8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K/A2

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)    January 27, 2016 (November 14, 2016)

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-32421	58-2342021
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

420 Lexington Avenue, Suite 1718, New York, NY	10170
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (212) 201-2400

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐          Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐          Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐          Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐          Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EXPLANATORY NOTE: On November 18, 2016, the registrant filed a Current Report on Form 8-K under Items 2.01, 2.03, 3.02 and 1.01. This Amendment No. 2 to such Current Report, which is set forth in its entirety, is being amended to provide the information required by Item 9.01(a) and Item 9.01(b).

Item 2.01 Completion of Acquisition or Disposition of Assets.

On November 14, 2016, Fusion NBS Acquisition Corp. (the “Buyer” or “FNAC”), a subsidiary of Fusion Telecommunications International, Inc. (“Fusion”), and Fusion (solely for limited enumerated purposes) entered into a Stock Purchase and Sale Agreement (the “Apptix Purchase Agreement”) with Apptix, ASA (the “Seller”), pursuant to which FNAC acquired all of the issued and outstanding capital stock of Apptix, Inc., a wholly-owned subsidiary of the Seller (“Apptix”). Apptix provides managed and hosted business communication, collaboration, compliance and security, and infrastructure solutions to mid-market and enterprise customers and blue-chip channel partners.

The purchase price paid by FNAC for Apptix was $28.0 million, subject to adjustments for closing date cash on hand, unpaid indebtedness and unpaid transaction costs. The purchase price was paid (i) $22,963,484.32 in cash, and (ii) the balance in 2,997,926 shares of Fusion’s common stock (the “Seller Shares”), based upon a $1.68 per share average price of Fusion’s common stock over the 180-day period preceding the closing. The cash portion of the purchase price was funded through a new senior secured facility entered into simultaneous with the Apptix acquisition (see Item 2.03 below).

Fusion has agreed, on or prior to August 14, 2017, at its expense (i) to file a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) to register resale of the Seller Shares on behalf of the Seller (and, if applicable, distribution of the Seller Shares to the shareholders of the Seller), (ii) to cause the registration statement to become effective no more than 90 days following the date it is filed (120 days under certain circumstances), and (iii) to maintain the effectiveness of the registration statement for up to two years. Notwithstanding the foregoing, the Seller has agreed to use its reasonable efforts to obtain an agreement from certain of its shareholders, not to sell any such Seller Shares, including under the registration statement, prior to November 14, 2017.

The foregoing description of the Apptix Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Apptix Purchase Agreement which is attached hereto as Exhibit 10.1 and is incorporated by reference herein. The Apptix Purchase Agreement has been included as an exhibit hereto solely to provide investors and security holders with information regarding its terms. It is not intended to be a source of financial, business or operational information about Fusion, FNAC or any other subsidiary of Fusion. The representations, warranties and covenants contained in the Apptix Purchase Agreement are made only for purposes of the specific agreement and are made as of specific dates; are solely for the benefit of the parties to that agreement; may be subject to qualifications and limitations agreed upon by the parties in connection with negotiating the terms of the Apptix Purchase Agreement, including being qualified by confidential disclosures made for the purpose of allocating contractual risk between the parties rather than establishing matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors or security holders. Investors and security holders should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of Fusion or any subsidiary of Fusion. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the agreement, which subsequent information may or may not be fully reflected in public disclosures.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

On November 14, 2016 (i) FNAC entered into a Credit Agreement (the “East West Credit Agreement”) with East West Bank, as Administrative Agent, Swingline Lender, an Issuing Bank and a Lender (“East West Bank”) and other lenders (collectively with East West Bank, the “East West Lenders”) and (ii) FNAC, Fusion and Fusion’s subsidiaries other than FNAC (the “Subsidiaries” and together with Fusion and FNAC, the “Company”) entered into the Fifth Amended and Restated Securities Purchase Agreement (the “Restated Purchase Agreement”) with Praesidian Capital Opportunity Fund III, L.P., Praesidian Capital Opportunity Fund III-A, LP and United Insurance Company of America (collectively, the “Praesidian Lenders”). The Restated Purchase Agreement amends and restates the terms of the Fourth Amended and Restated Securities Purchase Agreement and Security Agreement, dated December 8, 2015 (the “Fourth Amendment”), pursuant to which FNAC previously sold its Series A, Series B, Series C, Series D, Series E and Series F senior notes in an aggregate principal amount of $33.6 million (the “SPA Notes”).

Under both the East West Credit Agreement and the Restated Purchase Agreement:

● The Company is subject to a number of affirmative and negative covenants, including but not limited to, restrictions on paying indebtedness subordinate to its obligations to the lenders, incurring additional indebtedness, making capital expenditures, dividend payments and cash distributions by subsidiaries.

● The Company is required to comply with various financial covenants, including leverage ratio, fixed charge coverage ratio and minimum levels of earnings before interest, taxes, depreciation and amortization; and its failure to comply with any of the restrictive or financial covenants could result in an event of default and accelerated demand for repayment of its indebtedness.

● The Company granted the lenders security interests on all of its assets, as well as the capital stock of FNAC and each of the Subsidiaries.

● Fusion and the Subsidiaries (and future subsidiaries of both) have guaranteed FNAC’s obligations, including FNAC’s repayment obligations thereunder.

The foregoing and following descriptions of the East West Credit Agreement and the Restated Purchase Agreement do not purport to be complete and are qualified in their entirety by reference to the East West Credit Agreement, which is attached hereto as Exhibit 10.2, and the Restated Purchase Agreement, which is attached hereto as Exhibit 10.3, each of which is incorporated by reference herein. The East West Credit Agreement and the Restated Purchase Agreement have been included as exhibits hereto solely to provide investors and security holders with information regarding their respective terms. They are not intended to be a source of financial, business or operational information about Fusion, FNAC or any other subsidiary of Fusion. The representations, warranties and covenants contained in the East West Credit Agreement and the Restated Purchase Agreement are made only for purposes of the specific agreement and are made as of specific dates; are solely for the benefit of the parties; may be subject to qualifications and limitations agreed upon by the parties in connection with negotiating the terms of each such agreement, including being qualified by confidential disclosures made for the purpose of allocating contractual risk between the parties rather than establishing matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors or security holders. Investors and security holders should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of Fusion, FNAC or any other subsidiary of Fusion. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the respective agreement, which subsequent information may or may not be fully reflected in public disclosures.

East West Credit Facility

Contemporaneously with the completion of the Apptix transaction, FNAC entered into, and consummated the transactions contemplated by, the East West Credit Agreement. Under the East West Credit Agreement, the East West Lenders extended the Company (i) a $65 million term loan and (ii) a $5 million revolving credit facility (which includes up to $4,000,000 in “swingline” loans that may be accessed on a short-term basis). The proceeds of the term loan were used, in part, to retire FNAC’s obligations under a $40 million credit Facility with Opus Bank and, in part, to fund FNAC’s acquisition of Apptix (see Item 2.01 above).

Borrowings under the East West Credit Agreement are evidenced by promissory notes bearing interest at rates to be computed based upon either the then current “prime” rate of interest or “LIBOR” rate of interest, as selected by FNAC at the time of its borrowings. Interest on borrowings that FNAC designates as “base rate” loans bear interest at the greater of the prime rate published by the Wall Street Journal or 3.25% per annum, in each case plus 2% per annum. Interest on borrowings that FNAC designates as “LIBOR rate” loans bear interest at the LIBOR rate of interest published by the Wall Street Journal, plus 5% per annum.

The Company is required to repay the term loan in equal monthly payments of $270,833.33 commencing January 1, 2017 and continuing until January 1, 2018, when monthly payments increase to $541,666.67 until the maturity date of the term loan on November 12, 2021. Borrowings under the revolving credit facility are also payable on the November 12, 2021 maturity date of the facility.

In conjunction with the execution of the East West Credit Agreement, the Company and the East West Lenders also entered into (i) an IP Security Agreement under which the Company has pledged intellectual property to the East West Lenders to secure payment of the East West Credit Agreement, (ii) Subordination Agreements under which certain creditors of the Company and the East West Lenders have established priorities among them and reached certain agreements as to enforcing their respective rights against the Company, and (iii) a Pledge and Security Agreement under which Fusion and FNAC have each pledged its equity interest in its subsidiaries to the East West Lenders.

Restated Purchase Agreement

The Restated Purchase Agreement amends the Fourth Amendment by (i) providing the Praesidian Lenders’ consent to the acquisition of Apptix, (ii) joining Apptix as a guarantor and credit party under the Restated Purchase Agreement, (iii) modifying certain financial covenants contained in the Fourth Amendment, and (iv) extending the maturity date of the SPA Notes to May 12, 2022. The Praesidian Lenders have also entered into a Subordination Agreement with the East West Lenders pursuant to which the Praesidian Lenders have subordinated their right to payment under the Restated Purchase Agreement to repayment of the Company’s obligations under the East West Credit Agreement.

Except as described in the preceding paragraph, the Restated Purchase Agreement contains substantially the same terms and conditions as the Fourth Amendment. Those terms are described in Fusion’s Current Report on Form 8-K which, along with a copy of the Fourth Amendment, was filed with the Securities and Exchange Commission on December 14, 2015.

Item 3.02 Unregistered Sales of Equity Securities.

(a)         As discussed under Item 2.01, above, on November 16, 2016, Fusion issued an aggregate of 2,997,926 Seller Shares to the Seller, an accredited investor, under the Apptix Purchase Agreement, in connection with FNAC’s acquisition of Apptix. The information provided under Item 2.01, above, is incorporated in this section by this reference. The investor is a “non-US person” and the certificates evidencing the Seller Shares bear a legend restricting their transferability absent registration under the Securities Act or the availability of an applicable exemption therefrom. The issuance of the Seller Shares is exempt from the registration requirements of the Securities Act by reason of Regulation S thereunder.

(b)         On November 16, 2016, Fusion sold an aggregate of 2,431,091 shares of its common stock (the “SPA Shares”) for an aggregate purchase price of $2,795,754, or $1.15 per share. The SPA Shares were sold pursuant to the terms of a Common Stock Purchase Agreement (the “Stock Purchase Agreement”), dated November 14, 2016, with 22 separate investors, each of whom is an accredited investor as such term is defined in Rule 501(a) of Regulation D under the Securities Act.

Fusion has agreed that, not later than December 29, 2016 it will file a registration statement under the Securities Act to register resale of the SPA Shares on behalf of the registered owners. The Stock Purchase Agreement requires Fusion to pay liquidated damages to the registered owners, in an amount not to exceed 12% of the purchase price of the SPA Shares, in the event the registration statement is not timely filed, or if it is not declared effective by the Securities and Exchange Commission within the prescribed time, or if Fusion fails to maintain the effectiveness of the registration statement during the prescribed period, or if there ceases to be “current public information” about Fusion, within the meaning of Rule 144 under the Securities Act, during the prescribed time provided. Fusion has also agreed to certain limitations on issuing shares of its common stock, or securities convertible or exchangeable into common stock, during the period from the date of the Stock Purchase Agreement until 45 days following the effective date of the registration statement.

Fusion paid a placement agent fee of approximately 7% of the proceeds from the sale of the SPA Shares to Craig-Hallum Capital Group LLC, a licensed broker-dealer. Each of the purchasers represented that it was an accredited investor, purchasing the SPA Shares for its own account, for investment purposes and not with a view towards distribution; and the certificates evidencing the SPA Shares bear a legend restricting their transferability absent registration under the Securities Act or the availability of an applicable exemption therefrom. The issuance of the SPA Shares is exempt from the registration requirements of the Securities Act by reason of Section 4(2) of the Securities Act and Regulation D thereunder.

The foregoing description of the Stock Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the execution version of the Stock Purchase Agreement, a composite copy of which is attached hereto as Exhibit 10.4 and is incorporated by reference herein. The Stock Purchase Agreement has been included as an exhibit hereto solely to provide investors and security holders with information regarding its terms. It is not intended to be a source of financial, business or operational information about Fusion or any subsidiary of Fusion. The representations, warranties and covenants contained in the Stock Purchase Agreement are made only for purposes of the specific agreement and are made as of specific dates; are solely for the benefit of the parties thereto; may be subject to qualifications and limitations agreed upon by the parties in connection with negotiating the terms of each such agreement, including being qualified by confidential disclosures made for the purpose of allocating contractual risk between the parties rather than establishing matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors or security holders. Investors and security holders should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of Fusion or any subsidiary of Fusion. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the respective agreement, which subsequent information may or may not be fully reflected in public disclosures.

Item 1.01 Entry into a Material Definitive Agreement

As discussed under Items 2.01 and 3.02(a), above, on November 14, 2016 FNAC and Fusion entered into the Apptix Purchase Agreement. The information provided under Items 2.01 and 3.02(a) above, is incorporated in this section by this reference.

As discussed under Item 2.03 above, on November 14, 2016 FNAC entered into (i) the East West Credit Agreement and (ii) the Restated Purchase Agreement. The information provided under Item 2.03 above, is incorporated in this section by this reference.

As discussed under Item 3.02(b) above, on November 14, 2016, Fusion entered into the Stock Purchase Agreement. The information provided under Item 3.02(b), above, is incorporated in this section by this reference.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

The financial statements of the acquired business for the periods required by this item are filed as Exhibit 99.1 to this current report and are incorporated herein by reference.

(b) Pro Forma Financial Information.

The information required by this item is filed as Exhibit 99.2 to this current report and is incorporated herein by reference.

(c) Shell Company Transactions.

Not Applicable.

(d) Exhibits.

Exhibit No.	Description of Exhibit
10.1.1	Credit Agreement, dated November 14, 2016, by and among Fusion NBS Acquisition Corp., East West Bank and the Other Lender from time to time party thereto*
10.1.2	Revolving Loan Note under Credit Agreement dated November 14, 2016*
10.1.3	Term Loan Note under Credit Agreement dated November 14, 2016*
10.1.4	Swingline Loan Note under Credit Agreement dated November 14, 2016*
10.1.5	Subordination Agreement, dated as of November 14, 2016, by and among Fusion NBS Acquisition Corp., Fusion Telecommunications International, Inc., Network Billing Systems, L.L.C., PingTone Communications Inc., Fusion BVX LLC, Fidelity Telecom, LLC, Fidelity Access Network, Inc., Fidelity Access Networks, LLC, Fidelity Connect, LLC, Fidelity Voice Services, LLC, Apptix, Inc., Praesidian Capital Opportunity Fund III, LP, as agent, and East West Bank, as administrative agent*
10.1.6	InterCreditor and Subordination Agreement, dated as of November 14, 2016, by and among Marvin Rosen, Fusion Telecommunications International, Inc. and East West Bank, as administrative agent*
10.1.7	Pledge and Security Agreement, dated as of November 14, 2016, by and among Fusion NBS Acquisition Corp., Fusion Telecommunications International, Inc., Network Billing Systems, L.L.C., PingTone Communications Inc., Fusion BVX LLC, Fidelity Telecom, LLC, Fidelity Access Network, Inc., Fidelity Access Networks, LLC, Fidelity Connect, LLC, Fidelity Voice Services, LLC, Apptix, Inc. and East West Bank, as administrative agent*
10.1.8	Guaranty, dated as of November 14, 2016, by Fusion Telecommunications International, Inc., Network Billing Systems, L.L.C., PingTone Communications Inc., Fusion BVX LLC, Fidelity Telecom, LLC, Fidelity Access Network, Inc., Fidelity Access Networks, LLC, Fidelity Connect, LLC, Fidelity Voice Services, LLC and Apptix, Inc. to East West Bank, as administrative agent*
10.1.9	Intellectual Property Security Agreement, dated as of November 14, 2016, by and among Fusion NBS Acquisition Corp., Fusion Telecommunications International, Inc., Network Billing Systems, L.L.C., PingTone Communications Inc., Fusion BVX LLC, Fidelity Telecom, LLC, Fidelity Access Network, Inc., Fidelity Access Networks, LLC, Fidelity Connect, LLC, Fidelity Voice Services, LLC, Apptix, Inc. and East West Bank, as administrative agent*
10.2	Fifth Amended and Restated Securities Purchase Agreement, dated as of November 14, 2016, by and among Fusion NBS Acquisition Corp., Fusion Telecommunications International, Inc., Network Billing Systems, L.L.C., PingTone Communications Inc., Fusion BVX LLC, Fidelity Telecom, LLC, Fidelity Access Network, Inc., Fidelity Access Networks, LLC, Fidelity Connect, LLC, Fidelity Voice Services, LLC, Apptix, Inc., Praesidian Capital Opportunity Fund III, L.P., Praesidian Capital Opportunity Fund III-A, LP and United Insurance Company of America*
10.3.1	Stock Purchase and Sale Agreement, dated as of November 14, 2016, by and among Fusion Telecommunications International, Inc., Fusion NBS Acquisition Corp. and Apptix, ASA*
10.3.2	Registration Rights Agreement, dated as of November 14, 2016, by and among Fusion Telecommunications International, Inc., Fusion NBS Acquisition Corp. and Apptix, ASA*
10.4	Common Stock Purchase Agreement, dated as of November 16, 2016, by and among Fusion Telecommunications International, Inc. and the several purchasers of its common stock**
99.1	Financial Statements**
99.2	Pro Forma Financial Information**

* - Filed as an Exhibit with the corresponding number to the Company’s Current Report on Form 8-K/A filed on November 18, 2016 and incorporated herein by reference.

** - Filed herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report on Form 8-K to be signed on its behalf by the undersigned thereunto duly authorized. 

	FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
	By: /s/ Gordon Hutchins, Jr.
	Gordon Hutchins, Jr.
January 27, 2017	President and Chief Operating Officer

EXHIBIT INDEX

Exhibit No.	Description of Exhibit
10.1.1	Credit Agreement, dated November 14, 2016, by and among Fusion NBS Acquisition Corp., East West Bank and the other Lender from time to time party thereto*
10.1.2	Revolving Loan Note under Credit Agreement, dated November 14, 2016*
10.1.3	Term Loan Note under Credit Agreement, dated November 14, 2016*
10.1.4	Swingline Loan Note under Credit Agreement, dated November 14, 2016*
10.1.5	Subordination Agreement, dated as of November 14, 2016, by and among Fusion NBS Acquisition Corp., Fusion Telecommunications International, Inc., Network Billing Systems, L.L.C., PingTone Communications Inc., Fusion BVX LLC, Fidelity Telecom, LLC, Fidelity Access Network, Inc., Fidelity Access Networks, LLC, Fidelity Connect, LLC, Fidelity Voice Services, LLC, Apptix, Inc., Praesidian Capital Opportunity Fund III, LP, as agent, and East West Bank, as administrative agent*
10.1.6	InterCreditor and Subordination Agreement, dated as of November 14, 2016, by and among Marvin Rosen, Fusion Telecommunications International, Inc. and East West Bank, as administrative agent*
10.1.7	Pledge and Security Agreement, dated as of November 14, 2016, by and among Fusion NBS Acquisition Corp., Fusion Telecommunications International, Inc., Network Billing Systems, L.L.C., PingTone Communications Inc., Fusion BVX LLC, Fidelity Telecom, LLC, Fidelity Access Network, Inc., Fidelity Access Networks, LLC, Fidelity Connect, LLC, Fidelity Voice Services, LLC, Apptix, Inc. and East West Bank, as administrative agent*
10.1.8	Guaranty, dated as of November 14, 2016, by Fusion Telecommunications International, Inc., Network Billing Systems, L.L.C., PingTone Communications Inc. Fusion BVX LLC, Fidelity Telecom, LLC, Fidelity Access Network, Inc., Fidelity Access Networks, LLC, Fidelity Connect, LLC, Fidelity Voice Services, LLC and Apptix, Inc. to East West Bank, as administrative agent
10.1.9	Intellectual Property Security Agreement, dated as of November 14, 2016, by and among Fusion NBS Acquisition Corp., Fusion Telecommunications International, Inc., Network Billing Systems, L.L.C., PingTone Communications Inc., Fusion BVX LLC, Fidelity Telecom, LLC, Fidelity Access Network, Inc., Fidelity Access Networks, LLC, Fidelity Connect, LLC, Fidelity Voice Services, LLC, Apptix, Inc. and East West Bank, as administrative agent*
10.2	Fifth Amended and Restated Securities Purchase Agreement, dated as of November 14, 2016, by and among Fusion NBS Acquisition Corp., Fusion Telecommunications International, Inc., Network Billing Systems, L.L.C., PingTone Communications Inc., Fusion BVX LLC, Fidelity Telecom, LLC, Fidelity Access Network, Inc., Fidelity Access Networks, LLC, Fidelity Connect, LLC, Fidelity Voice Services, LLC, Apptix, Inc., Praesidian Capital Opportunity Fund III, L.P., Praesidian Capital Opportunity Fund III-A, LP and United Insurance Company of America*
10.3.1	Stock Purchase and Sale Agreement, dated as of November 14, 2016, by and among Fusion Telecommunications International, Inc., Fusion NBS Acquisition Corp. and Apptix, ASA*
10.3.2	Registration Rights Agreement, dated as of November 14, 2016, by and among Fusion Telecommunications International, Inc., Fusion NBS Acquisition Corp. and Apptix, ASA*
10.4	Common Stock Purchase Agreement, dated as of November 16, 2016, by and among Fusion Telecommunications International, Inc. and the several purchasers of its common stock**
99.1	Financial Statements**
99.2	Pro Forma Financial Information**

* - Filed as an Exhibit with the corresponding number to the Company’s Current Report on Form 8-K/A filed on November 18, 2016 and incorporated herein by reference.

