Fuse Medical, Inc 10-Q for FY2020 Q1
Fuse Medical, Inc. (FZMD)
About this 10-Q
Fuse Medical, Inc filed this 10-Q on May 22, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).
Headline figures
Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.64M
- down 2.8% from $4.77M a year earlier
- Net loss
- $1.28M
- compared with a net loss of $511K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: March 31, 2020
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 000-10093
Fuse Medical, Inc.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
59-1224913 |
|
(State or other jurisdiction of |
|
(I.R.S. Employer |
|
incorporation or organization) |
|
Identification No.) |
|
|
|
|
|
1565 N. Central Expressway, Suite 220, Richardson, TX |
|
75080 |
|
(Address of principal executive offices) |
|
(Zip Code) |
(469) 862-3030
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☐ |
|
Accelerated filer |
☐ |
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
☒ |
|
Emerging growth company |
☐ |
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new of revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
Common Stock |
|
FZMD |
|
OTCPink |
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As of May 11, 2020, 73,124,458 shares of the registrant’s common stock, $0.01 par value, were outstanding.
1
FORM 10-Q
INDEX
2
Item 1. Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(in dollars, except share data)
|
|
|
March 31, 2020 |
|
|
December 31, 2019 |
|
||
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
753,268 |
|
|
$ |
1,099,310 |
|
|
Accounts receivable, net of allowance of $1,958,621 and $1,343,278, respectively |
|
|
4,414,311 |
|
|
|
6,174,299 |
|
|
Inventories, net of allowance of $3,886,920 and $3,805,730, respectively |
|
|
7,801,964 |
|
|
|
7,855,887 |
|
|
Prepaid expenses and other current assets |
|
|
117,370 |
|
|
|
39,850 |
|
|
Total current assets |
|
|
13,086,913 |
|
|
|
15,169,346 |
|
|
Property and equipment, net |
|
|
43,768 |
|
|
|
32,639 |
|
|
Intangible assets, net |
|
|
1,186,265 |
|
|
|
1,206,620 |
|
|
Goodwill |
|
|
1,972,886 |
|
|
|
1,972,886 |
|
|
Total assets |
|
$ |
16,289,832 |
|
|
$ |
18,381,491 |
|
|
Liabilities and Stockholders' Equity (Accumulated Deficit) |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
2,571,692 |
|
|
$ |
2,752,854 |
|
|
Accrued expenses |
|
|
2,762,931 |
|
|
|
3,302,904 |
|
|
Notes payable - related parties |
|
|
150,000 |
|
|
|
150,000 |
|
|
Senior secured revolving credit facility |
|
|
1,503,320 |
|
|
|
1,752,501 |
|
|
Total current liabilities |
|
|
6,987,943 |
|
|
|
7,958,259 |
|
|
Earn-out liability |
|
|
11,645,365 |
|
|
|
11,645,365 |
|
|
Total liabilities |
|
|
18,633,308 |
|
|
|
19,603,624 |
|
|
Commitments and contingencies |
|
|
- |
|
|
|
- |
|
|
Stockholders' equity (Accumulated deficit): |
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 20,000,000 shares authorized, no shares issued and outstanding |
|
|
- |
|
|
|
- |
|
|
Common stock, $0.01 par value; 100,000,000 shares authorized, 73,124,458 shares issued and outstanding as of March 31, 2020 and December 31, 2019. |
|
|
731,245 |
|
|
|
731,245 |
|
|
Additional paid-in capital |
|
|
805,091 |
|
|
|
642,435 |
|
|
Accumulated deficit |
|
|
(3,879,812 |
) |
|
|
(2,595,813 |
) |
|
Total stockholders' deficit |
|
|
(2,343,476 |
) |
|
|
(1,222,133 |
) |
|
Total liabilities and stockholders' equity (Accumulated deficit) |
|
$ |
16,289,832 |
|
|
$ |
18,381,491 |
|
See notes to unaudited condensed consolidated financial statements.
F-1
FUSE MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in dollars, except per share data)
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
|
|
|
|
|
|
|
|
|
Net revenues |
$ |
4,636,503 |
|
|
$ |
4,770,659 |
|
|
Cost of revenues |
|
1,982,896 |
|
|
|
1,975,345 |
|
|
Gross profit |
|
2,653,607 |
|
|
|
2,795,314 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Selling, general, administrative and other |
|
2,480,771 |
|
|
|
2,364,168 |
|
|
Commissions |
|
1,391,117 |
|
|
|
1,005,531 |
|
|
Depreciation and amortization |
|
29,983 |
|
|
|
25,724 |
|
|
Total operating expenses |
|
3,901,871 |
|
|
|
3,395,423 |
|
|
Operating loss |
|
(1,248,264 |
) |
|
|
(600,109 |
) |
|
Other expense: |
|
|
|
|
|
|
|
|
Interest expense |
|
31,001 |
|
|
|
25,435 |
|
|
Total other expense |
|
31,001 |
|
|
|
25,435 |
|
|
Operating loss before tax |
|
(1,279,265 |
) |
|
|
(625,544 |
) |
|
Income tax expense/(benefit) |
|
4,734 |
|
|
|
(114,546 |
) |
|
Net loss |
$ |
(1,283,999 |
) |
|
$ |
(510,998 |
) |
|
Net loss per common share - basic and diluted |
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
|
Weighted average number of Common Stock outstanding - basic and diluted |
|
70,221,566 |
|
|
|
70,221,566 |
|
See notes to unaudited condensed consolidated financial statements.
F-2
FUSE MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
(in dollars, except share data)
|
|
|
Common Stock |
|
|
Additional Paid-In |
|
|
Accumulated |
|
|
|
|
|
|||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
|||||
|
Balance, December 31, 2019 |
|
|
73,124,458 |
|
|
$ |
731,245 |
|
|
$ |
642,435 |
|
|
$ |
(2,595,813 |
) |
|
$ |
(1,222,133 |
) |
|
Stock based compensation |
|
|
- |
|
|
|
- |
|
|
|
162,656 |
|
|
|
- |
|
|
|
162,656 |
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,283,999 |
) |
|
|
(1,283,999 |
) |
|
Balance, March 31, 2020 |
|
|
73,124,458 |
|
|
$ |
731,245 |
|
|
$ |
805,091 |
|
|
$ |
(3,879,812 |
) |
|
$ |
(2,343,476 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional Paid-In |
|
|
Accumulated |
|
|
|
|
|
|||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
|||||
|
Balance, December 31, 2018 |
|
|
74,600,181 |
|
|
$ |
746,002 |
|
|
$ |
- |
|
|
$ |
720,682 |
|
|
$ |
1,466,684 |
|
|
Stock based compensation |
|
|
- |
|
|
|
- |
|
|
|
244,407 |
|
|
|
- |
|
|
|
244,407 |
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(510,998 |
) |
|
|
(510,998 |
) |
|
Balance, March 31, 2019 |
|
|
74,600,181 |
|
|
$ |
746,002 |
|
|
$ |
244,407 |
|
|
$ |
209,684 |
|
|
$ |
1,200,093 |
|
See notes to unaudited condensed consolidated financial statements.
F-3
FUSE MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,283,999 |
) |
|
$ |
(510,998 |
) |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
29,983 |
|
|
|
25,724 |
|
|
Share-based compensation |
|
|
162,656 |
|
|
|
244,407 |
|
|
Provision for bad debts and discounts |
|
|
615,343 |
|
|
|
164,642 |
|
|
Provision for slow moving inventory |
|
|
81,190 |
|
|
|
29,444 |
|
|
Benefits for deferred taxes |
|
|
- |
|
|
|
(125,028 |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
1,144,645 |
|
|
|
1,841,061 |
|
|
Inventories |
|
|
(27,267 |
) |
|
|
46,682 |
|
|
Prepaid expenses and other current assets |
|
|
(77,520 |
) |
|
|
(2,665 |
) |
|
Accounts payable |
|
|
(181,162 |
) |
|
|
(1,194,504 |
) |
|
Accrued expenses |
|
|
(539,973 |
) |
|
|
(430,751 |
) |
|
Net cash (used in) provided by operating activities |
|
|
(76,104 |
) |
|
|
88,014 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(20,757 |
) |
|
|
- |
|
|
Net cash used in investing activities |
|
|
(20,757 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Payments on senior secured revolving credit facility, net |
|
|
(249,181 |
) |
|
|
(80,577 |
) |
|
Net cash used in financing activities |
|
|
(249,181 |
) |
|
|
(80,577 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(346,042 |
) |
|
|
7,437 |
|
|
Cash and cash equivalents - beginning of period |
|
|
1,099,310 |
|
|
|
844,314 |
|
|
Cash and cash equivalents - end of period |
|
$ |
753,268 |
|
|
$ |
851,751 |
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
21,788 |
|
|
$ |
20,756 |
|
See notes to unaudited condensed consolidated financial statements.
F-4
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
Note 1. Nature of Operations
Overview
Fuse Medical, Inc., a Delaware corporation (the “Company”), was initially incorporated in 1968 as American Metals Service, Inc., a Florida corporation. In July 1999, American Metals Service, Inc. changed its name to GolfRounds, Inc. and was redomiciled to Delaware through a merger. Effective May 28, 2014, Golf Rounds amended its certificate of incorporation to change its name to Fuse Medical, Inc., and Fuse Medical, LLC, an unrelated entity, merged with and into a wholly-owned subsidiary of Fuse Medical, Inc., with Fuse Medical, LLC surviving as a wholly-owned subsidiary of Fuse Medical, Inc. The transaction was accounted for as a reverse merger. The Company was the legal acquirer, and Fuse Medical, LLC was deemed the accounting acquirer. During 2015, certificates of termination were filed for Fuse Medical, LLC and its two subsidiaries.
On December 19, 2016 (the “Change-in-Control Date”), the Company entered into a Stock Purchase Agreement by and between the
Company, NC 143 Family Holdings, LP, a Texas limited partnership (“NC 143”) which is controlled by Mark W. Brooks (“Mr.
Brooks”), the Company’s Chairman of the Board of Directors (“Board”) and President; and Reeg Medical Industries, Inc., a Texas
corporation (“RMI”), which is owned and controlled by Christopher C. Reeg (“Mr. Reeg”), the Company’s Chief Executive Officer and Secretary, which resulted in a change-in-control of the Company.
On December 31, 2017, the Company completed the acquisition of CPM Medical Consultants, LLC (“CPM”) pursuant to the securities purchase agreement dated December 15, 2017 (“CPM Acquisition Agreement”). Subsequent to the Change-in-Control Date, CPM and Company operations are consolidated. (See “Note 3. CPM Acquisition.”)
On August 1, 2018, (“Maxim Closing Date”) the Company completed the acquisition of Palm Springs Partners, LLC d/b/a Maxim Surgical (“Maxim”), pursuant to the securities purchase agreement (“Maxim Purchase Agreement”). As of the Maxim Closing Date, Maxim and Company operations are consolidated. (See Note 4, “Maxim Acquisition”)
Basis of Presentation
The interim unaudited condensed consolidated financial statements included herein reflect all material adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) which, in the opinion of the Company’s management, are ordinary and necessary for a fair presentation of results for the interim periods. Certain information and footnote disclosures required under generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company’s management believes the disclosures are adequate to make the information presented not misleading.
The condensed consolidated balance sheet information as of December 31, 2019, was derived from the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019 (“2019 Annual Report”), Filed with the SEC pursuant to Section 13 of 15(d) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on March 30, 2020. These interim unaudited condensed consolidated financial statements should be read in conjunction with the 2019 Annual Report.
The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the results to be expected for the entire fiscal year or for any other period as the Company has historically experienced seasonal trends with greater revenue and volume between the last two calendar quarters compared to the first two calendar quarters of the year.
Going Concern
The accompanying interim unaudited condensed consolidated financial statements have been prepared as if the Company will continue as a going concern. Through March 31, 2020, the Company has accumulated losses of $3,879,812 and a stockholders’ deficit of $2,343,476. Revenue declined by $134,156 in the first quarter of 2020 versus the same quarter in 2019, as the Company has been impacted by restrictions as a result of the novel coronavirus SARS-CoV-2 global pandemic (“COVID-19”). The Company was out of compliance with a loan covenant in its Amended and Restated Business Loan Agreement (“RLOC”) with ZB, N.A., d/b/a Amegy Bank (“Amegy Bank”) at March 31, 2020 to maintain minimum EBITDA. The RLOC functions as a senior secured revolving loan facility. On May 21, 2020, the Company and Amegy Bank executed a Limited Waiver and Fifth Amendment to the RLOC, which waived the EBITDA event of default and extended the termination date of the RLOC until November 4, 2020. (See Note 13,
F-5
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
“Subsequent Events”). At various times during the years ended December 31, 2018 and 2019 the Company was also out of compliance with one or more covenants contained in its RLOC, but obtained waivers from Amegy Bank to cure the violations, along with reductions in the Company’s aggregate contractual borrowing limits under the RLOC. The Company’s management has determined that these conditions and events raise substantial doubt about the ability of the Company to continue as a going concern.
The Company’s ability to continue as a going concern for at least one year beyond the date of this filing is dependent upon the easing of restrictions imposed on elective surgeries by civil authorities as a result of COVID-19, as well as the Company’s, (i) successful execution of key branding initiatives, (ii) introduction, commercialization and sales of new proprietary products and product lines, (iii) increased sales of existing products, with strategic emphasis direct sales to medical facilities (“Retail Cases”), and increasing the percentage of Retail Cases sold as a percentage of all cases sold by the Company (sales volume based on medical procedures in which the Company’s products are sold and used “Cases”), and (iv) continued cost reductions. Additionally, the Company will need to refinance its with RLOC Amegy Bank with a new credit facility on commercially reasonable terms, or obtain equity financing. On April 15 2020, the Company received a Payroll Protection Program (“PPP”) loan of approximately $361,400 under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Proceeds from the PPP Loan will be used to cover payroll, mortgage interest, rent, and utility costs over the eligible period.
The interim unaudited condensed consolidated financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 2. Significant Accounting Policies
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, CPM, and Maxim. Intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the interim unaudited condensed consolidated financial statements in accordance with GAAP, requires the Company’s management to make estimates and assumptions that affect the Company’s reported amounts in the interim unaudited condensed consolidated financial statements.
Actual results could differ from those estimates. Significant estimates on the accompanying interim unaudited condensed consolidated financial statements include the allowance for doubtful accounts, valuation of inventories, the Company’s effective income tax rate, and the recoverability of deferred tax assets, which are based upon the Company’s management expectation of future taxable income and allowable deductions, and the fair value calculations of stock-based compensation, goodwill, finite lived intangibles and the earn-out (“Earn-Out”) liability.
Segment Reporting
In accordance with Accounting Standards Update (“ASU”) No. 280, “Segment Reporting,” the Company uses the management approach for determining its reportable segments. The management approach is based upon the way that management reviews performance and allocates resources. The Company’s Chief Executive Officer serves as the Company’s chief operating decision maker, and the management team review operating results on a consolidated basis for purposes of allocating resources and evaluating the financial performance of the Company. The Company has integrated the operations of both CPM and Maxim. Accordingly, the Company has determined that it has one operating segment and, therefore, one reporting segment.
Earnings (loss) Per Common Share
Earnings (loss) per common share, basic is calculated by dividing the net income/(loss) attributable to common stockholders by the weighted-average number of Common Stock outstanding during the period, without consideration of Common Stock equivalents. Shares of restricted stock are included in the basic weighted-average number of Common Stock outstanding from the time they vest.
F-6
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
Diluted earnings (loss) per common share is computed by dividing net income/(loss) by the weighted-average number of common share equivalents outstanding for the period determined using the treasury stock method. For the three months ended March 31, 2020 and 2019, the Company excluded the effects of outstanding stock options, convertible notes and, to the extent in the money, restricted stock as their effects were antidilutive due to the Company’s operating loss during these periods.
For the three months ended March 31, 2020, restricted stock and Common Stock equivalents of 5,620,488 have been excluded from diluted earnings per share because to include them would have been antidilutive. (see Note 9, “Stockholders Equity” for the terms and conditions of restricted stock)
Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The Company classifies assets and liabilities recorded at fair value under the fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. The fair value measurements are classified under the following hierarchy:
Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets and liabilities in active markets;
Level 2—Observable inputs, other than quoted market prices, that are either directly or indirectly observable in the marketplace for identical or similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities; and
Level 3—Unobservable inputs that are supported by little or no market activity that are significant to the fair value of assets or liabilities.
In connection with the CPM Acquisition in December 2017, the Company recorded an earn-out liability as part of the purchase consideration. The fair value of the earn-out liability is being re-measured at each reporting period using Level 3 inputs with changes in fair value recorded in earnings. The earn-out payments are based on the financial performance of the Company between January 1, 2018 and December 31, 2034. The base amount of the earn-out ranges from $0 to $16,000,000 with an additional bonus payment of $10,000,000 subject to the Company meeting certain earnings thresholds as defined in the CPM Acquisition Agreement. The fair value of the earn-out liability was calculated using the Monte Carlo simulation, which was then applied to the estimated earn-out payments. There was no change in the earn-out liability for the three months ended March 31, 2020 and there were no significant changes in the Level 3 inputs from those utilized at December 31, 2019. The required earnings thresholds have not been met from inception of the agreement through March 31, 2020, and as such, there have been no payments required for either the base or bonus earn-out tranches.
Financial Instruments
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The recorded values of notes payable approximate their respective fair values based upon their effective interest rates.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The recorded values of notes payable approximate their respective fair values based upon their effective interest rates.
Cash and Cash Equivalents
The Company considers highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. There were no cash equivalents at March 31, 2020, and December 31, 2019. The Company’s cash is concentrated in two large financial institutions that at times may exceed federally insured limits of $250,000 per financial institution. The Company has not experienced any financial institution losses from inception through March 31, 2020. As of March 31, 2020, and December 31, 2019, there were deposits of $290,363 and $599,309, respectively, which were greater than federally insured limits.
F-7
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
Accounts Receivable and Allowances
Accounts receivable are non-interest bearing and are stated at gross invoice amounts less an allowance for doubtful accounts receivable and an allowance for contractual discount pricing. Credit is extended to customers based on an evaluation of their financial condition, industry reputation, and other factors considered by the Company’s management. The Company generally does not require collateral or other security interest to support accounts receivable. Based on trends and specific factors, the customer’s credit terms may be modified, including required payment upon delivery.
The Company performs regular on-going credit evaluations of its customers as deemed relevant. As events, trends, and circumstances warrant, the Company’s management estimates the amounts that are more likely than not to be uncollectible. These amounts are recognized as bad debt expense and are reflected within selling, general, administrative and other expenses on the Company’s accompanying interim unaudited condensed consolidated statements of operations.
When accounts are deemed uncollectible, they are often referred to the Company’s outside legal firm for litigation. Accounts deemed uncollectible are written-off in the period when the Company has exhausted its efforts to collect overdue and unpaid receivables or otherwise has evaluated other circumstances that indicate that the Company should abandon such efforts. Accounts deemed uncollectible are removed from the Company’s accounts receivable portfolio, with a corresponding offset to the allowance for doubtful accounts receivable. The Company may record additional allowances for doubtful accounts based on known trends and expectations to ensure the Company’s accounts receivable portfolio is recorded at net realizable value. Specific allowances are re-evaluated and adjusted as additional facts and information become available. Previously written-off accounts receivable subsequently collected are recognized as a reduction of bad debt expense when funds are received.
The Company’s management estimates its allowance for contractual discount pricing, by evaluating specific accounts where information indicates the customer is offered contractual pricing and discount allowances. In these arrangements, the Company’s management uses assumptions and judgement, based on the best available facts and circumstances to record a specific allowance for the amounts due from those customers. The allowance is offset by a corresponding reduction to revenue. These specific allowances are re-evaluated, analyzed, and adjusted as additional information becomes available to determine the total amount of the allowance. The Company may record additional allowances based on trends and expectations to ensure the Company’s accounts receivable portfolio is recorded at net realizable value.
Inventories
Inventories are stated at the lower of cost or net realizable value (first-in, first-out) less an allowance for slow-moving inventory, expired inventory, and inventory obsolescence. Inventories consist entirely of finished goods and include internal and external fixation products; upper and lower extremity plating and total joint reconstruction; soft tissue fixation and augmentation for sports medicine procedures; spinal implants for trauma, degenerative disc disease, and deformity indications (collectively, “Orthopedic Implants”) and osteo-biologics and regenerative tissue which include human allografts, substitute bone materials and tendons, as well as regenerative tissues and fluids (collectively, “Biologics”). The Company reviews the market value of inventories whenever events and circumstances indicate that the carrying value of inventories may not be recoverable from the estimated future sales price less cost of disposal and normal gross profit. In cases where the market values are less than the carrying value, a write-down is recognized equal to an amount by which the carrying value exceeds the market value of inventories.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets per the following table. Expenditures for additions and improvements are capitalized, while repairs and maintenance are expensed as incurred. The Company reviews long-lived assets for impairment annually or whenever changes in circumstances indicate that the carrying amount of an asset might not be recoverable.
|
Category |
|
Useful Life |
|
Computer equipment and software |
|
3 years |
|
Furniture and fixtures |
|
3 years |
|
Office equipment |
|
3 years |
|
Software |
|
3 years |
F-8
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
Upon the retirement or disposition of property and equipment, the related cost and accumulated depreciation is removed. A gain is recorded when consideration received is more than the disposed asset’s cost, net of depreciation, and a loss is recorded when consideration received is less than the disposed asset’s cost, net of depreciation.
Long-Lived Assets
The Company reviews other long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows, which is at the individual asset level or the asset group level. The undiscounted cash flows expected to be generated by the related assets are estimated over their useful life based on updated projections. If the evaluation indicates that the carrying amount of the assets may not be recoverable, any potential impairment is measured based upon the fair value of the related assets or asset group as determined by an appropriate market appraisal or other valuation technique. Assets classified as held for sale, if any, are recorded at the lower of carrying amount or fair value less costs to sell.
Goodwill and Other Intangible Assets
Goodwill is determined based on an acquisition purchase price in excess of the fair value of identified net assets acquired. Intangible assets with lives restricted by contractual, legal or other means are amortized over their useful lives.
Goodwill is not amortized, but is tested at in the fourth quarter each year for impairment, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The Company performs its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. If the carrying value of a reporting unit exceeds its fair value, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. As of March 31, 2020, the Company evaluated certain qualitative factors including, (i) macroeconomic factors resulting from the COVID-19 pandemic, (ii) the Company’s operating loss and overall financial performance, (iii) the Company’s stock price, and (iv) specific cost-saving actions taken by the Company in response to the COVID-19 pandemic in concluding that the reported amount of goodwill was not more likely than not impaired.
Accounting Standards Codification (“ASC”) 350-30-35-18 indicates that an intangible asset that is not subject to amortization shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. The Company’s 510(k) intangible asset has an indefinite life. The Company does not believe that a triggering event has occurred as of March 31, 2020.
The Company’s intangible assets subject to amortization consist primarily of acquired non-compete agreements and customer relationships. Amortization expense is calculated using the straight-line method over the asset’s expected useful life.
Revenue Recognition
The Company’s revenues are generated from the sales of Orthopedic Implants and Biologics to support orthopedic surgeries. The Company obtains purchase orders from its customers for the sale of its products which sets forth the general terms and conditions including line item pricing and payment terms (generally due upon receipt). The Company recognizes revenue when its customers obtain control over the assets (generally when the title passes upon shipment or when a product is utilized in a surgery) and it is probable that the Company will collect substantially all the amounts due. Individual promised goods are the Company’s only performance obligation.
Due to the nature of its products, the Company’s product returns have been historically immaterial.
The Company includes shipping and handling fees in net revenues. Shipping and handling that costs are associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold on the Company’s accompanying interim unaudited condensed consolidated statement of operations.
Revenue Differentiation
F-9
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
The Company measures sales volume based on medical procedures in which the Company’s products are sold and used (Cases). The Company considers Cases resulting from direct sales to medical facilities to be Retail Cases and Cases resulting from sales to third parties, such as non-medical facilities, distributors, or sub-distributors, to be wholesale cases (“Wholesale Cases”). Some of the Company’s sales for Wholesale Cases are on a consignment basis with a third party. When consigned, the revenue is not recorded until the device is implanted in a patient during surgery. In the Company’s industry, Retail Cases are typically sold at higher price points than Wholesale Cases, resulting in greater revenue and gross profit per Case.
|
|
|
Three Months Ended |
|
|||||
|
Category |
|
March 31, 2020 |
|
|
March 31, 2019 |
|
||
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
4,126,923 |
|
|
$ |
3,769,818 |
|
|
Wholesale |
|
|
509,580 |
|
|
|
1,000,841 |
|
|
Total |
|
$ |
4,636,503 |
|
|
$ |
4,770,659 |
|
Cost of Revenues
Cost of revenues consists of (i) cost of goods sold, (ii) freight and shipping costs for items sold to customers, (iii) cost of storage, (iv) investment in medical instruments, which are expensed when acquired, (v) inventory shrink, and (vi) an estimate for slow-moving, expired inventory, and inventory obsolescence.
