Fuse Medical, Inc. - Annual Report: 2015 (Form 10-K)

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes    x 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    x 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. x 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). x 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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes    x 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: $271,213.

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 25, 2016, 6,890,808 shares of the registrant's common stock were outstanding.

EXPLANATORY NOTE

On May 28, 2014, Golf Rounds.com, Inc., a Delaware corporation ("Golf Rounds"), consummated a "reverse merger" transaction with Fuse Medical, LLC, a Delaware limited liability company ("Fuse"). Details of the transaction are provided in Item 1 of this Annual Report.

As a result of the "reverse merger" transaction, Golf Rounds agreed to continue the business operations of Fuse and change its name to Fuse Medical, Inc., a Delaware corporation (the "Company"). Prior to the transaction, Golf Rounds was a "shell company" (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, the "Exchange Act") and did not conduct any business.

In accordance with "reverse merger" accounting treatment, the Company's historical financial statements prior to the transaction will be replaced with the historical financial statements of Fuse prior to the transaction in all future filings with the SEC.

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

PART I

ITEM 1. BUSINESS.

Historical Company Information

Golf Rounds was incorporated in 1968 as a Florida corporation.

Until the fourth quarter of fiscal year 1992, Golf Rounds was engaged in the wholesale distribution of aluminum alloys, steel and other specialty metals under the name American Metals Service, Inc. This entity liquidated its assets and ceased operations in the fourth quarter of fiscal year 1992. Golf Rounds did not conduct any business operations from such time until May 1999.

In May 1999, Golf Rounds acquired the assets of PKG Design, Inc., the developer of two sports-related Internet websites: golfrounds.com and skiingusa.com. In July 1999, Golf Rounds redomesticated through the merger of Golf Rounds into a wholly owned Delaware subsidiary, with the Delaware subsidiary surviving. Also, in July 1999, in connection with the acquisition of these websites, Golf Rounds formally changed its name to Golf Rounds.com, Inc. In August 2001, Golf Rounds ceased operations of the golfrounds.com and skiingusa.com websites.

On December 18, 2013, Golf Rounds entered into an Agreement and Plan of Merger with Fuse, Project Fuse LLC, a wholly owned subsidiary of the Company ("Merger Sub"), and D. Alan Meeker, solely in his capacity as the representative of the Fuse members (the "Representative"), which agreement was amended on March 3, 2014 and April 11, 2014 solely to extend the termination date set forth therein (as so amended, and as further amended or supplemented from time to time, the "Merger Agreement"). Pursuant to the Merger Agreement, Merger Sub merged with and into Fuse, with Fuse surviving as a wholly owned subsidiary of the Golf Rounds (the "Merger"). The Merger was effective as of May 28, 2014, upon the filing of a certificate of merger with the Secretary of State of the State of Delaware. At the effective time of the Merger (the "Effective Time"), the legal existence of Merger Sub ceased and each membership interest unit of Merger Sub issued and outstanding immediately prior to the Effective Time was converted into and became one validly issued, fully paid and non-assessable membership interest unit of Fuse, so that after the Effective Time, Golf Rounds became the holder of all of the issued and outstanding membership interest units of Fuse.

On May 28, 2014, as a result of the Merger, Golf Rounds acquired Fuse and the business of Fuse became our business. For more information on the Merger, see the Company's Form 8-K/A filed on August 29, 2014.

Fuse was formed in Delaware on July 18, 2012 to market, distribute and sell internal fixation, durable bone materials, biologics, tissues, surgical and other related surgical products for use in a variety of surgical procedures. Subsequent to the formation of Fuse, two physician partnerships were formed to operate separate businesses focusing on the distribution of medical devices. Fuse Medical V, LP, was formed on November 15, 2012 and is owned 59% by Fuse, 1% by Fuse Management V, LLC (the General Partner) and 40% by individual physicians. The second partnership, Fuse Medical VI, LP was formed on January 31, 2013. Fuse Medical VI, LP was owned 59% by Fuse, 1% by Fuse Management VI, LLC (the General Partner) and 40% by individual physicians. Fuse Medical V, LP and Fuse Medical VI, LP are limited partnerships. Prior to the Merger, the General Partners in Fuse Medical V, LP and Fuse Medical VI, LP agreed to surrender their interests and the individual physicians that owned limited partnership interests in Fuse Medical V, LP and Fuse Medical VI, LP agreed to exchange their interests to corresponding interests in Fuse, each becoming one of the Holders. Accordingly, the above companies became wholly-owned subsidiaries of Fuse immediately prior to the Merger. Certificates of Termination were filed for Fuse Medical V, LP, Fuse Medical VI, LP, Fuse Management V, LLC, and Fuse Management VI, LLC on February 12, 2015. A Certificate of Cancellation for Fuse Medical, LLC, was filed in Delaware on February 20, 2015 and a Certificate of Withdrawal was filed in Texas on August 5, 2015.