** - Filed herewith.

EX-10.4

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

COMMON STOCK PURCHASE AGREEMENT

This Common Stock Purchase Agreement(this “Agreement”) is made as of November 14, 2016, by and among Fusion Telecommunications International, Inc., a Delaware corporation with its principal office at 420 Lexington Avenue, Suite 1718, New York, New York 10170 (the “Company”), and those purchasers listed on the attached Exhibit A, as such exhibit may be amended from time to time (each a “Purchaser,” and collectively, the “Purchasers”).

Recitals

A.           The Company has authorized the sale and issuance of up to 2,608,696 shares (the “Shares” or “Securities”) of the common stock of the Company, $0.01 par value per share (the “Common Stock”), to certain investors in a private placement (the “Offering”).

B.           Pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) promulgated thereunder, the Company desires to sell to the Purchasers listed on the attached Exhibit A, as such exhibit may be amended from time to time, and such Purchasers, severally and not jointly, desire to purchase from the Company that number of shares of Common Stock set forth opposite each such Purchaser’s name on Exhibit A, on the terms and subject to the conditions set forth in this Agreement.

Terms and Conditions

Now, therefore, in consideration of the foregoing recitals and the mutual covenants and agreements contained herein, the parties, intending to be legally bound, do hereby agree as follows:

1.            

Purchase of the Securities.

1.1            Agreement to Sell and Purchase. At the Closing (as hereinafter defined), the Company will issue and sell to each of the Purchasers, and each Purchaser will, severally and not jointly, purchase from the Company, the number of Shares set forth opposite such Purchaser’s name on Exhibit A for the purchase price set forth opposite such Purchaser’s name on Exhibit A (the “Purchase Price”). The aggregate purchase price for each Share to be purchased hereunder will be $1.15.

1.2            Placement Agent Fee. The Purchasers acknowledge that the Company intends to pay to Craig-Hallum Capital Group LLC, in its capacity as the placement agent for the Offering (the “Placement Agent”), a fee in respect of the sale of Securities to the Purchasers. The Company shall indemnify and hold harmless the Purchasers from and against all fees, commissions, or other payments owing by the Company to the Placement Agent or any other persons from or acting on behalf of the Company hereunder.

1.3            Closing; Closing Date. The completion of the sale and purchase of the Securities (the “Closing”) shall be held at 10:00 a.m. (Central Time) on Wednesday, November 16, 2016 or, if the conditions set forth in Section 4 have not been satisfied by such date, as soon as practicable following the satisfaction of the conditions set forth in Section 4 (the “Closing Date”), remotely by facsimile or other electronic transmission of documents, or at such other time and place as the Company and the Purchasers may agree.

1.4            Delivery of the Shares. At the Closing, subject to the terms and conditions hereof, the Company will deliver to each Purchaser a stock certificate or certificates, in such denominations and registered in such names as such Purchaser may designate by notice to the Company, representing the Securities, or at a Purchaser’s request, a statement or other written evidence that the Securities issuable to such Purchaser have been issued and are held in book entry form at the Company’s transfer agent, in either case dated as of the Closing Date (each such certificate and each such book entry position are hereinafter referred to as a “Certificate”), against payment of the purchase price therefor by cash in the form of wire transfer, unless other means of payment shall have been agreed upon by the Purchasers and the Company.

2.             Representations and Warranties of the Company. The Company hereby represents and warrants to the Purchasers:

2.1            Authorization. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement, has been taken. The Company has the requisite corporate power to enter into this Agreement and carry out and perform its obligations under this Agreement. At the Closing, the Company will have the requisite corporate power to issue and sell the Securities. This Agreement has been duly authorized, executed and delivered by the Company and, upon due execution and delivery by the Purchasers, this Agreement will be a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as rights to indemnity hereunder may be limited by federal or state securities laws and except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or by equitable principles.

2.2            No Conflict with Other Instruments. The execution, delivery and performance of this Agreement, the issuance and sale of the Securities to be sold by the Company hereunder and the consummation of the actions contemplated by this Agreement will not (A) result in any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice: (i) any provision of the Company’s charter documents as in effect on the date hereof or at the Closing; (ii) any provision of any judgment, arbitration ruling, decree or order to which the Company or its subsidiaries are a party or by which they are bound; (iii) any bond, debenture, note or other evidence of indebtedness, or any lease, contract, mortgage, indenture, deed of trust, loan agreement, joint venture or other agreement, instrument or commitment to which the Company or any subsidiary is a party or by which they or their respective properties are bound; or (iv) any statute, rule, law or governmental regulation or order applicable to the Company or any of its subsidiaries, except, in the case of (ii), (iii) and (iv) above, would not reasonably be expected to have a Material Adverse Effect (as hereinafter defined); or (B) result in the creation or imposition of any lien, encumbrance, claim, security interest or restriction whatsoever upon any of the properties or assets of the Company or any subsidiary or any acceleration of indebtedness pursuant to any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or any indenture, mortgage, deed of trust or any other agreement or instrument to which the Company or any subsidiary are a party or by which they are bound or to which any of the property or assets of the Company or any subsidiary is subject. No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, or other governmental body is required for the execution and delivery of this Agreement by the Company and the valid issuance or sale of the Securities by the Company pursuant to this Agreement, other than such as have been made or obtained and that remain in full force and effect, and except for the filing of a Form D or any filings required to be made under state securities laws.

2.3            Certificate of Incorporation; Bylaws. The Company has made available to the Purchasers true, correct and complete copies of the Certificate of Incorporation and Bylaws of the Company, as in effect on the date hereof.

2.4            Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company and each of its subsidiaries has full power and authority to own, operate and occupy its properties and to conduct its business as presently conducted and is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would not reasonably be expected to have a material adverse effect on its or its subsidiaries’ business, financial condition, properties, operations, prospects or assets or its ability to perform its obligations under this Agreement (a “Material Adverse Effect”).

2.5            SEC Filings; Financial Statements. As used herein, the “Company SEC Documents” means all reports, schedules, forms, statements and other documents filed or furnished, as applicable, by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) thereof, including the exhibits thereto and documents incorporated by reference therein.The Company has filed all SEC Documents as required on a timely basis and as of their respective filing dates, the Company SEC Documents since December 31, 2015 complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the Securities and Exchange Commission (the “SEC”) promulgated thereunder, and none of these Company SEC Documents, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made not misleading. The consolidated financial statements contained in the Company SEC Documents since December 31, 2015: (i) complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods covered, except in the case of unaudited statements as permitted by Form 10-Q of the SEC, and except that unaudited financial statements may not contain footnotes and are subject to year-end audit adjustments; and (iii) fairly present the consolidated financial position of the Company and its subsidiaries as of the respective dates thereof and the consolidated results of operations cash flows and the changes in shareholders’ equity of the Company and its subsidiaries for the periods covered thereby.

2.6            Capitalization. The authorized capital stock of the Company consists of (i) 90,000,000 shares of Common Stock, of which (A) 15,064,953 shares prior to the acquisition of Target (as defined below) and 18,062,879 shares after the acquisition of Target were issued and outstanding as of the date of this Agreement, and (B) 4,090,520 shares were reserved for issuance upon the exercise or conversion, as the case may be, of outstanding options, warrants or other convertible securities as of the date of this Agreement; and (ii) 10,000,000 shares of preferred stock, of which 17,299 are issued and outstanding as of the date of this Agreement. All issued and outstanding shares of capital stock have been duly authorized and validly issued, are fully paid and non-assessable, have been issued and sold in compliance with the registration requirements of the federal and state securities laws or the applicable statutes of limitation have expired, and were not issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. Except as set forth herein or the Company SEC Documents, there are no (i) outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any unissued shares of capital stock or other equity interest in the Company, or any contract, commitment, agreement, understanding or arrangement of any kind to which the Company or any subsidiary is a party and relating to the issuance or sale of any capital stock or convertible or exchangeable security of the Company or any subsidiary, other than 1,135,765 options granted to directors and employees of the Company and its subsidiaries pursuant to its 1998 Stock Option Plan, 2009 Stock Option Plan or the 2016 Equity Incentive Plan and 2,937,456 warrants that are issued and outstanding; or (ii) obligations of the Company to purchase redeem or otherwise acquire any of its outstanding capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. Except as disclosed in the Company SEC Documents and as contemplated by the share purchase agreement (the “SPA”) relating to the Company’s acquisition of a target company (“Target”) proposed to be consummated contemporaneously with this Offering, there are no anti-dilution or price adjustment provisions, co-sale rights, registration rights, rights of first refusal or other similar rights contained in the terms governing any outstanding security of the Company that will be triggered by the issuance of the Securities and no person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company (other than the rights which have been granted in connection with this Agreement and under the SPA).

2.7            Subsidiaries. Except for Target and except as set forth in the Company SEC Documents, the Company does not presently own or control, directly or indirectly, and has no stock or other interest as owner or principal in, any other corporation or partnership, joint venture, association or other business venture or entity (each a “subsidiary”). Each subsidiary is duly incorporated or organized, validly existing and, if applicable to the jurisdiction, in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite power and authority to carry on its business as now conducted. Each subsidiary is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect. Except as set forth in the Company SEC Documents, all of the outstanding capital stock or other securities of each subsidiary is owned by the Company, directly or indirectly, free and clean of any liens, claims or encumbrances.

2.8            Valid Issuance of Securities. The Securities are duly authorized and, when issued, sold and delivered and paid for in accordance with the terms hereof will be duly and validly authorized and issued, fully paid and non-assessable, free from all taxes, liens, claims, encumbrances and charges with respect to the issue thereof; provided, however, that the Securities will be subject to restrictions on transfer under state and/or federal securities laws or as otherwise set forth herein. The issuance, sale and delivery of the Securities in accordance with the terms hereof will not be subject to preemptive rights of shareholders of the Company.

2.9            Offering. Assuming the accuracy of the representations of the Purchasers in Section 3.3 of this Agreement on the date hereof and on the Closing Date, the offer, issue and sale of the Securities are and will be exempt from the registration and prospectus delivery requirements of the Securities Act and have been or will be registered or qualified (or are or will be exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would require registration under the Securities Act of the issuance of the Securities to the Purchasers. Other than the Company SEC Documents, the Company has not distributed and will not distribute prior to the Closing Date any offering materials in connection with the offering and sale of the Securities. The Company has not taken any action to sell, offer for sale or solicit offers to buy any securities of the Company which would bring the offer, issuance or sale of the Securities within the provisions of Section 5 of the Securities Act, unless such offer, issuance or sale was or shall be within the exemptions of Section 4 of the Securities Act.

2.10          Litigation. Except as set forth in the Company SEC Documents, there is no action, suit, proceeding nor investigation pending or, to the Company’s knowledge, currently threatened against the Company or any of its subsidiaries that (a) if adversely determined would reasonably be expected to have a Material Adverse Effect or (b) would be required to be disclosed in the Company’s Annual Report on Form 10-K under the requirements of Item 103 of Regulation S-K. The foregoing includes, without limitation, any action, suit, proceeding or investigation, pending or threatened, that questions the validity of this Agreement or the right of the Company to enter into this Agreement and perform its obligations hereunder. Neither the Company nor any subsidiary is subject to any injunction, judgment, decree or order of any court, regulatory body, arbitral panel, administrative agency, national securities exchange or other government body. To the Company’s knowledge, there is no proceeding or investigation by the Principal Market (as defined below) pending that could lead to a suspension of listing or trading of the Common Stock.

2.11          Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, local or provincial governmental authority on the part of the Company or any of its subsidiaries is required in connection with the consummation of the transactions contemplated by this Agreement, except for notices required or permitted to be filed with the Principal Market or certain state and federal securities commissions, which notices will be filed on a timely basis.

2.12          No Brokers. Except for any fees payable to the Placement Agent, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based on arrangements made by the Company.

2.13          Compliance. Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation or Bylaws (or similar organizational documents). The Company and its subsidiaries, and their representatives, have been conducting their business in compliance with all applicable laws, rules and regulations of the jurisdictions in which they conduct business, including, without limitation, all applicable local, state and federal environmental laws and regulations, except where failure to be so in compliance would not have a Material Adverse Effect. Each of the Company and its subsidiaries has all necessary franchises, licenses, permits, certificates and other authorizations from any foreign, federal, state or local government or governmental agency, department or body that are currently necessary for the operation of the business of the Company and its subsidiaries as currently conducted, except where the failure to currently possess such franchises, licenses, certificates and other authorizations would not reasonably be expected to have a Material Adverse Effect.

2.14          No Material Changes. Except as disclosed in the Company SEC Documents and except for the acquisition of Target pursuant to the SPA and the entry by the Company into a new credit facility (the “Credit Facility”) contemporaneously therewith, since December 31, 2015, there has been no material adverse change in the assets, liabilities, business, properties, operations, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. Since December 31, 2015, the Company has not declared or paid any dividend or distribution on its common stock.

2.15          Contracts. Except for matters which are not reasonably likely to have a Material Adverse Effect and those contracts that are substantially or fully performed or expired by their terms, the contracts listed as exhibits to or described in the Company SEC Documents that are material to the Company or any of its subsidiaries and all amendments thereto, are in full force and effect on the date hereof, and neither the Company nor any applicable subsidiary of the Company nor, to the Company’s knowledge, any other party to such contracts is in breach of or default under any of such contracts. Neither the Company nor any of its subsidiaries has any contracts or agreements that would constitute a material contract as such term is defined in Item 601(b) of Regulation S-K, except for such contracts or agreements that are filed as exhibits to or described in the Company SEC Documents and except for the SPA, the Credit Agreement and agreements contemplated thereby.

2.16        Intellectual Property.

(a)The Company and each of its subsidiaries has ownership or license or legal right to use, or can acquire on reasonable terms, all patent, copyright, trade secret, know-how trademark, trade name customer lists, designs, manufacturing or other processes, computer software, systems, data compilation, research results or other proprietary rights used in the business of the Company or such subsidiary (collectively “Intellectual Property”), except as such failure to own, license, use or acquire would not result in a Material Adverse Effect. All of such patents, registered trademarks and registered copyrights have been duly registered in, filed in or issued by the United States Patent and Trademark Office, the United States Register of Copyrights or the corresponding offices of other jurisdictions and have been maintained and renewed in accordance with all applicable provisions of law and administrative regulations in the United States and all such jurisdictions.

(b)The Company and each of its subsidiaries has taken all reasonable steps required in accordance with sound business practice and business judgment to establish and preserve its ownership of all material Intellectual Property with respect to their products and technology.

(c)To the knowledge of the Company, the present business, activities and products of the Company and its subsidiaries do not infringe any intellectual property of any other person, except or where such infringement would not have a Material Adverse Effect. No proceeding charging the Company or any of its subsidiaries with infringement of any adversely held Intellectual Property is currently pending. To the knowledge of the Company, no other person is infringing any rights of the Company or its subsidiaries to the Intellectual Property.

(d)No proceedings are pending or, to the knowledge of the Company, threatened, which challenge the rights of the Company or any of its subsidiaries to the use of the Intellectual Property. To the knowledge of the Company, the Company and each of its subsidiaries has the right to use, free and clear of material claims or rights of other persons, all of its customer lists, designs, computer software, systems, data compilations, and other information that are required for its products or its business as presently conducted. To the knowledge of the Company, neither the Company nor any of its subsidiaries is making unauthorized use of any confidential information or trade secrets of any person. The activities of any of the employees on behalf of the Company or of any of its subsidiaries do not violate any agreements or arrangements between such employees and third parties related to confidential information or trade secrets of third parties or that restrict any such employee’s engagement in business activity of any nature.

(e)All material licenses or other agreements under which (i) the Company or any subsidiary employs rights in Intellectual Property, or (ii) the Company or any subsidiary has granted rights to others in Intellectual Property owned or licensed by the Company or any subsidiary are in full force and effect, and there is no default (and there exists no condition which, with the passage of time or otherwise, would constitute a default by the Company or such subsidiary) by the Company or any subsidiary of the Company with respect thereto.

2.17           Exchange Compliance. The Company’s common stock is registered pursuant to Section 12(b) of the Exchange Act and is listed on The Nasdaq Capital Market (the “Principal Market”), and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock (including the Shares) from the Principal Market. The Company is in compliance with all of the presently applicable requirements for continued listing of the Common Stock on the Principal Market. The issuance of the Securities does not require shareholder approval including, without limitation, pursuant to the rules and regulations of the Principal Market.

2.18            Form S-3 Eligibility. The Company is eligible to register the Shares for resale by the Purchasers using Form S-3 promulgated under the Securities Act.

2.19            Accountants. EisnerAmper LLP, who expressed their opinion with respect to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, to be incorporated by reference into the Registration Statement (as hereinafter defined) and the prospectus which forms a part thereof (the “Prospectus”), have advised the Company that they are, and to the knowledge of the Company they are, independent accountants as required by the Securities Act and the rules and regulations promulgated thereunder. The Company covenants to file its Form 10-K containing audited consolidated financial statements for the year ended December 31, 2016 within the time period required by applicable securities laws and further represents and warrants that it has no reason to believe that the auditors will not be able to express an unqualified opinion with respect to such financial statements, assuming the Closing occurs as contemplated herein.

2.20           Taxes. The Company and each of its subsidiaries has filed all federal, state, local and foreign income and franchise tax returns (except where the failure to file would not have a Material Adverse Effect) and has paid all taxes shown as due thereon.The Company has set aside on its books adequate provisions for payments of taxes as of its reporting period, and has no knowledge of a tax deficiency which has been or might be asserted or threatened against it or any of its subsidiaries by any taxing jurisdiction.

2.21           Insurance. The Company and each of its subsidiaries maintains and will continue to maintain insurance of the types and in the amounts that the Company reasonably believes is adequate for its business, including, but not limited to, insurance covering real and personal property owned or leased by the Company and its subsidiaries against theft, damage, destruction, acts of vandalism and all other risks customarily insured against by similarly situated companies, all of which insurance is in full force and effect.

2.22          Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income taxes) that are required to be paid in connection with the sale and transfer of the Securities hereunder will be, or will have been, fully paid or provided for by the Company and the Company will have complied with all laws imposing such taxes.