Stock-Based Compensation
Stock-based compensation expense is measured at the grant date fair value of the award and is expensed over the requisite service period. For employee stock-based awards, the Company calculates the fair value of the award on the date of grant using the Black-Scholes option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based awards represent the Company's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. For non-employee stock-based awards, the Company calculates the fair value of the award on the date of grant in the same manner as employee awards, however, the awards are revalued at the end of each reporting period and the pro-rata compensation expense is adjusted accordingly until such time the non-employee award is fully vested, at which time the total compensation recognized to date shall equal the fair value of the stock-based award as calculated on the measurement date, which is the date at which the award recipient’s performance is complete. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised.
Recent Accounting Pronouncements
Accounting pronouncements issued or effective in 2020 by the Financial Accounting Standards Board (the “FASB”), did not or are not believed by the Company’s management to have a material impact on the Company's present or future unaudited condensed consolidated financial statements.
Note 3. CPM Acquisition
On December 29, 2017, the Company completed the CPM Acquisition, pursuant to the CPM Acquisition Agreement. The Company issued 50 million shares of its Common Stock, par value $0.01 per share, in exchange for one-hundred percent (100%) of the outstanding membership interests of CPM, at an agreed-upon value of $0.20 per share of Common Stock, equaling a value of $10,000,000. The remaining $26,000,000 of the purchase price consideration may be paid by the Company to NC 143 in the form of contingent Earn-Out payments based on the Company achieving certain future profitability targets for years after 2017. The effective date of the CPM Acquisition was December 31, 2017 (the “CPM Effective Date”).
The Company recorded $19,244,543 as a contingent liability related to the fair value of the $26,000,000 Earn-Out liability as of the CPM Effective Date, with a corresponding offset to additional paid-in capital on the Company’s accompanying interim unaudited condensed consolidated balance sheets. For the year ended December 31, 2019 and 2018, the Company determined the earnings threshold, as detailed in the CPM Acquisition Agreement, were not met and therefore no payments for either the base or bonus Earn-Out tranches would be achieved, based on the Company’s 2019 and 2018 financial performance.
As of December 31, 2019, the Earn-Out was remeasured to fair value under the probability weighted income approach. As a result, the fair value of the Earn-Out liability was reduced by $1,936,164 from $13,581,529 to $11,645,365. The Earn-Out liability was reduced by $5,663,014 with the offset reflected as “Change in fair value of contingent purchase consideration” on the Company’s consolidated
F-10
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
balance sheet as of December 31, 2019. For the year ended December 31, 2018, the Earn-Out was re-measured to fair value under the probability weighted income approach. As a result, the initial fair value of the Earn-Out liability was reduced by $5,663,014 from $19,244,543 to $13,581,529. The Company’s management will evaluate the estimated fair value of the Earn-Out liability each reporting period. (See Note 2, “Fair Value Measurements.”)
The CPM Acquisition Agreement provided for a working capital post-closing adjustment (“CPM Post-Closing Adjustment”) for certain changes in CPM’s current assets and current liabilities pursuant to the CPM Acquisition Agreement. The CPM Post-Closing Adjustment was calculated to be $397,463 and was paid in cash on June 27, 2018, to NC 143, with a corresponding offset to additional paid-in capital on the Company’s accompanying interim unaudited condensed consolidated balance sheets.
Note 4. Maxim Acquisition
On the Maxim Closing Date, the Company completed the Maxim Acquisition pursuant to the Maxim Purchase Agreement. (See Note 1, “Nature of Operations – Overview.”)
The Company issued 4,210,526 shares of its Common Stock to RMI and Mr. Amir David Tahernia (the “Sellers”) in exchange for one-hundred percent (100%) of the outstanding Maxim Interests, at an agreed-upon value of $0.76 per share of Common Stock, which was equal to the 30-day volume-weighted average price (“VWAP”) of the Common Stock as of three (3) business days prior to the Maxim Closing Date.
The Company accounted for the Maxim Acquisition as a business combination and recorded the assets acquired and liabilities assumed at their respective estimated fair values as of the Maxim Closing Date. The assets acquired and liabilities assumed were recorded as of the Maxim Closing Date at their respective fair values and consolidated with those of the Company.
The Maxim Purchase Agreement provided for a working capital post-closing adjustment (“Maxim Post-Closing Adjustment”) based on the Maxim Closing Date balance sheet for certain changes in Maxim’s current assets and current liabilities pursuant to the Maxim Purchase Agreement. The Maxim Post-Closing Adjustment was calculated to be $81,757.
To finalize the Maxim Post-Closing Adjustment, the Company issued an aggregate of 120,231 shares of Common Stock to the Sellers on October 4, 2018 at an agreed-upon value of $0.68 per share of Common Stock, which was equal to the 30-day VWAP of the Company’s Common Stock as of October 1, 2018.
The Company recorded the excess of the aggregate purchase price over the estimated fair values of the identifiable assets acquired as goodwill, which is not deductible for tax purposes. Goodwill is primarily attributable to the benefits the Company expects to realize by expanding its product offerings and addressable markets, thereby contributing to an expanded revenue base. The results of Maxim operations are included in the Company’s interim unaudited condensed consolidated statements of operations subsequent to the Maxim Closing Date.
The Company is managed and operates in one operating and reporting segment, as Maxim Surgical integrated into the Company’s existing operations.
Note 5. Property and Equipment
Property and equipment consisted of the following at March 31, 2020, and December 31, 2019:
|
|
|
March 31, 2020 |
|
|
December 31, 2019 |
|
||
|
Computer equipment and software |
|
$ |
72,060 |
|
|
$ |
51,303 |
|
|
Office equipment |
|
|
- |
|
|
|
20,333 |
|
|
Property and equipment costs |
|
|
72,060 |
|
|
|
71,636 |
|
|
Less: accumulated depreciation |
|
|
(28,292 |
) |
|
|
(38,997 |
) |
|
Property and equipment, net |
|
$ |
43,768 |
|
|
$ |
32,639 |
|
Depreciation expense for the three months ended March 31, 2020, and 2019 was $9,628 and $5,369, respectively. During the first quarter of 2020, the Company disposed of $20,333 of fully depreciated assets.
F-11
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
Note 6. Goodwill and Intangible Assets
The following table summarizes the Company’s goodwill and other intangible assets:
|
|
|
March 31, 2020 |
|
|
December 31, 2019 |
|
|
Amortization period (years) |
||
|
Intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreements |
|
$ |
61,766 |
|
|
$ |
61,766 |
|
|
2 |
|
510(k) product technology |
|
|
704,380 |
|
|
|
704,380 |
|
|
Indefinite |
|
Customer relationships |
|
|
555,819 |
|
|
|
555,819 |
|
|
11 |
|
Total intangible assets |
|
|
1,321,965 |
|
|
|
1,321,965 |
|
|
|
|
Less: accumulated amortization |
|
|
(135,700 |
) |
|
|
(115,345 |
) |
|
|
|
Intangible assets, net |
|
|
1,186,265 |
|
|
|
1,206,620 |
|
|
|
|
Goodwill |
|
$ |
1,972,886 |
|
|
$ |
1,972,886 |
|
|
Indefinite |
Amortization expense for the three months ended March 31, 2020 and 2019 was $20,355.
The Company’s intangible assets subject to amortization consist primarily of acquired non-compete agreements, product technology and customer relationships.
Note 7. Revolving Line of Credit
Effective December 31, 2017, the Company became party to the RLOC with Amegy Bank. The RLOC contains customary representation, warranties, covenants, events of default, and is collateralized by substantially all of the Company’s assets. The Company’s Chairman of the Board and President initially personally guaranteed fifty percent (50%) of the outstanding RLOC amount.
On September 21, 2018, the Company executed the First Amendment to the RLOC with Amegy Bank (the “First Amendment”). The First Amendment (i) waived the Company’s events of default under the RLOC through the fiscal quarter ended September 30, 2018, and (ii) added a covenant that the Company achieve quarterly net income of $700,000 or more for the fiscal quarter ending on September 30, 2018.
On November 19, 2018 the Company executed the Second Amendment to the RLOC with Amegy Bank (the “Second Amendment”).
The Second Amendment (i) waived the Company’s events of default under the RLOC, (ii) reduced the aggregate limit of the RLOC to $4,000,000, (iii) extended the maturity date to November 4, 2019, (iv) revised the variable interest rate to the one-month LIBOR rate plus four percent (4.00%) per annum, and (v) amended the financial covenants to state that the Company will not permit: the Fixed Charge Coverage Ratio of any calendar quarter end from and after the quarter ending June 30, 2019, to be less than 1.25 to 1.00; EBITDA to be less than $700,000 for the fiscal quarter ending December 31, 2018, and $100,000 for the fiscal quarter ending March 31, 2019; modified the event of default related to consecutive quarterly losses to be applicable from and after the quarter ending June 30, 2019.
On May 9, 2019, the Company executed the Third Amendment to the RLOC with Amegy Bank. Pursuant to the Third Amendment, Amegy Bank (i) waived the Company’s events of default under the RLOC, (ii) reduced the aggregate limit of the RLOC to $3,500,000, (iii) reduced the limit of credit card exposure to $500,000, (iv) reduced borrowing base component of Inventory to 30%, (v) amended the financial covenants to state that the Company will not permit EBITDA to be less than $100,000 for the fiscal quarter ending June 30, 2019 and $500,000 for the fiscal quarter ending September 30, 2019 and (vi) rescinded the Loan Sweep Feature, requiring the Company to give notice of each requested loan by delivery of Advance Request to Amegy Bank.
On December 18, 2019, the Company executed the Fourth Amendment to the RLOC with Amegy Bank. Pursuant to the Fourth Amendment, Amegy Bank (i) waived the Company’s events of default under the RLOC, (ii) reduced the aggregate limit of the RLOC to $2,750,000, (iii) reduced and limited the annual salary of the Company’s Chairman of the Board and President, Mr. Brooks, to not exceed $550,000, (iv) amended the financial covenants to state that the Company will not permit EBITDA to be less than $600,000 for the fiscal quarter ending December 31, 2019 and $125,000 for the fiscal quarter ending March 31, 2020, (v) extended the termination date of the RLOC to May 4, 2020 and (vi) provides for our Chairman of the Board and President to personally guarantee one hundred percent (100%) of the outstanding RLOC amount.
F-12
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
The Company was not in compliance with the minimum quarterly EBITDA requirement of $125,000 for the three months ended March 31, 2020. On May 21, 2020, the Company and Amegy Bank executed a Limited Waiver and Fifth Amendment to the RLOC, which waived the minimum EBITDA maintenance event of default for the fiscal quarter ended March 31, 2020 and extended the termination date of the RLOC until November 4, 2020. (“See Note 13. Subsequent Events”)
The outstanding balance of the RLOC was $1,503,320 and $1,752,501 at March 31, 2020 and December 31, 2019, respectively. Interest expense incurred on the RLOC was $24,270 and $18,778 for the three months ended March 31, 2020 and 2019, respectively, and is reflected in interest expense on the Company’s accompanying interim unaudited condensed consolidated statements of operations. Accrued interest on the RLOC at March 31, 2020 and December 31, 2019 was $6,919 and $4,437, respectively, and is reflected in accrued expenses on the Company’s accompanying interim unaudited condensed consolidated balance sheets. At March 31, 2020, the effective interest rate was 5.646%.
Note 8. Notes Payable – Related Parties
During July 2016 through October 2016, the Company obtained three working capital loans from NC 143 and RMI in the aggregate amount of $150,000 in exchange for convertible promissory notes (“Notes”) bearing ten percent (10%) interest per annum until December 31, 2016 (“Maturity Date”), and eighteen percent (18%) interest per annum for periods subsequent to the Maturity Date. The Notes’ remain outstanding and principal and interest are due and payable, upon demand of the payee and at the holder’s sole discretion. The Notes’ holders have the right to convert all or any portion of the then unpaid principal and interest balance into shares of the Company’s Common Stock at a conversion price of $0.08 per share.
During the three months ended March 31, 2020, and 2019, interest expense of $6,732 and $6,658, respectively, is reflected in interest expense on the Company’s accompanying interim unaudited condensed consolidated statements of operations. As of March 31, 2020, and December 31, 2019, accrued interest was $92,827 and $86,096, respectively, which is reflected in accrued expenses on the Company’s accompanying interim unaudited condensed consolidated balance sheets.
Note 9. Stockholders’ Equity
Stock-Based Compensation
The 2018 Amended and Restated Equity Incentive Plan of Fuse Medical, Inc. (“2018 Equity Plan”), is the Company’s stock-based compensation plan, which the Company’s Board adopted on April 5, 2017, and subsequently amended and restated on December 13, 2018. The 2018 Equity Plan provides for the granting of equity awards, including qualified incentive and non-qualified stock options, stock appreciation awards, and restricted stock awards to employees, directors, consultants, and advisors. Awards granted pursuant to the 2018 Equity Plan are subject to a vesting schedule as set forth in individual agreements.
The Company’s management estimates the fair value of stock-based compensation utilizing the Black-Scholes option pricing model. Black-Scholes option pricing is calculated using several variables such as the expected option term, expected volatility of the Company’s stock price over the expected option term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates. The Company’s management believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors, which are subject to ASC Topic 718 requirements. The Company’s management estimates of fair value may not be reflective of actual future values or amounts ultimately realized by recipients of these grants. The Company recognizes compensation on a straight-line basis over the requisite service period for each award.
The Company’s management utilizes the simplified method to estimate the expected life for stock options granted to employees, as the Company does not have sufficient historical data regarding stock option exercises. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected life of the related option at the time of the grant. Dividend yield is based on historical trends. While the Company’s management believes these estimates are reasonable, the compensation expense recorded would increase if the expected life was increased, a higher expected volatility was used, or if the expected dividend yield increased.
The Company made an accounting policy election to account for forfeitures when they occur, versus estimating the number of awards that are expected to vest, in accordance with ASU 2016-09.
Non-Qualified Stock Option Awards
For the three months ended March 31, 2019, the Board granted 900,000 non-qualified stock option awards (“NQSO’s) to the Company’s product advisory board members, certain key employees and marketing representatives. The Board did not grant any
F-13
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
NQSOs for the three months ended March 31, 2020. For the three months ended March 31, 2020, and 2019, the Company amortized $162,656 and $244,407, respectively, relating to the vesting of NQSOs, which is included in selling, general, administrative, and other expenses on the Company’s accompanying interim unaudited condensed consolidated statements of operations. The Company will recognize approximately $963,104 in expense in future periods as the NQSOs vest. The Company recognizes stock compensation expense on a straight-line basis over the requisite service period for each award, which are subject to a vesting schedule as set forth in individual agreements.
The following reflected the NQSO’s that were granted, exercised, forfeited or expired during the three months ended March 31, 2020.
|
|
|
No. of Shares |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Term |
|
|
Aggregate Intrinsic Value |
|
||||
|
Balance outstanding at December 31, 2019 |
|
|
3,948,333 |
|
|
$ |
0.61 |
|
|
|
6.1 |
|
|
$ |
157,000 |
|
|
Granted |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Exercised |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Forfeited |
|
|
(3,333 |
) |
|
|
1.00 |
|
|
|
8.0 |
|
|
|
- |
|
|
Expired |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Balance outstanding at March 31, 2020 |
|
|
3,945,000 |
|
|
$ |
0.60 |
|
|
|
6.1 |
|
|
$ |
557,000 |
|
|
Exercisable at March 31, 2020 |
|
|
2,031,667 |
|
|
$ |
0.45 |
|
|
|
3.7 |
|
|
$ |
484,500 |
|
Restricted Common Stock
The non-vested restricted stock awards (“RSA”s), as of March 31, 2020, were granted to the Company’s Board members as compensation. These awards vest only upon: (i) the occurrence of one of the Accelerating Events: (a) a Change in Control (as defined in RSA Agreement); or (b) listing of the Company’s Common Stock on either NYSE or NASDAQ Stock Market; and (ii) the director’s delivery to the Company of a Notice of Acceleration of Vesting (as defined in RSA Agreement), within the Acceleration Notice Period.
As of March 31, 2020, and 2019,it was not probable that the performance conditions on the outstanding options would be met, therefore, no expense has been recorded for these awards for the three months ended March 31, 2020 and 2019.
There was no RSA’s that were granted, exercised or forfeited during the three months ended March 31, 2020.
|
|
Number of Shares |
|
|
Fair Value |
|
|
Weighted Average Grant Date Fair Value |
|
|||
|
Non-vested, December 31, 2019 |
|
2,902,892 |
|
|
$ |
1,382,800 |
|
|
$ |
0.48 |
|
|
Granted |
|
- |
|
|
|
- |
|
|
|
- |
|
|
Vested |
|
- |
|
|
|
- |
|
|
|
- |
|
|
Forfeited |
|
- |
|
|
|
- |
|
|
|
- |
|
|
Non-vested, March 31, 2020 |
|
2,902,892 |
|
|
$ |
1,382,800 |
|
|
$ |
0.48 |
|
F-14
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
Note 10. Income Taxes
The Company is subject to U.S. federal income taxes, in addition to state and local income taxes.
The components of income tax expense (benefit) are as follows:
|
|
|
For the Three Months Ended March 31, 2020 |
|
|
For the Three Months Ended March 31, 2019 |
|
||
|
Current: |
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
- |
|
|
$ |
- |
|
|
State |
|
|
4,734 |
|
|
|
10,482 |
|
|
Income tax expense |
|
|
4,734 |
|
|
|
10,482 |
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
Federal |
|
|
- |
|
|
|
(125,028 |
) |
|
State |
|
|
- |
|
|
|
- |
|
|
Income tax benefit |
|
|
- |
|
|
|
(125,028 |
) |
|
Total income tax expense (benefit), net |
|
$ |
4,734 |
|
|
$ |
(114,546 |
) |
Significant components of the Company's deferred income tax assets and liabilities are as follows:
|
|
|
March 31, 2020 |
|
|
December 31, 2019 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryover |
|
$ |
513,841 |
|
|
$ |
373,033 |
|
|
Accounts receivable |
|
|
411,310 |
|
|
|
282,088 |
|
|
Compensation |
|
|
398,763 |
|
|
|
364,605 |
|
|
Inventory |
|
|
671,408 |
|
|
|
734,524 |
|
|
Other |
|
|
24,648 |
|
|
|
- |
|
|
Total deferred tax assets |
|
|
2,019,970 |
|
|
|
1,754,250 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Intangibles |
|
|
(214,824 |
) |
|
|
(218,427 |
) |
|
Property and equipment |
|
|
(5,922 |
) |
|
|
(6,239 |
) |
|
Total deferred tax liabilities |
|
|
(220,746 |
) |
|
|
(224,666 |
) |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net |
|
|
1,799,224 |
|
|
|
1,529,584 |
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance: |
|
|
|
|
|
|
|
|
|
Beginning of year |
|
|
(1,529,584 |
) |
|
|
- |
|
|
Increase during the year |
|
|
(269,640 |
) |
|
|
(1,529,584 |
) |
|
Ending balance |
|
|
(1,799,224 |
) |
|
|
(1,529,584 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
- |
|
|
$ |
- |
|
A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. The Company recorded a valuation allowance totaling $269,640 for the three months ended March 31, 2020 due to the uncertainty of realization. Management believes that based upon the history of losses that the Company has incurred to date and its projection of future taxable operating income for the foreseeable future, it is more likely than not that the Company will not be able to realize the tax benefit associated with deferred tax assets. The valuation allowance established as of March 31, 2020 was $1,799,224.
At March 31, 2020, the Company estimates it has approximately $2,446,861 of net operating loss carryforwards, $899,331 of which will expire 2020 through 2037. The Company’s management believes its tax positions are more likely than not of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of March 31, 2020, the Company’s tax years 2016 through 2018 remain open for Internal Revenue Service (“IRS”) audit. The Company has not received a notice of audit from the IRS for any of the open tax years.
F-15
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
A reconciliation of income tax computed at the U.S. statutory rate to the effective income tax rate is as follows:
|
|
|
Three Months Ended |
|
|||
|
|
|
March 31, 2020 |
|
|
March 31, 2019 |
|
|
Expected U.S. federal incomes as statutory rate |
|
21.0% |
|
|
21.0% |
|
|
Change in deferred tax asset valuation allowance |
|
-21.1% |
|
|
0.0% |
|
|
State and local income taxes, net of federal benefit |
|
-0.3% |
|
|
-1.3% |
|
|
Permanent differences |
|
0.0% |
|
|
-0.6% |
|
|
Other |
|
0.0% |
|
|
-0.8% |
|
|
Effective tax rate |
|
-0.4% |
|
|
18.3% |
|
Our effective income tax rates for the three months ended March 31, 2020 and 2019 were (0.4%) and 18.3%, respectively. The decrease from the prior period is driven by the valuation allowance allocated to the deferred tax asset for the current period.
Note 11. Concentrations
Concentration of Revenues, Accounts Receivable and Suppliers
For the three months ended March 31, 2020, and 2019, the following significant customers had an individual percentage of total revenues equaling ten percent (10%) or greater:
|
|
For the Three Months Ended |
|
|||||
|
|
March 31, 2020 |
|
|
March 31, 2019 |
|
||
|
Customer 1 |
|
11.5 |
% |
|
|
11.8 |
% |
|
Customer 2 |
|
11.0 |
% |
|
|
0.0 |
% |
|
Totals |
|
22.5 |
% |
|
|
11.8 |
% |
At March 31, 2020 and December 31, 2019, there were no significant customers that had a concentration of accounts receivable representing ten percent (10%) or greater of accounts receivable:
For the three months ended March 31, 2020 and 2019, the following significant suppliers represented ten percent (10%) or greater of goods purchased:
|
|
For the Three Months Ended |
|
|||||
|
|
March 31, 2020 |
|
|
March 31, 2019 |
|
||
|
Supplier 1 |
|
20.7 |
% |
|
|
21.2 |
% |
|
Supplier 2 |
|
13.3 |
% |
|
|
5.3 |
% |
|
Supplier 3 |
|
12.1 |
% |
|
|
4.5 |
% |
|
Totals |
|
46.1 |
% |
|
|
31.0 |
% |
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 NCE, LP, a real estate investment company that is owned and controlled by Mr. Brooks. The Company’s lease arrangement includes (1) the lease acquired pursuant to the CPM Acquisition effective January 1, 2013 and (2) a lease effective July 14, 2017 entered into to support the Company’s relocation of its Fort Worth, Texas corporate offices to CPM’s executive offices. Both leases terminated December 31, 2017, with month-to-month renewals. For the three months ended March 31, 2020, and 2019, the Company paid approximately $42,000 and $42,000 in rent expense, which is reflected in selling,
F-16
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
general, administrative, and other expenses in the Company’s accompanying unaudited condensed consolidated statements of operations.
AmBio Contract
The Company engaged AmBio Staffing, LLC (“AmBio”), a Texas licensed Professional Employment Organization, to provide payroll processing, employee benefit administration, and related human capital services effective January 1, 2017. Mr. Brooks owns and controls AmBio. As of March 31, 2020, AmBio operations support approximately 39 full time equivalents (“FTE”). Of those 39 FTEs, 31 FTEs directly support the Company, 7 FTEs support the operations of other companies, and 1 FTE are shared between the Company and other companies.
As of March 31, 2020, and December 31, 2019, the Company owed amounts to AmBio of approximately $0.00 and $169,944, respectively, which is reflected in the accounts payable on the Company’s unaudited condensed consolidated balance sheets. For the three months ended March 31, 2020, and 2019, the Company paid approximately $50,869 and $51,000, respectively, to AmBio in administrative fees, which is reflected in selling, general, administrative, and other expenses in the Company’s accompanying unaudited condensed consolidated statements of operations.
Operations
Historically, the Company conducts various related-party transactions with entities that are owned by or affiliated with Mr. Brooks and Mr. Reeg. These transactions are based on wholesale contractual agreements that the Company’s management believes are on terms and conditions substantially similar to other third-party contractual arrangements. As described more fully below, these transactions include: selling and purchasing of inventory on wholesale basis, commissions earned and paid, and shared-service fee arrangements.
MedUSA Group, LLC
MedUSA Group, LLC (“MedUSA”) is a sub-distributor owned and controlled by Mr. Brooks and Mr. Reeg.
