FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

The Company’s corporate services include Hosted IP-PBX, SIP trunking, broadband Internet access, conference calling, fax services, private line networks, and data center hosting (co-location) services. These services are combined as necessary to create the precise communications package required by each customer. On average, we believe that our corporate services save the customer approximately 20%, when compared to that customer’s previous services.

We have contracts with all of our corporate customers. Our contracts are typically for a one, two, or three-year ter m, and have early cancellation penalties. As the majority of our contracts are for a three-year term, the current average term of all contracts signed by our customers is approximately 2.7 years.

Carrier Services

The Company’s carrier services include voice termination via both VoIP and traditional Time Division Multiplexing (“TDM”) or “circuit-switched” technology. All voice termination services utilize our proprietary least cost routing (“LCR”) technology to assure that those calls are terminated at the lowest possible cost and to maximize profit margins. The Company also provides co-location services to other communications service providers, enabling them to co-locate their equipment within our switching facility.

The Company sells its carrier services to other communications service providers throughout the world, including U.S. based carriers wishing to terminate calls to international destinations as well as foreign carriers wishing to terminate calls in the U.S. and throughout the world. The Company also purchases domestic and international termination services from carriers. We currently have over 250 carrier customers and vendors.

We have contracts with all of our carrier customers. These contracts typically have a one-year renewable term and have no penalty for early termination. Most contracts have no minimum monthly traffic commitment.

Operating segment information for the three months ended June 30, 2010 and 2009, is summarized as follows:

Three Months Ended June 30, 2010 (unaudited)

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		Carrier Services		Corporate Services and Other		Corporate and Unallocated		Consolidated
Revenues	9,316,018	$	411,182	$	-	$	9,727,200
Cost of revenues (exclusive of depreciation and amortization)		(8,516,789)		(236,996)		-		8,753,785)
Depreciation and amortization		(201,075)		(6,834)		-		(207,909)
Loss on impairment of long — lived assets		-		-&nbs p;		-		-
Selling, general, and administrative expenses		(1,533,270)		(662,311)		-		(2,195,581)
Advertising and marketing		-		(17,425)		-		(17,425)
Other income (expenses)		(35,007)		(15,727)		-		(50,734)
Total loss from continuing operations		(970,123)		(528,111)		-		1,498,234)
Loss from discontinued operations		-		(86,982)		-		(86,982)
Net loss	$	(970,123)	$	(615,093)	$		$	(1,585,216)
Total assets	$	4,189,434	$	760,236	$	1,330,321	$	6,279,991
Capital expenditures	$	-	$	-	$	44,794	$	44,794

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Three Months Ended June 30, 2009 (unaudited)

		Carrier Services		Corporate Services and Other		Corporate and Unallocated		Consolidated
Revenues	$	8,419,465	$	230,297	$	-	$	8,649,762
Cost of revenues (exclusive of depreciation and amortization)		(7,807,692)		(150,448)		-		(7,958,140)
Depreciation and amortization		(217,307)		(9,637)		-		(226,944)
Loss on impairment of long — lived assets		-		-		(243,000)		(243,000)
Selling, general, and administrative expenses	(1,553,053)		(689,115)		-		(2,242,168)
Advertising and marketing		(324)		(2,692)		-		(3,016)
Other income (expenses)		(81,497)		(36,614		-		(118,111)
Total loss from continuing operations		(1,240,408)		(658,209)		(243,000)		(2,141,617)
Loss from discontinued operations		-		(885,132)		-		(885,132)
Net loss	$	(1,240,408)	$	(1,543,341)	$	(243,000)	$	(3,026,749)
Total assets	$	4,855,095	$	1,112,910	$	497,110	$	6,465,115
Capital expenditures	$	6,762	$	-	$	1,136	$	7,898

Operating segment information for the six months ended June 30, 2010 and 2009, is summarized as follows:

Six Months Ended June 30, 2010 (unaudited)

		Carrier Serv ices		Corporate Services and Other		Corporate and Unallocated		Consolidated
Revenues	$	18,523,250	$	792,582	$	-	$	19,315,832
Cost of revenues (exclusive of depreciation and amortization)		(16,953,617)		(463,937)		-		(17,417,554)
Depreciation and amortization		(425,930)		(13,855)		-		(439,785)
Loss on impairment of long — lived assets		-		-		-		-
Selling, general, and administrative expenses		(2,994,519)		(1,397,373)		-		(4,391,892)
Advertising and marketing		-		(21,196)		-		(21,196)
Other income (expenses)		(59,226)		(26,609)		-		(85,835)
Total loss from continuing operations		(1,910,042)		(1,130,388)		-		(3,040,430)
Loss from discontinued operations		-		(88, 355)		-		< p style="TEXT-ALIGN:right; MARGIN:0in 0in 0pt; FONT-FAMILY:'Times New Roman','serif'; FONT-SIZE:10pt" align=right>(88,355)
Net loss	$	(1,910,042)	$	(1,218,743)	$	-	$	(3,128,785)
Total assets	$	4,189,434	$	760,236	$	1,330,321	$	6,279,991
Capital expenditures	$	-	$	-	$	53,958	< p style="TEXT-ALIGN:right; MARGIN:0in 0in 0pt; FONT-FAMILY:'Times New Roman','serif'; FONT-SIZE:10pt" align=right>$	53,958

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Six Months Ended June 30, 2009 (unaudited)


		Carrier Services		Corporate Services and Other		Corporate and Unallocated		Consolidated
Revenues	$	17,268,725	$	383,338	$	-	$	17,652,063
Cost of revenues (exclusive of depreciation and amortization)		(16,187,553)		(238,478)		-		(16,426,031)
Depreciation and amortization		(481,825)		(234,590)		-		(716,415)
Loss on impairment of long — lived assets		-		-		(243,000)		(243,000)
Selling, general, and administrative expenses		(2,831,099)		(1,881,349)		-		(4,712,448)
Advertising and marketing		(2,113)		(8,399)		-		(10,512)
Other income (expenses)		(124,538)		(87,140)		-		(211,678)
Total loss from continuing operations		(2,358,403)		(2,066,618)		(243,000)		(4,668,021)
Loss from discontinued operations		-		(1,364,943)		-		(1,364,943)
Net loss	$	(2,358,403)	$	(3,431,561)	$	(243,000)	$	(6,032,964)
Total assets	$	4,855,095	$	1,112,910	$	497,110	$	6,465,115
Capital expenditures	$	7,992	$	-	$	9,090	$	17,082

12. Subsequent Events.

On July 1, 2010, the Company borrowed $100,000 from an individual that is also a Director of the Company. The loan is evidenced by a promissory note bearing interest on the unpaid principal amount of the note from the d ate the note is issued until the outstanding principal amount of the note is paid in full, at the rate of 3.25% per annum, and the principal sum and all accrued interest are payable in full upon ten (10) days notice from the lender. The note also grants the lender a collateralized security interest, pari passu with other lenders, in the Company’s accounts receivable.

On July 22, 2010 the Company entered into subscription agreements with each of fourteen (14) accredited investors, including three (3) investors who are also Directors of the Company. Under these subscription agreements the Company issued an aggregate of 5,000,005 shares of common stock and five year investor warrants to purchase 2,500,010 shares of common stock, in consideration of $616,000, which consisted of cash net of expenses totaling $494,000, and a $122,000 conversion of debt to equity evidenced by promissory not es originally issued to Director Marvin Rosen. One-half of the warrants are exercisable at $0.175 per share, which is equal to 125% of the closing price of the Company’s common stock, on the day prior to closing, and the balance are exercisable at $0.21 per share, which is equal to 150% of such price. In addition, the placement agent was paid aggregate compensation of $84,000 and was issued placement agent warrants to purchase 500,001 shares of common stock, equal to 10% of the number of units sold, exercisable at $0.175 per share, which is equal to 125% of the closing price of the Company’s common stock on the day prior to closing.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward—Looking Statements

Certain statements and the discussion contained herein regarding the Company’s business and operations may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1996. Such statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminolog y such as “may”, “expect”, “anticipate”, “intend”, “estimate” or “continue” or the negative thereof or other variations thereof or comparable terminology. The reader is cautioned that all forward-looking statements are speculative, and there are certain risks and uncertainties that could ca use actual events or results to differ from those referred to in such forward-looking statements. This disclosure highlights some of the important risks regarding the Company’s business. The number one risk of the Company is its ability to attract fresh and continued capital to execute its comprehensive business strategy. There may be additional risks associated with the integration of businesses following an acquisition, concentration of revenue from one source, competitors with broader product lines and greater resources,

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

entering into new markets, the termination of any of the Company’s significant contracts or partnerships, the Company’s inability to maintain working capital requirements to fund future operations, the Company’s inability to attract and retain highly qualified management, technical and sales personnel, and the other factors identified by us from time to time in the Company’s filings with the SEC. However, the risks included should not be assumed to be the only things that could affect future performance. We may also be subject to disruptions, delays in collections, or facilities closures caused by potential or actual acts of terrorism or government security concerns.

All forward-looking statements included in this document are made as of the date hereof, based on information available to us as of the date thereof, and we assume no obligation to update any forward-looking statements.

The following table summarizes our results of operations for the periods indicated:

		Three Months Ended June 30,			& nbsp;	Six Months Ended June 30,
		2010		2009		2010		2009
		(unaudited)				(unaudited)
Revenues	$	9,727,200	$	8,649,762	$	19,315,832	$	17,652,063
Operating expenses:
Cost of revenues, exclusive of depreciation and amortization, shown separately below		8,753,785		7,958,140		17,417,554		16,426,031
Depreciation and amortization		207,909		226,944		439,785		716,415
Loss on impairment of long-lived assets		-		243,000		-		243,000
Selling, general, and administrative expenses (including approximately $69,000 and $85,000 for the three months ended June 30, 2010 and June 30, 2009 respectively, and $137,000 and $120,000 for the six months ended June 30, 2010 and June 30, 2009 respectively, of stock-based compensation)		2,195,581		2,242,168		4,391,892		4,712,448
Advertising and marketing		&nb sp; 17,425		3,016		21,196		10,512
Total operating expenses		& nbsp; 11,174,700		10,673,268		22,270,427		22,108,406
Operating loss		&nbs p; (1,447,500)		(2,023,506)		(2,954,595)		(4,456,343)< /p>
Other income (expenses):
Interest Income		120		451		243		610
Interest expense		(54,716)		(119,841)		(104,307)		(215,781)
Gain on settlements of debt		-		-		9,500		-
Other		3,862		1,279		8,729		3,493
Total other income (expenses)		(50,734)		(118,111)		(85,835)		(211,678)
Income (loss) from continued operations		(1,498,234)		(2,141,617)		(3,040,430)		(4,668,021)
Discontinued operations:
Income (loss) from discontinued operations		(86,982)		(885,132)		(88,355)		(1,364,943)
Net loss	$	(1,585,216)	$	(3,026,749)	$	(3,128,785)	$	(6,032,964)

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
	(unaudited)				(unaudited)
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Operating expenses:
Cost of revenues, exclusive of depreciation and amortization, shown separately below	90.0	%	92.0	%	90.2	%	93.1	%
Depreciation and amortization	2.1	%	2.6	%	2.3	%	4.1	%
Loss on impairment of long-lived assets	0.0	%	2.8	%	0.0	%	1.4	%
Selling, general, and administrative expenses (including approximately $69,000 and $85,000 for the three months ended June 30, 2010 and June 30, 2009 respectively, and approximately $137,000 and $120,000 for the six months ended June 30, 2010 and June 30, 2009, respectively, of stock-based compensation)	22.6	%	25.9	%	22.7 ;	%	26.7	%
Advertising and marketing	0.2	%	0.0	%	0.1	%	0.1	%
Total operating expenses	114.9	%	123.3	%	115.3	%	125.4	%
Operating loss	(14.9)	%	(23.3)	%	(15.3)	%	(25.4)	%
Other income (expenses):
Interest Income	0.0	%	0.0	%	0.0	%	0.0	%
Interest expense	(0.6)	%	(1.4)	%	(0.5)	%	(1.2)	%
Gain on settlements of debt	0.0	%	0.0	%	0.0	%	0.0	%
Other	0.0	%	0.0	%	0.0	%	0.0	%
Total other income (expenses)	(0.6)	%	(1.4)	%	(0.5)	%	(1.2)	%
Income (loss) from continued operations	(15.5)	%	(24.7)	%	(15.8)	%	(26.6)	%
Discontinued operations:
Income (loss) from discontinued operations	(0.9)	%	(10.2)	%	(0.5)	%	(7.7)	%
Net loss	(16.4)	%	(34.9)	%	(16.3)	%	(34.3)	%

Revenues

Historically, we have generated the majority of our revenues from voice traffic sold to other carriers, with a strong focus in recent years on VoIP termination to emerging markets. We have focused on growing our existing customer base, which was primarily U.S. b ased, through the addition of a broad range of new international customers. We have also focused on expanding the Company’s vendor base through the addition of direct VoIP terminating arrangements to many new countries, including many emerging markets. Although we believe that the carrier services segment continues to be of significant value to our long term strategy, ongoing competitive and pricing pressures have caused us to increase our focus on the higher margin corporate services segment and to expand our efforts to market to small and mid-sized corporations as well as large enterprises using both or direct and partner distribution channels.