Overview

The Company's business is to market, distribute and sell internal fixation, durable bone materials, biologics, tissues, surgical and other related surgical products for use in a variety of surgical procedures in various types of facilities (ambulatory surgical centers, hospitals and physician offices and other medical facilities) where surgeons and doctors treat patients and operate. The Company markets, distributes and sells a variety of existing FDA-approved and/or state licensed products and services manufactured or produced by other organizations where the Company is considered a distributor and/or a stocking distributor. Currently, these products consist of plates and screws for recurring bone fractures, allografts for bone chips and tendons, and amniotics. The amniotic products are derived from the inner layer of the human amniotic tissue and then processed by the manufacturer which results in an FDA-approved allograft. Amniotics has historically made up over half of the Company's revenues. The Company utilizes its physician relationships, corporate partners, facility relationships and partnerships, as well as its knowledge of the healthcare industry, to further its business objectives. 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

The Company utilizes multiple distribution models including representative networks and independent contractors. The Company's customers are physicians, orthopedic surgeons, hospitals, surgical facilities and physician practices. The Company distributes the products on behalf of manufacturers and, in some cases, receives a commission related to sales numbers. In most cases, the Company purchases products directly from manufactures and resells the products from existing inventory. Beginning with the inclusion of Dr. Pratt and Dr. Dei on the Company's management team and others of similar reputations, the Company is attempting to build a network of specialists in select clinical specialties, many of whom are leaders in their field, that the Company hopes will clinically utilize the Company's product lines through appropriate channels in a manner consistent with professional standards of practice. 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 sold on a commission basis, the Company receives payment from the manufacturer or distributor. For products sold from the Company's inventory, the Company receives payment directly from its customers. Currently, the Company has a limited number of customers that it sells products to. In the year ended December 31, 2015, the Company had a concentration of sales in a limited number of hospital and surgical facilities. Amniotics has historically made up the largest portion of the Company's business. The Company recognizes that the diversification and growth of its customer base will be instrumental to its long-term strategic and financial success.

Our principal supplier for our Amniotic products is SLR Medical Consulting, LLC ("SLR"). Fuse entered into a Distributor Agreement with SLR effective December 15, 2015, pursuant to which Fuse acts as a non-exclusive global 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.

On December 9, 2015, Fuse entered into a Sales Representative Agreement with Evologics, LLC in which Fuse receives a specified commission (depending on the specific product) of all of its sales of Evologics, LLC (and its affiliates) products, subject to certain adjustments set forth in the agreement. The term of the agreement expires on December 31, 2017 and renews on each annual anniversary date thereafter for successive one-year terms unless it is terminated in writing by either party.

On July 17, 2014, the Company entered into an Independent Representative Agreement with Vilex, Inc. ("Vilex") pursuant to which the Company was appointed as a representative of Vilex to promote and sell Vilex's products in the United States. The Vilex products include certain plates, screws, and related equipment. Under the terms of the agreement with Vilex, the Company is a non-exclusive representative of Vilex, except for certain specified customers. The term of the agreement with Vilex is five years, and will automatically renew for additional one-year periods at the expiration of the original term unless terminated as provided therein. The Company is paid a commission based on its net sales. In 2015, we generated approximately $46,000 from Vilex for commissions under this agreement.

On January 8, 2015, the Company entered into a Distribution and Supply Agreement with BioDlogics, LLC ("BioD"), pursuant to which the Company was 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 agreement sets forth a quota for the purchase of the products by the Company from BioD for the first year of the agreement, which the Company agreed to use its best efforts to meet or exceed. In 2015, we generated approximately $420,000 of revenues from this agreement. 

Competition

For most of the products the Company offers there are a number of integrated competitors, several of which are publically traded, that not only manufacture and produce their own products but also have established distribution and sales networks and participate in large group purchasing organizations within the medical industry. Most of these competitors have linked physicians to their entities by engaging select physician and surgical specialties through consulting agreements, clinical trials remuneration and other compensation models. As mature companies, they also have extensive legacy systems and expensive administrative and sales commission cost structures. In addition, there are numerous independent medical distributorships primarily focused on limited geographic markets and products located across the United States.

Intellectual Property

The Company holds no intellectual property, patents or trademarks.

Regulatory Issues

There are both federal and state regulations that may impact the Company's ability to fully implement its 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 Administrations ("FDA"), other federal governmental agencies and by state authorities. These regulations govern the approval, clearance 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, stringent 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 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: 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 payment or receipt of remuneration, in cash or otherwise, in return for referrals of federal healthcare beneficiaries. The CMS has promulgated certain safe harbors that offer protection from liability for arrangements that fall within very specific parameters. The Company intends to utilize the "physician investment interest safe harbor" in the AKS as a business model. To reach the "Public Company Exception" (as defined below) to the AKS, the Company must possess undepreciated net tangible assets related to the furnishing of healthcare items and services of more than $50,000,000 in the previous fiscal year or 12-month period. As of December 31, 2015, our net tangible assets related to healthcare items and services was approximately $100,000 and, therefore, we will not meet this exception at any time in the near future.

The Stark Law prohibits physicians or their immediate family members from referring to entities that provide designated health services ("DHS") to federal program beneficiaries if the physician or an immediate family member has a financial relationship (either via a compensation arrangement or ownership interest) directly or indirectly in that entity. Similar to safe harbors for the AKS, the Stark Law regulations created a series of exceptions to provide protection for certain types of business arrangements that fall within their parameters. Many states have laws similar to the federal law.

