Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Sep. 30, 2014 | Nov. 12, 2014 | |
Document And Entity Information | ' | ' |
Entity Registrant Name | 'FUSION TELECOMMUNICATIONS INTERNATIONAL INC | ' |
Entity Central Index Key | '0001071411 | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Sep-14 | ' |
Amendment Flag | 'false | ' |
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? | 'Yes | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 6,493,097 |
Document Fiscal Period Focus | 'Q3 | ' |
Document Fiscal Year Focus | '2014 | ' |
Condensed_Consolidated_Balance
Condensed Consolidated Balance Sheets (Unaudited) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Current assets: | ' | ' |
Cash and cash equivalents | $9,261,258 | $6,176,575 |
Accounts receivable, net of allowance for doubtful accounts of approximately $336,000 and $381,000, respectively | 6,157,584 | 5,828,389 |
Prepaid expenses and other current assets | 915,443 | 2,704,787 |
Total current assets | 16,334,285 | 14,709,751 |
Property and equipment, net | 12,595,103 | 11,193,355 |
Other assets: | ' | ' |
Security deposits | 601,969 | 585,083 |
Restricted cash | 1,164,311 | 1,163,872 |
Goodwill | 5,222,088 | 5,124,130 |
Intangible assets, net | 30,018,204 | 35,048,818 |
Other assets | 1,040,949 | 1,125,652 |
Total other assets | 38,047,521 | 43,047,555 |
TOTAL ASSETS | 66,976,909 | 68,950,661 |
Current liabilities: | ' | ' |
Notes payable - non-related parties | 1,075,000 | 625,000 |
Notes payable - related parties | 125,000 | 310,714 |
Equipment financing obligations | 494,906 | 245,138 |
Escrow payable | 0 | 295,000 |
Accounts payable and accrued expenses | 9,235,483 | 11,161,550 |
Related party payable | 0 | 226,148 |
Current liabilities from discontinued operations | 55,000 | 55,000 |
Total current liabilities | 10,985,389 | 12,918,550 |
Long-term liabilities: | ' | ' |
Notes payable - non-related parties, net of discount | 36,385,000 | 36,788,987 |
Notes payable - related parties, net of discount | 1,279,803 | 1,478,081 |
Equipment financing obligations | 1,184,659 | 167,614 |
Derivative liability | 4,693,198 | 10,515,472 |
Other long-term liabilities | 25,500 | 131,627 |
Total liabilities | 54,553,549 | 62,000,331 |
Stockholders' equity: | ' | ' |
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 26,868 and 23,525 shares issued and outstanding | 269 | 235 |
Common stock, $0.01 par value, 18,000,000 shares authorized, 6,493,097 and 6,077,071 shares issued and outstanding | 64,930 | 60,770 |
Capital in excess of par value | 172,811,664 | 166,625,595 |
Accumulated deficit | -160,453,503 | -159,736,270 |
Total stockholders' equity | 12,423,360 | 6,950,330 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $66,976,909 | $68,950,661 |
Condensed_Consolidated_Balance1
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Current assets: | ' | ' |
Allowance for doubtful accounts | $336,000 | $381,000 |
Stockholders' equity: | ' | ' |
Preferred Stock, Par Value | $0.01 | $0.01 |
Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 |
Preferred Stock, Shares Issued | 26,868 | 23,525 |
Preferred Stock, Shares Outstanding | 26,868 | 23,525 |
Common Stock, Par Value | $0.01 | $0.01 |
Common Stock, Shares Authorized | 18,000,000 | 18,000,000 |
Common Stock, Shares Issued | 6,493,097 | 6,077,071 |
Common Stock, Shares Outstanding | 6,493,097 | 6,077,071 |
Condensed_Consolidated_Interim
Condensed Consolidated Interim Statements of Operations (Unaudited) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Income Statement [Abstract] | ' | ' | ' | ' |
Revenue | $22,486,531 | $14,811,828 | $68,532,333 | $45,210,427 |
Cost of revenues, exclusive of depreciation and amortization, shown separately below | 12,312,188 | 9,953,734 | 37,288,661 | 31,310,864 |
Gross profit | 10,174,343 | 4,858,094 | 31,243,672 | 13,899,563 |
Depreciation and amortization | 2,830,727 | 911,613 | 7,996,196 | 2,634,112 |
Selling general and administrative expenses (including stock-based compensation of approximately $111,000 and $51,000 for the three months ended September 30, 2014 and 2013, respectively, and approximately $253,000 and $107,000 for the nine months ended September 30, 2014 and 2013, respectively | 8,137,368 | 4,312,508 | 23,782,259 | 13,013,954 |
Total operating expenses | 10,968,095 | 5,224,121 | 31,778,455 | 15,648,066 |
Operating loss | -793,752 | -366,027 | -534,783 | -1,748,503 |
Other (expenses) income: | ' | ' | ' | ' |
Interest expense | -1,442,508 | -663,689 | -4,434,269 | -1,992,939 |
Loss on extinguishment of debt | 0 | -291,995 | 0 | -442,574 |
Change in fair value of derivative liability | 2,389,203 | -838,142 | 4,308,272 | -732,875 |
Other income (expenses), net | 9,639 | -7,029 | -30,716 | -69,380 |
Total other income (expenses) | 956,334 | -1,800,855 | -156,713 | -3,237,768 |
Loss (gain) on extinguishment of accounts payable | 0 | -25,222 | 0 | 2,883,660 |
Income (loss) before income taxes | 162,582 | -2,192,104 | -691,496 | -2,102,611 |
(Benefit) provision for income taxes | -147,341 | 0 | 25,737 | 0 |
Net income (loss) | 309,923 | -2,192,104 | -717,233 | -2,102,611 |
Preferred stock dividends in arrears | -432,972 | -101,451 | -1,318,254 | -301,046 |
Net (loss) applicable to common stockholders: | ($123,049) | ($2,293,555) | ($2,035,487) | ($2,403,657) |
Basic loss per common share: | ($0.02) | ($0.52) | ($0.29) | ($0.61) |
Diluted loss per common share: | ($0.19) | ($0.52) | ($0.57) | ($0.61) |
Weighted average common shares outstanding: | ' | ' | ' | ' |
Basic | 7,093,215 | 4,411,646 | 6,927,011 | 3,972,503 |
Diluted | 7,093,215 | 4,411,646 | 6,927,011 | 3,972,503 |
Condensed_Consolidated_Interim1
Condensed Consolidated Interim Statements of Operations (Unaudited) (Parenthetical) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Income Statement [Abstract] | ' | ' | ' | ' |
Share Based Compensation | $111,000 | $51,000 | $253,000 | $107,000 |
Condensed_Consolidated_Interim2
Condensed Consolidated Interim Statement Of Changes In Stockholders' Equity (Unaudited) (USD $) | Preferred Stock | Common Stock | Capital in Excess of Par | Accumulated Deficit | Total |
Begining Balance, Amount at Dec. 31, 2013 | $235 | $60,770 | $166,625,595 | ($159,736,270) | $6,950,330 |
Begining Balance, Shares at Dec. 31, 2013 | 23,525 | 6,077,071 | ' | ' | ' |
Discount on related party note payable | ' | ' | 372,551 | ' | 372,551 |
Shares issued from the sale of preferred stock and warrants, net of expenses, Shares | 4,358 | ' | ' | ' | ' |
Proceeds from the sale of preferred stock and warrants, net of expenses, Amount | 44 | ' | 3,984,382 | ' | 3,984,426 |
Warrants issued in conjunction with the issuance of preferred stock deemed not indexed to the Company's common stock | ' | ' | -1,301,607 | ' | -1,301,607 |
Issuance of common stock for services rendered, Shares | ' | 11,991 | ' | ' | ' |