During the three months ended March 31, 2020 and 2019, the Company:
|
|
• |
sold Orthopedic Implants and Biologics products to MedUSA in the amounts of approximately $25,131 and $300,000, respectively, which is reflected in net revenues in the Company’s accompanying unaudited condensed consolidated statements of operations; |
|
|
• |
had no purchases of Orthopedic Implants, medical instruments, or Biologics from MedUSA, and |
|
|
• |
incurred approximately $682,580 and $617,000, respectively, in commission costs, which is reflected in commissions in the Company’s accompanying unaudited condensed consolidated statements of operations. |
As of March 31, 2020, and December 31, 2019, the Company had approximately $448,724 and $598,405, respectively, of unpaid commission costs due to MedUSA.
As of March 31, 2020, and December 31, 2019, the Company had outstanding balances due from MedUSA of approximately $578,631 and $555,421, respectively. These amounts are reflected in accounts receivable in the Company’s accompanying unaudited condensed consolidated balance sheets.
As of March 31, 2020, and December 31, 2019, the Company had no outstanding balances owed to MedUSA.
Payment terms per our stocking and distribution agreement with MedUSA are 30 days from receipt of invoice. As of March 31, 2020, MedUSA has a past due balance of approximately $576,412.
Texas Overlord, LLC
Texas Overlord, LLC (“Overlord”) is an investment holding company owned and controlled by Mr. Brooks.
During the three months ended March 31, 2020 and 2019 the Company:
|
|
• |
purchased approximately $0 and $25,000, respectively, in Orthopedic Implants and medical instruments, and Biologics from Overlord, which is reflected within inventories on the Company’s accompanying unaudited condensed consolidating balance sheets; and |
F-17
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
|
|
• |
Incurred approximately $45,000 and $0, respectively, in commission costs, which is reflected in commissions in the Company’s accompanying unaudited condensed consolidated statements of operations. |
As of March 31, 2020, and December 31, 2019, the Company had approximately $15,000 of unpaid commission costs due to Overlord.
As of March 31, 2020, and December 31, 2019, 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 three months ended March 31, 2020, and 2019, the Company sold Biologics products to NBMJ in the amounts of approximately $978, and $122,000, respectively, which are reflected in net revenues in the Company’s accompanying unaudited condensed consolidated statements of operations.
As of March 31, 2020, and December 31, 2019, the Company has outstanding balances due from NBMJ of approximately $978 and $0, respectively. These amounts are reflected in accounts receivable in the Company’s accompanying unaudited condensed consolidated balance sheets.
Bass Bone and Spine Specialists
Bass Bone & Spine Specialists (“Bass”) operates as a sub-distributor of surgical implants and is owned and controlled by Mr. Brooks.
During the three months ended March 31, 2020, and 2019, the Company:
|
|
• |
sold Orthopedic Implants and Biologics products to Bass in the amounts of approximately $31,657 and $62,000, respectively, which is reflected in net revenues in the Company’s accompanying unaudited condensed consolidated statements of operations; |
|
|
• |
incurred approximately $0 and $9,000, respectively, in commission costs to Bass, which is reflected in commissions in the Company’s accompanying unaudited condensed consolidated statements of operations. |
As of March 31, 2020, and December 31, 2019, the Company has outstanding balances due from Bass of approximately $24,379
and $7,149, respectively. These amounts are reflected in accounts receivable in the Company’s accompanying unaudited condensed consolidated balance sheets.
Payment terms per the stock and distribution agreement are 30 days from receipt of invoice.
Sintu, LLC
Sintu, LLC (“Sintu”) operates as a sub-distributor of surgical implants and is owned and controlled by Mr. Brooks.
During the three months ended March 31, 2020, and 2019, the Company incurred approximately $266,329 and $78,000, respectively, in commission costs to Sintu, which is reflected in commissions on the Company’s accompanying unaudited condensed consolidated statement of operations.
Tiger Orthopedics, LLC
Tiger Orthopedics, LLC (“Tiger”) operates as a sub-distributor of surgical implants and is owned and controlled by Mr. Brooks.
During the three months ended March 31, 2020, and 2019, the Company sold Orthopedic Implants and Biologics products to Tiger in the amounts of approximately $32,600 and $50,000, respectively, which is reflected in net revenues in the Company’s accompanying unaudited condensed consolidated statements of operations;
F-18
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
As of March 31, 2020, and December 31, 2019, the Company has outstanding balances due from Tiger of approximately $650 and $30,525, respectively. These amounts are reflected in accounts receivable in the Company’s accompanying unaudited condensed consolidated balance sheets.
Payment terms per the stocking and distribution agreement are 30 days from receipt of invoice.
Modal Manufacturing, LLC
Modal Manufacturing, LLC (“Modal”) is a manufacturer of medical devices owned and controlled by Mr. Brooks.
During the three months ended March 31, 2020 and 2019, the Company purchased approximately $220,919 and $86,831 respectively, in Orthopedic Implants and medical instruments from Modal, which is reflected within inventories, net of allowance on the Company’s accompanying unaudited condensed consolidated balance sheets.
As of March 31, 2020, and December 31, 2019, the Company had outstanding balances due from Modal of approximately $40,700 and $40,700, respectively. This is reflected in accounts receivable in the Company’s accompanying condensed consolidated balance sheets.
Payment terms per the stocking and distribution agreement are 30 days form receipt of invoice. As of March 31, 2020, the Company had approximately $172,378 of accounts payable due to Modal.
Note 13. Subsequent Events
In preparing these unaudited condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through May 22, 2020, the date the unaudited condensed consolidated financial statements were available to be issued.
There are many uncertainties regarding the current COVID-19 pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners and distribution channels. Because government-imposed restrictions on elective surgeries did not go into effect in Dallas County until March 19, 2020, pandemic-related effects did not materially adversely affect the Company’s financial results and business operations in the Company’s for the full three months ended March 31, 2020. The Company’s management, however, is unable to predict the impact that COVID-19 will have on its financial position and operating results for the three months ended June 30, 2020 and thereafter due to numerous uncertainties, including the ability of cities, states and counties to safely and quickly lift COVID-19 related restrictions on businesses and the population generally. The Company’s management expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its responses accordingly.
On April 11, 2020, the Company was informed by Amegy Bank, that the Company had received approval from the U.S. Small Business Administration (“SBA”) to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the recently enacted CARES Act administered by the SBA. In connection with the PPP Loan, the Company has entered into the promissory note in principal amount of $361,400 attached as Exhibit 10.1 to this Form 10-Q. In accordance with the requirements of the CARES Act, the Company intends to use the proceeds from the PPP Loan primarily for payroll costs. The PPP Loan is scheduled to mature on April 11, 2022, has a 1.00% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act.
F-19
FUSE MEDICAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2020
(Unaudited)
On May 21, 2020, the Company and Amegy Bank executed a Limited Waiver and Fifth Amendment to the RLOC, which waived the EBITDA event of default for the three months ended March 31, 2020 and extended the termination date of the RLOC until November 4, 2020. (See Note 7, “Revolving Line of Credit”).
In conjunction with obtaining the waiver under the RLOC, the Company obtained an additional $200,000 in capital in the form of subordinated debt from affiliates of Messrs. Brooks and Reeg. Specifically, on May 6, 2020, the Company borrowed $180,000 from NC 143, a limited partnership controlled by Mr. Brooks, and $20,000 from RMI, a company owned and controlled by Mr. Reeg, in exchange for two promissory notes which are unsecured, bear interest at 0.25% per annum until May 6, 2022, the maturity date, and 10.0% per annum after the maturity date. Principal and interest are due and payable on the maturity date, provided, however, any payment of principal and interest on the loans is subordinated to payment of all indebtedness under the RLOC.
The Company’s management concluded there are no other material events or transactions for potential recognition or disclosure.
F-20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Explanatory Note
As used in this report on Form 10-Q, “we”, “us”, “our”, and the “Company” refer to Fuse Medical, Inc, a Delaware corporation.
This discussion and analysis should be read in conjunction with the interim unaudited condensed consolidated financial statements of our Company and the related notes included in this report for the periods presented (our “Financial Statements”), the audited consolidated financial statements of our Company and the related notes thereto and the Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (our “2019 Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13 or 15(d) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on March 30, 2020.
Overview
We are a manufacturer and national distributor of medical devices. We provide a broad portfolio of orthopedic implants including:
|
|
• |
Foot and Ankle: internal and external fixation products; |
|
|
• |
Orthopedics: upper and lower extremity plating and total joint reconstruction implants; |
|
|
• |
Sports Medicine: soft tissue fixation and augmentation for sports medicine procedures; |
|
|
• |
Spine: full spinal implants for trauma, degenerative disc disease, and deformity indications (collectively, we refer to these bulleted products as “Orthopedic Implants”). |
We also provide a wide array of osteo-biologics and regenerative tissues, which include human allografts, substitute bone materials, tendons, and amniotic tissues and fluids, which we refer to as (“Biologics”).
All of our medical devices are approved by the U.S. Food and Drug Administration (“FDA”) for sale in the United States, and all of our Biologics suppliers are licensed tissue banks accredited by the American Association of Tissue Banks. Additionally, we are an FDA-registered medical device specification developer and repackager/relabeler, and manufacturer of record, (a “Manufacturer”). We are seeking to grow our manufacturing operations, both by internal product development and by acquiring existing FDA approved devices.
Impact of Coronavirus
General Economic Conditions
During the first quarter of 2020, the novel coronavirus SARS-CoV-2 global pandemic ("COVID-19") significantly impacted the global economy. The impact has been profound, has continued in May 2020 and is likely to persist for months to come. The overall extent and duration of COVID-19 on businesses and economic activity generally remains unclear, but a severe recession is expected. Economic effects from COVID-19, which have impacted virtually all countries and industries, have included:
|
|
|
|
• |
Many small businesses being forced to interrupt their operations and as a result, lay off employees or even close; |
|
|
|
|
• |
Large-scale population lock-downs, travel restrictions and social-distancing measures have been implemented, driving a sharp decline in consumer and business spending; and |
|
|
|
|
• |
Significant declines and volatility in global financial markets, including approximate 23.2% and 20.0% declines in the Dow Jones Industrial Average and S&P 500 Index, respectively, during the first quarter. |
Governments around the world have responded to COVID-19 with economic stimulus measures, including a $2 trillion emergency relief bill passed in the United States. These measures are intended to steady businesses and consumers until economic activity and financial markets meaningfully recover. The timing and magnitude of any such recovery, however, remains uncertain.
3
Impact to Fuse
COVID-19 presents significant risks to our business plan. During our first quarter 2020 and as a response to COVID-19, the Governor of Texas declared a state of disaster and issued an executive order effective March 19, 2020 requiring hospitals to defer all elective surgeries.
Until March 19, 2020 we were experiencing improvements in revenues over last year. The disaster declaration in Texas, and other governmental jurisdictions, and the deferral of all elective surgeries, has adversely impacted our results of operations for the first quarter 2020, in particular, for periods subsequent to March 19, 2020. We anticipate that business and economic changes resulting from COVID-19 will also adversely impact our second quarter 2020.
On April 17, 2020, the Governor of Texas issued an executive order permitting hospital facilities to begin elective surgeries effective April 22, 2020 with certain restrictions, including to maintain a percentage of available beds for potential COVID-19 related patients. We believe the resumption of elective surgeries, including deferred elective surgeries will help to gradually increase demand for our products over the remainder of the year such that we expect fourth quarter volumes to return to levels commensurate with our typical seasonal fourth quarter volume levels.
Our products support patient conditions which are degenerative in nature. While most of our Cases are currently considered elective, they are typically necessary for a patient to restore mobility, reduce pain and increase quality of life. Based on discussions with physicians and hospitals, we anticipate that surgeries will be slow to start after April 22, 2020, but demand will accelerate as a result of “pent up demand” once operations stabilize and remaining restrictions are reduced and eventually lifted. As a result, we believe our annual revenues for 2020 will fall within a range of 4% to 6% lower compared to 2019. Revenues during our second quarter are anticipated to be significantly lower, with revenues increasing throughout the third and the traditionally highest, fourth quarter of the year.
In an effort to reduce costs and offset the economic impact of COVID-19, during the first quarter of 2020 we reduced payroll and other related costs by approximately $1.9 million on an annualized basis. Additionally, we have applied for and received funds in the amount of $361,400 from the Payroll Protection Program loan (“PPP Loan”) authorized under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Further, we have applied for an Economic Injury Disaster Loan with the Small Business Administration (“SBA”) and are awaiting approval. We will continue to evaluate other forms of disaster assistance through the SBA and other sources as appropriate.
During the three months ended March 31, 2020 but prior to executive orders prohibiting elective surgeries and imposing stay-at-home requirements, our revenues derived from new customers was approximately $1.1 million or approximately 23% of revenues. Further, revenue per case (a “Case” represents sales volume based on medical procedures in which our products were sold and used) increased during the first quarter of 2020 as a result of our continued operational shift to retail versus wholesale revenues.
Current Trends and Outlook
Seasonality
We are subject to seasonal fluctuations in sales, which cause fluctuations in quarterly results of operations. Because of the seasonality of our business, results for any quarter are not necessarily indicative of results that may be achieved in other quarters or for a full fiscal year.
Historically, we typically experience greater revenue and greater volume, as a percentage of revenue, during the last two (2) calendar quarters compared to the first two (2) calendar quarters of the year. This increase is primarily due to more patient annual healthcare deductibles being met during the last two (2) quarters of the calendar year compared to the first two (2) quarters of the calendar year, which is partially satisfied by elective surgeries. We use this seasonality trend to assist us in enterprise-wide resource planning such as purchasing and product inventory logistics.
Prior to the government-imposed shelter-in-place mandates and prohibitions on elective surgeries, revenues for the first quarter of 2020 were consistent with our historical seasonality trends.
Retail and Wholesale Cases
We believe our comprehensive selection of Orthopedic Implants and Biologics products is essential to our ability to acquire new customers and increase sales volume, revenues, and profitability. We continue to review and evaluate our product lines, ensuring we maintain a high-quality and cost-effective selection of Orthopedic Implants and Biologics.
4
Retail. Under our retail distribution model, (“Retail Model”), we sell directly to our end customers, which consist of hospitals and medical facilities, utilizing (i) our full-time sales representatives whom we employ or engage as independent contractors and (ii) independent sales representatives who work on a non-exclusive basis. In both instances, we pay the sales representative a commission with respect to sales made by the representative. We refer to sales through our Retail Model as Retail Cases (which are herein referred to as “Retail Cases”).
Wholesale. Under our wholesale distribution model, (“Wholesale Model”), we sell our products directly to independent distributors rather than to hospitals and medical facilities who are the ultimate end customer. We do not pay or receive commissions from any sales by the independent distributor to the end customer. We refer to our sales through our Wholesale Model as Wholesale Cases, (which are herein referred to as “Wholesale Cases”).
Retail Cases in our industry command higher revenue price points than Wholesale Cases. Because Retail Cases involve direct sales to our end customers, we receive a higher profit margin due to the absence of any third party in the sales process, before we pay any potential commissions to a full time or independent sales representative. As a result, Retail Cases generally generate substantially more gross profit than Wholesale Case transactions.
Wholesale Cases in our industry command lower revenue price-points than Retail Cases. Because Wholesale Cases involve sales to third parties who in turn sell our products to end customers, our profit margins are reduced for these Cases. Thus, our Wholesale Cases generate substantially lower gross profit than our Retail Cases, but are not subject to additional overhead support costs, such as case coverage and commissions. Our Wholesale Case business is highly dependent on minimum volume sales levels to achieve appropriate profitability.
Pricing Pressures
Pricing pressure has increased in our industry due to (i) continuous consolidation among healthcare providers, (ii) trends toward managed care, (iii) increased government oversight of healthcare costs, and (iv) new laws and regulations that address healthcare reimbursement and pricing. Pricing pressure, reductions in reimbursement levels or coverage, or other cost containment measures can significantly impact our business, future operating results and financial condition.
To offset pricing pressure, we employ strategies to maximize revenue per Case. For the three months ended March 31, 2020 and 2019, our average revenues per Case were $4,980 and $3,499, respectively. The approximate 42% increase in average revenue per Case was primarily due to (a) a shift to focus on retail cases b) an increase in revenue derived from commission agreements and, offset by (c) continued pricing pressures, as described above.
Critical Accounting Policies
The preparation of our Financial Statements and the related disclosures in conformity with GAAP, requires our management to make judgments, assumptions, and estimates that affect the amounts of revenue, expenses, income, assets, and liabilities, reported in our Financial Statements and accompanying notes. Understanding our accounting policies and the extent to which our management uses judgment, assumptions, and estimates in applying these policies is integral to understanding our Financial Statements.
We describe our most significant accounting policies in Note 2, “Significant Accounting Policies” of our unaudited condensed consolidated notes to our Financial Statements beginning on page F-1 and found elsewhere in this report and in our 2019 Annual Report. These policies are considered critical because they may result in fluctuations in our reported results from period to period due to the significant judgments, estimates, and assumptions about highly complex and inherently uncertain matters. In addition, the use of different judgments, assumptions, or estimates could have a material impact on our financial condition or results of operations. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions.
There have been no material changes to our critical accounting policies during the period covered by this report.
Recent Accounting Pronouncements
We describe recent accounting pronouncements in Note 2, “Significant Accounting Policies,” of our accompanying unaudited condensed consolidated notes to our Financial Statements beginning on page F-1.
5
Results of Operations
The following table sets forth certain financial information from our unaudited condensed consolidated statements of operations, along with a percentage of net revenues.
|
|
For the Three Months Ended |
|
||||||||||
|
March 31, 2020 |
|
(% Rev) |
|
March 31, 2019 |
|
(% Rev) |
|
|||||
|
Net revenues |
$ |
4,636,503 |
|
100% |
|
$ |
4,770,659 |
|
100% |
|
||
|
Cost of revenues |
|
1,982,896 |
|
43% |
|
|
1,975,345 |
|
41% |
|
||
|
Gross profit |
|
2,653,607 |
|
57% |
|
|
2,795,314 |
|
59% |
|
||
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, administrative and other |
|
2,480,771 |
|
54% |
|
|
2,364,168 |
|
50% |
|
||
|
Commissions |
|
1,391,117 |
|
30% |
|
|
1,005,531 |
|
21% |
|
||
|
Depreciation and amortization |
|
29,983 |
|
1% |
|
|
25,724 |
|
1% |
|
||
|
Total operating expenses |
|
3,901,871 |
|
84% |
|
|
3,395,423 |
|
71% |
|
||
|
Operating loss |
|
(1,248,264 |
) |
-27% |
|
|
(600,109 |
) |
-13% |
|
||
|
Other expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
31,001 |
|
1% |
|
|
25,435 |
|
1% |
|
||
|
Total other expense |
|
31,001 |
|
1% |
|
|
25,435 |
|
1% |
|
||
|
Operating loss before tax |
|
(1,279,265 |
) |
-28% |
|
|
(625,544 |
) |
-13% |
|
||
|
Income tax expense/(benefit) |
|
4,734 |
|
0% |
|
|
(114,546 |
) |
-2% |
|
||
|
Net loss |
$ |
(1,283,999 |
) |
-28% |
|
$ |
(510,998 |
) |
-11% |
|
||
Three Months Ended March 31, 2020, Compared to Three Months Ended March 31, 2019
Net Revenues
For the three months ended March 31, 2020, net revenues were $4,636,503 compared to $4,770,659 for the three months ended March 31, 2019, a decrease of $134,156 or approximately 3.0%.
For the three months ended March 31, 2020, Retail Cases decreased by approximately 7% compared to the three months ended March 31, 2019, and revenues from Retail Cases increased by approximately 10% compared to revenues from Retail Cases for the three months ended March 31, 2019. Revenues from Retail Cases as a percentage of total revenues increased to 89% of revenues for the three Months ended March 31, 2020, from 79% of revenues for the three months ended March 31, 2019. We believe the increase in revenue from Retail Cases as a percent of total revenues reflects the execution of our strategies to shift more of our business to higher margin Retail Cases through improvement of our supply chain management. Therefore, wholesale revenue as a percent of total revenue has decreased.
As discussed above in “Current Trends and Outlook,” we believe that as our industry faces increased pricing pressures, we will need to focus on increased volume of Cases to maintain gross profit levels. We intend to increase our Retail Case volume by increasing sales volumes with our existing retail customer base as well as on-boarding new surgeons, distributors, and retail customers.
Cost of Revenues
For the three months ended March 31, 2020, our cost of revenues was $1,982,896, compared to $1,975,345 for the three months ended March 31, 2019, representing an increase of less than 1%.
As a percentage of revenues, cost of revenues increased 2% percentage points to approximately 43% for the three months ended March 31, 2020, compared to approximately 41% for the three months ended March 31, 2019. As a percentage of net revenues, the increase of approximately 2% primarily resulted from (i)(a) an increase of 5% in inventory shrink, (b) an increase of 2% in the inventory loss provision for slow-moving and obsolescence, (c) an increase of 2% for medical instruments purchased based on new product development, offset, in part, by (ii) a 7% reduction in cost of revenues product mix.
Gross Profit
For the three months ended March 31, 2020, we generated a gross profit of $2,653,607, compared to $2,795,314 for the three months ended March 31, 2019, representing a decrease of $141,707, or approximately 5%.
As a percentage of revenues, gross profit decreased approximately 2% for the three months ended March 31, 2020 and 2019. The components of gross profit varied and included primarily, (i)(a) an approximate increase of 2% of medical instruments purchased based on new product development, (b) an approximate 5% increase in inventory shrink, (c) an approximate 2% increase in the inventory loss provision for slow-moving and obsolescence; offset, in part, by (ii) an approximate 7% decrease in cost of goods sold primarily driven by an increase in retail sales.
6
Selling, General, Administrative, and Other Expenses
For the three months ended March 31, 2020, selling, general, administrative, and other expenses (“SG&A”) increased to $2,480,771 from $2,364,168 for the three months ended March 31, 2019, representing an increase of $116,603 or approximately 5%.
As a percentage of net revenues, SG&A accounted for approximately 54% for the three months ended March 31, 2020, and 50% for the three months ended March 31, 2019. As a percentage of net revenues, the increase of approximately 4% primarily resulted from (i)(a) an increase of 4% in bad debt expense, (b) an increase of 1% for employee expense reimbursements related to business development and travel costs; (c) a 2% increase in leased staffing costs, offset, in part, by (ii)(a) a 2% reduction in stock based compensation and (b) a 1% reduction in professional fees relating to audit, legal and consulting expenses.
Commissions
For the three months ended March 31, 2020, and 2019, commission expense was $1,391,117 and $1,005,531, respectively, representing an increase of $385,586, or approximately 38%.
As a percentage of net revenues, commission expense accounted for approximately 30% for the three months ended March 31, 2020, and approximately 21% for the three months ended March 31, 2019. This approximate 9% increase primarily resulted from (a)(i) the approximate 6% increase in revenues eligible for commissions, and (ii) an approximate 3% increase in average commission rates.
Depreciation and amortization
For the three months ended March 31, 2020, our depreciation expense increased to $29,983 from $25,724 for the three months ended March 31, 2019, representing an increase of $4,259. This increase is the result of an approximate $4,259 increase in depreciation expense as a result of investment in IT infrastructure such as additional and replacement user workstations.
Interest
For the three months ended March 31, 2020, interest expense increased to $31,001 from $25,435 for the three months ended March 31, 2019, which is an increase of $5,566, or approximately 22%. The increase is primarily due to a higher average borrowings on our Senior Secured Revolving Credit Facility (“RLOC”) with ZB, N.A., d/b/a Amegy Bank (“Amegy Bank”), offset, in part, by a decrease in the interest rate on the RLOC.
Tax
For the three months ended March 31, 2020, we recorded an income tax expense of $4,734 and an income tax benefit of $114,546 for the three months ended March 31, 2019. We are further evaluating how the Tax Cuts and Jobs Act may impact future results of our business and operations. For additional information, please see Note 10, “Income Taxes,” of our accompanying unaudited condensed consolidated notes to our Financial Statements, beginning on page F-1.
Net Loss
For the three months ended March 31, 2020, we had a net loss of $1,283,999 compared to a net loss $510,998 for the three months ended March 31, 2019, respectively, representing an increase in net loss of $773,001 or an increase of approximately 151%. The drivers for our reduction in net income for the three months ended March 31, 2020 were (i) (a) an $134,156 reduction in net revenues, (b) a $7,551 increase in cost of revenue, (c) an increase of $116,603 in SG&A and other expense, (d) a $385,586 increase in commissions, (e) a $4,259 increase in depreciation and amortization; (f) a $5,566 increase in interest expense and (g) an increase in tax expense of $119,280.