The Company will not accept federal reimbursement for its products until it meets one of the exceptions under the Stark Law. In addition, there are various state statutes which may limit the Company's ability to fully implement our business model until such time as the Company achieves exempt status. It is the intent of the Company to not sell any product to an insured that would be reimbursed under any government payer system including, but not limited to, Medicare, Tricare or other national or state government beneficiary program.

Employees

As of March 25, 2016, the Company had four employees and two independent contractors. None of our employees are subject to collective bargaining agreements. We believe that our relationships with our employees are good. 

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.

Our ability to continue as a going concern is in doubt absent obtaining adequate new debt or equity financing and achieving sufficient sales levels.

We incurred net losses of approximately $802,000 in 2015 and $1,405,000 in 2014. 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. Our current cash balance provides us with enough working capital to sustain operations for approximately two months. Our continued existence is dependent upon our achieving sufficient sales levels of our products and obtaining adequate financing. If we are unsuccessful in generating sufficient sales or raising adequate capital, we will have to scale back or cease our operations and your investment will be lost. 

We are not currently profitable and we will need to raise additional funds in the future; however, additional funds may not be available on acceptable terms, or at all.

We have substantial operating expenses associated with the sales and marketing of the products we sell. The sales and marketing expenses are anticipated to be funded from operating cash flow. There can be no assurance 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 or reduce our expenses, we will need to raise additional capital, which would result in dilution to our stockholders, or seek additional loans. 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 which could negatively impact product sales and we could even be forced to cease operations, liquidate our assets and possibly even seek bankruptcy protection.

Pricing pressure and cost containment measurescould 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 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 growth and profitability will depend in large part upon the effectiveness of our marketing expenditures.

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

If our sales representatives and/or our promotional efforts are not effective, our future results of operations and financial condition will be adversely affected.

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 revenue and financial performance.

The Company may not be able to effectively manage its growth.

The Company's strategy involves rapid growth of its business. Companies which experience rapid growth sometimes fail because they cannot effectively manage their growth. If the Company fails to effectively manage its growth, its financial results could be adversely affected. Growth may place a strain on the Company's management systems and resources. As the Company grows, it must continue to hire, train, supervise and manage new employees. If the Company is unable to manage its growth, its operations and its financial results could be adversely affected and your investment may be lost.

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.

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 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 revenue.

If we lose the services of key personnel, it could adversely affect our business.

Our future success depends, in part, on our ability to attract and retain key personnel. Qualified individuals are in high demand and competition for such qualified personnel in our industry is intense, and we may incur significant costs to retain or attract them. There can be no assurance that we will be able to attract and retain the key personnel necessary to sustain our business or support future growth. The loss of the services of key individuals and the process to replace these individuals would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.

Our executive management team, including our Chief Executive Officer and President, allocate part of their time to other companies.

Members of our executive management team, including Dr. Pratt, 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 their time to be devoted 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.

Our future will depend on our ability to increase sales.

We currently sell our products through direct sales by our contract employees and indirectly through distributor relationships. We incurred increased sales and marketing expenses in building and expanding our indirect sales force, and there can be no assurance that we will generate increased sales as a result of this effort. If we are unable to increase our sales, we may not be able to remain operational and your investment will be lost.

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

Significant annual and quarterly fluctuations in our results of operations may be caused by, among other factors, 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 and general economic conditions. There can be no assurance that the level of revenues achieved by us in any particular fiscal period will not be significantly lower than in other comparable fiscal 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. As a result, if future revenues are below expectations, our loss may be disproportionately affected by a reduction in revenues, as any corresponding reduction in expenses may not be proportionate to the reduction in revenues.

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 subjecting the healthcare industry in the United States to fundamental change. 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, which 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.

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 financing which may increase our indebtedness or outstanding shares, resulting in dilution to stockholders. The inability to obtain such future financing 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 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 may inhibit our ability to generate positive operating results going forward.

We may be subject to future product liability litigation that could be expensive and our insurance coverage may not be adequate in a catastrophic situation.

Although we are not currently subject to any product liability proceedings, and we have no reserves for product liability disbursements, 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 and 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.

The manufacturers and suppliers of the products we market are subject to continuing regulatory compliance by the FDA which is costly and could result in delays in the commercialization of the products we market.

The manufacturers and suppliers of the products we market are subject to regulation by the FDA. 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, manufacture, 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 import and export 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 sales revenue.

As a distributor, we are subject to certain registration and listing requirements by the FDA and similar state authorities.

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 fines and civil penalties, operating restrictions, injunctions and criminal prosecutions, all of which could adversely impact our business.

Future revenue will depend on our ability to develop new sales channels and there can be no assurance that these efforts will result in significant revenues.

We are heavily dependent on developing sales channels for the products we sell, but there can be no assurance that these channels can be developed or that we will continue to be successful in selling our products. We currently sell the products through independent contractors and employed representatives. We are engaging in a major initiative to build and further expand our indirect sales force. This effort will have significant costs that will be incurred prior to the generation of revenue sufficient to cover these costs. The costs incurred for these efforts may impact our operating results and there can be no assurance of their effectiveness. Many of our competitors have well-developed sales channels and it may be difficult for us to break through these competitors to take market share. If we are unable to develop these sales channels, we may not be able to grow revenue or maintain our current level of revenue generation.