Issuance of common stock for services rendered, Amount | ' | 120 | 65,672 | ' | 65,792 |
Modification of previously issued warrants and reclassification to stockholders' equity | ' | ' | 2,815,609 | ' | 2,815,609 |
Net loss | ' | ' | ' | -717,233 | -717,233 |
Conversion of preferred stock into common stock, shares | -1,015 | 203,000 | ' | ' | ' |
Conversion of preferred stock into common stock, amount | -10 | 2,030 | -2,020 | ' | ' |
Dividends on preferred stock, Shares | ' | 201,035 | ' | ' | ' |
Dividends on preferred stock, Amount | ' | 2,010 | -2,010 | ' | ' |
Stock based compensation associated with stock incentive plans | ' | ' | 253,492 | ' | 253,492 |
Ending Balance, Amount at Sep. 30, 2014 | $269 | $64,930 | $172,811,664 | ($160,453,503) | $12,423,360 |
Ending Balance, Shares at Sep. 30, 2014 | 26,868 | 6,493,097 | ' | ' | ' |
Condensed_Consolidated_Interim3
Condensed Consolidated Interim Statements of Cash Flows (Unaudited) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
Cash flows from operating activities: | ' | ' |
Net loss | ($717,233) | ($2,102,611) |
Adjustments to reconcile net (loss) to net cash used in operating activities: | ' | ' |
Depreciation and amortization | 7,996,196 | 2,634,112 |
Loss on disposal of property and equipment | 122,261 | 2,374 |
Loss on sale of accounts receivable | 97,486 | 175,862 |
Bad debt expense | 399,995 | 15,909 |
Stock-based compensation | 253,492 | 107,211 |
Stock and warrants issued for services rendered or in settlement of liabilities | 81,667 | 205,078 |
Amortization of debt discount and deferred financing fees | 820,355 | 318,985 |
Change in fair value of derivative liability | -4,308,272 | 732,875 |
Loss on extinguishment of debt | 0 | 442,574 |
Gain on extinguishment of accounts payable | 0 | -2,883,660 |
Increase (decrease) in cash and cash equivalents attributable to changes in operating assets and liabilities: | ' | ' |
Accounts receivable | -590,444 | -1,032,101 |
Prepaid expenses and other current assets | -670,888 | 7,704 |
Other assets | -46,616 | 25,893 |
Replenishment of security deposit | 0 | -144,141 |
Accounts payable and accrued expenses | -2,164,659 | -39,384 |
Other long-term liabilities | -106,127 | -98,447 |
Net cash provided by (used) in operating activities | 1,167,213 | -1,631,767 |
Cash flows from investing activities: | ' | ' |
Purchase of property and equipment | -2,954,791 | -938,430 |
Proceeds from sale of property and equipment | 46,586 | 0 |
Payment of obligations related to purchase price of acquisitions | -226,148 | -491,780 |
Returns of security deposits | 2,000,000 | 0 |
Payments of security deposits | -16,886 | -200,000 |
Change in restricted cash | -440 | 767,316 |
Net cash used in investing activities | -1,151,679 | -862,894 |
Cash flows from financing activities: | ' | ' |
Proceeds from the sale of common stock and warrants, net | 0 | 3,552,899 |
Proceeds from the sale of preferred stock and warrants, net | 3,984,426 | 0 |
Proceeds from notes payable - related parties | 0 | 100,000 |
Proceeds from notes payable - non-related parties | 1,102,724 | 212,500 |
Payments on equipment financing obligations | -260,814 | -51,141 |
Repayments of notes payable - related parties | -185,714 | -385,714 |
Repayments of notes payable - non-related parties | -1,571,473 | -264,583 |
Net cash provided by financing activities | 3,069,149 | 3,163,961 |
Net change in cash and cash equivalents: | 3,084,683 | 669,300 |
Cash and cash equivalents, beginning of period | 6,176,575 | 543,214 |
Cash and cash equivalents, end of period | $9,261,258 | $1,212,514 |
1_Basis_of_Presentation_Consol
1. Basis of Presentation, Consolidation, and Summary of Selected Significant Accounting Policies | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Notes to Financial Statements | ' | ||||||||||||||||
1. Basis of Presentation, Consolidation, and Summary of Selected Significant Accounting Policies | ' | ||||||||||||||||
The accompanying unaudited condensed consolidated interim financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 for Fusion Telecommunications International, Inc. (“Fusion”) and its subsidiaries (collectively, the “Company”). These condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”) and therefore omit or condense certain footnotes and other information normally included in consolidated interim financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All material intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the condensed consolidated interim financial statements have been made. The results of operations for an interim period are not necessarily indicative of the results for the entire year. | |||||||||||||||||
During the three and nine months ended September 30, 2014 and 2013, comprehensive loss was equal to the net loss amounts presented for the respective periods in the accompanying condensed consolidated interim statements of operations. In addition, certain prior year balances have been reclassified to conform to the current presentation. | |||||||||||||||||
Reverse split of common stock | |||||||||||||||||
On April 9, 2014, Fusion’s Board of Directors approved amendments to Fusion’s Certificate of Incorporation to (a) effect a reverse stock split of all of the outstanding shares of its common stock at a ratio (the “Reverse Split Ratio”) of one for fifty (the “Reverse Stock Split”) and (b) a corresponding reduction in the number of shares of common stock that Fusion is authorized to issue from 900,000,000 to 18,000,000. The Certificate of Amendment, which was approved by Fusion’s stockholders on March 28, 2014, became effective on May 13, 2014, and at that time the Reverse Stock Split took place and each 50 shares of outstanding common stock of Fusion was combined and automatically converted into one share of Fusion’s common stock, with a par value of $0.01 per share. In addition, the conversion and exercise prices of all of Fusion’s outstanding preferred stock, common stock purchase warrants and options to purchase common stock were proportionately adjusted at the Reverse Split Ratio consistent with the terms of such instruments. No fractional shares were issued as a result of the Reverse Stock Split, and any fractional share to which a stockholder may have been entitled as a result of the Reverse Stock Split was rounded up to the nearest whole share. | |||||||||||||||||
As a result of the Reverse Stock Split, all share and per share amounts as of December 31, 2013, as well as for the three and nine months ended September 30, 2013, have been restated at the Reverse Split Ratio to give effect to the Reverse Stock Split. | |||||||||||||||||
Income taxes | |||||||||||||||||
