate of interest permitted from time to time by applicable law.

If this Note is placed in the hands of an attorney for collection, Maker agrees to pay attorneys’ fees and costs and expenses of collection, including but not limited to court costs.

AMENDED AND RESTATED PROMISSORY NOTE - Page 1

This Note shall be governed by and construed in accordance with the laws of the State of Texas and applicable laws of the United States.

This Note amends, restates and supersedes in its entirety that certain Promissory Note dated August 23, 2016 made by Maker and payable to Payee in the original principal amount of Fifty Thousand and 00/100 Dollars ($50,000.00) (the “Original Note” ), the original of which shall be promptly returned to Maker. This Note shall hereafter constitute evidence of but one debt and the terms, covenants, agreements, rights, obligations and conditions contained in this Note shall supersede in their entirety all of the terms, covenants, agreements, rights, obligations and conditions of the Original Note.

FUSE MEDICAL, INC.,
a Delaware corporation

By:		/s/ David Hexter
		David Hexter, CFO

AMENDED AND RESTATED PROMISSORY NOTE - Page 2

Exhibit 10.33

THIS PROMISSORY NOTE (THIS “NOTE”) AND THE SHARES UNDERLYING THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE FEDERAL OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR HYPOTHECATED IN ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS AS MAY BE APPLICABLE OR, AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT AN EXEMPTION FROM SUCH APPLICABLE LAWS EXISTS.

PROMISSORY NOTE

$50,000.00

October 19, 2016

FOR VALUE RECEIVED, the undersigned, Fuse Medical, Inc., a Delaware corporation (“Maker”), hereby promises to pay to the order of NC 143 Family Holdings, LP, a Texas limited partnership, or its assigns ( “Payee”), at 1565 North Central Expressway, 2nd Floor, Richardson, Texas 75080, the principal amount of Fifty Thousand and no/100 Dollars ($50,000.00), together with interest at a rate per annum equal to ten percent (10%). Interest payable under this Note shall be computed on the basis of a 365-day year and actual days elapsed. All past due principal shall bear interest from the date of maturing thereof at a rate equal to the lesser of eighteen percent (18%) per annum or the maximum rate of interest permitted from time to time by applicable law.

If this Note is placed in the hands of an attorney for collection, Maker agrees to pay attorneys’ fees and costs and expenses of collection, including but not limited to court costs.

PROMISSORY NOTE - Page 1

This Note shall be governed by and construed in accordance with the laws of the State of Texas and applicable laws of the United States.

FUSE MEDICAL, INC.,
a Delaware corporation

By:		/s/ David Hexter
		David Hexter, CFO

PROMISSORY NOTE - Page 2

Exhibit10.50

Professional Employer Organization Client Service Agreement

This Professional Employer Organization (“PEO”) Client Service Agreement (the “Agreement”), dated as of January 1, 2017 (the “Effective Date”), is by and between AmBio Staffing, LLC, a Texas limited liability company, with offices located at 1565 North Central Expressway, Suite 300, Richardson, TX 75080 its successors and assigns (the “PEO Provider”) and Fuse Medical, Inc., a Delaware corporation, with offices located at 1300 Summit Avenue, Suite 670, Fort Worth, TX 76102 (the “Client”).

1 . Relationship of the Parties; Services. The parties agree to enter into an arrangement for PEO Provider to provide human resources-related services to Client as a co-employer of Client’s employees. For purposes of providing services under this arrangement, PEO Provider is designated as the Administrative Employer and agrees that it is a co-employer for purposes of carrying out the responsibilities described in Section 2 of this Agreement (hereafter “Services”). Client is designated as the Worksite Employer and agrees that it is a co-employer for purposes of carrying out the responsibilities described in Section 3 of this Agreement. Client’s employees are referred to as Work Site Employees (WSEs) throughout this Agreement.

2. Rights and Responsibilities of PEO Provider.

2.1 PEO Provider assumes full responsibility, as the Administrative Employer of WSEs, for the duties described in this
Section 2.

2.2 Payment of wages, as reported by Client, through PEO Provider’s payroll, including the following as applicable from which PEO Provider will make all required deductions and withholdings under applicable federal, state and local laws:

(a)

Salary or other Base Pay;

(b)

Commissions;

(c)

Bonuses;

(d)

Overtime pay;

(e)

Vacation pay;

(f)

Sick time pay;

(g)

Paid time off;

(h)

Paid leaves of absence; and

(i)

Severance.

