Delaware
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58-2342021
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(IRS
Employer Identification No.)
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Title
of each class
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Name of each exchange on which registered
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Common
Stock, par value $0.01 per share
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The
Nasdaq Capital Market
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Large
accelerated filler
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☐
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Accelerated
filer
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☐
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Non-accelerated
filler
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☐
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Smaller
reporting company
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☑
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(do
not check if a smaller reporting company)
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Exhibit No.
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Description
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3.1
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Amended and Restated Certificate of Incorporation (*)
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3.1.1
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Certificate of Amendment to Certificate of Incorporation
(14)
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3.2
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Bylaws (*)
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10.1
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1998 Stock Option Plan (*)
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10.1.1
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2009 Stock Option Plan (15)
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10.1.2
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2016 Equity Incentive Plan (14)
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10.2
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Employment Agreement, dated as of November 5, 2015, between
registrant and Matthew D. Rosen (12)
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10.3
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Form of Warrant to Purchase Common Stock (*)
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10.4
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Lease Agreement between registrant and SLG Graybar Sublease, LLC
for Suite 1718 at 420 Lexington Avenue, New York, NY office
(*)
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10.4.1
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Lease Modification Agreement dated November 19, 2014, between
registrant and SLG Graybar Sublease, LLC for the 420 Lexington
Avenue, New York, NY office (13)
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10.5
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Lease Agreement between registrant and Fort Lauderdale Crown
Center, Inc. for the Fort Lauderdale, Florida office, as amended
(*)
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10.5.1
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Sixth Amendment dated July 23, 2014, to Lease Agreement between
registrant and Fort Lauderdale Crown Center, Inc., for the Fort
Lauderdale, Florida office (13)
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10.5.2
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Seventh Amendment, dated August 2015, to Lease Agreement between
registrant and Fort Lauderdale Crown Center, Inc., for the Fort
Lauderdale, Florida office (16)
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10.5.3
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Eight Amendment, dated July 8, 2016, to Lease Agreement between
registrant and Fort Lauderdale Crown Center, Inc., for the Fort
Lauderdale, Florida office (16)
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10.6
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Form of Promissory Note and Security Agreement (2)
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10.7
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Non-Competition Agreement between registrant and Marvin Rosen
(*)
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10.8
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Form of Warrant (3)
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10.9
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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)
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10.10
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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)
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10.11
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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)
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10.12
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Warrant to Purchase Common Stock issued by registrant to Marvin
Rosen, dated July 31, 2002 (*)
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10.13
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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)
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10.14
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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)
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10.15
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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)
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10.16
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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)
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10.17
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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)
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10.18
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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)
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10.19
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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)
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10.20
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Lease Agreement dated October 1, 2012 by and between Manchester
Realty, LLC and Fusion NBS Acquisition Corp (7)
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10.20.1
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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)
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10.21
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Series A Promissory Note dated October 29, 2012 payable to
Praesidian Fund III (5)
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10.22
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Series B Promissory Note dated October 29, 2012 payable to
Praesidian Fund III Praesidian Fund III Series B Note
(5)
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10.23
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Series A Promissory Note dated October 29, 2012 payable to
Praesidian Fund III-A (5)
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10.24
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Series B Promissory Note dated October 29, 2012 payable to
Praesidian Fund III-A (5)
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10.25
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Praesidian Fund III Common Stock Purchase Warrant dated October 29,
2012 (5)
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10.26
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Praesidian Fund III-A Common Stock Purchase Warrant dated October
29, 2012 (5)
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10.27
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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)
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10.28
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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)
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10.29
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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)
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10.30
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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)
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10.31
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Management Rights Agreement dated as of October 29, 2012 by and
among the registrant, Fusion NBS Acquisition Corp., and Plexus Fund
II, LP (5)
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10.32
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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)
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10.33
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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)
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10.34
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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)
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10.35
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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)
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10.36
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Form of Common Stock Purchase Warrant (9)
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10.37
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Form of Registration Rights Agreement (9)
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10.38
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Form of Series C Note (9)
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10.39
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Form of Series D Note dated December 31, 2013 (9)
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10.40
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Form of Management Rights Letter dated December 31, 2013
(9)
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10.41
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Form of Lenders’ Warrant dated December 31, 2013
(9)
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10.42
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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)
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10.43
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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)