2.23          Investment Company. The Company (including its subsidiaries) is not an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for an investment company, within the meaning of the Investment Company Act of 1940 and will not be deemed an “investment company” as a result of the transactions contemplated by this Agreement.

2.24          Related Party Transactions. To the knowledge of the Company, no transaction has occurred between or among the Company or any of its affiliates (including, without limitation, any of its subsidiaries), officers or directors or any affiliate or affiliates of any such affiliate, officer or director that with the passage of time will be required to be disclosed pursuant to Section 13, 14 or 15(d) of the Exchange Act other than those transactions that have already been so disclosed.

2.25          Books and Records. The books, records and accounts of the Company and its subsidiaries accurately and fairly reflect, in reasonable detail, the transactions in, and dispositions of, the assets of, and the operations of, the Company and its subsidiaries.

2.26         Disclosure Controls and Internal Controls.

(a)           The Company has established and maintains disclosure controls and procedures (as such term is defined in Rule 13a-15 under the Exchange Act), which (i) are designed to ensure that material information relating to the Company is made known to the Company’s principal executive officer and its principal financial officer by others within the Company particularly during the periods in which the periodic reports required under the Exchange Act are being prepared; and (ii) provide for the periodic evaluation of the effectiveness of such disclosure controls and procedures as of the end of the period covered by the Company’s most recent annual or quarterly report filed with the SEC.

(b)            The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference. The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-14 under the Exchange Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure. The Company is not aware of (i) any significant deficiency or material weakness in the design or operation of its internal controls; or (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s or any of its subsidiary’s internal controls.

(c)            Since the date of the most recent evaluation of such disclosure controls and procedures, there have been no changes that have materially affected, or are reasonably likely to materially affect, the Company’s or any of its subsidiary’s internal control over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses.

(d)            Except as described in the Company SEC Documents, there are no material off-balance sheet arrangements (as defined in Item 303 of Regulation S-K), or any other relationships with unconsolidated entities (in which the Company or its control persons have an equity interest) that may have a material current or future effect on the Company’s or any of its/subsidiary’s financial condition, revenues or expenses, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

2.27            No General Solicitation. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D promulgated under the Securities Act) in connection with the offer or sale of the Securities.

2.28            Rights Agreement. The Company has not adopted a shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company.

2.29            Foreign Corrupt Practices. Neither the Company nor any of its subsidiaries nor any director, officer, agent, employee or other person acting on behalf of the Company or any of its subsidiaries has, in the course of its actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

2.30            Sarbanes-Oxley Act. The Company is in compliance in all material respects with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of the date hereof.

2.31            Employee Relations. Neither the Company nor any of its subsidiaries is a party to any collective bargaining agreement. The Company reasonably believes that its and its subsidiaries’ relations with its employees are good. No executive officer of the Company (as defined in Rule 501(f) of the Securities Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer’s employment with the Company. To the knowledge of the Company, no executive officer of the Company is, or is expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company to any liability with respect to any of the foregoing matters.

The Company and each of its subsidiaries is in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

2.32            Environmental Laws. The Company and each of its subsidiaries (i) is in compliance with any and all Environmental Laws (as hereinafter defined), (ii) has received all permits, licenses or other approvals required of it under applicable Environmental Laws to conduct its business and (iii) is in compliance with all terms and conditions of any such permit, license or approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”)into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

2.33           No Manipulation; Disclosure of Information. The Company has not taken and will not take any action designed to or that might reasonably be expected to cause or result in an unlawful manipulation of the price of the Common Stock to facilitate the sale or resale of the Securities. The Company confirms that, to its knowledge, with the exception of the proposed sale of Securities as contemplated herein (as to which the Company makes no representation) and information provided with respect to the Target and the SPA and the Company’s new credit facility, neither it nor any other person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that constitutes or might constitute material, non-public information. The Company understands and confirms that the Purchasers shall be relying on the foregoing representations in effecting transactions in securities of the Company. All disclosures provided to the Purchasers regarding the Company, its business and the transactions noted in Section 2.33 above furnished by the Company are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

2.34           Forward-Looking Information. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) made by the Company or any of its officers or directors contained in the SEC Documents, or made available to the public generally since September 30, 2016, has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

2.35           No Additional Agreements. Other than with respect to closing mechanics, the Company has no other agreements or understandings (including, without limitation, side letters) with any Purchaser or other person to purchase Shares on terms more favorable to such person than as set forth herein.

2.36           No “Bad Actor” Disqualification. The Company has exercised reasonable care, in accordance with SEC rules and guidance, and has conducted a factual inquiry, the nature and scope of which reflect reasonable care under the relevant facts and circumstances, to determine whether any Covered Person (as defined below) is subject to any of the “bad actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (“Disqualification Events”). To the Company’s knowledge, after conducting such sufficiently diligent factual inquiries, no Covered Person is subject to a Disqualification Event, except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3) under the Securities Act. The Company has complied, to the extent applicable, with any disclosure obligations under Rule 506(e) under the Securities Act. “Covered Persons” are those persons specified in Rule 506(d)(1) under the Securities Act, including the Company; any predecessor or affiliate of the Company; any director, executive officer, other officer participating in the offering, general partner or managing member of the Company; any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power; any promoter (as defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of the sale of the Securities; and any person that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with the sale of the Securities (a “Solicitor”), any general partner or managing member of any Solicitor, and any director, executive officer or other officer participating in the offering of any Solicitor or general partner or managing member of any Solicitor.

3.             Representations and Warranties of the Purchasers. Each Purchaser, severally and not jointly, hereby represents and warrants to the Company as follows:

3.1            Legal Power. The Purchaser has the requisite authority to enter into this Agreement and to carry out and perform its obligations under the terms of this Agreement. All action on the Purchaser’s part required for the lawful execution and delivery of this Agreement have been or will be effectively taken prior to the Closing.

3.2            Due Execution. This Agreement has been duly authorized, executed and delivered by the Purchaser, and, upon due execution and delivery by the Company, this Agreement will be a valid and binding agreement of the Purchaser, except as rights to indemnity hereunder may be limited by federal or state securities laws and except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or by equitable principles.

3.3            Investment Representations. In connection with the sale and issuance of the Securities, the Purchaser, for itself and no other Purchaser, makes the following representations:

(a)            Investment for Own Account. The Purchaser is acquiring the Securities for its own account, not as nominee or agent, and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act;provided, however, that by making the representations herein, the Purchaser does not agree to hold any of the Securities for any minimum or specific term and reserves the right to dispose of the securities at any time in accordance with or pursuant to a registration statement or an exemption from the registration requirements of the Securities Act.

(b)           Transfer Restrictions; Legends. The Purchaser understands that (i) the Securities have not been registered under the Securities Act; (ii) the Securities are being offered and sold pursuant to an exemption from registration, based in part upon the Company’s reliance upon the statements and representations made by the Purchasers in this Agreement, and that the Securities must be held by the Purchaser indefinitely, and that the Purchaser must, therefore, bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration; (iii) each Certificate representing Securities will be endorsed or notated with the following legend until the date the Shares are eligible for sale without restriction or limitation under Rule 144 under the Securities Act:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. UNLESS SOLD PURSUANT TO EITHER AN EFFECTIVE REGISTRATION STATEMENT OR RULE 144 UNDER THE SECURITIES ACT, THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

(iv) the Company will instruct any transfer agent not to register the transfer of the Securities (or any portion thereof) until the applicable date set forth in clause (iii) above unless (A) the conditions specified in the foregoing legends are satisfied, (B) if the opinion of counsel referred to above is to the further effect that such legend is not required in order to establish compliance with any provisions of the Securities Act or this Agreement, (C) if the Purchaser provides the Company with reasonable assurance, such as through a representation letter, that the Securities may be sold pursuant to Rule 144 under the Securities Act, or (D) other reasonably satisfactory assurances of such nature are given to the Company. If so required by the Company’s transfer agent, the Company shall cause its counsel to issue and deliver a legal opinion to the transfer agent to effect the removal of the restrictive legend contemplated by this Agreement.

The Company acknowledges and agrees that a Purchaser may from time to time pledge, and/or grant a security interest in some or all of the Securities pursuant to a bona fide margin agreement in connection with a bona fide margin account and, if required under the terms of such agreement or account, the Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer shall not be subject to approval or consent of the Company and no legal opinion of legal counsel to the pledgee, secured party or pledgor shall be required in connection with the pledge, but such legal opinion may be required in connection with a subsequent transfer following default by the Purchaser transferee of the pledge. No notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including the preparation and filing of any required prospectus supplement under Rule 424(b)(3) of the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Shareholders thereunder.

Certificates evidencing the Shares shall not contain any restrictive legend (including the legend set forth in this Section): (i) following a resale of the Shares under an effective registration statement (including the Registration Statement) covering the Shares, or (ii) following a sale of such Shares pursuant to Rule 144, or (iii) while such Shares are eligible for sale under Rule 144 and, with respect to any Purchaser’s Shares, such Purchaser is not and has not been for three months an affiliate of the Company (as such term is defined in Rule 144(a)(1)) and such Shares have been held for one year or more pursuant to the requirements of Rule 144 and any other requirements under Rule 144 have been satisfied at such time, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the SEC). Following such time as restrictive legends are not required to be placed on Certificates representing Shares, the Company will, no later than three business days following the delivery by a Purchaser to the Company or the Company’s transfer agent of a Certificate representing Shares containing a restrictive legend and such other documentation and representations as the Company, its legal counsel or Transfer Agent may reasonably request to confirm compliance with the preceding sentence as applicable (provided, however, that neither the Company nor its legal counsel will require a legal opinion in connection with any sale pursuant to Rule 144), deliver or cause to be delivered to such Purchaser a Certificate representing such Shares that is free from all restrictive legends. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section. Certificates for Shares subject to legend removal hereunder shall be transmitted by the transfer agent of the Company to the Purchasers by crediting the account of the Purchaser’s prime broker with the Depository Trust Company system unless a Purchaser provides alternate written instructions. The Company will pay all fees and expenses of its transfer agent and the Depository Trust Company in connection with the removal of legends pursuant to this Section 3.3(b).

Each Purchaser, severally and not jointly with the other Purchasers, agrees that the removal of the restrictive legend from Certificates representing Shares as set forth in this Section 3.3(b) is predicated upon the Company’s reliance that the Purchaser will sell any Shares pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom.

(c)            Financial Sophistication; Due Diligence. The Purchaser has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in connection with the transactions contemplated in this Agreement. Such Purchaser has, in connection with its decision to purchase the Securities, relied only upon the representations and warranties contained herein and the information contained in the Company SEC Documents. Further, the Purchaser has had such opportunity to obtain additional information and to ask questions of, and receive answers from, the Company, concerning the terms and conditions of the investment and the business and affairs of the Company, as the Purchaser considers necessary in order to form an investment decision.

(d)           Accredited Investor Status. The Purchaser is an “accredited investor” as such term is defined in Rule 501(a) of the rules and regulations promulgated under the Securities Act.

(e)           Residency. If the Purchaser is an entity, the Purchaser is organized under the laws of the jurisdiction set forth beneath such Purchaser’s name on the signature page attached hereto, and its principal place of operations is in the state set forth beneath such Purchaser’s name on the signature page attached hereto.

(f)           General Solicitation. The Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over the television or radio or presented at any seminar or any other general solicitation or general advertisement.

3.4           No Investment, Tax or Legal Advice. Each Purchaser understands that nothing in the Company SEC Documents, this Agreement, or any other materials presented to the Purchaser in connection with the purchase and sale of the Securities constitutes legal, tax or investment advice. Each Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of Securities.

3.5           Additional Acknowledgement. Each Purchaser acknowledges that it has independently evaluated the merits of the transactions contemplated by this Agreement, that it has independently determined to enter into the transactions contemplated hereby, that it is not relying on any advice from or evaluation by any other person. Each Purchaser acknowledges that the Placement Agent has acted solely as placement agent for the Company in connection with the Offering of the Securities by the Company, that the information and data provided to the Purchaser in connection with the transaction contemplated hereby has not been subjected to independent verification by the Placement Agent, and that the Placement Agent has made no representation or warranty whatsoever with respect to the accuracy or completeness of such information, data or other related disclosure material. Each Purchaser acknowledges that it has not taken any actions that would deem the Purchasers to be members of a “group” for purposes of Section 13(d) of the Exchange Act.

3.6           Limited Ownership. The purchase of the Securities issuable to each Purchaser at the Closing will not result in such Purchaser (individually or together with any other person or entity with whom such Purchaser has identified, or will have identified, itself as part of a “group” in a public filing made with the SEC involving the Company’s securities) acquiring, or obtaining the right to acquire, in excess of 19.999% of the outstanding shares of Common Stock or voting power of the Company on a post-transaction basis that assumes that the Closing shall have occurred. Such Purchaser does not presently intend to, along or together with others, make a public filing with the SEC to disclose that it has (or that it together with such other persons or entities have) acquired, or obtained the right to acquire, as a result of the Closing (when added to any other securities of the Company that it or they then own or have the right to acquire), in excess of 19.999% of the outstanding shares of Common Stock or the voting power of the Company on a post-transaction basis that assumes that the Closing shall have occurred.

3.7           No Short Position. Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any person or entity acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including short sales as defined in Rule 200 of Regulation SHO under the Exchange Act (“Short Sales”), of the securities of the Company during the period commencing from the time that such Purchaser first received a term sheet (written or oral) from the Company or any other person representing the Company setting forth the material terms of the transactions contemplated hereunder until the date hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the securities covered by this Agreement. Other than to other persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction, the acquisition of Target and the Company’s new credit facility). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect short sales or similar transactions in the future.

4.            

Conditions to Closing.

4.1            Conditions to Obligations of Purchasers at Closing. Each Purchaser’s obligation to purchase the Securities at the Closing is subject to the fulfillment, on or prior to the Closing, of all of the following conditions, any of which may be waived by the Purchaser:

(a)            Representations and Warranties True; Performance of Obligations. The representations and warranties made by the Company in Section 2 shall be true and correct in all material respects (or, where the representation and warranty itself is qualified by materiality, it shall be true and correct in all respects) on the Closing Date with the same force and effect as if they had been made on and as of said date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be so true and correct as of such earlier date), and the Company shall have performed and complied with all obligations and conditions herein required to be performed or complied with by it on or prior to the Closing, including, but not limited to, those obligations and conditions set forth in Sections 4.1(c), 4.1(f), 4.1(g), 4.1(h), and 4.1(i), and a certificate duly executed by an officer of the Company, to the effect of the foregoing, shall be delivered to the Purchasers. The delivery of such certificate shall evidence the satisfaction of the conditions set forth in this Section 4.1.

(b)            Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to counsel to the Purchaser, and counsel to the Purchaser shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. The Company shall have delivered (or caused to have been delivered) to each Purchaser, the Certificates required by this Agreement.

(c)             Qualifications, Legal Investment. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful sale and issuance of the Securities shall have been duly obtained and shall be effective on and as of the Closing. No stop order or other order enjoining the sale of the Securities shall have been issued and no proceedings for such purpose shall be pending or, to the knowledge of the Company, threatened by the SEC, or any commissioner of corporations or similar officer of any state having jurisdiction over this transaction. At the time of the Closing, the sale and issuance of the Securities shall be legally permitted by all laws and regulations to which the Company is subject. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction will have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

(d)             Execution of Agreements. The Company shall have executed this Agreement and have delivered this Agreement to the Purchasers.

(e)             Secretary’s Certificate. The Company shall have delivered to the Purchasers a certificate of the Secretary of the Company certifying as to (i) the truth and accuracy of the resolutions of the board of directors relating to the transaction contemplated hereby (a copy of which shall be included with such certificate) and (ii) the current versions of the Company’s Certificate of Incorporation and bylaws.

(f)             Trading and Listing. Trading and listing of the Company’s common stock on the Principal Market shall not have been suspended by the SEC or the Principal Market.

(g)             Market Listing. The Company will comply with all of the requirements of the Financial Industry Regulatory Authority, Inc. and the Principal Market with respect to the issuance of the Securities and will list the Shares on the Principal Market no later than the earlier of (a) the effective date of the Registration Statement (as hereinafter defined) or (b) the Required Effective Date (as hereinafter defined).

(h)             Blue Sky. The Company shall have obtained all necessary “blue sky” law permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Securities.

(i)             Material Adverse Change. Since the date of this Agreement, there shall not have occurred any event which results in a Material Adverse Effect.

(j)             Opinion. The Company shall have delivered to Purchasers the opinion of Kelley Drye & Warren LLP, counsel to the Company, dated as of the Closing Date in substantially the form attached hereto as Exhibit B.

(k)             Acquisition of Target. The acquisition of Target shall have been consummated in accordance with the SPA.

4.2             Conditions to Obligations of the Company. The Company’s obligation to issue and sell the Securities at the Closing is subject to the fulfillment, on or prior to the Closing, of the following conditions, any of which may be waived by the Company:

(a)            Representations and Warranties True. The representations and warranties made by the Purchasers in Section 3 shall be true and correct in all material respects (or, where the representation and warranty itself is qualified by materiality, it shall be true and correct in all respects) on the Closing Date with the same force and effect as if they had been made on and as of said date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be so true and correct as of such earlier date).

(b)            Performance of Obligations. The Purchasers shall have performed and complied with all agreements and conditions herein required to be performed or complied with by them on or before the Closing. The Purchasers shall have delivered the Purchase Price, by wire transfer, to the account designated by the Company for such purpose.

(c)             Qualifications, Legal Investment. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful sale and issuance of the Securities shall have been duly obtained and shall be effective on and as of the Closing. No stop order or other order enjoining the sale of the Securities shall have been issued and no proceedings for such purpose shall be pending or, to the knowledge of the Company, threatened by the SEC, or any commissioner of corporations or similar officer of any state having jurisdiction over this transaction. At the time of the Closing, the sale and issuance of the Securities shall be legally permitted by all laws and regulations to which the Company is subject. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction will have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

(d)             Execution of Agreements. The Purchasers shall have executed this Agreement and delivered this Agreement to the Company.

(e)             Acquisition of Target. The acquisition of Target shall have been consummated in accordance with the SPA.

4.3            Termination of Obligations to Effect Closing; Effects.

(a)             Termination. The obligations of the Company, on the one hand, and the Purchasers, on the other hand, to effect the Closing shall terminate as follows:

(i)           Upon the mutual written consent of the Company and the Purchasers;

(ii)           By the Company if any of the conditions set forth in Section 4.2 shall have become incapable of fulfillment, and shall not have been waived by the Company;

(iii)           By a Purchaser (with respect to itself only) if any of the conditions set forth in Section 4.1 shall have become incapable of fulfillment, and shall not have been waived by the Purchaser; or

(iv)             By either the Company or any Purchaser (with respect to itself only) if the Closing has not occurred on or prior to December 1, 2016;

provided, however, that, in the case of clause (iii) above and clause (iv) with respect to the Company, the party seeking to terminate its obligation to effect the Closing shall not then be in breach of any of its representations, warranties, covenants, or agreements contained in this Agreement if such breach has resulted in the circumstances giving rise to such party’s seeking to terminate its obligation to effect the Closing.

(b)             Effect of Termination. In the event of termination by the Company or any Purchaser of its obligations to effect the Closing pursuant to this Section 4.3, written notice thereof shall be given promptly to the other Purchasers by the Company and the other Purchasers shall have the right to terminate their obligations to effect the Closing upon written notice to the Company and the other Purchasers. Nothing in this Section 4.3 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement.

5.            

Additional Covenants.

