10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10–K/A

(Amendment No. 1)

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to________

 Commission File Number 001-32421

 FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

(Exact name of registrant as specified in charter)

Delaware	58-2342021
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

420 Lexington Avenue, Suite 1718, New York, New York 10170

(Address of principal executive offices) (Zip Code)

 (212) 201-2400

(Registrant’s telephone number, including area code)

 Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.01 per share	The Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: Not Applicable

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☑

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑  No ☐

Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filler	☐	Accelerated filer	☐
Non-accelerated filler	☐	Smaller reporting company	☑
(do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☑

The aggregate market value of the voting common stock held by non-affiliates of the registrant based upon the closing price of the common stock reported by The Nasdaq Capital Market on June 30, 2016 of $1.84 per share, was $14,445,507.

Indicate the number of shares outstanding of the registrant’s common stock as of the latest practicable date: 20,757,028 shares of common stock are issued and outstanding as of March 15, 2017.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Report (Items 10, 11, 12, 13 and 14) is incorporated by reference to the registrant’s definitive proxy statement which involves the election of directors, to the extent permitted by Instruction G(3) to Form 10-K.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

2016 ANNUAL REPORT ON FORM 10-K/A

EXPLANATORY PARAGRAPH

This Amendment No. 1 to the Annual Report on Form 10-K of Fusion Telecommunications International, Inc. (the “Company”) for the year ended December 31, 2016, originally filed on March 20, 2017 (the “Original Filing”), is filed to correct the interactive data files required by Item 15 of Form 10-K that were included with the Original Filing. There is no change to the Company’s financial position, results of operations, cash flows or any other information contained in the Original Filing. This Amendment No. 1 speaks as of the date of the Original Filing, does not reflect events that may have occurred subsequent to the date of the Original Filing, and, except as otherwise set forth in this paragraph, does not modify or update in any way disclosures made in the Original Filing.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) (1) Financial Statements.

The consolidated financial statements filed as part of this Annual Report on Form 10-K are identified in the Index to Consolidated Financial Statements. 

(a) (2) Exhibits.

The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the SEC.

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation (*)
3.1.1	Certificate of Amendment to Certificate of Incorporation (14)
3.2	Bylaws (*)
10.1	1998 Stock Option Plan (*)
10.1.1	2009 Stock Option Plan (15)
10.1.2	2016 Equity Incentive Plan (14)
10.2	Employment Agreement, dated as of November 5, 2015, between registrant and Matthew D. Rosen (12)
10.3	Form of Warrant to Purchase Common Stock (*)
10.4	Lease Agreement between registrant and SLG Graybar Sublease, LLC for Suite 1718 at 420 Lexington Avenue, New York, NY office (*)
10.4.1	Lease Modification Agreement dated November 19, 2014, between registrant and SLG Graybar Sublease, LLC for the 420 Lexington Avenue, New York, NY office (13)
10.5	Lease Agreement between registrant and Fort Lauderdale Crown Center, Inc. for the Fort Lauderdale, Florida office, as amended (*)
10.5.1	Sixth Amendment dated July 23, 2014, to Lease Agreement between registrant and Fort Lauderdale Crown Center, Inc., for the Fort Lauderdale, Florida office (13)
10.5.2	Seventh Amendment, dated August 2015, to Lease Agreement between registrant and Fort Lauderdale Crown Center, Inc., for the Fort Lauderdale, Florida office (16)
10.5.3	Eight Amendment, dated July 8, 2016, to Lease Agreement between registrant and Fort Lauderdale Crown Center, Inc., for the Fort Lauderdale, Florida office (16)
10.6	Form of Promissory Note and Security Agreement (2)
10.7	Non-Competition Agreement between registrant and Marvin Rosen (*)
10.8	Form of Warrant (3)
10.9	Membership Interest Purchase and Sale Agreement dated January 30th, 2012 between the registrant, Network Billing Systems, LLC, Jonathan Kaufman, and Christiana Trust as trustee of the LK Trust (4)
10.10	Asset Purchase and Sale Agreement dated January 30th, 2012 between the registrant, Interconnect Systems Group II LLC, Jonathan Kaufman, Lisa Kaufman as trustee of the JK Trust and Jonathan Kaufman as trustee of the LKII Trust (4)
10.11	Amendment No. 1 dated June 6, 2013 to the Asset Purchase and Sale Agreement dated January 30th, 2012 between the registrant, Interconnect Systems Group II LLC, Jonathan Kaufman, Lisa Kaufman as trustee of the JK Trust and Jonathan Kaufman as trustee of the LKII Trust (10)
10.12	Warrant to Purchase Common Stock issued by registrant to Marvin Rosen, dated July 31, 2002 (*)

10.13	Amendment No. 1 dated June 6, 2013 to the Membership Interest Purchase and Sale Agreement dated January 30th, 2012 between the registrant, Network Billing Systems, LLC, Jonathan Kaufman, and Christiana Trust as trustee of the LK Trust (10)
10.14	Amendment No. 2 dated August 20, 2012 to the Asset Purchase and Sale Agreement dated January 30, 2012 between the registrant, Fusion NBS Acquisition Corp., Interconnect Services Group II LLC, Jonathan Kaufman, Lisa Kaufman as trustee of the JK Trust and Jonathan Kaufman as trustee of the LKII Trust (5)
10.15	Amendment No. 2 dated August 20, 2012 to the Membership Interest Purchase and Sale Agreement dated January 30, 2012 between the registrant, Fusion NBS Acquisition Corp., Network Billing Systems, LLC, Jonathan Kaufman and Christiana Trust as trustee of the LK Trust (5)
10.16	Amendment No. 3 dated September 21, 2012 to the Asset Purchase and Sale Agreement dated January 30, 2012 between the registrant, Fusion NBS Acquisition Corp., Interconnect Services Group II LLC, Jonathan Kaufman, Lisa Kaufman as trustee of the JK Trust and Jonathan Kaufman as trustee of the LKII Trust (5)
10.17	Amendment No. 3 dated September 21, 2012 to the Membership Interest Purchase and Sale Agreement dated January 30, 2012 between the registrant, Fusion NBS Acquisition Corp., Network Billing Systems, LLC, Jonathan Kaufman and Christiana Trust as trustee of the LK Trust (5)
10.18	Amendment No. 4 dated October 24, 2012 to the Asset Purchase and Sale Agreement dated January 30, 2012 between the registrant, Fusion NBS Acquisition Corp., Interconnect Services Group II LLC, Jonathan Kaufman, Lisa Kaufman as trustee of the JK Trust and Jonathan Kaufman as trustee of the LKII Trust (5)
10.19	Amendment No. 4 dated October 24, 2012 to the Membership Interest Purchase and Sale Agreement dated January 30, 2012 between the registrant, Fusion NBS Acquisition Corp., Network Billing Systems, LLC, Jonathan Kaufman and Christiana Trust as trustee of the LK Trust (5)
10.20	Lease Agreement dated October 1, 2012 by and between Manchester Realty, LLC and Fusion NBS Acquisition Corp (7)
10.20.1	Lease Modification Agreement, dated October 1, 2014 by and between 280 Holdings, LLC (successor in interest to Manchester Realty, LLC) and Fusion NBS Acquisition Corp (11)
10.21	Series A Promissory Note dated October 29, 2012 payable to Praesidian Fund III (5)
10.22	Series B Promissory Note dated October 29, 2012 payable to Praesidian Fund III Praesidian Fund III Series B Note (5)
10.23	Series A Promissory Note dated October 29, 2012 payable to Praesidian Fund III-A (5)
10.24	Series B Promissory Note dated October 29, 2012 payable to Praesidian Fund III-A (5)
10.25	Praesidian Fund III Common Stock Purchase Warrant dated October 29, 2012 (5)
10.26	Praesidian Fund III-A Common Stock Purchase Warrant dated October 29, 2012 (5)
10.27	Intellectual Property Security Agreement dated as of October 29, 2012 by the registrant and Network Billing systems, LLC, in favor of Praesidian Capital Opportunity Fund III, LP, Praesidian Capital Opportunity Fund III-A, LP, and Plexus Fund II, LP (5)
10.28	Right of First Refusal Agreement dated as of October 29, 2012 by and among Fthe registrant, Praesidian Capital Opportunity Fund III, LP, Praesidian Capital Opportunity Fund III-A, LP, Plexus Fund II, LP and Praesidian Capital Opportunity Fund III as agent (5)
10.29	Management Rights Agreement dated as of October 29, 2012 by and among the registrant, Fusion NBS Acquisition Corp. and Praesidian Capital Opportunity Fund III (5)
10.30	Management Rights Agreement dated as of October 29, 2012 by and among the registrant, Fusion NBS Acquisition Corp. and Praesidian Capital Opportunity Fund III-A (5)
10.31	Management Rights Agreement dated as of October 29, 2012 by and among the registrant, Fusion NBS Acquisition Corp., and Plexus Fund II, LP (5)
10.32	Asset Purchase and Sale Agreement effective as of August 30, 2013 by and among the registrant, Fusion Broadvox Acquisition Corp.; BroadvoxGo!, LLC; and Cypress Communications, LLC (6)
10.33	First Amendment to the Asset Purchase and Sale Agreement effective as of November 15, 2013 by and among the registrant, Fusion Broadvox Acquisition Corp.; BroadvoxGo!, LLC; and Cypress Communications, LLC (7)
10.34	Second Amendment to the Asset Purchase and Sale Agreement effective as of December 16, 2013 by and among the registrant, Fusion Broadvox Acquisition Corp.; BroadvoxGo!, LLC,; and Cypress Communications, LLC (8)
10.35	Third Amendment to Securities Purchase Agreement is entered into as of December 16, 2013, by and among Fusion NBS Acquisition Corp, the registrant, Network Billing Systems, LLC, Praesidian Capital Opportunity Fund III, LP, Praesidian Capital Opportunity Fund III-A, LP, and Plexus Fund II, LP, and Praesidian Capital Opportunity Fund III, LP as agent (9)
10.36	Form of Common Stock Purchase Warrant (9)
10.37	Form of Registration Rights Agreement (9)
10.38	Form of Series C Note (9)
10.39	Form of Series D Note dated December 31, 2013 (9)
10.40	Form of Management Rights Letter dated December 31, 2013 (9)
10.41	Form of Lenders’ Warrant dated December 31, 2013 (9)
10.42	Joinder Agreement dated as of December 31, 2013 by and among the registrant, Fusion NBS Acquisition Corp., Fusion BVX LLC in favor of Praesidian Capital Opportunity Fund III, LP, Praesidian Capital Opportunity Fund III-A, LP, Plexus Fund II, L.P., Plexus Fund III, L.P., Plexus Fund QP III, L.P., and United Insurance Company Of America (9)

10.43	Assignment and Assumption Agreement dated as of December 31, 2013 by and among BroadvoxGo!, LLC, Cypress Communications, LLC, the registrant, and Fusion BVX, LLC (9)
10.44	Bill of Sale dated as of December 31, 2013 delivered by BroadvoxGo!, LLC and Cypress Communications, LLC (9)
10.45	Limited Trademark License Agreement dated as of December 31, 2013 by and among Broadvox, LLC; the registrant and Fusion BVX LLC (9)
10.46	Form of Series E Note, dated as of October 31, 2014 (11)
10.47	Agreement and Plan of Merger, dated as of October 15, 2014, by and among the registrant, Fusion PTC Acquisition Inc., PingTone Communications, Inc., the Majority Stockholders of PingTone Communications, Inc. and J Shelby Bryan, as Stockholders Representative (11)
10.48	Stock Purchase and Sale Agreement, dated as of December 8, 2015, by and among Fusion NBS Acquisition Corp., Mitch Marks, Ron Kohn and Robert Marks (13)
10.49	Credit Agreement dated as of November 14, 2016 by and among Fusion NBS Acquisition Corp., and East West Bank and the Other Lenders from time to time party hereto (14)
10.50	Subordination Agreement dated as of November 14, 2016 by and among Fusion NBS Acquisition Corp., the registrant, Network Billing Systems, LLC, PingTone Communications, Inc., Fusion BVX LLC, Fidelity Telecom, LLC, Fidelity Access Networks, Inc., Fidelity Connect, LLC, Fidelity Voice Services, LLC, Apptix, Inc., Praesidian Capital Opportunity Fund III, LP, and East West Bank (14)
10.51	Intercreditor and Subordination Agreement dated as of November 14, 2016 by and among Marvin Rosen, the registrant and East West Bank (14)
10.52	Pledge and Security Agreement dated as of November 14, 2016 by and among each of the Grantors Party thereto and East West Bank (14)
10.53	Guaranty dated as of November 14, 2016 from the registrant, Network Billing Systems, LLC, PingTone Communications, Inc., Fusion BVX LLC, Fidelity Telecom, LLC, Fidelity Access Networks, Inc., Fidelity Connect, LLC, Fidelity Voice Services, LLC and Apptix, Inc. to East West Bank (14)
10.54	Intellectual Property Security Agreement dated as of November 14, 2016 by and among Fusion NBS Acquisition Corp., Fusion Telecommunications International, Inc., Network Billing Systems, LLC, PingTone Communications, Inc., Fusion BVX LLC, Fidelity Telecom, LLC, Fidelity Access Networks, Inc., Fidelity Connect, LLC, Fidelity Voice Services, LLC, Apptix, Inc., and East West Bank (14)
10.55	Fifth Amended and Restated Securities Purchase Agreement and Security Agreement, dated as of November 14, 2016, by and among Fusion NBS Acquisition Corp., as borrower, the registrant, Network Billing Systems, L.L.C., Fusion BVX, LLC, PingTone Communications, Inc., Fidelity Access Networks, LLC, Fidelity Connect LLC, Fidelity Voice Services, LLC, Fidelity Access Networks, Inc., Apptix, Inc., Praesidian Capital Opportunity Fund III, L.P., Praesidian Capital Opportunity Fund III-A, LP and United Insurance Company of America (14)
10.56	Stock Purchase and Sale Agreement dated November 14, 2016 by and among Fusion NBS Acquisition Corp., the registrant and Apptix ASA (14)
10.57	Registration Rights Agreement dated as of November 14, 2016 by and between the registrant and Apptix ASA (14)
10.58	Common Stock Purchase Agreement dated November 14, 2016 by and among the registrant and the Purchasers (14)
10.59	Office Lease, as amended between Chagrin-Green, LLC and Fidelity Access Networks, LLC (16)
10.60	First Amendment to Lease Agreement dated as of August 2015 by and between Piedmont Center, 1-4 LLC and the registrant (16)
14	Code of Ethics of registrant (11)
21.1	List of Subsidiaries (16)
23.1	Consent of EisnerAmper LLP (16)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
31.2	Certification of President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
32.1	Section 1350 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
32.2	Section 1350 Certification of President Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
101.INS	XBRL Instance Document (1)
101.SCH	XBRL Taxonomy Extension Schema Document (1)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (1)

*	Originally filed with the Company’s Registration Statement no. 33-120412 and incorporated herein by reference.
**	Originally filed with the Company’s Registration Statement no. 33-120206 and incorporated herein by reference.
(1)	Filed herewith.
(2)	Filed as an Exhibit to the Company’s Annual Report on Form 10-K filed April 13, 2011 and incorporated herein by reference.
(3)	Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on December 15, 2006 and incorporated herein by reference.
(4)	Filed as an Exhibit to the Company’s Annual Report on Form 10-K filed March 30, 2012 and incorporated herein by reference.
(5)	Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on November 2, 2012 and incorporated herein by reference.
(6)	Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on September 4, 2013 and incorporated herein by reference.
(7)	Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on November 21, 2013 and incorporated herein by reference.
(8)	Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on December 19, 2013 and incorporated herein by reference.
(9)	Filed as an Exhibit to the Company’s Current Report on Form 8-K/A filed on January 7, 2014 and incorporated herein by reference.
(10)	Filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2013 and incorporated herein by reference.
(11)	Filed as an Exhibit to the Company’s Current Report on Form 8-K dated November 3, 2014 and incorporated herein by reference.
(12)	Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on November 10, 2015 and incorporated herein by reference.
(13)	Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on December 14, 2015, and incorporated herein by reference.
(14)	Filed as an Exhibit to the Company’s Current Report on Form 8-K filed on November 18, 2016, and incorporated herein by reference.
(15)	Filed as an Exhibit to the Company’s Form 10-K filed on March 28, 2016 and incorporated herein by reference.
(16)	Filed as an Exhibit to the Company’s Form 10-K filed on March 20, 2017 and incorporated herein by reference.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

2016 ANNUAL REPORT ON FORM 10-K/A

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment to Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on the date indicated.

	FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
Date: April 11, 2017	By:	/s/ MICHAEL BAUER
		Michael Bauer
		Chief Financial Officer

INDEX TO EXHIBITS

Exhibit No.	Description
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Section 1350 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Section 1350 Certification of President Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

EX-31.1

EXHIBIT 31.1

Rule 13a-14(a)/15d-14(a) Certification

I, Matthew D. Rosen, certify that:

1.

I have reviewed this annual report on Form 10-K/A for the year ended December 31, 2016 of Fusion Telecommunications International, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the consolidated financial statements and other financial information included in this report fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)] for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under the Company’s supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under the Company’s supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report the Company’s conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on the Company’s most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

April 11, 2017	By:	/s/ MATTHEW D. ROSEN
		Matthew D. Rosen
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Rule 13a-14(a)/15d-14(a) Certification

I, Michael R. Bauer, certify that:

1.

I have reviewed this annual report on Form 10-K/A for the year ended December 31, 2016 of Fusion Telecommunications International, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the consolidated financial statements and other financial information included in this report fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures [as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)] and internal control over financial reporting [as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)] for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under the Company’s supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under the Company’s supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report the Company’s conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on the Company’s most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

April 11, 2017	By:	/s/ MICHAEL R. BAUER
		Michael R. Bauer.
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Section 1350 Certification

In connection with the annual report of Fusion Telecommunications International, Inc. (the "Company") on Form 10-K/A for the year ended December 31, 2016 as filed with the Securities and Exchange Commission (the "Report"), I, Matthew D. Rosen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

April 11, 2017	By:	/s/ MATTHEW D. ROSEN
		Matthew D. Rosen
		Chief Executive Officer

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

EX-32.2

EXHIBIT 32.2

Section 1350 Certification

In connection with the annual report of Fusion Telecommunications International, Inc. (the "Company") on Form 10-K/A for the year ended December 31, 2016 as filed with the Securities and Exchange Commission (the "Report"), I, Michael R. Bauer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. 