Risks Related to 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. ("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. 

Because we became public through a reverse merger, we may not be able to attract the attention of major brokerage firms or certain investors.

There are coverage risks associated with our becoming public through a reverse merger, including, among other things, security analysts of major brokerage firms may not provide coverage of us as there is no incentive to brokerage firms to recommend the purchase of our common stock. In addition, we may not attract the attention of major brokerage firms and certain investors due to our low stock price. We cannot assure you that brokerage firms would want to conduct any public offerings on our behalf in the future.

The market price of our common stock is extremely volatile, which may affect our ability to raise capital in the future and may subject the value of your investment to sudden decreases.

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 harm 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:

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, but our insurance is 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.

Shares of common stock are equity securities and are subordinate to any indebtedness.

Shares of our common stock are common equity interests. This means that our common stock will rank junior to any outstanding shares of our preferred stock that we may issue in the future and any future indebtedness we may incur and to all creditor claims and other non-equity claims against us and our assets available to satisfy claims on us, including claims in a bankruptcy or similar proceeding.

Additionally, unlike indebtedness, where principal and interest customarily are payable on specified due dates, in the case of our common stock, (i) dividends are payable only when and if declared by our Board of Directors ("Board") or a duly authorized committee of our Board, and (ii) as a corporation, we are restricted to making dividend payments and redemption payments out of legally available assets, which we currently do not have. 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 in the foreseeable future. Furthermore, our common stock places no restrictions on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the voting rights available to stockholders generally.

Our stockholders may experience significant dilution if future equity offerings are used to fund operations or acquire complementary businesses.

If our future operations or acquisitions are financed through the issuance of equity securities, our stockholders could experience significant dilution. In addition, securities issued in connection with future financing activities or potential acquisitions may have rights and preferences senior to the rights and preferences of our common stock.

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 finance expansion and, therefore, we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

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 42% of our outstanding shares of common stock. As a result, these stockholders will be able to assert significant influence over all matters requiring shareholder approval, including the election and removal of directors and any change in control. In particular, 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.

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, as a result 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 Fuse. 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 shareholder approval with the effect of diluting then current shareholder interests and impairing their voting rights, and provisions in our charter documents and under Delaware law 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 shareholder 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 stockholders. 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 shareholder 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 of time (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.

Risk Factors Relating to Health Care Regulations

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 AKS, the federal False Claims Act, federal and state self-referral laws, state restrictions on fee splitting, the federal Health Insurance Portability and Accountability Act of 1996, and other governmental 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, governmental 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. Governmental 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 or 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.

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

AKS is a criminal statute that prohibits the payment or receipt of remuneration, in cash or otherwise, in return for referrals of federal healthcare beneficiaries. The CMS has promulgated certain safe harbors that offer protection from liability for arrangements that fall within very specific parameters. To reach the Public Company Exception to the AKS, we must first possess undepreciated net tangible assets related to the furnishing of healthcare items and services of more than $50,000,000 in the previous fiscal year or 12-month period. The Stark Law prohibits physicians or their immediate family members from referring to entities that provide DHS to federal program beneficiaries if the physician or an immediate family member has a financial relationship (either via a compensation arrangement or ownership interest) directly or indirectly in that entity. Similar to safe harbors for the AKS, the Stark Law regulations created a series of exceptions to provide protection for certain types of business arrangements that fall within their parameters.

In order to meet our objectives in compliance with the Stark Law, we would have to rely on the Public Company Exception. This exception effectively permits physicians to own investment securities that may be purchased on terms generally available to the public and which are securities: (i) in a corporation that had, at the end of the corporation's most recent fiscal year, or on average during the previous three fiscal years, stockholders equity exceeding $75,000,000; and (ii) listed on the New York Stock Exchange, the American Stock Exchange, or any regional exchange in which quotations are published on a daily basis, or foreign securities listed on a recognized foreign, national, or regional exchange in which quotations are published on a daily basis, or traded under an automated interdealer quotation system. We meet none of these requirements and do not believe we will in the near future.

Many states also include laws similar to AKS or the Stark Law to which we may be subject to. 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 all of these laws is uncertain and subject to rapid change, especially in light of the lack of applicable precedent and regulations. 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.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

Our only facility is our 2,016 sq. ft. leased principal executive offices, located at 1300 Summit Avenue, Suite 670, Fort Worth, Texas 76102. We believe that our present business property is adequate and suitable to meet our 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 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 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 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.

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 in the over-the-counter market and is quoted on the OTC Markets, designated as OTCPink 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 the common stock as reported by the OTC Markets 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.

Holders of Record

As of March 25, 2016, there were 292 holders of record of the Company's 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 in the foreseeable future.

Recent Sales of Unregistered Securities

None.

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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

As a result of the Merger and the change in business and operations of the Company, a discussion of the past financial results of the Company, formally known as Golf Rounds.com, is not pertinent. Moreover, under generally accepted accounting principles in the United States, the historical financial results of Fuse, the acquirer for accounting purposes, prior to the Merger are considered the historical financial results of the Company.

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

On May 30, 2014, the Company changed its fiscal year end from August 31 to December 31. Accordingly, for the year ended December 31, 2015, the comparable period reflected below is for the year ended December 31, 2014.