While our corporate services segment is still a relatively small portion of our revenue base, we expect to continue to increase our emphasis on this area and increase the percentage of the Company’s total revenues contributed by the co rporate services segment. We believe that this will complement the Company’s carrier services segment by providing higher margins and a more stable customer base.

We manage our revenues by business segment and customer. We manage our costs by provider (vendor). We track revenues by business segment, as the Company’s segments have different customer billing and payment terms and utilize different billing systems. We track total revenue at the customer level because our sales force manages revenue generation at the customer level, and because invoice charges are billed and collected at the customer level. We also track revenues and costs by product to manage product profitability.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

We manage our business segments based on gross margin, which is defined as net revenues less the cost of revenues, rather than on net profitability, due to the fact that the Company’s infrastructure is built to support all business segments and products. This applies both to the capital investments made (such as switching and transmission equipment), and to Selling, General and Administrative expenses. The majority of the Company’s operations, engineering, information systems, and finance personnel support both business segments and all products and services. For segment reporting purposes, all expenses below cost of revenues are allocated based on percentage of utilization of resources unless the items can be specifically identified to one of the business segments.

Operating Expenses

The Company’s operating expenses are categorized as cost of revenues, depreciation, and amortization, loss on impairment, selling, general and administrative expenses, and advertising and marketing.

Cost of revenues includes costs incurred in the operation of the Company’s leased network facilities, as well as the purchase of voice termination, Internet access, private line, and other services from telecommunications carriers and Internet Service Providers. We continue to work to lower the variable component of the cost of revenues through the use of least cost routing, and through continual negotiation of both usage-based costs and fixed costs with our many domestic and international service providers.

Depreciation and amortization includes depreciation of the Company’s communications network equipment, amortization of leasehold improvements of the Company’s switch locations and administrative facilities, and the depreciation of the Company’s office equipment and fixtures.

Selling, general, and administrative expenses include salaries a nd benefits, sales commissions, occupancy costs, legal and professional fees, and other administrative expenses.

Advertising and marketing expense includes costs for promotional materials for the marketing of the Company’s corporate products and services, as well as for public relations.

Three Months Ended June 30, 2010 Compared With Three Months Ended June 30, 2009

Revenues

Consolidated revenues were $9.7 million during the three months ended June 30, 2010, compared to $8.6 million during the three months ended June 30, 2009, an increase of $1.1 million or 12.8%. Revenues for the carrier services segment were $9.3 million during the three months ended June 30, 2010, compared to $8.4 million during the three months ended June 30, 2009, an increase of $0.9 million or 10.7%. While the actual number of minutes transmitted over our network decreased, a significant increase in the blended rate per minute provided an overall increase in revenue.

Revenues for the corporate services segment increased $181 thousand or 78.7%, to $411 thousand during the three months ended June 30, 2010 from $230 thousand during the three months ende d June 30, 2009. This increase was primarily caused by an increase in the Company’s corporate services business due to continued sales efforts to grow the customer base.

Cost of Revenues

Consolidated cost of revenues was $8.8 million during the three months ended June 30, 2010, compared to $8.0 million during the

FUSION TELECOMMUN ICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

three months ended June 30, 2009, an increase of $0.8 million, or 10.0%. Cost of revenues for the carrier services segment was $8.5 million during the three months ended June 30, 2010, compared to $7.8 million during the three months ended June 30, 2009. The increase of $0.7 million or 9.0% in cost of revenues was consistent with the increase in revenues.

Cost of revenues for the corporate services segment during the three months ended June 30, 2010 was $237 thousand, compared with $150 thousand during the three months ended June 30, 2009, an increase of $87 thousand or 58.0%. This increase was attributable to a larger customer base during the second quarter of 2010, compared to the same period in 2009, and was consisten t with the increase in revenues.

Operating Expenses

Depreciation and Amortization

Depreciation and amortization decreased by $19 thousand or 8.4% to $208 thousand during the three months ended June 30, 2010, from $227 thousand during the three months ended June 30, 2009. The Company’s depreciation expense decreased as more assets were fully depreciated than were placed into service during the second quarter of 2010 compared to the second quarter of 2009.

Loss on Impairment

Impairment losses decreased $243 thousand or 100.0% during the three months ended June 30, 2010, compared to the same period in 2009, as there were no impairments to the Company’s Trademarks in the current period.

Selling, General, and Administrative

Selling, general, and administrative expenses decreased $47 thousand or 2.1% to during the three months ended June 30, 2010, compared to the same period in 2009. This decrease is primarily attributable to decreases in the areas of legal and professional fees, communication, occupancy, consulting, and travel and enter tainment as the Company continues to focus on cost containment.

Advertising and Marketing

Advertising and marketing expenses increased $14 thousand or 466.7% during three months ended June 30, 2010, compared to the same period in 2009. The increase was primarily due to promotional expenses associated with the Company’s corporate services segment, as a result of its continued efforts to grow the customer base.

Operating Loss

The Company’s operating loss decreased $0.6 million or 30.0% to a loss of $(1.4) million during th e three months ended June 30, 2010, from a loss of $(2.0) million during the three months ended June 30, 2009. The decrease in operating loss was primarily attributable to lower selling, general, and administrative expenses as a result of the Company’s focus on cost containment.

Other Income (Expense)

Total other income (expense) decreased by $67 thousand or 56.8 % from an expense of $118 thousand in the second quarter of 2009, to an expense of $51 thousand during the same period in 2010.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Discontinued Operations

Loss from discontinued operations decreased by approximately $798 thousand, or 90.2 % to $(87) thousand during the three months ended June 30, 2010, from $(885) thousand during the three months ended June 30, 2009. The main factor contributing to this decrease was the initiation of the Company’s restructuring of its operating segments during the same period in 2009, in an effort to focus on the development of its corporate services and carrier services segments.

Net Loss

Net loss decreased $1.4 million or 46.7 %, to $(1.6) million during the three months ended June 30, 2010, from $(3.0) million during the three months ended June 30, 2009. The main factors contributing to this decrease were decreased operating expenses, and the reduction of losses attributable to discontinued operations.

Six Months Ended June 30, 2010 Compared With Six Months Ended June 30, 2009

Revenues

Consolidated revenues were $19.3 million during the six months ended June 30, 2010, compared to $17.6 million during the six months ended June 30, 2009, an increase of $1.7 million or 9.6%. Revenues for the carrier services segment were $18.5 million during the six months ended June 30, 2010 , compared to $17.2 million during the six months ended June 30, 2009, an increase of $1.3 million or 7.5%. While the actual number of minutes transmitted over our network decreased, a significant increase in the blended rate per minute provided an overall increase in revenue.

Revenues for the corporate services segment increased $409 thousand or 106.8%, to $792 thousand during the six months ended June 30, 2010 from $383 thousand during the six months ended June 30, 2009. This increase was primarily caused by an increase in the Company’s corporate services business due to continued sales efforts to grow the customer base.

Cost of Revenues

Consolidate d cost of revenues was $17.4 million during the six months ended June 30, 2010, compared to $16.4 million during the six months ended June 30, 2009, an increase of $1.0 million, or 6.0%. Cost of revenues for Carrier Services was $16.9 million during the six months ended June 30, 2010, compared to $16.1 million during the six months ended June 30, 2009. The increase of $0.8 million or 4.9% in cost of revenues was consistent with the increase in revenues.

Cost of revenues for Corporate Services and Other during the six months ended June 30, 2010 was $463 thousand, compared to $238 thousand during the six months ended June 30, 2009, an increase of $225 thousand, or 94.5%. This increase was attributable to a larger customer base during the six months ended June 30, 2010, compared to the same period in 2009, and was consistent with the increase in revenues.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Operating Expenses

Depreciation and Amortization

Depreciation and amortization decreased $277 thousand or 38.6% to $439 thousand during the six months ended June 30, 2010, from $716 thousand during the six months ended June 30, 2009. The Company’s depreciation expense decreased as more assets were fully depreciated than were placed into service during the first six months of 2010 compared to the same period in 2009.

Loss on Impairment

Impairment losses decreased $243 thousand or 100.0% during the six months ended June 30, 2010, compared to the same period in 2009, as there were no impairments to the Company’s Trademarks in the current period.

Selling, General, and Administrative

Selling, general, and administrative expenses decreased $321 thousand or 6.8% during the six months ended June 30, 2010. This decrease is primarily attributable to decreases in the areas of legal and professional fees, communication, occupancy, consulting, and travel and e ntertainment as the Company continues to focus on cost containment.

Advertising and Marketing

Advertising and marketing expenses increased $10 thousand or 101.6 % during six months ended June 30, 2010, compared to the same period in 2009. The increase was primarily due to promotional expenses associated with the Company’s corporate services segment, as a result of its continued efforts to grow the customer base.

Operating Loss

The Company’s operating loss decreased $1.5 million or 34.0% to a loss of $(2.9) million during the six months ende d June 30, 2010, from a loss of $(4.4) million during the six months ended June 30, 2009. The decrease in operating loss was primarily attributable to lower selling, general, and administrative expenses as a result of the Company’s focus on cost containment.

Other Income (Expense)

Total other income (expense) decreased by $ 126 thousand or 59.5 % from an expense of $ 211 thousand for the six months ended June 30, 2009, to an expense of $86 thousand during the same period in 2010.

Discontinued Operations

Loss from discontinued operations decrease d by approximately $1.3 million, or 92.9 % to $(0.1) million during the six months ended June 30, 2010, from $(1.4) million during the six months ended June 30, 2009. The main factor contributing to this decrease was the initiation of the Company’s restructuring of its operating segments during the first quarter of 2009, in an effort to focus on the development of its corporate services and carrier services segments.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Net Loss

Net loss decreased $2.9 million or 48.3 %, to $(3.1) million during th e six months ended June 30, 2010, from $(6.0) million during the six months ended June 30, 2009. The main factors contributing to this decrease were decreased operating expenses, and the reduction of losses attributable to discontinued operations.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating and net losses. In addition, we are not generating positive cash flow from operations. As of June 30, 2010, we had a stockholders’ deficit of approximately $ (6.7) million as compared to $(7.3) million at December 31, 2009, and a working capital deficit of approximated $(8.5) million as compared to $(9.4) million at December 31, 2009. During the six months ended June 30, 2010, the Company raised approximately $ 2.6 million from the sale of its securities through private placement financing. See Note 8 to the Condensed Consolidated Interim Financial Statements contained in this quarterly report on Form 10-Q. The Company uses the proceeds from these transactions primarily for general corporate purposes. We may seek further financing through the sale of debt or equity securities.

Below is a summary of our cash flow for the periods indicated. These cash flow results are consistent with prior years, in that we continued to use significant cash in connection with our operating and investing activities and had significant cash provided by financing activities.

A summary of the Company’s cash flows for the periods indicated is as follows:


		Six Months Ended June 30,
		2010		2009
		(unaudited)
Cash from continuing operations:
Cash used in operating activities	$	(3,302,669)	$	(3,998,591)
Cash provided by (used in) investing activities		114,120		(15,244)
Cash provided by financing activities		3,984,930		3,446,366
Increase (decrease) in cash and cash equivalents from continuing operations		796,381		(567,469)
Cash from discontinued operations:
Cash provided by operating activities of discontinued operations		12,178		141,888
Cash provided by investing activities from discontinued operations		-		-
Net increase in cash and cash equivalents from discontinuing operations		12,178		141,888
Net increase (decrease) in cash and equivalents from continuing and discontinuing operations		808,559		(425,581)
Cash and cash equivalents, beginning of period		99,019		427,433
Cash and cash equivalents, end of period	$	907,578	$	1,852

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Sources of Liquidity

As of June 30, 2010, we had cash and cash equivalents of approximately $907 thousand, and Accounts Receivable of approximately $3.0 million. In addition, as of June 30, 2010 we had approximately $238 thous and of cash restricted from withdrawal and held by banks as certificates of deposits securing letters of credit (equal to the amount of the certificates of deposit).

From our inception through June 30, 2010, we have financed our operations from operating revenues and cash provided from financing activities. These activities provided net proceeds of approximately $23.3 million from our initial public offering (IPO), the private placement of approximately $ 70.1 million of equity securities, $1.6 million from the exercise of stock options and warrants, and $30.8 million from loans evidenced by the issuance of promissory notes. In addition, since inception we have financed the acquisition of $ 8.2 million of fixed assets through capital leases.