April 11, 2017	By:	/s/ MICHAEL R. BAUER
		Michael R. Bauer
		Chief Financial Officer

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

XML

Document And Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2016	Mar. 15, 2017	Jun. 30, 2016
Document And Entity Information
Entity Registrant Name	FUSION TELECOMMUNICATIONS INTERNATIONAL INC
Entity Central Index Key	0001071411
Document Type	10-K/A
Document Period End Date	Dec. 31, 2016
Amendment Flag	true
Amendment Description	To update the financials
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	No
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		20,757,028
Entity Public Float			$ 14,445,507
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2016

XML

Consolidated Balance Sheets - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 7,221,910	$ 7,540,543
Accounts receivable, net of allowance for doubtful accounts of approximately $427,000 and $309,000, respectively	9,359,876	7,650,141
Prepaid expenses and other current assets	1,160,184	1,618,603
Total current assets	17,741,970	16,809,287
Property and equipment, net	14,248,915	14,055,493
Other assets:
Security deposits	630,373	575,038
Restricted cash	27,153	165,123
Goodwill	35,689,215	27,060,297
Intangible assets, net	63,617,471	45,824,399
Other assets	77,117	9,808
Deferred tax asset	0	0
TOTAL ASSETS	132,032,214	104,499,445
Current liabilities:
Notes payable - non-related parties	2,979,167	685,780
Obligations under asset purchase agreements - current portion	622,463	300,000
Equipment financing obligations	1,002,578	959,380
Escrow payable	0	0
Accounts payable and accrued expenses	19,722,838	13,129,225
Related party payable	0	0
Current liabilities from discontinued operations	0	0
Total current liabilities	24,327,046	15,074,385
Long-term liabilities:
Notes payable - non-related parties, net of discount	31,431,602	30,795,746
Notes payable - related parties	875,750	1,074,829
Term Loan	60,731,204	24,728,762
Indebtedness under revolving credit facility	3,000,000	15,000,000
Obligations under asset purchase agreements	890,811	333,333
Equipment financing obligations	1,237,083	2,085,416
Derivative liabilities	348,650	953,005
Other long-term liabilities	0	0
Total liabilities	122,842,146	90,045,476
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 17,299 and 23,324 shares issued and outstanding	174	234
Common stock, $0.01 par value, 90,000,000 and 50,000,000 shares authorized, 20,642,028 and 12,788,971 shares issued and outstanding	206,422	127,890
Capital in excess of par value	192,233,032	184,859,082
Accumulated deficit	(183,249,560)	(170,533,237)
Total stockholders' equity (deficit)	9,190,068	14,453,969
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 132,032,214	$ 104,499,445

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Consolidated Balance Sheets (Parenthetical) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Current assets:
Allowance for doubtful accounts	$ 427,000	$ 309,000
Stockholders' deficit:
Preferred Stock, Par Value	$ 0.01	$ 0.01
Preferred Stock, Shares Authorized	10,000,000	10,000,000
Preferred Stock, Shares Issued	17,299	23,324
Preferred Stock, Shares Outstanding	17,299	23,324
Common Stock, Par Value	$ 0.01	$ 0.01
Common Stock, Shares Authorized	90,000,000	50,000,000
Common Stock, Shares Issued	20,642,028	12,788,971
Common Stock, Shares Outstanding	20,642,028	12,788,971

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Consolidated Statements Of Operations - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Consolidated Statements Of Operations
Revenues	$ 122,045,320	$ 101,694,516
Cost of revenues, exclusive of depreciation and amortization, shown separately below	68,058,432	56,724,121
Gross profit	53,986,888	44,970,395
Depreciation and amortization	13,096,587	12,975,981
Selling general and administrative expenses (including stock-based compensation of $878,343 and $639,296 for the years ended December 31, 2016 and 2015, respectively)	48,524,923	41,009,107
Impairment charge	0	0
Total operating expenses	61,621,510	53,985,088
Operating loss	(7,634,622)	(9,014,693)
Other (expenses) income:
Interest expense	(6,742,143)	(6,062,923)
Loss on extinguishment of debt	(214,294)	(2,720,355)
Gain on change in fair value of derivative liabilities	265,383	1,843,997
Loss on disposal of property and equipment	(129,119)	(37,444)
Other income, net	128,987	101,057
Total other expenses	(6,691,186)	(6,875,668)
Loss before income taxes	(14,325,808)	(15,890,361)
Income tax benefit	1,609,485	7,660,536
Net Loss	(12,716,323)	(8,229,825)
Preferred stock dividends in arrears	(2,388,007)	(1,578,220)
Net loss attributable to common stockholders	$ (15,104,330)	$ (9,808,045)
Loss applicable to common stockholders
Basic and diluted loss per common share	$ (.98)	$ (1.32)
Weighted average common shares outstanding:
Basic and diluted	15,406,184	8,873,766

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Consolidated Statements Of Operations (Parenthetical) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Consolidated Statements Of Operations Parenthetical
Share Based Compensation	$ 878,343	$ 639,296

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Consolidated Statements of Changes in Stockholders' Deficit (USD $) - USD ($)	Preferred Stock	Common Stock	Capital in Excess of Par	Retained Earnings / Accumulated Deficit	Total
Begining Balance, Shares at Dec. 31, 2014	26,793	7,345,028
Begining Balance, Amount at Dec. 31, 2014	$ 268	$ 73,449	$ 175,519,459	$ (162,303,412)	$ 13,289,764
Issuance of common stock for services rendered, Shares		67,000
Issuance of common stock for services rendered, Amount		$ 670	244,620		245,290
Modification of previously issued warrants and reclassification to stockholders' equity			678,400		678,400
Proceeds from the sale of common stock, Shares		2,582,568
Proceeds from the sale of common stock, Amount		$ 25,826	5,604,174		5,630,000
Conversion of related party note to common stock, Shares		137,615
Conversion of related party note to common stock, Amount		$ 1,376	298,624		300,000
Net loss				(8,229,825)	(8,229,825)
Conversion of preferred stock into common stock, Shares	(3,469)	782,550
Conversion of preferred stock into common stock, Amount	$ (34)	$ 7,826	(7,792)		0
Dividends on preferred stock, Shares		434,201
Dividends on preferred stock, Amount		$ 4,344	(4,344)		0
Stock based compensation associated with stock incentive plans			639,296		639,296
Issuance of common stock in lieu of cash bonus, Shares		11,468
Issuance of common stock in lieu of cash bonus, Amount		$ 115	24,885		25,000
Settlement of outstanding debt with common stock, Shares		3,700
Settlement of outstanding debt with common stock, Amount		$ 37	11,840		11,877
Exercise of lenders warrants, Shares		728,333
Exercise of lenders warrants, Amount		$ 7,282	356,885		364,167
Common stock issued as part of purchase price - Fidelity acquisition, Shares		696,508
Common stock issued as part of purchase price - Fidelity acquisition, Amount		$ 6,965	1,493,035		1,500,000
Ending Balance, Shares at Dec. 31, 2015	23,324	12,788,971
Ending Balance, Amount at Dec. 31, 2015	$ 234	$ 127,890	184,859,082	(170,533,237)	14,453,969
Issuance of common stock for services rendered, Shares		74,167
Issuance of common stock for services rendered, Amount		$ 742	117,408		118,150
Proceeds from the sale of common stock, Shares		2,213,700
Proceeds from the sale of common stock, Amount		$ 22,137	2,323,009		2,345,146
Conversion of related party note to common stock, Shares		217,391
Conversion of related party note to common stock, Amount		$ 2,174	247,826		250,000
Net loss				(12,716,323)	(12,716,323)
Conversion of preferred stock into common stock, Shares	(6,025)	1,205,000
Conversion of preferred stock into common stock, Amount	$ (60)	$ 12,050	(11,990)		0
Dividends on preferred stock, Shares		1,140,568
Dividends on preferred stock, Amount		$ 11,406	(11,406)		0
Stock based compensation associated with stock incentive plans			853,458		853,458
Adjustment for prior issuances and conversions of warrants, Amount			338,972		338,972
Ajustment for fractional shares issued in reverse stock split, Shares		685
Ajustment for fractional shares issued in reverse stock split, Amount		$ 8	(8)		0
Cancellation of common stock issued to PingTone Sellers, Shares		(51,380)
Cancellation of common stock issued to PingTone Sellers, Amount		$ (514)	(179,830)		(180,344)
Issuance of common stock - Apptix acquisition, Shares		2,997,926
Issuance of common stock - Apptix acquisition, Amount		$ 29,979	3,597,511		3,627,490
Issuance of restricted stock, Amount		$ 550	99,000		99,550
Issuance of restricted stock, Shares		55,000
Ending Balance, Shares at Dec. 31, 2016	17,299	20,642,028
Ending Balance, Amount at Dec. 31, 2016	$ 174	$ 206,422	$ 192,233,032	$ (183,249,560)	$ 9,190,068

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Condensed Consolidated Interim Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Cash flows from operating activities:
Net loss	$ (12,716,323)	$ (8,229,825)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	13,096,587	12,975,981
Loss on extinguishment on debt	214,294	1,682,035
Loss on accounts receivable settlement exchanged for equipment	0	111,659
Deferred taxes	(1,669,485)	(7,710,536)
Loss on disposal of property and equipment	129,119	37,444
Bad debt expense	387,667	435,376
Stock-based compensation	878,343	639,296
Stock and warrants issued for services rendered or in settlement of liabilities	118,150	245,290
Amortization of debt discount and deferred financing fees	663,046	849,307
Gain in the change in fair value of derivative liability	(265,383)	(1,843,997)
Changes in operating assets and liabilities:
Accounts receivable	190,467	(883,253)
Prepaid expenses and other current assets	585,928	(22,351)
Other assets	(31,678)	(444,661)
Accounts payable and accrued expenses	(1,254,445)	2,005,632
Net cash used in operating activities	326,287	(152,603)
Cash flows from investing activities:
Purchase of property and equipment	(4,766,214)	(3,440,450)
Proceeds from the sale of property and equipment	234,753	35,469
Payment for acquisitions, net of cash acquired	(23,273,892)	(28,457,739)
Refunds of purchase price from acquisitions	262,683	0
Payment of security deposits	(55,335)	0
Change in restricted cash	137,970	999,258
Net cash used in investing activities	(27,460,035)	(30,863,462)
Cash flows from financing activities:
Proceeds from sale of common stock, net of offering costs	2,345,146	5,630,000
Proceeds from notes payable - non-related parties	0	9,000,000
Proceeds from term loan	65,000,000	25,000,000
Proceeds from revolving debt	3,000,000	15,000,000
Repayments of term loan	(25,000,000)	0
Repayments of revolving debt	(15,000,000)	0
Payments for obligations under asset purchase agreements	(641,665)	0
Proceeds from accounts receivable factoring arrangement	0	1,789,094
Repayments of borrowings to accounts receivable factoring arrangement	0	(1,789,094)
Payments on equipment financing obligations	(993,632)	(887,864)
Payment of financing fees	(1,323,250)	(623,745)
Repayments of notes payable - non-related parties	(571,484)	(21,006,466)
Net cash provided by financing activities	26,815,115	32,111,925
Net change in cash and cash equivalents	(318,633)	1,095,860
Cash and cash equivalents, beginning of year	7,540,543	6,444,683
Cash and cash equivalents, end of year	$ 7,221,910	$ 7,540,543

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1. Nature Of Operations

12 Months Ended

Dec. 31, 2016

Pro forma financial information

1. Nature Of Operations

Fusion Telecommunications International, Inc. is a Delaware corporation incorporated in September 1997 (“Fusion” and together with its subsidiaries, the “Company,” “we,” “us” and “our”).  The Company is a provider of integrated cloud solutions, including cloud voice, cloud connectivity, cloud infrastructure, cloud computing, and managed cloud-based applications to businesses of all sizes, and voice over IP (“VoIP”) - based voice services to other carriers.  The Company currently operates in two business segments, Business Services and Carrier Services.

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2. Significant Accounting Policies

12 Months Ended

Dec. 31, 2016

Pro forma financial information

2. Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the consolidated accounts of Fusion and its wholly-owned subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S GAAP”) and in accordance with Regulation S-X of the Securities and Exchange Commission (the “SEC”). All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to recognition of revenue, allowance for doubtful accounts; fair value measurements of its financial instruments; useful lives of its long-lived assets used in computing depreciation and amortization; impairment assessment of goodwill and intangible assets; accounting for stock options and other equity awards, particularly related to fair value estimates, accounting for income taxes, contingencies, and litigation. Changes in the facts or circumstances underlying these estimates could result in material changes, and actual results could differ from those estimates. These changes in estimates are recognized in the period they are realized.

Reclassifications

Certain reclassifications have been made to the prior year’s financial statements in order to conform to the current year’s presentation. Specifically, approximately $1.2 million of deferred loan costs that had been included within Other assets on the Company’s consolidated balance sheets is now retrospectively reflected for all periods presented as a reduction to the carrying amount of the underlying debt upon the adoption of ASU 2015-03, and the amounts due to the Root Axcess seller are now reflected in Obligations under asset purchase agreements. In addition, the loss on disposal of property and equipment of approximately $37,000 is now separately identified from Other income (expense) in the accompanying consolidated statement of operations. The reclassifications had no impact on results of operations as previously reported.

Cash and Cash Equivalents

Cash and cash equivalents include cash on deposit and short-term, highly-liquid investments with maturities of three months or less at the date of purchase. As of December 31, 2016 and 2015, the carrying value of cash and cash equivalents approximates fair value due to the short period of time to maturity.

Restricted Cash

Restricted cash consists of certificates of deposit that serve to collateralize outstanding letters of credit.  Restricted cash is recorded as current or non-current assets in the consolidated balance sheets depending on the duration of the restriction and the purpose for which the restriction exists.

At December 31, 2016 and 2015, the Company had certificates of deposit collateralizing a letter of credit aggregating to approximately $27,000 and $165,000, respectively. The letter of credit is required as security for one of the Company’s non-cancelable operating leases for office facilities.

Under the terms of the Company’s Amended and Restated Secured Credit Agreement, dated as of December 8, 2015 with Opus Bank (the “Amended Credit Facility”) and the Fourth Amended and Restated Securities Purchase Agreement and Security Agreement, dated as of December 8, 2015, with Praesidian Capital Opportunity Find III, LP and other lenders (the “Fourth Amended SPA”), the Company is no longer required to maintain a cash reserve of $1 million.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of a sale arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed and determinable, and collectability is reasonably assured.  The Company records provisions against revenue for billing adjustments, which are based upon estimates derived from factors that include, but are not limited to, historical results, analysis of credits issued and current economic trends.  The provisions for revenue adjustments are recorded as a reduction of revenue when the revenue is recognized. Below is a summary of the provisions against revenue for the years ended December 31, 2016 and 2015:

	Balance at Beginning of Period		Additions to Reserve		Posted Credits and other Adjustments		Balance at End of Period
Year ended December 31, 2016	$	223,045		2,494,986		2,415,951	$	302,080
Year ended December 31, 2015	$	312,187		1,852,168		1,941,310	$	223,045

The Company’s Business Services revenue includes fixed revenue earned from monthly recurring services provided to customers, for whom charges are contracted for over a specified period of time, and from variable usage fees charged to customers that purchase the Company’s Business Services products and services.  Revenue recognition commences after the provisioning, testing and acceptance of the service by the customer.  The recurring customer charges continue until the expiration of the contract, or until cancellation of the service by the customer.  To the extent that payments received from a customer are related to a future period, the payment is recorded as deferred revenue until the service is provided or the usage occurs.

Carrier Services revenue is primarily derived from usage fees charged to other carriers that terminate voice traffic over the Company’s network.  Variable revenue is earned based on the length of a call, as measured by the number of minutes of duration. It is recognized upon completion of the call, and is adjusted to reflect the Company’s allowance for billing adjustments.  Revenue for each customer is calculated from information received through the Company’s network switches.  The Company’s customized software tracks the information from the switches and analyzes the call detail records against stored detailed information about revenue rates.  This software provides the Company with the ability to complete a timely and accurate analysis of revenue earned in a period.  The Company believes that the nature of this process is such that recorded revenues are unlikely to be revised in future periods.

Cost of Revenues

Cost of revenues for the Company’s Business Services segment consist of fixed expenses which include monthly recurring charges associated with certain platform services purchased from other service providers, monthly recurring costs associated with private line services and the cost of broadband Internet access used to provide service to business customers.

For the Company’s Carrier Services segment, cost of revenues is comprised primarily of costs incurred from other carriers to originate, transport, and terminate voice calls for the Company’s carrier customers.  Thus, the majority of the Company’s cost of revenues for this segment is variable, based upon the number of minutes actually used by the Company’s customers and the destinations they are calling.  Call activity is tracked and analyzed with customized software that analyzes the traffic flowing through the Company’s network switch.  During each period, the call activity is analyzed and an accrual is recorded for the costs associated with minutes not yet invoiced.  This cost accrual is calculated using minutes from the system and the variable cost of revenue based upon predetermined contractual rates.  Fixed expenses reflect the costs associated with connectivity between the Company’s network infrastructure, including its New Jersey switching facility, and certain large carrier customers and vendors.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable is recorded net of an allowance for doubtful accounts.  On a periodic basis, the Company evaluates accounts receivable and records an allowance for doubtful accounts based on the Company’s history of past write-offs, collections experience and current credit conditions.  Specific customer accounts are written off as uncollectible when collection efforts have been exhausted and payments are not expected to be received.  During the periods presented, the Company has not experienced any significant defaults on its accounts receivable.

Below is a summary of the changes in allowance for doubtful accounts for the years ended December 31, 2016 and 2015 (in thousands):

	Balance at Beginning of Period		Additions - Charged to Expense		Deductions - Write-offs, Payments and other Adjustments		Balance at End of Period
Year ended December 31, 2016	$	309		388		270	$	427
Year ended December 31, 2015	$	245		435		371	$	309

Business Combinations

Business combinations are accounted for using the purchase method of accounting, whereby the purchase price of the acquisition, including the fair value of contingent consideration, is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. The results of operations of all business acquisitions are included in our Consolidated Financial Statements from the date of acquisition.

Goodwill as of the acquisition date, if any, is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, to the extent the Company identifies adjustments to the purchase price or the purchase price allocation, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

All transaction costs incurred in connection with a business combination are expensed as incurred and are reflected in selling, general and administrative expense in the accompanying consolidated statements of operations.

Debt Issuance Costs

Costs incurred for the issuance of debt are reflected as a reduction in the carrying amount of the debt and are accreted as interest expense over the life of the debt using the interest method.

Goodwill

Goodwill is the excess of the acquisition cost of a business combination over the fair value of the identifiable net assets acquired. Goodwill at December 31, 2016 and 2015 was $36.7 million and $27.1 million, respectively.  All of the Company’s goodwill is attributable to its Business Services segment.  

The following table presents the changes in the carrying amounts of goodwill during the years ended December 31, 2016 and 2015:

Balance at December 31, 2014	$	10,397,460
RootAxcess acquisition*		159,866
Fidelity acquisition*		16,502,971
Balance at December 31, 2015		27,060,297
Fidelity purchase price adjustment		134,216
TFB acquisition*		993,637
Apptix acquisition*		7,091,065
TOG acquistion*		410,000
Balance at December 31, 2016	$	35,689,215
* - See note 5 for discussion of acquisitions

Goodwill is not amortized and is tested for impairment on an annual basis in the fourth quarter of each fiscal year and whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit level.  The Company has determined that its reporting units are its operating segments (see Note 23) since that is the lowest level at which discrete, reliable financial and cash flow information is available.  Step one compares the fair value of the reporting unit (calculated using a market approach and/or a discounted cash flow method) to its carrying value.  If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed.  Step two compares the carrying value of the reporting unit’s goodwill to its implied fair value, which is the fair value of the reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets.  If the implied fair value of goodwill is less than its carrying amount, an impairment is recognized.

In testing goodwill for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If the Company elects to perform a qualitative assessment and determines that an impairment is more likely than not, it is then required to perform a quantitative impairment test, otherwise no further analysis is required. The Company also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.

The Company performed a quantitative impairment analysis on its goodwill as of December 31, 2016 and qualitative evaluation as of December 31, 2015 and determined that goodwill was not impaired.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.  If an impairment indicator is present, the Company evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets.  If the carrying value of the asset exceeds the projected undiscounted cash flows, the Company is required to estimate the fair value of the asset and recognize an impairment charge to the extent that the carrying value of the asset exceeds its estimated fair value.  The Company did not record any impairment charges for the years ended December 31, 2016 and 2015, as there were no indicators of impairment.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets as follows:

Asset	Estimated Useful Lives
Network equipment	5 - 7 Years
Furniture and fixtures	3 - 7 Years
Computer equipment and software	3 - 5 Years
Customer premise equipment	2 - 3 Years

Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the term of the associated lease. Maintenance and repairs are recorded as a period expense, while betterments and improvements are capitalized.