Cash Flows
A summary of our cash flows is as follows:
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Net cash (used in) provided by operating activities |
|
$ |
(76,104 |
) |
|
$ |
88,014 |
|
|
Net cash used in investing activities |
|
|
(20,757 |
) |
|
|
- |
|
|
Net cash used in financing activities |
|
|
(249,181 |
) |
|
|
(80,577 |
) |
|
Net (decrease) increase in cash and cash equivalents |
|
$ |
(346,042 |
) |
|
$ |
7,437 |
|
7
Net Cash Provided by Operating Activities
During the three months ended March 31, 2020, net cash used by operating activities was $76,104 compared to net cash provided by operations of $88,014 for the three months ended March 31, 2019, representing a decrease of $164,118.
For the three months ended March 31, 2020, our net cash used by operating activities resulted primarily from: (a)(i) $539,973 reduction in accrued expenses; (ii) $394,827 net loss adjusted for non-cash items; (iii) $181,162 reduction in accounts payable; (iv) $77,520 increase in prepaid expenses and other current assets, and (v) $27,267 increase in inventories, net of allowance, offset, in part, by (b)(i) $1,144,645 reduction in accounts receivable, net of allowance.
For the three months ended March 31, 2019, our net cash provide operating activities resulted primarily from: (a)(i) $1,841,061 reduction in accounts receivable, net of allowance, and (a)(ii) $46,682 reduction in inventories, net of allowance, offset, in part, by (b)(i) $1,194,504 reduction in accounts payable; (b)(ii) $430,751 reduction in accrued expenses; (b)(iii) $171,809 net loss adjusted for non-cash items, and $2,665 increase in prepaid expenses and other current assets.
Net Cash Used in Investing Activities
For the three months ended March 31, 2020, net cash used in investing activities was $20,757, primarily related to the purchase of property and equipment, such as new and replacement user workstations and equity incentive tracking and reporting system. We did not have any net cash used in investing activities for the three months ended March 31, 2019.
Net Cash Used in Financing Activities
For the three months ended March 31, 2020, net cash used in financing activities was $249,181, compared to $80,577 used in financing activities for the three months ended March 31, 2019. For both periods, the amount of net cash used in financing activities was driven by our net payments on our RLOC. The increase in net cash used in financing activities between March 31, 2020 and 2019 was primarily related to increased payments and reduced borrowings on our RLOC.
Liquidity
Our primary sources of liquidity are cash from our operations and our RLOC with Amegy Bank. As of March 31, 2020, our current assets exceeded our current liabilities by $6,098,970 (our “Working Capital”), which includes $753,268 in cash and cash equivalents. We believe cash from our operations and net borrowings on our RLOC supports our Working Capital needs.
Effective December 31, 2017, we became party to the RLOC with Amegy Bank. The RLOC established an asset-based senior secured revolving credit facility with contractual aggregate limit of $5,000,000. The RLOC contains customary representation, warranties, covenants, events of default, and is collateralized by substantially all of our assets and provides that our Chairman of the Board of Directors (“Board”) and President provides a personal guarantee for a portion of the outstanding RLOC amount.
On September 21, 2018, we executed the First Amendment to the RLOC with Amegy Bank (the “First Amendment”). The First Amendment (i) waived our events of default under the RLOC through the fiscal quarter ended September 30, 2018, and (ii) added a covenant that we achieve quarterly net income of $700,000 or more for the fiscal quarter ending on September 30, 2018.
On November 19, 2018, we executed the Second Amendment to the RLOC with Amegy Bank (“Second Amendment”). The Second Amendment (i) waived our events of default under the RLOC, (ii) reduced the aggregate contractual limit of the RLOC to $4,000,000, (iii) extended the maturity date to November 4, 2019, (iv) revised the variable interest rate to the one-month LIBOR rate plus four percent (4.00%) per annum, and (v) amended the financial covenants to state that we will not permit: (i) the Fixed Charge Coverage Ratio of any calendar quarter end from and after the quarter ending June 30, 2019, to be less than 1.25 to 1.00; (ii) earnings before interest, taxes, depreciation and amortization (“EBITDA”) to be less than $700,000 for the fiscal quarter ending December 31, 2018, and $100,000 for the fiscal quarter ending March 31, 2019; and (iii) modified the event of default related to consecutive quarterly losses to be applicable from and after the quarter ending June 30, 2019.
On May 9, 2019, we executed the Third Amendment to the RLOC with Amegy Bank (the “Third Amendment”). Pursuant to the Third Amendment, Amegy Bank (i) waived our events of default under the RLOC, (ii) reduced the aggregate contractual limit of the RLOC to $3,500,000, (iii) reduced the limit of credit card exposure to $500,000, (iv) reduced the borrowing base component of Inventory to 30%, (v) amended the financial covenants to state that we will not permit EBITDA to be less than $100,000 for the fiscal quarter ending June 30, 2019 and $500,000 for the fiscal quarter ending September 30, 2019, and (vi) rescinded the loan sweep feature, requiring us to give notice of each requested loan by delivery of advance request to Amegy Bank.
On December 18, 2019, we executed the Fourth Amendment to the RLOC with Amegy Bank (“Fourth Amendment”). Pursuant to the Fourth Amendment, Amegy Bank (i) waived our events of default under the RLOC, (ii) reduced the aggregate contractual limit of the RLOC to $2,750,000, (iii) reduced and limited the annual salary of our Chairman of the Board and President, Mr. Brooks, to not exceed $550,000, (iv) amended the financial covenants to state that we will not permit EBITDA to be less than $600,000 for the fiscal
8
quarter ending December 31, 2019 and $125,000 for the fiscal quarter ending March 31, 2020, (v) extended the termination date of the RLOC to May 4, 2020, and (vi) provides that our Chairman of the Board and President provides a personal guarantee for one-hundred percent (100%) of the outstanding RLOC amount.
We were not in compliance with the minimum quarterly EBITDA requirement of $125,000 for the three months ended March 31, 2020. On May 21, 2020, we executed a Limited Waiver and Fifth Amendment to the RLOC with Amegy, which waived the minimum EBITDA maintenance event of default for the fiscal quarter ended March 31, 2020 and extended the termination date of the RLOC until November 4, 2020. (See Note 7, “Revolving Line of Credit” and Note 13, “Subsequent Events” of our accompanying unaudited condensed consolidated notes to our Financial Statements, beginning on page F-1).
In conjunction with obtaining the waiver under the RLOC, we obtained an additional $200,000 in capital in the form of subordinated debt from affiliates of Messrs. Brooks and Reeg. Specifically, on May 6, 2020, we borrowed $180,000 from NC 143, a limited partnership controlled by Mr. Brooks, and $20,000 from RMI, a company owned and controlled by Mr. Reeg, in exchange for two promissory notes which are unsecured, bear interest at 0.25% per annum until May 6, 2022, the maturity date, and 10.0% per annum after the maturity date. Principal and interest are due and payable on the maturity date, provided, however, any payment of principal and interest on the loans is subordinated to payment of all indebtedness under the RLOC.
We rely on our RLOC for capital expenditures and other day-to-day Working Capital needs. As of May 11, 2020, we had approximately $1,553,675 in available cash, and $0.00 available on our RLOC for borrowing (subject to certain borrowing base limitations). Borrowings on our RLOC are repaid from cash generated from our operations.
Payroll Protection Program
On April 15, 2020, we received a PPP Loan of approximately $361,400 under the PPP of the CARES Act. Proceeds from the PPP Loan will be used to cover documented payroll, mortgage interest, rent, and utility costs over an eight (8) week measurement period and is eligible to be forgiven under the terms of the PPP Loan under certain circumstances. The PPP Loan matures April 11, 2022 with interest accruing at 1%. There are no collateral requirements or prepayment penalties associated with the PPP Loan.
Our strategic growth plan provides for the capital investment in new product launches, private label branding, and the upgrade of our financial systems which support our infrastructure. We deem these investments essential to support our growth and expansion objectives. We estimate the range of this type of investment to be approximately $2 million to $3 million and anticipate these investments to occur primarily during first and second quarters of calendar year 2021. We expect sources of capital for these investments to be derived from cash from operations and additional debt and/or equity financing.
Going Concern
The accompanying interim unaudited condensed consolidated financial statements have been prepared as if we will continue as a going concern. Through March 31, 2020, we had accumulated losses of $3,879,812 and a stockholders’ deficit of $2,343,476. Revenue declined by $134,156 in the first quarter of 2020 versus the same quarter in 2019, as we have been impacted by restrictions as a result of the COVID-19 pandemic. We were out of compliance with our loan covenants at March 31, 2020, which, as of May 6, 2020, we received a waiver for this event of default from Amegy Bank. At various times during 2018 and 2019, we were also out of compliance with one or more covenants contained in our RLOC, but obtained waivers from Amegy Bank to cure the violations, along with reductions in our aggregate contractual borrowing limits under our RLOC. We have determined that these conditions and events raise substantial doubt about our ability to continue as a going concern.
Our ability to continue as a going concern for at least one year beyond the date of this filing is dependent upon the easing of restrictions imposed on elective surgeries by civil authority as a result of COVID-19, as well as our (i) successful execution of key branding initiatives, (ii) introduction, commercialization and sales of new proprietary products and product lines, (iii) increased sales of existing products, with strategic emphasis on selling more Retail Cases and increasing the percentage of Retail Cases sold as a percentage of all Cases we sell, and (iv) continued cost reductions. Additionally, we will need to refinance our RLOC with Amegy Bank with a new credit facility on commercially reasonable terms or obtain equity financing.
Our unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern.
Capital Expenditures
For the three months ended March 31, 2020, we had no material commitments for capital expenditures.
9
Off-Balance Sheet Arrangements
For the three months ended March 31, 2020, we had no off-balance sheet arrangements.
Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements including statements regarding 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 of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include; the conditions of the capital markets, particularly for smaller companies; the willingness of doctors and facilities to purchase the products that we sell; certain regulatory issues adversely affecting our margins; insurance companies denying reimbursement to facilities who use the products that we sell; and our ability to sell products. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events, or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, that are filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
We conducted an evaluation (pursuant to Rule 13a-15(b) promulgated under the Exchange Act), under the supervision and with the participation of management, including our Chief Executive and Chief Financial Officers, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a- 15(e) promulgated under the Exchange Act) as of March 31, 2020.
Based on our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of March 31, 2020.
10
A significant percentage of our products are utilized in elective surgeries and related medical procedures. During March 2020, many city, state and local governments began issuing civil orders temporarily halting the performance of elective surgeries in order to better allocate medical supplies, resources and facilities to treatment of COVID-19 patients. These governmental jurisdictions include cities, counties and states in areas we serve. As a result of these government orders, we have started to experience a reduction in demand for our products. We anticipate that when these temporary civil orders are lifted, those patients, surgeons and hospital that had deferred elective procedures will then proceed with the deferred elective procedures in addition to performing elective procedures which will arise in the ordinary course after the temporary orders are lifted. However, we cannot reasonably estimate the length or severity of this pandemic or how long the government orders will be in effect. Any extended prohibitions on elective procedures and subsequent decrease in demand for our products resulting from the COVID-19 outbreak would adversely affect our revenues and results of operation during that temporary prohibition period. We believe, however, that product demand will return to normal levels after the temporary civil orders are lifted and our end customers begin to address the backlog of elective surgeries in addition to ordinary course demand. The related financial impact of the COVID-19 outbreak, however, cannot be reasonably estimated at this time.
On April 11, 2020, we were informed by our lender, Amegy Bank, that the Bank received approval from the SBA to fund our request for a PPP Loan under the SBA’s PPP Loan created as part of the recently enacted CARES Act administered by the SBA. In connection with the PPP Loan, we entered into the promissory note attached as Exhibit 10.2 to this Form 10-Q. Per the terms of the PPP Loan, we received total proceeds of $361,400 from the Bank on April 15, 2020. In accordance with the requirements of the CARES Act, we intend to use the proceeds from the PPP Loan primarily for payroll costs. The PPP Loan is scheduled to mature on April 11, 2022, has a 1.00% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant to the PPP as administered by the SBA under the CARES Act.
On May 21, 2020, we executed a Limited Waiver and Fifth Amendment to the RLOC with Amegy Bank, which waived the minimum EBITDA maintenance event of default for the fiscal quarter ended March 31, 2020 and extended the termination date of the RLOC until November 4, 2020. The Fifth Amendment is attached hereto as Exhibit 10.1.(See Note 7, “Revolving Line of Credit” and Note 13, “Subsequent Events” of our unaudited condensed consolidated notes to our Financial Statements beginning on page F-1)
In conjunction with obtaining the waiver under the RLOC, we obtained an additional $200,000 in capital in the form of subordinated debt from affiliates of Messrs. Brooks and Reeg. Specifically, on May 6, 2020, we borrowed $180,000 from NC 143, a limited partnership controlled by Mr. Brooks, and $20,000 from RMI, a company owned and controlled by Mr. Reeg, in exchange for two promissory notes which are unsecured, bear interest at 0.25% per annum until May 6, 2022, the maturity date, and 10.0% per annum after the maturity date. Principal and interest are due and payable on the maturity date, provided, however, any payment of principal and interest on the loans is subordinated to payment of all indebtedness under the RLOC.
See the exhibits listed in the accompanying “Exhibit Index”.
11
EXHIBIT INDEX
|
|
Description |
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
10.1* |
|
|
|
|
|
|
|
|
|
|
|
10.2* |
|
|
|
|
|
|
|
31.1* |
|
|
|
|
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
|
|
|
|
|
32.1** |
|
|
|
|
|
|
|
|
|
|
|
101.INS * |
|
XBRL Instance Document |
|
|
|
|
|
101.SCH * |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
|
|
101.CAL * |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
|
|
101.DEF * |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
|
|
101.LAB * |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
|
|
101.PRE * |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
* |
Filed herewith. |
|
** |
Furnished herewith |
12
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
FUSE MEDICAL, INC. |
|
||
|
|
|
|
|
|
Date: May 22, 2020 |
By: |
/s/ Christopher C. Reeg |
|
|
|
|
Christopher C. Reeg |
|
|
|
|
Chief Executive Officer and Director (Principal Executive Officer) |
|
|
Date: May 22, 2020 |
By: |
/s/ William E. McLaughlin, III |
|
|
|
|
William E. McLaughlin, III |
|
|
|
|
Senior Vice President, Chief Financial Officer and Director (Principal Financial Officer) |
|
13
EXHIBIT 10.1
Execution Version
LIMITED WAIVER AND FIFTH AMENDMENT TO AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
This LIMITED WAIVER AND FIFTH AMENDMENT TO AMENDED AND RESTATED
BUSINESS LOAN AGREEMENT (this “Amendment”), dated May 21, 2020 (the “Fifth Amendment Effective Date”), is made and entered into by and among Zions Bancorporation, N.A. dba Amegy Bank (together with its successors and assigns, “Lender”), Fuse Medical, Inc. (“Fuse”) and CPM Medical Consultants, LLC (“CPM”, together with Fuse, collectively, the “Borrowers” and each a “Borrower”).
RECITALS
|
A. |
Lender and Borrowers are parties to that certain Amended and Restated Business Loan Agreement dated as of December 31, 2017 (as amended by that certain Limited Wavier and First Amendment to Amended and Restated Business Loan Agreement, dated as of September 21, 2018, as amended by that certain Limited Waiver and Second Amendment to Amended and Restated Business Loan Agreement, dated as of November 19, 2018, as amended by that certain Limited Waiver and Third Amendment to Amended and Restated Business Loan Agreement dated as of May 9, 2019, as amended by that certain Limited Waiver and Fourth Amendment to Amended and Restated Business Loan Agreement dated December 18, 2019 and as may be further amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Loan Agreement”). |
|
|
|
B. |
An Event of Default has occurred and is continuing, under the Loan Agreement. |
|
C. |
Borrowers have requested that Lender waive such Event of Default, and amend the Loan Agreement. |
|
|
D. |
Lender is willing to waive such Event of Default, and amend the Loan Agreement on the terms and subject to the conditions set forth below. |
|
NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the same definitions assigned to such terms in the Loan Agreement, as amended hereby.
ARTICLE II
Limited Waiver
Section 2.1 Limited Waiver. An Event of Default has occurred and currently exists under the Loan Agreement as a result of Borrowers’ failure to maintain the Minimum EBITDA of $125,000 for the fiscal quarter ended March 31, 2020 as required by Section 9.1(b) of the Loan Agreement (the “Specified Default”). Borrowers represent and warrant that the Specified Default is the only Default or Event of Default that exists, or is anticipated to occur, under the Loan Agreement and the other Loan Documents as of the Fifth Amendment Effective Date. Subject to the satisfaction of the conditions precedent set forth in Section 4.1 hereof, Lender hereby waives the Specified Default. In no event shall such waiver be deemed to constitute a waiver of (a) any Default or Event of Default other than the Specified Default or (b)
-1-
SMRH:4841-2483-8588.4
Borrowers’ obligation to comply with all of the terms and conditions of the Loan Agreement and the other Loan Documents from and after the Fifth Amendment Effective Date. Notwithstanding any prior, temporary mutual disregard of the terms of any contracts between the parties, Borrowers hereby agree that they shall be required strictly to comply with all of the terms of the Loan Documents on and after the Fifth Amendment Effective Date.
ARTICLE III
Amendments to the Loan Agreement
In reliance upon the representations and warranties of the Lender and Borrowers set forth in the Loan Documents and in this Amendment, the Loan Agreement is hereby amended, effective as of the Fifth Amendment Effective Date, as follows:
Section 3.1Amendments.
|
(a) |
The following definitions in Section 1.1 of the Loan Agreement are hereby amended and restated in their entirety as follows: |
|
“Permitted Debt” means (a) Debt constituting purchase money indebtedness or Capital Lease Obligations in an aggregate amount outstanding not to exceed
$250,000, (b) the Obligations, (c) trade payables and other contractual obligations arising in the ordinary course of business that are not past due by more than 90 days, (d) the Earn-Out so long as it is subject to the Earn-Out Subordination Agreement, (e) Debt existing on the Closing Date and described on Schedule 10.3 attached hereto and made a part hereof, (f) the Subordinated Debt and (g) the PPP Debt.
“Termination Date” means the earliest to occur of (a) November 4, 2020 and (b) the date on which Lender’s commitment to make Loans is terminated pursuant to Section 10.2.
|
(b) |
Section 1.1 of the Loan Agreement is hereby amended to insert therein in appropriate alphabetical order the following defined terms: |
|
“CARES Act – Title I” means Title I of the Coronavirus Aid, Relief and Economic Security Act, as amended (including any successor thereto), and all requests, rules, guidelines, requirements and directives thereunder or issued in connection therewith or in implementation thereof, regardless of the date enacted, adopted, issued or implemented.
“NC 143” means NC 143 Family Holding, LP, a Texas limited partnership.
“NC 143 Debt” means the indebtedness evidenced by the NC 143 Note in a maximum amount not exceeding the amount thereof permitted by the NC 143 Subordination Agreement.
“NC 143 Loan Proceeds” means the proceeds of the loan evidenced by the NC 143 Promissory Note, the amount of which shall be no less than $180,000.
“NC 143 Note” means that certain Promissory Note dated May 6, 2020, by Fuse in favor of NC 143, in the original principal amount of $180,000.
-2-
SMRH:4841-2483-8588.4
“NC 143 Subordination Agreement” means that certain Subordination Agreement dated May 20, 2020, by and among Lender, NC 143 and Borrowers.
“PPP Debt” means unsecured Debt of CPM to Zions Bancorporation, N.A. dba Amegy Bank in an aggregate principal amount not to exceed $361,400 advanced by any governmental authority (including the Small Business Administration) or any other Person acting as a financial agent of a governmental authority or any other Person to the extent such Debt is guaranteed by a governmental authority (including the Small Business Administration), in each case pursuant to the CARES Act – Title I.
“Reeg” means Reeg Medical Industries, Inc., a Texas corporation.
“Reeg Debt” means the indebtedness evidenced by the Reeg Note in a maximum amount not exceeding the amount thereof permitted by the Reeg Subordination Agreement.
“Reeg Loan Proceeds” means the proceeds of the loan evidenced by the Reeg Promissory Note, the amount of which shall be no less than $20,000.
“Reeg Note” means that certain Promissory Note dated May 6, 2020, by Fuse in favor of Reeg, in the original principal amount of $20,000.
“Reeg Subordination Agreement” means that certain Subordination Agreement dated May 20, 2020, by and among Lender, Reeg and Borrowers.
“Subordinated Loan Proceeds” means, collectively, the NC 143 Loan Proceeds and the Reeg Loan Proceeds.
“Subordinated Debt” mean, collectively, the NC 143 Debt and the Reeg Debt.
“Subordinated Debt Documents” means, collectively, the Subordinated Notes and the Subordination Agreements.
“Subordinated Notes” means, collectively, the NC 143 Note and the Reeg Note.
“Subordination Agreements” means, collectively, the NC 143 Subordination Agreement and the Reeg Subordination Agreement.
|
(b) |
Section 9.1(b) of the Loan Agreement is hereby amended and restated to read in its entirety as follows: |
|
“(b)Minimum EBITDA. Borrowers shall not permit EBITDA for the two (2) fiscal quarter period ending September 30, 2020 to be less than $25,000.”
|
(c) |
Section 10.1 of the Loan Agreement is hereby amended by (i) replacing the “.” at the end of subsection 10.1(q) with “;”, (ii) replacing the “.” at the end of subsection 10.1(r) with “; or” and (iii) adding a new subsection 10.1(s) immediately after subsection 10.1(r), which new subsection 10.1(s) shall read in its entirety as follows: |
|
-3-
SMRH:4841-2483-8588.4
“(s) The subordination provisions related to any Subordinated Debt shall for any reason be revoked or invalidated, or otherwise cease to be in full force and effect, or any Person shall contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations under the Loan Documents for any reason shall not have the priority contemplated by this Agreement or any such subordination provisions.”
ARTICLE IV
Conditions Precedent
Section 4.1 Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent, unless specifically waived in writing by Lender, upon which this Amendment shall be effective as of the Fifth Amendment Effective Date:
(a)Lender shall have received a counterpart of this Amendment duly executed by Borrowers and the Consent and Reaffirmation duly executed by Guarantors;
(b)the representations and warranties contained herein and in all other Loan Documents shall be true and correct as of the Fifth Amendment Effective Date as if made on the Fifth Amendment Effective Date;
(c)no Default or Event of Default shall have occurred and be continuing other than the Specified Default;
(d)Borrowers shall have paid all reasonable costs and expenses incurred by Lender in connection with the preparation, negotiation and execution of this Amendment and the other Loan Documents executed pursuant hereto, including, without limitation, the costs and fees of Lender’s legal counsel and such counsel’s outstanding invoices related to the preparation of the Loan Documents and amendments thereto;
(e)Fuse shall have received the Subordinated Loan Proceeds in an aggregate amount no less than $200,000; and
(f)Lender shall have received duly executed copies of each of the Subordinated Debt Documents in form and substance satisfactory to Lender.
ARTICLE V
Ratifications, Representations, Warranties, Acknowledgments and Covenants
Section 5.1 Ratifications by Borrowers. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Loan Agreement and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Loan Agreement are ratified and confirmed and shall continue in full force and effect. The Loan Agreement as amended by this Amendment shall continue to be legal, valid, binding and enforceable in accordance with its terms.
Section 5.2 Renewal and Extension of Security Interests and Liens. Each Borrower hereby
(a) renews and affirms the Liens created and granted in the Loan Documents, and (b) agrees that this Amendment shall in no manner affect or impair the Liens securing the Obligations, and that such Liens shall not in any manner be waived, the purposes of this Amendment being to modify the Loan Agreement
-4-
SMRH:4841-2483-8588.4
as herein provided, and to carry forward all Liens securing the same, which are acknowledged by such Borrower to be valid and subsisting.
Section 5.3 Representations and Warranties. Each Borrower represents and warrants to Lender that (a) the execution, delivery and performance of this Amendment and any and all Loan Documents executed and/or delivered in connection herewith have been authorized by all requisite entity action on the part of such Borrower and will not violate the organizational documents of such Borrower or any agreement to which such Borrower is a party, (b) the representations and warranties contained in the Loan Agreement and in each of the other Loan Documents are true and correct on and as of the Fifth Amendment Effective Date as though made on the Fifth Amendment Effective Date, (c) no Default or Event of Default under the Loan Agreement has occurred and is continuing other than the Specified Default, and (d) such Borrower is in full compliance with all covenants and agreements contained in the Loan Agreement, as amended hereby.
ARTICLE VI
Miscellaneous
Section 6.1 Survival of Representations and Warranties. All representations and warranties made in the Loan Agreement or any other Loan Document, including without limitation, any Loan Document furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the other Loan Documents, and no investigation by Lender or any closing shall affect such representations and warranties or the right of Lender to rely thereon.
Section 6.2 Reference to Loan Agreement. Each of the Loan Documents and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Loan Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Loan Agreement shall mean a reference to the Loan Agreement as amended hereby.