Our long-term liquidity is dependent on our ability to attain f uture profitable operations. We cannot predict if and when we will be able to attain future profitability.

Uses of Liquidity

Our short-term and long-term liquidity needs arise primarily from principal and interest payments related to our capital lease/equipment financing obligations, capital expenditures, and working capital requirements as may be needed to support the growth of our business, and any additional funds that may be required for business expansion opportunities.

Our cash capital expenditures were approximately $54 thousand and $17 thousand for the six months ended June 30, 2010 and 2009, respectively. We expect our cash capital expenditures to be approximately $106 thousand for the next six-months ending December 31, 2010. The 2010 estimated capital expenditures primarily consist of additional infrastructure development for the carrier services and corporate services segments.

Cash used in operations was approximately $ 3.3 million and $4.0 million during the six months ended June 30, 2010 and 2009, respectively. The cash used in our operations has historically been a function of our net losses, expenses for property and equipment, and changes in working capital as a result of the timing of receipts and disbursements. As we continue to focus on our corporate and carrier sales, we expect our net cash used in operating activities to improve during future periods.

In some situations, we may be required to guarantee payment or performance under agreements, and in these circumstances, w e may be required to secure letters of credit or bonds to do so.

Debt Service Requirements

At June 30, 2010, we had approximately $2.8 million of current-term debt. This balance relates to notes payable and our capital leases. Of this amount, the portion of debt collateralized by a security interest in accounts receivable is $2.8 million.

Capital Instruments

From September 2009 through March 30, 2010, the Company sold 31,320,083 shares of common stock for which proceeds of approximately $5.0 million were received, net of expenses of approximately $5 thousand. In addition, the Company is sued five-year warrants to purchase 4,078,903 shares of common stock at an exercisable price of 120% of the closing price of the Company’s common stock the business day before closing.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

In March 2010, the Company entered into a service agreement with a company to act as a placement agent and financial advisor to arrange the sale of equity securities on behalf of the Company. The Company has agreed to pay the placement agent a commission equal to 8% of the gross proceeds of the offering, a finance fee equal to 2% of the gross proceeds of the offering, and a non-accountable expense allowance equal to 2% of the gross proceeds, as well as warrants to purchase a number of shares of the Company’s common stock equal to 10% of the number of units sold in the offering. Through June 30, 2010, the Company sold 21,428,593 shares of common stock for which proceeds of approximately $2.1 million were received, net of expenses of approximately $377 thousand. In addition, the Company issued five year investor warrants to purchase 5,357,148 shares of common stock at an exercisable price of 125% of the closing price of the Company’s common stock, and addit ional five year investor warrants to purchase 5,357,148 shares of common stock at an exercisable price of 150% of the closing price of the Company’s common stock. The placement agent was paid commissions aggregating $360,000 and was issued placement agent warrants to purchase an aggregate of 2,142,860 shares of common stock equal to 10% of the number of units sold, at an exercisable price of 125% of the closing price of the Company’s common stock.

Critical Accounting Policies and Estimate

The Company has identified the policies and significant estimation processes below as critical to the Company’s business operations and the understanding of the Company’s resul ts of operations. The listing is not intended to be a comprehensive list. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management’s judgment in their application. In other cases, management is required to exercise judgment in the application of accounting principles with respect to particular transactions. The impact and any associated risks related to these policies on the Company’s business operations is discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 2 in the Notes to Consolidated Financial Statements for the Year Ended December 31, 2009, included in the Company's Annual Report on Form 10-K. The Company’s preparation of its consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Company’s consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results wil l not differ from those estimates and such differences could be significant.

Revenue Recognition

The Company’s revenue is primarily derived from usage fees charged to carriers and corporations that terminate voice traffic over the Company’s network, and from the monthly recurring fees charged to customers that purchase the Company’s corporate products and services.

Variable revenue is earned based on the length (number of minutes duration) of a call. It is recognized upon completion of the call, and is adjusted to reflect the Company’s allowance for doubtful accounts receivable and billing adjustments. Revenue for each c ustomer is calculated from information received from the Company’s network switching systems. Customized software has been designed to track the information from the switch and analyze the call detail records against stored detailed information about revenue rates. This software provides us the ability to complete a timely and accurate analysis of revenue earned in a period. Consequently, the recorded amounts are generally accurate and the recorded amounts are unlikely to be revised in the future.

Fixed revenue is earned from monthly recurring services provided to the customer that are fixed and recurring in nature, and are contracted for over a specified period of time. The initial start of revenue recognition is after the provisioning, testing and acceptance of the service by the customer. The charges continue to bill until the expi ration of the contract, or until cancellation of the service by the customer.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Additionally, the majority of the Company’s mo nthly recurring charges for corporate services are billed in advance. To the extent that revenue received from the customer is related to services in the current month, it is booked to the current month’s revenue. Any revenue received that is related to a future period is booked to deferred revenue, until the service is provided or the usage occurs.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded net of an allowance for doubtful accounts. On a periodic basis, we evaluate the Company’s accounts receivable and record an allowance for doubtful accounts, based on our history of past write-offs and collections and current credit conditions. S pecific customer accounts are written off as uncollectible if the probability of a future loss has been established and payments are not expected to be received.

Cost of Revenues and Cost of Revenues Accrual

Cost of revenues is comprised primarily of costs incurred from other domestic and international communications carriers to originate, transport, and terminate voice calls for the Company’s carrier and corporate customers. The majority of the Company’s cost of revenues is thus variable, based upon the number of minutes actually used by the Company’s customers and the destinations they are calling. Cost of revenues also includes the monthly recurring cost of certain platform services purchased from other service providers, as well as the monthly recurring costs of broadband Intern et access and/or private line services purchased from other carriers to meet the needs of the Company’s customers.

Call activity is tracked and analyzed with customized software that analyzes the traffic flowing through the Company’s network switching systems. During each period, the call activity is analyzed and an accrual is recorded for the revenues associated with minutes not yet invoiced. This cost accrual is calculated using minutes from the system and the variable cost of revenue based upon predetermined contractual rates.

In addition to the variable cost of revenue, there are also fixed expenses. One category of fixed expenses is associated with the facilities comprising the Company’s network backbone and the connectivity bet ween the Company’s switch facilities and the network backbone. These expenses generally include hubbing charges at the our New York switching facility that allow other carriers to send traffic to our switch, as well as satellite and/or fiber optic cable charges to connect to international destinations. The Company’s fixed expenses also include monthly recurring charges associated with certain platform services purchased from other service providers and the monthly recurring costs associated with broadband Internet access and/or private line services purchased from other carriers to meet the needs of our corporate customers.

Intangible Assets and Goodwill Impairment Testing

Absent any circumstances that warrant testing at another time, the Company tests for goodwill and non-amortizing int angible asset impairment as part of the Company’s year-end closing process. Impairment losses are recorded when indicators of impairment are present based primarily upon estimated future cash flows.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Income Taxes

The Company accounts for income taxes in accordance with the requirements under U.S. GAAP which requires companies to recognize deferred tax liabilities and assets for the expected future income tax consequences of events that have been recognized in our condensed consolidated inte rim financial statements. Deferred tax liabilities and assets are determined based on the temporary differences between the condensed consolidated interim financial statements carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in the years in which the temporary differences are expected to reverse. In assessing the likelihood of utilization of existing deferred tax assets and recording a full valuation allowance, we have considered historical results of operations and the current operating environment.

Recently Issued Accounting Pronouncements

In June 2009, the FASB issued guidance related to improving the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its consolidated financial state ments about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. The FASB undertook this project to address (1) practices that have developed since the issuance of previously issued guidance related to the accounting for transfers and servicing of financial assets and extinguishments of liabilities, that are not consistent with the original intent and key requirements of that statement, and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the consolidated financial statements of the transferors. This new guidance must be applied as of January 1, 2010, the beginning of the Company’s first annual reporting period after Novemb er 15, 2009. Earlier application of this guidance is prohibited and must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective, the concept of a qualifying SPE is no longer relevant for accounting purposes.

Therefore, a formerly qualifying SPE should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. If the evaluation on the effective date results in consolidation, the reporting entity should apply the transition guidance provided in the pronouncement that requires consolidation. The disclosure provisions of the guidance should be applied to transfers that occurred both before and after the effective date of this statement. The adoption of the new guidance did not have any substantive impact on the on the Company&# 146;s condensed consolidated interim financial statements or related footnotes.

In June 2009, the FASB, issued replacement guidance related to The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles, which confirmed that the FASB Accounting Standards Codification (the “Codification”) will become the single official source of authoritative U.S. GAAP (other than guidance issued by the SEC), superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force (“EITF”), and related literature. After that date, only one level of authoritative U.S. GAAP will exist. All other lit erature will be considered non-authoritative. The Codification does not change U.S. GAAP; instead, it introduces a new structure that is organized in an easily accessible, user-friendly online research system. The Codification, which changes the referencing of financial standards, becomes effective for interim and annual periods ending on or after September 15, 2009. The Company applied the Codification beginning in the third quarter of fiscal 2009. The adoption of SFAS 168 did not have any substantive impact on the Company’s condensed consolidated interim financial statements or related footnotes.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Forward–Looking Statements

The discussion in this quarterly report regarding the Company’s business and operations includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1996. Such statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as “may”, “expect”, “anticipate”, “intend”, “estimate” or “continue” or the negative thereof or other variations thereof or comparable terminology. The reader is cautioned that all forward-looking statements are speculative, and there are certain risks and uncertainties that could cause actual events or results to differ from those referred to in such forward-looking statements. This disclosure highlights some of the important risks regarding the Company’s business. The number one risk of the Company is its ability to attract fresh and continued capital to execute it s comprehensive business strategy. There may be additional risks associated with the integration of businesses following an acquisition, concentration of revenue from one source, competitors with broader product lines and greater resources, emergence into new markets, the termination of any of the Company’s significant contracts or partnerships, the Company’s inability to maintain working capital requirements to fund future operations or the Company’s inability to attract and retain highly qualified management, technical and sales personnel, and the other factors identified by us from time to time in the Company’s filings with the SEC. However, the risks included should not be assumed to be the only things that could affect future performance. We may also be subj ect to disruptions, delays in collections, or facilities closures caused by potential or actual acts of terrorism or government security concerns.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Disclosure under this section is not required for a smaller reporting company.

Item 4T. Controls and Procedures.

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, or the "Exchange Act") that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2010. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to accomplish their objectives.

Our Chief Executive Officer and Chief Financial Officer do not expect that our disclosure controls or our internal controls will prevent all error and all fraud. The design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be considered relative to their cost. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that we have detected all of our control issues and all ins tances of fraud, if any. The design of any system of controls also is based partly on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions.

There have been no changes in our internal control over financial reporting that occurred during our fiscal quarter ended June 30, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

PART II–OTHER INFORMATION< /p>

Item 1. Legal Proceedings.

On July 30, 2008, a vendor that provides management consulting and software systems services, associated with the Company’s discontinued operations, filed a complaint in the Supreme Court of the State of New York (Software Synergy, Inc., v Fusion Telecommunications International, Inc., Index No. 602223/08) seeking damages in the amount of $624,594 plus $155,787 in Prejudgment interest and costs, allegedly due to the plaintiff under terms of a Professional Services Letter Agreement (the “PSLA”) and a Master Software License Agreement (the “MSLA”). This complaint asserted claims for relief against the Company for breach of contract, failure to pay to plaintiff moneys allegedly due under the ter ms of the PSLA, violation of the terms of the MSLA, and prejudgment interest and costs. On September 17, 2008, the Company filed its Answer and Counterclaim against the vendor alleging the plaintiff materially breached its obligations to the Company under the PSLA and MSLA and is liable to the Company for damages, including full repayment of the amounts which the Company paid to the plaintiff for its failed development effort. On June 25, 2010, the parties entered into a Confidential Settlement Agreement resolving the litigation, providing for the mutual release of all claims, and agreeing to the dismissal of the case.

In August 2009, Global IP Solutions, Inc. (“GIPS”), a vendor associated with the Company’s discontinue d operations, filed an action requesting an injunction and a temporary restraining order in the Southern District of New York, (Case No. 09-CV-6981), asserting infringement of copyrighted software. On October 23, 2009, the Company filed its Answer and Counterclaim in this matter, refuting the GIPS allegations, seeking a refund of advanced royalties paid to GIPS which were never fully utilized, and seeking damages related to defects in the software that directly impacted the Company’s efforts to market certain products and services that included the GIPS software. On June 1, 2010, the parties entered into a Confidential Settlement Agreement resolving the litigation providing for the mutual release of all claims, and agreeing to the dismissal of the case.