2.3 Reporting and remitting payroll taxes, in compliance with all federal and state tax requirements on payroll wages paid under this Agreement.

2.4 Providing and administering health and welfare benefits through PEO Provider-sponsored plans, in compliance with applicable federal and state laws, and subject to eligibility requirements. These employee benefits are described on the attached Employee Benefits Addendum and include:

(a)

Medical;

(b)

Dental;

(c)

Vision and

(d)

Health Flexible Spending Accounts;

2.5 Compliance with requirements of the Affordable Care Act (ACA) (that is, the Patient Protection and Affordable Care Act (PPACA), as amended by the Health Care and Education Reconciliation Act of 2010 (HCERA)), as applicable.

2.6 Compliance with requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), the Uniformed Services Employment and Reemployment Rights Act of 1994 and the Health Insurance Portability and Accountability Act of 1996 (HIPAA).


PEO Client Service Agreement	Page 1

2.7 Providing a Section 401(k) plan or other retirement plan if and when the Client requests.

2.8 Providing workers compensation insurance coverage that covers the WSEs, as well as processing and defending all workers compensation claims.

2.9 Processing and defending unemployment claims.

2.10 Aggregate Client employee-related policies for the purpose of developing the basis of an Employee Handbook, that comply with federal, state and local laws in all locations where Client has employees. PEO Provider agrees that it will ensure the Employee Handbook and all employee-related policies are timely updated and communicated, as necessary, due to changes in the law. If requested, PEO Provider agrees to make any stylistic changes to customize the Employee Handbook and employee-related policies to better reflect Client’s culture.

2.11 Training employees on compliance with workplace policies, including those that may be required by law.

2.12 Providing a worksite safety program, including training of WSEs.

2.13 PEO Provider shall coordinate the on-boarding of new WSEs, including execution of pre-employment screening, back-ground checks, reference checks, drug testing and ensure proper approval and authorization of any and all WSEs changes prior to execution as well as proper completion and filing and maintenance of all relevant WSEs personnel documentation.

2.14 PEO Provider shall maintain proper filing and maintenance of all relevant WSEs personnel documentation, employee-related records, as may be require federal and state laws.

2.15 PEO Provider will ensure benefit vendor invoices at all times properly reflect WSEs benefit selections and related payroll withholdings. Discrepancies will be identified and resolved in a timely manner.

2.16 Managing and tracking WSEs paid time-off, observed holidays and employee leaves of absence, ensuring compliance with Client policies.

2.17 PEO Provider and Client are jointly responsible for compliance with all applicable employment laws, including, but not limited to the following federal laws, and their state or local equivalents:

(a)

Title VII of the Civil Rights Act of 1964;

(b)

Americans with Disabilities Act, as amended;

(c)

Fair Labor Standards Act;

(d)

Family and Medical Leave Act;

(e)

Section 503 of the Rehabilitation Act;

(f)

Occupational Safety and Health Act of 1970 (OSHA); and

(g)

Immigration laws.

2.18 The Client shall be primarily responsible for recruiting, hiring, and firing workers and the PEO Provider shall support these Client efforts.

3. Rights and Responsibilities of Client.

3.1 Client agrees, as the Worksite Employer, to be responsible for the following duties described in this Section 3.

3.2 Client shall have primary responsibility for the day-to-day control and supervision of WSEs, as well as hiring, firing, disciplining or promoting WSEs.

3.3 Properly classify employees as exempt or non-exempt under applicable wage and hour laws.


PEO Client Service Agreement	Page 2

3.4 Maintain accurate records regarding time worked by WSEs and timely transmit compensation payment information to PEO Provider fo r each work pay-cycle on a bi-weekly basis including as applicable:

(a)

Wages, including whether salaried or hourly, and regular rate of pay;

(b)

Overtime;

(c)

Commissions;

(d)

Bonuses;

(e)

Vacation pay;

(f)

Sick pay;

(g)

Paid time off;

(h)

Paid leaves of absence; and

(i)

Severance payments.

3.5 Timely report to PEO Provider any changes in its workforce, such as employees hired or terminated, and any changes in salary, hour wages or other compensation, along with applicable authorizations and approvals.