Overview

The Company's business is to market, distribute and sell internal fixation, durable bone materials, biologics, tissues, surgical and other related surgical products for use in a variety of surgical procedures in various types of facilities (ambulatory surgical centers, hospitals and physician offices and other medical facilities) where surgeons and doctors treat patients and operate. The Company markets, distributes and sells a variety of existing FDA-approved and/or state licensed products and services manufactured or produced by other organizations where the Company is considered a distributor and/or a stocking distributor.

Our revenues are typically lowest during the first quarter of the year and are highest during the fourth quarter of the year. This seasonality is attributed to the fact that at the beginning of each year calendar year annual insurance deductibles are reset. Many health insurance plans require an insured to pay a certain amount of expenses (the annual deductible) before the insurer will pay any of the expenses. The annual deductibles are reset to $0 each January 1. Thus, when possible, individuals sometimes choose to hold off on non-emergency medical procedures until their respective annual deductible has been met. 

In the beginning of 2016, the Company began experiencing increased competition for biologics sold in larger order quantities and, accordingly, the Company was forced to decrease its pricing for these products. Also, our revenues from biologics sold at the retail level also declined. Accordingly, the Company began to vigorously attempt to increase its revenues 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. Whether the facilities are able to get reimbursed or not will likely affect the Company's revenues and gross margins in the near term while this strategy is in place. While we expect this decline in revenues is primarily attributable to both the aforementioned decreased pricing of biologics sold in larger order quantities and seasonality, there can be no assurance revenues shall increase an adequate amount to cover the cost of operations.

Results of Operations

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Net Revenues

For the year ended December 31, 2015, net revenues were $1,676,609, compared to $941,086 for the year ended December 31, 2014, an increase of $735,523, or 78.2%. Commencing November 2013, we began selling larger order quantities of the same biologic product (subject to minimums) at a discounted selling price. Commencing in the second quarter of 2015, we began to refocus our efforts to increase revenues 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.

Cost of Revenues

For the year ended December 31, 2015, our cost of revenues was $664,266, compared to $485,384 for the year ended December 31, 2014, representing an increase of $178,882, or 36.9%. During the year ended December 31, 2015, we increased our allowance for inventory obsolescence by $35,985 compared to $133,319 for the year ended December 31, 2014. Excluding the allowance for obsolescence recognized during 2015 and 2014, our cost of revenues increased by $276,216, or 78.5%, which is commensurate with the increase 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 offset by a greater amount of revenues derived from biologics sold at the retail level. In December 2015, we switched to another supplier for amniotics whereby our pricing reverted back to that of the first half of 2015. In summary, excluding the changes in our allowance for inventory obsolescence, the percentage increase in costs of revenues represented approximately the same percentage increase in the number of units sold. Cost of revenues includes costs to purchase goods and freight and shipping costs for items sold to customers.

Gross Profit

For the year ended December 31, 2015, we generated a gross profit of $1,012,343, compared to $455,702 for the year ended December 31, 2014, an increase of $556,641, or 122%. The increase in gross profit was primarily due to an increase in revenues derived from the sale of biologics, especially those at the retail sales level and a smaller increase in the allowance for inventory obsolescence by $97,334.

Operating Expenses

General, Administrative and Other

For the year ended December 31, 2015, general, administrative and other operating expenses increased to $1,804,371 from $1,469,864 for the year ended December 31, 2014, representing an increase of $334,507, or 22.8%. This increase is primarily attributable to the costs associated with being a public company whereas there were no such costs until the second quarter of the prior year period during which the reverse merger occurred. In particular, salaries and wages (including independent contractors) and related costs increased by $428,564, stock-based compensation increased by $168,000, and legal and professional fees decreased by $281,837. Further, this increase is attributable to the Company's expansion strategy and related costs to fund operations. General, administrative and other operating expenses during the year ended December 31, 2015 consisted primarily of salaries and wages and related costs, legal and professional fees, stock-based compensation, travel expenses and insurance.

Merger Costs

For the year ended December 31, 2015, merger costs decreased to $0 from $320,448 for the year ended December 31, 2014. Merger costs were incurred for the merger with Golf Rounds.com, Inc. that closed on May 28, 2014.

Interest Expense

For the year ended December 31, 2015, interest expense decreased to $7,112 from $71,612 for the year ended December 31, 2014, representing a decrease of $64,500, or 90.1%. Interest expense decreased primarily due to the conversion of outstanding notes having a principal balance of $1,512,014 and accrued interest of $57,893 into 1,509,528 common shares of the Company on December 31, 2014. On January 15, 2015, the Company issued a two-year promissory note payable bearing 7% interest in exchange for cash proceeds of $100,000 from an entity that is controlled by an individual that was a former director and Chief Executive Officer of the Company. Interest expense during 2014 also includes interest on the Company's line of credit, which is described in "Liquidity and Capital Resources", that was repaid in full on October 16, 2014. 

Net Loss

For the year ended December 31, 2015, the Company generated a net loss of $801,547 compared to a net loss of $1,405,045 for the year ended December 31, 2014. The decrease in the net loss is primarily due to the increase in gross profit and the decrease in interest expense.

Liquidity and Capital Resources

A summary of our cash flows is as follows:

Net Cash Used in Operating Activities

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 mostly from an increase in the reserve for obsolescence of $35,985).