The Company capitalizes a portion of its payroll and related costs for the development of software for internal use and amortizes these costs over three years.  During the years ended December 31, 2016 and 2015, the Company capitalized costs pertaining to the development of internally used software in the amount of $1.2 million and $0.9 million, respectively.

Fair Value of Financial Instruments

We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

● Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

● Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets).

● Level 3 applies to assets or liabilities for which fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including the Company's own assumptions.

The estimated fair value of financial instruments is determined by the Company using available market information and valuation methodologies considered to be appropriate. At December 31, 2016 and 2015, the carrying value of the Company’s accounts receivable, accounts payable and accrued expenses approximate their fair values due to their short maturities.

Derivative Financial Instruments

The Company accounts for equity and equity indexed instruments with down round provisions issued in conjunction with the issuance of debt or equity securities of the Company in accordance with the guidance contained in Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging (“ASC 815”).  For warrant instruments that are not deemed to be indexed to Fusion’s common stock, the Company classifies the warrant instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statements of operations (see notes 17 and 18).  The fair values of the warrants have been estimated using option pricing and other valuation models, and the quoted market price of Fusion’s common stock (see notes 17 and 18).

Stock-Based Compensation

The Company recognizes expense for its employee stock-based compensation based on the fair value of the awards that are granted. The fair values of stock options are estimated at the date of grant using the Black-Scholes option valuation model. The use of the Black-Scholes option valuation model requires the input of subjective assumptions. Measured compensation cost, net of estimated forfeitures, is recognized ratably over the vesting period of the related stock-based compensation award. For transactions in which goods or services are the consideration received from non-employees in return for the issuance of equity instruments, the expense is recognized in the period when the goods and services are received at the fair value of the consideration received or the fair value of the equity instrument issued, whichever is determined to be a more reliable measurement.

Advertising and Marketing

Advertising and marketing expense includes cost for promotional materials and trade show expenses for the marketing of the Company’s products and services.  Advertising and marketing expenses were $0.7 million and $0.5 million for the years ended December 31, 2016 and 2015, respectively.

Income Taxes

The accounting and reporting requirements with respect to income taxes require an asset and liability approach.  Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized.

In accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position.  The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.  Derecognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets.  Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of December 31, 2016 and 2015.  The Company is subject to income tax examinations by major taxing authorities for all tax years since 2012 and for previous periods as it relates to the Company’s net operating loss carryforward.  

No interest expense or penalties have been recognized as of December 31, 2016 and 2015.  During the years ended December 31, 2016 and 2015, the Company recognized no adjustments for uncertain tax positions.

Factoring of accounts receivable

During the year ended December 31, 2015, the Company had a factoring agreement with Prestige Capital Corporation (“Prestige”).  Under the terms of the agreement, upon receipt and acceptance of each transfer of accounts receivable Prestige advanced the Company up to 75% of the net face value of the accounts receivable or 65% of the net face value of any unbilled yet earned amounts associated with the accounts receivable. The Company paid a discount fee which was deducted from the face value of the accounts receivable. The discount fee was based on the number of days the accounts receivable is outstanding from the date of the advance. For the years ended December 31, 2016 and 2015, the Company recognized discount fees on the transfer of the accounts receivable of $0 and approximately $40,000, respectively. These amounts are recorded in Other (expenses) income in the accompanying consolidated statements of operations. During the year ended December 31, 2015, the Company factored $1.8 million of accounts receivable under this agreement. The Prestige agreement was terminated in 2016 and there were no transfers of receivables to Prestige during the year ended December 31, 2016.

In accordance with ASC 860, ‘Transfers and Servicing’, the Company recognizes the accounts receivable and the associated liability when the accounts receivable were transferred to Prestige, and derecognizes the accounts receivable and the liability upon receipt of collections of the transferred receivables by Prestige.

Recently Issued Accounting Pronouncements

In November 2016, the Financial Accounting Standard Board (“FASB”) issued ASU 2016-18, Restricted Cash, which clarifies guidance and presentation related to restricted cash in the statement of cash flows, including stating that restricted cash should be included within cash and cash equivalents in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, with early adoption permitted, and is to be applied retrospectively. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-2, Leases, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. Under ASU 2016-02, lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right –to-use asset, which is an asset that represents the lessee’s right to use or control the use of a specified asset for the lease term. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The updated standard is effective beginning on January 1, 2017 with early application permitted as of the beginning of any interim or annual reporting period. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In September 2015, the FASB issued guidance that eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. This guidance became effective for interim and annual reporting periods beginning after December 15, 2015. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued guidance requiring an entity to present debt issuance costs related to a recognized debt liability as a reduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance became effective for interim and annual reporting periods beginning after December 15, 2015. The Company adopted this guidance retrospectively for all periods presented and reclassified the debt issuance costs in the accompanying consolidated financial statements.

In May 2014, FASB issued guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most recent current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue 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 guidance also specifies the accounting for certain incremental costs of obtaining a contract and costs to fulfill a contract with a customer. Entities have the option of applying either a full retrospective approach to all periods presented or a modified approach that reflects differences prior to the date of adoption as an adjustment to equity. In April 2015, FASB deferred the effective date of this guidance until January 1, 2018 and the Company is currently assessing the impact of this guidance on its consolidated financial statements.

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3. Loss per Share

12 Months Ended

Dec. 31, 2016

Loss Per Share

3. Loss per Share

Basic and diluted loss per share is computed by dividing (i) loss available to common stockholders, adjusted by approximately $1.9 million for the gain on the fair value of the Company’s derivative liability for the year ended December 31, 2015 that was attributable to 728,333 outstanding warrants with a nominal exercise price and dividends paid on Fusion’s preferred stock, by (ii) the weighted-average number of shares of common stock outstanding during the period, increased by the number of shares underlying such warrants with a nominal exercise price as if such exercise had occurred at the beginning of the year.  

The following table sets forth the computation of the Company’s basic and diluted net loss per share during the years ended December 31, 2016, and 2015:

	Year Ended December 31,
	2016			2015
Numerator
Net loss	$	(12,716,323	)	$	(8,229,825	)
Undeclared dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock		( 404,706	)		(403,600	)
Dividends declared on Series B-2 Convertible Preferred Stock		(1,983,301	)		(1,174,620	)
Gain on derivative warrants		-			(1,930,083	)
Net loss attributable to common stockholders	$	(15,104,330	)	$	(11,738,128	)
Denominator
Basic and diluted weighted average common shares outstanding		15,406,184			8,873,766
Loss per share
Basic and diluted	$	(0.98	)	$	(0.92	)

For the years ended December 31, 2016 and 2015, the following outstanding securities were excluded from the calculation of diluted earnings per common share because of their anti-dilutive effects:

	For the Year Ended December 31,
	2016		2015
Warrants		2,902,862		3,011,760
Convertible preferred stock		2,628,389		3,825,942
Stock options		2,183,723		1,158,251
		7,714,974		7,995,953

The net loss per common share calculation includes a provision for preferred stock dividends on the Company’s outstanding Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series A-4 Preferred Stock (collectively, the “Series A Preferred Stock”) of $0.4 million for the years ended December 31, 2016 and 2015.  As of December 31, 2016, Fusion’s Board of Directors had not declared any dividends on the Series A Preferred Stock, and the Company had accumulated $4.7 million of preferred stock dividends. These dividends could be paid, at the Company’s option, either in cash or, in 84,729 shares of Fusion’s common stock, based on the respective conversion prices of the Series A Preferred Stock.

Fusion’s Board of Directors declared a dividend of $2.0 million and $1.2 million for the years ended December 31, 2016 and 2015, respectively, related to the Company’s Series B-2 Convertible Preferred Stock (the “Series B-2 Preferred Stock”), which, as permitted by the terms of the Series B-2 Preferred Stock, was paid in the form of 1,140,568 and 434,201 shares of Fusion’s common stock. The dividends paid in 2016 include an additional $1.2 million in dividends paid in the form of 666,667 shares of Fusion’s common stock to a holder of 5,000 shares of Series B-2 Preferred Stock in connection with the holder’s agreement to convert all of its Series B-2 Preferred Stock holdings into shares of Fusion’s common stock.

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4. Stock-Based Compensation

12 Months Ended

Dec. 31, 2016

Stock-based Compensation

4. Stock-Based Compensation

The Company's stock-based compensation plan provides for the issuance of stock options to the Company’s employees, officers, and directors. The Compensation Committee of Fusion’s Board of Directors approves all awards that are granted under the Company's stock-based compensation plan.

The Company's 2016 Equity Incentive Plan, ratified by the Company’s stockholders on October 28, 2016, reserves a number of shares of common stock equal to 10% of the Company’s shares outstanding from time to time on a fully diluted basis. The plan provides for the grant of incentive stock options, stock appreciation rights, restricted stock, restricted stock units, stock grants, stock units, performance shares and performance share units to employees, officers, non-employee directors of, and consultants to the Company. Options under the plan typically vest in annual increments over a three or four year period, expire ten years from the date of grant and are issued at exercise prices no less than 100% of the fair market value at the time of grant.

The following table summarizes the stock option activity under our stock plans for the years ended December 31, 2016 and 2015:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contract Term
Outstanding at December 31, 2014		607,877		$	8.00	8.08 years
Granted		614,730			2.44
Exercised		-			-
Forfeited		( 53,280	)		3.81
Expired		( 11,076	)		32.71
Outstanding at December 31, 2015		1,158,251			4.96	8.43 years
Granted		1,135,650			1.31
Exercised		-			-
Forfeited		( 89,826	)		2.51
Expired		( 20,352	)		69.46
Outstanding at December 31, 2016		2,183,723			2.56	8.56 years
Exercisable at December 31, 2016		689,963			4.52	6.85 years

The Company recognized compensation expense of $853,458 and $639,296 related to stock options for the years ended December 31, 2016 and 2015, respectively.  These amounts are included in selling, general, and administrative expenses in the consolidated statements of operations.

The following weighted average assumptions were used to determine the fair value of the stock options granted under the Company’s stock-based compensation plan using the Black-Scholes option-pricing model:

	Year Ended December 31,
	2016			2015
Dividend yield		0.0	%		0.0	%
Expected volatility		92.40	%		132.99	%
Average Risk-free interest rate (%)		1.21-2.23			1.78-2.25
Expected life of stock option term (years)		6.86-8.00			8.43

The following table summarizes additional information regarding outstanding and exercisable options under the stock option plans at December 31, 2016:

Stock Options Outstanding									Stock Options Exercisable
Range of Exercise Prices		Options Outstanding		Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Aggregate intrinsic Value				Options Exercisable	Weighted Average Remaining Contractual Life (Years)		Weighted Average Price	Aggregate intrinsic Value
$1.26 to $1.91	1,130,250		9.64		$1.31			-				-	$-
$1.93 to $2.94	421,950		8.73		2.14			186,995				8.71	2.12
$3.00 to $4.50	496,813		7.22		3.83			375,818				7.00	3.91
$4.70 to $7.50	106,440		4.69		5.89			98,880				4.50	5.84
$9.00 to $15.50	15,530		1.25		15.43			15,530				1.25	15.43
$19.50 to $34.50	12,730		0.25		34.38			12,730				0.25	34.38
$37.50 to $37.50	10		0.31		37.50			10				0.31	37.50
	2,183,723		8.56		2.56		$242,945	689,963				6.85	4.52		$196,587

The weighted-average estimated fair value of stock options granted was $1.08 and $2.44 during the years ended December 31, 2016 and 2015, respectively.  No stock options were exercised during the years ended December 31, 2016 and 2015.  As of December 31, 2016, there was approximately $1.9 million of total unrecognized compensation cost related to stock options granted under the Company’s stock incentive plans, which is expected to be recognized over a weighted-average period of 2.26 years.

During the year ended December 31, 2016, the Company issued 55,000 shares of restricted stock to an employee valued at $99,950, which vests over a three year period. The Company recognized compensation expense in connection with this grant in the approximate amount of $25,000 for the year ended December 31, 2016.

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5. Acquisition

12 Months Ended

Dec. 31, 2016

Pro forma financial information

5. Acquisition

Apptix

On November 14, 2016, Fusion NBS Acquisition Corp. (“FNAC”), a subsidiary of Fusion, 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 provided cloud-based communications, collaboration, virtual desktop, compliance, security and cloud computing solutions to approximately 1,500 business customers across the U.S. 

The purchase price paid by FNAC for Apptix was $26.7 million, including an adjustment for the closing date cash on hand. The purchase price was paid with (i) $23,063,484 in cash, and (ii) 2,997,926 shares of Fusion’s common stock (the “Seller Shares”), valued at $1.21 per share. The cash portion of the purchase price was funded through a new senior secured facility entered into simultaneous with the Apptix acquisition (see note 14).

Fusion has agreed, on or prior to November 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.

Upon acquisition, Apptix became a wholly-owned subsidiary of FNAC. The acquisition was accounted for as a business combination. The preliminary allocation of the purchase price as of the acquisition date is as follows:

Cash	$	67,071
Accounts receivable		2,207,024
Prepaid expenses and other current assets		620,270
Property and equipment		2,878,877
Deferred tax liability		( 1,633,853	)
Covenant not to compete		1,417,000
Customer contracts		20,948,000
Accrued liabilities		( 6,904,479	)
Goodwill		7,091,065
Total purchase price	$	26,690,975

The customer relationship intangible assets have estimated useful lives of 5 to 15 years, and the non-compete agreement has a useful life of one year.

The results of operations of Apptix are reflected in the Company’s consolidated statement of operations effective November 14, 2016.  The following table provides certain unaudited pro forma financial information for the Company for the years ended December 31, 2016 and 2015 as if the acquisition of Apptix had been consummated effective as of January 1, 2015 (in millions):

	2016			2015
Revenues	$	141.3		$	136.1
Net loss	$	(16.5	)	$	(16.6	)

Technology for Business

On March 31, 2016, the Company completed the acquisition of substantially all of the assets of Technology for Business Corporation (“TFB”), a provider of contact center solutions, for an estimated purchase price of $1.3 million consisting of $277,281 in cash and a royalty fee equal to ten percent of the collected monthly recurring revenues derived from sales of the cloud version of the proprietary call center software and maintenance services. The estimated royalty fee of $1,111,606 was recognized as a non-current liability in the condensed consolidated balance sheet and will be paid on a quarterly basis, commencing as of the first full calendar quarter following the second anniversary of the closing date of this acquisition. The aggregate purchase price was allocated to the fair value of the assets acquired and liabilities assumed as follows:

Accounts receivable, net	$	80,845
Prepaid expenses and other current assets		5,535
Proprietary technology		889,000
Covenant not to compete		8,000
Customer contracts		99,000
Current liabilities		( 687,130	)
Accrued royalty		( 1,111,606	)
Goodwill		993,637
Total cash purchase price	$	277,281

The acquisition of the assets of TFB did not have a material effect on the Company’s results of operations or financial condition.

Technology Opportunity Group

On November 18, 2016, the Company entered into an agreement with Technology Opportunity Group and an affiliated company (collectively, “TOG”) in which the Company agreed to assume TOG’s obligations to provide services to a list of specified customers of TOG. In exchange for the transfer of these customer contracts, the Company will make a cash payment to TOG in an amount equal to twice the customer’s gross monthly revenue. The required payment will be paid out in 18 equal monthly installments, commencing with the customer’s first full month of billing by the Company. The required monthly payment is subject to adjustment in the event that the monthly revenue from the customer increases or decreases by specified amounts. In connection with this agreement, the Company recognized a payable to TOG and corresponding goodwill in the amount of $0.4 million. This acquisition did not have a material effect on the Company’s results of operations or financial condition.

Fidelity

In a two-step transaction completed in December 2015 and February 2016, FNAC acquired all of the outstanding equity securities of Fidelity Access Networks, LLC, Fidelity Connect LLC, Fidelity Voice Services, LLC, Fidelity Access Networks, Inc., and Fidelity Telecom, LLC (hereinafter collectively referred to as “Fidelity”). Fidelity provides customers with a suite of cloud based services, including cloud voice, cloud connectivity, cloud computing and cloud storage.

The purchase price paid to Fidelity shareholders was $29.9 million, consisting of $28.4 million in cash and 696,508 shares of Fusion’s common stock valued at $1.5 million (based upon the volume weighted average price of the common stock over a ten trading day period ending four trading days prior to the closing date). The acquisition was funded through borrowings under a credit facility of approximately $27.5 million and cash on hand of approximately $0.9 million. At closing, $1.5 million of the cash portion of the purchase price was placed into escrow to protect the Company against any breaches in the sellers’ representations, warranties and covenants in the purchase agreement, to be released in accordance with the terms of the related escrow agreement.

The allocation of the purchase price as of the acquisition date is as follows:

Cash	$	503,059
Accounts receivable, net		273,809
Prepaids		44,735
Property and equipment		1,111,699
Covenant not to compete		618,000
Customer contracts		19,243,000
Accrued liabilities		(692,606	)
Deferred tax liability		(7,710,536	)
Goodwill		16,502,971
Total purchase price	$	29,894,133

The amount of goodwill recognized is primarily attributable to the expected contributions of Fidelity to the overall corporate strategy in addition to synergies and acquired workforce of the acquired business. None of the goodwill or intangible assets recognized is expected to be deductible for income tax purposes. The intangible assets subject to amortization consist of customer relationships and non-compete agreements, with an estimated useful life of 14 and 5 years, respectively. During the year ended December 31, 2016, $0.4 million of the foregoing escrowed portion of the purchase price was remitted back to the Company, resulting in a decrease in the purchase price and a corresponding reduction in goodwill. Also during the year ended December 31, 2016, the Company increased goodwill by $0.5 million due to changes in the estimated fair values of assets and liabilities at acquisition.

The results of operations of Fidelity are reflected in the Company’s consolidated statement of operations effective December 8, 2015.  The following table provides certain unaudited pro forma financial information for the Company for the year ended December 31, 2015 as if the acquisition of Fidelity had been consummated effective as of January 1, 2015 (in millions):

	2015
Revenues	$	119.2
Net loss	$	(6.9	)

RootAxcess

In September 2015, the Company acquired the customer base, technology platform, infrastructure and certain other assets of RootAxcess (“RootAxcess”), for an aggregate purchase price of $1.2 million, payable in either cash or in a mix of cash and, at the Company’s election, in up to $300,000 in shares of Fusion’s common stock.  Of the $1.2 million purchase price, $0.7 million was held by the Company against potential claims arising from breaches of representation and warranties, of which $0.2 million and $0.6 million is reflected in Obligations under asset purchase agreements in the accompanying consolidated balance sheets at December 31, 2016 and 2015, respectively.

The aggregate purchase price was allocated to the fair value of the assets acquired as follows:

Covenant not to compete	$	232,943
Customer contracts/relationships		747,381
Fixed assets acquired		59,810
Goodwill		159,866
Purchase price	$	1,200,000

All of the forgoing acquisitions are included as part of the Business Services business segment (See Note 12).