On or about September 10, 2009, a landlord over premises leased by the Company commenced a pro ceeding in the New York City Civil Court, County of New York (Index No. 084795/09), in which the landlord sought to recover against the Company unpaid rent and related charges due under a lease agreement between the landlord and the Company, and to evict the Company from the premises. By Stipulation of Settlement dated October 31, 2009, the landlord and the Company agreed that the landlord would be entitled to a judgment in the amount of approximately $246,000 and a warrant of eviction, but that the landlord would not enforce the judgment or execute the warrant as long as the Company complied with the Stipulation. By a First Amendment to the Stipulation of Settlement dated January 15, 2010, the parties agreed to modify the payment schedule in the original stipulation. The amended stipulation also provided that the landlord would not enforce the judgment or execute the warrant as long as the Company complied with the payment schedule in the amended stipulation. The Company executed the stipulation of set tlement and made the initial payments under the stipulation. However, the Company has not yet made the final two payments under the stipulation. The Company and the landlord are currently negotiating a Second Amendment to the Stipulation of Settlement, modifying the payment schedule in the first amendment and providing additional time for the Company to complete payment of the amounts due. This amendment further provides that the landlord will not enforce the judgment nor execute the warrant as long as the Company complies with the modified payment schedule in the latest amendment. The landlord is cooperating with the Company, and the Company believes that the matter will ultimately be resolved.

On June 14, 2010, three individuals filed an action against a former customer of the Company and other associated persons, and against the Company, in New York State Court, County of Kings ( Index No. 24255/09). The plaintiffs allege that the non-Fusion defendants accepted funds from the plaintiffs for investment in real estate, but subsequently used some or all of those funds for other purposes. The plaintiffs further allege that the non-Fusion defendants made certain payments to the Company and they seek repayment of those sums from the Company in the amount of $237,913 plus interest. The Company believes that the plaintiffs’ claims are without merit, as the bank account information provided by the plaintiffs themselves shows that the majority of the funds allegedly paid to the Company were actually paid to other non-affiliated entities. Moreover, those funds that were received by the Company from the non-Fusion defendants were payment for specific telecommunications equipment and services purchased by the non-Fusion defendants from the Company, and the Company had no knowledge of any alleged misuse of funds by the non-Fusion defendants. The Company is prepar ing its formal answer to the plaintiffs’ claims, and intends to vigorously defend itself.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Item 1A. Risk Factors.

An investment in our Securities involves a high degree of risk. You should carefully consider the risks described below before you decide to invest in our Securities. If any of the following events actually occur, our business could be seriously harmed. In such case, the value of your investment may decline and you may lose all or part of your investment. You should not invest in our Securities unless you can afford the loss of your entire investment.

Risks Related to Our Business

We have a history of operating losses, working capital deficit, and stockholders’ deficit. There can be no assurance that we will ever achieve profitability or have sufficient funds to execute our business strategy.

At June 30, 2010, we had a work ing capital deficit of approximately $(8.5) million and a stockholders’ deficit of approximately $(6.7) million. Although we have reduced our losses, we continue to sustain losses from operations and for the period ended June 30, 2010, and 2009 we incurred net losses applicable to common stockholders of approximately $(3.4) million, and $(6.3) million, respectively. In addition, we did not generate positive cash flow from operations for the periods ended June 30, 2010, and 2009. We may not be able to generate profits in the future and may not be able to support our operations or otherwise establish a return on invested capital. In addition, we may not have sufficient funds to execute our business strategy, requiring us to raise funds from the capital markets, consequently, diluting our common stock.

These losses, among other things, have had and will continue to have an adverse effect on our working capital, total assets and stockholders’ deficit. In light of our recurring losses, accumulated deficit and cash flow difficulties, the report of our independent registered public accounting firm on our financial statements for the fiscal year ended December 31, 2009 contained an explanatory paragraph raising substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that may be necessary in the event we are unable to continue as a going concern.

Our carrier services revenue performance is subject to both internal and external influences, which have and may continue to negatively impact our revenues.

During 2009, the Comp any's carrier services revenue was negatively impacted not only by seasonal and economic market fluctuations, but also by a general decline in the overall market, which was influenced by the general economic decline. In addition, during 2009, resources that we would otherwise have dedicated to revenue growth were constrained by our dedication of significant resources to restructuring and exiting the consumer services segment. We were also adversely affected by limits on our ability provide extended payment terms to larger customers. We anticipate that these revenue growth constraints will be eased as the general economic conditions improve, but there is no assurance that we will be successful in our efforts to increase revenues and margin contribution in this business segment.

Our business is capital intensive, and we do not currently generate sufficient revenues to offset our operating expenses. I f we are unable to obtain additional funding, as and when required, we may have to significantly curtail or possibly terminate our operations.

We will require substantial future capital in order to continue to fund our operating expenses and to otherwise execute our business plan. If we are unable to obtain additional financing or generate sales revenue sufficient to sustain our operations, as needed, we could be forced to significantly curtail or suspend our operations, including laying-off employees, recording asset impairment write-downs and other measures. Additional capital may not be available to us when needed, or on terms that are acceptable to us, or at all.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Historically we have funded our working capital requirements through the sale of our equity. The use of our equity to fund operations is dilutive to the equity ownership of our securities by our existing stockholders. Unless we are able to generate substantial revenues to fund our operating expenses, we will be required to continue to fund operations through the sale of our equity.

In addition, limited cash resources may restrict our ability to sell those carrier services that require us to purchase termination capacity on shorter payment terms than the terms under which we are able sell to our customers. This could limit our ability to grow our revenues and/or margins, or limit our ability to achieve our revenue and/or margin targets.

We have historic ally relied on our officers and directors to loan us funds to sustain our operations. If such loans are not available if and when we require them in the future, we may have insufficient capital to operate. We may also be required to repay loans, including those from our affiliates, from our accounts receivable.

Historically, we have relied upon loans from certain of our officers and directors to sustain our operations. In addition, the loans from our affiliates, as well as loans we have received from others, are collateralized by a pari passu security interest in all of our accounts receivable. In the event we are unable to generate sufficient funds from operations to satisfy our operating needs, we may require further loans from our affiliates. There is no assurance that our affiliates will be able to provide us with additional capital as and when we require it in the future, and, if they a re unable to do so, we may have insufficient funds with which to sustain operations.

We have historically funded our cash flow requirements, in part, from the proceeds of loans evidenced by demand promissory notes or by term promissory notes. To the extent that the term notes were not repaid on the maturity date, they were typically converted into demand notes. As of June 30, 2010, approximately $2.8 million of indebtedness was evidenced by such demand notes, of which approximately $2.2 million was held by our Chairman, Marvin Rosen. In addition, the holders of these notes have been granted a pari passu security interest in our accounts receivables. If these note holders were to suddenly demand payment of all outstanding demand notes, or a substantial portion thereof, we likely would not have sufficient funds to repay those notes. In such event, the note holders could assert rights against us in lega l proceedings, and could seek to collect on their notes by enforcing their security interest in our accounts receivable. This could adversely affect the availability of the funds required to continue operation of our business.

If we are unable to manage our growth or implement our expansion strategy, we may increase our costs without increasing our revenues.

We may not be able to expand our product offerings, our client base and markets, or implement the other features of our business strategy at the rate or to the extent presently planned. Our projected growth will place a significant strain on our administrative, operational, and financial resources and may increase our costs. If we are unable to successfully manage our future growth, establish, and continue to upgrade our operating and financial cont rol systems, recruit and hire necessary personnel or effectively manage unexpected expansion difficulties, we may not be able to maximize revenues or profitability

The success of our growth is dependent upon market developments and traffic patterns, which may lead us to make expenditures that do not result in increased revenues

Our purchase of network equipment and software will be based in part on our expectations concerning future revenue growth and market developments. As we expand our network, we will be required to make significant capital expenditures, including the purchase of additional network equipment and software, and to add additional employees. To a lesser extent our fixed costs will also increase from the ownership and maintenance of a greater amount of network equipment including our So ftswitch, gateways, routers, and other related systems. If our traffic volume were to decrease, or fail to increase to the extent expected or necessary to make efficient use of our network, our costs as a percentage of revenues would increase significantly.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

We may be unable to adapt to rapid technology trends and evolving industry standards, which could lead to our products becoming obsolete.

The communications industry is subject to rapid and significant changes due to technology innovation, evolving industry standards, and frequent new service and product introductions. New services and products based on new technologies or new industry sta ndards expose us to risks of technical or product obsolescence. We will need to use technologies effectively, continue to develop our technical expertise and enhance our existing products and services in a timely manner to compete successfully in this industry. We may not be successful in using new technologies effectively, developing new products, or enhancing existing products and services in a timely manner or that any new technologies or enhancements used by us or offered to our customers will achieve market acceptance.

Some of our services are dependent upon multiple service platforms, network elements, and back-office systems that are reliant on third party providers.

We have deployed back-office systems and services platforms that enable us to offer our customers a wide-array of services and feat ures. Sophisticated back office information and processing systems are vital to our growth and our ability to monitor costs, bill clients, provision client orders, and achieve operating efficiencies. Some of these systems are dependent upon license agreements with third party vendors. These third party vendors may cancel or refuse to renew some of these agreements, and the cancellation or non-renewal of these agreements may harm our ability to bill and provide services efficiently.

We may be impacted by litigation regarding patent infringement to which we were not a party.

On March 8, 2007, a jury in the U.S. District Court for the Eastern District of Virginia ruled that Vonage Holdings had infringed on six patents held by Verizon Communications, and ordered Vonage to pay Verizon $58 million plus a futu re royalty payment equal to 5.5% of Vonage’s customer sales. The patents related in part to technologies used to connect Internet telephone use to the traditional telephone network. Vonage appealed the decision, but terminated its appeals options in November 2007, when it agreed to pay Verizon approximately $120 million in settlement. The future impact, if any, of this litigation on other VoIP service providers, including us, is unclear. If we were restricted from using certain VoIP technologies, it could increase our cost of service or preclude us from offering certain current or future services.

Breaches in our network security systems may hurt our ability to deliver services and our reputation, and result in liability.

We could los e clients and expose ourselves to liability if there are any breaches to our network security systems, which could jeopardize the security of confidential information stored in our computer systems. In the last four years, we experienced two known breaches of network security, which resulted in a temporary failure of network operations, but did not result in any losses of confidential customer information or material financial losses. Any network failure could harm our ability to deliver certain services, our reputation and subject us to liability.

Our revenue growth is dependent upon our ability to build new distribution relationships, and to bring on new customers, of which there can be no assurance.

Our ability to grow through efficient and cost effective deployment of our VoIP services is in part de pendent upon our ability to identify and contract with local entities that will assist in the distribution of our services. This will include local sales partners that sell our corporate services. If we are unable to identify or contract for such distribution relationships, or if the efforts of third party sales agents are not successful, we may not generate the customers or revenues currently envisioned.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

We are dependent upon our ability to obtain the necessary regulatory approvals and licenses to enter new domestic and international markets in which such approvals are required. Such approvals may or may not occur as planned and may or may not be delayed.

Our entry into new domestic and international markets may in certain cases rely upon our ability to obtain licenses or other approvals to operate in those markets, our ability to establish good working relationships with the relevant telecommunications regulatory authorities in that jurisdiction, or our ability to interconnect to the local telephone networks in that market. There can be no assurance of our ability to accomplish these requirements.

The communications services industry is highly competitive and we may be unable to compete effectively.

The communications industry, including the provisioning of voice services, Internet services and data services, is highly competitive, rapidly evolving, and subject to constant technological change and intense ma rketing by providers with similar products and services. We expect that new carrier competitors, as well as “gray market” operators (operators who arrange call termination in a manner that bypasses the postal telephone and telegraph company, resulting in high margins for them and substantially lower revenues for the legitimate providers), may have an impact on the market. In addition, many of our current carrier and corporate competitors are significantly larger and have substantially greater market presence as well as greater financial, technical, operational, marketing, and other resources and experience. In the event that such a competitor expends significant sales and marketing resources in one or several markets where we compete with them, we may not be able to compete successfully in those markets. We also believe that competition will continue to increase, placing downward pressure on prices. Such pressure could adversely affect our gross margins if we are not able to reduce our costs commensurate with the price reductions of our competitors. In addition, the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies to provide the same or similar services offered or proposed to be offered by us. If our competitors were to provide better and more cost effective services than ours, we may not be able to increase our revenues or capture any significant market share.

Industry consolidation could make it more difficult for us to compete.

Companies offering voice, Internet, data and communications services are, in some circumstances, consolidating. We may not be able to compete successfully wit h businesses that have combined, or will combine, to produce companies with substantially greater financial, technical, sales, and marketing resources, or with larger client bases, more extended networks, or more established relationships with vendors, distributors and partners. With these heightened competitive pressures, there is a risk that our revenues may not grow as expected and the value of our common stock could decline.