Section 6.3 Expenses of Lender. Borrowers agree to pay on demand all reasonable costs and expenses incurred by Lender directly in connection with any and all amendments, modifications, and supplements to this Amendment and the other Loan Documents executed pursuant hereto, including, without limitation, the costs and fees of Lender’s legal counsel, and all costs and expenses incurred by Lender in connection with the enforcement or preservation of any rights under the Loan Agreement, as amended hereby, or any other Loan Document, including, without limitation, the reasonable costs and fees of Lender’s legal counsel.
Section 6.4 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable.
Section 6.5 APPLICABLE LAW. THIS AMENDMENT SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS NOT INCLUDING CONFLICTS OF LAW RULES.
Section 6.6 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO EACH HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, COUNTERCLAIM, OR PROCEEDING ARISING OUT OF OR RELATED TO THIS AMENDMENT.
-5-
SMRH:4841-2483-8588.4
Section 6.7 RELEASE OF CLAIMS. TO INDUCE LENDER TO ENTER INTO THIS AMENDMENT, EACH BORROWER, AND BY GUARANTORS’ SIGNATURES TO THE CONSENT AND REAFFIRMATION, EACH GUARANTOR VOLUNTARILY, KNOWINGLY AND UNCONDITIONALLY RELEASES, ACQUITS, AND FOREVER DISCHARGES LENDER AND ITS OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, SUCCESSORS, AND ASSIGNS (COLLECTIVELY, THE “RELEASED PARTIES”), FROM ANY AND ALL LIABILITIES, CLAIMS, DEMANDS, DAMAGES, EXPENSES, ACTIONS, OR CAUSES OF ACTION OF ANY KIND OR NATURE (IF THERE BE ANY), WHETHER ABSOLUTE OR CONTINGENT, DISPUTED OR UNDISPUTED, AT LAW OR IN EQUITY, OR KNOWN OR UNKNOWN, THAT SUCH BORROWER NOW HAS OR EVER HAD AGAINST ANY OF THE RELEASED PARTIES ARISING UNDER OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY SUCH LIABILITIES, CLAIMS, DEMANDS, DAMAGES, EXPENSES, ACTIONS, OR CAUSES OF ACTION ARISING OUT OF OR RELATING TO A CLAIM OF BREACH OF CONTRACT, FRAUD, LENDER LIABILITY OR MISCONDUCT, BREACH OF FIDUCIARY DUTY, USURY, UNFAIR BARGAINING POSITION, UNCONSCIONABILITY, VIOLATION OF LAW, NEGLIGENCE, ERROR OR OMISSION IN ACCOUNTING OR CALCULATIONS, MISAPPROPRIATION OF FUNDS, TORTIOUS CONDUCT OR RECKLESS OR WILLFUL MISCONDUCT. EACH BORROWER AND EACH GUARANTOR REPRESENTS AND WARRANTS TO LENDER THAT IT HAS NOT TRANSFERRED OR ASSIGNED TO ANY PERSON ANY CLAIM THAT IT HAS EVER HAD OR CLAIMED TO HAVE AGAINST ANY RELEASED PARTY.
Section 6.8 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs, executors, and legal representatives, except that none of the parties hereto other than Lender may assign or transfer any of its rights or obligations hereunder without the prior written consent of Lender.
Section 6.9 Counterparts. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. Any signature delivered by a party by facsimile or other electronic transmission shall be deemed to be an original signature hereto.
Section 6.10 Effect of Waiver. No consent or waiver, express or implied, by Lender to or for any breach of or deviation from any covenant, condition or duty by any Borrower, shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty.
Section 6.11 Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.
Section 6.12 Conflicting Provision. If any provision of the Loan Agreement as amended hereby conflicts with any provision of any other Loan Document, the provision in the Loan Agreement shall control.
Section 6.13 ENTIRE AGREEMENT. THIS AMENDMENT, THE LOAN AGREEMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED AND DELIVERED IN CONNECTION WITH AND PURSUANT TO THIS AMENDMENT AND THE LOAN AGREEMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Signature Pages Follow]
-6-
SMRH:4841-2483-8588.4
IN WITNESS WHEREOF, the parties hereto have caused this Limited Waiver and Fifth Amendment to be duly executed and delivered as of the date first written above.
BORROWER:
By: /s/ Christopher C. Reeg
Name: Christopher C. Reeg
Title: Chief Executive Officer
BORROWER:
CPM MEDICAL CONSULTANTS, LLC
By: /s/ Christopher C. Reeg
Name: Christopher C. Reeg
Title: Chief Executive Officer
SIGNATURE PAGE TO LIMITED WANER AND FIFTII AMENDMENT TO AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
FUSE MEDICAL, INC. & CPM MEDICAL CONSULTANTS, LLC
(MAY2020)
LENDER:
ZIONS BANCORPORATION, N.A. dba AMEGY
BANK
By: /s/ Nicholas Diaz
Name: Nicholas Diaz
Title: Executive Vice President
SIGNATURE PAGE TO LIMITED WAIYER AND FIFTH AMENDMENT TO AMENDED AND RESTATED BUSINESS LOAN AGREEMENT FUSE MEDICAL, INC. & CPM MEDICAL CONSULTANTS, LLC
(MAY2020)
CONSENT AND REAFFIRMATION
Each of the undersigned guarantors acknowledges that Zions Bancorporation, N.A. dba Amegy Bank) ("Lender'') has no obligation to provide it with notice of, or to obtain its consent to, the terms of the foregoing Limited Waiver and Fifth Amendment to the Amended and Restated Business Loan Agreement (the "Amendment") . Nevertheless, each of the undersigned consents to the Amendment and other Loan Documents effected thereby, agrees to be bound thereby and confirms and agrees that, notwithstanding the effectiveness of the Amendment, each Loan Document to which the undersigned is a party is, and the obligations thereunder to which it is a party are, and shall continue to be, in full force and effect and are hereby ratified and confirmed in all respects, in each case as amended by the Amendment.
GUARANTORS:
NC 143 FAMILY HOLDINGS LP
|
|
By: |
NC 143 Family Holdings GP LLC, General Partner of NC 143 Family Holdings LP |
|
|
|
By: |
NC 143 Family Trust, Dated October 1, 2014, as last amended, Manager of NC 143 Family Holdings GP LLC |
|
By: /s/ Mark W. Brooks
Name: Mark W. Brooks
Title: Trustee of NC 143 Family Trust
By: /s/ Penelope A. Brooks
Name: Penelope A. Brooks
Title: Trustee of NC 143 Family Trust
MARK W. BROOKS
By: /s/ Mark W. Brooks
S IG NAT URH PAGE TO LIMITED WAIVER AND FIFTH AMHNDMENT TO AMHNDED AND RB STATED B USINHSS LOAN AGRHEMENT
FUSE MEDICAL, INC. & CPM MEDICAL CONSULTANTS, LLC
(MAY2020)
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
EXHIBIT 10.2
This Statement of Policy is Posted In Accordance with Regulations of the
Small Business Administration
This Organization Practices
Equal Employment Opportunity
We do not discriminate on the ground of race, color, religion, sex, age, disablity or national origin in the hiring, retention, or promotion of employees; nor in determining their rank, or the compensation or fringe benefits paid them.
This Organization Practices
Equal Treatment of Clients
We do not discriminate on the basis of race, color, religion, sex, marital status, disability, age, or national origin in services or accommodations offered or provided to our employees, clients or guests.
These policies and this notice comply with regulations of the United States Government.
Please report violations of this policy to:
Administrator
Small Business Administration Washington, D.C. 20416
In order for the public and your employees to know their rights under 13 C.F.R Parts 112, 113, and 117, Small Business Administration Regulations, and to conform with the directions of the Administrator of SBA, this poster must be displayed where it is clearly visible to employees, applicants for employment, and the public.
Failure to display the poster as required in accordance with SBA Regulations may be considered evidence of noncompliance and subject you to the penalties contained in those Regulations.
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
SBA FORM 722 (10-02) REF: SOP 9030PREVIOUS EDITIONS ARE OBSOLETE
This form was electronically produced by Finastra USA Corporation.
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
Esta Declaracion De Principios Se Publica De Acuerdo Con Los Reglamentos De La
Agencia Federal Para el Desarrollo de la Pequena Empresa
Esta Organizacion Practica
Igual Oportunidad De Empleo
No discriminamos por razon de raza, color, religion, sexo, edad, discapacidad o nacionalidad en el empleo, retencion o ascenso de personal ni en la determinacion de sus posiciones, salarios o beneficios marginales.
Esta Organizacion Practica
Igualdad En El Trato A Su Clientela
No discriminamos por razon de raza, color, religion, sexo, estado civil, edad, discapacidad o nacionalidad en los servicios o facilidades provistos para nuestros empleados, clientes o visitantes.
Estos principios y este aviso cumplen con los reglamentos del Gobierno de los Estados Unidos de America.
Favor de informar violaciones a lo aqui indicado a: Administrador
Agencia Federal Para el Desarrollo de la Pequena Empresa
Washington, D.C. 20416
A fin de que el publico y sus empleados conozcan sus derechos segun lo expresado en las Secciones 112 , 113 y 117 del Codigo de Regulaciaones Federales No. 13, de los Reglamentos de la Agencia Federal Para el Desarrollo de la Pequena Empresa y de acuerdo con las instrucciones del Administrador de dicha agencia, esta notificacion debe fijarse en un lugar claramente visible para los empleados, solicitantes de empleo y publico en general. No fijar esta notificacion segun lo requerido por los reglamentos de la Agencia Federal Para el Desarrollo de la Pequena Empresa, puede ser interpretado como evidencia de falta de cumplimiento de los mismos y conllevara la ejecucion de los castigos impuestos en estos reglamentos.
SBA FORM 722 (10-02) REF: SOP 9030PREVIOUS EDITIONS ARE OBSOLETE
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
CORPORATE RESOLUTION TO BORROW
|
Principal $361,400.00 |
Loan Date 04-11-2020 |
Maturity 04-11-2022 |
CL Transaction No ABT-3203531 |
Product SBA Paycheck Protection |
Loan Account No |
|
References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. |
|||||
|
|
Lender: |
Zions Bancorporation, N.A. dba Amegy Bank Love Field |
|
P.O. Box 27459 1717 W. Loop South
Houston, TX 77227-7459
WE, THE UNDERSIGNED, DO HEREBY CERTIFY THAT:
THE CORPORATION'S EXISTENCE. The complete and correct name of the Corporation is Fuse Medical, Inc. ("Corporation"). The Corporation is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Delaware. The Corporation is duly authorized to transact business in the State of Texas and all other states in which the Corporation is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which the Corporation is doing business. Specifically, the Corporation is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. The Corporation has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. The Corporation maintains an office at 1565 N. Central Expressway, Suite 220, Richardson, TX 75080. Unless the Corporation has designated otherwise in writing, the principal office is the office at which the Corporation keeps its books and records. The Corporation will notify Lender prior to any change in the location of the Corporation's state of organization or any change in the Corporation's name. The Corporation shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to the Corporation and the Corporation's business activities.
RESOLUTIONS ADOPTED. At a meeting of the Directors of the Corporation, or if the Corporation is a close corporation having no Board of Directors then at a meeting of the Corporation's shareholders, duly called and held on April 11, 2020, at which a quorum was present and voting, or by other duly authorized action in lieu of a meeting, the resolutions set forth in this Resolution were adopted.
OFFICER. The following named person is an officer of Fuse Medical, Inc.:
NAMESTITLESAUTHORIZEDACTUAL SIGNATURES
William E McLaughlin IIIOfficialYX(Seal)
ACTIONS AUTHORIZED. The authorized person listed above may enter into any agreements of any nature with Lender, and those agreements will bind the Corporation. Specifically, but without limitation, the authorized person is authorized, empowered, and directed to do the following for and on behalf of the Corporation:
Borrow Money. To borrow, as a cosigner or otherwise, from time to time from Lender, on such terms as may be agreed upon between the Corporation and Lender, such sum or sums of money as in his or her judgment should be borrowed, without limitation.
Execute Notes. To execute and deliver to Lender the promissory note or notes, or other evidence of the Corporation's credit accommodations, on Lender's forms, at such rates of interest and on such terms as may be agreed upon, evidencing the sums of money so borrowed or any of the Corporation's indebtedness to Lender, and also to execute and deliver to Lender one or more renewals, extensions, modifications, refinancings, consolidations, or substitutions for one or more of the notes, any portion of the notes, or any other evidence of credit accommodations.
Execute Security Documents. To execute and deliver to Lender the forms of mortgage, deed of trust, pledge agreement, hypothecation agreement, and other security agreements and financing statements which Lender may require and which shall evidence the terms and conditions under and pursuant to which such liens and encumbrances, or any of them, are given; and also to execute and deliver to Lender any other written instruments, any chattel paper, or any other collateral, of any kind or nature, which Lender may deem necessary or proper in connection with or pertaining to the giving of the liens and encumbrances.
Negotiate Items. To draw, endorse, and discount with Lender all drafts, trade acceptances, promissory notes, or other evidences of indebtedness payable to or belonging to the Corporation or in which the Corporation may have an interest, and either to receive cash for the same or to cause such proceeds to be credited to the Corporation's account with Lender, or to cause such other disposition of the proceeds derived therefrom as he or she may deem advisable.
Further Acts. In the case of lines of credit, to designate additional or alternate individuals as being authorized to request advances under such lines, and in all cases, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as the officer may in his or her discretion deem reasonably necessary or proper in order to carry into effect the provisions of this Resolution.
ASSUMED BUSINESS NAMES. The Corporation has filed or recorded all documents or filings required by law relating to all assumed business names used by the Corporation. Excluding the name of the Corporation, the following is a complete list of all assumed business names under which the Corporation does business: None.
NOTICES TO LENDER. The Corporation will promptly notify Lender in writing at Lender's address shown above (or such other addresses as Lender may designate from time to time) prior to any (A) change in the Corporation's name; (B) change in the Corporation's assumed business name(s); (C) change in the management of the Corporation; (D) change in the authorized signer(s); (E) change in the Corporation's principal office address; (F) change in the Corporation's state of organization; (G) conversion of the Corporation to a new or different type of business entity; or (H) change in any other aspect of the Corporation that directly or indirectly relates to any agreements between the Corporation and Lender. No change in the Corporation's name or state of organization will take effect until after Lender has received notice.
TREASURY MANAGEMENT SERVICES. To accept and enter into deposit account, investment, funds transfer, and other banking service and
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
product agreements including but not limited to Bank's Treasury Management Master Services Agreement (“MSA”), Acceptances of Treasury
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
CORPORATE RESOLUTION TO BORROW
Management Agreements (“Acceptances”), and “Specifications” (as defined in the MSA) for treasury management services (“Services”), including amendments and addenda to any of the foregoing; designate from time to time who is authorized to withdraw funds, initiate and approve payment orders, endorse instruments, and execute service and product agreements; appoint “Administrators” (as defined in the MSA) who are able to establish other Administrators, authorized users, security procedures, Specifications (as defined in the MSA), and other setup details for Services; (D) request Services and execute documents that Bank may request, and any amendments or renewals thereof, pertaining to the use of Services, including but not limited to designating one or more persons (which may include himself or herself) authorized to initiate, amend, cancel, confirm, or verify the authenticity of instructions to Bank for Services, whether given orally, electronically, or by facsimile instructions, and to revoke any authorization granted to any such person, as he or she deems appropriate; and otherwise give instructions and authorizations on behalf of this Company for security procedures, the Services and other banking services.
ORIGINALLY EXECUTED RESOLUTION. This paragraph shall apply only in instances when Borrower is organized by virtue of the laws of Colorado and Borrower is executing this Resolution under Colorado law. Upon request from Lender, Borrower shall deliver to Lender fully-executed notarized Resolution with original hand-written signatures (i.e., wet signatures), and Borrower’s failure to do so on or before such date shall constitute an Event of Default under the loan documents. Notwithstanding the foregoing, this Resolution may be signed and transmitted by electronic mail of a PDF document with or without a notary acknowledgment and thereafter maintained in imaged or electronic form, and that such imaged or electronic record shall be valid and effective to bind the party so signing as a paper copy bearing such party’s hand-written signature. Borrower agrees that the signatures appearing on this Resolution (whether in imaged, e-signed or other electronic format) shall be treated, for purpose of validity, enforceability and admissibility, the same as hand-written signatures.
CERTIFICATION CONCERNING OFFICERS AND RESOLUTIONS. The officer named above is duly elected, appointed, or employed by or for the Corporation, as the case may be, and occupies the position set opposite his or her respective name. This Resolution now stands of record on the books of the Corporation, is in full force and effect, and has not been modified or revoked in any manner whatsoever.
NO CORPORATE SEAL. The Corporation has no corporate seal, and therefore, no seal is affixed to this Resolution.
CONTINUING VALIDITY. Any and all acts authorized pursuant to this Resolution and performed prior to the passage of this Resolution are hereby ratified and approved. This Resolution shall be continuing, shall remain in full force and effect and Lender may rely on it until written notice of its revocation shall have been delivered to Lender and receipt acknowledged by Lender in writing at Lender's address shown above (or such addresses as Lender may designate from time to time). Any such notice shall not affect any of the Corporation's agreements or commitments in effect at the time notice is given.
IN TESTIMONY WHEREOF, we have hereunto set our hand and attest that the signature set opposite the name listed above is his or her genuine signature.
We each have read all the provisions of this Resolution, and we each personally and on behalf of the Corporation certify that all statements and representations made in this Resolution are true and correct. This Corporate Resolution to Borrow is dated April 11, 2020.
THIS RESOLUTION IS DELIVERED UNDER SEAL AND IT IS INTENDED THAT THIS RESOLUTION IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
CERTIFIED TO AND ATTESTED BY:
|
|
By: |
(Seal) Authorized Signer for Fuse Medical, Inc. |
|
NOTE: If the officer signing this Resolution is designated by the foregoing document as one of the officers authorized to act on the Corporation's behalf, it is advisable to have this Resolution signed by at least one non-authorized officer of the Corporation.
LaserPro, Ver. 19.4.0.030 Copr. Finastra USA Corporation 1997, 2020. All Rights Reserved. - DE/TX C:\COMML\CFI\LPL\C10.FC TR-236500 PR-393
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
PROMISSORY NOTE
|
Principal $361,400.00 |
Loan Date 04-11-2020 |
Maturity 04-11-2022 |
CL Transaction No ABT-3203531 |
Product SBA Paycheck Protection |
Loan Account No |
|
References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. |
|||||
|
|
Lender: |
Zions Bancorporation, N.A. dba Amegy Bank Love Field |
|
P.O. Box 27459 1717 W. Loop South
Houston, TX 77227-7459
Principal Amount: $361,400.00Interest Rate: 1.000%Date of Note: April 11, 2020
PROMISE TO PAY. Fuse Medical, Inc. ("Borrower") promises to pay to Zions Bancorporation, N.A. dba Amegy Bank ("Lender"), or order, in lawful money of the United States of America, the principal amount of Three Hundred Sixty-one Thousand Four Hundred & 00/100 Dollars ($361,400.00), together with interest on the unpaid principal balance from April 11, 2020, calculated as described in the "INTEREST CALCULATION METHOD" paragraph using an interest rate of 1.000% per annum, until maturity. The interest rate may change under the terms and conditions of the "INTEREST AFTER DEFAULT" section.
PAYMENT. Borrower will pay this loan in 18 payments of $20,338.50 each payment. Borrower's first payment is due November 11, 2020, and all subsequent payments are due on the same day of each month after that. Borrower's final payment will be due on April 11, 2022, and will be for all principal and all accrued interest not yet paid. Payments include principal and interest. Unless otherwise agreed or required by applicable law, payments will be applied to first to any accrued unpaid interest; then to principal which is currently due; then to pay any late fees; and then to further reduce the principal balance. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing.
INITIAL DEFERMENT PERIOD. No payments are due on this loan for 6 months from the date of first disbursement of this loan. Interest will continue to accrue during the deferment period.
Loan Forgiveness. Borrower may apply to Lender for forgiveness of the amount due on this loan in an amount equal to the sum of the following costs incurred by Borrower during the 8-week period beginning on the date of first disbursement of this loan:
|
|
a. |
Payroll costs |
|
|
b. |
Any payment of interest on a covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation) |
|
|
|
c. |
Any payment on a covered rent obligation |
|
|
d. |
Any covered utility payment |
The amount of loan forgiveness shall be calculated (and may be reduced) in accordance with the requirements of the Paycheck Protection Program, including the provisions of Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (P.L. 116-136). Not more than 25% of the amount forgiven can be attributable to non-payroll costs.
Maturity. This Note will mature two years from date of first disbursement of this loan.
Repayment Terms. The interest rate on this Note is one percent per year. The interest rate is fixed and will not be changed during the life of the loan.
Non-Recourse. Lender and SBA shall have no recourse against any individual shareholder, member or partner of Borrower for non-payment of the loan, except to the extent that such shareholder, member or partner uses the loan proceeds for an unauthorized purpose.
DEFAULT RATE. The Default Rate on this Agreement and the Note is equal to the lesser of (a) 18.000% per annum or (b) the maximum rate permitted by applicable law. If a default (as described in the paragraph below titled "Default") has occurred or if Borrower is in default as described below, Lender may charge interest on the Note and the Indebtedness at the Default Rate.
POST MATURITY RATE ON INSURANCE PREMIUMS. Notwithstanding any provisions to the contrary, the Post Maturity Rate on insurance premiums, which are amounts added to the principal balance of this Note due to Lender's payment of insurance premiums, will accrue based on the prematurity rate of this Note.
INITIAL DEFERMENT PERIOD. No payments are due on this loan for 6 months from the date of first disbursement of this loan. Interest will continue to accrue during the deferment period.
Loan Forgiveness. Borrower may apply to Lender for forgiveness of the amount due on this loan in an amount equal to the sum of the following costs incurred by Borrower during the 8-week period beginning on the date of first disbursement of this loan:
|
|
a. |
Payroll costs |
|
|
b. |
Any payment of interest on a covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation) |
|
|
|
c. |
Any payment on a covered rent obligation |
|
|
d. |
Any covered utility payment |
The amount of loan forgiveness shall be calculated (and may be reduced) in accordance with the requirements of the Paycheck Protection Program, including the provisions of Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (P.L. 116-136). Not more than 25% of the amount forgiven can be attributable to non-payroll costs.
Maturity. This Note will mature two years from date of first disbursement of this loan.
Repayment Terms. The interest rate on this Note is one percent per year. The interest rate is fixed and will not be changed during the life of the loan.
Non-Recourse. Lender and SBA shall have no recourse against any individual shareholder, member or partner of Borrower for non-payment of the loan, except to the extent that such shareholder, member or partner uses the loan proceeds for an unauthorized purpose.
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
PROMISSORY NOTE
(Continued)
INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/365 simple interest basis; that is, by applying the ratio of the interest rate over the number of days in a year (365 for all years, including leap years), multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Prepayment in full shall consist of payment of the remaining unpaid principal balance together with all accrued and unpaid interest and all other amounts, costs and expenses for which Borrower is responsible under this Note or any other agreement with Lender pertaining to this loan, and in no event will Borrower ever be required to pay any unearned interest. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower's making fewer payments. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: Zions Bancorporation, N.A. dba Amegy Bank, PO Box 25822 Salt Lake City, UT 84125-0822.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment.
INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the total sum due under this Note will continue to accrue interest at the interest rate under this Note.
DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note:
Payment Default. Borrower fails to make any payment when due under this Note.
Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.
Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.
Insecurity. Lender in good faith believes itself insecure.
Cure Provisions. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after Lender sends written notice to Borrower demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness, including the unpaid principal balance under this Note, all accrued unpaid interest, and all other amounts, costs and expenses for which Borrower is responsible under this Note or any other agreement with Lender pertaining to this loan, immediately due, without notice, and then Borrower will pay that amount.
WHEN FEDERAL LAW APPLIES. When SBA is the holder, this Note will be interpreted and enforced under federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.
ATTORNEYS' FEES; EXPENSES. Lender may hire an attorney to help collect this Note if Borrower does not pay, and Borrower will pay Lender's reasonable attorneys' fees. Borrower also will pay Lender all other amounts Lender actually incurs as court costs, lawful fees for filing, recording, releasing to any public office any instrument securing this Note; the reasonable cost actually expended for repossessing, storing, preparing for sale, and selling any security; and fees for noting a lien on or transferring a certificate of title to any motor vehicle offered as security for this Note, or premiums or identifiable charges received in connection with the sale of authorized insurance.
GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Texas without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Texas.
CHOICE OF VENUE. If there is a lawsuit, and if the transaction evidenced by this Note occurred in Harris County, Borrower agrees upon
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
Lender's request to submit to the jurisdiction of the courts of Harris County, State of Texas.