5.1           Reporting Status. With a view to making available to the Purchasers the benefits of certain rules and regulations of the SEC which may permit the sale of the Shares to the public without registration, the Company agrees to use its reasonable best efforts to file with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act. The Company will otherwise take such further action as a Purchaser may reasonably request, all to the extent required from time to time, to enable such Purchaser to sell the Shares without registration under the Securities Act or any successor rule or regulation adopted by the SEC. If, at any time during the period commencing from the six-month anniversary of the date hereof and ending at such time that all Registrable Securities (as defined below) may be sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144 (the “144 Sale Date”), the Company fails to satisfy the current public information requirement of Rule 144(c) under the Securities Act, then the Company shall, on the business day immediately following such failure and each 30th day thereafter until the 144 Sale Date, make a payment to the Purchasers as partial liquidated damages for such failure equal to 1% of the Purchase Price paid for the Shares then owned by the Purchasers up to a maximum of 12.0% of the Purchase Price for such Registrable Securities. Payments pursuant to this Section 5.1 will be prorated on a daily basis during each 30-day period and will be paid to the Purchasers by wire transfer or check within five business days after the earlier of (i) the end of each 30-day period following such failure to satisfy the current public information requirement or (ii) the 144 Sale Date. If the Company fails to pay any liquidated damages pursuant to this section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 12% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Purchasers, accruing daily from the date such liquidated damages are due until such amounts, plus all such interest thereon, are paid in full.

5.2           Listing. So long as a Purchaser owns any of the Securities, the Company will use its reasonable best efforts to maintain the qualification or listing of its Common Stock, including the Shares, on the Principal Market or an alternative listing on the NASDAQ Stock Market, New York Stock Exchange or NYSE MKT and will comply in all material respects with the Company’s reporting, filing and other obligations under the rules of such exchanges, as applicable.

5.3           Adjustments in Share Numbers and Prices. In the event of any stock split, subdivision, dividend or distribution payable in shares of Common Stock (or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly shares of Common Stock), combination or other similar recapitalization or event occurring after the date hereof, each reference in this Agreement to a number of shares or price per share shall be amended appropriately to account for such event.

5.4           Non-Public Information. The Company covenants and agrees that neither it nor any other person acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company. Furthermore, if the Company has disclosed any material non-public information to the Purchaser, the Purchaser has no duty to keep such information confidential following the public announcement of the Offering.

5.5           Equal Treatment of Purchasers. No consideration (including any modification of this Agreement and any other documents or agreements executed in connection with the transaction contemplated hereunder) shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration is also offered to all of the parties to this Agreement. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of securities of the Company or otherwise.

5.6           Restriction on Future Issuances. Unless otherwise waived by holders of a majority of the Shares sold in this Offering:

(a)The Company will not, from the date of this Agreement through the date that is 45 days after the effective date of the Registration Statement (the “Lock-Up Period”), (a) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (b) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, except for (x) grants of options, shares of Common Stock and other awards to purchase or receive shares of Common Stock under the Company’s equity incentive plans that are in effect as of or prior to the date hereof or (y) issuances of shares of Common Stock upon the exercise or conversion of securities outstanding as of the date of this Agreement in accordance with the terms of such securities in effect on the date hereof or upon the exercise of options or other awards granted under the Company’s equity incentive plans.

(b)The Company agrees not to accelerate the vesting of any option or warrant or the lapse of any repurchase right prior to the expiration of the Lock-Up Period.

(c)In addition, from the Closing Date of the Offering until 45 days after the effective date of the Registration Statement, the Company will not issue or agree to issue more than (i) such number of shares as is equal in value to $1,000,000 of (a) Common Stock or (b) any securities of the Company or any subsidiary that would entitle the holder thereof to acquire at any time shares of Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time directly or indirectly convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock, entitling any person or entity to acquire shares of Common Stock, in the case of each of (i)(a) and (i)(b) above at an effective price per share of at least $1.15, and (ii) such number of shares as is equal in value to $5,000,000 of (a) Common Stock or (b) any securities of the Company or any subsidiary that would entitle the holder thereof to acquire at any time shares of Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time directly or indirectly convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock, entitling any person or entity to acquire shares of Common Stock, in the case of each of (ii)(a) and (ii)(b) above at an effective price per share of at least $2.00.

Notwithstanding this Section 5.6, the Company shall not be restricted from issuing shares of Common Stock, or registering with the SEC the sale or resale of shares of Common Stock, in connection with the SPA and any agreement contemplated thereby, provided, however, that the registration statement for such shares shall not be filed earlier than sixty (60) days following the effective date of the registration statement covering the shares of Common Stock sold hereunder.

6.            

Registration Rights.

6.1           Registration Procedures and Expenses; Liquidated Damages for Certain Events.

(a)The Company shall prepare and file with the SEC, as promptly as reasonably practicable following Closing, but in no event later than 45 days following the date hereof (the “Initial Filing Date”), a registration statement on Form S-3 (or any successor to Form S-3), covering the resale of the Registrable Securities (the “S-3 Registration Statement”) and use all commercially reasonable efforts to, as soon as reasonably practicable thereafter but in no event later than 90 days following the date hereof (or 120 days in the event of a full review of the S-3 Registration Statement by the SEC), effect such registration and any related qualification or compliance with respect to all Registrable Securities held by the Purchasers. For purposes of this Agreement, the term “Registrable Securities” shall mean (i) the Shares and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, any Shares. In the event that Form S-3 (or any successor form) is or becomes unavailable to register the resale of the Registrable Securities at any time prior to the Initial Filing Date, the Company shall prepare and file with the SEC, as promptly as reasonably practicable following the Closing but in no event later than the Initial Filing Date, a registration statement on Form S-1 (or any successor to Form S-1), covering the resale of the Registrable Securities (the “S-1 Registration Statement” and collectively the S-3 Registration Statement, the “Registration Statement”) and use all commercially reasonable efforts to, as soon as reasonably practicable thereafter but in no event later than 120 days following the date hereof (150 days in the event of a full review of the S-1 Registration Statement by the SEC), to effect such registration and any related qualification or compliance with respect to all Registrable Securities held by the Purchasers. If the Company is not eligible to use Form S-3 at the Initial Filing Date, and the Company subsequently becomes eligible to use Form S-3 during the Effectiveness Period (as defined below), the Company shall file, as promptly as reasonably practicable, a new S-3 Registration Statement, or if available, an amendment to the Form S-1, covering the resale of the Registrable Securities and replace the S-1 Registration Statement with the new S-3 Registration Statement or amended Form S-1, as the case may be, upon the effectiveness of the new S-3 Registration Statement.

(b)The Company shall, during the Effectiveness Period (as hereinafter defined), use its commercially reasonable efforts to:

(i)prepare and file with the SEC such amendments and supplements to the Registration Statement and the Prospectus used in connection therewith as may be necessary or advisable to keep the Registration Statement current and effective for the Registrable Securities held by a Purchaser for a period ending on the earlier of (i) the second anniversary of the Closing Date, (ii) the date on which all Registrable Securities may be sold pursuant to Rule 144 under the Securities Act or any successor rule (“Rule 144”) during any three-month period without the requirement for the Company to be in compliance with the current public information required under Rule 144(c)(1) or (iii) such time as all Registrable Securities have been sold pursuant to a registration statement or Rule 144 (collectively, the “Effectiveness Period”). The Company shall notify each Purchaser promptly upon the Registration Statement and each post-effective amendment thereto, being declared effective by the SEC and advise each Purchaser that the form of Prospectus contained in the Registration Statement or post-effective amendment thereto, as the case may be, at the time of effectiveness meets the requirements of Section 10(a) of the Securities Act or that it intends to file a Prospectus pursuant to Rule 424(b) under the Securities Act that meets the requirements of Section 10(a) of the Securities Act;

(ii)furnish to the Purchaser promptly with respect to the Registrable Securities registered under the Registration Statement such number of copies of the Registration Statement and the Prospectus (including supplemental prospectuses and amendments) filed with the SEC in conformance with the requirements of the Securities Act and such other documents as the Purchaser may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Registrable Securities by the Purchaser;

(iii)make any necessary blue sky filings;

(iv)pay the expenses incurred by the Company and the Purchasers in complying with this Section 6, including, all registration and filing fees, FINRA fees, exchange listing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding attorneys’ fees of any Purchaser and any and all underwriting discounts and selling commissions applicable to the sale of Registrable Securities by the Purchasers);

(v)advise the Purchasers, promptly after it shall receive notice or obtain knowledge of the issuance of any stop order by the SEC delaying or suspending the effectiveness of the Registration Statement or of the initiation of any proceeding for that purpose; and it will promptly use its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued; and

(vi)with a view to making available to the Purchaser the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit the Purchaser to sell Registrable Securities to the public without registration, the Company covenants and agrees to: (i) make and keep public information available, as such term is understood and defined in Rule 144, until the earlier of (A) such date as all of the Registrable Securities qualify to be resold immediately pursuant to Rule 144 or any other rule of similar effect during any three-month period without the requirement for the Company to be in compliance with the current public information required under Rule 144(c)(1) or (B) such date as all of the Registrable Securities shall have been resold pursuant to Rule 144 (and may be further resold without restriction); (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and under the Exchange Act; and (iii) furnish to the Purchaser upon request, as long as the Purchaser owns any Registrable Securities, (A) a written statement by the Company as to whether it has complied with the reporting requirements of the Securities Act and the Exchange Act, (B) if not available on the SEC EDGAR system, a copy of the Company’s most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such other information as may be reasonably requested in order to avail the Purchaser of any rule or regulation of the SEC that permits the selling of any such Registrable Securities without registration.

The Company understands that each Purchaser disclaims being an underwriter, but acknowledges that a determination by the SEC that a Purchaser is deemed an underwriter shall not relieve the Company of any obligations it has hereunder.

(c)If (i) the Registration Statement is not filed on or prior to the Initial Filing Date, or (ii) the Company fails to file with the SEC a request for acceleration of the Registration Statement in accordance with Rule 461 under the Securities Act, within five Trading Days, as defined below, after the date the Company is first notified (orally or in writing) by the SEC that the Registration Statement will not be “reviewed” or will not be subject to further review or comment, or (iii) prior to the effective date of the Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the SEC in respect of such Registration Statement within 21 days after the receipt of comments by or notice from the SEC that such amendment or resolution of such comments is required in order for such Registration Statement to be declared effective, or (iv) the Registration Statement is not declared effective by the SEC on or before the date that is 90 days after the date hereof, or 120 days after the date hereof in the event of a full review of the Registration Statement by the SEC (the “Required Effective Date”), or (v) there occurs a Suspension (or part thereof) (as defined below) that does not constitute a Qualifying Suspension (as defined below) or (vi) at any time during the period commencing from the six month anniversary of the date hereof and ending at such time, the Company shall fail to satisfy the current public information requirement under Rule 144(c) (any of the foregoing being referred to as an “Event”, and for purposes of clauses (i), (iv) and (vi), the date on which such Event occurs, and for purpose of clause (ii) the date on which such five Trading Day period is exceeded, and for purpose of clause (iii) the date which such 21 day period is exceeded, and for purpose of clause (v) the date on which the applicable 30 or 45 day period is exceeded being the “Event Date”), then except during any period of time during which the Registrable Securities may be resold pursuant to Rule 144 without volume limitations, in addition to any other rights the Purchasers may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Purchaser an amount in cash, as liquidated damages and not as a penalty, equal to the product of 1.0% multiplied by the Purchase Price paid by such Purchaser with respect to the Registrable Securities affected by such Event and held by such Purchaser on such Event Date or monthly anniversary thereof, up to a maximum of 12.0% of the Purchase Price for such Registrable Securities; provided, however, that no amount arising under subsection (vi) above shall be payable in duplication of any amount payable under Section 5.1. If the Company fails to pay any liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 12% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Purchaser, accruing daily from the date such liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event. A “Trading Day” is any day of the year that the Principal Market is open for trading of the Common Stock.

6.2

Transfer of Shares After Registration; Suspension.

(a)Except in the event that Section 6.2(b) applies, the Company shall during the Effectiveness Period: (i) if deemed necessary or advisable by the Company, prepare and file from time to time with the SEC a post-effective amendment to the Registration Statement or a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and so that, as thereafter delivered to purchasers of the Registrable Securities being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) provide the Purchasers copies, or access to copies, of any documents filed pursuant to Section 6.2(a)(i); and (iii) upon request, inform each Purchaser who so requests that the Company has complied with its obligations in Section 6.2(b)(i) (or that, if the Company has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, the Company will notify the Purchaser to that effect, will use its reasonable best efforts to secure the effectiveness of such post-effective amendment as promptly as possible and will promptly notify the Purchaser pursuant to Section 6.2(b)(i) when the amendment has become effective).

(b)Subject to Section 6.1(c), in the event: (i) of any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the Registration Statement or related Prospectus or for additional information; (ii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose; or (iv) of any event or circumstance which necessitates the making of any changes in the Registration Statement or Prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; then the Company shall promptly deliver a certificate in writing to the Purchasers (the “Suspension Notice”) to the effect of the foregoing and, upon receipt of such Suspension Notice, the Purchasers will refrain from selling any Registrable Securities pursuant to the Registration Statement (a “Suspension”) until the Purchasers are advised in writing by the Company that the current Prospectus may be used, and have received copies, or access to copies, from the Company of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such Prospectus. In the event of any Suspension, the Company will use its reasonable best efforts to cause the use of the Prospectus so suspended to be resumed as soon as reasonably practicable after delivery of a Suspension Notice to the Purchasers. In addition to and without limiting any other remedies (including, without limitation, at law or at equity) available to the Company and the Purchaser, the Company and the Purchasers shall be entitled to specific performance in the event that the other party fails to comply with the provisions of this Section 6.2(b).

(c)Notwithstanding the foregoing paragraphs of this Section 6.2, the Company shall use its reasonable best efforts to ensure that (i) a Suspension shall not exceed 30 days individually, (ii) Suspensions covering no more than 45 days, in the aggregate, shall occur during any twelve month period and (iii) each Suspension shall be separated by a period of at least 30 days from a prior Suspension (each Suspension that satisfies the foregoing criteria being referred to herein as a “Qualifying Suspension”).

(d)During the Effectiveness Period, the Company shall cause Certificates evidencing the Registrable Securities not to contain any restrictive legend (including the legend set forth in Section 3.3(b)): (i) following a resale of the Shares under an effective registration statement (including the Registration Statement) covering such Registrable Securities, or (ii) following a sale of such Registrable Securities pursuant to Rule 144, or (iii) while such Registrable Securities are eligible for sale under Rule 144 and, with respect to any Purchaser’s Shares, such Purchaser is not and has not been for three months an affiliate of the Company (as such term is defined in Rule 144(a)(1)) and such Shares have been held for one year or more pursuant to the requirements of Rule 144 and any other requirements under Rule 144 have been satisfied at such time, or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the SEC). Following such time as restrictive legends are not required to be placed on Certificates representing Shares, the Company will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Company’s transfer agent of a Certificate representing Registrable Securities containing a restrictive legend, deliver or cause to be delivered to such Purchaser a Certificate representing such Registrable Securities that is free from all restrictive legends. Promptly after the Registration Statement is declared effective by the SEC, the Company will cause its counsel to issue a legal opinion to the Company’s transfer agent to effect the removal of the restrictive legend contemplated by this Agreement upon request by a Purchaser in connection with a sale of such Purchaser’s Registrable Securities by such Purchaser pursuant to the Registration Statement, which opinion will not include the resale of shares issued as part of the purchase price for the acquisition of Target pursuant to the SPA. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Agreement. Certificates for Registrable Securities subject to legend removal hereunder shall be transmitted by the transfer agent of the Company to the Purchasers by crediting the account of the Purchaser’s prime broker with the Depository Trust Company system unless a Purchaser provides alternate written instructions.

6.3 

Indemnification. For the purpose of this Section 6.3:

(a)the term “Selling Shareholder” shall mean a Purchaser, its general partners, managing members, managers, executive officers and directors and each person, if any, who controls that Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act;

(b)the term “Registration Statement” shall include any final Prospectus, exhibit, supplement or amendment included in or relating to, and any document incorporated by reference in, the Registration Statement (or deemed to be a part thereof) referred to in Section 6.1; and

(c)the term “untrue statement” shall mean any untrue statement or alleged untrue statement of a material fact, or any omission or alleged omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(d)            The Company agrees to indemnify and hold harmless each Selling Shareholder from and against any losses, claims, damages or liabilities to which such Selling Shareholder may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon (i) any untrue statement of a material fact contained in the Registration Statement, (ii) any inaccuracy in the representations and warranties of the Company contained in this Agreement or the failure of the Company to perform its obligations hereunder or (iii) any failure by the Company to fulfill any undertaking included in the Registration Statement, and the Company will reimburse such Selling Shareholder for any reasonable legal expense or other actual accountable out-of-pocket expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement made in such Registration Statement in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Selling Shareholder specifically for use in preparation of the Registration Statement or the failure of such Selling Shareholder to comply with its covenants and agreements contained herein or any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered to the Selling Shareholder prior to the pertinent sale or sales by the Selling Shareholder.

(e)            Each Purchaser severally (as to itself), and not jointly, agrees to indemnify and hold harmless the Company (and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, each officer of the Company who signs the Registration Statement and each director of the Company) from and against any losses, claims, damages or liabilities to which the Company (or any such officer, director or controlling person) may become subject (under the Securities Act or otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, any untrue statement of a material fact contained in the Registration Statement if, and only if, such untrue statement was made in reliance upon and in conformity with written information furnished by or on behalf of that Purchaser specifically for use in preparation of the Registration Statement, and that Purchaser will reimburse the Company (or such officer, director or controlling person, as the case may be), for any reasonable legal expense or other actual accountable out-of-pocket expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim. The obligation to indemnify shall be limited to the net amount of the proceeds received by the Purchaser from the sale of the Registrable Securities pursuant to the Registration Statement.

(f)            Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 6.3, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party under this Section 6.3 (except to the extent that such omission materially and adversely affects the indemnifying party’s ability to defend such action) or from any liability otherwise than under this Section 6.3. Subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof (unless it has failed to assume the defense thereof and appoint counsel reasonably satisfactory to the indemnified party), such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof; provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate, in the reasonable opinion of counsel to the indemnified person, for the same counsel to represent both the indemnified person and such indemnifying person or any affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel (who shall not be the same as the opining counsel) at the expense of such indemnifying person; provided, however, that no indemnifying person shall be responsible for the fees and expenses of more than one separate counsel (together with appropriate local counsel) for all indemnified parties. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could reasonably have been a party and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding.

(g)            If the indemnification provided for in this Section 6.3 is unavailable to or insufficient to hold harmless an indemnified party under subsection (d) or (e) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the liable Purchaser on the other in connection with the statements or omissions or other matters which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, in the case of an untrue statement, whether the untrue statement relates to information supplied by the Company on the one hand or the liable Purchaser on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. The Company and the Purchasers agree that it would not be just and equitable if contribution pursuant to this subsection (g) were determined by pro rata allocation (even if the Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (g). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (g) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (g), no Purchasers shall be required to contribute any amount in excess of the amount by which the net amount received by that Purchaser from the sale of the Registrable Securities to which such loss relates exceeds the amount of any damages which that Purchaser has otherwise been required to pay to the Company by reason of such untrue statement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Purchasers’ obligations in this subsection to contribute are several in proportion to their sales of Registrable Securities to which such loss relates and not joint.

(h)            The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including, without limitation, the provisions of this Section 6.3, and are fully informed regarding said provisions. They further acknowledge that the provisions of this Section 6.3 fairly allocate the risks in light of the ability of the parties to investigate the Company and its business in order to assure that adequate disclosure is made in the Registration Statement as required by the Securities Act and the Exchange Act.

(i)            The obligations of the Company and of the Purchasers under this Section 6.3 shall survive completion of any offering of Registrable Securities in such Registration Statement for a period of two years from the effective date of the Registration Statement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.

6.4           Termination of Conditions and Obligations. The conditions precedent imposed by Section 3 or this Section 6 upon the transferability of the Registrable Securities shall cease and terminate as to any particular number of the Registrable Securities when such Registrable Securities shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition set forth in the Registration Statement covering such Registrable Securities or at such time as an opinion of counsel satisfactory to the Company shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act. The Company shall request an opinion of counsel promptly upon receipt of a request therefor from a Purchaser.