Net cash used operating activities during the year ended December 31, 2014 resulted primarily from a net loss of $1,405,045 and an increase in accounts receivable of $54,339, partially offset by a decrease in inventories of $111,733 (resulted from establishing a reserve for obsolescence of $133,319), advances to Golf Rounds.com, Inc. expensed to merger costs of $105,000, and an increases in accounts payable of $93,210.

Net Cash Used in Investing Activities

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 used in investing activities for the year ended December 31, 2014 related to $60,954 of purchases of property and equipment, advances to Golf Rounds.com, Inc. of $10,000, offset by cash acquired in reverse merger of $641.

Net Cash Provided By Financing Activities

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.

Net cash provided by financing activities during the year ended December 31, 2014 resulted primarily from proceeds of $1,452,014 ($724,238 from related parties) from the issuance of promissory notes, partially offset by repayment of our line of credit of $100,000.

Liquidity

Historically, our primary sources of liquidity have been from the issuances of debt and equity securities as well as sales of products. Since December 31, 2013, we raised gross proceeds of $1,512,014 through the issuance of two-year promissory notes. The notes were unsecured, bore interest at 7.0% and required 18 monthly payments of interest only commencing at the beginning of month seven. On December 31, 2014, the outstanding principal balance of these notes and related accrued interest of $57,893 was converted into 1,509,528 shares of the Company's common stock. Since the beginning of 2015, we have received proceeds of: (i) $100,000 from a loan from a significant stockholder (described below); (ii) $100,000 from the sale of common shares to a related party; and (iii) $90,000 from the sale of common shares in private offerings. 

At December 31, 2015, we had working capital of $76,157, including $8,157 in cash and cash equivalents. As of March 23, 2016, the Company had approximately $72,000 in available cash. Our cash is concentrated in a large financial institution. Management believes that its current cash balance is enough to sustain operations for approximately two months. See the risk factor on page 7. 

The estimated costs of operations while we work to increase our revenues is substantially greater than the amount of funds we have on hand. The Company's existence is dependent upon management's ability to implement its business plan and/or obtain additional funding. If our Board determines to raise capital and is unsuccessful and the Company is unable to increase revenues, we believe that we will need to reduce operating expenses or cease operations. There can be no assurance that the Company's efforts will result in profitable operations or the resolution of the Company's liquidity problems.

In their report dated March __, 2016, our independent registered public accounting firm included an emphasis-of-matter paragraph with respect to our financial statements for the year ended December 31, 2015 concerning the Company's assumption that we will continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of our recurring losses from operations.

The Company has primarily financed its operations from the issuance of notes and equity securities. As of December 31, 2015, all notes other than the note listed below have been converted into common stock of the Company or repaid in full. 

On January 15, 2015, the Company issued a two-year promissory note in exchange for cash proceeds of $100,000 from an entity that is controlled by an individual that was a former director and Chief Executive Officer of the Company. The note is unsecured, bears interest at 7.0% and requires 18 monthly payments of interest commencing in August 2015. The note includes a provision that in the event of default the interest rate would increase to the default interest rate of 18%. The first six months of interest is deferred until maturity (or January 15, 2017). The outstanding principal balance along with all accrued and unpaid interest is due at maturity. 

Off-balance Sheet Arrangement

The Company has no off-balance sheet arrangements.

Related Party Transactions

No related party transactions had a material impact on our operating results. See Item 13 below and Note 13 - "Related Party Transactions" to the Company's financial statements.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions. The critical accounting policies that affect the more significant judgments and estimates used in the preparation of the financial statements are described below.

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).

 
Revenues are comprised of sales of medical biologics, internal fixation products, bone substitute materials and other medical supplies. For customers that order products as needed (i.e. for specific cases), the Company provides these products on a consignment basis and invoices the customer on the date the product is utilized. For other customers, the Company invoices the customers when the products are shipped. 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. 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.

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 the 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 the 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

Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"). Based on their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2015.

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of the end of the period covered by this report. In making this assessment, our management used the criteria set forth by the Committee of Sponsor Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework as issued in 2013. Based on that evaluation, our management concluded that our internal control over financial reporting was effective based on that criteria.

Our internal control over financial reporting is a process designed under the supervision of our Principal Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

On May 2, 2015, Dr. Stephen Corey was appointed a director of the Company. On August 27, 2015, Mr. Robert Donehew was appointed as our Chief Operating Officer. See pages 25 through 27 for biographical information on Dr. Corey and Mr. Donehew. 

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Executive Officers and Directors

The following table sets forth information regarding the Company's current executive officers and directors. Except with respect to the Merger 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.

Dr. Chris Pratt co-founded Fuse in 2012, has served as its interim Chief Executive Officer since April 23, 2015 and has served as its Chief Medical Officer since 2012. Dr. Pratt also serves as the Chief Medical Officer of the Company and as a member of its Board. 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 Worth 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.

David Hexter has served as the interim Chief Financial Officer of Fuse since May 2014. Mr. Hexter has also served as the principal of David A. Hexter, CPA, P.A. since December 2005. Mr. Hexter is licensed as a certified public accountant in the state of Florida.