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
PROMISSORY NOTE
(Continued)
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the debt against any and all such accounts.
LOAN PREPAYMENT. Notwithstanding any provision in this Note to the contrary, Borrower may prepay this Note. Borrower may prepay twenty percent (20%) or less of the unpaid principal balance at any time without notice. If Borrower prepays more than twenty percent (20%) and the Loan has been sold on the secondary market, Borrower must: (a) give Lender written notice, (b) pay all accrued interest; and (c) if the prepayment is received less then 21 days from the date Lender receives the notice, pay an amount equal to 21 days interest from the date Lender receives the notice, less any interest accrued during the 21 days and paid under subparagraph (b) above. If Borrower does not prepay with 30 days from the date Lender receives the notice, Borrower must give Lender a new notice.
WAIVER OF CLAIMS. The undersigned hereby (i) represents that neither the undersigned nor any affiliate or principal of the undersigned has any defenses to or setoffs against any Indebtedness or other obligations owing by the undersigned, or by the undersigned’s affiliates or principals, to Lender or Lender’s affiliates (the "Obligations"), nor any claims against Lender or Lender’s affiliates for any matter whatsoever, related or unrelated to the Obligations, and (ii) releases Lender and Lender’s affiliates, officers, directors, employees and agents from all claims, causes of action, and costs, in law or equity, known or unknown, whether or not matured or contingent, existing as of the date hereof that the undersigned has or may have by reason of any matter of any conceivable kind or character whatsoever, related or unrelated to the Obligations, including the subject matter of this Agreement. The foregoing release does not apply, however, to claims for future performance of express contractual obligations that mature after the date hereof that are owing to the undersigned by Lender or Lender’s affiliates. As used in this paragraph, the word “undersigned” does not include Lender or any individual signing on behalf of Lender. The undersigned acknowledges that Lender has been induced to enter into or continue the Obligations by, among other things, the waivers and releases in this paragraph.
STATE SPECIFIC PROVISION. Notwithstanding the foregoing, the interest on this Note shall never exceed the maximum rate permitted by the usury laws of Texas or any pre-empting federal law, if any, applicable to this kind of loan at the time of fluctuation in said interest rate.
The undersigned hereby waives presentment, demand, protest or notice of nonpayment and intent to accelerate this Note and/or demand for payment of past due installments as a condition precedent to acceleration.
ELECTRONIC DELIVERY OF DOCUMENTS. (a) The provisions of this section shall be applicable in the event that Borrower delivers any financial statements of Borrower, Guarantor, or any other person or entity ("Financial Statements") or any other documents or information regarding Borrower or any other person or entity to Lender pursuant to this Note, collectively, the ("Financial Information") in electronic form (by "email").
(b)The Financial Information delivered in electronic form shall, for all purposes, be the same as if, and shall have the same validity, force and effect as if, such Financial Information had been delivered in paper or other tangible form. Each item of Financial Information delivered in electronic form shall be deemed to have been originally signed by Borrower for all purposes (including all purposes and interpretations of federal and state law), whether or not there is an electronic name or signature of Borrower thereon, and Borrower waives any right it may have to claim that the electronic documents are not original documents or valid documents.
(c)Borrower shall deliver Financial Information to Lender in, and only in, a format that Lender may both retain in its own records (i.e. save as a file on its own system) and print. In the event that at any time, under the electronic format then currently used by Lender, Lender is unable to save or print Financial Information delivered in electronic form, Borrower shall no longer be permitted to deliver Financial Information in electronic form.
(d)This section constitutes an agreement between the parties to conduct transactions by electronic means pursuant the Texas Uniform Electronic Transactions Act, Chapter 43, Texas Business & Commerce Code (the "Act"), and the provisions of the Act shall be applicable to the delivery of Financial Information by Borrower to Lender in electronic form.
DOCUMENT IMAGING. Lender shall be entitled, in its sole discretion, to image or make copies of all or any selection of the agreements, instruments, documents, and items and records governing, arising from or relating to any of Borrower's loans, including, without limitation, this document and the Related Documents, and Lender may destroy or archive the paper originals. The parties hereto (i) waive any right to insist or require that Lender produce paper originals, (ii) agree that such images shall be accorded the same force and effect as the paper originals, (iii) agree that Lender is entitled to use such images in lieu of destroyed or archived originals for any purpose, including as admissible evidence in any demand, presentment or other proceedings, and (iv) further agree that any executed facsimile (faxed), scanned, or other imaged copy of this document or any Related Document shall be deemed to be of the same force and effect as the original manually executed document.
ON-LINE BANKING LOAN PAYMENTS. From time to time, Lender may (but shall not be required to) permit loan payments to be made through its online banking website. Lender may impose and change limitations on making online loan payments, such as minimum or maximum payment amounts, the types of accounts from which loan payments may be made, and the types of payments that may be made online (i.e., ordinary installment payments, principal-only payments, or other types of payments). Whether online payments are permitted, and Lender's applicable terms and restrictions if such payments are permitted, will be reflected in the features available online when a user logs into the online banking website.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights in this paragraph.
NOTICE OF FINAL AGREEMENT. THIS DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO THIS LOAN CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THIS LOAN.
REPORTING NEGATIVE INFORMATION. We (Lender) may report information about your (Borrower's) account to credit bureaus. Late payments, missed payments, or other defaults on your account may be reflected in your credit report.
ON-LINE BANKING - ADVANCES. From time to time, Lender may (but shall not be required to) permit advances to be requested or drawn through its online banking website. Lender may impose and change limitations on online advance requests, such as minimum or maximum advance dollar amounts, and the types of accounts into which advances may be transferred. Whether online advances are permitted, and Lender's applicable terms and restrictions if such advances are permitted, will be reflected in the features available online when a user logs into the online banking website.
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
DISPUTE RESOLUTION PROVISION. This Dispute Resolution Provision contains a jury waiver, a class action waiver, and an arbitration clause (or
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
PROMISSORY NOTE
(Continued)
judicial reference agreement, as applicable), set out in four Sections. READ IT CAREFULLY.
This dispute resolution provision shall supersede and replace any prior "Jury Waiver," "Judicial Reference," "Class Action Waiver," "Arbitration," "Dispute Resolution," or similar alternative dispute agreement or provision between or among the parties.
Notwithstanding anything to the contrary herein, the parties acknowledge and agree that the Dispute Resolution Provision contained herein is not enforceable at any time that the SBA is the holder of the Promissory Note which evidences the Loan.
SECTION 1. GENERAL PROVISIONS GOVERNING ALL DISPUTES.
1.1PRIOR DISPUTE RESOLUTION AGREEMENTS SUPERSEDED. This Dispute Resolution Provision shall supersede and replace any prior “Jury Waiver,” “Judicial Reference,” “Class Action Waiver,” “Arbitration,” “Dispute Resolution,” or similar alternative dispute agreement or provision between or among the parties.
1.2“DISPUTE” defined. As used herein, the word “Dispute” includes, without limitation, any claim by either party against the other party related to this Agreement, any Related Document, and the Loan evidenced hereby. In addition, “Dispute” also includes any claim by either party against the other party regarding any other agreement or business relationship between any of them, whether or not related to the Loan or other subject matter of this Agreement. “Dispute” includes, but is not limited to, matters arising from or relating to a deposit account, an application for or denial of credit, warranties and representations made by a party, the adequacy of a party’s disclosures, enforcement of any and all of the obligations a party hereto may have to another party, compliance with applicable laws and/or regulations, performance or services provided under any agreement by a party, including without limitation disputes based on or arising from any alleged tort or matters involving the employees, officers, agents, affiliates, or assigns of a party hereto.
If a third party is a party to a Dispute (such as a credit reporting agency, merchant accepting a credit card, junior lienholder or title company), each party hereto agrees to consent to including that third party in any arbitration or judicial reference proceeding for resolving the Dispute with that party.
1.3Jury Trial Waiver. Each party waives their respective rights to a trial before a jury in connection with any Dispute, and all Disputes shall be resolved by a judge sitting without a jury. If a court determines that this jury trial waiver is not enforceable for any reason, then at any time prior to trial of the Dispute, but not later than 30 days after entry of the order determining this provision is unenforceable, any party shall be entitled to move the court for an order, as applicable: (A) compelling arbitration and staying or dismissing such litigation pending arbitration (“Arbitration Order”) under Section 2 hereof, or (B) staying such litigation and compelling judicial reference under Section 3 hereof.
1.4CLASS ACTION WAIVER. If permitted by applicable law, each party waives the right to litigate in court or an arbitration proceeding any Dispute as a class action, either as a member of a class or as a representative, or to act as a private attorney general.
1.5SURVIVAL. This Dispute Resolution Provision shall survive any termination, amendment or expiration of this Agreement, or any other relationship between the parties.
SECTION 2. Arbitration IF JURY WAIVER UNENFORCEABLE (EXCEPT CALIFORNIA). If (but only if) a state or federal court located outside the state of California determines for any reason that the jury trial waiver in this Dispute Resolution Provision is not enforceable with respect to a Dispute, then any party hereto may require that said Dispute be resolved by binding arbitration pursuant to this Section 2 before a single arbitrator. An arbitrator shall have no authority to determine matters (i) regarding the validity, enforceability, meaning, or scope of this Dispute Resolution Provision, or (ii) class action claims brought by either party as a class representative on behalf of others and claims by a class representative on either party’s behalf as a class member, which matters may be determined only by a court without a jury. By agreeing to arbitrate a Dispute, each party gives up any right that party may have to a jury trial, as well as other rights that party would have in court that are not available or are more limited in arbitration, such as the rights to discovery and to appeal.
Arbitration shall be commenced by filing a petition with, and in accordance with the applicable arbitration rules of, National Arbitration Forum (“NAF”) or Judicial Arbitration and Mediation Service, Inc. (“JAMS”) (“Administrator”) as selected by the initiating party. However, if the parties agree, arbitration may be commenced by appointment of a licensed attorney who is selected by the parties and who agrees to conduct the arbitration without an Administrator. If NAF and JAMS both decline to administer arbitration of the Dispute, and if the parties are unable to mutually agree upon a licensed attorney to act as arbitrator with an Administrator, then either party may file a lawsuit (in a court of appropriate venue outside the state of California) and move for an Arbitration Order. The arbitrator, howsoever appointed, shall have expertise in the subject matter of the Dispute. Venue for the arbitration proceeding shall be at a location determined by mutual agreement of the parties or, if no agreement, in the city and state where Lender or Bank is headquartered. The arbitrator shall apply the law of the state specified in the agreement giving rise to the Dispute.
After entry of an Arbitration Order, the non-moving party shall commence arbitration. The moving party shall, at its discretion, also be entitled to commence arbitration but is under no obligation to do so, and the moving party shall not in any way be adversely prejudiced by electing not to commence arbitration. The arbitrator: (i) will hear and rule on appropriate dispositive motions for judgment on the pleadings, for failure to state a claim, or for full or partial summary judgment; (ii) will render a decision and any award applying applicable law; (iii) will give effect to any limitations period in determining any Dispute or defense; (iv) shall enforce the doctrines of compulsory counterclaim, res judicata, and collateral estoppel, if applicable; (v) with regard to motions and the arbitration hearing, shall apply rules of evidence governing civil cases; and (vi) will apply the law of the state specified in the agreement giving rise to the Dispute. Filing of a petition for arbitration shall not prevent any party from (i) seeking and obtaining from a court of competent jurisdiction (notwithstanding ongoing arbitration) provisional or ancillary remedies including but not limited to injunctive relief, property preservation orders, foreclosure, eviction, attachment, replevin, garnishment, and/or the appointment of a receiver, (ii) pursuing non-judicial foreclosure, or (iii) availing itself of any self-help remedies such as setoff and repossession. The exercise of such rights shall not constitute a waiver of the right to submit any Dispute to arbitration.
Judgment upon an arbitration award may be entered in any court having jurisdiction except that, if the arbitration award exceeds $4,000,000, any party shall be entitled to a de novo appeal of the award before a panel of three arbitrators. To allow for such appeal, if the award (including Administrator, arbitrator, and attorney’s fees and costs) exceeds $4,000,000, the arbitrator will issue a written, reasoned decision supporting the award, including a statement of authority and its application to the Dispute. A request for de novo appeal must be filed with the arbitrator within 30 days following the date of the arbitration award; if such a request is not made within that time period, the arbitration decision shall become final and binding. On appeal, the arbitrators shall review the award de novo, meaning that they shall reach their own findings of fact and conclusions of law rather than deferring in any manner to the original arbitrator. Appeal of an arbitration award shall be pursuant to the rules of the Administrator or, if the Administrator has no such rules, then the JAMS arbitration appellate rules shall apply.
Arbitration under this provision concerns a transaction involving interstate commerce and shall be governed by the Federal Arbitration Act, 9
U.S.C. § 1 et seq. If the terms of this Section 2 vary from the Administrator’s rules, this Section 2 shall control.
SECTION 3. JUDICIAL REFERENCE IF JURY WAIVER UNENFORCEABLE (CALIFORNIA ONLY). If (but only if) a Dispute is filed in a state or federal court located within the state of California, and said court determines for any reason that the jury trial waiver in this Dispute Resolution
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
Provision is not enforceable with respect to that Dispute, then any party hereto may require that Dispute be resolved by judicial reference in
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
PROMISSORY NOTE
(Continued)
accordance with California Code of Civil Procedure, Sections 638, et seq., including without limitation whether the Dispute is subject to a judicial reference proceeding. By agreeing to resolve Disputes by judicial reference, each party is giving up any right that party may have to a jury trial. The referee shall be a retired judge, agreed upon by the parties, from either the American Arbitration Association (AAA) or Judicial Arbitration and Mediation Service, Inc. (JAMS). If the parties cannot agree on the referee, the party who initially selected the reference procedure shall request a panel of ten retired judges from either AAA or JAMS, and the court shall select the referee from that panel. (If AAA and JAMS are unavailable to provide this service, the court may select a referee by such other procedures as are used by that court.) The referee shall be appointed to sit with all of the powers provided by law, including the power to hear and determine any or all of the issues in the proceeding, whether of fact or of law, and to report a statement of decision. The parties agree that time is of the essence in conducting the judicial reference proceeding set forth herein. The costs of the judicial reference proceeding, including the fee for the court reporter, shall be borne equally by the parties as the costs are incurred, unless otherwise awarded by the referee. The referee shall hear all pre-trial and post-trial matters (including without limitation requests for equitable relief), prepare a statement of decision with written findings of fact and conclusions of law, and apportion costs as appropriate. The referee shall be empowered to enter equitable relief as well as legal relief, provide all temporary or provisional remedies, enter equitable orders that are binding on the parties and rule on any motion that would be authorized in a trial, including without limitation motions for summary adjudication. Only for this Section 3, “Dispute” includes matters regarding the validity, enforceability, meaning, or scope of this Section, and (ii) class action claims brought by either party as a class representative on behalf of others and claims by a class representative on either party’s behalf as a class member. Judgment upon the award shall be entered in the court in which such proceeding was commenced and all parties shall have full rights of appeal. This provision will not be deemed to limit or constrain Bank or Lender’s right of offset, to obtain provisional or ancillary remedies, to interplead funds in the event of a dispute, to exercise any security interest or lien Bank or Lender may hold in property or to comply with legal process involving accounts or other property held by Bank or Lender.
Nothing herein shall preclude a party from moving (prior to the court ordering judicial reference) to dismiss, stay or transfer the suit to a forum outside California on grounds that California is an improper, inconvenient or less suitable venue. If such motion is granted, this Section 3 shall not apply to any proceedings in the new forum.
This Section 3 may be invoked only with regard to Disputes filed in state or federal courts located in the State of California. In no event shall the provisions in this Section 3 diminish the force or effect of any venue selection or jurisdiction provision in this Agreement or any Related Document.
SECTION 4. Reliance. Each party (i) certifies that no one has represented to such party that the other party would not seek to enforce a jury waiver, class action waiver, arbitration provision or judicial reference provision in the event of suit, and (ii) acknowledges that it and the other party have been induced to enter into this Agreement by, among other things, material reliance upon the mutual waivers, agreements, and certifications in the four Sections of this DISPUTE RESOLUTION PROVISION.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.
GENERAL PROVISIONS. NOTICE: Under no circumstances (and notwithstanding any other provisions of this Note) shall the interest charged, collected, or contracted for on this Note exceed the maximum rate permitted by law. The term "maximum rate permitted by law" as used in this Note means the greater of (a) the maximum rate of interest permitted under federal or other law applicable to the indebtedness evidenced by this Note, or (b) the higher, as of the date of this Note, of the "Weekly Ceiling" or the "Quarterly Ceiling" as referred to in Sections 303.002,
303.003 and 303.006 of the Texas Finance Code. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Borrower does not agree or intend to pay, and Lender does not agree or intend to contract for, charge, collect, take, reserve or receive (collectively referred to herein as "charge or collect"), any amount in the nature of interest or in the nature of a fee for this loan, which would in any way or event (including demand, prepayment, or acceleration) cause Lender to charge or collect more for this loan than the maximum Lender would be permitted to charge or collect by federal law or the law of the State of Texas (as applicable). Any such excess interest or unauthorized fee shall, instead of anything stated to the contrary, be applied first to reduce the principal balance of this loan, and when the principal has been paid in full, be refunded to Borrower. The right to accelerate maturity of sums due under this Note does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender does not intend to charge or collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the loan evidenced by this Note until payment in full so that the rate or amount of interest on account of the loan evidenced hereby does not exceed the applicable usury ceiling. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, notice of dishonor, notice of intent to accelerate the maturity of this Note, and notice of acceleration of the maturity of this Note. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE. BORROWER:
FUSE MEDICAL, INC.
|
|
By: |
William E McLaughlin III, Official of Fuse Medical, Inc. |
|
LaserPro, Ver. 19.4.0.030 Copr. Finastra USA Corporation 1997, 2020. All Rights Reserved. - TX C:\COMML\CFI\LPL\D20.FC TR-236500 PR-393
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
|
Principal $361,400.00 |
Loan Date 04-11-2020 |
Maturity 04-11-2022 |
CL Transaction No ABT-3203531 |
Product SBA Paycheck Protection |
Loan Account No |
|
References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. |
|||||
|
|
Lender: |
Zions Bancorporation, N.A. dba Amegy Bank Love Field |
|
P.O. Box 27459 1717 W. Loop South
Houston, TX 77227-7459
THIS BUSINESS LOAN AGREEMENT dated April 11, 2020, is made and executed between Fuse Medical, Inc. ("Borrower") and Zions Bancorporation, N.A. dba Amegy Bank ("Lender") on the following terms and conditions. Borrower has applied to Lender for a commercial loan under the SBA Paycheck Protection Program, (“SBA Paycheck Protection Program”) authorized by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (P.L. 116-136). Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements as set forth in this Agreement and any Related Documents; (B) the granting, renewing, or extending of a Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of April 11, 2020, and shall continue in full force and effect until such time as Borrower's Loan in favor of Lender has been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel.
Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require.
Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:
Organization. Borrower is an entity type designated in the application for this Loan, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of organization identified in Borrower’s application for this Loan. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records. Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower's business activities.
Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower.
Authorization. Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower's articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties.
Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.
Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. The tax, payroll and other documents supplied to Lender to support the Loan amount are true and accurate.
Eligible Borrower. Borrower is an eligible recipient of this Loan under the SBA Paycheck Protection Program of the CARES Act. Borrower certifies that the Average Monthly Payroll amount set forth in Borrower’s application made in connection with this Loan is true and correct. Borrower further certifies that Borrower is entitled to receive the amount of the Loan pursuant to the terms and conditions of the SBA Paycheck Protection Program. Borrower acknowledges and agrees that all rules and regulations applicable to the SBA Paycheck Protection Program, as such may be amended, apply to the Loan. Borrower agrees to deliver all certifications, documents, information and agreement the SBA or Lender may require in connection with the Paycheck Protection Program. Borrower understands that Lender is relying on Borrower’s certifications made in connection with this Loan and Borrower’s determination that Borrower is eligible to receive this Loan. Lender assumes no responsibility for determining Borrower’s eligibility or the loan amount. If it is later determined that Borrower is ineligible to receive this Loan or
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
Borrower is not entitled to receive the loan amount, Borrower and its owners may be subject to penalties under the SBA Paycheck Protection
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
BUSINESS LOAN AGREEMENT
(Continued)
Program. Borrower and its owners agree to hold Lender harmless for any certification made by Borrower or an owner in connection with this Loan that is determined to be incorrect or for any remedial action taken as a result of such certifications that are incorrect.
Binding Effect. This Agreement, the Note, and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:
Notices of Claims and Litigation. Promptly inform Lender in writing of (1)all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower which could materially affect the financial condition of Borrower.
Financial Records. Maintain its books and records in accordance with GAAP or other accounting method acceptable to Lender, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times.
Additional Information. Furnish such additional information and statements, as Lender may request from time to time.
Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender.
Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for permitted uses under the CARES Act for Borrower's business operations, unless specifically consented to the contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (1) the legality of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower shall have established on Borrower's books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.
Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement.
Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.
Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest.
Inspection. Permit employees or agents of Lender at any reasonable time to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense.
Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory notes, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.
Financial Statements. Furnish Lender with such financial statements and any and all other information or documentation related thereto at such frequencies and in such detail as Lender may reasonably request.
Tax Returns. Furnish Lender with such tax returns, or extensions thereof, and any and all other information or documentation related thereto at such frequencies and in such detail as Lender may reasonably request.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law, rule, regulation, guideline, or generally accepted accounting principle, or the interpretation or application of any thereof by any court, administrative or governmental authority, or standard-setting organization (including any request or policy not having the force of law) shall impose, modify or make applicable any taxes (except federal, state or local income or franchise taxes imposed on Lender), reserve requirements, capital adequacy requirements or other obligations which would (A) increase the cost to Lender for extending or maintaining the credit facilities to which this Agreement relates, (B) reduce the amounts payable to Lender under this Agreement or the Related Documents, or (C) reduce the rate of return on Lender's capital as a consequence of Lender's obligations with respect to the credit facilities to which this Agreement relates, then Borrower agrees to pay Lender such additional amounts as will compensate Lender therefor, within five (5) days after Lender's written demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive in the absence of manifest error.
LENDER'S EXPENDITURES. If Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity.
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
BUSINESS LOAN AGREEMENT
(Continued)
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:
Continuity of Operations. (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge or restructure as a legal entity (whether by division or otherwise), consolidate with or acquire any other entity, change its name, convert to another type of entity or redomesticate, or dissolve.
Agreements. Enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower's obligations under this Agreement or in connection herewith.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; or
(C) there occurs a material adverse change in Borrower's financial condition.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts.
DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Payment Default. Borrower fails to make any payment when due under the Loan.
Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired.
Right to Cure. If any default, other than a default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured if Borrower or Grantor, as the case may be, after Lender sends written notice to Borrower or Grantor, as the case may be, demanding cure of such default: (1) cure the default within the time set forth in the Note; or (2) if the cure requires more than the time to cure a default set forth in the Note, immediately initiate steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies.
DISPUTE RESOLUTION PROVISION. This Dispute Resolution Provision contains a jury waiver, a class action waiver, and an arbitration clause (or judicial reference agreement, as applicable), set out in four Sections. READ IT CAREFULLY.
This dispute resolution provision shall supersede and replace any prior "Jury Waiver," "Judicial Reference," "Class Action Waiver," "Arbitration," "Dispute Resolution," or similar alternative dispute agreement or provision between or among the parties.
Notwithstanding anything to the contrary herein, the parties acknowledge and agree that the Dispute Resolution Provision contained herein is not enforceable at any time that the SBA is the holder of the Promissory Note which evidences the Loan.
SECTION 1. GENERAL PROVISIONS GOVERNING ALL DISPUTES.
1.1PRIOR DISPUTE RESOLUTION AGREEMENTS SUPERSEDED. This Dispute Resolution Provision shall supersede and replace any prior“Jury Waiver,”“Judicial Reference,”“Class Action Waiver,”“Arbitration,”“Dispute Resolution,”or similar alternative dispute agreement or provision between or among the parties.
1.2“DISPUTE”defined. As used herein, the word“Dispute”includes, without limitation, any claim by either party against the other party related to this Agreement, any Related Document, and the Loan evidenced hereby. In addition,“Dispute”also includes any claim by either party against the other party regarding any other agreement or business relationship between any of them, whether or not related to the Loan or other subject matter of this Agreement.“Dispute”includes, but is not limited to, matters arising from or relating to a deposit account, an application for
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
or denial of credit, warranties and representations made by a party, the adequacy of a party’s disclosures, enforcement of any and all of the
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
BUSINESS LOAN AGREEMENT
(Continued)
obligations a party hereto may have to another party, compliance with applicable laws and/or regulations, performance or services provided under any agreement by a party, including without limitation disputes based on or arising from any alleged tort or matters involving the employees, officers, agents, affiliates, or assigns of a party hereto.