6.5           Information Available. So long as the Registration Statement is effective covering the resale of Registrable Securities owned by a Purchaser, the Company will furnish (or, to the extent such information is available electronically through the Company’s filings with the SEC, the Company will make available via the SEC’s EDGAR system or any successor thereto) to each Purchaser:

(a)as soon as practicable after it is available, one copy of its Annual Report on Form 10-K (the foregoing, in each case, excluding exhibits);

(b)upon the request of the Purchaser, all exhibits excluded by the parenthetical to subparagraph (a)(ii) of this Section 6.5 as filed with the SEC and all other information that is made available to shareholders; and

(c)upon the reasonable request of the Purchaser, an adequate number of copies of the Prospectuses to supply to any other party requiring such Prospectuses; and the Company, upon the reasonable request of a Purchaser, will meet with each Purchaser or a representative thereof at the Company’s headquarters during the Company’s normal business hours to discuss all information relevant for disclosure in the Registration Statement covering the Registrable Securities and will otherwise reasonably cooperate with the Purchasers conducting an investigation for the purpose of reducing or eliminating the Purchasers’ exposure to liability under the Securities Act, including the reasonable production of information at the Company’s headquarters; provided, that the Company shall not be required to disclose any confidential information to or meet at its headquarters with a Purchaser until and unless that Purchaser shall have entered into a confidentiality agreement in form and substance reasonably satisfactory to the Company with the Company with respect thereto.

6.6           Public Statements; Limitation on Information. The Company shall (A) by no later than 9:00 a.m. (New York City time) on the fourth Trading Day immediately following the date hereof, issue a press release disclosing the material terms of the Offering and (B) file a Current Report on Form 8-K within the time required by and in accordance with the requirements of the Exchange Act. From and after the issuance of such press release, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its subsidiaries, or any of their respective officers, directors, employees or agents in connection with the Offering. Neither the Company nor any Purchaser shall issue any other press release with respect to the transactions contemplated hereby nor otherwise make any such public statement without the prior consent of the Company and the Placement Agent, which consents in each case shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company will not make any public disclosure listing a Purchaser as one of the purchasers of the Securities without that Purchaser’s prior written consent, except as may be required by applicable law or rules of any exchange on which the Company’s securities are listed.

6.7           Protection of Exemptions. Without limiting the provisions of Section 5.6, the Company will not, for a period of six months following the Closing Date offer for sale or sell any securities unless, in the opinion of the Company’s counsel, such offer or sale does not jeopardize the availability of exemptions from the registration and qualification requirements under applicable securities laws with respect to the Offering. Except for the issuance of stock options under the Company’s stock option plans, the issuance of common stock upon exercise of outstanding options and warrants, the issuance of common stock purchase warrants, the issuance of Common Stock pursuant to the SPA, and the offering contemplated hereby, the Company has not engaged in any offering of equity securities during the six months prior to the date of this Agreement. The foregoing provisions of this Section 6.7 shall not prevent the Company from filing a “shelf” registration statement pursuant to Rule 415 under the Securities Act, but the foregoing provisions shall apply to any sale of securities thereunder.

6.8           Form D and State Securities Filings. The Company will file with the SEC a Notice of Sale of Securities on Form D with respect to the Securities, as required under Regulation D under the Securities Act, no later than 15 days after the Closing Date. The Company will promptly and timely file all documents and pay all filing fees required by any states’ securities laws in connection with the sale of Securities.

6.9           Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 6 may be assigned by a Purchaser to a party that acquires, other than pursuant to the Registration Statement or Rule 144, any of the Registrable Securities originally issued or issuable to such Purchaser as contemplated by this Agreement, or to any affiliate of a Purchaser that acquires any Registrable Securities. Any such permitted assignee shall have all the rights of such Purchaser under this Section 6 with respect to the Registrable Securities transferred during the Effectiveness Period.

6.10           Selling Shareholder Questionnaire. Each Purchaser agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Exhibit C (a “Selling Holder Questionnaire”). The Company shall not be required to include the Registrable Securities of a Purchaser in a Registration Statement and shall not be required to pay any liquidated or other damages hereunder to any such Purchaser who fails to furnish to the Company a fully completed Selling Holder Questionnaire at least three business days prior to the filing of the Registration Statement.

7.            

Miscellaneous.

7.1            Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the choice of law provisions thereof, and the federal laws of the United States.

7.2            Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto. Notwithstanding the foregoing, the Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchasers that constitute at least a majority of the Shares then held by the Purchasers.

7.3            Entire Agreement. This Agreement and the exhibits hereto, and the other documents delivered pursuant hereto, constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants, or agreements except as specifically set forth herein or therein. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided herein.

7.4            Severability. In the event any provision of this Agreement shall be invalid, illegal, or unenforceable, it shall to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

7.5            Amendment and Waiver. Except as otherwise provided herein, any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely), with the written consent of the Company and each Purchaser. Any amendment or waiver effected in accordance with this Section 7.5 shall be binding upon any holder of any Securities purchased under this Agreement, each future holder of all such securities, and the Company.

7.6            Fees and Expenses. Except as otherwise set forth herein, the Company and the Purchasers shall bear their own expenses and legal fees incurred on their behalf with respect to this Agreement and the transactions contemplated hereby. Each party hereby agrees to indemnify and to hold harmless of and from any liability the other parties for any commission or compensation in the nature of a finder’s fee to any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which such indemnifying party or any of its employees or representatives are responsible.

7.7            Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be delivered (A) if within the United States, by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid or by electronic mail, or (B) if from outside the United States, by International Federal Express (or comparable service) or by facsimile or electronic mail, and shall be deemed given (i) if delivered by first-class registered or certified mail domestic, upon the business day received, (ii) if delivered by nationally recognized overnight carrier, one business day after timely delivery to such carrier, (iii) if delivered by International Federal Express (or comparable service), two business days after so mailed, or (iv) if delivered by electronic mail at or prior to 5:30 p.m. (New York City time) on a Trading Day, on the Trading Day so delivered or, if delivered by facsimile or electronic mail after 5:30 p.m. (New York City time) on a Trading Day or on a day that is not a Trading Day, the next Trading Day after the date of delivery, and shall be addressed as follows, or to such other address or addresses as may have been furnished in writing by a party to another party pursuant to this paragraph:

●

if to the Company, to the address of the Company’s principal office set forth on the first page of this Agreement, Attention: Secretary and Treasurer, e-mail: pturits@fusionconnect.com with a copy to (which shall not constitute notice to the Company) Kelley Drye & Warren LLP, 101 Park Avenue, New York, New York 10178, Attention: Carol Weiss Sherman, e-mail: csherman@kelleydrye.com and

●

if to the Purchaser, at its address on the signature page to this Agreement.

7.8            Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Agreement or by the Placement Agent, all covenants, agreements, representations and warranties made by the Company and the Purchasers herein shall survive the execution of this Agreement, the delivery to the Purchasers of the Securities being purchased and the payment therefor, and a party’s reliance on such representations and warranties shall not be affected by any investigation made by such party or any information developed thereby.

7.9            Counterparts. This Agreement may be executed by pdf signature and in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

7.10          Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

7.11            Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under this Agreement are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under this Agreement. Nothing contained herein, and no action taken by any Purchaser pursuant hereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement. Each Purchaser confirms that it has independently participated in the negotiation of the transaction contemplated hereby with the advice of its own counsel and advisors. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Purchaser, solely, and not between the Company and the Purchasers collectively and not between and among the Purchasers.

[The Remainder of this Page is Blank; Signature Pages Follow]

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

By: /s/ Gordon Hutchins, Jr.

Name:                      

Gordon Hutchins, Jr.Title:President and Chief Operating Officer

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Mill Road Capital II, L.P.

 (Name of Investor)

By: /s/ Justin C. Jacob

Name: Justin C. Jacob

Title: Managing Director

Investment Amount (# shares): 826,087

Investment Amount ($ @ $1.15 share): $950,000

Tax Identification No.:

Jurisdiction of Organization: Delaware

Jurisdiction of Principal Place of Operations: CT

Address for Notice: 382 Greenwich Avenue, Greenwich, CT

 06830

Attention: Linda Hanager

Telephone:

E-mail:

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Technology Opportunity Partners, LP

(Name of Investor)

By: /s/ Steve L. Fingerhead

Name: Steve L. Fingerhead

Title: Managing Partner

Investment Amount (# shares): 434,783

Investment Amount ($ @ $1.15 share): $500,000

Tax Identification No.:

Jurisdiction of Organization: Delaware

Jurisdiction of Principal Place of Operations: California

Address for Notice: One Ferry Building, Suite 255, San

Francisco, CA 94111

Attention: Daniel Still

Telephone: 415-677-5962

E-mail:

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Kevin Harris

(Name of Investor)

By: /s/ Kevin Harris

Name: Kevin Harris

Title:

Investment Amount (# shares): 28,986

Investment Amount ($ @ $1.15 share):$33,333.33

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: c/o Craig Hallum, 222 S. 9th Street, Suite

350, Minneapolis, MN 55402

Attention: MaryAnn Borgerding

Telephone: 612-334-6346

E-mail:

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

William F. Hartfiel III                                                      

(Name of Investor)

By: /s/ William F. Hartfiel III

Name: William F. Hartfiel III

Title:

Investment Amount (# shares): 28,986

Investment Amount ($ @ $1.15 share):$33,333.33

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: c/o Craig Hallum, 222 S. 9th Street, Suite

350, Minneapolis, MN 55402

Attention: MaryAnn Borgerding

Telephone: 612-334-6346

E-mail:

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Henry Alfaro

(Name of Investor)

By: /s/ Henry Alfaro

Name: Henry Alfaro

Title:

Investment Amount (# shares): 28,986

Investment Amount ($ @ $1.15 share): $33,333.33

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: PO Box 2045, Orinda CA 94563

Attention: Henry Alfaro

Telephone:

E-mail:

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Paul C. O’Brien

(Name of Investor)

By: /s/ Paul C. O’Brien

Name: Paul C. O’Brien

Title:

Investment Amount (# shares): 86,957

Investment Amount ($ @ $1.15 share):$100,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: 1021 Avalon Way, Diymouth, MA 02360

Attention: Paul C. O’Brien

Telephone:

E-mail:

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Jolyon F. Stern

(Name of Investor)

By: /s/ Jolyon F. Stern

Name: Jolyon F. Stern

Title:

Investment Amount (# shares): 173,913

Investment Amount ($ @ $1.15 share): $200,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice:

Attention:

Telephone:

E-mail:

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Peter A. Ferentinos

(Name of Investor)

By: /s/ Peter A Ferentinos

Name: Peter A Ferentinos

Title:

Investment Amount (# shares): 86,957

Investment Amount ($ @ $1.15 share): $100,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice:

Attention:

Telephone:

E-mail:

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Alan Brumberger

(Name of Investor)

By: /s/ Alan Brumberger

Name: Alan Brumberger

Title:

Investment Amount (# shares): 86,957

Investment Amount ($ @ $1.15 share): $100,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: 189 E. Mountain Drive, Montecita, CA

 93108

Attention:

Telephone:

E-mail:

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Marvin Rosen

(Name of Investor)

By: /s/ Marvin Rosen

Name: Marvin Rosen

Title:

Investment Amount (# shares): 195,652

Investment Amount ($ @ $1.15 share): $225,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: Fusion Telecommunications, 420

Lexington Avenue, Suite 1718, New

 York, New York 10170

Attention: Marvin Rosen

Telephone:

E-mail:

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Matthew Rosen

(Name of Investor)

By: /s/ Matthew Rosen

Name: Matthew Rosen

Title:

Investment Amount (# shares): 21,739

Investment Amount ($ @ $1.15 share): $25,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: Fusion Telecommunications, 420

Lexington Avenue, Suite 1718, New

 York, New York 10170

Attention: Matthew Rosen

Telephone:

E-mail:

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

DV-FT Holdings, LLC

(Name of Investor)

By: Marc B. Davis

Name: Marc B. Davis

Title: Manager

Investment Amount (# shares): 86,957

Investment Amount ($ @ $1.15 share): $100,000

Tax Identification No.:

Jurisdiction of Organization: Nevada

Jurisdiction of Principal Place of Operations: Florida

Address for Notice: PO Box 845, Jupiter, FL 33468

Attention: Mark B. Davis

Telephone: 305-987-1501

E-mail: mark@dvcdglobal.com

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Michael DelGiudice

(Name of Investor)

By: /s/ Michael DelGiudice

Name: Michael DelGiudice

Title:

Investment Amount (# shares): 21,739

Investment Amount ($ @ $1.15 share): $25,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: 176 Milan Hill Road, Milan NY 12571

Attention:

Telephone:

E-mail: mdelgiudice@mcmglobal.com

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Ronald Shapo

(Name of Investor)

By: /s/ Ronald A Shapo

Name: Ronald A Shapo

Title:

Investment Amount (# shares): 21,739

Investment Amount ($ @ $1.15 share): $25,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice:

Attention:

Telephone:

E-mail: Ronald.shapo@hklaw.com

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Bernard J. Korman

(Name of Investor)

By: /s/ Bernard J. Korman

Name: Bernard J. Korman

Title:

Investment Amount (# shares): 21,739

Investment Amount ($ @ $1.15 share):$25,000

Tax Identification No.:

Jurisdiction of Organization

Jurisdiction of Principal Place of Operations:

Address for Notice: 2101 Market Street, Suite 1001,

Philadelphia, PA 19103

Attention:

Telephone:

E-mail: bkorman683@aol.com

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Dennis J. Block

(Name of Investor)

By: /s/ Dennis J. Block

Name: Dennis J. Block

Title:

Investment Amount (# shares): 130,435

Investment Amount ($ @ $1.15 share): $150,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: Greenberg Traurig LLP, 200 Park

 Avenue, NY, NY 10016

Attention: Dennis J. Block

Telephone: 212-801-2222

E-mail: blockd@gtlaw.com

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Philip Turits

(Name of Investor)

By: /s/ Philip Turits

Name: Philip Turits

Title:

Investment Amount (# shares): 4,348

Investment Amount ($ @ $1.15 share): $5,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: Fusion Telecommunications, 420

Lexington Avenue, Suite 1718, NY, NY 10170

Attention:Philip Turits

Telephone: 212-201-2407

E-mail: pturits@fusionconnect.com

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Barry Volpert

(Name of Investor)

By: /s/ Barry Volpert

Name: Barry Volpert

Title:

Investment Amount (# shares): 60,000

Investment Amount ($ @ $1.15 share): $69,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: c/o Crestview Partners, 667 Madison Avenue, NY, NY 10065

Attention:Barry Volpert

Telephone: 212-906-0701

E-mail: bvolpert@crestview.com

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Thomas Murphy

(Name of Investor)

By: /s/ Thomas Murphy

Name: Thomas Murphy

Title:

Investment Amount (# shares): 45,000

Investment Amount ($ @ $1.15 share): $51,750

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: c/o Crestview Partners, 667 Madison

Avenue, 10th Floor, NY, NY 10065

Attention: Thomas Murphy

Telephone: 212-906-0777

E-mail:tmurphy@crestview.com

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

Francine M Blum Revocable Trust

(Name of Investor)

By: /s/ Francine M. Blum, as Trustee

Name: Francine M. Blum

Title:

Investment Amount (# shares): 13,044

Investment Amount ($ @ $1.15 share): $15,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: 3235 Treasure Trove, Miami, FL 33133

Attention: Francine M Blum

Telephone:

E-mail: larryblum@gmail.com

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

William D. Rubin

(Name of Investor)

By: /s/ William D. Rubin

Name: William D. Rubin

Title:

Investment Amount (# shares): 4,348

Investment Amount ($ @ $1.15 share): $5,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice:

Attention:

Telephone:

E-mail:

Delivery Instructions (if different from above):

Attention:

Telephone:

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby executed as of the date first above written.

David S. Flecker

(Name of Investor)

By: /s/ David S. Flecker

Name: David S. Flecker

Title:

Investment Amount (# shares): 21,739

Investment Amount ($ @ $1.15 share): $25,000

Tax Identification No.:

Jurisdiction of Organization:

Jurisdiction of Principal Place of Operations:

Address for Notice: 6 Brookwood Drive, Wesr Caldwell, NJ

07006

Attention:

Telephone:

E-mail: dflecker@comcast.net

Delivery Instructions (if different from above):

Attention:

Telephone:

EXHIBIT A

SCHEDULE OF PURCHASERS

Purchaser	Common Shares	Aggregate Purchase Price	Jurisdiction of Organization	Jurisdiction of Principal Place of Operations
Mill Road Capital II, L.P.	826,087	$950,000.00	DE	CT
Technology Opportunity Partners, LP	434,783	$500,000.00	DE	CA
Kevin Harris	28,986	$33,333.33	N/A	MN
William F. Hartfiel III	28,986	$33,333.33	N/A	MN
Henry Alfaro	28,986	$33,333.33	N/A	CA
Paul C. O’Brien	86,957	$100,000.00	N/A	MA
Jolyon F. Stern	173,913	$200,000.00	N/A	NY
Peter A. Ferentinos	86,957	$100,000.00	N/A	NY
Alan Brumberger	86,957	$100,000.00	N/A	CA
Marvin Rosen	195,652	$225,000.00	N/A	NY
Matthew Rosen	21,739	$25,000.00	N/A	NY
DV-FT Holdings, LLC	86,957	$100,000.00	NV	FL
Michael DelGiudice	21,739	$25,000.00	N/A	NY
Ronald Shapo	21,739	$25,000.00	N/A	FL
Bernard J. Korman	21,739	$25,000.00	N/A	PA
Dennis J. Block	130,435	$150,000.00	N/A	NY
Philip Turits	4,348	$5,000.00	N/A	NY
Barry Volpert	60,000	$69,000	N/A	NY
Thomas Murphy	45,000	$51,750	N/A	CT
Francine M Blum Revocable Trust	13,044	$15,000	N/A	FL
William Rubin	4,348	$5,000	N/A	FL
David Flecker	21,739	$25,000	N/A	NJ

EXHIBIT B

FORM OF OPINION OF COMPANY COUNSEL

[Capitalized terms shall have the meanings ascribed thereto in the Common Stock Purchase Agreement]

1.The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.

2.The Company has all necessary corporate power and authority to (i) execute and deliver, and to perform its obligations under the Agreement and (ii) conduct its business as it is, to our knowledge, currently conducted and described in the Company SEC Documents, and own, lease and license it properties and assets.

3.The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction listed on Schedule 1 hereto.

4.The execution, delivery and performance by the Company of the Agreement and the consummation of the transactions contemplated thereby including the issuance of the Securities have been duly authorized by all necessary corporate action of the Company.

5.The Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms.

6.Except for filings, authorizations or approvals contemplated by the Agreement, no authorizations or approvals of, and no filings with, any governmental or administrative agency, regulatory authority, stock market or trading facility are necessary or required by the Company for the execution and delivery of the Agreement or the consummation of the transactions contemplated thereby.

7.Neither the execution and delivery of the Agreement by the Company, nor the consummation or performance by the Company of any of the transactions contemplated by the Agreement (including the issuance of the Securities) (i) result in a violation of any provisions of the Company’s certificate of incorporation or bylaws; (ii) to our knowledge, constitute a violation of any U.S. federal or state law, rule or regulation applicable to the Company; or (iii) to our knowledge, violate any judgment, decree, order or award of any court, governmental body or arbitrator specifically naming the Company.

8.The authorized capital stock of the Company on the date hereof consists of 90,000,000 shares of common stock and 10,000,000 shares of preferred stock. The form of certificates for the Shares conforms to the requirements of the Delaware General Corporation Law.

9.To our knowledge, except as provided or disclosed in the Agreement on in the Company SEC Documents, no person or entity is entitled to any preemptive, right of first refusal, contractual or similar rights with respect to the issuance of the Shares.