Our ability to provide services is often dependent on our suppliers and other service providers who may not prove to be effective.

A majority of the voice calls made by our clients are connected through other communication carriers, which provide us with transmission capacity through a variety of arrangements. Our ability to terminate voice traffic in our targeted markets is an essential component of our ongoing operations. If we do not secure or maintain operating and termination arrangements, our ability to increase services to our existing markets, and gain entry into new markets, will be limited. Therefore, our ability to maintain and expand our business is dependent, in part, upon our ability to maintain satisfactory relationships with other domestic carriers, Internet service providers, international carriers, satellite providers, fiber optic cable providers and other service providers, many of which are our competitors, and upon our ability to obtain their services on a cost effective basis. In addition, if a carrier with whom we interconnect does not carry the traffic routed to it, or does not provide the required capacity, we may be forced to route our traffic to, or buy capacity from, a different carrier on less advantageous terms, which could reduce our profit margins or degrade our network service quality. In the event network service is degraded, it may result in a loss of customers. To the extent that any of these carriers with whom we interconnect raise their rates, change their pricing structure, or reduce the amount of capacity they will make available to us, our revenues and profitability may be adversely affected.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

We rely on third party equipment suppliers who may not be able to provide us the equipment necessary to deliver the services that we seek to provide.

We are dependent on third party equipment suppliers for equipment, software, and hardware components, including Cisco, Nextone, BroadSoft, and Veraz. If these suppliers fail to continue product development and research and development or fail to deliver quality products or support services on a timely basis, or we are unable to develop alternative sources of supply, if and as required, it could result in an inability to deliver the services that we currently provide or intend to provide, and our financial condition and results of operations may be adversely affected thereby.

We rely on the cooperation of other international carriers and/or postal telephone and telegraph companies (PTTs), who may not always cooperate with us in our attempts to serve a specific country or market.

In some cases, the growth of our carrier services business requires the cooperation of other international carriers and/or the incumbent PTT in order to provide services to or from specific countries or markets. In the event the PTT, or another in-country international carrier, does not cooperate with us or support us in our efforts to serve that country, our ability to provide service to or from that country may be delayed, or the costs to provide service might increase due to our being forced to use another more expensive carrier. If we are unable to develop and maintain successful relationships with our joint venture partners, we could fail in an important market.

We have been in the past, and may be in the future, engaged in certain joint ventures where we share control or management with a joint venture partner. If we are unable to maintain a successful relationship with a joint venture partner, the joint venture’s ability to move quickly and respond to changes in market conditions or respond to financial issues can erode and reduce the potential for value creation and return on investment. Further, any failure in joint ventures may restrict or delay our ability to make important financial decisions, such as repatriating cash to us from such joint ventures. This uncertainty with our potential future joint ventures could result in a failure in an important market.

Service interruptions due to disputes could result in a loss of revenues and harm our reputation.

Portions of our terminating network may be shut down from time to time, as a result of disputes with vendors or other issues. Any future network shut downs can have a significant negative impact on revenue and cash flows, as well as hurting our reputation. In addition, there is no assurance that we will be able to quickly resolve disputes, if ever, which could result in a permanent loss of revenues.

Because we do business on an international level, we are subject to an increased risk of tariffs, sanctions and other uncertainties that may hurt our revenues.

There are certain risks inherent in doing business internationally, especially in emerging markets, such as unexpected changes in regulatory requirements, the imposition of tariffs or sanctions, licenses, customs, duties, other trade barriers, political risks, currency devaluations, high inflation, corporate law requirements, and even civil unrest. Many of the economies of these emerging markets we seek to enter are weak and volatile. We may not be able to mitigate the effect of inflation on our operations in these countries by price increases, even over the long-term. Further, expropriation of private businesses in such jurisdictions remains a possibility, whether by outright seizure by a foreign government or by confiscatory tax or other policies. Also, deregulation of the communications markets in developing countries may or may not continue. Incumbent service providers, trade unions and others may resist legislation directed toward deregulation and may res ist allowing us to interconnect to their networks. The legal systems in emerging markets also frequently have insufficient experience with commercial transactions between private parties, and consequently, we may not be able to protect or enforce our rights in some emerging market countries. Governments and regulations may change, thus impacting the availability of new licenses or the cancellation or suspension of existing operating licenses. The instability of the laws and regulations applicable to our businesses, as well as their interpretation and enforcement, could materially and adversely affect our business, our financial condition, or results of operations in those countries.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

The regulatory treatment of VoIP outside the United States varies from country to country. Some countries are considering subjecting VoIP services to the regulations applied to traditional telephone companies and they may assert that we are required to register as a telecommunications carrier in that country or impose other more onerous regulations. In such cases, our failure to register could subject us to fines, penalties, or forfeiture of our right to do business in that country. Regulatory developments such as these could have a material adverse effect on our international operations.

Additional taxation and government regulations of the communications industry may slow our growth, resulting in decreased demand for our products and services and increased costs of doing business.

As a result of changes in regulatory policy, we could be forced to pay additional taxes on the products and services we provide. We structure our operations and our pricing based on assumptions about various domestic and international tax laws, tax treaties, and other relevant laws. Taxation authorities or other regulat ory authorities might not reach the same conclusions about taxation that we have reached in formulating our assumptions. We could suffer adverse tax and other financial consequences, if our assumptions about these matters are incorrect or the relevant laws are changed or modified.

Generally, in the U.S., our products and services are subject to varying degrees of federal, state, and local regulation, including regulation by the Federal Communications Commission (FCC) and various state public utility commissions. We may also be subject to similar regulation by foreign governments and their telecommunications/regulatory agencies. While these regulatory agencies grant us the authority to operate our business, they typically exercise minimal control over our services and pricing. However, they do require the filing of various reports, compliance with public safety and consumer protection standards, and the pay ment of certain regulatory fees and assessments.

We cannot assure that the applicable U.S. and foreign regulatory agencies will grant us the required authority to operate, will allow us to maintain existing authority so we can continue to operate, or will refrain from taking action against us if we are found to have provided services without obtaining the necessary authority. Similarly, if our pricing, and/or terms or conditions of service, are not properly filed or updated with the applicable agencies, or if we are otherwise not fully compliant with the rules of the various regulatory agencies, regulators or other third parties could challenge our actions and we could be subject to forfeiture of our authority to provide service, or to penalties, fines, fees, or other costs. We have been delinquent in certain filing and reporting obligations in the past, including, but not limited to, filings with the FCC and Universal Service Fund (USF) reports and payments. We are currently working with various federal and state regulatory agencies to complete any outstanding filings.

In addition to new regulations being adopted, existing laws may be applied to the Internet, which could hamper our growth.

New and existing laws may cover issues that include: sales and other taxes; user privacy; pricing controls; characteristics and quality of products and services; consumer protection; cross-border commerce; copyright, trademark and patent infringement; and other claims based on the nature and content of Internets. This could delay growth in demand for our products and services and limit the growth of our revenue. A large percentage of our current revenues are related to a small group of customers and loss of any of tho se customers could negatively impact our revenues.

A large percentage of our current revenues are related to a small group of customers and loss of any of those customers could negatively impact our revenues.

A large percentage of our carrier services revenues are provided by a limited number of customers. Specifically, our five largest customers accounted for approximately 66% and 72% of our revenues for the years ended December 31, 2009 and 2008, respectively. The terms of the customer’s agreement do not bind the customer contractually to continue using our services and, if our business with this customer were to significantly decrease or stop, it could have a negative impact on our revenues and cash flow.&nb sp;

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Risks Related to Our Common Stock

One stockholder may be deemed to control us through its stock ownership and its interests may differ from other stockholders.

West End Special Opportunity Fund II, LP (“West End”) currently beneficially owns approximately 18.7 million shares, or 15.4%, of our outstanding common stock, and is the second largest single voting block in the Company. Additionally, our Directors and Executive Officers as a group currently beneficially own approximately 31.7 million shares, or 26.2% of our common stock. As a result, while neither West End nor our Directors and Officers as a group, have sufficient voting power to control the outcome of matters sub mitted to a vote of our stockholders, the extent of their ownership enable both groups to influence the outcome of these matters, including the election of directors and extraordinary corporation transactions including business combinations. Their interests may differ from those of other stockholders. Should West End and our current Directors and Executive Officers vote in the same manner, West End and our current Directors and Executive Officers, collectively, have sufficient voting power to effectively determine the outcome of most matters submitted to a vote of stockholders.

We are not likely to pay cash dividends on our common stock in the foreseeable future.

We have never declared or paid any cash dividends on our common stock. We intend to retain any future earnings to finance our operations and to expand our business and, therefore, do not expect to pay any cash dividends in the foreseeable future. Holders of our outstanding preferred stock are entitled to receive dividends prior to the payment of any dividends on our common stock. The payment of dividends is also subject to provisions of Delaware law prohibiting the payment of dividends except out of surplus and certain other limitations.

Our common stock is subject to price volatility unrelated to our operations.

The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general condition s in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

In addition, the market price of our common stock may fluctuate significantly in response to a number of other factors, many of which are beyond our control, including, but not limited to, the following:

· our ability to obtain securities analyst coverage;

· changes in securities analysts’recommendations or estimates of our financial performance;

· changes in market valuations of companies similar to us; and announcements by us or our competitors of significant contracts, new offerings, acquisitions, commercial relationships, joint ventures or capital commitments; and

· the failure to meet analysts’expectations regarding financial performances.

Furthermore, in the past, companies that have experienced volatility in the market price of their stock have been subject to Securities class action litigation. A Securities class action lawsuit against us, regardless of its merit, could result in substantial costs and divert the attention of our management from other business concerns, which in turn could harm our business.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

Our common stock may be subject to the “Penny Stock”rules of the Commission, which will make transactions in our common stock cumbersome and may reduce the value of an investment in our common stock.

As the trading price of our common stock is less than $5.00 per share, our common stock may be considered a "penny stock," and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser's written consent prior to the transaction.

Securities and Exchange Commission regulations also require additional disclosure in connection with any trades involving a "penny stock," including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of securities in the secondary market because few broker or dealers are likely to undertake these compliance activities. In addition to the applicability of the penny stock rules, other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.

The elimination of monetary liability against our directors, officers and employees under our certific ate of incorporation and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by our Company and may discourage lawsuits against our directors, officers and employees.

Our certificate of incorporation contains provisions which eliminate the liability of our directors for monetary damages to our Company and stockholders to the maximum extent permitted under Delaware corporate law. Our By-laws also require us to indemnify our directors to the maximum extent permitted by Delaware corporate law. We may also have contractual indemnification obligations under our agreements with our directors, officers and employees. The foregoing indemnification obligations could result in our Company incurring substantial expenditures to cover the cost of settlement or damage awards against directors, officers and employees, which we may be unable to recoup. These provisions and resultant costs may also discourage our Company from bringing a lawsuit against directors, officers and employees for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors, officers and employees even though such actions, if successful, might otherwise benefit our Company and stockholders.

The issuance of our common stock upon the exercise of options or warrants or the conversion of outstanding convertible securities may cause significant dilution to our stockholders and may have an adverse impact on the market price of our common stock.

As of the date of this report, there were 126,167,121 shares of our common stock outstanding. The issuance of our shares upon the exercise or conversion of securities we have outstanding will increase the number of our publicly traded shares, which could depress the market price of our common stock.

The perceived risk of dilution may cause our stockholders to sell their shares, which would contribute to a downward movement in the stock price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

We could use preferred stock to fund operations or resist takeovers, and the issuance of preferred stock may cause additional dilution.

Our certificate of incorporation authorizes the issuance of up to 10,000,000 shares of preferred stock, of which 7,995 shares of Series A-1 through A-4 Preferred Stock are currently issued and outstanding. Our certificate of incorporation gives our board of directors the authority to issue preferred stock without the approval of our stockholders. We may issue additional shares of preferred stock to raise money to finance our operations. We may authorize the issuance of the preferred stock in one or more series. In addition, we may set the terms of preferred stock, including:

· dividend and liquidation preferences;

· voting rights;

· conversion privileges;

· redemption terms; and

· other privileges and rights of the shares of each authorized series.

The issuance of large blocks of preferred stock could possibly have a dilutive effect to our existing stockholders. It can a lso negatively impact our existing stockholders’ liquidation preferences. In addition, while we include preferred stock in our capitalization to improve our financial flexibility, we could possibly issue our preferred stock to friendly third parties to preserve control by present management. This could occur if we become subject to a hostile takeover that could ultimately benefit us and our stockholders.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

< font style=COLOR:black>Item 3. Defaults Upon Senior Securities.