The Company complies with accounting and reporting requirements with respect to accounting for income taxes, which require an asset and liability approach to financial accounting and reporting for income taxes. 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 September 30, 2014 and December 31, 2013. The Company is subject to income tax examinations by major taxing authorities for all tax years since 2010 and its tax returns may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. No interest expense or penalties have been recognized as of September 30, 2014 and December 31, 2013. During the three and nine month periods ended September 30, 2014 and 2013, the Company recognized no adjustments for uncertain tax positions. | |||||||||||||||||
Earnings per share | |||||||||||||||||
Basic earnings per share excludes dilution and is computed by dividing earnings attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of common stock that then shared in the income of the Company. For the three and nine months ended September 30, 2014, the diluted loss per share computation reflects an increase in the loss attributable to common stockholders of approximately $1.2 million and $1.9 million, respectively, for the gain on fair value of the Company’s derivative liability that was attributable to outstanding in-the-money warrants (see note 6). | |||||||||||||||||
For the nine months ended September 30, 2014 and 2013, the following securities were excluded in the calculation of diluted loss per share because their inclusion would be antidilutive: | |||||||||||||||||
2014 | 2013 | ||||||||||||||||
Warrants | 3,509,205 | 2,289,919 | |||||||||||||||
Stock options | 376,863 | 353,252 | |||||||||||||||
Convertible preferred stock | 4,525,443 | 153,397 | |||||||||||||||
8,411,511 | 2,796,568 | ||||||||||||||||
The net loss per common share calculation includes a provision for preferred stock dividends on Fusion’s outstanding Series A-1, A-2 and A-4 Preferred Stock (the “Series A Preferred Stock”) of approximately$102,000 for the three months ended September 30, 2014 and 2013, and approximately $302,000 for the nine months ended September 30, 2014 and 2013. As of September 30, 2014, the Board of Directors had not declared any dividends on Fusion’s Series A Preferred Stock, and Fusion had accumulated approximately $3,832,000 of preferred stock dividends. The Board of Directors has declared dividends for the three and nine months ended September 30, 2014 of approximately $331,000 and $1,016,000, respectively, in connection with 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 78,202 and 201,035 shares, respectively, of Fusion’s common stock. | |||||||||||||||||
Sale of accounts receivable | |||||||||||||||||
The Company has an agreement to sell certain of its accounts receivable under an arrangement with a third party. The Company records a loss on sale of accounts receivable at the time the receivables are sold for the difference between the book value of the receivables transferred and their respective purchase price. During the year ended December 31, 2013, the Company accounted for the sales of its accounts receivable as sales of financial assets and derecognized them from its consolidated balance sheet as of the date of sale. In connection with the preparation of its June 30, 2014 consolidated financial statements, the Company determined that although legal ownership to the transferred receivables belong to the transferee, these transfers do not meet all of the criteria outlined in Accounting Standards Codification Topic (“ASC”) 860, Transfers and Servicing. The Company had derecognized $0.9 million of such receivables as of December 31, 2013, and the Company believes that retaining this amount on its consolidated balance sheet and recording a corresponding note payable would not have been material to the Company’s consolidated balance sheet as of that date. At June 30, 2014 the Company recorded accounts receivable and recognized a note payable to unrelated parties in the amount of $1.1 million (see note 6) for the amount of uncollected receivables that had been transferred. As of September 30, 2014 all of the receivables were collected and the note was repaid. As of September 30, 2014, the Company did not have any outstanding accounts receivable that had been sold under this arrangement. | |||||||||||||||||
The Company recognized losses on the sale of accounts receivable in the three and nine months ended September 30, 2014 of approximately $3,000 and $97,000, respectively. For the three and nine months ended September 30, 2013, the Company recognized losses on the sale of accounts receivable of approximately $47,000 and $176,000, respectively. These amounts are recorded in Other income (expenses) in the accompanying consolidated statements of operations. The Company’s obligations to the purchaser of the receivables are secured by a first priority lien on the accounts receivable of the Company’s Carrier Services business segment, and by a subordinated security interest on the other assets of the Company’s Carrier Services business segment. Based on the Company’s evaluation of the creditworthiness of the customers whose receivables the Company sells under this arrangement, the Company does not believe that there is any significant credit risk related to those receivables. | |||||||||||||||||
Goodwill | |||||||||||||||||
Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired, and consists of $2.6 million of goodwill recognized in the acquisition of Network Billing Systems, LLC (“NBS”) on October 29, 2012, with the remainder resulting from the Broadvox Transaction described more fully in note 2. Goodwill at September30, 2014 and December 31, 2013 was approximately $5.2 million and $5.1 million, respectively. Goodwill is not amortized but is instead tested annually for impairment. All of the Company’s goodwill is attributable to its Business Services business segment. The following table presents the change in goodwill during the nine months ended September 30, 2014. | |||||||||||||||||
Balance at January 1, 2014 | Additions | Other (a) | Balance at September 30, 2014 | ||||||||||||||
$ | 5,124,130 | - | 97,958 | $ | 5,222,088 | ||||||||||||
(a) - Amount relates to adjustments to the preliminary purchase price for the acquisition completed on December 31, 2013. | |||||||||||||||||
The change to the Company’s goodwill during the nine months ending September 30, 2013 was as follows: | |||||||||||||||||
Balance at January 1, 2013 | Additions | Other (a) | Balance at September 30, 2013 | ||||||||||||||
$ | 2,406,269 | - | 197,256 | $ | 2,603,525 | ||||||||||||
(a) - Amount relates to adjustments to the preliminary purchase price for the acquisition completed on October 29, 2012. | |||||||||||||||||
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 nine months ended September 30, 2014 and 2013. | |||||||||||||||||