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6. Intangible Assets

12 Months Ended

Dec. 31, 2016

Pro forma financial information

6. Intangible Assets

All of the Company’s identifiable intangible assets are associated with its Business Services segment and as of December 31, 2016 and 2015 are comprised of:

	December 31, 2016							December 31, 2015
	Gross Carrying Amount		Accumulated Amortization			Total		Gross Carrying Amount		Accumulated Amortization			Total
Trademarks and tradename	$	1,093,400	$	(501,982	)	$	591,418	$	1,093,400	$	(331,651	)	$	761,749
Proprietary technology		6,670,000		(4,036,915	)		2,633,085		5,781,000		(2,756,433	)		3,024,567
Non-compete agreement		12,128,043		(9,891,892	)		2,236,151		10,703,043		(9,220,255	)		1,482,788
Customer relationships		65,948,181		(7,827,697	)		58,120,484		44,888,181		(4,412,819	)		40,475,362
Favorable lease intangible		218,000		(181,667	)		36,333		218,000		(138,067	)		79,933
Total acquired intangibles	$	86,057,624	$	(22,440,153	)	$	63,617,471	$	62,683,624	$	(16,859,225	)	$	45,824,399

Aggregate amortization expense for each of the five years subsequent to December 31, 2016 is expected to be as follows: 

Year	Amortization Expense
2017	$	8,471,187
2018		6,425,463
2019		5,441,731
2020		5,401,348
2021		5,226,981

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7. Prepaid Expenses and Other Current Assets

12 Months Ended

Dec. 31, 2016

Pro forma financial information

7. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets at December 31, 2016 and 2015 are as follows:

	2016		2015
Insurance	$	160,262	$	93,040
Rent		5,389		101,916
Marketing		74,665		109,455
Software subscriptions		419,431		498,078
Due from seller of Fidelity		-		425,963
Due from factoring party		-		26,018
Due from seller of TOG		75,975		-
Comisssions		159,146		20,805
Other		265,316		343,328
Total	$	1,160,184	$	1,618,603

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8. Accounts Payable and Accrued Expenses

12 Months Ended

Dec. 31, 2016

Pro forma financial information

8. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following at December 31, 2016 and 2015:

	2016		2015
Trade accounts payable	$	6,358,548	$	1,101,393
Accrued license fees		2,881,331		-
Accrued sales and federal excise taxes		2,863,363		2,204,098
Deferred revenue		1,874,641		1,157,036
Accrued network costs		1,416,000		3,423,483
Accrued sales commissions		819,106		981,121
Property and other taxes		581,956		534,388
Accrued payroll and vacation		421,733		555,493
Customer deposits		365,249		358,227
Interest payable		304,409		32,221
Credit card payable		265,985		384,257
Accrued USF fees		249,825		494,852
Accrued bonus		249,361		700,000
Professional and consulting fees		164,878		274,205
Rent		127,781		82,894
Other		778,672		845,557
Total	$	19,722,838	$	13,129,225

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9. Property And Equipment

12 Months Ended

Dec. 31, 2016

Pro forma financial information

9. Property And Equipment

At December 31, 2016 and 2015, property and equipment is comprised of the following:

	2016			2015
Network equipment	$	13,716,468		$	7,875,478
Furniture and fixtures		421,689			292,451
Computer equipment and software		5,868,370			7,290,577
Customer premise equipment		9,695,643			9,121,788
Vehicles		55,884			55,884
Leasehold improvements		1,188,207			1,073,631
Assets in progress		383,137			190,749
Total		31,329,398			25,900,558
Less: accumulated depreciation		(17,080,483	)		(11,845,065	)
Total	$	14,248,915		$	14,055,493

Depreciation expense was $7.5 million and $5.5 million for the years ended December 31, 2016 and 2015, respectively. For the years ended December 31, 2016 and 2015, $3.2 million and $3.0 million, respectively, of the Company’s property and equipment were financed under capital leases.

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10. Equipment Financing Obligations

12 Months Ended

Dec. 31, 2016

Pro forma financial information

10. Equipment Financing Obligations

During the years ended December 31, 2016 and 2015, the Company entered into several equipment financing or capital lease arrangements to finance the purchase of network hardware and software utilized in the Company’s operations.  These arrangements require monthly payments over a period of 24 to 48 months with interest rates ranging between 5.3% and 6.6%.  

The Company’s equipment financing obligations at December 31, 2016 and 2015 are as follows:

	December 31,			December 31,
	2016			2015
Equipment financing obligations	$	2,239,661		$	3,044,796
Less: current portion		(1,002,578	)		(959,380	)
Long-term portion	$	1,237,083		$	2,085,416

The estimated principal payments under capital lease agreements for the years ending subsequent to December 31, 2016 are as follows:

Year ending December 31:	Principal
2017	$	1,002,578
2018		958,845
2019		268,044
2020		10,194
	$	2,239,661

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11. Supplemental Disclosure of Cash Flow Information

12 Months Ended

Dec. 31, 2016

Pro forma financial information

11. Supplemental Disclosure of Cash Flow Information

Supplemental cash flow information for the years ended December 31, 2016 and 2015 is as follows:

Supplemental Cash Flow Information	2016		2015
Cash paid for interest	$	5,806,910	$	5,064,880
Cash paid for income taxes	$	-	$	-
Supplemental Non-Cash Investing and Financing Activities
Property and equipment acquired under capital leases	$	188,497	$	1,440,816
Dividend on Series B-2 preferred stock paid with the issuance of Fusion common stock	$	1,983,301	$	1,174,620
Obligations under asset purchase agreements	$	1,521,606	$	633,333
Equipment received in exchange for settlement of accounts receivable	$	-	$	105,570
Common stock issued for acquisitions	$	3,627,490	$	1,500,000
Common stock issued in settlement of debt - related party	$	-	$	300,000
Common stock issued in lieu of cash bonus	$	-	$	25,000
Common stock issued to settle oustanding accounts payable	$	-	$	11,877

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12. Obligations Under Asset Purchase Agreements

12 Months Ended

Dec. 31, 2016

Obligations Under Asset Purchase Agreements

12. Obligations Under Asset Purchase Agreements

In connection with the purchase of assets of RootAxcess, the Company held back $0.7 million of the purchase price against potential claims arising from breaches of representation and warranties. Of such amount, $0.4 million is to be paid to the seller in six equal monthly installments of $66,667 on the three, six, nine, twelve, fifteen and eighteen month anniversary of the closing date.  In addition, the Company held back $0.3 million to be paid in three equal installments of $100,000 on each of the twelve, fifteen, and eighteen month anniversary of the closing date.  To the extent there is an unresolved claim notice pending (as defined in the asset purchase agreement), the monthly installment payable to seller immediately following the delivery of such claim notice may at the Company’s reasonable discretion be reduced by the amount in dispute under the claim notice and such amount will continue to be held by the Company until the claim is resolved, at which point, the Company will disburse the withheld amount in accordance with such resolution. During the years ended December 31, 2016 and 2015, the Company made payments of $466,665 and $66,667, respectively, to the sellers in connection with the terms of the holdback agreement.

In connection with the purchase of the assets of TFB in March 2016, the Company recorded a contingent liability of $1,111,606 (see Note 5). The contingent liability was based on a royalty fee equal to ten percent of the collected monthly recurring revenues to be derived from the sale of the cloud version of the proprietary call center software and maintenance services. In accordance with the terms of the asset purchase agreement, the royalty fees will be paid on a quarterly basis, commencing as of the first full calendar quarter following the second anniversary of the closing date of this acquisition or March 31, 2018, and will continue for a period of 31 calendar quarters. In addition, a portion of the salary paid to the sellers for a period of two years following the acquisition date constitutes an advance against any royalty fee owed to the sellers. At December 31, 2016, the outstanding balance of the royalty fee is $936,606. There were no changes to the contingent liability based on our evaluation of the factors used to determine the fair value of the purchase price.

In connection with the purchase of TOG in November of 2016, the Company recognized a liability in the amount $0.4 million as of December 31, 2016.

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13. Secured Credit Facility

12 Months Ended

Dec. 31, 2016

Secured Credit Facility

13. Secured Credit Facility

At December 31, 2016 and 2015, secured credit facilities are comprised of the following:

	December 31,			December 31,
	2016			2015
Term loan	$	65,000,000		$	25,000,000
Less:
Deferred financing fees		(1,289,629	)		(271,238	)
Current portion		(2,979,167	)
Term loan - long-term portion	$	60,731,204		$	24,728,762
Indebtedness under revolving credit facility	$	3,000,000		$	15,000,000

On August 28, 2015, FNAC entered into a $40.0 million Credit Facility with Opus Bank, which facility was amended and restated in December 2015 (the “Amended Credit Facility”). The Amended Credit Facility consisted of a $15.0 million, four-year revolving credit facility, and a $25.0 million, five-year term loan. The maturity date of amounts borrowed under the credit facility was August 28, 2019, and the maturity date of any amounts borrowed under the term loan was August 28, 2020.

As of December 31, 2015, the Company had borrowed $15.0 million under the Amended Credit Facility and $25.0 million under the term loan.  The proceeds from this credit facility were used to retire approximately $11.0 million of notes held by Plexus Fund II, L.P., Plexus Funds III, L.P. and Plexus Fund QP III, L.P. (“Plexus”) and $28.0 million to fund our purchase of the assets of RootAxcess and the stock of Fidelity (see Note 5).

On November 14, 2016, contemporaneously with the Apptix acquisition (see note 5), FNAC entered into a new credit agreement (the “East West Credit Agreement”) with East West Bank and Opus (collectively with East West Bank, the “East West Lenders”). Under the East West Credit Agreement, the East West Lenders extended the Company (i) a $65.0 million term loan and (ii) a $5.0 million revolving credit facility (which includes up to $4 million in “swingline” loans that may be accessed on a short-term basis). The proceeds of the term loan were used to retire the $40 million outstanding under the Amended Credit Facility, and to fund the cash portion of the purchase price of the Apptix acquisition. In connection with the retirement of the Amended Credit Facility, FNAC recognized a loss on the extinguishment of debt in the amount of $0.2 million.

Borrowings under the East West Credit Agreement are evidenced by promissory notes bearing interest at rates computed based upon either the then current “prime” rate of interest or “LIBOR” rate of interest, as selected by FNAC. 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 commencing January 1, 2017 and continuing until January 1, 2018, when monthly payments increase to $541,667, until the maturity date of the term loan on November 12, 2021, when the remaining $36.8 million of principal is due. Borrowings under the revolving credit facility are also payable on the November 12, 2021 maturity date of the facility. At December 31, 2016, $3.0 million was outstanding under the revolving credit 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.

Under the East West Credit 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 East West 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 its subsidiaries.

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

At December 31, 2016, the Company was in compliance with all of the financial covenants contained in the East West Credit Agreement.

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14. Notes Payable-Non-Related Parties

12 Months Ended

Dec. 31, 2016

Pro forma financial information

14. Notes Payable-Non-Related Parties

At December 31, 2016 and 2015, notes payable – non-related parties are comprised of the following: 

	December 31,			December 31,
	2016			2015
Subordinated notes	$	33,588,717		$	34,160,200
Discount on subordinated notes		(1,368,629	)		(1,697,091	)
Deferred financing fees		(788,486	)		(981,553	)
Total notes payable - non-related parties		31,431,602			31,481,556
Less: current portion		-			(685,780	)
Long-term portion	$	31,431,602		$	30,795,776

On August 28, 2015, simultaneously with the execution of the original Credit Facility with Opus Bank (see Note 13), the Company executed the Third Amended and Restated Securities Purchase Agreement and Security Agreement (the “Third Amendment”) with Praesidian. Under the Third Amendment, approximately $11.0 million of the notes held by Plexus were paid in full with borrowings under the Amended Credit Facility, and $9.0 million of the notes held by Plexus were paid using the proceeds from the sale of Series F senior notes in the aggregate principal amount of $9.0 million, bearing interest at 10.8% annually and having a maturity date of February 28, 2021. Additionally, the maturity date of the remaining notes was extended to February 28, 2021, and the continuing lenders agreed to subordinate their notes to borrowings extended under the Amended Credit Facility.

As a result of the retirement of the notes held by Plexus, the Company recorded a loss on extinguishment of debt of $2.7 million in the year ended December 31, 2015, substantially consisting of unamortized discount. The Company pays interest monthly at a rate of 10.8%, and recognized interest expense of approximately $4.6 million during 2015.

On December 8, 2015, the Company executed the Fourth Amended and Restated Securities Purchase Agreement and Security Agreement, (the “Fourth Amendment”), which amended the Third Amendment to (i) provide the consent of the continuing lenders to the acquisition of Fidelity (ii) joined Fidelity as a guarantor and credit party under the Fourth Amended SPA, and (iii) modifying or eliminating certain of the financial covenants contained in the Third Amendment, specifically the requirement to maintain a minimum unencumbered cash bank balance of $1.0 million at all times effective as of December 31, 2015.

On November 14, 2016, FNAC, Fusion and Fusion’s subsidiaries other than FNAC 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 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”).

The Restated Purchase Agreement amends the Fourth Amendment to (i) provide the Praesidian Lenders’ consent to the acquisition of Apptix, (ii) join Apptix as a guarantor and credit party under the Restated Purchase Agreement, (iii) modify certain financial covenants contained in the Fourth Amendment such that the covenants are now substantially similar to those contained in the East West Credit Agreement, and (iv) extend the maturity date of the SPA Notes to May 12, 2022. The Praesidian Lenders 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 and the SPA Notes 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. For the year ended December 31, 2016, the Company was in compliance with all of the financial covenants contained in the Restated Purchase Agreement.

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15. Notes Payable-Related Parties

12 Months Ended

Dec. 31, 2016

Pro forma financial information

15. Notes Payable-Related Parties

At December 31, 2016 and 2015, components of notes payable – related parties are comprised of the following: 

	December 31,			December 31,
	2016			2015
Notes payable to Marvin Rosen	$	928,081		$	1,178,081
Discount on notes		(52,331	)		(103,252	)
Total notes payable - related parties	$	875,750		$	1,074,829

The note payable to Marvin Rosen, Fusion’s Chairman of the Board, is subordinated to borrowings under the East West Credit Agreement and the Restated Purchase Agreement. This note is unsecured, pays interest monthly at an annual rate of 7%, and matures 120 days after the Company’s obligations under the East West Credit Agreement and the Restated Purchase Agreement are paid in full.  

For the years ended December 31, 2016 and 2015, the Company paid interest on the notes payable to Mr. Rosen in the amount of $0.1 million. During the year ended December 31, 2016, Mr. Rosen converted $250,000 of the outstanding notes into 217,391 shares Fusion’s common stock in conjunction with Fusion’s private placement of common stock in November of 2016 (see note 16).

During the year ended December 31, 2015, Mr. Rosen converted $0.3 million of his outstanding notes into 137,615 shares of Fusion’s common stock at conversion price of $2.18 per share of common stock, the closing bid price of Fusion’s common stock on December 4, 2015.

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16. Equity Transactions

12 Months Ended

Dec. 31, 2016

Pro forma financial information

16. Equity Transactions

Common Stock

On October 28, 2016, Fusion’s Stockholders ratified an amendment to the Company’s Certificate of incorporation to increase the number of authorized common shares to 90,000,000.

During the year ended December 31, 2016, 6,025 shares of Series B-2 Preferred Stock were converted into 1,205,000 shares of common stock. Also during the year ended December 31, 2016, the Fusion’s Board of Directors declared dividends of $2.0 million on outstanding shares of Series B-2 Preferred Stock, which were paid in the form of 1,140,568 shares of common stock as permitted by the terms of the Series B-2 Preferred Stock.

On November 16, 2016, Fusion sold an aggregate of 2,213,700 shares of common stock to 20 accredited investors in a private placement transaction, and received net proceeds of $2.3 million. In connections with this transaction, Mr. Rosen converted $250,000 of his outstanding notes into 217,391 shares of common stock.

During the year ended December 31, 2016, 51,380 shares of common stock previously issued to the sellers in a 2014 business acquisition were cancelled by mutual agreement between the Company and the sellers. Also during the year ended December 31, 2016, 55,000 shares of restricted common stock valued at $0.1 million were issued to one of Fusion’s executive officers and 74,167 shares of common stock valued at $0.1 million were issued to a third party for services rendered.

On November 14, 2016, Fusion issued to 2,997,926 shares of common stock as partial consideration in the Apptix acquisition transaction.

On December 8, 2015, Fusion sold approximately 2.6 million shares of its common stock for aggregate proceeds of $5.6 million. In addition, during 2015, 137,615 shares of Fusion’s common stock were issued to Marvin Rosen upon conversion of $0.3 million of his outstanding notes (see note 15) and $25,000 in annual bonus due to Matthew Rosen, the Company’s Chief Executive Officer, was paid through the issuance of 11,468 shares of common stock.

On August 28, 2015, in connection with the Third Amendment, Fusion issued 728,333 shares of its common stock to the original Praesidian Lenders under the original credit agreement upon their cashless exercise of lenders’ warrants.

During the three months ended December 31, 2015, Fusion issued 8,833 shares of its common stock to third party consultants at a price of $3.36 per share of common stock, and through the fiscal year ended December 31, 2015, Fusion has issued an aggregate of 67,000 shares of common stock to third party consultants for services rendered valued at $245,290.

For the year ended December 31, 2015, Fusion’s Board of Directors declared aggregate dividends of $1.2 million related to Fusion’s Series B-2 Preferred Stock, which, as permitted by the terms of the Series B-2 Preferred Stock, was paid in the form of 434,201 shares of Fusion’s common stock. During 2015, certain holders of Series B-2 Preferred Stock elected to convert 3,469 shares of their Series B-2 Preferred Stock into an aggregate of 782,550 shares of Fusion’s common stock at an average conversion price of $4.43 per share.

Preferred Stock

Fusion is authorized to issue up to 10,000,000 shares of preferred stock. At December 31, 2016 and 2015, there were 5,045 shares of Series A Preferred Stock issued and outstanding. In addition, as of December 31 2016 and 2015, there were 12,254 and 18,279 shares of Series B-2 Preferred Stock issued and outstanding, respectively.

The holders of the Series A Preferred Stock are entitled to receive cumulative dividends of 8% per annum payable in arrears, when and if declared by Fusion’s Board of Directors. As of December 31, 2016, no dividend had been declared by the Fusion Board of Directors with respect to any series of Series A Preferred Stock, and the Company had accumulated approximately $4.7 million of preferred stock dividends. The Series A Preferred Stock is convertible at the option of the holder at any time at conversion prices ranging from $39.50 per share to $83.50 per share. The Series A preferred stock, including the accumulated dividends, is convertible into an aggregate of 177,589 shares of common stock.  

The holders of the shares of Series B-2 Preferred Stock are entitled to receive a cumulative 6% annual dividend payable quarterly in arrears when and if declared by the Fusion Board of Directors, in cash or shares of Fusion common stock, at the option of the Company.

Commencing January 1, 2016, Fusion has the right to force the conversion of the Series B-2 Preferred Stock into Fusion common stock at a conversion price of $5.00 per share; provided that the volume weighted average price for its common stock is at least $12.50 for ten consecutive trading days.

The following table summarizes the activity in the Company’s various classes of preferred stock for the years ended December 31, 2016 and 2015:

	Series A-1				Series A-2				Series A-4				Series B-2						Total
	Shares		$		Shares		$		Shares		$		Shares			$			Shares			$
Balance at December 31, 2014		2,375	$	24		2,625	$	26		45	$	-		21,748		$	218			26,793		$	268
Conversion of preferred stock into common stock		-		-		-		-		-		-		(3,469	)		(34	)		(3,469	)		(34	)
Balance at December 31, 2015		2,375		24		2,625		26		45		-		18,279			184			23,324			234
Conversion of preferred stock into common stock		-		-		-		-		-		-		(6,025	)		(60	)		(6,025	)		(60	)
Balance at December 31, 2016		2,375	$	24		2,625	$	26		45	$	-		12,254		$	124			17,299		$	174

Each share of Series B-2 Preferred Stock has a stated value of $1,000, and is convertible into shares of Fusion’s common stock at the option of the holder at a conversion price of $5.00 per share, subject to adjustment. At December 31, 2016, the Series B-2 Preferred Stock is convertible into an aggregate of 2,450,800 shares of Fusion’s common stock.