None

Item 4. Submission of Matters to a Vote of Security Holders.

None

Item 5. Other Information.

On June 28, 2010, the Company, as pa rt of its continued cost-cutting efforts, entered into a Surrender and Lease Modification and Extension Agreement (the “Lease Modification”) with the landlord of its network operations equipment facility at 75 Broad Street in New York. The Lease Modification provides for an extension of the term of the lease for an additional five years and three months with an option for the Company to then renew for another five years. More importantly, the Lease Modification provides for the surrender to the landlord of a portion of the total space previously under lease and a corresponding reduction in the annual rent payable by the Company. The Lease Modification also reduces the effective rental rate per square foot for the remaining space. The Lease Modification will take effect upon the removal of certain items of equipment and the surrender of the unused space to the landlord.

Item 6. Exhibits.


EXHIBIT NO.	DESCRIPTION
10.9.a	Surrender and Lease Modification and Extension Agreement, dated June 28, 2010
31.1	Certification of the Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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


	FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
	By: /s/ MATTHEW D. ROSEN
	Matthew D. Rosen
August 16, 2010	Chief Executive Officer



		By: /s/ GORDON HUTCHINS, JR.
		Gordon Hutchins, Jr.
August 16, 2010		President, Chief Operating Officer and Acting Chief Financial Officer

Index to Exhibits


EXHIBIT NO.	DESCRIPTION
10.9.a	Surrender and Lease Modification and Extension Agreement, between registrant and 75 Broad LLC, dated June 28, 2010
31.1	Certification of the Chief Executive Officer, pursuant to Section 3 02 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-10 2 exhibit10_9a.htm EXHIBIT 10.9.A Exhibit 10.9.a

EXHIBIT 10.9.a

SURRENDER AND LEASE MODIFICATION AND EXTENSION AGREEMENT

SURRENDER AND LEASE MODIFICATION AND EXTENSION AGREEMENT(this “Agreement”), dated as of this 28^th day of June, 2010, between 75 Broad, LLC. a New York limited liabil ity company, having an office at 75 Broad Street, New York, New York 10004 (hereinafter called “Landlord”), and Fusion Telecommunications International, Inc., a Delaware corporation, having an office at 420 Lexington Avenue, Suite 1718, New York, NY 10170 (hereinafter called “Tenant”).

WITNESSETH:

WHEREAS:

1. &n bsp; Landlord and Tenant executed that certain agreement of lease dated as of September 29. 1999 (the “Original Lease”),. covering a certain rentable portion of the eighteenth (18th) and nineteenth (19th) floors, as more particularly described therein (the “Demised Premises”). in the building known as 75 Broad Street. in the Borough of Manhattan. City of New York (the “Building”), for a term which expired on March 31, 2010 (the “Expiration Date”);

2. Tenant is currently in default under the Original Lease and in holdover subject to the terms set forth in Section 49G thereof; and

3. Landlord and Tenant now desire to: (a) modify the Original Lease by Tenant surrendering a portion of the 19th floor portion of the Demised Premises (as further delineated on Exhibit A attached hereto; the “Surrendered Premises”) and in certain other respects as hereinafter provided and (b) extend the term of the Original Lease as hereinafter set forth (and the Original Lease, as so modified by this Agreement. is hereinafter referred to as the “Lease”).

NOW, THEREFORE, in consideration of the mutual covenants herein contained , it is agreed as follows:

FIRST:      Tenant hereby agrees to, and shall, vacate and surrender the Surrender Premises to Landlord free of all occupants and of all rights of any other party, as tenant, subtenant or other occupant and encumbrances, in accordance with the Lease provisions pertinent thereto, including without limitation Articles 3 and 22 thereof and with Tenant’s Work (as hereinafter defined) completed and fully paid for; and the actual date Tenant so surrenders the Surrender Premises in accordance with this Agreement and complies with the obligations set forth in Article Fourth hereof shall be deemed the “Surrender Date”. Tenant covenants that it has not done or suffered anything to be done whereby the Surrender Premises have been encumbered in any way whatsoever, and that the Surrender Premises shall not be in any way encumbered on the Surrender Date. Effective as of the Surrender Date, Tenant hereby surrenders to Landlord the term and estate granted under the Lease with respect to the Surrender Premises with the intent and purpose that the estate of Tenant in and to the Surrender Premises shall be extinguished in its entirety and the term of the Lease with respect to the Surrender Premises only shall expire on the Surrender Date as if such date were the original expiration date of the Lease, subject, however, to the terms of this Agreement. Effective as of the Surrender Date, Landlord shall have the full, unhindered and unlimited right to access and use the Surrender Premises, at all times for any purpose as Landlord may require. Tenant shall not prevent, delay, restrict or interfere with the Landlord’s use of or access to the Surrender Premises in any way. All property to be removed by Tenant pursuant to the Lease remaining in the Surrender Premis es after the Surrender Date shall be deemed abandoned and may. at the election of Landlord, either be retained as Landlord’s property or removed from the Surrender Premises by Landlord, at Tenant’s sole cost and expense, which shall be payable as additional rent under the Lease.

SECOND:     Provided Tenant surrenders the Surrender Premises in accordance with this Agreement, the term of the Lease is hereby extended. upon all of the terms, covenants and conditions contained in the Lease, except as herein provided, for an additional period of five (5) years and three (3) months (the “Extended Term”) to commence on the Surrender Date (the “Extended Term Commencement Date”) and to expire on the last day of the 63rd calendar month following the Exten ded Term Commencement Date (the “Extended Term Expiration Date”), unless sooner terminated pursuant to any of the terms, covenants and conditions of the Lease or pursuant to law. Upon the occurrence of the Surrender Date, Landlord may request that Tenant execute an instrument in writing setting forth the dates of the Surrender Date, Extended Term Commencement Date and Extended Term Expiration Date, which Tenant shall do promptly after Landlord’s request therefor; provided however, in no event shall Tenant’s failure to execute any such instrument affect the occurrence of such dates as set forth by Landlord.

THIRD:      Effective from and after Extended Term Commencement Date the Original Lease shall be further amended as follows:

(1)      The term “Demised Premises” shall no longer include the Surrender Premises and shall mean those portions of the 19th and 18th floors as shown on the floor plans attached hereto as Exhibit B:

(2)     The Fixed Rent set forth in Exhibit B of the Original Lease (“Fixed Rent”) shall be deemed to be and hereby is deleted therefrom and of no further force and effect and Tenant shall pay Fixed Rent with respect to the Demi sed Premises in accordance with the following rent schedule:

     For the First Lease Year:

Four Hundred Seventeen Thousand Three Hundred Thirty and 00/100 Dollars ($417,330.00) per annum ($34,777.50 per month).

     For the Second Lease Year:

Four Hundred Twenty Seven Thousand Seven Hundred Sixty Three and 25/100 Dollars ($427,763.25) per annum ($35,646.93 per month)

    For the Third Lease Year:

Four Hundred Eighty One Thousand Two Hundred Thirty Three and 65/100 Dollars ($481,233.65) per annum ($40,102.80 per month)

    For the Fourth Lease Year:

Four Hundr ed Ninety Three Thousand Two Hundred Sixty Four and 40/100 Dollars ($493,264.49) per annum ($41,105.37 per month)

    For the Fifth Lease Year:

Five Hundred Five Thousand Five Hundred Ninety Six and 10/100 Dollars ($505,596.10) per annum ($42,133.00 per month)

    For the balance of the term:

Five Hundred Eighteen Thousand Two Hundred Thirty Six and 00/100 Dollars ($518,236.00) per annum ($43,186.33 per month)

     All Fixed Rent shall be payable in equal monthly installments in the time and manner provided for in the Lease without offset, counterclaim or deducti on whatsoever. For purposes of this Agreement “Lease Year” shall mean the twelve (12) month period commencing on the Extended Term Commencement Date and each successive twelve (12) month period thereafter. In the event the Extended Term Commencement Date occurs on or before August 31, 2010 (time being of the essence), and on a date other than the first of the month, then provided Tenant has timely made its payment of Fixed Rent and additional rent due on the first of such month pursuant to the terms of the Original Lease then Landlord will credit against Tenant’s next monthly installment of Fixed Rent an amount equal to the difference between the then current monthly Fixed Rent paid by Tenant pursuant to the Original Lease for the then current month and then current monthly Fixed Rent that would have been paid for the then current month pursuant to the schedule set forth above.

(3)      Article 28 of the Lease is modified as follows:

copies of notices to Landlord shall be sent to Olshan Grundman Frome Rosenzweig & Wolosky LLP. 65 East 55th Street. New York, New York 10022, Attention: Nina Roket, Esq.

(4)     The term “Base Tax Year” (as defined in Section 39(A)(3)) shall mean the 2009/2010 fiscal tax year.

(5)     The term “Tenant’s Proportionate Share” (as defied in Section 39 (A) (4)) shall mean one and seven tenths percent (1.7%).

(6)     Provided Tenant is not in default under the terms, covenants and conditions of the Lease. Tenant shall have the right to use and occupy the Demised Premises at a reduced Fixed Rent for the first Lease Year, for a total Fixed Rent reduction of $104,322.50, as follows: Fixed Rent for the first Lease Year will be reduced by $8,694.37 per month; provided, however, Tenant shall pay to Landlord all sums due under the Lease as additional rent, including but not limited to. sums due under Article 46 (representing reimburseme nt to Landlord for the furnishing to Tenant of electric current during said period) and Article 39. Except for the Fixed Rent reduction as expressly herein provided, Tenant shall use and occupy the Demised Premises pursuant to all of the other terms, covenants and conditions of the Lease.

(7)      The following Articles are deleted from the Lease and of no force and effect: 41 (Free Rent); 50 (Downtown Tax Application); 51 (Landlord’s Contribution); 52 (Landlord’s Work); 56 (Extension of Term); 57 (Year 2000 Compliance), 58 (Roof Rights) and 59 (Right of First Offer for Contiguous Space).

FOURTH:     Tenant shall upon execution hereof remit to Landlord Thirty Thousand Four Hundred Ninety One Dollars ($30,491) as payment for all arrearages of Fixed Rent and additional rent due and payable under the Original Lease as of the date hereof. Tenant acknowledges that the amount of the arrearages set forth in the preceding sentence does not include Electricity Additional Rent which might have accrued but has not yet been billed as of the date hereof and Tenant shall be responsible for payment of any such sums when billed and otherwise in accordance with the terms of the Lease. Notwithstanding anything contained herein to the contrary, as a condition to the occurrence of the Surrender Date and the Extended Term Commencement Date, Tenant shall become, and must be, current on all of its obligations under the Original Lease.

FIFTH:     Effective as of the date of this Agreement, Article 34 of the Lease is hereby deleted and replaced with the following:

A.     Tenant shall deliver to Landlord upon execution hereof a letter of credit, in the form described in paragraph B below, in the amount equal to Two Hundred Ninety-Five Thousand Forty-Five and 98/100 ($295,045.98) Dollars (“Guarantee”) as a guarantee of the full and faithful keeping, performance and observance of all the covenants, agreements, terms, provisions and conditions of the Lease provided to be kept, performed and observed by Tenant (expressly including, without being limited to, the payment as and when due of the Fixed Rent. Additional Rent, charges and damages payable by Tenant under the Lease ) and the payment of any and all other damages for which Tenant shall be liable by reason of any act or omission contrary to any of said covenants, agreements, terms, provisions or conditions; it is agreed that in the event Tenant defaults in respect of any of the terms, provisions and conditions of the Lease, including, but not limited to, the payment of Fixed Rent and Additional Rent, and fails to cure the same within any applicable grace and/or notice periods, then, Landlord may use, apply or retain the whole or any part of the Guarantee to the extent required for the payment of any rent and Additional Rent or any other sum as to which Tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant’s default in respect of any of the terms, covenants and conditions of the Lease, including but not limited to, any damages or deficiency in the re-letting of the Demised Premises, whether such damages or deficiency accrued before or after summary proceedings o r other re-entry by Landlord. If Landlord applies or retains all or any portion of the Guarantee, Tenant shall immediately upon Landlord’s demand restore the amount so applied so that Landlord has on deposit the full amount of the Guarantee. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this Lease, the Guarantee shall be returned to Tenant within ten (10) Business Days after the Expiration Date. In the event of a sale of the land and Building or leasing of the Building, of which the Demised Premises form a part, Landlord shall have the right to transfer the Guarantee to the vendee or lessee and Landlord shall thereupon be released by Tenant from all liability for the return of such security; and Tenant agrees to look to the new Landlord solely for the return of said Guarantee, and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the Guarantee to a new Landlord. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the Guarantee and that neither Landlord nor its successors or assigns shall be bound by any such assignment. encumbrance, attempted assignment or attempted encumbrance.