10.The Shares have been duly authorized or reserved for issuance by all necessary corporate action on the part of the Company; and the Shares, when issued, sold and delivered against payment therefor in accordance with the provisions of the Agreement will be duly and validly issued, fully paid and non-assessable. The holders of the Shares will not be subject to personal liability by reason of being such holders.

11.Based in part on the representations contained in Section 3 of the Agreement, the offer and sale of the Shares as contemplated under the Agreement are exempt from registration under the Securities Act of 1933, as amended (the “Act”) [and from registration and qualification under the securities law of the States of [●]].

12.We are not aware of any actions, suits, arbitrations, claims, proceedings or investigations pending or threatened against the Company or any of its subsidiaries or any of their respective operations, businesses, properties or assets by or before any court, arbitrator or government or regulatory commission, board, body, authority or agency that challenges the validity of any actions take or to be taken by the Company pursuant to the Agreement or the transaction contemplated thereby.

13.To our knowledge, except as set forth in the Purchase Agreement, no holders of the Company’s securities have rights to the registration of shares of Common Stock or other securities of the Company because of the filing of the Registration Statement or the Offering, except as set forth in the Company SEC Documents.

14.The Company is not, and immediately after giving effect to the sale of the Securities in accordance with the Purchase Agreement, and the application of the proceeds for working capital, will not be required to be, registered as an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

EXHIBIT C

SELLING SHAREHOLDER QUESTIONNAIRE

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

Questionnaire for Selling Shareholder

This questionnaire is necessary to obtain information to be used by Fusion Telecommunications International, Inc. (the “Company”) to complete a Registration Statement (the “Registration Statement”) covering the resale of certain shares of Company Common Stock currently outstanding and/or of certain shares of Company Common Stock to be issued upon exercise of currently outstanding warrants to purchase Company Common Stock. Please complete and return this questionnaire to Kelley, Drye & Warren LLP, the Company’s legal counsel, to the attention of Carol Weiss Sherman either by mail to 101 Park Avenue, New York, New York 10178 or by fax to (212) 808-7897 or by email to csherman@kelleydrye.com. Please return the questionnaire by [●], or sooner, if possible. Call Carol Weiss Sherman at 212-808-5038 with questions.

FAILURE TO RETURN THE QUESTIONNAIRE MAY RESULT IN THE EXCLUSION OF YOUR NAME AND SHARES FROM THE REGISTRATION STATEMENT.

Please answer all questions. If the answer to any question is “None” or “Not Applicable,” please so state.

If there is any question about which you have any doubt, please set forth the relevant facts in your answer.

1. 

Please correct your name and/or address if not correct below

Name:                      

Address:                      

2. 

Please state the total number of currently outstanding shares of Company Common Stock that you beneficially own* and the form of ownership and the date that you acquired such stock. Include shares registered in your name individually or jointly with others and shares held in the name of a bank, broker, nominee, depository or in “street name” for your account. (DO NOT list options, warrants or other derivative securities. See Question #3).

3. 

Please list any outstanding options and warrants to purchase Company Common Stock or other derivative securities to acquire Company Common Stock that you beneficially own*, including (i) the number of shares of Company Common Stock to be issued upon the exercise of such option or warrant, (ii) the date such option or warrant is exercisable, (iii) the expiration date and (iv) the exercise price per share of EACH such option and warrant.

Number of Shares Covered by Option or Warrant Date Exercisable Exercise Price Expiration Date

4. 

Please list the number of shares of Common Stock listed under Question #2 above that you wish to include in the Registration Statement.

5. 

Please list the number of shares of Common Stock underlying warrants (to the extent such shares constitute Registrable Securities) listed under Question #3 above that, upon exercise of such warrants, you wish to include in the Registration Statement.

6. 

If you are a limited liability company or limited partnership, please name the managing member or general partner and each person controlling such managing member or general partner.

7. 

If you are an entity, please identify the natural person(s) who exercises sole or shared voting power* and/or sole or shared investment power* with regard to the shares listed under Question #2 and Question #3.

8. 

Please advise whether you are a registered broker-dealer or an affiliate* thereof. If you are an affiliate of a registered broker-dealer, please explain the nature of the affiliation and disclose whether you acquired the shares in the ordinary course of business and whether at the time of the acquisition you had any plans or proposals, directly or with any other person, to distribute the shares listed under Question #2 and Question #3.

9. 

List below the nature of any position, office or other material relationship that you have, or have had within the past three years, with the Company or any of its predecessors or affiliates*.

_________________

*See Appendix A for definitions  

10. 

If you expressly wish to disclaim any beneficial ownership* of any shares listed under Question #2 for any reason in the Registration Statement, indicate below the shares and circumstances for disclaiming such beneficial ownership*.

11. 

With respect to the shares that you wish to include in the Registration Statement, please list any party that has or may have secured a lien, security interest or any other claim relating to such shares, and please give a full description of such claims.

12. 

Please review Appendix B “Plan of Distribution.” Please identify and describe any method of distribution, other than described in Appendix B, that you plan on using to sell your shares of the Company’s Common Stock. By signing below you agree to distribute your shares of the Company’s Common Stock as described in Appendix B and this Item 11 and to notify the Company of any plan to distribute the Company’s Common Stock that is not described in Appendix B or herein under Item 11.

The undersigned, a Selling Shareholder of the Company, hereby furnishes the foregoing information for use by the Company in connection with the preparation of the Registration Statement. The undersigned will notify [●], at the address specified above, in writing immediately of any changes in the foregoing answers that should be made as a result of any developments occurring prior to the time that all the shares of Common Stock of the Company are sold pursuant to the Registration Statement referred to above. Otherwise, the Company is to understand that the above information continues to be, to the best of the undersigned’s knowledge, information and belief, complete and correct.

Dated: ___________ __, 20___

By:                                                                

Name: 

Its:                                                                

_________________

*See Appendix A for definitions

APPENDIX A

To Exhibit C

CERTAIN TERMS USED IN QUESTIONNAIRE

AFFILIATE

An “affiliate” of a company is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such company.

BENEFICIAL OWNERSHIP

A person “beneficially owns” a security if such person, directly or indirectly, has or shares voting power or investment power of such security, whether through a contract, arrangement, understanding, relationship or otherwise. A person is also the beneficial owner of a security if he has the right to acquire beneficial ownership at any time within 60 days through the exercise of any option, warrant or right, or the power to revoke a trust, discretionary account or similar arrangement.

INVESTMENT POWER

“Investment power” includes the power to dispose, or to direct the disposition of, a security.

VOTING POWER

“Voting power” includes the power to vote, or to direct the voting of, a security.

APPENDIX B

To Exhibit C

PLAN OF DISTRIBUTION

15.We are registering for resale by the selling shareholders and certain transferees a total of _________ shares of common stock, of which _______ shares are issued and outstanding. We will not receive any of the proceeds from the sale by the selling shareholders of the shares of common stock. We will bear all fees and expenses incident to our obligation to register the shares of common stock. If the shares of common stock are sold through broker-dealers or agents, the selling shareholder will be responsible for any compensation to such broker-dealers or agents.

16.The selling shareholders may pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus.

17.The selling shareholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

18.The selling shareholders will sell their shares of common stock subject to the following:

●

all of a portion of the shares of common stock beneficially owned by the selling shareholders or their perspective pledgees, donees, transferees or successors in interest, may be sold on the OTC Bulletin Board Market, any national securities exchange or quotation service on which the shares of our common stock may be listed or quoted at the time of sale, in the over-the counter market, in privately negotiated transactions, through the writing of options, whether such options are listed on an options exchange or otherwise, short sales or in a combination of such transactions;

●

each sale may be made at market price prevailing at the time of such sale, at negotiated prices, at fixed prices or at carrying prices determined at the time of sale;

●

some or all of the shares of common stock may be sold through one or more broker-dealers or agents and may involve crosses, block transactions or hedging transactions. The selling shareholders may enter into hedging transactions with broker-dealers or agents, which may in turn engage in short sales of the common stock in the course of hedging in positions they assume. The selling shareholders may also sell shares of common stock short and deliver shares of common stock to close out short positions or loan or pledge shares of common stock to broker-dealers or agents that in turn may sell such shares;

●

in connection with such sales through one or more broker-dealers or agents, such broker-dealers or agents may receive compensation in the form of discounts, concessions or commissions from the selling shareholders and may receive commissions from the purchasers of the shares of common stock for whom they act as broker-dealer or agent or to whom they sell as principal (which discounts, concessions or commissions as to particular broker-dealers or agents may be in excess of those customary in the types of transaction involved). Any broker-dealer or agent participating in any such sale may be deemed to be an “underwriter” within the meaning of the Securities Act and will be required to deliver a copy of this prospectus to any person who purchases any share of common stock from or through such broker-dealer or agent. We have been advised that, as of the date hereof, none of the selling shareholders have made any arrangements with any broker-dealer or agent for the sale of their shares of common stock; and

●

in connection with any other sales or transfers of common stock not prohibited by law.

19.The selling shareholder and any broker-dealer participating in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act, and any profits realized by the selling shareholders and any commissions paid, or any discounts or concessions allowed to any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. In addition, any shares of common stock covered by this prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this prospectus. A selling shareholder may also transfer, devise or gift the shares of common stock by other means not covered in this prospectus in which case the transferee, devisee or giftee will be the selling shareholder under this prospectus.

20.If required at the time a particular offering of the shares of common stock is made, a prospectus supplement or, if appropriate, a post-effective amendment to the shelf registration statements of which this prospectus is a part, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-deals or agents, any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.

21.Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. There can be no assurance that any selling shareholder will sell any or all of the shares of common stock registered pursuant to the shelf registration statement, of which this prospectus forms a part.

22.The selling shareholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling shareholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.

We will bear all expenses of the registration of the shares of common stock including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with the state securities of “blue sky” laws. The selling shareholders will pay all underwriting discounts and selling commissions and expenses, brokerage fees and transfer taxes, as well as the fees and disbursements of counsel to and experts for the selling shareholders, if any. We will indemnify the selling shareholders against liabilities, including some liabilities under the Securities Act, in accordance with the registration rights agreement or the selling shareholder will be entitled to contribution. We will be indemnified by the selling shareholders against civil liabilities, including liabilities under the Securities Act that may arise from any written information furnished to us by the selling shareholders for use in this prospectus, in accordance with the related securities purchase agreement or will be entitled to contribution. Once sold under this shelf registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.

EX-99.1

Exhibit 99.1

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Apptix, ASA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Corporate Information

Apptix ASA (“Apptix”, the “Company” or the “Group”) is a public Company registered in Norway and traded on the Oslo Stock Exchange. The Company’s head office is located at 13461 Sunrise Valley Drive, Suite 300, Herndon, Virginia (USA) and its registered business address is Nesoyveien 4, Billingstad, Norway. Apptix is the premier provider of managed and hosted business communication, collaboration, compliance & security, and infrastructure solutions to mid-market and enterprise customers and blue chip channel partners.  A cloud services pioneer in the managed hosted space, Apptix has almost 380 000 users under contract around the world; with more than one-third of users in highly regulated industries.

Apptix’s comprehensive portfolio of Cloud solutions includes Microsoft® Exchange, Microsoft Office 365®, SharePoint®, and Lync®, as well as hosted VoIP, encryption, archiving, mobile device management, enterprise back-up, disaster recovery, file synch and share and virtual desktops. Apptix hosted services are delivered across an advanced network infrastructure and built upon best-in-class hardware and software housed in Tier IV, SSAE 16 SOC 1 Type II certified, geographically dispersed interconnected datacenters to ensure the highest level of availability and reliability. 24/7 customer service and support is provided by a fully U.S.-based, industry recognized support department.

Note 2 – Summary of Significant Accounting Policies

2.1 Basis of Preparation

The consolidated financial statements of Apptix ASA have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), as adopted by the EU.

The consolidated financial statements of Apptix ASA have been prepared on a historical cost basis. The consolidated financial statements are presented in USD and all values are rounded to the nearest thousand except when otherwise indicated.

2.2 New and amended standards and interpretations applicable to September 2016 interim financial statements.

The accounting principles used in 2016 are the same as in 2015. The Group has reviewed new and amended IFRS and IFRIC interpretations during the year, along with the annual improvements. Adoption of these revised standards and interpretations did not have any effect on the financial performance or position of the Group

2.3 Basis of Consolidation and Classifcation of Assets and Liabilities

The consolidated financial statements are comprised of the financial statements of Apptix ASA and its fully owned subsidiary Apptix Inc. The financial statements of the subsidiary areprepared for the same reporting year as the parent Company, using consistent accounting policies. Inter-Company transactions and balances, including internal profits and unrealized gains and losses are eliminated in full as part of the consolidation process. As a result of rounding differences, numbers or percentages included within may not add up to the total.

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Current assets and liabilities include balances typically due within one year. All other balances are classified as non-current assets and other long-term debt.

2.4 Functional Currency and Presentation Currency

Apptix ASA has a single subsidiary whose primary economic environment is in the United States. The functional currency of this subsidiary is USD. Apptix ASA Group presents its financial statements and notes to the consolidated financial statements in USD, except where a transaction was specifically denominated in NOK. The functional currency of Apptix ASA is NOK and the Company presents its income statement, balance sheet, cash flow and notes in NOK only. The translation principles are as follows: (a) balance sheet figures for companies with a functional currency other than the presentation currency have been translated to the presentation currency at the rate applicable at the balance sheet date (b) income statement figures for companies with a functional currency other than the presentation currency have been translated to the presentation currency at the average exchange rate for the month in which the transaction occurred and (c) exchange rate differences are recognized as part of the other comprehensive income.

2.5 Revenue Recognition

Operating revenues are recognized when persuasive evidence of an agreement exists, the service has been delivered, fees are reliably measurable, collections are probable, and when other significant obligations have been fulfilled. Subscription revenue is earned under monthly subscription license agreements. Annual subscription licenses areamortized into revenue on a monthly basis as the services are delivered. As such, revenue is recognized during the period for which the service was delivered and it has been determined that collection of the related subscription fee is probable.  Professional services represents one-time fees for specific work performed that is not included in the monthly subscription license agreement. Professional services (Non-recurring revenue) is recognized once the service has been performed and collection of the associated fee is probable.

2.6 Income Taxes

The tax expense in the income statement includes taxes payable on the ordinary results for the period as well as the change in deferred tax. Deferred tax is calculated with a nominal tax rate on the temporary differences between the recorded values and tax values, as well as on any tax loss carry-forwards at the balance sheet date. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to offset current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. Any temporary differences, increasing or reducing taxes that will or may reverse in the same period, are netted. The net deferred tax benefit is recorded as an asset if it is regarded as probable that the Group will be able to realize the benefit through future earnings or realistic tax efficient planning.

2.7 Intangible Assets

Generally, intangible assets are recognized in the balance sheet if it is probable that there are future economic benefits that can be attributed to the asset which is owned by the Company, and the asset’s cost can be reasonably estimated. Intangible assets are recorded at cost. Intangible assets with indefinite useful lives are not amortized, but impairment losses are recognized if the recoverable amount is less than the current carrying value. The recoverable amount is calculated each year or if there are any indications of a decrease of value. Intangible assets with a finite useful life are amortized over the useful life and the need for any impairment losses to be recognized is considered quarterly. Amortization is carried out using the straight-line method over the estimated useful life. The amortization estimate and method is subject to an annual assessment based on the future economic benefits.

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a)

Purchased Software

Expenditures related to the purchase of software are capitalized in the balance sheet as an intangible asset provided these expenditures do not form part of hardware acquisition costs. Software is amortized using the straight-line method over 3 years. Expenses incurred as a result of maintaining or upholding the future usefulness of software, are expensed as incurred unless the changes in the software increase the future economic benefits.

b)

Goodwill

Acquisitions are accounted for by eliminating the cost price of the shares in the parent Company against equity in the subsidiary at the time of acquisition. The cost of the acquisition is allocated to the assets acquired and the liabilities assumed according to their estimated fair market values at the time of acquisition. The amount allocated to goodwill represents the excess purchase price paid over the fair value of the assets acquired and the liabilities assumed. In the event that the accounting for the business combination is incomplete by the end of the reporting period where the business combination occurs, the provisional amounts recognized at the acquisition date will be adjusted to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date. The period where the provisional amounts can be adjusted ends as soon as the necessary information is obtained to complete the purchase price allocation, and will in any case not exceed one year from the acquisition date.APTIX

Goodwill is not amortized; however an assessment is made both quarterly, and when there is an indication the carrying amount cannot be justified by future cash flows. If there is any indication that an impairment loss needs to be recognized, an assessment will be made to determine whether or not the discounted cash flow exceeds the carrying amount of goodwill. If the discounted cash flow is less than the carrying amount, goodwill will be written down to its fair value.

2.8 Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and impairment losses. When assets are sold or disposed of, the gross carrying amount and accumulated depreciation are eliminated, and any gain or loss on the sale or disposal is recognized in the income statement. Depreciation is computed for owned assets using the straight-line method over useful life and is recognized in the income statement. The useful life is equal to the estimated useful economic life since the Company uses the assets until they have no remaining residual value. The depreciation period and method are assessed each year to ensure that the method and period used synchronize with the financial realities of the non-current asset. The same methodology applies to the residual value.

2.9 Leasing

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The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date as to whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

a)

Finance Leases

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Capitalized finance leases are expensed on a straight-line basis over the estimated period of use. The estimated period of use corresponds to the estimated useful life of the assets, since the Company uses the assets until they have no remaining value. If it is not certain that the Company will take over the asset when the lease expires, the asset is depreciated over the lease’s term or the depreciation period for equivalent assets owned by the Group, whichever is the shorter. Total lease payments, less estimated interest, are recorded as long-term debt at the inception of the lease. The liability is reduced by the lease payments less the estimated interest expense.

b)

Operating Leases

Leases for which substantially all the risks and benefits incidental to ownership of the leased item are not transferred to the Group are classified as operating leases. Lease payments are classified as operating costs and recognized in the income statement during the contract period.

2.10 Cash and Cash Equivalents

Cash includes cash on hand and at the bank. Cash equivalents are short-term liquid investments that can be converted into cash within three months to a known amount, and which contain insignificant risk elements.

2.11 Impairment of Assets

a)

Financial Instruments

Financial instruments are reviewed at each balance sheet date to determine if there has been any decrease in value. Financial assets, which are valued at amortized cost, are written down when it is probable that the Company will not recover the full amount of the asset. The amount of the impairment loss is recognized in the income statement. A previous impairment loss may be reversed if the circumstances warrant such a reversal. A reversal of an impairment loss is presented as income. The carrying amount is only recognized to the extent that it does not exceed what the amortized cost would have been had the impairment loss not been recognized.

The Company utilizes valuation allowance accounts where appropriate for its financial instruments. The Company will directly reduce the carrying value of a financial asset when the impairment has occurred within a current reporting period. The Company will reduce the carrying value of a financial asset by way of increasing its valuation allowance when the impairment occurred outside of the current reporting period.

b)

Other Assets

An assessment of impairment losses on other assets is made when there is an indication that the recoverable amount of an asset has fallen below its carrying amount. If an asset’s carrying amount is higher than the asset’s recoverable amount, an impairment loss will be recognized in the income statement. With the exception of goodwill (see Note 10), impairment losses recognized in the income statements for previous periods are reversed when there is information that the impairment loss no longer exists or the carrying value of the impairment loss should be reduced. The reversal is recognized as revenue or an increase in other reserves. However, no reversal takes place if the reversal leads to the carrying amount exceeding what the carrying amount would have been if appropriate depreciation had occurred.