3.6 Maintain licenses that may be required of any WSEs.

3.8 Provide a safe work environment, in compliance with OSHA, and timely report any work-related injuries to PEO Provider.

4. Term. This Agreement shall commence as of the Effective Date and shall continue thereafter a period of two (2) years with subsequent one (1) year automatic renewal terms , unless sooner terminated pursuant to Section 6.

5. Fees; Payment Terms.

5.1 Service Fees. In consideration of the provision of the services by PEO Provider and the rights granted to Client under this Agreement, Client shall pay the fees set forth in Exhibit A. Fees will be reassessed quarterly, no earlier than March 31, 2017 based on then current cost trends and activity.

5.2 Payment Terms. PEO Provider shall issue invoices to Client, which shall be due and payable upon receipt after Client receives such invoice, except for any amounts disputed by Client in good faith. All payments hereunder shall be in US dollars and made by check or wire transfer.

6. Termination; Effect of Termination.

6.1 Either party, in its sole discretion, may terminate this Agreement, in whole or in part, at any time without cause, by providing ninety (90) days’ prior written notice to the other party. On the termination of this Agreement for any reason, the WSEs will remain employees of the Client as the initial employer.

6.2 Either party may terminate this Agreement, effective upon written notice to the other party (the “Defaulting Party”), if the Defaulting Party:

(a) (i) materially breaches this Agreement, and such breach is incapable of cure; or (ii) with respect to a material breach capable of cure, the Defaulting Party does not cure such breach within thirty (30) days after receipt of written notice of such breach.

(b) (i) becomes insolvent or admits its inability to pay its debts generally as they become due; (ii) becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, which is not fully stayed within seven (7) business days or is not dismissed or vacated within Forty-five (45) days after filing; (iii) is dissolved or liquidated or takes any corporate action for such purpose; (iv) makes a general assignment for the benefit of creditors; or (v) has a receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any material portion of its property or business.

6.3 The rights and obligations of the parties set forth in this Section 6.3 and Section 7, Section 8, Section 9, Section 11, Section 12, Section 13 and Section 14, and any right or obligation of the parties in this Agreement which, by its nature, will survive any such termination or expiration of this Agreement.


PEO Client Service Agreement	Page 3

7. Intellectual Property Rights; Owners hip.

7.1 Client is, and shall be, the sole and exclusive owner of all right, title and interest in and to the materials provided by PEO Provider pursuant to its obligations under this Agreement (hereafter “Deliverables”), including all intellectual property rights therein. PEO Provider agrees, and will cause its employees (meaning those employees employed by PEO Provider to provide services under this Agreement, who are hereafter referred to as “PEO Provider Personnel”) to agree, that with respect to any Deliverables that may qualify as “work made for hire” as defined in 17 U.S.C. § 101, such Deliverables are hereby deemed a “work made for hire” for Client. To the extent that any of the Deliverables do not constitute a “work made for hire”, PEO Provider hereby irrevocably assigns, and shall cause PEO Provider Personnel to irrevocably assign to Client, in each case without additional consideration, all right, title and interest throughout all United States territories and to the Deliverables, including all intellectual property rights therein. PEO Provider shall cause PEO Provider Personnel to irrevocably waive, to the extent permitted by applicable law, any and all claims such employees may now or hereafter have in any jurisdiction with respect to the Deliverables.

7.2 Upon the reasonable request of Client, PEO Provider shall, and shall cause PEO Provider Personnel to, promptly take such further actions, including execution and delivery of all appropriate instruments of conveyance, as may be necessary to assist Client to prosecute, register, perfect or record its rights in or to any Deliverables.

8. Confidential Information.

8.1 Both parties may be given access to or acquire information which is proprietary or confidential to the other party and its affiliated companies, clients and customers. Any and all such information obtained by either party or the WSEs shall be deemed to be confidential and proprietary information. Both parties agree to hold such information in strict confidence and not to disclose such information to third parties or to use such information for any purposes whatsoever other than the providing of Services under this Agreement. Either party may request WSEs or employees of the PEO Provider responsible for providing Services to the Client to enter into confidentiality agreements.