B.     The Guarantee shall be in the form first approved by Landlord and shall be an irrevocable. Evergreen, clean, commercial letter of credit issued by a commercial bank first approved by Landlord and (i) that is (x) chartered under the laws of the United States, any State thereof, or the District of Columbia. (y) insured by the Federal Deposit Insurance Corporation, and (z) authorized by the State of New York to conduct banking business in New York State and a member of the New York Clearing House Association, (ii) whose long-term, unsecured and unsubordinated debt obligations are rated in the highest category by at least two of Fitch Ratings Ltd. (“Fitch”), Moody’s Investors Service. Inc. (“Moody’s”) and Standard & Poor’s Rating Services (“S&P”) or their respective successors and assigns (collectively, the “Rating Agencies”) (which shall mean AAA from Fitch. Aaa from Moody’s and AAA from S&P), and (iii) which has a short term deposit rating in the highest category from at least two Rating Agencies (which shall mean F-1 from Fitch, P-1 from Moody’s and A-1 from S&P) (all of the foregoing are collectively referred to herein as the “LC Issuer Requirements”). If at any time during the term hereof, the LC Issuer Requirements are not met, or if the financial conditions of an issuer of a letter of credit then held by Landlord changes in any other materially adverse way, as determined by Landlord in its sole, but reasonable discretion, then Landlord shall have the right to require that Tenant obtain from a different issuer, which complies with the LC Issuer Requirements, a substitute letter of credit that complies in all respects with the requirements of this Section, and Tenant’s failure to obtain such substitute letter of credit within fifteen (15) Business Days following Landlord’s written demand therefor (and with no other notice or cure or grace period being applicable thereto, notwithstanding anything contained herein to the contrary) shall entitle Landlord to immediately draw upon the then existing letter of credit without further notice to Tenant and to apply and hold such proceeds as a cash security deposit hereunder. In the event that the issuer of any letter of credit held by Landlord is placed into receivership or conservatorship by the Federal Deposit Insurance Corporation, or any successor or similar entity, then, effective as of the date such receivership or conservatorship occurs, said letter of credit shall be deemed to not meet the requirements of this Section, and, within ten (10) Business D ays thereof, Tenant shall replace such letter of credit with other collateral acceptable to Landlord in its reasonable discretion (and Tenant’s failure to do so shall, notwithstanding anything contained herein to the contrary, constitute a default under this Lease to which no notice or grace or cure periods shall be applicable other than the aforesaid ten (10) day period. The form of the Guarantee shall permit Landlord (a) to draw thereon up to the full amount of the credit evidenced thereby in the event of a default by Tenant or (b) to draw the full amount thereof if for any reason the Guarantee is not renewed within sixty (60) days prior to its expiration date. The Guarantee (and each renewal thereof) shall (i) be for a term of not less than one (1) year (except that the last Guarantee shall be for a term expiring sixty (60) days after the Expiration Date), (ii) expressly provide for the issuing bank to notify Landlord in writing not less than sixty (60) days prior to its expiration as to its renewal or non-renewal, as the case may be, and (iii) if not so renewed each year (or later period of expiration) shall be immediately available for Landlord to draw up to the full amount of such credit. Not less than sixty (60) days prior to the expiration date of the Guarantee (and every renewal thereof), Tenant shall deliver to Landlord a renewal or new Guarantee in the form of a letter of credit, subject to all of the conditions aforesaid. Failure by Tenant to comply with the provisions of this paragraph shall be deemed a material default hereunder entitling Landlord to exercise any and all remedies as provided in this Lease for default in the payment of Fixed Rent and, to draw on the Guarantee up to its full amount.

C.     Notwithstanding the foregoing, Tenant may deliver an amount equal to one-half of the Guarantee (i. e., $147,523) in the form of cash. in lieu of a letter of credit. upon execution hereof provided Tenant shall replace such amount of the cash Guarantee with a Guarantee for the full amount (i.e.. S295,045.8) in the form of a letter of credit as required pursuant to paragraph B above, within thirty (30) days from the date of this Agreement. In the event Tenant delivers the one-half of the Guarantee in the form of cash in accordance herewith, such cash Guarantee shall be used and applied by, and made available to, Landlord in accordance with and pursuant to, and in the manner provided for in, paragraph A above. Failure by Tenant to replace the cash Guarantee (if any) with a Guarantee for the full amount in the form of a letter of credit as required in paragraph B above within thirty (30) days from the date of this Agreement, shall be deemed a default under the Lease.

< b>SIXTH:        Tenant acknowledges that it has been in possession of the Demised Premises from the Commencement Date of the Original Lease, is fully acquainted with the condition of the Demised Premises and the Building and agrees to continue in and accept possession of the Demised Premises (but not the Surrender Premises) and all Building systems in their then “as-is” physical condition on the Extended Term Commencement Date, it being understood and agreed that Landlord shall not be obligated to make any improvements in order to make the Demised Premises suitable and ready for continued occupancy and use by Tenant.

SEVENTH:   Prior to the Surrender Date, Tenant shall i nstall and construct a demising wall to separate the Surrender Premises from the Demised Premises as shown on the plan attached hereto as Exhibit C (“Tenant’s Work”). In consideration of Tenant (i) performing, completing and fully paying for Tenant’s Work (and soft costs associated therewith) and (ii) paying for the relocation costs (“Relocation Costs”) actually incurred by Tenant in connection with its surrender of the Surrender Premises prior to the Surrender Date, Landlord agrees that if Tenant shall have submitted to Landlord (a) receipted paid bills for the completion of Tenant’s Work and payment of the Relocation Costs and (b) partial and final lien waivers to the effect that there has not been filed with respect to the Building, the Demised Premises and/or the Surrender Premises or any part thereof or upon Tenant’s leasehold interest therein any vendor’s mechanic’s, laborer’s. materialman’s or other lien which has not been discharged of recor d, Landlord shall reimburse or cause to be reimbursed to Tenant within thirty (30) days after satisfaction of all of the conditions set forth in this Article an amount equal to the lesser of (i) the actual cost of the Tenant’s Work and Relocation Costs or (ii) Seventy Two Thousand Five Hundred Sixty and 00/100 Dollars ($72,560.00) representing “Landlord’s Contribution” to such work, it being understood and agreed that Landlord’s Contribution shall not exceed the sum of Seventy Two Thousand Five Hundred Sixty and 00/100 Dollars ($72,560.00), and that all costs and expenses in excess of said sum shall be borne solely by Tenant. Tenant shall provide Landlord with five (5) days advance written notice of the completion of Tenant’s Work. Notwithstanding anything contained herein to the contrary, in the event Tenant’s Work is not completed, as reasonably determined by Landlord, and the Surrender Date does not occur, by August 31, 2010, time being of the essence, (i) Landlord shall have no obligation to pay Landlord’s Contribution, (ii) Tenant shall be deemed in default under the Original Lease, entitling Landlord to all remedies available to it thereunder and at law and equity, and (iii) at Landlord’s sole option, this Agreement shall be nullified and of no force and effect and the terms and conditions of the Original Lease shall control and govern.

EIGHTH:

A.   Subject to the provisions of Paragraph E hereof, Tenant shall have the right to extend the term of the Lease for one (1) additional term of five (5) years commencing on the day following the Extended Term Expiration Date (hereinafter called the “Commencement Date of the Renewal Term”) (such additional term is hereinafter called the “Renewal Term”) provided that:

(1)    Tenant shall give Landlord notice (hereinafter called the “Renewal Notice”) of its election to extend the Term of this Lease at least nine (9) months prior to the Extended Term Expiration Date,

(2)     Tenant is not in default (after the expiration of applicable notice and grace periods, if any) under this Lease as of the time of the giving of the Renewal Notice and the Commencement Date of the Renewal Term, and

(3)     Tenant shall be in actual physical occupancy of not less than 100% of the rentable area of the Demised Premises.

B.     The Fixed Rent payable by Tenant to Landlord during the Renewal Term shall be a sum equal to the fair market rent for the Demised Premises as determined as of the date occurring six (6) months prior to the Commencement Date of the Renewal Term (such date is hereinafter called the “Determination Date”) and which determination shall be made within a reasonable period of time after the occurrence of the Determination Date pursuant to the provisions of Paragraph C hereof , but such Fixed Rent shall in no event be less than the Fixed Rent and additional rent (i.e. not less than Tenant’s fully escalated rent) in effect under this Lease for the last month of the Extended Term (without giving effect to any temporary abatement of Fixed Rent under the provisions of, Article 9 or any other Article of the Lease). In determining the fair market rent, the provisions of Article 39 of this Lease shall remain in effect during the Renewal Term, except that the Base Tax shall mean the Taxes for the 2014/2015 fiscal tax year.

(I)    Landlord and Tenant shall endeavor to agree as to the amount of the fair market rent for the Demised Premises pursuant to the provisions of Paragraph B hereof, during the thirty (30) day period following the Determination Date. In the event that Landlord and Tenant c annot agree as to the amount of the fair market rent within such thirty (30) day period following the Determination Date, then Landlord or Tenant may initiate the appraisal process provided for herein by giving notice to that effect to the other, and the party so initiating the appraisal process (such party hereinafter called the “Initiating Party”) shall specify in such notice the name and address of the person designated to act as an arbitrator on its behalf. Within thirty (30) days after the designation of such arbitrator, the other party (hereinafter called the “Other Party”) shall give notice to the Initiating Party specifying the name and address of the qualified independent third party designated to act as an arbitrator on its behalf. If the Other Party fails to notify the Initiating Party of the appointment of its arbitrator within the time above specified. then the appointment of the second arbitrator shall be made in the same manner as hereinafter provided for the appointment of a third arbitrator in a case where the two arbitrators appointed hereunder and the parties are unable to agree upon such appointment. The two arbitrators so chosen shall meet within ten (10) days after the second arbitrator is appointed and if, within sixty (60) days after the second arbitrator is appointed, the two arbitrators shall not agree upon the fair market rent for the Demised Premises for the Renewal Term, they shall together appoint a third arbitrator. In the event of their being unable to agree upon such appointment within eighty (80) days after the appointment of the second arbitrator, the third arbitrator shall be selected by the parties themselves if they can agree thereon within a further period of fifteen (15) days. If the parties do not so agree, then either party, on behalf of both and on notice to the other, may request such appointment by the American Arbitration Association (or organization successor thereto) in New York City in accordance with its rules then prevailing.

(2)      Each party shall pay the fees and expenses of the one of the two original arbitrators appointed by or for such party, and the fees and expenses of the third arbitrator and all other expenses (not including the attorneys fees, witness fees and similar expenses of the parties which shall be borne separately by each of the parties) of the arbitration shall be borne by the parties equally.

(3)      The majority of the arbitrators shall determine the fair market rent of the Demised Premises and render a written certified report of their determination to both Landlord and Tenant within sixty (60) days of the appointment of the first two arbitrators or sixty (60) days from the appointment of the third arbitrator if such third arbitrator is appointed pursuant to this Paragraph; and the fair market rent, so determined, shall be applied to determine the Fixed Rent pursuant to Paragraph B hereof.

(4)      Each of the arbitrators selected as herein provided shall have at least ten (10) years experience in the leasing and renting of office space in similar office buildings in Downtown Manhattan.

(5)      If Landlord notifies Tenant that the Fixed Rent for the Renewal Term shall be equal to the Fixed Rent and additional rent in effect under the Lease for t he last month of the Extended Term (without giving effect to any temporary abatement thereof), then the provisions of Subsection 1 of this Paragraph B shall be inapplicable and have no force or effect.

(6)      In the event Landlord or Tenant initiates the appraisal process and as of the Commencement Date of the Renewal Term the amount of the fair market rent has not been determined, Tenant shall continue to pay the fixed rent and additional rent in effect under this Lease for the last month of the Extended Term and when such determination has been made, an appropriate retroactive adjustment shall be made as of the Commencement Date of the Renewal Term.

C.      Except as provided in Paragraphs A and B hereof. Tenant’s occupancy of the Demised Premises during the Renewal Term shall be on the same terms and conditions as are in effect immediately prior to the expiration of the Extended Term of this Lease, provided, however, Tenant shall have no further right to extend the term of this Lease pursuant to this Article.

D.      If Tenant does not send the Renewal Notice pursuant to the provisions of Paragraph A hereof, time being of the essence, this Article shall have no force or effect and shall be deemed deleted from this Lease.

E.   &nbs p; If this Lease is renewed for the Renewal Term, then Landlord or Tenant can request the other party hereto to execute an instrument in form for recording setting forth the exercise of Tenant’s right to extend the Extended Term of this Lease and the last day of the Renewal Term provided however, in no event shall the failure to execute any such instrument affect the validity of Tenant’s extension of the Extended Term pursuant hereto.