If a third party is a party to a Dispute (such as a credit reporting agency, merchant accepting a credit card, junior lienholder or title company), each party hereto agrees to consent to including that third party in any arbitration or judicial reference proceeding for resolving the Dispute with that party.
1.3Jury Trial Waiver. Each party waives their respective rights to a trial before a jury in connection with any Dispute, and all Disputes shall be resolved by a judge sitting without a jury. If a court determines that this jury trial waiver is not enforceable for any reason, then at any time prior to trial of the Dispute, but not later than 30 days after entry of the order determining this provision is unenforceable, any party shall be entitled to move the court for an order, as applicable: (A) compelling arbitration and staying or dismissing such litigation pending arbitration (“Arbitration Order”) under Section 2 hereof, or (B) staying such litigation and compelling judicial reference under Section 3 hereof.
1.4CLASS ACTION WAIVER. If permitted by applicable law,each party waives the right to litigate in court or an arbitration proceeding any Dispute as a class action, either as a member of a class or as a representative, or to act as a private attorney general.
1.5SURVIVAL. This Dispute Resolution Provision shall survive any termination, amendment or expiration of this Agreement, or any other relationship between the parties.
SECTION 2. Arbitration IF JURY WAIVER UNENFORCEABLE (EXCEPT CALIFORNIA). If (but only if) a state or federal court located outside the state of California determines for any reason that the jury trial waiver in this Dispute Resolution Provision is not enforceable with respect to a Dispute, then any party hereto may require that said Dispute be resolved by binding arbitration pursuant to this Section 2 before a single arbitrator. An arbitrator shall have no authority to determine matters (i) regarding the validity, enforceability, meaning, or scope of this Dispute Resolution Provision, or (ii) class action claims brought by either party as a class representative on behalf of others and claims by a class representative on either party’s behalf as a class member, which matters may be determined only by a court without a jury. By agreeing to arbitrate a Dispute, each party gives up any right that party may have to a jury trial, as well as other rights that party would have in court that are not available or are more limited in arbitration, such as the rights to discovery and to appeal.
Arbitration shall be commenced by filing a petition with, and in accordance with the applicable arbitration rules of, National Arbitration Forum (“NAF”) or Judicial Arbitration and Mediation Service, Inc. (“JAMS”) (“Administrator”) as selected by the initiating party. However, if the parties agree, arbitration may be commenced by appointment of a licensed attorney who is selected by the parties and who agrees to conduct the arbitration without an Administrator. If NAF and JAMS both decline to administer arbitration of the Dispute, and if the parties are unable to mutually agree upon a licensed attorney to act as arbitrator with an Administrator, then either party may file a lawsuit (in a court of appropriate venue outside the state of California) and move for an Arbitration Order. The arbitrator, howsoever appointed, shall have expertise in the subject matter of the Dispute. Venue for the arbitration proceeding shall be at a location determined by mutual agreement of the parties or, if no agreement, in the city and state where Lender or Bank is headquartered. The arbitrator shall apply the law of the state specified in the agreement giving rise to the Dispute.
After entry of an Arbitration Order, the non-moving party shall commence arbitration. The moving party shall, at its discretion, also be entitled to commence arbitration but is under no obligation to do so, and the moving party shall not in any way be adversely prejudiced by electing not to commence arbitration. The arbitrator: (i) will hear and rule on appropriate dispositive motions for judgment on the pleadings, for failure to state a claim, or for full or partial summary judgment; (ii) will render a decision and any award applying applicable law; (iii) will give effect to any limitations period in determining any Dispute or defense; (iv) shall enforce the doctrines of compulsory counterclaim, res judicata, and collateral estoppel, if applicable; (v) with regard to motions and the arbitration hearing, shall apply rules of evidence governing civil cases; and (vi) will apply the law of the state specified in the agreement giving rise to the Dispute. Filing of a petition for arbitration shall not prevent any party from (i) seeking and obtaining from a court of competent jurisdiction (notwithstanding ongoing arbitration) provisional or ancillary remedies including but not limited to injunctive relief, property preservation orders, foreclosure, eviction, attachment, replevin, garnishment, and/or the appointment of a receiver, (ii) pursuing non-judicial foreclosure, or (iii) availing itself of any self-help remedies such as setoff and repossession. The exercise of such rights shall not constitute a waiver of the right to submit any Dispute to arbitration.
Judgment upon an arbitration award may be entered in any court having jurisdiction except that, if the arbitration award exceeds $4,000,000, any party shall be entitled to a de novo appeal of the award before a panel of three arbitrators. To allow for such appeal, if the award (including Administrator, arbitrator, and attorney’s fees and costs) exceeds $4,000,000, the arbitrator will issue a written, reasoned decision supporting the award, including a statement of authority and its application to the Dispute. A request for de novo appeal must be filed with the arbitrator within 30 days following the date of the arbitration award; if such a request is not made within that time period, the arbitration decision shall become final and binding. On appeal, the arbitrators shall review the award de novo, meaning that they shall reach their own findings of fact and conclusions of law rather than deferring in any manner to the original arbitrator. Appeal of an arbitration award shall be pursuant to the rules of the Administrator or, if the Administrator has no such rules, then the JAMS arbitration appellate rules shall apply.
Arbitration under this provision concerns a transaction involving interstate commerce and shall be governed by the Federal Arbitration Act, 9
U.S.C. § 1 et seq. If the terms of this Section 2 vary from the Administrator’s rules, this Section 2 shall control.
SECTION 3. JUDICIAL REFERENCE IF JURY WAIVER UNENFORCEABLE (CALIFORNIA ONLY). If (but only if) a Dispute is filed in a state or federal court located within the state of California, and said court determines for any reason that the jury trial waiver in this Dispute Resolution Provision is not enforceable with respect to that Dispute, then any party hereto may require that Dispute be resolved by judicial reference in accordance with California Code of Civil Procedure, Sections 638, et seq., including without limitation whether the Dispute is subject to a judicial reference proceeding. By agreeing to resolve Disputes by judicial reference, each party is giving up any right that party may have to a jury trial. The referee shall be a retired judge, agreed upon by the parties, from either the American Arbitration Association (AAA) or Judicial Arbitration and Mediation Service, Inc. (JAMS). If the parties cannot agree on the referee, the party who initially selected the reference procedure shall request a panel of ten retired judges from either AAA or JAMS, and the court shall select the referee from that panel. (If AAA and JAMS are unavailable to provide this service, the court may select a referee by such other procedures as are used by that court.) The referee shall be appointed to sit with all of the powers provided by law, including the power to hear and determine any or all of the issues in the proceeding, whether of fact or of law, and to report a statement of decision. The parties agree that time is of the essence in conducting the judicial reference proceeding set forth herein. The costs of the judicial reference proceeding, including the fee for the court reporter, shall be borne equally by the parties as the costs are incurred, unless otherwise awarded by the referee. The referee shall hear all pre-trial and post-trial matters (including without limitation requests for equitable relief), prepare a statement of decision with written findings of fact and conclusions of law, and apportion costs as appropriate. The referee shall be empowered to enter equitable relief as well as legal relief, provide all temporary or provisional remedies, enter equitable orders that are binding on the parties and rule on any motion that would be authorized in a trial, including without limitation motions for summary adjudication. Only for this Section 3, “Dispute” includes matters regarding the validity, enforceability, meaning, or scope of this Section, and (ii) class action claims brought by either party as a class representative on behalf of others and claims by a class representative on either party’s behalf as a class member. Judgment upon the award shall be entered in the court in
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
which such proceeding was commenced and all parties shall have full rights of appeal. This provision will not be deemed to limit or constrain
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
BUSINESS LOAN AGREEMENT
(Continued)
Bank or Lender’s right of offset, to obtain provisional or ancillary remedies, to interplead funds in the event of a dispute, to exercise any security interest or lien Bank or Lender may hold in property or to comply with legal process involving accounts or other property held by Bank or Lender.
Nothing herein shall preclude a party from moving (prior to the court ordering judicial reference) to dismiss, stay or transfer the suit to a forum outside California on grounds that California is an improper, inconvenient or less suitable venue. If such motion is granted, this Section 3 shall not apply to any proceedings in the new forum.
This Section 3 may be invoked only with regard to Disputes filed in state or federal courts located in the State of California. In no event shall the provisions in this Section 3 diminish the force or effect of any venue selection or jurisdiction provision in this Agreement or any Related Document.
SECTION 4. Reliance. Each party (i) certifies that no one has represented to such party that the other party would not seek to enforce a jury waiver, class action waiver, arbitration provision or judicial reference provision in the event of suit, and (ii) acknowledges that it and the other party have been induced to enter into this Agreement by, among other things, material reliance upon the mutual waivers, agreements, and certifications in the four Sections of this DISPUTE RESOLUTION PROVISION.
SCOPE OF AGREEMENT. Except as provided in the Section of this Agreement entitled "Dispute Resolution" (including the jury waiver, arbitration, and class action waiver provisions), this Agreement shall not be interpreted to supersede or amend any other credit agreement between Borrower and Lender.
MULTIPLE LOAN AGREEMENTS (INDEPENDENT LOAN AGREEMENTS). Borrower and Lender acknowledge that Borrower may have more than one outstanding loan with Lender, and may be granted additional loans by Lender in the future. Borrower and Lender agree that (a) the loan agreement executed in connection with each loan shall govern that particular loan; (b) execution or amendment of a loan agreement for one loan shall not be interpreted to supersede or amend any loan agreement previously executed in connection with another loan; and (c) any present or future loan for which no separate loan agreement is executed shall always be governed by the most recently executed loan agreement then outstanding between Borrower and Lender, whether executed before or after the granting of said loan. This section shall not diminish any cross-default term in any loan agreement, promissory note or related loan document. (This section supersedes any contrary provision in this Agreement.)
Notwithstanding the preceding paragraph of this section, every loan agreement between Borrower and Lender (together with all related loan documents associated therewith) shall be deemed amended to adopt the dispute resolution provisions that are now or hereafter set forth in the most recently executed loan agreement. In this paragraph, "dispute resolution provision" includes any provision, or omission thereof, in the nature of a class action waiver, a jury trial waiver, or alternative dispute resolution term (such as resolution by arbitration or judicial reference).
REPLACEMENT DEFINITION OF "LOAN". The definition of "Loan" in the Definitions section of this Agreement is hereby deleted. The word "Loan", when capitalized, shall have the following meaning:
|
|
(a) |
the Note (if any) identified in the Definitions section of this Agreement, |
(b)any other present or future promissory note or credit agreement that is identified in that instrument or in this Agreement as being subject to this Business Loan Agreement;
|
|
(c) |
the specific loan or other financial accommodation now or hereafter made by Lender to Borrower in consideration of, among other things, |
Borrower executing this Business Loan Agreement
(d)any other present or future promissory note or credit agreement that is made subject to this Business Loan Agreement pursuant to the section herein entitled "Multiple Loan Agreements (independent loan agreements)"; and
|
|
(e) |
the Borrower’s liabilities and obligations arising under the Related Documents associated with any of the foregoing. |
UNLAWFUL USE MARIJUANA, CONTROLLED SUBSTANCES AND PROHIBITED ACTIVITIES. The undersigned shall not use, occupy, or permit the use or occupancy of any Property or Collateral by the undersigned or any lessee, tenant, licensee, permitee, agent, or any other person in any manner that would be a violation of any applicable federal, state or local law or regulation, regardless of whether such use or occupancy is lawful under any conflicting law, including without limitation any law relating to the use, sale, possession, cultivation, manufacture, distribution or marketing of any controlled substances or other contraband (whether for commercial, medical, or personal purposes), or any law relating to the use or distribution of marijuana (collectively, "Prohibited Activities"). Any lease, license, sublease or other agreement for use, occupancy or possession of any Property or Collateral (collectively a "lease") with any third person ("lessee") shall expressly prohibit the lessee from engaging or permitting others to engage in any Prohibited Activities. The undersigned shall upon demand provide Lender with a written statement setting forth its compliance with this section and stating whether any Prohibited Activities are or may be occurring in, on or around the Property or Collateral. If the undersigned becomes aware that any lessee is likely engaged in any Prohibited Activities, The undersigned shall, in compliance with applicable law, terminate the applicable lease and take all actions permitted by law to discontinue such activities. The undersigned shall keep Lender fully advised of its actions and plans to comply with this section and to prevent Prohibited Activities.
This section is a material consideration and inducement upon which Lender relies in extending credit and other financial accommodations to the undersigned. Failure by the undersigned to comply with this section shall constitute a material non-curable Event of Default. Notwithstanding anything in this agreement, the Note or Related Documents regarding rights to cure Events of Default, Lender is entitled upon breach of this section to immediately exercise any and all remedies under this agreement, the Note the Related Documents, and by law.
In addition and not by way of limitation, the undersigned shall indemnify, defend and hold Lender harmless from and against any loss, claim, damage, liability, fine, penalty, cost or expense (including attorneys' fees and expenses) arising from, out of or related to any Prohibited Activities at or on the Property or Collateral, Prohibited Activities by the undersigned or any lessee of the Property or Collateral, or the undersigned’s breach, violation, or failure to enforce or comply with any of the covenants set forth in this section. This indemnity includes, without limitation any claim by any governmental entity or agency, any lessee, or any third person, including any governmental action for seizure or forfeiture of any Property or Collateral (with or without compensation to Lender, and whether or not Property or Collateral is taken free of or subject to Lender’s lien or security interest). As used in this section, the word "undersigned" does not include Lender or any individual signing on behalf of Lender.
COMPLIANCE CERTIFICATES. At such intervals and in such format as Lender may designate from time to time, Borrower shall provide Lender with written certification by Borrower and its attesting principal financial or accounting officer: that all of Borrower’s representations and warranties under this Agreement continue to be true, accurate and complete in all material respects; that Borrower is in compliance with all of its affirmative covenants, negative covenants, financial covenants, reporting covenants, and other covenants in this Agreement; that the information in all financial statements Borrower has submitted to Lender, and the computations provided with Borrower’s current and prior certificates accurately represent Borrower’s financial position as of the dates thereof; that Borrower’s submitted financial statements were prepared in accordance with generally accepted accounting principles (except as otherwise disclosed therein); that no event has occurred and no condition exists that constitutes (or with the passage of time and giving of any necessary notice would constitute) an Event of Default under this Agreement.
CREATION OF TRUSTS, AND TRANSFERS TO TRUSTS. This paragraph shall apply in instances where this Agreement is governed by Utah law.
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
Neither Borrower nor any Guarantor shall create as settlor any trust, or transfer any assets into any trust, without giving written notice to
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
BUSINESS LOAN AGREEMENT
(Continued)
Lender at least ninety (90) days prior to such creation or transfer. That notice shall describe in reasonable detail the trust to be created and/or the asset transfer to be made. Failure by any such settlor to provide that notice shall be an event of default under this instrument and the Loan.
Neither Borrower nor any Guarantor shall create as settlor any actual or purported spendthrift trust, asset protection trust or any other trust intended by its terms or purpose (or having the effect) to protect assets from creditors or to limit the rights of existing or future creditors (an “Asset Protection Trust”) without the prior written consent of Lender. Lender may withhold that consent in its sole discretion. Creation of any Asset Protection Trust, and each transfer of assets thereto, by any such settlor without Lender’s prior written consent:
|
|
(a) |
shall be an event of default under this instrument and the Loan, |
(b)shall have the effect of, and shall be deemed as a matter of law, regardless of that settlor’s solvency, of having been made by that settlor with the actual intent of hindering and delaying and defrauding Lender as that settlor’s creditor, and
|
|
(c) |
shall constitute a fraudulent transfer that is unenforceable and void (not merely voidable) as against Lender. |
With respect to each such fraudulent transfer, Lender shall have all the rights and remedies provided by state fraudulent transfer laws, or otherwise provided at law or equity. Lender shall have the right to obtain an ex parte court order directing the trustee of the Asset Protection Trust to give Lender written notice a reasonable time (of no less than ten business days) prior to making any distribution from said trust. Nothing in this paragraph shall limit or affect any rights or remedies otherwise provided to Lender by law, equity or any contract.
DOCUMENT IMAGING. Lender shall be entitled, in its sole discretion, to image or make copies of all or any selection of the agreements, instruments, documents, and items and records governing, arising from or relating to any of Borrower's loans, including, without limitation, this document and the Related Documents, and Lender may destroy or archive the paper originals. The parties hereto (i) waive any right to insist or require that Lender produce paper originals, (ii) agree that such images shall be accorded the same force and effect as the paper originals, (iii) agree that Lender is entitled to use such images in lieu of destroyed or archived originals for any purpose, including as admissible evidence in any demand, presentment or other proceedings, and (iv) further agree that any executed facsimile (faxed), scanned, or other imaged copy of this document or any Related Document shall be deemed to be of the same force and effect as the original manually executed document.
ADDITIONAL BORROWER CERTIFICATIONS AND AGREEMENTS. Borrower certifies that (a) Borrower has received a copy of the Authorization;
(b) Borrower acknowledges that if Borrower defaults on the loan, SBA may be required to pay Lender under the SBA guarantees, and SBA may then seek recovery on the loan (to the extent any balance remains after loan forgiveness); (c) Borrower will keep books and records in a manner satisfactory to Lender, furnish financial statements as requested by Lender, and allow Lender and SBA to inspect and audit books, records and papers relating to Borrower’s financial or business condition; and (d) Borrower will not, without Lender’s consent, change its ownership structure, make any distribution of company assets that would adversely affect its financial condition, or transfer (including pledging) or dispose of any assets, except in the ordinary course of business.
WAIVER OF DEFENSES AND RELEASE OF CLAIMS. The undersigned hereby (i) represents that neither the undersigned nor any affiliate or principal of the undersigned has any defenses to or setoffs against any Indebtedness or other obligations owing by the undersigned, or by the undersigned’s affiliates or principals, to Lender or Lender’s affiliates (the "Obligations"), nor any claims against Lender or Lender’s affiliates for any matter whatsoever, related or unrelated to the Obligations, and (ii) releases Lender and Lender’s affiliates, officers, directors, employees and agents from all claims, causes of action, and costs, in law or equity, known or unknown, whether or not matured or contingent, existing as of the date hereof that the undersigned has or may have by reason of any matter of any conceivable kind or character whatsoever, related or unrelated to the Obligations, including the subject matter of this Agreement. The foregoing release does not apply, however, to claims for future performance of express contractual obligations that mature after the date hereof that are owing to the undersigned by Lender or Lender’s affiliates. As used in this paragraph, the word “undersigned” does not include Lender or any individual signing on behalf of Lender. The undersigned acknowledges that Lender has been induced to enter into or continue the Obligations by, among other things, the waivers and releases in this paragraph.
ON-LINE BANKING -- ADVANCES. From time to time, Lender may (but shall not be required to) permit advances to be requested or drawn through its online banking website. Lender may impose and change limitations on online advance requests, such as minimum or maximum advance dollar amounts, and the types of accounts into which advances may be transferred. Whether online advances are permitted, and Lender's applicable terms and restrictions if such advances are permitted, will be reflected in the features available online when a user logs into the online banking website.
ON-LINE BANKING -- LOAN PAYMENTS. From time to time, Lender may (but shall not be required to) permit loan payments to be made through its online banking website. Lender may impose and change limitations on making online loan payments, such as minimum or maximum payment amounts, the types of accounts from which loan payments may be made, and the types of payments that may be made online (i.e., ordinary installment payments, principal-only payments, or other types of payments). Whether online payments are permitted, and Lender's applicable terms and restrictions if such payments are permitted, will be reflected in the features available online when a user logs into the online banking website.
BENEFICIAL OWNERSHIP. Borrower agrees to promptly notify Lender (A) of any change in direct or indirect ownership interests in the Borrower as reported in any beneficial ownership certification provided to Lender in connection with the execution of this Agreement or the Loan (the “Certification”), or (B) if the individual with significant managerial responsibility identified in the Certification ceases to have that responsibility or if the information reported about that individual changes. Borrower hereby agrees to provide such information and documentation as Lender may request during the term of the Loan to confirm or update the continued accuracy of the any information provided in connection with the foregoing.
LOAN FORGIVENESS UNDER THE PAYCHECK PROTECTION PROGRAM. Loan forgiveness of any portion of the Loan shall be subject to all requirements of the CARES Act. In order for Borrower to receive any loan forgiveness, Borrower’s request for loan forgiveness must include the following: (a) documentation verifying the number of full-time equivalent employees on payroll and pay rates for the required period, including payroll tax filings reported to the IRS and state income, payroll and unemployment insurance filings; (b) documentation, including cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments on covered mortgage obligations, payments on covered lease obligations, and covered utility payments; (c) a certification from an authorized representative of the Borrower that the documentation presented is true and correct, and the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation or make covered utility payments; and (d) any other documentation SBA determines necessary. If Borrower received an EIDL advance, the amount of the EIDL advance shall be deducted from the loan forgiveness amount.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's reasonable attorneys'
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
BUSINESS LOAN AGREEMENT
(Continued)
enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' fees and legal expenses whether or not Lender's salaried employee and whether or not there is a lawsuit, including reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.
Applicable Law. The Loan secured by this lien was made under a United States Small Business Administration (SBA) nationwide program which uses tax dollars to assist small business owners. If the United States is seeking to enforce this document, then under SBA regulations: (a) When SBA is the holder of the Note, this document and all documents evidencing or securing this Loan will be construed in accordance with federal law. (b) Lender or SBA may use local or state procedures for purposes such as filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using these procedures, SBA does not waive any federal immunity from local or state control, penalty, tax or liability. No Borrower or Guarantor may claim or assert against SBA any local or state law to deny any obligation of Borrower, or defeat any claim of SBA with respect to this Loan. (c) Any clause in this document requiring arbitration is not enforceable when SBA is the holder of the Note secured by this instrument.
No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
Notices. Unless otherwise provided by applicable law, any notice required to be given under this Agreement or required by law shall be given in writing, and shall be effective when actually delivered in accordance with the law or with this Agreement, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Unless otherwise provided by applicable law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.
Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.
Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's subsidiaries or affiliates.
Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender.
Survival of Representations and Warranties. Borrower understands and agrees that in making the Loan, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the making of the Loan and delivery to Lender of the Related Documents, shall be continuing in nature, and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.
Time is of the Essence. Time is of the essence in the performance of this Agreement.
DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:
Advance. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement.
Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
BUSINESS LOAN AGREEMENT
(Continued)
Borrower. The word "Borrower" means Fuse Medical, Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.
Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.
Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement.
GAAP. The word "GAAP" means generally accepted accounting principles.
Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.
Indebtedness. The word "Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such indebtedness may be or hereafter may become barred by any statute of limitations; and whether such indebtedness may be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means Zions Bancorporation, N.A. dba Amegy Bank, its successors and assigns.
Loan. The word "Loan" means the loans and financial accommodations from Lender to Borrower made under the SBA Paycheck Protection Program, including without limitation the loan and financial accommodations described herein.
Note. The word "Note" means the Note dated April 11, 2020 and executed by Fuse Medical, Inc. in the principal amount of $361,400.00, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.
Permitted Liens. The words "Permitted Liens" mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent;
(4) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (5) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, Paycheck Protection Program Application forms, other application forms, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.
FINAL AGREEMENT. Borrower understands that this Agreement and the related loan documents are the final expression of the agreement between Lender and Borrower and may not be contradicted by evidence of any alleged oral agreement.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED April 11, 2020.
BORROWER:
FUSE MEDICAL, INC.
|
|
By: |
William E McLaughlin III, Official of Fuse Medical, Inc. |
|
LENDER:
ZIONS BANCORPORATION, N.A. DBA AMEGY BANK
|
|
X |
Authorized Signer |
|
LaserPro, Ver. 19.4.0.030 Copr. Finastra USA Corporation 1997, 2020. All Rights Reserved. - TX C:\COMML\CFI\LPL\G60.FC TR-236500 PR-393
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
DISBURSEMENT REQUEST AND AUTHORIZATION
|
Principal $361,400.00 |
Loan Date 04-11-2020 |
Maturity 04-11-2022 |
CL Transaction No ABT-3203531 |
Product SBA Paycheck Protection |
Loan Account No |
|
References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. |
|||||
|
|
Lender: |
Zions Bancorporation, N.A. dba Amegy Bank Love Field |
|
P.O. Box 27459 1717 W. Loop South
Houston, TX 77227-7459
LOAN TYPE. This is a non-precomputed Fixed Rate (1.000%) Nondisclosable Installment Loan to a Corporation for $361,400.00 due on April 11, 2022.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
Personal, Family or Household Purposes. Personal Investment.
X Business, Agricultural and All Other.