Impairment testing for goodwill is performed annually in the Company’s fourth fiscal quarter. 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 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. | |||||||||||||||||
Stock–based compensation | |||||||||||||||||
The Company accounts for stock-based compensation by recognizing the fair value of the compensation cost for all stock awards over their respective service periods, which are generally equal to the vesting period. This compensation cost is determined using option pricing models intended to estimate the fair value of the awards at the date of grant using the Black-Scholes option-pricing model. An offsetting increase to stockholders' equity is recorded equal to the amount of the compensation expense charge. | |||||||||||||||||
Stock-based compensation expense recognized in the condensed consolidated interim statements of operations for the three and nine months ended September30, 2014 and 2013 includes compensation expense for stock-based payment awards granted prior to September30, 2014 but not yet vested, based on the estimated grant date fair value. As stock-based compensation expense recognized in the condensed consolidated statements of operations is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. When estimating forfeitures, the Company considers historical forfeiture rates as well as ongoing trends for actual option forfeiture. | |||||||||||||||||
The impact of stock-based compensation expense on the Company’s results of operations for the three and nine months ended September 30, 2014 was approximately $111,000 and $253,000, respectively. Stock-based compensation expense for the three and nine months ended September 30, 2013 was approximately $51,000 and $107,000, respectively. These amounts are included in selling, general, and administrative expenses in the condensed consolidated interim statements of operations. | |||||||||||||||||
The following table summarizes the stock option activity for the nine months ended September 30, 2014: | |||||||||||||||||
(unaudited) | |||||||||||||||||
Number of Options | Weighted Average Exercise Price | ||||||||||||||||
Balance at December 31, 2013 | 351,439 | $ | 16.29 | ||||||||||||||
Options granted during the period | 38,440 | $ | 6.63 | ||||||||||||||
Options exercised during the period | - | $ | - | ||||||||||||||
Options forfeited during the period | (2,539 | ) | $ | 6.19 | |||||||||||||
Options expired during the period | (10,477 | ) | $ | 179.29 | |||||||||||||
Options outstanding at September 30, 2014 | 376,863 | $ | 10.84 | ||||||||||||||
Options exercisable at September 30, 2014 | 182,609 | $ | 17.12 | ||||||||||||||
The Company calculated the fair value of each common stock option grant on the date of grant using the Black-Scholes option-pricing model method with the following assumptions: | |||||||||||||||||
(unaudited) | |||||||||||||||||
Nine Months Ended September 30, | |||||||||||||||||
2014 | 2013 | ||||||||||||||||
Dividend yield | 0 | % | 0 | % | |||||||||||||
Stock volatility | 137.2 | % | 137.2 | % | |||||||||||||
Average Risk-free interest rate | 2.31 | % | 0.68 | % | |||||||||||||
Average option term (years) | 7.8 | 3 | |||||||||||||||
As of September 30, 2014, there was approximately $625,000 of total unrecognized compensation cost, net of estimated forfeitures, related to stock options granted under Fusion’s Stock Incentive Plans, which is expected to be recognized over a weighted-average period of 1.96 years. | |||||||||||||||||
Advertising and marketing | |||||||||||||||||
Advertising and marketing expense includes cost for promotional materials and trade show expenses for the marketing of the Company’s business products and services. Advertising and marketing expenses were approximately $52,000 and $9,000 for the three months ended September 30, 2014 and 2013, and approximately $130,000 and $25,000 for the nine months ended September 30, 2014 and 2013, respectively. | |||||||||||||||||
Fair Value of Financial Instruments | |||||||||||||||||
At September 30, 2014 and December 31, 2013 the carrying value for the Company's accounts receivable, accounts payable and accrued expenses approximates its fair value due to the short term nature of these financial instruments. Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows: | |||||||||||||||||
Level 1—Quoted prices in active markets for identical assets or liabilities | |||||||||||||||||
Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities | |||||||||||||||||
Level 3—No observable pricing inputs in the market | |||||||||||||||||
The following table represents the fair value of the Company's derivative liabilities measured at fair value on a recurring basis: | |||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
As of September 30, 2014 | |||||||||||||||||
Non-current liabilities: | |||||||||||||||||
Derivative liability (see notes 6 and 8 ) | $ | - | $ | - | $ | 4,693,198 | $ | 4,693,198 | |||||||||
As of December 31, 2013 | |||||||||||||||||
Non-current liabilities: | |||||||||||||||||
Derivative liability | $ | - | $ | 10,515,472 | $ | - | $ | 10,515,472 | |||||||||
The following table reconciles the changes in the derivative liability categorized within Level 3 of the fair value hierarchy. | |||||||||||||||||
Balance at December 31, 2013 | $ | - | |||||||||||||||
Transfer of Level 2 balance (a) | 10,515,472 | ||||||||||||||||
Issuance of additional warrants | 1,301,607 | ||||||||||||||||
Gains for the period: | |||||||||||||||||
Included in earnings (loss) | -4,308,272 | ||||||||||||||||
Included in other comprehensive income (loss) | - | ||||||||||||||||
Modification of warrant contracts (see note 8) | -2,815,609 | ||||||||||||||||
Balance at September 30, 2014 | $ | 4,693,198 | |||||||||||||||
(a) - In the course of preparing its financial statements as of June 30, 2014, the Company determined that all of its derivative liabilities | |||||||||||||||||
contained unobsoverable inputs and should therefore be reported in the Level 3 fair value hierarchy | |||||||||||||||||
Use of estimates | |||||||||||||||||
The preparation of condensed consolidated interim 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 condensed consolidated interim financial statements and the reported amounts of revenues and expenses during the periods. Actual results could be affected by the accuracy of those estimates. | |||||||||||||||||
Restricted cash | |||||||||||||||||
Restricted cash at September 30, 2014 and December 31, 2013 includes $1,000,000 of cash held in reserve as required by the terms of the Company’s senior lending agreement (see note 6), and certificates of deposit collateralizing a letter of credit in the aggregate amount of approximately $164,000. The letter of credit is required as security for one of the Company’s non-cancelable operating leases for office facilities. |