9. Representations and Warranties.

9.1 Each party represents and warrants to the other party that:

(a)

it is duly organized, validly existing and in good standing as a corporation or other entity as represented herein under the laws and regulations of its jurisdiction of incorporation, organization or chartering;

(b)

it has the full right, power and authority to enter into this Agreement, to grant any rights and licenses granted hereunder and to perform its obligations hereunder;

(c)

the execution of this Agreement by its representative whose signature is set forth at the end hereof has been duly authorized by all necessary corporate action of the party; and

(d)

when executed and delivered by such party, this Agreement will constitute the legal, valid and binding obligation of such party, enforceable against such party in accordance with its terms.

9.2 PEO Provider represents and warrants to Client that:

(a)

it shall perform the Services using personnel of required skill, experience and qualifications and in a professional and workmanlike manner in accordance with generally recognized and commercially reasonable industry standards for similar services and shall devote adequate resources to meet its obligations under this Agreement;

(b)

it is a Licensed Professional Employer Organization by the Texas Department of Licensing and Regulation and will maintain in good standing at all times such license;

(c)

it is in compliance with, and shall perform the Services in compliance with, all applicable laws, including
PEO-specific laws in states where WSEs are located;

9.3 EXCEPT FOR THE EXPRESS WARRANTIES IN THIS AGREEMENT, (A) EACH PARTY HEREBY DISCLAIMS ALL WARRANTIES, EITHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE UNDER THIS AGREEMENT, AND (B) PEO PROVIDER SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE.


PEO Client Service Agreement	Page 4

10. Indemnification.

10.1 PEO Provider shall defend, indemnify and hold harmless Client and its officers, directors, employees, agents, successors and permitted assigns (each, a “Client Indemnitee”) from and against any and all claims, demands, damages (including liquidated, punitive and compensatory), actions in state or federal courts or before administrative agencies, losses and liabilities, costs and expenses (including attorneys’ fees) and monetary fines or penalties assessed by any administrative agency (hereafter “Actions”) arising out of or resulting from:

(a)

bodily injury, death of any person or damage to real or tangible, personal property resulting from the willful, fraudulent or negligent acts or omissions of PEO Provider or PEO Provider Personnel; and

(b)

PEO Provider’s breach of any representation, warranty or obligation of PEO Provider set forth in this Agreement, including PEO Provider’s failure to comply with all employment laws in connection with the Services provided by PEO Provider under this Agreement.

10.2 Client shall defend, indemnify and hold harmless PEO Provider and its officers, directors, employees, agents, successors and permitted assigns from and against any and all Actions arising out of or resulting from:

(a)

bodily injury, death of any person or damage to real or tangible, personal property resulting from the [grossly] negligent or willful acts or omissions of Client; and

(b)

Client’s breach of any representation, warranty or obligation of Client of this Agreement.

10.3 The party seeking indemnification hereunder shall promptly notify the indemnifying party in writing of any Action and cooperate with the indemnifying party at the indemnifying party’s sole cost and expense. The indemnifying party shall immediately take control of the defense and investigation of such Action and shall employ counsel of its choice to handle and defend the same, at the indemnifying party’s sole cost and expense. The indemnifying party shall not settle any Action in a manner that adversely affects the rights of the indemnified party without the indemnified party’s prior written consent, which shall not be unreasonably withheld or delayed. The indemnified party’s failure to perform any obligations under this Section 10.3 shall not relieve the indemnifying party of its obligations under this Section 10.3 except to the extent that the indemnifying party can demonstrate that it has been materially prejudiced as a result of such failure. The indemnified party may participate in and observe the proceedings at its own cost and expense.

11. Limitation of Liability.

11.1 EXCEPT AS OTHERWISE PROVIDED IN Section 11.3, IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER OR TO ANY THIRD PARTY FOR ANY LOSS OF USE, REVENUE OR PROFIT OR LOSS OF DATA OR FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL OR PUNITIVE DAMAGES WHETHER ARISING OUT OF BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, REGARDLESS OF WHETHER SUCH DAMAGE WAS FORESEEABLE AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

11.2 EXCEPT AS OTHERWISE PROVIDED IN Section 11.3, IN NO EVENT WILL EITHER PARTY’S LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT, WHETHER ARISING OUT OF OR RELATED TO BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, EXCEED TWO (2) TIMES THE AGGREGATE AMOUNTS PAID OR PAYABLE TO PEO PROVIDER PURSUANT TO THIS AGREEMENT.