Rusty Shelton co-founded Fuse in 2012 and has been its Chief Development Officer since 2012. Mr. Shelton now serves as the Chief Development Officer of the Company and as a member of our Board. Mr. Shelton is responsible for strategic planning, compliance, product line and corporate client development for the Company. 

His leadership in developing focused community and surgical hospitals, ambulatory surgery centers and aligning physician networks based around a regional integrated delivery system makes him a progressive leader in the physician owned hospital movement. He possesses a unique understanding of operations and market forces stemming from his background in hospitals, health system executive management, finance and medical group development, as well as strategic product development in consumer markets. 

Prior to joining Fuse, from October 2010 to February 2012, Mr. Shelton was Chief Investment Officer for University General Health Systems, in Houston, Texas. At University General Health Systems, he led a management team that successfully turned around and developed a 72 bed acute care hospital into a regional health network which resulted in the management deciding to take the company public in March 2011. Mr. Shelton was responsible for strategic planning, new services and physician development as well as establishment of a regional network of hospital outpatient departments through acquisitions and departmental management service agreements. 

Mr. Shelton's appointment to our Board was provided for in the Golf Rounds Merger Agreement. Mr. Shelton was selected as a member of our Board due to his vast strategic, legal, financial and operational experience interacting with senior executives of hospitals, integrated delivery systems and physician group structures. Mr. Shelton possesses the unique ability to understand the positioning of the company and its vertical services within the public company arena. 

Dr. Randall L. Dei serves as a Medical Director for the Company and as a member of our Board. Dr. Dei's appointment to our Board was provided for in the Merger Agreement. From May 2014 to October 2014, Dr. Dei served as a consultant to Fuse. Dr. Dei has also served as the president and managing partner of his private group practice, the Foot and Ankle Health Center since 1994. The Foot and Ankle Health Center is a regional podiatric group practice employing four physicians specializing in reconstructive foot and ankle surgery. He is board certified by the American Board of Podiatric Surgery in Foot and Ankle Surgery, a member of the American College of Foot and Ankle Surgeons and a member of the American Podiatric Medical Association. Dr. Dei has served the podiatric community throughout his entire career, building relationships across all sectors of podiatric professional organizations and related industries. He is the immediate past President of the American Board of Podiatric Surgery ("ABPS") and has served on its Board of Directors since September 2007. He has served on many ABPS committees including: Oral Examinations, Oral Field Testing, Computer Based Patient Simulation, Credentials, Credentialing Guidelines, Residency Training, Communications, Surgical Practice Analysis, Maintenance of Certificate and as their representative to the Joint Residency Review Committee of the Council on Podiatric Medical Education. Dr. Dei serves on the Professional Relations Committee for the American College of Foot and Ankle Surgeons. Dr. Dei has also served on committees for the Wisconsin State Podiatric Medical Association.

Dr. Dei has been involved with podiatric education throughout his career. He has served as the Program Director of the Podiatric Medicine and Surgery Program, with the added certificate in reconstructive rear foot/ankle surgery, at Columbia St. Mary's Hospital in Milwaukee, Wisconsin since 2009. He is also an adjunct clinical professor and the Director of Clerkship training for multiple podiatric medical schools for many years. Dr. Dei also serves as the President of Podiatric Residency Resource, which is the logging resource program portal and data bank for all podiatric residency programs and post graduate practice logging software and has done so since 2011 and has been on its Board of Directors since 2009.

Dr. Dei was selected as a director for his significant experience in the medical field, and his experience as a leading educator in the healthcare industry.

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. Since August 2015, Mr. Donehew has served as the Company's Chief Operating Officer. Effective upon completion of the Merger, Mr. Donehew resigned as President, Treasurer and Secretary of the Company, but remains as a member of the Board. On May 2, 2015, Mr. Donehew was appointed as 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's appointment to our Board was provided for in the Golf Rounds Merger Agreement. Mr. Donehew was selected for his over 35 years of financial, managerial, and general business experience.

Dr. Stephen Corey serves as a Medical Director for the Company and has served as a member of our Board since May 2, 2015. From May 2014 to August 2015, Dr. Corey served as a consultant to Fuse. Since 1998, Dr. Corey has been the President and founder of Pee Dee Foot Center PA, a private podiatry practice.

In 1993, Dr. Corey was certified by the American Board of Foot and Ankle Surgery ("ABFAS") in Foot Surgery. Since 1994, Dr. Corey has served on the ABFAS Credentials Committee, the written and oral Examinations Committee for the Foot Certification Examination, and as an oral examiner for the Foot Certification Examination and the Reconstructive Rearfoot/Ankle Certification Examination. Dr. Corey serves on both the Cognitive Examinations and Credentials Committees of the ABFAS. Dr. Corey has been the chairman of The Board of Podiatric Examiners for the State of South Carolina since he was appointed by the Governor in 2004.

Dr. Corey was selected as a director for his significant experience as a practitioner and educator. Dr. Corey provides our Board with great value and leadership in the ever changing health care environment.

Family Relationships

There are no family relationships among the Company's 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.

Based solely on a review of the reports furnished to us, or written representations from reporting persons that all reportable transactions were reported and that no Form 5s were required, we believe that during 2015 our officers, directors and greater than 10% owners timely filed all reports they were required to file under Section 16(a) with the exception of a Form 4 reporting one transaction by Robert Donehew.