2_Acquisition
2. Acquisition | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | ' |
2. Acquisition | ' |
On December 31, 2013, the Company, through its wholly-owned subsidiary Fusion BVX LLC (“FBVX”), completed the acquisition of substantially all of the cloud services assets used by BroadvoxGO!, LLC, and its affiliate Cypress Communications, LLC, in the operation of their cloud services business (the “Broadvox Transaction”). The purchase price for the assets acquired in the Broadvox Transaction was $32.1 million in cash, plus a working capital adjustment paid to the sellers in accordance with the terms of the purchase agreement of approximately $0.2 million. Had the transaction taken place on January 1, 2013, the Company’s consolidated revenues and net loss for the nine months ended September 30, 2013 would have been approximately $69.7 million and $6.7 million, respectively. |
3_Prepaid_Expenses_and_Other_C
3. Prepaid Expenses and Other Current Assets | 9 Months Ended | |||
Sep. 30, 2014 | ||||
Notes to Financial Statements | ' | |||
3. Prepaid Expenses and Other Current Assets | ' | |||
Prepaid expenses and other current assets consist of the following at September 30, 2014 and December 31, 2013: | ||||
30-Sep-14 | 31-Dec-13 | |||
(unaudited) | ||||
Prepaid insurance | $ 93,089 | $ 63,737 | ||
Due from purchaser of accounts receivable | - | 236,232 | ||
Escrowed funds – senior lenders | - | 2,000,000 | ||
Other prepaid expenses | 822,354 | 404,818 | ||
Total | $ 915,443 | $ 2,704,787 | ||
4_Intangible_Assets
4. Intangible Assets | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Notes to Financial Statements | ' | ||||||||
4. Intangible Assets | ' | ||||||||
Identifiable intangible assets as of September 30, 2014 and December 31, 2013 are comprised of: | |||||||||
September 30, 2014 | 31-Dec-13 | ||||||||
Gross Carrying Amount | Accumulated Amortization | Total | Gross Carrying Amount | Accumulated Amortization | Total | ||||
Intangibles associated with the acquisition of NBS: | |||||||||
Trademarks and tradename | $ 563,000 | $ (123,156) | $ 439,844 | $ 563,000 | $ (65,683) | $ 497,317 | |||
Proprietary technology | 1,903,000 | (729,483) | 1,173,517 | 1,903,000 | (444,033) | 1,458,967 | |||
Non-compete agreement | 3,257,000 | (2,080,861) | 1,176,139 | 3,257,000 | (1,266,611) | 1,990,389 | |||
Customer relationships | 9,824,000 | (1,240,269) | 8,583,731 | 9,824,000 | (754,988) | 9,069,012 | |||
Favorable lease intangible | 218,000 | (83,567) | 134,433 | 218,000 | (50,867) | 167,133 | |||
Total acquired intangibles | 15,765,000 | (4,257,336) | 11,507,664 | 15,765,000 | (2,582,182) | 13,182,818 | |||
Intangibles associated with the Broadvox Transaction: | |||||||||
Proprietary technology | 3,878,000 | (581,700) | 3,296,300 | 3,878,000 | - | 3,878,000 | |||
Non-compete agreements | 5,471,000 | (2,051,625) | 3,419,375 | 5,471,000 | - | 5,471,000 | |||
Customer relationships | 12,517,000 | (722,135) | 11,794,865 | 12,517,000 | - | 12,517,000 | |||
Total acquired intangibles | 21,866,000 | (3,355,460) | 18,510,540 | 21,866,000 | - | 21,866,000 | |||
Total | $ 37,631,000 | $ (7,612,796) | $ 30,018,204 | $ 37,631,000 | $ (2,582,182) | $ 35,048,818 | |||
Amortization expense for the three and nine months ended September 30, 2014 was $1.7 million and $5.0 million, respectively. Amortization expense for the three and nine months ended September 30, 2013 was $0.6 million and $1.7 million, respectively. Estimated future aggregate amortization expense is as follows for the periods indicated: | |||||||||
($000's) | |||||||||
Remainder of the year | 2014 | $ 1,687 | |||||||
Year ending December 31: | 2015 | 6,567 | |||||||
2016 | 2,927 | ||||||||
2017 | 2,856 | ||||||||
2018 | 2,444 |
5_Accounts_Payable_and_Accrued
5. Accounts Payable and Accrued Expenses | 9 Months Ended | |||||
Sep. 30, 2014 | ||||||
Notes to Financial Statements | ' | |||||
5. Accounts Payable and Accrued Expenses | ' | |||||
Accounts payable and accrued expenses consist of the following at September 30, 2014 and December 31, 2013: | ||||||
30-Sep-14 | 31-Dec-13 | |||||
(unaudited) | ||||||
Trade accounts payable | $ 2,829,305 | $ 5,933,736 | ||||
Accrued expenses | 1,768,285 | 3,101,103 | ||||
Accrued payroll and vacation | 245,340 | 102,898 | ||||
Interest payable | 87,013 | 421,632 | ||||
Sales and communications taxes payable | 2,045,910 | 691,350 | ||||
Deferred revenue | 771,732 | 407,426 | ||||
Other | 1,487,898 | 503,405 | ||||
Total accounts payable and accrued expenses | $ 9,235,483 | $ 11,161,550 |
6_Notes_Payable_NonRelated_Par
6. Notes Payable Non-Related Parties | 9 Months Ended | |||||
Sep. 30, 2014 | ||||||
Notes to Financial Statements | ' | |||||
6. Notes Payable - Non-Related Parties | ' | |||||
At June 30, 2014 and December 31, 2013, notes payable – non-related parties are comprised of the following: | ||||||
30-Sep-14 | 31-Dec-13 | |||||
Senior Notes | $ 41,322,917 | $ 41,791,667 | ||||
Discount on Senior Notes | (3,862,917) | (4,377,680) | ||||
Total notes payable - non-related parties | 37,460,000 | 37,413,987 | ||||
Less: | ||||||
Current portion | (1,075,000) | (625,000) | ||||
Non-current portion notes payable - non-related parties | $ 36,385,000 | $ 36,788,987 | ||||
On October 29, 2012, the Company and its wholly owned subsidiary, Fusion NBS Acquisition Corp. (“FNAC”) entered into a Securities Purchase Agreement and Security Agreement (the “Purchase Agreement”) with Praesidian Capital Opportunity Fund III, LP, Praesidian Capital Opportunity Fund III-A, LP and Plexus Fund II, LP (the “Lenders”). Under the Purchase Agreement, the Company sold the Lenders (a) five-year Series A senior notes (the “Series A Notes”) in the aggregate principal amount of $6.5 million, bearing interest at the rate of 10.0% annually, and (b) five-year Series B senior notes (the “Series B Notes”) in the aggregate principal amount of $10.0 million bearing interest at the rate of 11.5% annually. The proceeds from the sale of the Series A Notes and Series B Notes were used to finance the acquisition of NBS. | ||||||
On December 15, 2013, the Company sold to the Lenders Series C senior notes (the “Series C Notes”) in the aggregate principal amount of $0.5 million. The proceeds were used to pay a deposit on the purchase price to the sellers in connection with the Broadvox Transaction (see note 2). On December 31, 2013, the Purchase Agreement was amended and restated (the “SPA”) whereby the Company sold to Praesidian Capital Opportunity Fund III, LP, Praesidian Capital Opportunity Fund III-A, LP, Plexus Fund III, L.P., Plexus Fund QP III, L.P. and United Insurance Company of America (collectively with Plexus Fund II, L.P., the “Senior Lenders”) Series D Senior Notes (the “Series D Notes”) in the aggregate principal amount of $25.0 million (collectively with the Series A Notes, the Series B Notes and the Series C Notes, the “Senior Notes”). The proceeds from the sale of the Series D Notes were used to finance the Broadvox Transaction. Under the terms of the SPA: | ||||||