The holders of Series B-2 Preferred Stock have liquidation rights that are senior to those afforded to holders of the Company’s other equity securities, and are entitled to vote as one group with holders of Fusion’s common stock on all matters brought to a vote of such holders (with each share of Series B-2 Preferred Stock being entitled to that number of votes into which the registered holder could have converted the Series B-2 Preferred Stock on the record date for the meeting at which the vote will be cast).  Holders of common stock are also entitled to vote as a separate class on all matters adversely affecting (within the meaning of Delaware law) such class.

Warrants

In connection with various debt and equity financing transactions and other agreements, the Company has issued warrants to purchase shares of Fusion’s common stock.  All of the outstanding warrants are fully exercisable as of December 31, 2016. For the years ended December 31, 2016 and 2015, the Company did not issue any warrants.

The following table summarizes the information relating to warrants issued and the activity during the years ended December 31, 2016 and 2015:

	Number of Warrants			Per share Exercise Price		Weighted Average Exercise Price
Outstanding at December 31, 2014		4,165,108		$	0.50 to $10.50	$	5.48
Granted in 2015		-			-
Exercised in 2015		(728,333	)	$	0.50	$	0.50
Expired in 2015		(425,011	)	$	7.00 to $10.50	$	9.30
Outstanding at December 31, 2015		3,011,764		$	3.95 to $10.15	$	6.14
Granted in 2016		-			-
Exercised in 2016		-			-
Expired		(105,198	)	$	4.00-$7.00	$	5.00
Outstanding at December 31, 2016		2,906,566		$	4.25-$10.15	$	6.18

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17. Derivative Liability

12 Months Ended

Dec. 31, 2016

Derivative Liability

17. Derivative Liability

The Company has issued warrants to purchase shares of Fusion’s common stock in connection with certain debt and equity financing transactions. These warrants are accounted for in accordance with the guidance contained in ASC Topic 815, ‘Derivatives and Hedging’ (“ASC 815”).  For warrant instruments that do not meet an exclusion from derivative accounting, the Company classifies the warrant instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the warrant is exercised or expires, and any change in fair value is recognized in the Company’s statement of operations.  The Company has 584,834 outstanding warrants at December 31, 2016 which provide for a downward adjustment of the exercise price if the Company were to issue common stock at an issuance price or issue convertible debt or equity securities with an exercise price that is less than the exercise price for these warrants. In addition, in connection with the sale of the original notes to the original Praesidian Lenders, the Company issued nominal warrants to the original Praesidian Lenders to purchase an aggregate of 728,333 shares of its common stock.  The fair values of these warrants have been estimated using option pricing and other valuation models, and the quoted market price of Fusion’s common stock.

The following assumptions were used to determine the fair value of the warrants for the year ended December 31, 2016 and 2015:

	Year ended December 31,
	2016		2015
Stock price ($)		1.50		1.88
Adjusted exercise price ($)		1.65		6.25
Risk-free interest rate (%)		1.21-2.23		1.78 - 2.25
Expected volatility (%)		71.40		132.99
Time to maturity (years)		2.0		3.0 - 4.0

During the year ended December 31, 2016, the Company adjusted the valuation of its derivative liability for warrants issued in December 2013 and January 2014 and its valuation of certain warrants exercised during 2015. The amount of the adjustment was a net $772,022 impact on the condensed consolidated statements of operations resulting from the loss on the change in the fair value of the derivative and an additional $338,972 impact to capital in excess of par and $433,050 increase in derivative liability in the condensed consolidated balance sheets (see Note 18). The Company has evaluated these adjustments in accordance with ASC 250-10-S99, SEC Materials (formerly SEC Staff Accounting Bulletin 99, Materiality) and concluded that both quantitatively and qualitatively the adjustments were not material. These adjustments were also evaluated by management in their assessment of internal controls over financial reporting.

In connection with the sale of certain notes to original Praesidian Lenders, Fusion issued nominal warrants to the Praesidian Lenders to purchase an aggregate of 728,333 shares of Fusion’s common stock. On August 28, 2015 these nominal warrants were exercised, and the Company recognized a reduction in the derivative liability of $364,167 with a reclassification to equity.

During the year ended December 31, 2015, warrants to purchase 320,000 shares of Fusion common stock that contained a downward adjustment of the exercise price were modified to remove this provision and thus qualified for equity treatment. As a result, the Company reclassified $0.7 million (the fair value of the derivative liability relative to the modified warrant at the date of the amendment) from the derivative liability into equity.

At December 31, 2016 and 2015, the fair value of the derivative was $0.3 million and $1.0 million, respectively.  For the years ended December 31, 2016 and 2015, the Company recognized a gain on the change in the fair value of this derivative of $0.5 million and $1.8 million, respectively.

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18. Fair Value Disclosures

12 Months Ended

Dec. 31, 2016

Pro forma financial information

18. Fair Value Disclosures

The following table represents the fair value of the liability measured at fair value on a recurring basis, by level within the fair value hierarchy:

	Level 1		Level 2		Level 3		Total
As of December 31, 2016
Current liabilities:
Contingent liability (see note 5)					$	100,000	$	100,000
Non-current liabilities:
Contingent liability (see note 5)					$	836,606	$	836,606
Derivative liability (see note 17)		-		-	$	348,650	$	348,650
As of December 31, 2015
Non-current liabilities:
Derivative liability (see note 17)		-		-	$	953,005	$	953,005

The following table reconciles the changes in the derivative liability categorized within Level 3 of the fair value hierarchy for the years ended December 31, 2016 and 2015:

Balance at December 31, 2014	$	3,839,569
Change for the period:
Change in fair value included in net loss		(1,843,997	)
Modification of warrant contracts reclassified to equity		(678,400	)
Exercise of lenders' warrants		(364,167	)
Balance at December 31, 2015		953,005
Change for the period:
Change in fair value included in net loss		(1,037,405	)
Adjustment for prior issuances and conversion of warrants		433,050
Balance at December 31, 2016	$	348,650

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19. Income Taxes

12 Months Ended

Dec. 31, 2016

Pro forma financial information

19. Income Taxes

The provision (benefit) for income taxes for the years ending December 31, 2016 and 2015 consists of the following:

	2016			2015
Current
Federal	$	-		$	(7,710,000	)
State		60,000			-
		60,000			(7,710,000	)
Deferred
Federal		(1,493,485	)		-
State		(176,000	)		50,000
		(1,669,485	)		50,000
Tax provision (benefit)	$	(1,609,485	)	$	(7,660,000	)

For the years ended December 31, 2016 and 2015, the Company recorded deferred tax liabilities of $1.7 million and $7.7 million, respectively, as a result of intangible assets subject to amortization acquired in business acquisitions that are not amortizable for income tax purposes. As a result of these business combinations, the recording of the deferred tax liabilities resulted in a release of the valuation allowance against the Company’s deferred tax assets of $1.7 million and $7.7 million for the years ended December 31, 2016 and 2015, respectively, with a corresponding income tax benefit. The tax benefit will be realized as the Company amortizes the intangible assets over their estimated useful lives (see Note 5).

The following reconciles the Federal statutory tax rate to the effective income tax rate for the years ended December 31, 2016 and 2015:

	2016			2015
	%			%
Federal statutory rate		(34.0	)		(34.0	)
State net of federal tax		(3.4	)		(3.6	)
Permanent and other items		1.2			1.1
Change in valuation allowance		25.0			(11.8	)
		(11.2	)		(48.3	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realizability of deferred tax assets, Management evaluates whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on Management’s evaluation, it is more likely than not that the deferred tax asset will not be realized and as such a valuation allowance has been recorded as of December 31, 2016 and 2015.

The components of the Company's deferred tax assets and liabilities consist of the following at December 31, 2016 and 2015:

	2016			2015
Deferred income tax assets:
Net operating losses	$	43,292,000		$	32,569,000
Allowance for doubtful accounts		99,000			77,000
Derivative liability		391,000			620,000
Accrued liabilities		910,000			1,037,000
Other		83,000			-
		44,775,000			34,303,000
Deferred income tax liabilities:
Intangible assets		9,943,000			3,305,000
Property and equipment		761,000			1,103,000
Debt discount		-			388,000
		10,704,000			4,796,000
Deferred tax asset, net		34,071,000			29,507,000
Less: valuation allowance		(34,071,000	)		(29,507,000	)
Net deferred tax assets	$	-		$	-

At December 31, 2016 and 2015, the Company had federal net operating loss carryforwards of approximately $122.0 million and $93.0 million, respectively, which expire in varying amounts through December 31, 2036. Pursuant to Code Sec. 382 of the Internal Revenue Code (“the Code”), the utilization of net operating loss carryforwards may be limited as a result of a cumulative change in stock ownership of more than 50% over a three year period. The Company underwent such a change and consequently, the utilization of a portion of the net operating loss carryforwards is subject to certain limitations.

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20. Commitments and Contingencies

12 Months Ended

Dec. 31, 2016

Pro forma financial information

20. Commitments and Contingencies

Operating Leases

The Company has various non-cancelable operating lease agreements for office facilities. A summary of the approximate lease commitments under non-cancelable leases for years ending subsequent to December 31, 2016 are as follows:

Year ending December 31:
2017	$	1,543,787
2018		1,061,075
2019		1,034,249
2020		892,842
2021		283,116
Thereafter		192,673

Rent expense for all operating leases was $1.6 million and $1.8 million for the years ended December 31, 2016 and 2015, respectively.  Certain of the Company’s leases include fixed rent escalation schedules or rent escalations based upon a fixed percentage.  The Company recognizes rent expense (including escalations) on a straight-line basis over the lease term.

Legal Matters

The Company is from time to time involved in claims and legal actions arising in the ordinary course of business.  Management does not expect that the outcome of any such claims or actions will have a material effect on the Company’s liquidity, results of operations or financial condition.  In addition, due to the regulatory nature of the communications industry, the Company periodically receives and responds to various inquiries from state and federal regulatory agencies.  Management does not expect the outcome of any such claims, legal actions or regulatory inquiries to have a material impact on the Company’s liquidity, results of operations or financial condition.

Apptix is currently undergoing a compliance audit for its use of certain software licenses. The audit covers periods prior to the date the Company acquired Apptix, and the Company has accrued approximately $2.9 million based on the preliminary findings of the compliance audit as part of the Apptix purchase price allocation (see notes 5 and 8). In connection with the Apptix transaction, the Company purchased representation and warranty insurance. Subject to applicable deductibles, the Company believes it will be able to recover amounts arising from the audit under this policy. Under limited circumstances, the Company may also seek recourse directly from the seller. There can be no assurances, however, that the Company will be able to recover any amount related to this liability.

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21. Profit Sharing Plan

12 Months Ended

Dec. 31, 2016

Pro forma financial information

21. Profit Sharing Plan

On June 1, 1997, the Company adopted a defined contribution profit sharing plan, which covers all employees who meet certain eligibility requirements.  Contributions to the plan are made at the discretion of the Board of Directors.  No contributions to the profit sharing plan were made for the years ended December 31, 2016 and 2015.

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22. Concentrations

12 Months Ended

Dec. 31, 2016

Pro forma financial information

22. Concentrations

Major Customers

For the years ended December 31, 2016 and 2015, no single customer accounted for more than 10% of the Company’s consolidated revenues or consolidated accounts receivable.    

Geographic Concentrations

The Company’s operations are significantly influenced by economic factors and risks inherent in conducting business in foreign countries, including government regulations, currency restrictions and other factors that may significantly affect management’s estimates and the Company’s performance.

For the years ended December 31, 2016 and 2015, the Company generated approximate revenues from customers as follows:

	2016		2015
United States	$	109,254,707	$	88,526,867
International Customers		12,790,613		13,167,649
	$	122,045,320	$	101,694,516

Revenues by geographic area are based upon the location of the customers.

Credit Risk

The Company maintains its cash balances in high credit quality financial institutions.  The Company’s cash balances may, at times, exceed the deposit insurance limits provided by the Federal Deposit Insurance Corp.

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23. Segment Information

12 Months Ended

Dec. 31, 2016

Pro forma financial information

23. Segment Information

Operating segments are defined under U.S. GAAP as components of an enterprise for which separate financial information is available and evaluated regularly by a company's chief operating decision maker in deciding how to allocate resources and assess performance.

The Company has two reportable segments – “Carrier Services” and “Business Services.”  These segments are organized by the products and services that are sold and the customers that are served.  The Company measures and evaluates its reportable segments based on revenues and gross profit margins.  The Company’s measurement of segment gross profit exclude the Company’s executive, administrative and support costs.   The Company’s segments and their principal activities consist of the following:

Carrier Services

Carrier Services includes the termination of domestic and international carrier traffic utilizing primarily VoIP technology.  VoIP permits a less costly and more rapid interconnection between the Company and international telecommunications carriers, and generally provides better profit margins for the Company than other technologies.  The Company currently interconnects with approximately 370 carrier customers and vendors, and is working to expand its interconnection relationships, particularly with carriers in emerging markets.

Business Services

Through this operating segment, the Company provides cloud communications, cloud connectivity, cloud storage and security solutions to small, medium and large businesses. These services are sold through both the Company’s direct sales force and its partner sales channel, which utilizes the efforts of independent third-party distributors to sell the Company’s products and services. The Business Services segment includes the Company’s acquisition of Apptix effective as of November 14, 2016, TFB effective as of March 31, 2016, RootAxcess effective as of September 30, 2015, and Fidelity effective as of December 8, 2015/February 2016.

Operating segment information for the years ended December 31, 2016 and 2015 is summarized as follows:

	Year ended December 31, 2016
	Carrier Services	Business Services	Corporate and Unallocated*	Consolidated
Revenues	$35,484,101	$86,561,219	$-	$122,045,320
Cost of revenues (exclusive of depreciation and amortization)	33,783,130	34,275,302	-	68,058,432
Gross profit	1,700,971	52,285,917	-	53,986,888
Depreciation and amortization	153,567	12,033,551	909,469	13,096,587
Selling, general and administrative expenses	2,710,880	40,331,439	5,482,604	48,524,923
Impairment charge		-		-
Interest expense	-	(6,442,224)	(299,919)	(6,742,143)
Gain on change in fair value of derivative liability	-	-	265,383	265,383
Loss on extinguishment of debt	-	(214,294)	-	(214,294)
Other income (expenses)	-	36,763	(36,895)	(132)
Income tax benefit	-	1,609,485	-	1,609,485
Net loss	$(1,163,476)	$(5,089,343)	$(6,463,504)	$(12,716,323)
Total assets	$6,265,402	$125,766,812	$-	$132,032,214
Capital expenditures	$-	$4,766,214	$-	$4,766,214

	Year ended December 31, 2015
	Carrier Services	Business Services	Corporate and Unallocated*	Consolidated
Revenues	$35,521,679	$66,172,837	$-	$101,694,516
Cost of revenues (exclusive of depreciation and amortization)	32,596,384	24,127,737	-	56,724,121
Gross profit	2,925,295	42,045,100	-	44,970,395
Depreciation and amortization	185,397	12,359,821	430,763	12,975,981
Selling, general and administrative expenses	4,412,087	32,810,336	3,786,685	41,009,107
Interest expense	(99,010)	(5,757,609)	(206,304)	(6,062,923)
Gain on change in fair value of derivative liability	-	-	1,843,997	1,843,997
Loss on extinguishment of debt	(182,083)	(2,538,272)	-	(2,720,355)
Other income (expenses)	875,067	(818,544)	7,090	63,613
Income tax benefit	-	7,660,536	-	7,660,536
Net loss	$(1,078,215)	$(4,578,945)	$(2,572,665)	$ (8,229,825)
Total assets	$ 4,703,799	$98,547,943	$2,500,524	$105,752,266
Capital expenditures	$ 73,115	$3,367,335	$-	$ 3,440,450

*The Company employs executive, administrative, human resources, and finance resources that service both the Carrier Services and Business Services segments.  The amounts reflected as Corporate & Unallocated represent those operating expenses, assets and capital expenditures that were not allocated to a business segment or product line.

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24. Related Party Transactions

12 Months Ended

Dec. 31, 2016

Pro forma financial information

24. Related Party Transactions

Since March 6, 2014, the Company has engaged a third party tax advisor to prepare its tax returns and to provide related tax advisory services. The Company paid this firm approximately $135,000 and $155,000 for the years ended December 31, 2016 and 2015, respectively. Larry Blum, a member of Fusion’s Board of Directors, is a Senior Advisor and a former partner of the Company’s outside tax advisor.

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2. Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2016

Significant Accounting Policies Policies

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the consolidated accounts of Fusion and its wholly-owned subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S GAAP”) and in accordance with Regulation S-X of the Securities and Exchange Commission (the “SEC”). All intercompany balances and transactions have been eliminated in consolidation.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to recognition of revenue, allowance for doubtful accounts; fair value measurements of its financial instruments; useful lives of its long-lived assets used in computing depreciation and amortization; impairment assessment of goodwill and intangible assets; accounting for stock options and other equity awards, particularly related to fair value estimates, accounting for income taxes, contingencies, and litigation. Changes in the facts or circumstances underlying these estimates could result in material changes, and actual results could differ from those estimates. These changes in estimates are recognized in the period they are realized.

Reclassifications

Certain reclassifications have been made to the prior year’s financial statements in order to conform to the current year’s presentation. Specifically, approximately $1.2 million of deferred loan costs that had been included within Other assets on the Company’s consolidated balance sheets is now retrospectively reflected for all periods presented as a reduction to the carrying amount of the underlying debt upon the adoption of ASU 2015-03, and the amounts due to the Root Axcess seller are now reflected in Obligations under asset purchase agreements. In addition, the loss on disposal of property and equipment of approximately $37,000 is now separately identified from Other income (expense) in the accompanying consolidated statement of operations. The reclassifications had no impact on results of operations as previously reported.

Cash and Cash Equivalents

Cash and cash equivalents include cash on deposit and short-term, highly-liquid investments with maturities of three months or less at the date of purchase. As of December 31, 2016 and 2015, the carrying value of cash and cash equivalents approximates fair value due to the short period of time to maturity.

Restricted Cash

Restricted cash consists of certificates of deposit that serve to collateralize outstanding letters of credit.  Restricted cash is recorded as current or non-current assets in the consolidated balance sheets depending on the duration of the restriction and the purpose for which the restriction exists.

At December 31, 2016 and 2015, the Company had certificates of deposit collateralizing a letter of credit aggregating to approximately $27,000 and $165,000, respectively. The letter of credit is required as security for one of the Company’s non-cancelable operating leases for office facilities.