11.3 The exclusions and limitations in Section 11.1 and Section 11.2 shall not apply to:

(a)

damages or other liabilities arising out of or relating to a party’s failure to comply with its obligations under Section 7 (Intellectual Property Rights; Ownership);

(b)

damages or other liabilities arising out of or relating to a party’s failure to comply with its obligations under Section 8 (Confidential Information);

(c)

a party’s indemnification obligations under Section 10 (Indemnification);

(d)

damages or other liabilities arising out of or relating to a party’s gross negligence, willful misconduct or intentional acts;

(e)

death or bodily injury or damage to real or tangible personal property resulting from a party’s negligent acts or omissions;


PEO Client Service Agreement	Page 5

(f)

damages or liabilities to the extent covered by a party’s insurance; and

(g)

a party’s obligation to pay attorneys’ fees and court costs in accordance with Section 14.2.]]

12. Insurance.

12.1 At all times during the Term of this Agreement and for a period of three years thereafter, PEO Provider shall procure and maintain, at its sole cost and expense, at least the following types and amounts of insurance coverage:

(a)

Commercial General Liability with limits no less than $1,000,000.00 per occurrence and $2,000,000.00 in the aggregate, including bodily injury and property damage and products and completed operations, which policy will include contractual liability coverage insuring the activities of PEO Provider under this Agreement;

(b)

Worker’s Compensation with limits no less than the greater of (i) $1,000,000.00 or (ii) the minimum amount required by applicable law;

(c)

If and when applicable, ERISA fidelity bond covering the qualified retirement plan or any other employee benefit plan as required by Section 412 of the Employee Retirement Income Security Action of 1974 (ERISA) in an amount determined under DOL Reg. § 2580.412-11. The ERISA fidelity bond shall satisfy the requirements of ERISA Section 412 and the regulations;

(d)

Commercial Automobile Liability with limits no less than $1,000,000.00, combined single limit;

and

(e)

Errors and Omissions/Professional Liability with limits no less than $1,000,000.00 per occurrence and $2,000,000.00 in the aggregate.

12.2 Except for the ERISA fidelity bond required in Section 12.1(c), all insurance policies required pursuant to this Section 12 shall:

(a)

be issued by insurance companies reasonably acceptable to Client;

(b)

provide that such insurance carriers give Client at least 30 days’ prior written notice of cancellation or non-renewal of policy coverage; provided that, prior to such cancellation, the PEO Provider shall have new insurance policies in place that meet the requirements of this Section 12;

(c)

waive any right of subrogation of the insurers against the Client.

(d)

provide that such insurance be primary insurance and any similar insurance in the name of and/or for the benefit of Client shall be excess and non-contributory; and

(e)

name Client and Client’s Affiliates, including, in each case, all successors and permitted assigns, as additional insureds.

12.3 Upon the written request of Client, PEO Provider shall provide Client with copies of the certificates of insurance and policy endorsements for all insurance coverage required by this Section 12, and shall not do anything to invalidate such insurance. This Section 12 shall not be construed in any manner as waiving, restricting or limiting the liability of either party for any obligations imposed under this Agreement (including but not limited to, any provisions requiring a party hereto to indemnify, defend and hold the other harmless under this Agreement).

13. Non-Solicitation.

13.1 During the Term of this Agreement and for a period of twenty-four (24) months thereafter, neither party shall, directly or indirectly, in any manner solicit or induce for employment any person who performed any work under this Agreement who is then in the employment of the other party. A general advertisement or notice of a job listing or opening or other similar general publication of a job search or availability to fill employment positions, including on the internet, shall not be construed as a solicitation or inducement for the purposes of this Section 13.1, and the hiring of any such employees or independent contractor who freely responds thereto shall not be a breach of this Section 13.1.

13.2 If either PEO Provider or Client breaches Section 13.1, the breaching party shall, on demand, pay to the non-breaching party a sum equal to two (2) year’s basic salary and the annual fee that was payable by the claiming party to that employee, worker or independent contractor plus the recruitment costs incurred by the non-breaching party in replacing such person.


PEO Client Service Agreement	Page 6

14. Notices.

14.1 All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient or (d) on the third (3 ^rd ) day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated below (or at such other address for a party as shall be specified in a notice given in accordance with this Section 14.1.