· | Plexus Fund III, L.P., Plexus Fund QP III, L.P. and United Insurance Company of America became parties to the SPA and to certain ancillary agreements that were entered into with the Lenders at the time of the Purchase Agreement. | |||||
· | The interest rate on all of the Senior Notes was adjusted to 11.15% per annum. | |||||
· | The maturity date on all of the Senior Notes became December 31, 2018. | |||||
· | Interest on all of the Senior Notes is payable monthly, and monthly principal payments aggregating $52,083 are required from January 2014 through December 2014. | |||||
· | Monthly principal payments aggregating $102,083 are required from January 2015 through December 2018, with the outstanding principal balance on all of the Senior Notes payable at maturity. | |||||
The SPA contains a number of affirmative and negative covenants, including but not limited to, restrictions on paying indebtedness subordinate to the Senior Notes, incurring additional indebtedness, making capital expenditures, dividend payments and cash distributions by subsidiaries. In addition, at all times while the Senior Notes are outstanding, the Company is required to maintain a minimum cash bank balance of no less than $1.0 million in excess of (i) any amounts outstanding under a permitted working capital line of credit, and (ii) any and all cash balances held by the Company’s Business Services business segment. The SPA also requires on-going compliance with various financial covenants, including leverage ratio, fixed charge coverage ratio and minimum levels of earnings before interest, taxes, depreciation and amortization. Failure to comply with any of the restrictive or financial covenants could result in an event of default and accelerated demand for repayment of the Senior Notes. As of and for the nine months ended September 30, 2014, the Company was in compliance with all of the financial covenants contained in the SPA. | ||||||
The obligations to the Senior Lenders are secured by first priority security interests on all of the assets of FNAC, NBS and FBVX, as well as the capital stock of each of the Company’s subsidiaries, including NBS and FBVX, and by second priority security interests in the accounts receivable pertaining to the Company’s Carrier Services business segment and all of the other assets of the Company. In addition, Fusion, FBVX and NBS guaranteed FNAC’s obligations under the SPA, including FNAC’s obligation to repay the Senior Notes. | ||||||
In connection with the sale of the Senior Notes to the Senior Lenders, the Company issued nominal warrants to the Senior Lenders to purchase an aggregate of 728,333 shares of the Company’s common stock (the “Lenders’ Warrants”). The Lenders’ Warrants are exercisable from the date of issuance at an exercise price of $0.50 per share, with 266,501 warrants expiring on October 29, 2022, and the remainder expiring on December 31, 2023. The Company is required to pay the exercise price on behalf of the Senior Lenders at the time of exercise. The Company has recorded a discount on the Senior Notes based on the fair value of the Lenders’ Warrants as of the date of issuance. The discount is being accreted over the life of the Senior Notes, and was $3.9 million and $4.4 million as of September 30, 2014 and December 31, 2013, respectively. | ||||||
Commencing upon the earlier of a change in control, the repayment of the Senior Notes in full or the five year anniversary of the issuance of the Lenders’ Warrants, in the event that the Company’s common stock does not meet certain liquidity thresholds with respect to trading volume and market price, then the Senior Lenders have the right to require the Company to repurchase the shares issued or issuable upon exercise of the Lenders’ Warrants at a repurchase price based upon the formulas set forth therein. As a result, the Lenders’ Warrants do not meet the criteria for equity classification under ASC Topic 480, Distinguishing Liabilities From Equity (“ASC 480”), and are not considered to be indexed to the Company’s own stock under the guidance provided in ASC 815, and the Company recognized derivative liabilities aggregating $4.7 million upon the issuance of the Lenders' Warrants. At September 30, 2014 and December 31, 2013, the fair value of these derivative liabilities was $2.7 million and $4.5 million, respectively. The Company recognized a gain on the change in fair value of this derivative for the three and nine months ended September 30, 2014 in the amount of $1.2 million and $1.9 million, respectively. For the three and nine months ended September 30, 2013, the Company recognized a loss on the change in fair value this derivative in the amount of $0.8 million and $0.7 million, respectively. | ||||||
Expenses incurred in connection with the Purchase Agreement and SPA and the sale of the Senior Notes are reflected in Other assets on the Company’s consolidated balance sheet in the amount of $1.0 million and $1.1 million at September 30, 2014 and December 31, 2013, respectively, and are being amortized as interest expense over the life of the Senior Notes. |
7_Notes_PayableRelated_Parties
7. Notes Payable-Related Parties | 9 Months Ended | |||||
Sep. 30, 2014 | ||||||
Notes to Financial Statements | ' | |||||
7. Notes Payable-Related Parties | ' | |||||
At September 30, 2014 and December 31, 2013, notes payable – related parties are comprised of the following: | ||||||
30-Sep-14 | 31-Dec-13 | |||||
NBS Sellers Notes | $ - | $ 85,714 | ||||
Notes payable to Marvin Rosen | 1,478,081 | 1,578,081 | ||||
Discount on notes payable to Marvin Rosen | (198,278) | - | ||||
Other notes payable - related parties | 125,000 | 125,000 | ||||
Total notes payable - related parties | 1,404,803 | 1,788,795 | ||||
Less: | ||||||
Current portion of NBS Sellers Notes | - | (85,714) | ||||
Current portion of notes payable to Marvin Rosen | - | (100,000) | ||||
Current portion of other notes payable - related parties | (125,000) | (125,000) | ||||
Non-current portion notes payable - related parties | $ 1,279,803 | $ 1,478,081 | ||||
Sellers Notes | ||||||
As part of the purchase price of NBS, FNAC issued promissory notes (the “Sellers Notes”) to Jonathan Kaufman and entities affiliated with Mr. Kaufman, the sellers of NBS, in the aggregate principal amount of $600,000. Upon the closing of the acquisition of NBS, Mr. Kaufman became President of the Company’s Business Services division and an executive officer of the Company. The Sellers Notes were paid in full as of September 30, 2014. | ||||||
Notes Payable to Marvin Rosen | ||||||