Under the terms of the Company’s Amended and Restated Secured Credit Agreement, dated as of December 8, 2015 with Opus Bank (the “Amended Credit Facility”) and the Fourth Amended and Restated Securities Purchase Agreement and Security Agreement, dated as of December 8, 2015, with Praesidian Capital Opportunity Find III, LP and other lenders (the “Fourth Amended SPA”), the Company is no longer required to maintain a cash reserve of $1 million.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of a sale arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed and determinable, and collectability is reasonably assured.  The Company records provisions against revenue for billing adjustments, which are based upon estimates derived from factors that include, but are not limited to, historical results, analysis of credits issued and current economic trends.  The provisions for revenue adjustments are recorded as a reduction of revenue when the revenue is recognized. Below is a summary of the provisions against revenue for the years ended December 31, 2016 and 2015:

	Balance at Beginning of Period		Additions to Reserve		Posted Credits and other Adjustments		Balance at End of Period
Year ended December 31, 2016	$	223,045		2,494,986		2,415,951	$	302,080
Year ended December 31, 2015	$	312,187		1,852,168		1,941,310	$	223,045

The Company’s Business Services revenue includes fixed revenue earned from monthly recurring services provided to customers, for whom charges are contracted for over a specified period of time, and from variable usage fees charged to customers that purchase the Company’s Business Services products and services.  Revenue recognition commences after the provisioning, testing and acceptance of the service by the customer.  The recurring customer charges continue until the expiration of the contract, or until cancellation of the service by the customer.  To the extent that payments received from a customer are related to a future period, the payment is recorded as deferred revenue until the service is provided or the usage occurs.

Carrier Services revenue is primarily derived from usage fees charged to other carriers that terminate voice traffic over the Company’s network.  Variable revenue is earned based on the length of a call, as measured by the number of minutes of duration. It is recognized upon completion of the call, and is adjusted to reflect the Company’s allowance for billing adjustments.  Revenue for each customer is calculated from information received through the Company’s network switches.  The Company’s customized software tracks the information from the switches and analyzes the call detail records against stored detailed information about revenue rates.  This software provides the Company with the ability to complete a timely and accurate analysis of revenue earned in a period.  The Company believes that the nature of this process is such that recorded revenues are unlikely to be revised in future periods.

Cost of Revenues

Cost of revenues for the Company’s Business Services segment consist of fixed expenses which include monthly recurring charges associated with certain platform services purchased from other service providers, monthly recurring costs associated with private line services and the cost of broadband Internet access used to provide service to business customers.

For the Company’s Carrier Services segment, cost of revenues is comprised primarily of costs incurred from other carriers to originate, transport, and terminate voice calls for the Company’s carrier customers.  Thus, the majority of the Company’s cost of revenues for this segment is variable, based upon the number of minutes actually used by the Company’s customers and the destinations they are calling.  Call activity is tracked and analyzed with customized software that analyzes the traffic flowing through the Company’s network switch.  During each period, the call activity is analyzed and an accrual is recorded for the costs associated with minutes not yet invoiced.  This cost accrual is calculated using minutes from the system and the variable cost of revenue based upon predetermined contractual rates.  Fixed expenses reflect the costs associated with connectivity between the Company’s network infrastructure, including its New Jersey switching facility, and certain large carrier customers and vendors.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable is recorded net of an allowance for doubtful accounts.  On a periodic basis, the Company evaluates accounts receivable and records an allowance for doubtful accounts based on the Company’s history of past write-offs, collections experience and current credit conditions.  Specific customer accounts are written off as uncollectible when collection efforts have been exhausted and payments are not expected to be received.  During the periods presented, the Company has not experienced any significant defaults on its accounts receivable.

Below is a summary of the changes in allowance for doubtful accounts for the years ended December 31, 2016 and 2015 (in thousands): 

	Balance at Beginning of Period		Additions - Charged to Expense		Deductions - Write-offs, Payments and other Adjustments		Balance at End of Period
Year ended December 31, 2016	$	309		388		270	$	427
Year ended December 31, 2015	$	245		435		371	$	309

Business Combinations

Business combinations are accounted for using the purchase method of accounting, whereby the purchase price of the acquisition, including the fair value of contingent consideration, is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. The results of operations of all business acquisitions are included in our Consolidated Financial Statements from the date of acquisition.

Goodwill as of the acquisition date, if any, is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, to the extent the Company identifies adjustments to the purchase price or the purchase price allocation, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

All transaction costs incurred in connection with a business combination are expensed as incurred and are reflected in selling, general and administrative expense in the accompanying consolidated statements of operations.

Debt Issuance Costs

Costs incurred for the issuance of debt are reflected as a reduction in the carrying amount of the debt and are accreted as interest expense over the life of the debt using the interest method.

Goodwill

Goodwill is the excess of the acquisition cost of a business combination over the fair value of the identifiable net assets acquired. Goodwill at December 31, 2016 and 2015 was $36.7 million and $27.1 million, respectively.  All of the Company’s goodwill is attributable to its Business Services segment.  

The following table presents the changes in the carrying amounts of goodwill during the years ended December 31, 2016 and 2015:

Balance at December 31, 2014	$	10,397,460
RootAxcess acquisition*		159,866
Fidelity acquisition*		16,502,971
Balance at December 31, 2015		27,060,297
Fidelity purchase price adjustment		134,216
TFB acquisition*		993,637
Apptix acquisition*		7,091,065
TOG acquistion*		410,000
Balance at December 31, 2016	$	35,689,215
* - See note 5 for discussion of acquisitions

Goodwill is not amortized and is tested for impairment on an annual basis in the fourth quarter of each fiscal year and whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit level.  The Company has determined that its reporting units are its operating segments (see Note 23) since that is the lowest level at which discrete, reliable financial and cash flow information is available.  Step one compares the fair value of the reporting unit (calculated using a market approach and/or a discounted cash flow method) to its carrying value.  If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed.  Step two compares the carrying value of the reporting unit’s goodwill to its implied fair value, which is the fair value of the reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets.  If the implied fair value of goodwill is less than its carrying amount, an impairment is recognized.

In testing goodwill for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If the Company elects to perform a qualitative assessment and determines that an impairment is more likely than not, it is then required to perform a quantitative impairment test, otherwise no further analysis is required. The Company also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test.

The Company performed a quantitative impairment analysis on its goodwill as of December 31, 2016 and qualitative evaluation as of December 31, 2015 and determined that goodwill was not impaired.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.  If an impairment indicator is present, the Company evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets.  If the carrying value of the asset exceeds the projected undiscounted cash flows, the Company is required to estimate the fair value of the asset and recognize an impairment charge to the extent that the carrying value of the asset exceeds its estimated fair value.  The Company did not record any impairment charges for the years ended December 31, 2016 and 2015, as there were no indicators of impairment.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets as follows:

Asset	Estimated Useful Lives
Network equipment	5 - 7 Years
Furniture and fixtures	3 - 7 Years
Computer equipment and software	3 - 5 Years
Customer premise equipment	2 - 3 Years

Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the term of the associated lease. Maintenance and repairs are recorded as a period expense, while betterments and improvements are capitalized.

The Company capitalizes a portion of its payroll and related costs for the development of software for internal use and amortizes these costs over three years.  During the years ended December 31, 2016 and 2015, the Company capitalized costs pertaining to the development of internally used software in the amount of $1.2 million and $0.9 million, respectively.

Fair value of financial instruments

We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

● Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

● Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets).

● Level 3 applies to assets or liabilities for which fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including the Company's own assumptions.

The estimated fair value of financial instruments is determined by the Company using available market information and valuation methodologies considered to be appropriate. At December 31, 2016 and 2015, the carrying value of the Company’s accounts receivable, accounts payable and accrued expenses approximate their fair values due to their short maturities.

Derivative Financial Instruments

The Company accounts for equity and equity indexed instruments with down round provisions issued in conjunction with the issuance of debt or equity securities of the Company in accordance with the guidance contained in Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging (“ASC 815”).  For warrant instruments that are not deemed to be indexed to Fusion’s common stock, the Company classifies the warrant instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statements of operations (see notes 17 and 18).  The fair values of the warrants have been estimated using option pricing and other valuation models, and the quoted market price of Fusion’s common stock (see notes 17 and 18).

Stock based compensation

The Company recognizes expense for its employee stock-based compensation based on the fair value of the awards that are granted. The fair values of stock options are estimated at the date of grant using the Black-Scholes option valuation model. The use of the Black-Scholes option valuation model requires the input of subjective assumptions. Measured compensation cost, net of estimated forfeitures, is recognized ratably over the vesting period of the related stock-based compensation award. For transactions in which goods or services are the consideration received from non-employees in return for the issuance of equity instruments, the expense is recognized in the period when the goods and services are received at the fair value of the consideration received or the fair value of the equity instrument issued, whichever is determined to be a more reliable measurement.

Advertising and Marketing

Advertising and marketing expense includes cost for promotional materials and trade show expenses for the marketing of the Company’s products and services.  Advertising and marketing expenses were $0.7 million and $0.5 million for the years ended December 31, 2016 and 2015, respectively.

Income Taxes

The accounting and reporting requirements with respect to income taxes require an asset and liability approach.  Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized.

In accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position.  The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.  Derecognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets.  Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of December 31, 2016 and 2015.  The Company is subject to income tax examinations by major taxing authorities for all tax years since 2012 and for previous periods as it relates to the Company’s net operating loss carryforward.  

No interest expense or penalties have been recognized as of December 31, 2016 and 2015.  During the years ended December 31, 2016 and 2015, the Company recognized no adjustments for uncertain tax positions.

Factoring of accounts receivable

During the year ended December 31, 2015, the Company had a factoring agreement with Prestige Capital Corporation (“Prestige”).  Under the terms of the agreement, upon receipt and acceptance of each transfer of accounts receivable Prestige advanced the Company up to 75% of the net face value of the accounts receivable or 65% of the net face value of any unbilled yet earned amounts associated with the accounts receivable. The Company paid a discount fee which was deducted from the face value of the accounts receivable. The discount fee was based on the number of days the accounts receivable is outstanding from the date of the advance. For the years ended December 31, 2016 and 2015, the Company recognized discount fees on the transfer of the accounts receivable of $0 and approximately $40,000, respectively. These amounts are recorded in Other (expenses) income in the accompanying consolidated statements of operations. During the year ended December 31, 2015, the Company factored $1.8 million of accounts receivable under this agreement. The Prestige agreement was terminated in 2016 and there were no transfers of receivables to Prestige during the year ended December 31, 2016.

In accordance with ASC 860, ‘Transfers and Servicing’, the Company recognizes the accounts receivable and the associated liability when the accounts receivable were transferred to Prestige, and derecognizes the accounts receivable and the liability upon receipt of collections of the transferred receivables by Prestige.

Recently Issued Accounting Pronouncements

In November 2016, the Financial Accounting Standard Board (“FASB”) issued ASU 2016-18, Restricted Cash, which clarifies guidance and presentation related to restricted cash in the statement of cash flows, including stating that restricted cash should be included within cash and cash equivalents in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, with early adoption permitted, and is to be applied retrospectively. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-2, Leases, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. Under ASU 2016-02, lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right –to-use asset, which is an asset that represents the lessee’s right to use or control the use of a specified asset for the lease term. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The updated standard is effective beginning on January 1, 2017 with early application permitted as of the beginning of any interim or annual reporting period. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In September 2015, the FASB issued guidance that eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. This guidance became effective for interim and annual reporting periods beginning after December 15, 2015. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued guidance requiring an entity to present debt issuance costs related to a recognized debt liability as a reduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance became effective for interim and annual reporting periods beginning after December 15, 2015. The Company adopted this guidance retrospectively for all periods presented and reclassified the debt issuance costs in the accompanying consolidated financial statements.

In May 2014, FASB issued guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most recent current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue 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 guidance also specifies the accounting for certain incremental costs of obtaining a contract and costs to fulfill a contract with a customer. Entities have the option of applying either a full retrospective approach to all periods presented or a modified approach that reflects differences prior to the date of adoption as an adjustment to equity. In April 2015, FASB deferred the effective date of this guidance until January 1, 2018 and the Company is currently assessing the impact of this guidance on its consolidated financial statements.

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2. Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2016

Significant Accounting Policies Tables

Provisions Against Revenue

	Balance at Beginning of Period		Additions to Reserve		Posted Credits and other Adjustments		Balance at End of Period
Year ended December 31, 2016	$	223,045		2,494,986		2,415,951	$	302,080
Year ended December 31, 2015	$	312,187		1,852,168		1,941,310	$	223,045

Summary of the changes in allowance for doubtful accounts

	Balance at Beginning of Period		Additions - Charged to Expense		Deductions - Write-offs, Payments and other Adjustments		Balance at End of Period
Year ended December 31, 2016	$	309		388		270	$	427
Year ended December 31, 2015	$	245		435		371	$	309

Business acquisition cost for goodwill

Balance at December 31, 2014	$	10,397,460
RootAxcess acquisition*		159,866
Fidelity acquisition*		16,502,971
Balance at December 31, 2015		27,060,297
Fidelity purchase price adjustment		134,216
TFB acquisition*		993,637
Apptix acquisition*		7,091,065
TOG acquistion*		410,000
Balance at December 31, 2016	$	35,689,215
* - See note 5 for discussion of acquisitions

Estimated useful lives

Asset	Estimated Useful Lives
Network equipment	5 - 7 Years
Furniture and fixtures	3 - 7 Years
Computer equipment and software	3 - 5 Years
Customer premise equipment	2 - 3 Years

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3. Loss per Share (Tables)

12 Months Ended

Dec. 31, 2016

Loss Per Share Tables

Computation of basic and diluted net loss per share

	Year Ended December 31,
	2016			2015
Numerator
Net loss	$	(12,716,323	)	$	(8,229,825	)
Undeclared dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock		( 404,706	)		(403,600	)
Dividends declared on Series B-2 Convertible Preferred Stock		(1,983,301	)		(1,174,620	)
Gain on derivative warrants		-			(1,930,083	)
Net loss attributable to common stockholders	$	(15,104,330	)	$	(11,738,128	)
Denominator
Basic and diluted weighted average common shares outstanding		15,406,184			8,873,766
Loss per share
Basic and diluted	$	(0.98	)	$	(0.92	)

Shares excluded from the calculation of diluted earnings per share

	For the Year Ended December 31,
	2016		2015
Warrants		2,902,862		3,011,760
Convertible preferred stock		2,628,389		3,825,942
Stock options		2,183,723		1,158,251
		7,714,974		7,995,953

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4. Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2016

Stock-based Compensation Tables

Stock Option Activity

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contract Term
Outstanding at December 31, 2014		607,877		$	8.00	8.08 years
Granted		614,730			2.44
Exercised		-			-
Forfeited		( 53,280	)		3.81
Expired		( 11,076	)		32.71
Outstanding at December 31, 2015		1,158,251			4.96	8.43 years
Granted		1,135,650			1.31
Exercised		-			-
Forfeited		( 89,826	)		2.51
Expired		( 20,352	)		69.46
Outstanding at December 31, 2016		2,183,723			2.56	8.56 years
Exercisable at December 31, 2016		689,963			4.52	6.85 years

Black-Scholes option-pricing model

	Year Ended December 31,
	2016			2015
Dividend yield		0.0	%		0.0	%
Expected volatility		92.40	%		132.99	%
Average Risk-free interest rate (%)		1.21-2.23			1.78-2.25
Expected life of stock option term (years)		6.86-8.00			8.43

Stock Options Outstanding

Stock Options Outstanding									Stock Options Exercisable
Range of Exercise Prices		Options Outstanding		Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Aggregate intrinsic Value				Options Exercisable	Weighted Average Remaining Contractual Life (Years)		Weighted Average Price	Aggregate intrinsic Value
$1.26 to $1.91	1,130,250		9.64		$1.31			-				-	$-
$1.93 to $2.94	421,950		8.73		2.14			186,995				8.71	2.12
$3.00 to $4.50	496,813		7.22		3.83			375,818				7.00	3.91
$4.70 to $7.50	106,440		4.69		5.89			98,880				4.50	5.84
$9.00 to $15.50	15,530		1.25		15.43			15,530				1.25	15.43
$19.50 to $34.50	12,730		0.25		34.38			12,730				0.25	34.38
$37.50 to $37.50	10		0.31		37.50			10				0.31	37.50
	2,183,723		8.56		2.56		$242,945	689,963				6.85	4.52		$196,587

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5. Acquisitions (Tables)

12 Months Ended

Dec. 31, 2016

Acquisitions Tables

Purchase price allocated to the fair value of the net assets

Apptix

Cash	$	67,071
Accounts receivable		2,207,024
Prepaid expenses and other current assets		620,270
Property and equipment		2,878,877
Deferred tax liability		( 1,633,853	)
Covenant not to compete		1,417,000
Customer contracts		20,948,000
Accrued liabilities		( 6,904,479	)
Goodwill		7,091,065
Total purchase price	$	26,690,975

Technology for Business

Accounts receivable, net	$	80,845
Prepaid expenses and other current assets		5,535
Proprietary technology		889,000
Covenant not to compete		8,000
Customer contracts		99,000
Current liabilities		( 687,130	)
Accrued royalty		( 1,111,606	)
Goodwill		993,637
Total cash purchase price	$	277,281

Fidelity

Cash	$	503,059
Accounts receivable, net		273,809
Prepaids		44,735
Property and equipment		1,111,699
Covenant not to compete		618,000
Customer contracts		19,243,000
Accrued liabilities		(692,606	)
Deferred tax liability		(7,710,536	)
Goodwill		16,502,971
Total purchase price	$	29,894,133

RootAxcess

Covenant not to compete	$	232,943
Customer contracts/relationships		747,381
Fixed assets acquired		59,810
Goodwill		159,866
Purchase price	$	1,200,000

Pro forma financial information

Apptix

	2016			2015
Revenues	$	141.3		$	136.1
Net loss	$	(16.5	)	$	(16.6	)

Fidelity

	2015
Revenues	$	119.2
Net loss	$	(6.9	)

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6. Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2016

Intangible Assets Tables

Identifiable intangible assets

	December 31, 2016							December 31, 2015
	Gross Carrying Amount		Accumulated Amortization			Total		Gross Carrying Amount		Accumulated Amortization			Total
Trademarks and tradename	$	1,093,400	$	(501,982	)	$	591,418	$	1,093,400	$	(331,651	)	$	761,749
Proprietary technology		6,670,000		(4,036,915	)		2,633,085		5,781,000		(2,756,433	)		3,024,567
Non-compete agreement		12,128,043		(9,891,892	)		2,236,151		10,703,043		(9,220,255	)		1,482,788
Customer relationships		65,948,181		(7,827,697	)		58,120,484		44,888,181		(4,412,819	)		40,475,362
Favorable lease intangible		218,000		(181,667	)		36,333		218,000		(138,067	)		79,933
Total acquired intangibles	$	86,057,624	$	(22,440,153	)	$	63,617,471	$	62,683,624	$	(16,859,225	)	$	45,824,399

Estimated future aggregate amortization expense

Year	Amortization Expense
2017	$	8,471,187
2018		6,425,463
2019		5,441,731
2020		5,401,348
2021		5,226,981

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7. Prepaid Expenses and Other Current Assets (Tables)

12 Months Ended

Dec. 31, 2016

Prepaid Expenses And Other Current Assets Tables

Prepaid expenses and other current assets

	2016		2015
Insurance	$	160,262	$	93,040
Rent		5,389		101,916
Marketing		74,665		109,455
Software subscriptions		419,431		498,078
Due from seller of Fidelity		-		425,963
Due from factoring party		-		26,018
Due from seller of TOG		75,975		-
Comisssions		159,146		20,805
Other		265,316		343,328
Total	$	1,160,184	$	1,618,603

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8. Accounts Payable and Accrued Expenses (Tables)