Code of Ethics

Our Board has adopted a Code of Ethics that applies to all of 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 insider 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. The Board does not have an "audit committee financial expert," as such term is defined under the securities laws. The Board does not believe it is necessary to have a financial expert, given the early stage of the Company's commercial operations and limited financial resources and activities. The Company believes that none of its directors would be considered "independent," applying the NASDAQ listing standards for independence for members of an audit committee.

The Company is not required to have and does not have a compensation committee. The Company does 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 consideration of 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. The Company has not paid any fee to or otherwise engaged any compensation consultants.

The Company also is not required to have and does not have a nominating committee. Given the limited scope of the Company's operations, the Board believes appointing a nominating committee would be premature and of little assistance until the Company's business operations are at a more advanced level.

Shareholder 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 position is held by Robert Donehew and our Chief Executive Officer is Dr. Chris Pratt. Our Board has determined that its current structure, with separate Chairman and Chief Executive Officer roles is in the best interests of Fuse and its stockholders at this time. A number of factors support the leadership structure chosen by the Board, including, among others: 

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 management 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 senior management have day-to-day responsibility for risk management and establishing risk management practices, and members of management are expected to report matters directly to the Board as a whole. Members of our senior 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 senior management regularly attend portions of the Board's meetings, and often discuss the risks related to our business. Presently, the largest risk affecting Fuse is the inability to generate sufficient revenue to support its operations. The Board actively interfaces with management on seeking solutions. 

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 Fuse. Our compensation has the following risk-limiting characteristics:

ITEM 11. EXECUTIVE COMPENSATION.

The following information is related to the compensation paid, distributed or accrued by us to our Chief Executive Officer (principal executive officer) and the two other most highly compensated executive officers serving at the end of the last fiscal year whose total compensation exceeded $100,000 in 2015. We refer to these persons as the "Named Executive Officers".

2015 Summary Compensation Table

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Termination Provisions

No Named Executive Officer is entitled to any severance rights.

Other Executive Compensation Arrangements

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

On July 1, 2014, the Company entered into a five-year General Counsel Agreement with Ross Eichberg, P.C. He was paid a base salary of $300,000 per year and received a signing bonus of $61,000. In connection with Mr. Eichberg's resignation, the Company granted Mr. Eichberg 600,000 options (the "Option Shares") to purchase the Company's common stock at $0.26 per share, which is equal to 90% of the 30-day trading average of the Company's common stock prior to July 17, 2015 (the "Grant Date"). The options become exercisable one year from the Grant Date and remain exercisable for five years after the Grant Date; provided, however, that after July 17, 2016, the options shall vest in 100,000 Option Share monthly increments beginning on the 13-month anniversary of the Grant Date.

Outstanding Awards at Fiscal Year End

As of December 31, 2015, there were no options or shares of common stock which had not vested which had been granted to our Named Executive Officers.

On August 27, 2015, the Company issued Chris Pratt, the Company's Chief Executive Officer, Robert Donehew, the Company's Chairman of the Board, and David Hexter, the Company's Chief Financial Officer, 450,000, 250,000 and 150,000 common shares of fully vested restricted stock, respectively. The shares were granted for services rendered as executive officers.

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, 2015.

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 Summary Compensation Table and, therefore, Named Executive Officers who were also directors have been omitted from this table.

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

The following table sets forth the number of shares of our common stock beneficially owned as of the March 25, 2016 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 2015; 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. 

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

On January 15, 2015, the Company 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 DAMFIT. Mr. Meeker does not serve as a trustee nor is he the beneficiary of DAMFIT. The note is unsecured, bears interest at 7.0% and requires 18 monthly payments of interest only commencing at the beginning of month seven. The note includes a provision that in the event of default the interest rate would increase to the default interest rate of 18%. The first six months of interest is deferred until maturity. The outstanding principal balance along with all accrued and unpaid interest is due at maturity which is January 15, 2017. See Footnote (3) on page 32.

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 common stock of the Company 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 affiliates of the Company, including Dr. Chris Pratt, Rusty Shelton, Dr. Stephen Corey, Robert Donehew, Dr. Randall Dei and Ross Eichberg

On May 1, 2014, the Company entered into a Medical Director Agreement with Dr. Randall Dei. The Company agreed to pay Dr. Dei $16,667.67 per month. Effective November 1, 2014, the Company ceased making payments to Dr. Dei. 

On May 1, 2014, the Company entered into a Medical Director Agreement with Dr. Stephen Corey. The Company agreed to pay Dr. Corey $9,000 per month. Effective September 1, 2015, the Company ceased making payments to Dr. Corey.

Director Independence

The Company utilizes the definition of "independent" set forth in the listing standards of The NASDAQ Stock Market, LLC. Currently, the Company believes that none of its directors would be considered independent.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Our Audit Committee 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 the Audit Committee. The following table shows the fees for the years ended December 31, 2015 and 2014.

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PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.

(b) Exhibits

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

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.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED 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, 2015 and 2014, 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, 2015 and 2014, 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, 2015. 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.

Weinberg and Company

Los Angeles, California

March 25, 2016

FUSE MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

FUSE MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

FUSE MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014