In conjunction with the Company’s sale of the Series A Notes and Series B Notes to the Lenders, Marvin Rosen, the Company’s Chairman of the Board of Directors, entered into an Intercreditor and Subordination Agreement with the Company and the Lenders, as amended, whereby Mr. Rosen agreed, among other things, that the amounts owed to him by the Company would be subordinate to the Senior Notes and the Company’s other obligations to the Senior Lenders. In connection with this agreement, on October 25, 2012 Mr. Rosen agreed to consolidate the principal amount of all his then outstanding promissory notes aggregating to $3.9 million into a new single note (the “New Rosen Note”). The New Rosen Note is not secured, pays interest monthly at a rate of 7% per annum, and matures 60 days after the Senior Notes are paid in full. Accrued interest on the outstanding promissory notes as of October 24, 2012 amounted to approximately $0.5 million, and the Company also agreed to pay Mr. Rosen 7% annual interest on this amount (collectively, with the New Rosen Note, the “Subordinated Obligations”). In connection with the preparation of the June 30, 2014 consolidated financial statements, the Company determined that the 7% interest rate on the Subordinated Obligations is less than market and requires the Company to impute additional interest expense. As a result, effective January 1, 2014, the Company recognized a discount on the Subordinated Obligations in the approximate amount of $0.4 million as a capital contribution (net of exchanges). This adjustment reflects a 12% effective interest rate, and gives effect to the pro rata reductions to the discount resulting from Mr. Rosen’s partial exchanges of the New Rosen Note into shares of the Company’s common stock during the year ended December 31, 2013. During the three and nine months ended September 30, 2014, the Company recognized interest expense of approximately $13,000 and $0.2 million, respectively, to amortize the discount on the Subordinated Obligations, and the net unamortized discount as of September 30, 2014 is $0.2 million. The Company has determined that the forgoing items, including amortization of discount not previously recognized, were not material to the Company’s consolidated financial statements as of and for the years ended December 31, 2013 and 2012 and for the three and nine months ended September 30, 2013. | ||||||
On March 1, 2013, the Company received a short-term unsecured advance from Mr. Rosen in the amount of $100,000. The Senior Lenders had approved the repayment of this advance from the proceeds from certain future sales of the Company’s equity securities. The advance was repaid during the nine months ended September 30, 2014. |
8_Equity_Transactions
8. Equity Transactions | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | ' |
8. Equity Transactions | ' |
On January 24, 2014, the Company accepted subscriptions from and issued to a total of 40 accredited investors (the “Investors”) an aggregate of 4,358 shares of its Series B-2 Preferred Stock and warrants (the “Investor Warrants”) to purchase 278,912 shares (the “Warrant Shares”) of the Company’s common stock and received gross cash proceeds of $4,358,000. The proceeds, net of transaction expenses, are being used for general corporate purposes. | |
Each share of Series B-2 Preferred Stock has a Stated Value of $1,000, and is convertible into shares of the Company’s common stock at the option of the holder at a conversion price of $5.00 per share (the “Preferred Conversion Price”), subject to adjustment. During the nine months ended September 30, 2013, a total of 1,015 shares of Series B-2 Preferred Stock was converted into 203,000 shares of the Company’s common stock. Subject to the other terms of the Series B-2 Preferred Stock, the Series B-2 Preferred Stock outstanding at September 30, 2014, including the Series B-2 Preferred Stock issued on December 31, 2013, is convertible into an aggregate of 4,364,600 shares of the Company’s common stock (the “Conversion Shares”). | |
The Investor Warrants became exercisable on March 28, 2014 and may be exercised at any time until January 24, 2019 for a number of Warrant Shares that is equal to 40% of the Stated Value divided by 125% of the Preferred Conversion Price, as adjusted for stock splits, combinations and reclassifications (the “Investor Warrant Exercise Price”). | |
The Company also agreed to register the resale of the Conversion Shares and the Investor Warrant Shares, and to use its reasonable commercial efforts to cause the registration statement to remain effective until the date that all of the Conversion Shares and Warrant Shares have been sold or may be sold pursuant to Rule 144 under the Securities Act of 1933, as determined by the Company. The Company may be required to pay the Investors, as liquidated damages and not as a penalty, an amount equal to one percent (1%) of the aggregate amount invested by such Investor for each 30-day period or pro rata portion thereof during which the registration statement is not available to permit re-sales by the Investors; provided, that the maximum payment to each Investor shall not exceed six percent (6%) of the aggregate amount invested by such Investor. The Company filed the registration statement on May 2, 2014, and the registration statement became effective on July 21, 2014. | |
Commencing January 1, 2016, the Company has the right to force the conversion of the Series B-2 Preferred Stock into common stock at the Preferred Conversion Price; provided that the volume weighted average price for Fusion’s common stock is at least $12.50 for ten consecutive trading days. In addition, shares of Series B-2 Preferred Stock bear a cumulative six percent (6%) annual dividend payable quarterly in arrears, in cash or shares of common stock, at the option of the Company (see note 1, “Earnings per Share”). | |
Holders of Series B-2 Preferred Stock have liquidation rights that are senior to that of holders of the Company’s outstanding Series A-1, A-2 and A-4 Preferred Stock, and holders of Series B-2 Preferred Stock are entitled to vote as one group with holders of common stock on all matters brought to a vote of holders of common stock (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). However, holders of common stock will be entitled to vote as a class on all matters adversely affecting such class. | |
The Company sold the Series B-2 Preferred Stock and Investor Warrants through its officers and directors, in conjunction with the assistance of certain broker-dealers. The Company paid aggregate cash compensation to the broker-dealers of $0.4 million, and issued warrants to the broker-dealers or their respective designees to purchase 45,050 shares of the Company’s common stock. | |