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10.44
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Bill of Sale dated as of December 31, 2013 delivered by
BroadvoxGo!, LLC and Cypress Communications, LLC (9)
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10.45
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Limited Trademark License Agreement dated as of December 31, 2013
by and among Broadvox, LLC; the registrant and Fusion BVX LLC
(9)
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10.46
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Form of Series E Note, dated as of October 31, 2014
(11)
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10.47
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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)
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10.48
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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)
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10.49
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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)
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10.50
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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)
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10.51
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Intercreditor and Subordination Agreement dated as of November 14,
2016 by and among Marvin Rosen, the registrant and East West Bank
(14)
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10.52
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Pledge and Security Agreement dated as of November 14, 2016 by and
among each of the Grantors Party thereto and East West Bank
(14)
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10.53
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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)
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10.54
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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)
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10.55
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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)
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10.56
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Stock Purchase and Sale Agreement dated November 14, 2016 by and
among Fusion NBS Acquisition Corp., the registrant and Apptix ASA
(14)
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10.57
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Registration Rights Agreement dated as of November 14, 2016 by and
between the registrant and
Apptix ASA (14)
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10.58
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Common Stock Purchase Agreement dated November 14, 2016 by and
among the registrant and the
Purchasers (14)
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10.59
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Office Lease, as amended between Chagrin-Green, LLC and Fidelity
Access Networks, LLC (16)
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10.60
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First Amendment to Lease Agreement dated as of August 2015 by and
between Piedmont Center, 1-4 LLC and the registrant (16)
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14
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Code of Ethics of registrant (11)
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21.1
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List of Subsidiaries (16)
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23.1
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Consent of EisnerAmper LLP (16)
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31.1
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Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (1)
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31.2
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Certification of President Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (1)
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32.1
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Section 1350 Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (1)
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32.2
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Section 1350 Certification of President Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (1)
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101.INS
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XBRL Instance Document (1)
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101.SCH
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XBRL Taxonomy Extension Schema Document (1)
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
(1)
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
(1)
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document (1)
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
(1)
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*
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Originally filed with the Company’s Registration Statement
no. 33-120412 and incorporated herein by reference.
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**
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Originally filed with the Company’s Registration Statement
no. 33-120206 and incorporated herein by reference.
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(1)
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Filed herewith.
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(2)
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Filed as an Exhibit to the Company’s Annual Report on Form
10-K filed April 13, 2011 and incorporated herein by
reference.
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(3)
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Filed as an Exhibit to the Company’s Current Report on Form
8-K filed on December 15, 2006 and incorporated herein by
reference.
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(4)
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Filed as an Exhibit to the Company’s Annual Report on Form
10-K filed March 30, 2012 and incorporated herein by
reference.
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(5)
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Filed as an Exhibit to the Company’s Current Report on Form
8-K filed on November 2, 2012 and incorporated herein by
reference.
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(6)
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Filed as an Exhibit to the Company’s Current Report on Form
8-K filed on September 4, 2013 and incorporated herein by
reference.
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(7)
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Filed as an Exhibit to the Company’s Current Report on Form
8-K filed on November 21, 2013 and incorporated herein by
reference.
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(8)
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Filed as an Exhibit to the Company’s Current Report on Form
8-K filed on December 19, 2013 and incorporated herein by
reference.
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(9)
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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.
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(10)
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Filed as an Exhibit to the Company’s Quarterly Report on Form
10-Q filed on August 14, 2013 and incorporated herein by
reference.
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(11)
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Filed as an Exhibit to the Company’s Current Report on Form
8-K dated November 3, 2014 and incorporated herein by
reference.
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(12)
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Filed as an Exhibit to the Company’s Current Report on Form
8-K filed on November 10, 2015 and incorporated herein by
reference.
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(13)
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Filed as an Exhibit to the Company’s Current Report on Form
8-K filed on December 14, 2015, and incorporated herein by
reference.
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(14)
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Filed as an Exhibit to the Company’s Current Report on Form
8-K filed on November 18, 2016, and incorporated herein by
reference.
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(15)
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Filed as an Exhibit to the Company’s Form 10-K filed on March
28, 2016 and incorporated herein by reference.
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(16) | Filed as an Exhibit to the Company’s Form 10-K filed on March 20, 2017 and incorporated herein by reference. |
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FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
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Date:
April 11, 2017
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By:
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/s/ MICHAEL
BAUER
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Michael
Bauer
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Chief
Financial Officer
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Exhibit No.
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Description
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31.1
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Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
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31.2
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Certification of President Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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32.1
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Section 1350 Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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32.2
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Section 1350 Certification of President Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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April 11,
2017 |
By:
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/s/
MATTHEW D. ROSEN
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Matthew
D. Rosen
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Chief
Executive Officer
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April
11, 2017
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By:
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/s/
MICHAEL R. BAUER
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Michael
R. Bauer.
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Chief
Financial Officer
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April 11,
2017 |
By:
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/s/
MATTHEW D. ROSEN
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Matthew
D. Rosen
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Chief
Executive Officer
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April
11, 2017
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By:
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/s/
MICHAEL R. BAUER
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Michael
R. Bauer
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Chief
Financial Officer
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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 |
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 |
Consolidated Statements Of Operations (Parenthetical) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
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Consolidated Statements Of Operations Parenthetical | ||
Share Based Compensation | $ 878,343 | $ 639,296 |
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. |
2. Significant Accounting Policies |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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:
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):
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:
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:
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:
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 |
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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:
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:
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 | 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:
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:
The following table summarizes additional information regarding outstanding and exercisable options under the stock option plans at December 31, 2016:
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. |
5. Acquisition |
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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:
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):
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:
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:
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):
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:
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 |
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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:
Aggregate amortization expense for each of the five years subsequent to December 31, 2016 is expected to be as follows:
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7. Prepaid Expenses and Other Current Assets |
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7. Prepaid Expenses and Other Current Assets | Prepaid expenses and other current assets at December 31, 2016 and 2015 are as follows:
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8. Accounts Payable and Accrued Expenses |
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8. Accounts Payable and Accrued Expenses | Accounts payable and accrued expenses consist of the following at December 31, 2016 and 2015:
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9. Property And Equipment |
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9. Property And Equipment | At December 31, 2016 and 2015, property and equipment is comprised of the following:
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 |
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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:
The estimated principal payments under capital lease agreements for the years ending subsequent to December 31, 2016 are as follows:
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11. Supplemental Disclosure of Cash Flow Information |
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11. Supplemental Disclosure of Cash Flow Information | Supplemental cash flow information for the years ended December 31, 2016 and 2015 is as follows:
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12. Obligations Under Asset Purchase Agreements |
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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 |
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13. Secured Credit Facility | At December 31, 2016 and 2015, secured credit facilities are comprised of the following:
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:
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 |
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14. Notes Payable-Non-Related Parties | At December 31, 2016 and 2015, notes payable – non-related parties are comprised of the following:
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 |
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15. Notes Payable-Related Parties | At December 31, 2016 and 2015, components of notes payable – related parties are comprised of the following:
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. |
16. Equity Transactions |
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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:
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:
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17. Derivative Liability |
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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:
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 |
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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:
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:
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19. Income Taxes |
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19. Income Taxes | The provision (benefit) for income taxes for the years ending December 31, 2016 and 2015 consists of the following:
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:
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:
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 |
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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:
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 |
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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 |
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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:
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 |
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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:
*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 |
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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. |
2. Significant Accounting Policies (Policies) |
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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. |
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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.
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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. |
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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.
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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.
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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:
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. |
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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. |
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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):
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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.
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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.
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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:
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.
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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.
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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:
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.
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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:
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.
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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).
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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.
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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.
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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.
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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.
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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) |
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Significant Accounting Policies Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provisions Against Revenue |
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Summary of the changes in allowance for doubtful accounts |
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Business acquisition cost for goodwill |
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Estimated useful lives |
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3. Loss per Share (Tables) |
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Computation of basic and diluted net loss per share |
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Shares excluded from the calculation of diluted earnings per share |
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4. Stock-Based Compensation (Tables) |
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Stock Option Activity |
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Stock Options Outstanding |
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5. Acquisitions (Tables) |
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Purchase price allocated to the fair value of the net assets | Apptix
Technology for Business
Fidelity
RootAxcess
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Pro forma financial information | Apptix
Fidelity
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6. Intangible Assets (Tables) |
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7. Prepaid Expenses and Other Current Assets (Tables) |
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8. Accounts Payable and Accrued Expenses (Tables) |
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Accounts payable and accrued expenses |
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9. Property and Equipment (Tables) |
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property And Equipment Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of property and equipment |
|
10. Equipment Financing Obligations (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||
Pro forma financial information | ||||||||||||||||||||||||||||||||||||||||||||||
Schedule of equipment financing obligations |
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|||||||||||||||||||||||||||||||||||||||||||||
Principal payments under capital lease agreements |
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11. Supplemental Disclosure of Cash Flow Information (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Disclosure Of Cash Flow Information Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Disclosure of Cash Flow Information |
|
13. Secured Credit Facilities (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Secured Credit Facilities Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Secured credit facilities |
|
14. Notes Payable Non-Related Parties (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable Non-related Parties Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of notes payable non-related parties |
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15. Notes Payable Related Parties (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||
Debt discount | ||||||||||||||||||||||||||||||||||||||||||||||
Component of notes payable related party |
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16. Equity Transactions (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity Transactions Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of preferred stock |
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Schedule of warrants |
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17. Derivative Liability (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Liability Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assumptions were used to determine the fair value of the warrants |
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18. Fair Value Disclosures (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Abandonment of common stock, Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of the liability measured at fair value on a recurring basis |
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Changes in the derivative liability |
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19. Income Taxes (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of provision for income taxes |
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Schedule of Federal statutory tax rate |
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Schedule of deferred tax assets and liability |
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20. Commitments and Contingencies (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||
Commitments And Contingencies Tables | ||||||||||||||||||||||||||||||||||||
Schedule of Commitments and Contingencies |
|
22. Concentrations (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||
Concentrations Tables | |||||||||||||||||||||||||||||||||||||
Schedule of Geographic Concentrations |
|
23. Segment Information (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating segment information |
*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. |
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 |
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 |
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 |
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 |
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) |
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 |
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 |
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 |
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 |
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) |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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) |
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%) |
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 |
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 |
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 |
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 |
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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