12 Months Ended

Dec. 31, 2016

Accounts Payable And Accrued Expenses Tables

Accounts payable and accrued expenses

	2016		2015
Trade accounts payable	$	6,358,548	$	1,101,393
Accrued license fees		2,881,331		-
Accrued sales and federal excise taxes		2,863,363		2,204,098
Deferred revenue		1,874,641		1,157,036
Accrued network costs		1,416,000		3,423,483
Accrued sales commissions		819,106		981,121
Property and other taxes		581,956		534,388
Accrued payroll and vacation		421,733		555,493
Customer deposits		365,249		358,227
Interest payable		304,409		32,221
Credit card payable		265,985		384,257
Accrued USF fees		249,825		494,852
Accrued bonus		249,361		700,000
Professional and consulting fees		164,878		274,205
Rent		127,781		82,894
Other		778,672		845,557
Total	$	19,722,838	$	13,129,225

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9. Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2016

Property And Equipment Tables

Schedule of property and equipment

	2016			2015
Network equipment	$	13,716,468		$	7,875,478
Furniture and fixtures		421,689			292,451
Computer equipment and software		5,868,370			7,290,577
Customer premise equipment		9,695,643			9,121,788
Vehicles		55,884			55,884
Leasehold improvements		1,188,207			1,073,631
Assets in progress		383,137			190,749
Total		31,329,398			25,900,558
Less: accumulated depreciation		(17,080,483	)		(11,845,065	)
Total	$	14,248,915		$	14,055,493

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10. Equipment Financing Obligations (Tables)

12 Months Ended

Dec. 31, 2016

Pro forma financial information

Schedule of equipment financing obligations

	December 31,			December 31,
	2016			2015
Equipment financing obligations	$	2,239,661		$	3,044,796
Less: current portion		(1,002,578	)		(959,380	)
Long-term portion	$	1,237,083		$	2,085,416

Principal payments under capital lease agreements

Year ending December 31:	Principal
2017	$	1,002,578
2018		958,845
2019		268,044
2020		10,194
	$	2,239,661

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11. Supplemental Disclosure of Cash Flow Information (Tables)

12 Months Ended

Dec. 31, 2016

Supplemental Disclosure Of Cash Flow Information Tables

Supplemental Disclosure of Cash Flow Information

Supplemental Cash Flow Information	2016		2015
Cash paid for interest	$	5,806,910	$	5,064,880
Cash paid for income taxes	$	-	$	-
Supplemental Non-Cash Investing and Financing Activities
Property and equipment acquired under capital leases	$	188,497	$	1,440,816
Dividend on Series B-2 preferred stock paid with the issuance of Fusion common stock	$	1,983,301	$	1,174,620
Obligations under asset purchase agreements	$	1,521,606	$	633,333
Equipment received in exchange for settlement of accounts receivable	$	-	$	105,570
Common stock issued for acquisitions	$	3,627,490	$	1,500,000
Common stock issued in settlement of debt - related party	$	-	$	300,000
Common stock issued in lieu of cash bonus	$	-	$	25,000
Common stock issued to settle oustanding accounts payable	$	-	$	11,877

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13. Secured Credit Facilities (Tables)

12 Months Ended

Dec. 31, 2016

Secured Credit Facilities Tables

Secured credit facilities

	December 31,			December 31,
	2016			2015
Term loan	$	65,000,000		$	25,000,000
Less:
Deferred financing fees		(1,289,629	)		(271,238	)
Current portion		(2,979,167	)
Term loan - long-term portion	$	60,731,204		$	24,728,762
Indebtedness under revolving credit facility	$	3,000,000		$	15,000,000

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14. Notes Payable Non-Related Parties (Tables)

12 Months Ended

Dec. 31, 2016

Notes Payable Non-related Parties Tables

Components of notes payable non-related parties

	December 31,			December 31,
	2016			2015
Subordinated notes	$	33,588,717		$	34,160,200
Discount on subordinated notes		(1,368,629	)		(1,697,091	)
Deferred financing fees		(788,486	)		(981,553	)
Total notes payable - non-related parties		31,431,602			31,481,556
Less: current portion		-			(685,780	)
Long-term portion	$	31,431,602		$	30,795,776

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15. Notes Payable Related Parties (Tables)

12 Months Ended

Dec. 31, 2016

Debt discount

Component of notes payable related party

	December 31,			December 31,
	2016			2015
Notes payable to Marvin Rosen	$	928,081		$	1,178,081
Discount on notes		(52,331	)		(103,252	)
Total notes payable - related parties	$	875,750		$	1,074,829

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16. Equity Transactions (Tables)

12 Months Ended

Dec. 31, 2016

Equity Transactions Tables

Schedule of preferred stock

	Series A-1				Series A-2				Series A-4				Series B-2						Total
	Shares		$		Shares		$		Shares		$		Shares			$			Shares			$
Balance at December 31, 2014		2,375	$	24		2,625	$	26		45	$	-		21,748		$	218			26,793		$	268
Conversion of preferred stock into common stock		-		-		-		-		-		-		(3,469	)		(34	)		(3,469	)		(34	)
Balance at December 31, 2015		2,375		24		2,625		26		45		-		18,279			184			23,324			234
Conversion of preferred stock into common stock		-		-		-		-		-		-		(6,025	)		(60	)		(6,025	)		(60	)
Balance at December 31, 2016		2,375	$	24		2,625	$	26		45	$	-		12,254		$	124			17,299		$	174

Schedule of warrants

	Number of Warrants			Per share Exercise Price		Weighted Average Exercise Price
Outstanding at December 31, 2014		4,165,108		$	0.50 to $10.50	$	5.48
Granted in 2015		-			-
Exercised in 2015		(728,333	)	$	0.50	$	0.50
Expired in 2015		(425,011	)	$	7.00 to $10.50	$	9.30
Outstanding at December 31, 2015		3,011,764		$	3.95 to $10.15	$	6.14
Granted in 2016		-			-
Exercised in 2016		-			-
Expired		(105,198	)	$	4.00-$7.00	$	5.00
Outstanding at December 31, 2016		2,906,566		$	4.25-$10.15	$	6.18

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17. Derivative Liability (Tables)

12 Months Ended

Dec. 31, 2016

Derivative Liability Tables

Assumptions were used to determine the fair value of the warrants

	Year ended December 31,
	2016		2015
Stock price ($)		1.50		1.88
Adjusted exercise price ($)		1.65		6.25
Risk-free interest rate (%)		1.21-2.23		1.78 - 2.25
Expected volatility (%)		71.40		132.99
Time to maturity (years)		2.0		3.0 - 4.0

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18. Fair Value Disclosures (Tables)

12 Months Ended

Dec. 31, 2016

Abandonment of common stock, Amount

Fair value of the liability measured at fair value on a recurring basis

	Level 1		Level 2		Level 3		Total
As of December 31, 2016
Current liabilities:
Contingent liability (see note 5)					$	100,000	$	100,000
Non-current liabilities:
Contingent liability (see note 5)					$	836,606	$	836,606
Derivative liability (see note 17)		-		-	$	348,650	$	348,650
As of December 31, 2015
Non-current liabilities:
Derivative liability (see note 17)		-		-	$	953,005	$	953,005

Changes in the derivative liability

Balance at December 31, 2014	$	3,839,569
Change for the period:
Change in fair value included in net loss		(1,843,997	)
Modification of warrant contracts reclassified to equity		(678,400	)
Exercise of lenders' warrants		(364,167	)
Balance at December 31, 2015		953,005
Change for the period:
Change in fair value included in net loss		(1,037,405	)
Adjustment for prior issuances and conversion of warrants		433,050
Balance at December 31, 2016	$	348,650

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19. Income Taxes (Tables)

12 Months Ended

Dec. 31, 2016

Income Taxes Tables

Schedule of provision for income taxes

	2016			2015
Current
Federal	$	-		$	(7,710,000	)
State		60,000			-
		60,000			(7,710,000	)
Deferred
Federal		(1,493,485	)		-
State		(176,000	)		50,000
		(1,669,485	)		50,000
Tax provision (benefit)	$	(1,609,485	)	$	(7,660,000	)

Schedule of Federal statutory tax rate

	2016			2015
	%			%
Federal statutory rate		(34.0	)		(34.0	)
State net of federal tax		(3.4	)		(3.6	)
Permanent and other items		1.2			1.1
Change in valuation allowance		25.0			(11.8	)
		(11.2	)		(48.3	)

Schedule of deferred tax assets and liability

	2016			2015
Deferred income tax assets:
Net operating losses	$	43,292,000		$	32,569,000
Allowance for doubtful accounts		99,000			77,000
Derivative liability		391,000			620,000
Accrued liabilities		910,000			1,037,000
Other		83,000			-
		44,775,000			34,303,000
Deferred income tax liabilities:
Intangible assets		9,943,000			3,305,000
Property and equipment		761,000			1,103,000
Debt discount		-			388,000
		10,704,000			4,796,000
Deferred tax asset, net		34,071,000			29,507,000
Less: valuation allowance		(34,071,000	)		(29,507,000	)
Net deferred tax assets	$	-		$	-

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20. Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2016

Commitments And Contingencies Tables

Schedule of Commitments and Contingencies

Year ending December 31:
2017	$	1,543,787
2018		1,061,075
2019		1,034,249
2020		892,842
2021		283,116
Thereafter		192,673

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22. Concentrations (Tables)

12 Months Ended

Dec. 31, 2016

Concentrations Tables

Schedule of Geographic Concentrations

	2016		2015
United States	$	109,254,707	$	88,526,867
International Customers		12,790,613		13,167,649
	$	122,045,320	$	101,694,516

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23. Segment Information (Tables)

12 Months Ended

Dec. 31, 2016

Segment Information Tables

Operating segment information

	Year ended December 31, 2016
	Carrier Services	Business Services	Corporate and Unallocated*	Consolidated
Revenues	$35,484,101	$86,561,219	$-	$122,045,320
Cost of revenues (exclusive of depreciation and amortization)	33,783,130	34,275,302	-	68,058,432
Gross profit	1,700,971	52,285,917	-	53,986,888
Depreciation and amortization	153,567	12,033,551	909,469	13,096,587
Selling, general and administrative expenses	2,710,880	40,331,439	5,482,604	48,524,923
Impairment charge		-		-
Interest expense	-	(6,442,224)	(299,919)	(6,742,143)
Gain on change in fair value of derivative liability	-	-	265,383	265,383
Loss on extinguishment of debt	-	(214,294)	-	(214,294)
Other income (expenses)	-	36,763	(36,895)	(132)
Income tax benefit	-	1,609,485	-	1,609,485
Net loss	$(1,163,476)	$(5,089,343)	$(6,463,504)	$(12,716,323)
Total assets	$6,265,402	$125,766,812	$-	$132,032,214
Capital expenditures	$-	$4,766,214	$-	$4,766,214

	Year ended December 31, 2015
	Carrier Services	Business Services	Corporate and Unallocated*	Consolidated
Revenues	$35,521,679	$66,172,837	$-	$101,694,516
Cost of revenues (exclusive of depreciation and amortization)	32,596,384	24,127,737	-	56,724,121
Gross profit	2,925,295	42,045,100	-	44,970,395
Depreciation and amortization	185,397	12,359,821	430,763	12,975,981
Selling, general and administrative expenses	4,412,087	32,810,336	3,786,685	41,009,107
Interest expense	(99,010)	(5,757,609)	(206,304)	(6,062,923)
Gain on change in fair value of derivative liability	-	-	1,843,997	1,843,997
Loss on extinguishment of debt	(182,083)	(2,538,272)	-	(2,720,355)
Other income (expenses)	875,067	(818,544)	7,090	63,613
Income tax benefit	-	7,660,536	-	7,660,536
Net loss	$(1,078,215)	$(4,578,945)	$(2,572,665)	$ (8,229,825)
Total assets	$ 4,703,799	$98,547,943	$2,500,524	$105,752,266
Capital expenditures	$ 73,115	$3,367,335	$-	$ 3,440,450

*The Company employs executive, administrative, human resources, and finance resources that service both the Carrier Services and Business Services segments.  The amounts reflected as Corporate & Unallocated represent those operating expenses, assets and capital expenditures that were not allocated to a business segment or product line.

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2. Significant Accounting Policies (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Significant Accounting Policies Details
Provision against revenue, beginning	$ 223,045	$ 312,187
Additions - charged to reserve	2,494,986	1,852,168
Posted Credits and other adjustments	2,415,951	1,941,310
Provision against revenue, ending	$ 302,080	$ 223,045

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2. Significant Accounting Policies (Details 1) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Significant Accounting Policies Details 1
Allowance for doubtful accounts, beginning	$ 309	$ 245
Additions - charged to expense	388	435
Deductions - Write-offs, Payments and Other Adjustments	270	371
Allowance for doubtful accounts, ending	$ 427	$ 309

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2. Significant Accounting Policies (Details 2) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Significant Accounting Policies Details 2
Beginning balance, goodwill	$ 27,060,297	$ 10,397,460
Root Axcess acquisition		159,866
Fidelity acquisition		16,502,971
Fidelity purchase price adjustment	134,216
TFB acquisition	993,637
Apptix acquisition	7,091,065
TOG acquistion	410,000
Ending balance, goodwill	$ 35,689,215	$ 27,060,297

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2. Significant Accounting Policies (Details 3)	12 Months Ended
	Dec. 31, 2016
Network equipment [Member] | Minimum [Member]
Estimated useful lives of property and equipment	5 years
Network equipment [Member] | Maximum [Member]
Estimated useful lives of property and equipment	7 years
Furniture and fixtures [Member] | Minimum [Member]
Estimated useful lives of property and equipment	3 years
Furniture and fixtures [Member] | Maximum [Member]
Estimated useful lives of property and equipment	7 years
Computer equipment and software [Member] | Minimum [Member]
Estimated useful lives of property and equipment	3 years
Computer equipment and software [Member] | Maximum [Member]
Estimated useful lives of property and equipment	5 years
Customer premise equipment [Member] | Minimum [Member]
Estimated useful lives of property and equipment	2 years
Customer premise equipment [Member] | Maximum [Member]
Estimated useful lives of property and equipment	3 years

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2. Significant Accounting Policies (Details Narrative ) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Significant Accounting Policies Details Narrative
Deferred loan costs	$ 1,200,000
Certificate of deposit collateralizing a letter of credit	27,000	$ 165,000
Cash reserve	1,000,000
Goodwill	35,689,215	27,060,297	$ 10,397,460
Capitalized costs pertaining to development of software	1,200,000	911,000
Advertising and marketing expenses	700,000	500,000
Derecognized accounts receivable	$ 0	$ 40,000

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3. Loss Per Share (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Numerator
Net loss	$ (12,716,323)	$ (8,229,825)
Undeclared dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock	(404,706)	(403,600)
Dividends declared on Series B-2 Convertible Preferred Stock	(1,983,301)	(1,174,620)
Gain on derivative warrants	0	(1,930,083)
Net loss attributable to common stockholders	$ (15,104,330)	$ (11,738,128)
Denominator
Basic and diluted weighted average common shares outstanding	15,406,184	8,873,766
Loss per share
Basic and diluted	$ (.98)	$ (1.32)

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3. Loss Per Share (Details 1) - shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Antidilutive Shares	7,714,974	7,995,953
Warrant
Antidilutive Shares	2,902,862	3,011,760
Convertible Preferred Stock
Antidilutive Shares	2,628,389	3,825,942
Stock Options
Antidilutive Shares	2,183,723	1,158,251

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3. Loss Per Share (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Loss Per Share Details Narrative
Derivative liability		$ 1,900,000
Series A-1 Preferred Stock	$ 4,700,000
Series A1, A-2 and A4 Preferred Stock	400,000	400,000
Declared dividend	$ 2,000,000	$ 1,200,000

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4. Stock-Based Compensation (Details) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Summarizes the stock option activity
Outstanding Beginning Balance, Number of Options	1,158,251	607,877
Granted, Number of Options	1,135,650	614,730
Forfeitures, Number of Options	(89,826)	(53,280)
Expirations, Number of Options	20,352	11,076
Outstanding Ending Balance, Number of Options	2,183,723	1,158,251
Exercisable Ending Balance, Number of Options	689,963	1,135,650
Outstanding Beginning Balance, Weighted Average Exercise Price	$ 4.96	$ 8.00
Granted, Weighted Average Exercise Price	1.31	2.44
Forfeitures, Weighted Average Exercise Price	2.51	3.81
Cancelled or expired, Weighted Average Exercise Price	69.46	32.71
Outstanding Ending Balance, Weighted Average Exercise Price	2.56	4.96
Exercisable Ending Balance, Weighted Average Exercise Price	$ 4.52	$ 4.96
Weighted Average Remaining Contractual Life (in years) Outstanding	8 years 6 months 22 days	8 years 5 months 5 days
Weighted Average Remaining Contractual Life (in years) Exercisable	6 years 10 months 6 days	6 years 4 months 24 days

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4. Stock-Based Compensation (Details 1)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Dividend yield (%)	0.00%	0.00%
Expected volatility (%)	92.40%	132.99%
Average Risk-free interest rate (%), minimum	1.21%	1.78%
Average Risk-free interest rate (%), maximum	2.23%	2.25%
Expected life of stock option term (years)		8 years 5 months 5 days
Minimum [Member]
Expected life of stock option term (years)	6 years 10 months 10 days
Maximum [Member]
Expected life of stock option term (years)	8 years

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4. Stock-Based Compensation (Details 2) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Options Outstanding	2,183,723
Weighted Average Life (Years)	8 years 6 months 22 days	8 years 5 months 5 days
Weighted Average Exercise Price	2.56
Aggregate intrinsic Value	$ 242,945
Options Exercisable	689,963
Weighted Average Life (Years)	6 years 10 months 6 days	6 years 4 months 24 days
Option Exercisable, Weighted Average Price	$ 4.52
Aggregate intrinsic Value	$ 196,587
1.26-1.91 member
Options Outstanding	1,130,250
Weighted Average Life (Years)	9 years 7 months 21 days
Weighted Average Exercise Price	1.31
Options Exercisable	0
Weighted Average Life (Years)	0 years
Option Exercisable, Weighted Average Price	$ 0.00
1.93-2.94 member
Options Outstanding	421,950
Weighted Average Life (Years)	8 years 8 months 23 days
Weighted Average Exercise Price	2.14
Options Exercisable	186,995
Weighted Average Life (Years)	8 years 8 months 16 days
Option Exercisable, Weighted Average Price	$ 2.12
3.00-4.50 member
Options Outstanding	496,813
Weighted Average Life (Years)	7 years 2 months 19 days
Weighted Average Exercise Price	3.83
Options Exercisable	375,818
Weighted Average Life (Years)	7 years
Option Exercisable, Weighted Average Price	$ 3.91
4.70 -7.50 member
Options Outstanding	106,440
Weighted Average Life (Years)	4 years 8 months 9 days
Weighted Average Exercise Price	5.89
Options Exercisable	98,880
Weighted Average Life (Years)	4 years 6 months
Option Exercisable, Weighted Average Price	$ 5.84
9.00 -15.50 member
Options Outstanding	15,530
Weighted Average Life (Years)	1 year 3 months
Weighted Average Exercise Price	15.43
Options Exercisable	15,530
Weighted Average Life (Years)	1 year 3 months
Option Exercisable, Weighted Average Price	$ 15.43
19.00 -34.50 member
Options Outstanding	12,730
Weighted Average Life (Years)	3 months
Weighted Average Exercise Price	34.38
Options Exercisable	12,730
Weighted Average Life (Years)	3 months
Option Exercisable, Weighted Average Price	$ 34.38
37.50 -37.50 member
Options Outstanding	10
Weighted Average Life (Years)	3 months 22 days
Weighted Average Exercise Price	37.50
Options Exercisable	10
Weighted Average Life (Years)	3 months 22 days
Option Exercisable, Weighted Average Price	$ 37.50