F.      If Tenant exercises its right to extend the Extended Term of this Lease for the Renewal Term pursuant to this Article, the phrases “the term of this Lease” or “the term hereof’ as used this Lease, shall be construed to include, when practicable. the Renewal Term.

NINTH:      Each party represents and warrants to the other that it dealt with no broker or agent in connection with this transaction other than JEMB Realty Corp. and Cassidy Turley. (the “Broker”). Each party shall indemnify and hold the other harmless from and against any claims, including, without limitation, attorneys’ fees and expenses arising out of a breach by such party of the foregoing representation.

TENTH:      If and to the extent any of the provisions of this Agreement conflict or are otherwise inconsistent with the Original Lease, this Agreement shall govern and control. If any pro vision of this Agreement or its application to any person or circumstances is invalid or unenforceable to any extent, the remainder of this Agreement, or the applicability of such provision to other persons or circumstances, shall be valid and enforceable to the fullest extent permitted by law and shall be deemed to be separate from such invalid or unenforceable provisions and shall continue in full force and effect. This Agreement shall be construed without regard to any presumption or other rule requiring construction against the party causing this Agreement to be drafted.

ELEVENTH:          Except to the extent modified and amended by the foregoing, the Original Lease is hereby ratified and confirmed in all respects. Any references herein to “the Le ase” or “this Lease” shall be deemed to mean the Original Lease as modified by this Agreement, except to the extent otherwise provided herein.

TWELFTH:           Nothing herein shall be deemed a waiver of, or prejudice, Landlord’s rights and remedies under the Original Lease, law and equity, and any legal proceedings currently pending by Landlord against Tenant, all of which are hereby specifically reserved.

THIRTEENTH:     This Agreement may be executed in multiple counterparts, each of which sha ll be deemed an original, but all of which when taken together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and year first above written.

LANDLORD:

75 BROAD, LLC

By: __________________________________

Name: Joseph Jerome

Title: Authorized Signatory

TENANT:

FUSION TELECOMMUNICATIONS, INC.

By: __________________________________

Name: Gordon Hutchins, Jr.

Title: President, COO, and Acting CFO

EX-31 3 exhibit31_1.htm EXHIBIT 31.1 Exhibit 31.1

EXHIBIT 31.1

Certification of the Chief Executive Officer

I , Matthew D. Rosen, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, (the "Report") of Fusion Telecommunications International, Inc., a Delaware corporation ("the Registrant");

2.  & nbsp;  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 oth er certifying officer 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 15(d)-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 quarterly report is being prepared;

(b)     Designed such internal contr ol 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 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 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;

(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 th e Registrant’s internal control over financial reporting.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

August 16, 2010

By: / s / MATTHEW D. ROSEN

      Matthew D. Rosen

      Chief Executive Officer

EX-31 4 exhibit31_2.htm EXHIBIT 31.2 Exhibit 31.2

EXHIBIT 31.2

Certification of the Chief Financial Officer

I , Gordon Hutchins, Jr., certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, (the "Report") of Fusion Telecommunications International, Inc., a Delaware corporation ("the Registrant");

2.  &n bsp;  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 othe r certifying officer 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 15(d)-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 quarterly report is being prepared;

(b)     Designed such internal contro l 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 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 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;

(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.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

August 16, 2010

By: / s / GORDON HUTCHINS, JR.

&n bsp;      Gordon Hutchins, Jr.

       President, Chief Operating Officer, and Acting Chief Financial Officer

EX-32 5 exhibit32_1.htm EXHIBIT 32.1 Exhibit 32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (A) AND (B) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Fusion Telecommunications International, Inc., a Delaware corporation (the "Company"), does hereby certify that:

The Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, (the "Form 10-Q") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

August 16, 201 0 By: / s / MATTHEW D. ROSEN

Matthew D. Rosen

Chief Executive Officer

August 16, 2010 By: / s / GORDON HUTCHINS, JR.

Gordon Hutchins, Jr.

President, Chief Operating Officer, and Acting Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

-----END PRIVACY-ENHANCED MESSAGE-----

DELAWARE	58-2342021
(State or other jurisdiction of incorporation or organization)	(IRS Empl oyer Identification No.)


Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer (Do not check if smaller reporting company)	o	Smaller reporting company	x


Title Of Each Class	Number of Shares Outstanding
Common Stock, $0.01 par value	126,167,121

		June 30, 2010		December 31, 2009
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	907,578	$	99,019
Accounts receivable, net of allowance for doubtful accounts of approximately $355,000 and $539,000 on June 30, 2010 and December 31, 2009, respectively		3,053,104		2,500,319
Restricted cash, current portion		-		168,176
Prepaid expenses and other current assets		175,078		130,647
Assets held for sale		5,169		6,513
Current assets from discontinued operations		20,105	&nbs p;	32,283
Total current assets		4,161,034		2,936,957
Property and equipment, net		1,314,809		1,664,583
Other assets:
Security deposits		33,106		23,008
Restricted cash, net of current portion		238,390		248,390
Intangible assets, net		455,318		489,294
Other assets		77,334		62,119
Total other assets		804,148		822,811
TOTAL ASSETS	$	6,279,991	$	5,424,351
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Debt, non - related parties	$	625,00 0	$	725,000
Debt, related parties		2,199,425		1,682,187
Capital lease / equipment financing obligations, current portion		12,408		14,831
Escrow payable		350,000		321,418
Accounts payable and accrued expenses		9,199,529		9,263,872
Current liabilities from discontinued operations		285,294		360,294
Total current liabilities		12,671,656		12,367,602
Long-term liabilities:
Capital lease / equipment financing obligations, net of current portion		-		2,587
Other long - term liabilities		322,067		336,815
Total long - term liabilities		322,067		339,402
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 7,995 shares issued and outstanding on June 30, 2010 and December 31, 2009, respectively		80		80
Common stock, $0.01 par value, 225,000,000 shares authorized, 121,167,116 and 92,543,932 shares issued and outstanding on, June 30, 2010 and December 31, 2009, respectively		1,211,671		925,440
Capital in excess of par value		134,396,240		130,984,766
Accumulated deficit		(142,321,723)		(139,192,939)
Total stockholders’ deficit		(6,713,732)		(7,282,653)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	6,279,991	$	5,424,351

		Six Months Ended June 30,
		2010		2009
Cash flows from operating activities:
Net loss	$	(3,128,785)	$	(6,032,964)
Adjustments to reconcil e net loss to net cash used in operating activities:
Loss on impairment / continuing operations		- ;		243,000
Loss on impairment / discontinued operations		-		545,046
Depreciation and amortization		439,785		716,414
Bad debt expense		(4,651)		125,938
Stock-based compensation		133,366		119,767
Gain on extinguishment of debt		(9,500)		-
Increase (decrease) in cash attributable to changes in operating assets and liabilities:
Accounts receivable, net		(548,134)		662,634
Prepaid expenses and other current assets		(44,431)		(124,580)
Other assets		(15,215)		69,790
Accounts payable and accrued expenses		(110,356)		(263,427)
Other long-term liabilities		(14,748)		(60,209)
Net cash used in operating activities		(3,302,669)		(3,998,591)
Cash flows from investing activities:
Purchase of property and equipment		(53,958)		(17,082)
Payment for security deposits		(10,098)		(801)
Returns of other intangible assets		-		2,639
Returns of restricted cash		178,176		-
Net cash provided by (used) in investing activities		114,120		(15,244)
Cash flows from financing activities:
Proceeds from sale of common stock, net		2,611,940		2,123,471
Proceeds from the sale of common stock, not yet issued		275,000		-
Proceeds from notes payable - related parties		1,248,000		1,347,500
Proceeds from notes payable - non-related parties		100,000		-
Payments of long - term debt and capital lease / equipment financing obligations		(5,010)		(24,605)
Repayments of notes payable - related parties		(245,000)		-
Net cash provided by financing activities		3,984,930		3,446,366
Net increase in cash and cash equivalents from continuing operations		796,381		(567,469)
Cash flows from discontinued operations:
Cash provided by operating activities of discontinued operations		12,178		141,888
Net increase (decrease) in cash and cash equivalents from discontinuing operations		12,178		141,888
Net increase (decrease) in cash and cash equivalents from continuing and discontinuing operations:		808,559	&n bsp;	(425,581)
Cash and cash equivalents, beginning of period		99,019		427,433
Cash and cash equivalents, end of period	$	907,578	$	1,852

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	13,205	$	50,224
Supplemental schedule of non-cash investing and financing activities:
Acquisition of capital lease / equipment financing obligations	$	-	$	24,000
Conversion of notes payable-related parties to common stock	$	486,000	$	-
Conversion of interest payable-related parties to common stock	$	19,982	$	-
Conversion notes payable-non related parties to common stock	$	200,000	$	-
Transfer from escrow payable to common stock	$	321,417	$	-
Note transfer to a related party from a non-related party	$	-	$	(500,000)
Note transfer from a non-related party to a related party	$	-	$	500,000
Transfer from equity to escrow payable-shares to vendor, not yet issued	$	75,000	$	-

Part 1. Financial Information.	1
Item 1. Financial Statements.	1
Item 2. Management’s D iscussion and Analysis of Financial Condition and Results of Operations.	17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	29
Item 4T. Controls and Procedures.	29
Part II Other Information.	30
Item 1. Legal Proceedings.	30
Item 1A. Risk Factors.	31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	39
Item 3. Defaults Upon Senior Securities.	39
Item 4. Submission of Matters to a Vote of Security Holders.	39
Item 5. Other Information.	39
Item 6. Exhibits.	39
Signatures	40
Index to Exhibits	41

	(Unaudited)
Activity	Number of Options		Weighted Average Exercise Price
Outstanding at January 1, 2010	4,786,774	$	1.28
Granted	1,365,500	$	0.12
Cancelled or expired	(239,399)	$	0.53
Outstanding at June 30, 2010	5,912,875	$	1.04
Exercisable at June 30, 2010	3,319,359	$	1.73

	(unaudited)
	Six-Months Ended June 30
	2010		2009
Dividend yield	0.00	%	0.00	%
Stock volatility	127.95	%	134.50	%
Average Risk-free interest rate	2.72	%	2.98	%
Average option term (years)	4		4


		June 30, 2010		December 31, 2009
		( unaudited )
Prepaid expenses	$	172,078	$	126,061
Inventory		-		1,586
Notes receivable		3,000		3,000
Total	$	175,078	$	130,647

	< p style="FONT-FAMILY:'Times New Roman','serif'; MARGIN-LEFT:0in; FONT-SIZE:10pt; MARGIN-RIGHT:0in">	June 30 2010		December 31, 2009
		(unaudited)
Property and equipment, net	$	20,105	$	&nbs p; 32,283
Total current assets reclassified to discontinued operations	$	20,105	$	32,283


Capital Lease obligations, current portion	$	99,517	$	99,517
Accounts payable and accrued expenses		185,777		260,777
Current liabilities reclassified to discontinued operations	$	285,294	$	360,294


		Trademarks		Intellec tual Property		Totals
Balance as of January 01, 2010	$	402,897	$	86,397	$	489,294
Current year amortization		(33,976)		-		(33,976)
Current year impairment		-		-		-
Balance as of June 30, 2010	$	368,921	$	86,397	$	455,318


		Trademarks		Intellectual Property		Totals
Balance as of January 01, 2009	$	721,871	$	89,037	$	810,908
Current year amortization		(75,974)		-		(75,974)
Current year impairment		(243, 000)		(2,640)		(245,640)
Balance as of December 31, 2009	$	402,897	$	86,397	$	489,294

		June 30, 2010
		(unaudited)
Total minimum payments	$	12,644
Less amount representing interest		(236)
Present value of minimum payments		12,408
Less current portion		&n bsp; (12,408)
	$	-

For the First Lease Year:	Four Hundred Seventeen Thousand Three Hundred Thirty and 00/100 Dollars ($417,330.00) per annum ($34,777.50 per month).
For the Second Lease Year:	Four Hundred Twenty Seven Thousand Seven Hundred Sixty Three and 25/100 Dollars ($427,763.25) per annum ($35,646.93 per month)
For the Third Lease Year:	Four Hundred Eighty One Thousand Two Hundred Thirty Three and 65/100 Dollars ($481,233.65) per annum ($40,102.80 per month)
For the Fourth Lease Year:	Four Hundr ed Ninety Three Thousand Two Hundred Sixty Four and 40/100 Dollars ($493,264.49) per annum ($41,105.37 per month)
For the Fifth Lease Year:	Five Hundred Five Thousand Five Hundred Ninety Six and 10/100 Dollars ($505,596.10) per annum ($42,133.00 per month)
For the balance of the term:	Five Hundred Eighteen Thousand Two Hundred Thirty Six and 00/100 Dollars ($518,236.00) per annum ($43,186.33 per month)