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c)

Recoverable Amount

The recoverable amount is the greater of the fair value of the asset less the net selling costs, or the discounted cash flow from continued use. “Value in use” is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. For assets that do not generate cash inflows, and which are largely independent of those from other assets or groups of assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

2.12 Equity

a)

Equity and Liabilities

Financial instruments are classified as liabilities or equity depending on the underlying financial circumstances. Interest, dividends, gains and losses relating to a financial instrument classified as a liability will be presented as an expense or revenue.

b)

Costs of Equity Transactions

Direct transaction costs relating to an equity offering are recognized against equity after deducting tax expenses. No other costs are directly recognized against equity.

c)

Other Equity

Exchange differences arise in connection with currency differences when foreign entities are consolidated. Currency differences relating to monetary items (liabilities or receivables), which are in reality part of the Company’s net investment in a foreign entity, are treated as an exchange difference. When a foreign operation is sold, the accumulated exchange differences linked to the entity are reversed and recognized in the income statement in the same period as the gain or loss on the sale is recognized.

2.13 Financial Liabilities

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

a)

Loans and Borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit or loss.

2.14 Employee Benefits

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a)

Severance Pay

The Company provides severance pay in situations where employment contracts are terminated as a result of reorganization. The costs related to severance pay are provided for once management has decided on a plan that will lead to reductions in the workforce and the work of restructuring has started or the reduction in the workforce has been communicated to affected employees.

b)

Share Options

The employees and management of the Company receive compensation in the form of equity-settled share-based payments. The cost of equity-settled transactions is determined by the fair value of the options at the time of the grant. The fair value is determined using an appropriate pricing model. The expense associated with equity-settled transactions is recognized, together with a corresponding increase in equity, during the period over which the service conditions and/or performance conditions are satisfied and the employee is fully entitled to the award (vesting date).

2.15 Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

2.16 Events after the Balance Sheet Date

New information on the Company’s positions at the balance sheet date is taken into account in the interim financial statements. Events occurring after the balance sheet date that do not affect the Company’s position at the balance sheet date, but which will affect the Company’s position in the future, are stated, if significant.

2.17 Cash Flow Statement

The cash flow statement is prepared in accordance with the indirect method. Included in cash and cash equivalents are bank deposits and cash on hand. Cash and cash equivalents are presented at the market value on the balance sheet date.

2.18 Significant Accounting Judgments, Estimates and Assumptions

The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

Key Estimates and Assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

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The most significant uncertainty in the Company’s judgment relates to impairment testing of goodwill. The Company reviews whether or not goodwill has been impaired on a quarterly basis. Estimating the value in use requires the Company to estimate the expected cash flows from the cash-generating unit as well as a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at September 30, 2016 was USD 9,9 million. Additional information related to goodwill appears in Note 10. Other significant areas of judgment and estimates include fixed asset impairment, determining expense associated with the issuance of stock options and the establishment of allowances for doubtful accounts.

2.19 Future Changes in Accounting Principles

In the financial statements for 2016 and beyond, the following standards, amendments and interpretations will be effective, along with annual improvements.

The Group does not expect these standards, revisions and interpretations to have a material impact on the financial position or performance of the Group.

The standards and interpretations are summarized below:

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets

IAS 16 and IAS 38 both establish the principle for the basis of depreciation and amortization as being the expected pattern of consumption of the future economic benefits of an asset. The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. The amendment adopted by the EU is effective for annual periods beginning on or after 1 January 2016. It is expected that the changes will not give any effect on the financial statements.

IFRS 15 Revenue from Contracts with Customers

The IASB and the FASB have issued their joint revenue recognition standard, IFRS 15 Revenue from Contracts with Customers. The standard replaces existing IFRS and US GAAP revenue requirements. The core principle of IFRS 15 is that revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard applies to all revenue contracts and provides a model for the recognition and measurement of sales of some non-financial assets (e.g., disposals of property, plant and equipment). The standard is not yet approved by the EU. It is expected that the changes will not give any material effect on the financial statements.

IFRS 16 Leases

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IFRS 16 Leases replaces existing IFRS leases requirements. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, ie the customer (‘lessee’) and the supplier (‘lessor’). The new leases standard requires lessees to recognise assets and liabilities for most leases, which is a significant change from current requirements. For lessor, IFRS 16 substantially carries forward the accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The standard is not yet approved by the EU. The company's preliminary assessment is that this standard will result in changes to the accounting for operational lease.

Annual Improvements to IFRSs (2010 - 2012)

IAS 16 and IAS 38: Revaluation method – proportionate restatement of accumulated depreciation

The amendment to IAS 16.35(a) and IAS 38.80(a) clarifies that revaluation can be performed, as follows:

● Adjust the gross carrying amount of the asset to market value

Or

● Determine the market value of the carrying amount and adjust the gross carrying amount proportionately so that the resulting carrying amount equals the market value.

The IASB also clarified that accumulated depreciation/amortisation is the difference between the gross carrying amount and the carrying amount of the asset (i.e., gross carrying amount – accumulated depreciation/amortisation = carrying amount). The amendment to IAS 16.35(b) and IAS 38.80(b) clarifies that the accumulated depreciation/amortisation is eliminated so that the gross carrying amount and carrying amount equal the market value. The amendment adopted by the EU is effective for annual periods beginning on or after 1 February 2015. It is expected that the changes will not give any effect on the financial statements.

Note 3 – Revenue and Segment Information

The Company has assessed its internal organizational structure, internal reporting system and geographical business units, and concluded that it does not have any reportable segments that should be reported separately. The Company only delivers services that are exposed to the same risk and return (business segment), and the business of the Company is not engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments (geographical segment).

The Company delivers services to its customers via the use of a public hosted cloud environment, a private (i.e. dedicated) or semi-dedicated cloud environment or a hybrid business model which is a combination of both public and private cloud environments.

The following table summarizes the components of the Company’s recurring revenue:

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Exchange - Microsoft Exchange based Corporate class hosted email, shared calendaring, contacts and task capabilities.

Archiving - Secure indexing of all messages in a tamper-proof storage environment to meet security and regulatory requirements.

SharePoint - Microsoft SharePoint solution allowing corporate collaboration through document sharing, workflows and discussion forums.

VoIP - Enterprise class hosted business phone service replacing traditional PBX business phone systems.

TAP - Comprehensive, cloud-based solution for combatting targeted email attacks.

Mobility - Instant access to email, calendars, contacts, and task lists through a mobile device.

Other Services - All other recurring revenue sources provided by the company

Note 4 - Cost of Sales

The following table summarizes the components of the Company’s Cost of Sales:

clude

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Note 5 – Employee Compensation and Benefits

The following table summarizes the components of the Company’s Compensation and Benefits:

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Note 6 - Other Operational and Administrative Costs

The following table summarizes the components of the Company’s Other Operational and Administrative Costs:

Note 7 - Financial Income and Expenses

The following table summarizes the components of the Company’s Financial Income and Expense:

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Note 8 - Intangible Assets

The following table summarizes the activity of the Company’s Intangible Assets:

Software Licenses are amortized on a straight-line basis over a three-year period. This is the Company’s best estimate of the life of such assets.

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Note 9 - Property and Equipment

The following table summarizes the activity of the Company’s Property and Equipment:

Computer equipment and furniture and fixtures are depreciated on a straight-line basis over three to seven years, respectively. Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the improvement or the remainder of the lease term, generally five years.

Change of estimate regarding depreciation of fixed assets

The Company closed down the Florida Office and the Florida Datacenter in 2015 and sold the majority of the public cloud customers in September 2015. As a result of these two major changes to the business the company undertook an assessment of fixed assets and other assets needed to operate the business going forward. The Company reviewed all of its fixed assets and specifically capitalized servers and storage to see if the estimated useful life (depreciation period) still was appropriate. In accordance with IAS 16, the Company assessed the future lives of these fixed assets and the expected use of such assets in future periods. Based on the Company’s financial forecasts and value in use calculations, the Company determined that useful life of some of the fixed assets needed to be reduced. The result of this assessment was that USD 4 million of the fixed assets was written of as a one time charge.

The Company migrated the public cloud customers to GoDaddy during the fourth quarter of 2015 and began the decommissioning of the underlying computer related equipment in early 2016 leaving the Company with excess equipment and capacity that is not expected to be utilized in future periods.

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Note 10 - Impairment Testing of Goodwill

As part of the Company’s annual review process it assesses whether or not acquired goodwill or other non current assets have been impaired. The estimate reflects the Company’s assessment of the value of the cash-generating unit to which the goodwill is allocated or the non current assets are associated. Calculating the value in use requires the Company to estimate the expected cash flows from the cash-generating unit (if available) and also to choose a suitable discount rate in order to calculate the present value of cash flow.

Apptix has historically operated in the highly competitive and price sensitive Hosted Exchange and public cloud market. With the aggressive expansion efforts of Microsoft, Google and AWS, the Company’s longer term growth potential was at risk. The highly competitive and price sensitive public cloud market was a main driver for the sale of the Company’s public cloud customer base in September 2015 (please refer to Note 7). As noted in previous annual reports, one of the primary factors impacting future carrying value of the Company’s intangible assets is revenue growth. Given the limited revenue growth achieved over the past five years in comparison to projected revenues along with the Company’s shift in business strategy from primarily a Hosted Exchange provider to a Managed Services Provider, the Company’s analysis of its non current assets carrying value resulted in an impairment of USD 5,7 million in 2014 and USD 6,0 million in 2015 These one-time, non-cash charges are based on the Company’s financial forecasts over the next 5 years and the discounted cash flow model supporting such financial forecast.

The Company evaluates its non curresnt assets on a consolidated basis as a single cash generating unit. The recoverable amount for the cash generating unit has been determined based on a value in use calculation using cash flow projections based on financial budgets approved by senior management covering a five-year period. The discount rate applied to cash flow projections was 12,3% (pre-tax) and assumed a constant growth rate of 3% (nominal) beyond year five.

Key assumptions used in value in use calculations for the Company for September 30, 2016 and December 31, 2015

The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of non current assets:

Revenues- The basis for determining the value assigned to budgeted revenue growth is a combination of the average percentage change in revenue in the year immediately prior to the budgeted year and management’s estimates for the next five years. The Company’s FY16 forecast has been adjusted to reflect the impact of the customer sold to GoDaddy and for the expected growth rate in the remaining business. The Company has historically struggled to growth its top-line revenues over the past 5 years despite double digit user growth over the same period. There are a number of contributing factors to this challenge including the downward pricing pressure (in the market) being applied by Microsoft, Google and others. While the Company has added users over the past few years, the ARPU associated with the new users have been at lower rates and not sufficient to offset the higher ARPU churn. The churn has been largely due to customers moving to the largely public cloud service providers such as Microsoft. In the impairment analysis the assumption used is an average increase in revenue of 5% for the period 2017 to 2020 and thereafter a 3% revenue growth. For fiscal year 2016, the revenue growth assumption used was 6%.

Gross Margins- The basis for determining the value assigned to budgeted gross margins is the average gross margins achieved in the year immediately prior to the budgeted year and management’s estimates for the next five years. In the impairment analysis the Company expects a declining gross margin compared to prior years. In 2015 the Company achieved a 70% gross margin and is expecting a gross margin closer to 60% in 2016 and beyond.

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Operating Expenses- The basis for determining the value assigned to operating expenses is the forecasted operating expenses based on the revenue projections, using historical costs adjusted for inflation. The Company expects the operating costs to follow changes in revenue. The basis used in the impairment analysis is a consistent percentage of revenue of 48% which an improvement over prior year. The Company expects to remain in this range for the next 5 years. The Company has established a track record of effectively managing its costs and believes its opex scalability to be reasonable.

Capital Expenditures– The Company believes future capital expenditures will be significantly less than historical levels given the sale of the Company’s public cloud customer base. The primary reason for this is the shift in business strategy from a Hosted Exchange service provider to provider of broader, technology based managed services. Some of these services will be self-hosted by the Company while other services will be deployed via a syndication model. Additionally, the cost of hardware or capital equipment continues to become more scalable due to advances in technology. Over the past few years, the Company has made substantial capital investments related to storage and to a lesser degree, servers to free up the storage capacity. These sizable investments (roughly 10% of revenues) were made based on the Company’s previous go-to-market user aggregation strategy. With such excess capacity, the Company has taken a more stringent capex approach for the next 3-5 years. The Company expects to benefit and utilize these new technologies and incorporate such offerings into its service delivery models. The Company used a capital expenditure rate of 5% of revenues for its impairment analysis for future periods beyond 2015.

Pre-Tax Discount Rates– To determine the present value of the future cash flows, the Company has calculated a pre-tax discount rate. The discount rate used is 12,3%. The Company has used a WACC model (Weighted Average Cost of Capital). The basis for the calculations is a presumption of a market premium of 6%, a beta of approximately 0,95, interest free rate of 2,5% and liquidity premium of 2,0%. The Beta is based upon actual trading of the Company shares, but since there are minimal trades of the Company stock, a liquidity premium of 2,0 has been added to the calculation. To determine the cost of debt the Company has used the general market conditions on current availability of equipment lease debt. Pre-tax discount rates reflect management’s estimates of the risk specific to the business as a whole. This benchmark is used by management to assess operating performance and to evaluate future investment proposals.

Effect of changes in key assumptions:

With regard to the assessment of value of intangible assets in use, management has evaluated the impact of potential changes in key assumptions on future carrying values of the intangible assets. Depending upon future growth rates, acceptance of the Company’s product and services in the markets it serves, operating costs as well as cost of capital, any adverse change in these key assumptions would, in isolation, have an impact on the carrying value of the Company’s intangible assets in future periods.

The impairment test shows that the recoverable amount of goodwill is USD 10, 7 million. The changes in the following table to assumptions used in the impairment analysis would, in isolation, lead to an (increase)/decrease to the aggregate impairment loss recognized in the year ended December 31, 2015. The table shows how recoverable amount of goodwill will be affected:

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Note 11 - Shares in Subsidiary Companies

The following table summarizes the Company’s subsidiaries:

Apptix, Inc. is 100% owned by Apptix ASA.

Note 12 - Accounts Receivable

The table below sets forth the Company’s trade receivables, net of the allowance provision as of September 30, 2016, December 31, 2015 and September 30, 2015:

The Company evaluates its provision for trade receivables on a regular basis. Key factors that are considered when determining whether a provision is required due to potential impairment include the age of the trade receivable, the amount past due and the payment history of the customer.

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Note 13 - Other Current Assets

The following table summarizes the Company’s Other Current Assets. The components contained within are non-interest bearing items:

Note 14 - Cash and Cash equivalents

The following table summarizes the Company’s Cash and Cash Equivalents. Cash balances held by the Company’s bank earns interest at a floating rate based on average daily balances:

Note 15 - Interest-Bearing Debt

The following table summarizes the Company’s Interest-Bearing Debt:

15.1 Finance Leases

The Company utilizes finance leases to fund purchases of its property and equipment needs. All such finance leases have either a USD 1 buyout option or a percentage of fair market value bargain purchase option. At the beginning of the lease term the Company calculates the expected buyout and includes this in the calculation of the asset and liability.

99

15.2 Line of Credit Facility

On April 10, 2015, the Company entered into a definitive agreement with its financial institution to replace its expiring working capital facility. The new facility provides for a USD 2 million revolving line of credit and a USD 4,7 million term note payable. Amounts available pursuant to the revolving line of credit will be based on 80% of eligible accounts receivable subject to certain limitations such as foreign accounts receivable, accounts receivable older than 90 days and individual customer account balances in excess of 25% of total accounts receivable. The revolving line of credit will carry a floating interest rate of prime plus 1.75% with a minimum prime rate of 3.25%. As of September 30, 2016 there was no amount outstanding on the Company’s line of credity facility.

The USD 4,7 million term note payable matures on March 31, 2020 and carries a floating interest rate of prime plus 2.25% with a minimum prime rate of 3.25%. The principal repayment schedule of the term note is provided below:

Following the sale of the Company’s public cloud customer base, the Company entered into two amendments with its financial institution to modify its credit facility covenants. As such, both the revolving line of credit and term note facility are subject to a Minimum Adjusted EBITDA calculation and a Minimum Net Liquidity Ratio.

Note 16 – Lease Related Obligations

The Company has funded investments in property and equipment and office space through various lease agreements. The following information summarizes the Company’s operating and finance lease obligations:

16.1 Operating Leases

The following table summarizes the Company’s future operating lease commitments at September 30, 2016:

The Company’s current lease agreement for its Herndon, Virginia office space expires in December 2016, the Company’s lease agreement for its Davie, Florida location expires in February 2017 and the Company’s lease agreement for its Austin, Texas location expires in 2020. The Company has deemed the Herndon lease and the Florida lease to be onerous contracts where the cost of meeting the obligation under contracts exceeds the the economic benefit expected. Therefore, per IAS 37, a provision has been established to cover the obligation arising from the onerous contracts.

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Note 17 - Other Current Liabilities

The following table summarizes the Company’s Other Current Liabilities:

Restructuring Provision

The Company incurred USD 2,5 and 5,4 million of one-time charges in 2015 and 2014 related to the Company’s Operational Streamlining and Restructuring Initiatives. Included in the December 31, 2015 and 2014 Accrued Expenses balance was the remaining provision of USD 2,4 and 3,1 million associated with the Operational Streamlining and Restructuring Initiatives.

The table below summarizes the activity related to the restructuring provision:

101

Leadership Changes

Provisions related to severance agreements associated with former executive management pursuant to contractual employment agreements. Anticipated cash outflows are based on terms of employment agreements.

Facility Consolidations

Provisions related to the shut down and consolidation of the Company’s Florida office space and Florida datacenter. The timing of the cash flows can be reasonably estimated based on Company’s defined project plans.

Restructuring

Provisions related to severance payments, outplacement assistance or relocation assistance associated with the Company’s facility consolidations. The anticipated cash outflows can be reasonably estimated based on the Company’s defined project plans.

Leases & Licenses

Provisions related to certain license fees and equipment leases. The timing of the anticipated cash outflows can be reasonably estimated based on vendor agreements.

Other Prepaids & Assets

Provisions related certain sales, marketing, and operational initiatives. The timing of the anticipated cash outflows can be reasonably estimated based on Company project plans.

As a result of the sale of the Company’s public cloud customer base, the Company implemented an additional restructuring initative during 2015. The Company reduced its workforce by approximately 45% during the fourth quarter of 2015. In September 2015, the Company notified the impacted staff of the pending change in their work status. Since the impacted staff will not be remaining with the business in 2016, the Company recorded a one-time compensation related charge totaling USD 1,5 million. The charge included the monthly carrying cost of the employees through December 2015, severance payments to be made to the impacted staff, outplacement assistance and other residual employee termination costs. These cash disbursements took place during the fourth quarter of 2015 and the first quarter of 2016.

In addition to the realignment of staffing, the Company began the process of discontinuing a number of its current operating expenditures and agreements. The operating agreements and expenditures include such items as rents, licenses, maintenance, professional fees, and other costs that will no longer be required by the Company due to the sale of its public cloud customer base. In order to terminate these agreements in advance of their contractual end date, the Company estimated a USD 1,0 million charge as it finalizes this initiative and completes the negotiations with the various parties. These cash disbursements took place during the fourth quarter of 2015 and the first quarter of 2016.

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Note 18 - Shareholder Structure

At September 30, 2016, the Company had only one class of shares with a par value of NOK 0,333. Each share has one vote. There are no trade limitations on the Company’s shares. The shares are registered in the Norwegian Registry of Securities. Total outstanding and issued shares at September 30, 2016 were 81 430 178.

Note 19 - Transactions with Related Parties

The Company’s Chairman, Johan Lindqvist is entitled to a director fee of NOK 400 000 per annum of which NOK 100 000 was outstanding as of September 30, 2016. Mr. Lindqvist is also entitled to a fee of NOK 400 000 for consulting services as approved by the shareholders in May 2012. In 2015, the annual shareholder meeting, also approved an additional consulting fee of USD 15 000 per month for the Chairman as part of the Company’s changes in executive leadership.