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5. Acquisition (Details)	Dec. 31, 2016 USD ($)
Apptix [Member]
Purchase Price	$ 67,071
Cash	2,207,024
Accounts receivable, net	620,270
Prepaids	2,878,877
Property and equipment	1,417,000
Covenant not to compete	20,948,000
Intangible assets subject to amortization	8,053,974
Goodwill	7,091,065
Deferred tax liability	(1,633,853)
Total purchase price	26,690,975
Fidelity [Member]
Purchase Price	503,059
Cash	273,809
Accounts receivable, net	44,735
Prepaids	1,111,699
Property and equipment	618,000
Covenant not to compete	19,243,000
Intangible assets subject to amortization	16,502,971
Goodwill	(692,606)
Total purchase price	29,894,133
Technology Business [Member]
Cash	80,845
Accounts receivable, net	5,535
Property Technology	889,000
Covenant not to compete	8,000
Customer contracts/relationships	99,000
Current liabilities	(687,130)
Accrued Royalty	(1,111,606)
Goodwill	993,637
Total purchase price	$ 277,281

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5. Acquisition (Details 1) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Apptix [Member]
Revenues	$ 141,300,000	$ 136,100,000
Net loss	$ (17,400,000)	(16,600,000)
Fidelity [Member]
Revenues		119,200,000
Net loss		$ (6,900,000)

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5. Acquisition (Details 2)	Dec. 31, 2016 USD ($)
Acquisition Details 2
Convenant not to compete	$ 232,943
Customer contracts/relationships	747,381
Fixed assets acquired	59,810
Goodwill	159,866
Purchase Price	$ 1,200,000

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5. Acquisition (Details Narrative)	12 Months Ended
	Dec. 31, 2016 USD ($)
Goodwill Increase	$ 500,000
Minimum [Member]
Intangible assets estimated useful lives	5 years
Maximum [Member]
Intangible assets estimated useful lives	15 years

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6. Intangible Assets (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Gross Carrying Amount	$ 86,057,624	$ 62,683,624
Accumulated Amortization	(22,440,153)	(16,859,255)
Total	63,617,471	45,824,399
NBS [Member] | Trademarks and tradename [Member]
Gross Carrying Amount	1,093,400	1,093,400
Accumulated Amortization	(501,982)	(331,651)
Total	591,418	761,749
NBS [Member] | Proprietary technology [Member]
Gross Carrying Amount	6,670,000	5,781,000
Accumulated Amortization	(4,036,915)	(2,756,433)
Total	2,633,085	3,024,567
NBS [Member] | Non-compete agreement [Member]
Gross Carrying Amount	12,128,043	10,703,043
Accumulated Amortization	(9,891,892)	(9,220,255)
Total	2,236,151	1,482,788
NBS [Member] | Customer relationships [Member]
Gross Carrying Amount	65,948,181	44,888,181
Accumulated Amortization	(7,827,697)	(4,412,819)
Total	58,120,484	40,475,362
NBS [Member] | Favorable lease intangible [Member]
Gross Carrying Amount	218,000	218,000
Accumulated Amortization	(181,667)	(138,067)
Total	$ 36,333	$ 79,933

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6. Intangible Assets (Details 1)	Dec. 31, 2016 USD ($)
For the year ended December 31,
2017	$ 8,471,187
2018	6,425,463
2019	5,441,731
2020	5,401,348
2021 and thereafter	$ 5,226,981

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7. Prepaid Expenses and Other Current Assets (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Prepaid expenses and other current assets
Insurance	$ 160,262	$ 93,040
Rent	5,389	101,916
Marketing	74,665	109,455
Software subscriptions	419,431	498,078
Due from seller of Fidelity	0	425,963
Due from factoring party	0	26,018
Due from Seller Of TOG	75,975	0
Commisions	159,146	20,805
Other	265,316	343,328
Total	$ 1,160,184	$ 1,618,603

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8. Accounts Payable and Accrued Expenses (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Accounts Payable And Accrued Expenses Details
Trade accounts payable	$ 6,358,548	$ 1,101,393
Accrued license fees	2,881,331	0
Accrued sales and federal excise taxes	2,863,363	2,204,098
Deferred revenue	1,874,641	1,157,036
Accrued network costs	1,416,000	3,423,483
Accrued sales commissions	819,106	981,121
Property and other taxes	581,956	534,388
Accrued payroll and vacation	421,733	555,493
Customer deposits	365,249	358,227
Interest payable	304,409	32,221
Credit card payable	265,985	384,257
Accrued USF fees	249,825	494,852
Accrued bonus	249,361	700,000
Professional and consulting fees	164,878	274,205
Rent	127,781	82,894
Other	778,672	845,557
Total accounts payable and accrued expenses	$ 19,722,838	$ 13,129,225

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9. Property and Equipment (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Property and Equipment	$ 31,329,398	$ 25,900,558
Less: accumulated depreciation	(17,080,483)	(11,845,065)
Total	14,248,915	14,055,493
Network equipment [Member]
Property and Equipment	13,716,468	7,875,478
Furniture and fixtures [Member]
Property and Equipment	421,689	292,451
Computer equipment and software [Member]
Property and Equipment	5,868,370	7,290,577
Customer premise equipment [Member]
Property and Equipment	9,695,643	9,121,788
Vehicles [Member]
Property and Equipment	55,884	55,884
Leasehold improvements [Member]
Property and Equipment	1,188,207	1,073,631
Assets in progress [Member]
Property and Equipment	$ 383,137	$ 190,749

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9. Property and Equipment (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Property And Equipment Details Narrative
Depreciation expense	$ 7,500,000	$ 5,500,000

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10. Equipment Financing Obligations (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Equipment Financing Obligations Details
Equipment financing obligations	$ 2,239,661	$ 3,044,796
Less: current portion	(1,002,578)	(959,380)
Long-term portion	$ 1,237,083	$ 2,085,416

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10. Equipment Financing Obligations (Details 1) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Year Ending December 31:
2017	$ 1,002,578	$ 959,380
2018	958,845
2019	268,044
2020	10,194
Total	$ 2,239,661	$ 3,044,796

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11. Supplemental Disclosure of Cash Flow Information (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Supplemental Cash Flow Information
Cash paid for interest	$ 5,806,910	$ 5,064,880
Cash paid for income taxes	0	0
Supplemental Non-Cash Investing and Financing Activities
Property and equipment acquired under capital leases	188,497	1,440,816
Dividend on Series B-2 preferred stock paid with the issuance of Fusion common stock	1,983,301	1,174,620
Obligations under asset purchase agreements	1,521,606	633,333
Equipment received in exchange for settlement of accounts receivable	0	105,570
Common stock issued for acquisitions	3,627,490	1,500,000
Common stock issued in settlement of debt - related party	0	300,000
Common stock issued in lieu of cash bonus	0	25,000
Common stock issued to settle outstanding accounts payable	$ 0	$ 11,877

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12. Obligations Under Asset Purchase Agreements (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Obligations Under Asset Purchase Agreements Details Narrative
Payments to sellers	$ 466,665	$ 66,667

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13. Secured Credit Facilities (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Secured Credit Facilities Tables
Term loan	$ 65,000,000	$ 25,000,000
Less Deferred financing fees	(1,289,629)	(271,238)
Less Current portion	(2,979,167)	0
Term loan - long-term portion	60,731,204	24,728,762
Indebtedness under revolving credit facility	$ 3,000,000	$ 15,000,000

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13. Secured Credit Facilities (Details Narrative) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Secured Credit Facilities Details Narrative
Amended Credit Facility		$ 15,000,000
Outstanding Amount Under Revolving Credit Facility	$ 3,000,000	15,000,000
Term Loan		$ 25,000,000

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14. Notes Payable - Non-Related Parties (Details) - NonRelatedParty - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Subordinated Notes	$ 33,588,717	$ 34,160,200
Discount on Subordinated Notes	(1,368,629)	(1,697,091)
Defererd Financing Fees	(788,486)	(981,553)
Total notes payable - non-related parties	31,431,602	31,481,556
Less: Current portion	0	(685,780)
Long-term portion	$ 31,431,602	$ 30,795,776

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15. Notes Payable - Related Party (Details) - RelatedParty - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Notes payable to Marvin Rosen	$ 928,081	$ 1,178,081
Discount on notes	(52,331)	(103,252)
Total notes payable - non-related parties	$ 875,750	$ 1,074,829

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15. Notes Payable - Related Party (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Notes Payable - Related Party Details Narrative
Convertible preferred Shares issued on conversion of New Rosen Notes	217,391	137,615
Convertible Shares issued on conversion of New Rosen Notes, Amount	250,000	300,000
Rosen notes converted into convertible Common stock, Exercise Price		$ 2.18
Interest rate	0.70%	0.70%
Interest expense	$ 100,000	$ 100,000

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16. Equity Transactions (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Series A-1 Preferred Stock
Balance, shares	2,375	2,375
Balance, amount	$ 24	$ 24
Balance, shares	2,375	2,375
Balance, amount	$ 24	$ 24
Series A-2 Preferred Stock
Balance, shares	2,625	2,625
Balance, amount	$ 26	$ 26
Balance, shares	2,625	2,625
Balance, amount	$ 26	$ 26
Series A-4 Preferred Stock
Balance, shares	45	45
Balance, amount	$ 0	$ 0
Balance, shares	45	45
Balance, amount	$ 0	$ 0
Series B-2 Preferred Stock
Balance, shares	18,279	21,748
Balance, amount	$ 184	$ 217
Conversion of preferred stock into common stock, shares	(6,025)	(3,469)
Conversion of preferred stock into common stock, amount	$ (60)	$ (34)
Balance, shares	12,254	18,279
Balance, amount	$ 124	$ 184
Balance, shares	23,324	26,793
Balance, amount	$ 234	$ 268
Conversion of preferred stock into common stock, shares	(6,025)	(3,469)
Conversion of preferred stock into common stock, amount	$ (60)	$ (34)
Issuance of shares for cash. Shares	696,508
Issuance of shares for cash, amount	$ 28,000,000
Balance, shares	17,299	23,324
Balance, amount	$ 174	$ 234

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16. Equity Transactions (Details 1) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Outstanding Beginning Balance, Number of Warrants	3,011,764	4,165,108
Granted, Number of Warrants	0	0
Exercised, Number of Warrants	(105,198)	(728,333)
Expired, Number of Warrants	0	(425,015)
Outstanding Ending Balance, Number of Warrants	2,906,566	3,011,760
Outstanding Beginning Balance, Weighted Average Exercise Price		$ 5.48
Granted, Weighted Average Exercise Price		0.00
Expired, Weighted Average Exercise Price		9.30
Exercised, Weighted Average Exercise Price		0.50
Outstanding Ending Balance, Weighted Average Exercise Price	$ 6.14	6.14
Granted, Warrants Per Share Exercise Price		0.00
Exercised, Warrants Per Share Exercise Price	5.00	0.50
Outstanding Ending Balance, Warrants Per Share Exercise Price	6.18
Minimum [Member]
Outstanding Beginning Balance, Warrants Per Share Exercise Price	3.95	0.50
Expired, Warrants Per Share Exercise Price	4.00	7.00
Outstanding Ending Balance, Warrants Per Share Exercise Price	4.25	3.95
Maximum [Member]
Outstanding Beginning Balance, Warrants Per Share Exercise Price	10.15	10.50
Expired, Warrants Per Share Exercise Price	7.00	10.50
Outstanding Ending Balance, Warrants Per Share Exercise Price	$ 10.15	$ 10.15

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16. Equity Transactions (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Preferred Stock, Par Value	$ 0.01	$ 0.01
Preferred Stock, Shares Authorized	10,000,000	10,000,000
Preferred Stock, Shares Issued	17,299	23,324
Preferred Stock, Shares Outstanding	17,299	23,324
Series B-2 Preferred Stock
Officer converted common stock, shares	1,140,568
Officer converted common stock, amount	$ 1,205,000

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17. Derivative Liability (Details) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Time to maturity (years)		8 years 5 months 5 days
Minimum [Member]
Time to maturity (years)	6 years 10 months 10 days
Maximum [Member]
Time to maturity (years)	8 years
Warrant [Member]
Stock price ($)	$ 1.50	$ 1.88
Exercise price ($)	$ 1.65	$ 6.25
Expected volatility (%)	71.40%	132.99%
Time to maturity (years)	2 years
Warrant [Member] | Minimum [Member]
Risk-free interest rate (%)	1.21%	1.78%
Time to maturity (years)		3 years
Warrant [Member] | Maximum [Member]
Risk-free interest rate (%)	2.23%	2.25%
Time to maturity (years)		4 years

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18. Fair Value Disclosures (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Current liabilities:
Contingent liability	$ 100,000
Non-current liabilities:
Contingent liability	836,606
Derivative liability (see note 17)	348,650	$ 953,005
Level 1
Current liabilities:
Contingent liability	0
Non-current liabilities:
Contingent liability	0
Derivative liability (see note 17)	0	0
Level 2
Current liabilities:
Contingent liability	0
Non-current liabilities:
Contingent liability	0
Derivative liability (see note 17)	0	0
Level 3
Current liabilities:
Contingent liability	100,000
Non-current liabilities:
Contingent liability	836,606
Derivative liability (see note 17)	$ 348,650	$ 953,005

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18. Fair Value Disclosures (Details 1) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Pro forma financial information
Beginning Balance	$ 953,005	$ 3,839,569
Change in fair value included in net loss	(1,037,405)	(1,843,997)
Modification of warrant contracts reclassified to equity		(678,400)
Exercise of lenders' warrants		(364,167)
Adjustment for prior issuances and conversion of warrants	433,050
Ending Balance	$ 348,650	$ 953,005

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19. Income Taxes (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Deferred
Federal	$ 0	$ (7,710,000)
State	60,000	0
Total	60,000	(7,710,000)
Current
Federal	(1,493,485)	0
State	(176,000)	50,000
Total	(1,669,485)	50,000
Total deferred benefit	$ (1,669,485)	$ (7,660,000)

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19. Income Taxes (Details 1)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Income Taxes Details 1
Federal statutory rate	(34.00%)	(34.00%)
State net of federal tax	(3.40%)	(3.60%)
Permanent and other items	1.20%	1.10%
Change in valuation allowance	25.00%	(11.80%)
Effective income tax rate	(11.20%)	(48.30%)

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19. Income Taxes (Details 2) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Deferred tax assets
Net operating losses	$ 43,292,000	$ 32,569,000
Allowance for doubtful accounts	99,000	77,000
Derivative liability	391,000	620,000
Accrued liabilities	910,000	1,037,000
Other	83,000	0
Deferred Tax Assets, Gross	44,775,000	34,303,000
Deferred Income tax Liabilities:
Intangible assets	9,943,000	3,305,000
Property and equipment	761,000	1,103,000
Debt discount	0	388,000
Total	10,704,000	4,796,000
Deferred tax asset, net	34,071,000	29,507,000
Less: Valuation Allowance	(34,071,000)	(29,507,000)
Net Deferred Tax Assets	$ 0	$ 0

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19. Income Taxes (Details Narrative) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Income Taxes Details Narrative
Net operating loss carry forwards	$ 122,000,000	$ 93,000,000

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20. Commitments and Contingencies (Details)	Dec. 31, 2016 USD ($)
Commitments And Contingencies Details
2017	$ 1,543,787
2018	1,061,075
2019	1,034,249
2020	892,842
2021	283,116
Total	$ 192,673

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20. Commitments and Contingencies (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Commitments And Contingencies Details Narrative
Rent expense for all operating leases	$ 1,600,000	$ 1,800,000

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22. Concentrations (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Concentrations Details
United States	$ 109,254,707	$ 88,526,867
International Customers	12,790,613	13,167,649
Total	$ 122,045,320	$ 101,694,516

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23. Segment Information (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Segment Reporting Information [Line Items]
Revenues	$ 122,045,320	$ 101,694,516
Cost of revenues (exclusive of depreciation and amortization)	68,058,432	56,724,121
Gross profit	53,986,888	44,970,395
Depreciation and amortization	13,096,587	12,975,981
Selling, general and administrative expenses	48,524,923	41,009,107
Impairment charge	0	0
Interest expense	(6,742,143)	(6,062,923)
Gain on change in fair value of derivative liability	265,383	1,843,997
Loss on extinguishment of debt	(214,294)	(2,720,355)
Other income (expenses)	(6,691,186)	(6,875,668)
Income tax benefit	1,609,485	7,660,536
Total assets	132,032,214	104,499,445
Carrier Services
Segment Reporting Information [Line Items]
Revenues	35,484,101	35,521,679
Cost of revenues (exclusive of depreciation and amortization)	33,783,130	32,596,384
Gross profit	1,700,971	2,925,295
Depreciation and amortization	153,567	185,397
Selling, general and administrative expenses	2,710,880	4,412,087
Impairment charge	0
Interest expense	0	(99,010)
Gain on change in fair value of derivative liability	0	0
Loss on extinguishment of debt	0	(182,083)
Other income (expenses)	0	875,067
Income tax benefit	0	0
Net loss/income	(1,163,476)	(1,078,215)
Total assets	6,265,402	4,703,799
Capital expenditures	0	73,115
Business Services And Other
Segment Reporting Information [Line Items]
Revenues	86,561,219	66,172,837
Cost of revenues (exclusive of depreciation and amortization)	34,275,302	24,127,737
Gross profit	52,285,917	42,045,100
Depreciation and amortization	12,033,551	12,359,821
Selling, general and administrative expenses	40,331,439	32,810,336
Impairment charge	0
Interest expense	(6,442,224)	(5,757,609)
Gain on change in fair value of derivative liability	0	0
Loss on extinguishment of debt	(214,294)	(2,538,272)
Other income (expenses)	36,763	(818,544)
Income tax benefit	1,609,485	7,660,536
Net loss/income	(5,089,343)	(4,578,945)
Total assets	125,766,812	98,547,943
Capital expenditures	4,766,214	3,367,335
Corporate and Unallocated
Segment Reporting Information [Line Items]
Revenues	0	0
Cost of revenues (exclusive of depreciation and amortization)	0	0
Gross profit	0	0
Depreciation and amortization	909,469	430,763
Selling, general and administrative expenses	5,482,604	3,786,685
Impairment charge	0
Interest expense	(299,919)	(206,304)
Gain on change in fair value of derivative liability	265,383	1,843,997
Loss on extinguishment of debt	0	0
Other income (expenses)	(36,895)	7,090
Income tax benefit	0	0
Net loss/income	(6,463,504)	(2,572,665)
Total assets	0	2,500,524
Capital expenditures	0	0
Consolidated
Segment Reporting Information [Line Items]
Revenues	122,045,320	101,694,516
Cost of revenues (exclusive of depreciation and amortization)	68,058,432	56,724,121
Gross profit	53,986,888	44,970,395
Depreciation and amortization	13,096,587	12,975,981
Selling, general and administrative expenses	48,524,923	41,009,107
Impairment charge	0
Interest expense	(6,742,143)	(6,062,923)
Gain on change in fair value of derivative liability	265,383	1,843,997
Loss on extinguishment of debt	(214,294)	(2,720,355)
Other income (expenses)	(132)	63,613
Income tax benefit	1,609,485	7,660,536
Net loss/income	(12,716,323)	(8,229,825)
Total assets	132,032,214	105,752,266
Capital expenditures	$ 4,766,214	$ 3,440,450