SPECIFIC PURPOSE. The specific purpose of this loan is: 520-Gov't Program Working Capital.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be disbursed until all of Lender's conditions for making the loan have been satisfied. Please disburse the loan proceeds of $361,400.00 as follows:
Amount paid to Borrower directly:$361,400.00
$361,400.00 Deposited to Account # with Lender
Note Principal:$361,400.00
ERRORS AND OMISSIONS. Borrower hereby agrees that it will, within ten (10) days of a request by Lender, comply with any request by Lender to correct documentation errors, omissions or oversights, if any, that occur in any documentation relating to this loan.
PROHIBITED USE OF LOAN PROCEEDS. As per Section 1604 of the American Recovery and Reinvestment Act of 2009 - Borrower and Operating Company certify that none of the loan funds will be used for any State or local government or any private entity for any casino or other gambling establishment, aquarium, zoo, golf course, or swimming pool.
Scope of Agreement - Loan Agreement. Except as provided in the Section of this Agreement entitled "Dispute Resolution" (including the jury waiver, arbitration, and class action waiver provisions), this Agreement shall not be interpreted to supersede or amend any other credit agreement between Borrower and Lender.
ADDITIONAL DISBURSEMENT. Notwithstanding the amount stated in the DISBURSEMENT INSTRUCTIONS paragraph above, Borrower agrees that Lender may disburse, and hereby instructs Lender to disburse, any and all amounts in excess of the above-stated amount which are attributable to accrued and unpaid interest on any loan(s) being paid with the disbursement proceeds arising between the date in which this Disbursement Request is prepared by Lender and the date the loan is funded. Borrower agrees that Lender’s calculation of such accrued interest is binding, and Borrower may request from Lender, in writing, a copy of a statement indicating the excess accrued and unpaid interest payable and the per diem associated therewith.
REPLACEMENT OF PRIMARY PURPOSE OF LOAN. The section above titled “PRIMARY PURPOSE OF LOAN” is hereby deleted and replaced with the following:
PRIMARY PURPOSE OF LOAN. The amount paid to Borrower referenced above in the “DISBURSEMENT INSTRUCTIONS” shall be used for the following business purpose: for Payroll Costs and Payments on Mortgage Interest, Rent, Utilities and Interest on Other Debt Obligations (At least 75% of this amount shall be used for Payroll Costs).
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS AUTHORIZATION IS DATED APRIL 11, 2020.
|
|
|
|
THIS IS A COPY
The Authoritative Copy of this record is held at NA3.docusign.net
DocuSign Envelope ID: 66F247CA-1C44-4CFA-A9E5-6EECBEF4CFF4
DISBURSEMENT REQUEST AND AUTHORIZATION
BORROWER:
FUSE MEDICAL, INC.
|
|
By: |
William E McLaughlin III, Official of Fuse Medical, Inc. |
|
LaserPro, Ver. 19.4.0.030 Copr. Finastra USA Corporation 1997, 2020. All Rights Reserved. - TX C:\COMML\CFI\LPL\I20.FC TR-236500 PR-393
|
|
|
|
Certificate Of Completion
Envelope Id: 66F247CA1C444CFAA9E56EECBEF4CFF4Status: Completed Subject: [[Data:RecipientName]] Paycheck Protection Program Closing Documents Review and Signature
Affiliate: Amegy Source Envelope:
Document Pages: 20Signatures: 6Envelope Originator:
Certificate Pages: 10Initials: 0Amegy Cares Support
1 S Main St Fl 15
Salt Lake City, UT 84133 AmegyCARESSupport@zionsbancorp.com IP Address: 209.20.122.65
Record Tracking
4/14/2020 8:16:47 AM
Status: Authoritative Copy (2 of 2 documents) 4/14/2020 9:39:12 AM
Holder: Amegy Cares Support AmegyCARESSupport@zionsbancorp.com
Holder: Amegy Cares Support AmegyCARESSupport@zionsbancorp.com
Location: DocuSign Location: DocuSign
Signer EventsSignatureTimestamp
Nick Diaz Nicholas.Diaz@amegybank.com Zions Bancorp Banking Operations
Security Level: Email, Account Authentication
(None)Signature Adoption: Pre-selected Style
Using IP Address: 209.20.122.65
Sent: 4/14/2020 8:16:47 AM Viewed: 4/14/2020 8:18:23 AM Signed: 4/14/2020 8:23:55 AM
Electronic Record and Signature Disclosure:
Accepted: 4/14/2020 8:18:23 AM
ID: bcb365cb-9083-4a73-b428-b4c4c89a80b2
William E. McLaughlin, III bmclaughlin@fusemedical.com
Security Level: Email, Account Authentication (None)
Sent: 4/14/2020 8:23:56 AM Viewed: 4/14/2020 9:37:53 AM Signed: 4/14/2020 9:39:09 AM
Electronic Record and Signature Disclosure:
Accepted: 4/14/2020 9:37:53 AM
ID: 9d2e9270-51cd-4748-832a-dfb7c9fbe378
|
In Person Signer Events |
Signature |
Timestamp |
|
|
|
|
|
Editor Delivery Events |
Status |
Timestamp |
|
|
|
|
|
Agent Delivery Events |
Status |
Timestamp |
|
|
|
|
|
Intermediary Delivery Events |
Status |
Timestamp |
|
|
|
|
|
Certified Delivery Events |
Status |
Timestamp |
|
|
|
|
|
Carbon Copy Events |
Status |
Timestamp |
|
|
|
|
Carbon Copy EventsStatusTimestamp
Michael Corley Michael.Corley@amegybank.com Manual SBA Process
Security Level: Email, Account Authentication (None)
Electronic Record and Signature Disclosure:
Not Offered via DocuSign
Amegy Cares Support AmegyCARESSupport@zionsbancorp.com Manual SBA Process
Security Level: Email, Account Authentication (None)
Electronic Record and Signature Disclosure:
Not Offered via DocuSign
Sent: 4/14/2020 8:16:47 AM Viewed: 4/14/2020 8:16:47 AM Signed: 4/14/2020 8:16:47 AM
Sent: 4/14/2020 9:39:11 AM Resent: 4/14/2020 9:39:12 AM Viewed: 4/14/2020 11:56:36 AM
|
Witness Events |
Signature |
Timestamp |
|
|
|
|
|
Notary Events |
Signature |
Timestamp |
|
|
|
|
|
Envelope Summary Events |
Status |
Timestamps |
|
Envelope Sent |
Hashed/Encrypted |
4/14/2020 9:39:11 AM |
|
Certified Delivered |
Security Checked |
4/14/2020 9:39:11 AM |
|
Signing Complete |
Security Checked |
4/14/2020 9:39:11 AM |
|
Completed |
Security Checked |
4/14/2020 9:39:11 AM |
|
Payment Events |
Status |
Timestamps |
|
Electronic Record and Signature Disclosure |
||
|
|
|
|
Electronic Record and Signature Disclosure created on: 4/4/2020 11:57:38 AM Parties agreed to: Nick Diaz, William E. McLaughlin, III
E-Sign Consent for Execution and Delivery of Electronic Documents
(Personal Financial Statement, Card Account, Loan Account, Deposit Account, Online Banking)
This E-Sign Consent for Execution and Delivery of Electronic Documents (“Consent”) applies to all electronic records for Personal Financial Statement (“PFS”) and disclosures, agreements or applications for deposit, lending, card and online banking products and services (“Services”).
Specifically, if you would like to get or give a PFS and/or obtain one or more Services by electronic means, then we first need to obtain your consent. More specifically, we need to obtain your consent in order: (i) for you to provide either or both your electronic agreement or signature to one or more electronic agreements; and (ii) for us to deliver information to you in electronic rather than in paper form.
If you would like to provide your consent, then please read through this Consent and check the applicable check box indicating consent to this Consent. By consenting, you are agreeing and acknowledging: (i) to the terms and conditions of this Consent; (ii) that electronic execution and/or delivery, electronic communications, and electronic records shall have the same effect and authority as if hand signed by you and/or delivered in paper; and (iii) that electronic signatures shall have the same effect and authority as those hand-signed by the named signer.
Also, by providing your consent to this Consent, you confirm, represent and warrant to us that you have: (i) the system requirements described below; (ii) verified your hardware and software meets our system requirements; and (iii) the ability to access, view and print or electronically save (including taking screenshots) electronically executed and/or delivered Electronic Documents, which may include the format of HTML or PDF.
If you do not want to provide your consent, then do not check the applicable check box indicating consent to this Consent. However, if you would like to still get or give a PFS and/or obtain one or more Services but through non-electronic means, then contact us in the applicable manner as set forth below under the heading, “Requesting Paper Copies.”
Definitions. For purposes of this Consent, the following terms shall have the meanings set forth below:
“Account” means a deposit account, loan account or other account at the Bank which you have enrolled in one of more of the following: the eStatements service, the eNotices service, and/or the eTax Documents service.
“Bank,” “we,” “our” and other similar terms refers to Zions Bancorporation, N.A., including any Division.
“Division” refers to any one of the following divisions with trade names that the Bank operates through: (i) Amegy Bank; (ii) California Bank & Trust; (iii) The Commerce Bank of Oregon
|
|
|
|
(“CBO”); (iv) The Commerce Bank of Washington (“CBW”); (v) National Bank of Arizona; (vi) Nevada State Bank; (vii) Vectra Bank Colorado; and (viii) Zions Bank.
“DocuSign” refers to the Bank's third-party service provider, DocuSign Inc., who provides a platform for the Bank to deliver Electronic Documents to you and for you to provide your electronic signature on Electronic Documents through the DocuSign® electronic signature system.
“eCommunication” can be any periodic statement, notice, disclosure, agreement, fee schedule, transaction or event record, invoice, response to claim or other communication (collectively
“information”) regarding your enrolled Account that the Bank chooses to provide by eStatement or eNotice instead of paper. “eCommunication” also includes eTax Documents that we make available for eligible Accounts. An eCommunication is viewed by logging into online banking or mobile banking. eCommunications may contain information that the Bank is required by law to give you, or information that the Bank chooses to give you.
“eNotice” means any eCommunication that is not an eStatement or eTax Documents. (Please note that “eNotice” includes any statement of transactions or balances in a loan account and is deemed an “e-Notice” rather than an “eStatement.”)
“eStatement” means an electronic version of the paper periodic statement of debits, credits and balances that the Bank mails to you for a deposit account that is not enrolled in the eStatements service. “eStatement” also includes notices, disclosures and other information that would be printed on the paper periodic statement or enclosed with a mailed paper periodic statement.
“eTax Document” means any IRS tax reporting form that Bank makes available for electronic delivery for an eligible Account. Bank may from time to time, in its discretion, add or delete which IRS forms are included as eTax Documents in the Service.
“Electronic Documents” refers to any information that we give in electronic form pursuant to this Consent, and as described below under the heading entitled, “Scope.” For example, this Consent is an “Electronic Document.” Also, “Electronic Documents” include any communication that you give us in connection with an Electronic Document. For example, if you file a claim, which we may require to be in written form rather than in electronic form, that your deposit account statement reflects an unauthorized electronic funds transfer from your deposit account, and you then send us an electronic email response in connection with that claim, the email you sent is an “Electronic Document.”
“Mobile Device” refers to any portable computing device that meets the system requirements set forth in this Consent, such as a smartphone or tablet. For purposes of mobile banking, “Mobile Device” means a cellular telephone, tablet or similar wireless communication device: (i) that is installed with mobile banking software that is permitted by us; or (ii) that can conduct mobile banking transactions by using other protocols we may choose to permit (e.g., Wireless Application Protocol (WAP) or text (SMS) messaging).
|
|
|
|
“you,” “your” and other similar terms refers to the person giving consent to this Consent, and also each additional account owner or authorized principal of the business, Authorized Agent, Authorized Representative, Authorized User, user who has been granted Access Credentials, and user identified on any Bank product you enroll or apply for, use or access that is subject to an agreement or disclosure described in this Consent.
Scope. The scope of your consent for current and future delivery of Electronic Documents covers this Consent and the Electronic Documents listed below for each Service you have requested. Specifically, if you consent, then you are giving consent for the Bank to provide, if it decides to do so, and for you to agree to and/or receive the following Electronic Documents:
For lending:
|
|
1. |
Personal Financial Statement; |
|
|
2. |
Consumer Credit Application Addendum (only available at CBO and CBW); |
|
|
3. |
Paycheck Protection Program Borrower Application Form; |
|
|
4. |
Promissory Note; |
|
|
5. |
Business Loan Agreement; |
|
|
6. |
SBA Addendum to Business Loan Agreement; |
|
|
7. |
Resolution; and |
|
|
8. |
Disbursement Request and Authorization. |
For deposit account opening:
|
|
1. |
Banking Resolutions; |
|
|
2. |
Business Client Services Agreement; |
|
|
3. |
Zions Bancorporation, N.A. Deposit Account Agreement; |
|
|
4. |
Privacy Notice; |
|
|
5. |
Personal Accounts Schedule of Fees, as applicable; |
|
|
6. |
Business Accounts Schedule of Fees, as applicable; |
|
|
7. |
Service Charge Information, as applicable; and |
|
|
8. |
Deposit account disclosure, as applicable. |
For consumer online banking:
|
|
1. |
The Digital Banking Service Agreement; |
|
|
2. |
eDocuments Services Agreement (for one or more of the following: eStatements service; eNotices service or eTax Documents service) which is subject to your specific separate enrollment in one or more services for eCommunications through online banking; |
|
|
|
3. |
Authorization to debit a checking or savings account held with the Bank or another financial institution in order to make a transfer to a deposit account or make a payment on one or more loans held with the Bank; |
|
|
|
4. |
Error resolution notices, billing rights notices, balance calculation notices, federal and state privacy notices, data breach notices and disclosures or notices that may be required under the Truth in Savings Act, Electronic Funds Transfer Act, Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Gramm Leach Bliley |
|
|
|
|
|
Act, and the Real Estate Settlement Procedures Act, including any amendments made to the foregoing laws, or other applicable federal or state law and regulations;
|
|
5. |
Bill Pay Service Agreement; |
|
|
6. |
External Account Transfer Agreement: |
|
|
7. |
External Transfer to a Friend Enrollment Form; |
|
|
8. |
Zelle® and Other Payment Services Agreement (rev April 2019); |
|
|
9. |
Wire Application for Personal Online Banking |
|
|
10. |
Wire Agreement for Online Banking; and |
|
|
11. |
Mobile Banking Privacy Policy. |
For business online banking:
|
|
1. |
The Digital Banking Service Agreement; |
|
|
2. |
eDocuments Services Agreement (for one or more of the following: eStatements service; eNotices service or eTax Documents service) which is subject to your specific separate enrollment in one or more services for eCommunications through online banking; |
|
|
|
3. |
Digital Banking Service Application; |
|
|
4. |
Digital Banking Service Update; |
|
|
5. |
Multiple Party Addendum to Business Digital Banking Services; |
|
|
6. |
Bill Pay Agreement; |
|
|
7. |
Wire Application for Business Online Banking; |
|
|
8. |
Wire Agreement for Online Banking; and |
|
|
9. |
Direct Connect Service Agreement (including, but not limited to ACH). |
For treasury management products and services:
|
|
1. |
Treasury Management Master Services Agreement (“MSA”); |
|
|
2. |
Acceptance of Treasury Management Agreements (“TMA”); |
|
|
3. |
Certification of Resolution and Authorization for Treasury Management Services (“TMR”); and |
|
|
|
4. |
Authorization for Disbursement Services. |
For card products:
|
|
1. |
VISA Business Check Card Application and Agreement; |
|
|
2. |
Agreements for using your debit or credit card in connection with virtual wallet, such as, but not limited to, Google Pay, Samsung Pay and Apple Pay. |
|
For all accounts:
|
|
1. |
Request for Taxpayer Identification and Certification; or |
|
|
2. |
Our substitute form for Request for Taxpayer Identification and Certification. |
For any one of the Services:
|
|
|
|
(vii) a product or service fee (such as a transaction fee, late fee, finance charge, an overdraft fee, a fee for a draft, check or electronic debit (returned for any reason, such as insufficient funds fee, a returned item fee or a fee as a result of a stop payment order));
|
|
2. |
Any change, amendment or update in terms, including, but not limited to, adding new terms not previously contemplated, deleting existing terms and modifying current terms, to the foregoing described documents in this Consent or applicable to a loan or deposit accounts or products or services you obtain from us; and |
|
|
|
3. |
Any other document or other information we are required by law to provide “in writing” as it relates to: (i) a product or service subject to an Electronic Record; or (ii) your access or use of a product or service through electronic or non-electronic means. |
|
Please Note: Your consent only pertains to the Electronic Documents that are described in this Consent. Therefore, your consent to this Consent is not applicable to any other consent you may have provided to the Bank in connection with other products or services. Also, additional consents may be required and presented for acceptance in connection with other Bank products and services.
Method of Providing Electronic Documents. All Electronic Documents, except for eStatements, eNotices and eTax Documents, that we provide to you will be delivered by: (i) email to any email address you have provided us in connection with a loan or one or more Services, including attaching documents to the email or providing links to or instructions within the email for navigating to documents on the DocuSign system; (ii) by SMS text message to any Mobile Device telephone number you have provided in connection with a loan or one or more Services; (iii) posting the information on our website (for example, on our initial web page where you log into the system that offers one or more Services or as an in product message (that displays within the system or Service after you have logged in)) that you access or use for in connection with a loan or one or more Services; (iv) any other electronic means that you have authorized now or later; (v) any other electronic means that are or may be in the future made available to you that is commercially reasonable and within the systems requirements described below; or (vi) requesting that you download a PDF file containing an Electronic Document.
All Electronic Documents, under the eDocuments Services Agreement, which includes eStatements, eNotices and eTax Documents, that we provide to you will be delivered by: (i) by posting it to your Division's website, an online banking message center, or in our mobile banking software; (ii) by message printed on the periodic statement for your eligible Accounts if you have agreed to receive that statement electronically; or (iii) by one of the methods described above for all other Electronic Documents.
How to Withdraw Your Consent and the Effect of Doing So. Except for those documents provided under the eDocuments Services Agreement, this Consent applies only to the current documents provided immediately following your consent to this Consent and/or within the current DocuSign envelope. Therefore, once you provide consent to this Consent you cannot
|
|
|
|
revoke it for the current documents. However, for those documents provided under the eDocuments Services Agreement, you may withdraw your consent to this Consent at any time by calling us as provided below under the heading entitled, “How to Contact Us.”
Your withdrawal of consent will need to state clearly your full e-mail address, entire name, mailing address, telephone number and a statement indicating which one of the services under the eDocuments Services Agreement that you are withdrawing your consent and would like to receive paper instead (however, we still reserve the right of also making electronic documents subject to the eDocuments Services Agreement available to you). The consequences of withdrawing your consent for future eCommunications, which are governed by the eDocuments Service Agreement, are: (i) it may take a longer time for the paper communication to be delivered and/or received by you; and (ii) some account types charge a monthly service fee for paper statements. (See the applicable deposit account disclosure for your account.)
Please Note: Any cancellation or withdrawal of this Consent: (i) is not applicable to any other consent that you may have provided the Bank in connection with other products and services; and (ii) is not retroactive and all past electronic agreements and delivered Electronic Documents in connection with this Consent are still valid.
How to Update Your Records. It is your responsibility to provide us with an accurate, up to date and complete email address. Specifically, you must immediately contact us to update changes to your email address, mobile device telephone number and postal address related to this Consent. You can do so by contacting your local branch in person or calling us at the applicable telephone number provided below under the heading entitled, “How to Contact Us.”
Hardware and Software Requirements. The following are the hardware and software requirements that apply if you are providing your consent to this Consent through the DocuSign platform: In order for you to provide consent to this Consent and execute and/or receive Electronic Documents, you must have certain computer capabilities and/or Mobile Device capabilities, which we may change from time to time without prior notice to you unless prohibited by applicable law. Generally, in order to consent to this Consent, you must have: (i) a computer/and/or a Mobile Device; (ii) an internet connection; (iii) a current operating system;
(iv) an up to date browser with adequate security; (v) sufficient memory to download and retain Electronic Documents; (vi) a printer, if you want to be able to print your Electronic Documents;
(vii) a valid and active email address; (viii) the ability to connect to websites via hyperlinks provided in an email; (ix) the ability to engage in SMS text messaging on your Mobile Device; and (x) up to date software for reading and saving PDF and HTML documents. The minimum system requirements for using the DocuSign system may change over time. The current system requirements are found here: https://support.docusign.com/guides/signer-guide-signing-system- requirements.
In addition to the foregoing, to use the DocuSign system, you or your agents may be required to register with DocuSign as a user.
The following are the hardware and software requirements that apply if you are providing your consent to this Consent outside of the DocuSign platform: (i) you must have a computer
|
|
|
|
and/or a Mobile device; (ii) a current operating system; (iii) a printer (if you want to be able to print your Electronic Documents); (iv) sufficient memory to download and retain Electronic Documents; (v) your computer and/or Mobile Device must use commonly accepted and recently updated software for reading and saving PDF and HTML documents; (vi) you must have an internet service provider or your mobile communications data service provider; (vii) your computer or Mobile Device must use a commonly accepted and recently updated version of an HTML compliant web browser that supports the latest protocols for encryption; (viii) you must maintain, provide and update us with your active and valid email address(es) for use in sending, receiving and retaining disclosures and other communications; and (ix) you must be able to connect to websites via hyperlinks in email.
Also, you may be required to be enrolled in and actively be using online banking, mobile banking or treasury management services, as applicable (e.g. certain Services, such as eStatements, eNotices and eTax Documents services, require enrollment and activation in online banking, mobile banking or treasury management services). Further, for mobile banking you must also have: (i) the most recent version of our mobile banking software installed on your Mobile Device; (ii) your Mobile Device and mobile phone number registered with online banking or treasury management banking; and (iii) your Mobile Device enabled for SMS text messaging. Finally, you must regularly install updates as they become available to your computer's and/or Mobile Device's operating system, web browser and PDF reader (and, if applicable, your mobile banking software).
If you are not able to access, view and print or save the Electronic Documents, then please do not proceed with providing your Consent.
Requesting Paper Copies. For Electronic Documents subject to this Consent, you may request a paper copy by visiting or calling your local branch or calling the applicable phone number listed below under the heading entitled, “How to Contact Us.”
Generally, we do not send a paper copy of any Electronic Document unless you specifically request that we do so. There are no fees for sending you one or more paper copies of an Electronic Document through the United States Postal Service. However, if your request falls under statement/research services, then applicable fees apply.
How to Contact Us.
You can contact us by calling the telephone number for where your accounts are held.
|
For Customers of: |
Call: |
|
Amegy Bank |
(888) 500-2960 |
|
California Bank & Trust |
(888) 217-1265 |
|
National Bank of Arizona |
(800) 497-8168 |
|
Nevada State Bank |
(888) 835-0551 |
|
Vectra Bank Colorado |
(800) 884-6725 |
|
Zions Bank |
(800) 974-8800 |
|
|
|
|
Commerce Bank of Oregon(866) 548-1020
Commerce Bank of Washington (800) 998-4035
Communications in Writing. All information provided by us in electronic form will be considered a “writing.” You should print or download for your records a copy of this Consent and any other Electronic Document that is important to you.
Federal Law. You acknowledge and agree that your consent to Electronic Documents is being provided in connection with a transaction affecting interstate commerce that is subject to the federal Electronic Signatures in Global and National Commerce Act (“Act”), and that you and we both intend that the Act to apply to the fullest extent possible to validate our ability to conduct business with you by electronic means.
Termination and Changes. We reserve the right, in our sole discretion, to discontinue the provision of Electronic Documents, or to terminate or change the terms and conditions on which we provide Electronic Documents. We will provide you with notice of any such termination or change as required by law.
|
|
|
|
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Christopher C. Reeg, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of Fuse Medical, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
|
|
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
|
Date: May 22, 2020 |
By: |
/s/ Christopher C. Reeg |
|
|
|
Christopher C. Reeg |
|
|
|
Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, William E. McLaughlin, III, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of Fuse Medical, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
|
Date: May 22, 2020 |
By: |
/s/ William E. McLaughlin, III |
|
|
|
William E. McLaughlin, III |
|
|
|
Senior Vice President, Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Fuse Medical, Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof, I, Christopher C. Reeg, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
|
|
1. |
The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and |
|
|
2. |
The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
Dated: May 22, 2020 |
By: |
/s/ Christopher C. Reeg |
|
|
|
Christopher C. Reeg |
|
|
|
Chief Executive Officer |
In connection with the quarterly report of Fuse Medical, Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof, I, William E. McLaughlin, III, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
|
|
1. |
The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and |
|
|
2. |
The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
Dated: May 22, 2020 |
By: |
/s/ William E. McLaughlin, III |
|
|
|
William E. McLaughlin, III |
|
|
|
Senior Vice President, Chief Financial Officer |