Note 20 - Events after the Balance Sheet Date

On November 14, 2016 Apptix ASA signed and closed a Stock Purchase Agreement (“SPA”) with Fusion for the sale of Apptix, Inc. (the “Company”), it’s only subsidiary and business operations.

Fusion is a leading provider of integrated cloud solutions to small, medium and large businesses. Fusion’s advanced, proprietary service platform enables the integration of leading edge solutions in the cloud, including cloud voice and unified communications, contact center, cloud connectivity, cloud computing and additional cloud services such as storage and security. Fusion is listed on the NASDAQ Capital Market under ticker FSNN. The Company will be a wholly-owned subsidiary of Fusion and will be a major component of Fusion’s cloud-based Business Services division.

Apptix ASA was paid USD 23.0 million in cash at closing (before any transaction related expenses). Apptix ASA also received a total of 2,997,926 shares of Fusion common stock representing 19.9% of the outstanding Fusion common stock immediately prior to closing and 16.6% immediately following the close. Based on the weighted average stock price of the Fusion shares over the past 180 days, the aggregate equity consideration was valued at USD 5.0 million. The transaction was structured as a “debt-free, cash-free” deal whereby Apptix ASA retained the cash balances of the Company at closing of approximately USD 3.7 million. Apptix ASA was also required to satisfy any of the Company’s outstanding funded debt obligations at closing which totaled approximately USD 7.1 million. Additionally, Apptix ASA incurred approximately USD 2.3 million in transaction related fees and expenses in connection with the transaction. There was no escrow adjustment pursuant to the transaction and all indemnifications along with representations & warranties expired with the closing. Apptix ASA will be receiving approximately USD 17.3 million in net cash proceeds or approximately NOK 1.80 per share. It is the Board of Directors’ intention to distribute NOK 1.65 per share as a dividend in December 2016.

Of the total equity received by Apptix ASA, 50% of the shares, or 1,498,963 shares, were transferred to Apptix ASA at closing with the remaining 50%, or 1,498,963 shares, being transferred to Apptix ASA upon the receipt of two state public utility regulatory commission approvals which are expected within the next 120 days.

The Fusion shares received by Apptix ASA will be subject to Regulation 144 of the United States Securities Act of 1934 restricting the sale of the Fusion stock for up to 12 months following the closing date. Fusion has agreed to file a registration statement with the US Securities and Exchange Commission within 12 months of closing, making the shares freely tradable on the NASDAQ exchange. During this period of time, the shares will be held and owned by Apptix ASA.

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Note 21 - Financial Risk Management Objectives and Policies

Financial Risk Management

The Company’s principal financial instruments include operating leases, finance leases, and cash. The primary purpose of these financial instruments is to finance the Company’s operations and strategic acquisition plans. The Company has various other financial assets and liabilities such as trade receivables and trade payables, which are a direct result of the Company’s operations.

It is the Company’s policy not to engage in trading of financial instruments.

The primary risks arising from the Company’s financial instruments are foreign currency risk, credit risk, interest risk and liquidity risk. The Company evaluates its risk exposure in order to determine the potential affect on its business operations by reviewing the products and services provided to the markets the Company serves and the countries in which it conducts business. The Company believes it does not have any significant single concentration of risk.

The policies are summarized below.

Foreign Currency Risk

The Company’s principal operating market is the United States with its functional currency being the US Dollar. The Company has limited operating expense outside of the United States. The Company has limited transactional currency exposure, which results from transactions in a currency other than its functional currency.

Credit Risk

The Company transacts with a wide variety of customers. Most small business customers pay via credit card, dramatically reducing the Company’s credit risk. To ensure that credit risk is managed appropriately, the Company monitors its receivables balance regularly and ceases providing service when customer accounts become significantly overdue. At September 30, 2016, the Company’s maximum credit risk is the carrying value of its trade accounts receivable of 1 789 thousand. The Company believes it does not have any material credit risk associated with trade accounts receivables that are neither past due nor impaired.

Interest Rate Risk

The Company’s exposure to the risk of interest rate fluctuations relates primarily to the Company’s need to obtain equipment financing for computer hardware and equipment and the Company’s WCLC, as required to support the business. The Company’s lease agreements are primarily fixed rate agreements and not subject to fluctuation while the Company’s WCLC is subject to changes in its financial institution’s prime interest rate. Interest rate fluctuation related to the WCLC is limited to a maximum increase of two percent above the prime interest rate.

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Liquidity Risk

The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of operating leases and finance leases.

Financial Instruments

The Company’s line of credit facility was secured by a first priority position in all of the assets of the Company except for those assets financed via capital leases. At September 30, 2016, the Company had no amount outstanding under its line of credit facility. The term of the credit facility has been extended through March, 31, 2020 and requires the Company to maintain certain financial covenants such as liquidity ratio (as defined by the financial institution). At September 30, 2016 the Company had USD 4,3 million outstanding under its term loan credit agreement.

Capital Management

The primary objective of the Company’s capital management is to ensure it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Company considers both equity and debt financing (i.e. subordinated or convertible debt) as part of the capital resources that it actively manages.

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EX-99.2

Exhibit 99.2

Pro Forma Financial Information

The following unaudited pro forma condensed combined balance sheet as of September 30, 2016 and the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2015 and the nine months ended September 30, 2016 are derived from the historical financial statements of the Fusion after giving effect to the acquisition of the assets and liabilities of the Apptix under the terms of the Apptix Purchase Agreement.

The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2015 and the nine months ended September 30, 2016 give pro forma effect to the business combination as if it had occurred on January 1, 2015. The unaudited pro forma condensed combined balance sheet as of September 30, 2016 assumes that the business combination was effective on September 30, 2016.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 was derived from Fusion's audited consolidated statement of operations and the audited consolidated statement of operations of the Seller, in each case, for the year ended December 31, 2015. The unaudited pro forma condensed combined balance sheet and statement of operations as of and for the nine months ended September 30, 2016 were derived from Fusion's unaudited condensed consolidated financial statements and the unaudited financial statements of the Seller, in each case, as of and for the nine months ended September 30, 2016.

The unaudited pro forma condensed combined statements of operations and the unaudited pro forma condensed combined balance sheet contain certain adjustments to (i) convert the Seller’s historical financial statements from International Financial Reporting Standards (“IFRS”) to accounting principles generally accepted in the United States of America (“U.S. GAAP”); and (ii) remove the assets, liabilities, income and expenses of the Seller, as these items are excluded from the Apptix Purchase Agreement.

The unaudited pro forma condensed financial information has been prepared by the Company using the acquisition method of accounting in accordance with U.S. GAAP. The Company has been treated as the acquirer in the business combination for accounting purposes. The acquisition accounting is dependent upon certain valuation and other studies that have yet to be completed, therefore valuation of the acquired intangibles and other acquired assets and liabilities are preliminary and subject to change. The assets and liabilities of the Apptix have been measured based on various preliminary estimates using assumptions that the Company believes are reasonable based on information that is currently available. Differences between these preliminary estimates and the final acquisition accounting will occur, and those differences could have a material impact on the accompanying unaudited pro forma condensed financial statements and the combined company’s future results of operations and financial position. The pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed financial statements prepared in accordance with the rules and regulations of the Securities and Exchange Commission.

The Company has commenced the necessary valuation and other studies required to complete the acquisition accounting and intends to finalize the acquisition accounting as soon as practicable within the required measurement period in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, but in no event later than one year following completion of the transaction.

The following unaudited pro forma financial statements are based on, and should be read in conjunction with:

●

The Company’s audited financial statements and the related notes thereto for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed on March 28, 2016.

●

The Company’s unaudited financial statements and the related notes thereto as of and for the nine months ended September 30, 2016 included in the Company’s Quarterly Report on Form 10-Q filed on November 14, 2016.

● 

The Seller’s audited financial statements for the years ended December 31, 2015 and 2014 and the Seller’s unaudited financial statements as of and for the nine months ended September 30, 2016 appearing elsewhere in this report.

1

The pro forma financial statements give effect to the following transactions:

●

The acquisition of Apptix as described in Item 2.01 of this report.

●

The consummation of the transactions contemplated by the East West Credit Agreement as described in item 2.03 of this report.

●

The repayment of indebtedness to Opus Bank as described in Item 2.03 of this report.

The unaudited pro forma financial statements are for informational purposes only, are not indications of future performance, and should not be considered indicative of actual results that would have been achieved had the forgoing transactions actually been consummated on the dates or at the beginning of the periods presented.

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Fusion Telecommunications International, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

As of September 30, 2016

			Apptix Adjustments		Pro Forma Adjustments
	Fusion Historical	Apptix Historical (IFRS)	Conversion from IFRS to U.S. GAAP	Excluded Assets and Liabilities of Apptix ASA (Parent)	East West Credit Agreement		Repayment of existing indebtedness		Acquistion of Apptix		Pro Forma Combined
ASSETS
Current assets:
Cash an cash equivalents	882,040	4,053,991	-	(19,893)	63,352,750	(a)	(40,068,671)	(a)	(26,997,583)	(b), (c)	1,202,634
Accounts receivable, net of allowance for doubtful accounts	8,199,522	1,789,356	-	-	-		-		-		9,988,878
Prepaid expenses and other current assets	2,457,736	911,302	-	(32,391)	-		-		-		3,336,647
Total current assets	11,539,298	6,754,649	-	(52,284)	63,352,750		(40,068,671)		(26,997,583)		14,528,159
Property and equipment, net	12,929,148	3,214,366	1,575,000	-	-		-		(1,910,489)		15,808,025
Other assets:
Security deposits	548,288	-	-	-	-		-		-		548,288
Restrictred cash	27,153	-	-	-	-		-		-		27,153
Goodwill	28,049,775	9,966,907	810,000	-	-		-		(8,783,382)	(c), (d)	30,043,300
Intangible assets, net	42,727,552	79,392	-	-	-		-		25,546,889	(d)	68,353,833
Other assets	302,053	-	-	-	1,647,250	(a)	(214,294)		-		1,735,009
Total other assets	71,654,821	10,046,299	810,000	-	1,647,250		(214,294)		16,763,507		100,707,583
TOTAL ASSETS	96,123,267	20,015,314	2,385,000	(52,284)	65,000,000		(40,282,965)		(12,144,565)		131,043,767
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - non-related parties	685,780	-	-	-	-		-		-		685,780
Current portion of long-term debt	-	2,720,286	-	-	-		-		(2,720,286)	(c)	-
Due to Root Axcess seller	333,334	-	-	-	-		-		-		333,334
Due to TFB seller	100,000	-	-	-	-		-		-		100,000
Equipment financing obligation	997,089	-	-	-	-		-		-		997,089
Accounts payable and accrued expenses	12,610,885	4,461,794	-	(30,071)	-		-		735,226	(c)	17,777,834
Deferred Revenue	-	-	-	-	-		-		-		-
Line of credit	-	-	-	-	-		-		-		-
Total Current liabilities	14,727,088	7,182,080	-	(30,071)	-		-		(1,985,060)		19,894,037
Long-term liabilities:
Notes payable - non-related parties, net of discount	30,672,580	-	-		-		-		-		30,672,580
Long-term debt		3,940,000	-	-	-		-		(3,940,000)	(c)	-
Term loan	25,000,000	-	-	-	65,000,000	(a)	(25,000,000)	(a)	-		65,000,000
Indebtedness under revolving credit facility	15,000,000	-	-	-			(15,000,000)	(a)	-		-
Due to TFB seller	861,606	-	-	-	-		-		-		861,606
Notes payable - related parties	1,112,445	-	-	-	-		-		-		1,112,445
Equipment financing obligation	1,492,558	-	-	-	-		-		-		1,492,558
Derivative liabilities	233,934	-	-	-	-		-		-		233,934
Total liabilities	89,100,211	11,122,080	-	(30,071)	65,000,000		(40,000,000)		(5,925,060)		119,267,160
Commitments and contingencies
Stockholders' equity (deficit)
Preferred stock, $0.01 par value, 10,000,000 shares authorized	173	-	-	-	-		-		-		173
Common stock, $0.01 par value, 50,000,000 shares authorized	150,650	-	-	-	-		-		29,979	(b)	180,629
Common Stock	-	4,666,000	-	(4,665,875)	-		-		(125)	(c)	-
Capital in excess of par value	185,764,507	69,523,048	-	6,073,323	-		-		(70,589,834)	(b), (c)	190,771,044
Accumulated deficit	(178,892,274)	(65,295,814)	2,385,000	(1,429,661)	-		(282,965)	(a)	64,340,475	(c)	(179,175,239)
Total stockholders' equity	7,023,056	8,893,234	2,385,000	(22,213)	-		(282,965)		(6,219,505)		11,776,607
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	96,123,267	20,015,314	2,385,000	(52,284)	65,000,000		(40,282,965)		(12,144,565)		131,043,767

3

(a)	Represents a $65 million term loan with East West Bank, less a transaction fee of $835,000 paid to East West Bank at closing. The proceeds of the term loan were used to retire FNAC's obligations under a $40 million credit facility with Opus Bank (including $68,000 of accrued interest and the write off of $214,000 of deferred financing costs), to fund the cash portion of the Apptix purchase price and to pay for transaction expenses in the amount of $812,250.
(b)	Represents consideration paid in the amout of $23 million in cash and 2,997,926 shares of the Fusion's common stock valued at $1.68 per share.
(c)	Represents (i) the exclusion of assets and liabilities not acquired by Fusion under the terms of the Apptix Purchase Agreement, (ii) preliminary adjustments to the fair value of assets acquired and liabilities assumed and (iii) the elimination of Apptix's equity.
(d)	The excess of the purchase price over the estimated fair value of Apptix's assets and liabilities acquired is as follows:

Cash	22,963,485
Fusion Stock	5,036,515
Purchase Price	28,000,000
Estimated preliminary fair value of net assets acquired:
Accounts receivable, net	1,789,356
Prepaids	878,911
Property and equipment	2,878,877
Intangible Assets	25,626,281
Current liabilities	(5,166,950)
	26,006,475
Estimated Goodwill	1,993,525

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Fusion Telecommunications International, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2015

			Apptix Adjustments
	Fusion Historical	Apptix Historical (IFRS)	IFRS to GAAP	Excluded income and expenses of Apptix ASA (Parent)	Pro forma Adjustments		Combined
Revenues	101,694,516	34,415,746	-	-	-		136,110,262
Cost of revenues (exclusive of depreciation and amortization shown separtely below)	56,724,121	10,298,470	-	-	-		67,022,591
Gross Profit	44,970,395	24,117,276	-	-	-		69,087,671
Depreciation and amortization	12,975,981	2,687,000	-	-	3,077,980	(a)	18,740,961
Impairment charges		10,000,000	(5,982,000)		(4,018,000)	(b)	-
Selling, general and administration expenses, including stock-based compensation	41,009,107	23,385,138	1,122,000	(377,721)			65,138,524
Total operating expenses	53,985,088	36,072,138	(4,860,000)	(377,721)	(940,020)		83,879,485
Operating (loss) income	(9,014,693)	(11,954,862)	4,860,000	377,721	940,020		(14,791,814)
Other (expenses) income:
Interest expense	(6,062,923)	(1,071,163)	-	(1,677,093)	655,883	(c), (d)	(8,155,296)
Gain on change in fair value of deriviative liability	1,843,997	-	-	-	-		1,843,997
Loss on extinguisment of debt	(2,720,355)	-	-	-	-		(2,720,355)
Other income, net of other expenses	63,613	20,166,477	-	30,946	(20,166,477)	(e)	94,559
Total other (expenses) income	(6,875,668)	19,095,314	-	(1,646,147)	(19,510,594)		(8,937,095)
(Loss) income before income taxes	(15,890,361)	7,140,452	4,860,000	(1,268,426)	(18,570,574)		(23,728,909)
Benefit (provision) for income taxes	7,660,536	(288,000)					7,372,536
Net (loss) income	(8,229,825)	6,852,452	4,860,000	(1,268,426)	(18,570,574)		(16,356,373)
Preferred stock dividends in arrears	(1,578,220)	-	-	-	-		(1,578,220)
Net loss attributable to common stockholders	(9,808,045)	6,852,452	4,860,000	(1,268,426)	(18,570,574)		(17,934,593)
Basic and diluted loss per common share	(1.32)						(1.51)
Weighted average common shares outstanding:
Basic and diluted	8,873,766				2,997,926	(f)	11,871,692

(a)	Reflects the amortization expense associated with the acquired intangible assets.
(b)	Reflects removal of the impairment charges which occured prior to the date of acquisition and which would not have been incurred by Apptix had the transaction taken place on January 1, 2015
(c)	Reflects interest expense on the $65 million term loan with East West Bank and amortization of the related deferred financing fees, less interest expense incurred in connection with $40 million of indebtedness to Opus Bank and amortization of the related deferred financing fees, as such indebtedness was retired on the date of the acquisition of Apptix.
(d)	Reflects the exclusion of interest expense on the Apptix debt not assumed by Fusion under the terms of the Apptix Purchase Agreement.
(e)	Reflects the removal of the gain on the sale of Apptix's public cloud customer base, as this gain would not be included in Fusion's consolidated statement of operations had the acquisition taken place January 1, 2015.
(f)	Reflects shares of Fusion common stock valued at $5 million issued to the Apptix Sellers as part of the purchase price.

5

Fusion Telecommunications International, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Nine Months Ended September 30, 2016

			Apptix Adjustments
	Fusion Historical	Apptix Historical (IFRS)	IFRS to GAAP	Excluded income and expenses of Apptix ASA (Parent)	Pro forma Adjustments		Combined
Revenues	93,101,835	19,267,747	-	-	-		112,369,582
Cost of revenues (exclusive of depreciation and amortization shown separtely below)	53,936,078	7,088,521	-	-	-		61,024,599
Gross Profit	39,165,757	12,179,226	-	-	-		51,344,983
Depreciation and amortization	8,946,781	1,126,355	525,000	-	1,440,152	(a)	12,038,288
Selling, general and administration expenses including stock-based compensation	34,102,847	9,863,262	1,300,000	(217,342)			45,048,767
Total operating expenses	43,049,628	10,989,617	1,825,000	(217,342)	1,440,152		57,087,055
Operating loss	(3,883,871)	1,189,609	(1,825,000)	217,342	(1,440,152)		(5,742,072)
Other (expenses) income:
Interest expense	(4,877,828)	(592,496)		(64)	(631,233)	(b), (c)	(6,101,621)
Gain on change in fair value of deriviative liability	380,099	-	-	-	-		380,099
Other (expenses) income, net	33,514	151,003	-	-	-		184,517
Total other (expenses) income	(4,464,215)	(441,493)	-	(64)	(631,233)		(5,537,005)
(Loss) income before income taxes	(8,348,086)	748,116	(1,825,000)	217,278	(2,071,385)		(11,279,077)
Benefit (provision) for income taxes	(10,951)	-					(10,951)
Net (loss) income	(8,359,037)	748,116	(1,825,000)	217,278	(2,071,385)		(11,290,028)
Preferred stock dividends in arrears	(2,102,467)	-	-	-	-		(2,102,467)
Net loss attributable to common stockholders	(10,461,504)	748,116	(1,825,000)	217,278	(2,071,385)		(13,392,495)
Basic and diluted loss per common share	(0.72)						(0.76)
Weighted average common shares outstanding:
Basic and diluted	14,536,893				2,997,926	(d)	17,534,819

(a)	Reflects the amortization expense associated with the acquired intangible assets.
(b)	Reflects interest expense on the $65 million term loan with East West Bank and amortization of the related deferred financing fees, less interest expense incurred in connection with $40 million of indebtedness to Opus Bank and amortization of the related deferred financing fees, as such indebtedness was retired on the date of the acquisition of Apptix.
(c)	Reflects the exclusion of interest expense on the Apptix debt not assumed by Fusion under the terms of the Apptix Purchase Agreement.
(d)	Reflects shares of Fusion common stock valued at $5 million issued to the Apptix Sellers as part of the purchase price.

6