Related Party Transactions

9 Months Ended

Sep. 30, 2022

Note 12. Related Party Transactions

Lease with 1565 North Central Expressway, LP

For its principal executive office, the Company leases an aggregate of approximately 11,500 square-foot space at 1565 North Central Expressway, Suite 220, Richardson, Texas 75080 from 1565 North Central Expressway, LP (“NCE, LP”), a real estate investment company that is owned and controlled by Mr. Brooks. The Company’s lease arrangement includes (i) the lease acquired pursuant to the CPM Acquisition effective January 1, 2013, and (ii) a lease effective July 14, 2017 entered into to support the Company’s relocation of its Fort Worth, Texas corporate offices to CPM’s executive offices. Both leases terminated December 31, 2017, with month-to-month renewals thereafter.

For the nine months ended September 30, 2022 and 2021, the Company paid approximately $126,000 and $126,000, respectively, in rent expense, which is reflected in selling, general, administrative, and other expenses in the Company’s accompanying interim unaudited condensed consolidated statements of operations.

AmBio Contract

The Company engaged AmBio Staffing, LLC (“AmBio”), a Texas licensed Professional Employment Organization, to provide payroll processing, employee benefit administration, and related human capital services effective January 1, 2017. Mr. Brooks owns and controls AmBio. As of September 30, 2022, AmBio operations support approximately 38 full time equivalents (“FTE”). Of those 38 FTEs, 35 FTEs directly support the Company, and 2 FTEs support the operations of other companies, and 1 FTE is shared between the Company and other companies.

As of September 30, 2022 and December 31, 2021, the Company owed amounts to AmBio of approximately $168,832 and $170,784, respectively, which are reflected in accounts payable on the Company’s accompanying interim unaudited condensed consolidated balance sheets. For the nine months ended September 30, 2022 and September 30, 2021, the Company paid approximately $151,806 and $147,005, respectively, to AmBio in administrative fees, which are reflected in selling, general, administrative, and other expenses in the Company’s accompanying interim unaudited condensed consolidated statements of operations.

Operations

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

MedUSA Group, LLC

MedUSA Group, LLC (“MedUSA”) is a sub-distributor previously owned and controlled by Mr. Brooks and Mr. Reeg. Effective as of October 1, 2022, Mr. Brooks and Mr. Reeg sold their interest in MedUSA to an unaffiliated party. MedUSA remains a sub-distributor with the Company. However, MedUSA is no longer deemed a related party to Fuse on and after October 31, 2022.

During the nine months ended September 30, 2022 and 2021, the Company:

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sold Orthopedic Implants and Biologics products to MedUSA in the amounts of approximately zero and $1,400, respectively, which are reflected in net revenues in the Company’s accompanying interim unaudited condensed consolidated statements of operations; and

•

incurred approximately $2,705,744 and $2,591,438, respectively, in commission costs, which are reflected in commissions in the Company’s accompanying interim unaudited condensed consolidated statements of operations.

As of September 30, 2022 and December 31, 2021, the Company had approximately $2,214,511 and $923,960, respectively, of unpaid commission costs due to MedUSA, which is reflected in accrued liabilities in the Company’s accompanying interim unaudited condensed consolidated balance sheets.

As of September 30, 2022 and December 31, 2021, the Company had outstanding balances due from MedUSA of approximately zero and $63,498, respectively. These amounts are reflected in accounts receivable, net of allowance, in the Company’s accompanying interim unaudited condensed consolidated balance sheets.

Payment terms per the stocking and distribution agreement with MedUSA are 30 days from receipt of invoice. As of September 30, 2022, MedUSA had no past due balance.

Texas Overlord, LLC

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

During the nine months ended September 30, 2022 and 2021, the Company:

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incurred approximately $90,000 and $180,000, respectively, in commission costs, which are reflected in commissions in the Company’s accompanying interim unaudited condensed consolidated statements of operations.

As of September 30, 2022 and December 31, 2021, the Company had approximately zero and $40,000 of unpaid commission costs owed to Overlord, which are reflected in accrued liabilities in the Company’s accompanying interim unaudited condensed consolidated balance sheets.

As of September 30, 2022 and December 31, 2021, the Company had no outstanding balances due from Overlord.

NBMJ, Inc.

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

During the nine months ended September 30, 2022 and 2021, the Company sold Biologics products to NBMJ in the amounts of approximately $350 and $73,461, respectively, which are reflected in net revenues in the Company’s accompanying interim unaudited condensed consolidated statements of operations.

As of September 30, 2022 and December 31, 2021, the Company had $2,430 and $2,080 in outstanding balances due from NBMJ. These amounts are reflected in accounts receivable, net of allowance, in the Company’s accompanying interim unaudited condensed consolidated balance sheets.

Payment terms per the stocking and distribution agreement with NBMJ are 30 days from receipt of invoice. As of September 30, 2022, NBMJ had no past due balance.

Bass Bone and Spine Specialists

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

During the nine months ended September 30, 2022 and 2021, the Company:

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sold Orthopedic Implants and Biologics products to Bass in the amounts of approximately $23,243 and $23,227, respectively, which are reflected in net revenues in the Company’s accompanying interim unaudited condensed consolidated statements of operations.

As of September 30, 2022 and December 31, 2021, the Company had outstanding balances due from Bass of approximately $18,746 and $8,413, respectively. These amounts are reflected in accounts receivable, net of allowance, in the Company’s accompanying interim unaudited condensed consolidated balance sheets.

Payment terms per the stocking and distribution agreement with Bass are 30 days from receipt of invoice. As of September 30, 2022, Bass had no past due balance.

Sintu, LLC

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

During the nine months ended September 30, 2022 and 2021, the Company incurred approximately $127,528 and $314,894, respectively, in commission costs to Sintu, which are reflected in commissions on the Company’s accompanying interim unaudited condensed consolidated statements of operations.

As of September 30, 2022, and December 31, 2021, the Company had approximately $684,756 and $557,228, respectively, of unpaid commission costs due to Sintu, which is reflected in accrued liabilities in the Company’s accompanying interim unaudited condensed consolidated balance sheets.

Tiger Orthopedics, LLC

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

During the nine months ended September 30, 2022 and September 30, 2021, the Company sold Orthopedic Implants and Biologics products to Tiger in the amounts of approximately zero and $502, respectively, which are reflected in net revenues in the Company’s accompanying interim unaudited condensed consolidated statements of operations.

As of September 30, 2022 and December 31, 2021, the Company had no outstanding balances due from Tiger.

Payment terms per the stocking and distribution agreement with Tiger are 30 days from receipt of invoice. As of September 30, 2022, Tiger had no past due balance.

Modal Manufacturing, LLC

Modal Manufacturing, LLC (“Modal”) is a manufacturer of medical devices owned and controlled by Mr. Brooks.

During the nine months ended September 30, 2022 and 2021, the Company purchased approximately $699,759 and $599,628, respectively, in Orthopedic Implants and medical instruments from Modal, which are reflected within inventories, net of allowance in the Company’s accompanying interim unaudited condensed consolidated balance sheets.

As of September 30, 2022 and December 31, 2021, the Company had outstanding balances owed to Modal of approximately $1,169,896 and $709,234, respectively. These amounts are reflected in accounts payable in the Company’s accompanying interim unaudited condensed consolidated balance sheets.

Payment terms per the stocking and distribution agreement with Modal are 30 days from receipt of invoice. As of September 30, 2022, the Company had a past due balance of approximately $856,854 owed to Modal.

Fuse Medical, Inc. 10-Q