If to PEO Provider:		1565 North Central Expressway Suite 300 Richardson, TX 75080

		Facsimile: 972.354.5568 Attention: Managing Member

If to Client:		1300 Summit Avenue Suite 670 Fort Worth, TX 76102

		Facsimile: 817.887.2172 Attention: Chief Executive Officer

14.2 For purposes of this Agreement, (a) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (x) to Sections, Schedules, Exhibits and Statements of Work refer to the Sections of, and Schedules and Exhibits attached to this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.

14.3 This Agreement, together with all Schedules, Exhibits and any other documents incorporated herein by reference, constitutes the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any conflict between the terms and provisions of this Agreement and those of any Schedule or Exhibit, the following order of precedence shall govern: (a) first, this Agreement, exclusive of its Exhibits and Schedules; and (b) second, any Exhibits and Schedules to this Agreement.

14.4 Neither party may assign, transfer or delegate any or all of its rights or obligations under this Agreement, without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. No assignment shall relieve the assigning party of any of its obligations hereunder. Any attempted assignment, transfer or other conveyance in violation of the foregoing shall be null and void. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.

14.5 This Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Agreement.

14.6 The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.


PEO Client Service Agreement	Page 7

14.7 This Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, po wer or privilege.

14.8 If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

14.9 This Agreement shall be governed by and construed in accordance with the internal laws of the State of Texas without giving effect to any choice or conflict of law provision or rule or any other jurisdiction that would cause the application of Laws of any jurisdiction other than those of the State of Texas. Any legal suit, action or proceeding arising out of this Agreement or the Services provided hereunder be instituted in the federal courts of the United States or the courts of the State of Texas in each case located in the city of Richardson and County of Dallas, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by mail to such party’s address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court.

14.10 Each party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby.

14.11 Each party acknowledges that a breach by a party of Section 7 (Intellectual Property Rights; Ownership) or Section 8 (Confidential Information) may cause the non-breaching party irreparable damages, for which an award of damages would not be adequate compensation and agrees that, in the event of such breach or threatened breach, the non-breaching party will be entitled to seek equitable relief, including a restraining order, injunctive relief, specific performance and any other relief that may be available from any court, in addition to any other remedy to which the non-breaching party may be entitled at law or in equity. Such remedies shall not be deemed to be exclusive but shall be in addition to all other remedies available at law or in equity, subject to any express exclusions or limitations in this Agreement to the contrary.

14.12 In the event that any action, suit, or other legal or administrative proceeding is instituted or commenced by either party hereto against the other party arising out of or related to this Agreement, the prevailing party shall be entitled to recover its attorneys’ fees and court costs from the non-prevailing party.

14.13 This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.


PEO Client Service Agreement	Page 8

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

	AmBio Staffing, LLC

	By		/s/ Bill McLaughlin
	Name:		Bill McLaughlin
	Title:		Chief Financial Officer

	Fuse Medical, Inc.

	By		/s/ Christopher C. Reeg
	Name:		Christopher C. Reeg
	Title:		Chief Executive Officer

EXHIBIT A

FEE SCHEDULE

EXHIBIT B

EMPLOYEE BENEFITS ADDENDUM


PEO Client Service Agreement	Page 9

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Christopher C. Reeg, certify that:

I have reviewed this annual report on Form 10-K of Fuse Medical, Inc.;

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;

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;

The registrant’s other certifying officer(s) 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:

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;

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;

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

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

The registrant’s other certifying officer(s) 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):

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

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: March 20, 2017

/s/ Christopher C. Reeg

Christopher C. Reeg

Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, David A. Hexter, certify that:

I have reviewed this annual report on Form 10-K of Fuse Medical, Inc.;

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: March 20, 2017

/s/ David A. Hexter

David A. Hexter

Chief Financial Officer

(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Fuse Medical, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof, I, Christopher Reeg, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

The annual report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and

The information contained in the annual report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Christopher C. Reeg

Christopher C. Reeg

Chief Executive Officer

(Principal Executive Officer)

Dated: March 20, 2017

In connection with the annual report of Fuse Medical, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof, I, David Hexter, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

The annual report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and

The information contained in the annual report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David A. Hexter

David A. Hexter

Chief Financial Officer

(Principal Financial Officer)

Dated: March 20, 2017