The Investor Warrants 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 Investor Warrant Exercise Price. As a result, the Investor Warrants are deemed not indexed to the Company’s common stock under the guidance provided by ASC Topic 815. Accordingly, the Company recognized a derivative liability of approximately $1.3 million at the date of issuance for the fair value of the Investor Warrants based on all options pricing model. During the nine months ended September 30, 2014, a portion of the holders of the Investor Warrants executed agreements to modify the terms of the Investor Warrants to remove the provisions related to the downward adjustment of the exercise price. The Company concluded that the amended terms for these Investor Warrants were such that they qualified for equity treatment under ASC Topic 815. As a result, the Company reclassified $2.8 million (the fair value of the derivative liability relative to the modified warrant at the date of the amendment) from the derivative liability related to the Investor Warrants into equity. Including the Investor Warrants issued in connection with the issuance of Series B-2 Preferred Stock on December 31, 2013, the fair value of the derivative liability related to the Investor Warrants not qualifying for equity treatment was $2.0 million and $6.0 million at September 30, 2014 and December 31, 2013, respectively. The Company recognized a gain on the change in fair value of this derivative liability for the three and nine months ended September 30, 2014 of $1.2 million and $2.4 million, respectively. | |
On April 30, 2014, as more fully described in note 1, the Company filed an amendment to its Certificate of Incorporation to (a) effectuate the Reverse Stock Split and (b) reduce the number of shares of common stock that are authorized for issuance to 18,000,000. The Reverse Stock Split became effective on May 13, 2014. |
9_Recently_Adopted_and_Issued_
9. Recently Adopted and Issued Accounting Pronouncements | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | ' |
9. Recently Adopted and Issued Accounting Pronouncements | ' |
During the nine months ended September 30, 2014, there were no new accounting pronouncements adopted by the Company that had a material impact on the Company’s consolidated financial statements. In May of 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09 outlines a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 is effective for annual and interim reporting periods beginning after December 15, 2016 and early adoption is not permitted. Companies may either use a full retrospective or modified retrospective approach to adopt this new standard. The Company is currently evaluating both adoption options and the impact that adoption of ASU 2014-09 will have on its consolidated financial statements. |
10_Commitments_and_Contingenci
10. Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | ' |
10. Commitments and Contingencies | ' |
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 operations or financial condition. In addition, due to the regulatory nature of the telecommunications 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 regulatory inquiries to have a material impact on the Company’s liquidity, results of operations or financial condition. | |
11_Segment_Information
11. Segment Information | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Notes to Financial Statements | ' | ||||||||
11. Segment Information | ' | ||||||||
The accounting and reporting requirements on Disclosures about Segments of an Enterprise and Related Information requires disclosures of segment information on the basis that is used internally for evaluating segment performance and for determining the allocation of resources to the operating segments. | |||||||||
The Company has two reportable segments that it operates and manages – 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 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 carrier traffic utilizing primarily Voice over Internet Protocol (“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 over 270 carrier customers and vendors, and is working to expand its interconnection relationships, particularly with carriers in emerging markets. | |||||||||
Business Services | |||||||||
The Company provides a full portfolio of cloud communications, cloud connectivity, 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 program, which utilizes the efforts of independent third-party distributors to sell the Company’s products and services. The Business Services segment includes the results of operations related to the assets acquired in the Broadvox Transaction effective as of January 1, 2014. | |||||||||
Operating segment information for the three and nine months ended September 30, 2014 and 2013 is summarized as follows: | |||||||||
Three months ended September 30, 2014 | |||||||||
Carrier Services | Business Services | Corporate and Unallocated | Consolidated | ||||||
Revenues | $ 7,253,220 | $ 15,233,311 | $ - | $ 22,486,531 | |||||
Cost of revenues (exclusive of | |||||||||
depreciation and amortization) | 6,525,201 | 5,786,987 | - | 12,312,188 | |||||
Gross profit | 728,019 | 9,446,324 | - | 10,174,343 | |||||
Depreciation and amortization | 164,153 | 2,642,797 | 23,777 | 2,830,727 | |||||
Selling, general and administrative expenses | 752,911 | 6,051,105 | 1,333,352 | 8,137,368 | |||||
Interest expense | - | (1,396,038) | (46,470) | (1,442,508) | |||||
Gain on change in fair value of derivative liability | 2,389,203 | 2,389,203 | |||||||
Other (expenses) income | (3,449) | 12,784 | 304 | 9,639 | |||||
Income tax benefit | - | - | (147,341) | (147,341) | |||||
Net (loss) income | $ (192,494) | $ (630,832) | $ 1,133,249 | $ 309,923 | |||||
Total assets | $ 3,599,981 | $ 58,126,589 | $ 5,250,339 | $ 66,976,909 | |||||
Nine months ended September 30, 2014 | |||||||||
Carrier Services | Business Services | Corporate and Unallocated | Consolidated | ||||||
Revenues | $ 21,926,591 | $ 46,605,742 | $ - | $ 68,532,333 | |||||
Cost of revenues (exclusive of | |||||||||
depreciation and amortization) | 19,558,258 | 17,730,403 | - | 37,288,661 | |||||
Gross profit | 2,368,333 | 28,875,339 | - | 31,243,672 | |||||
Depreciation and amortization | 280,351 | 7,647,899 | 67,946 | 7,996,196 | |||||
Selling, general and administrative expenses | 2,194,143 | 17,891,406 | 3,696,710 | 23,782,259 | |||||
Interest expense | - | (4,150,106) | (284,163) | (4,434,269) | |||||
Gain on change in fair value of derivative liability | 4,308,272 | 4,308,272 | |||||||
Other (expenses) income | (97,486) | (13,871) | 80,641 | (30,716) | |||||
Provision for income taxes | - | 25,737 | 25,737 | ||||||
Net (loss) income | $ (203,647) | $ (827,943) | $ 314,357 | $ (717,233) | |||||
Capital expenditures | $ 100,403 | $ 2,854,388 | $ - | $ 2,954,791 | |||||
Three Months Ending September 30, 2013 | |||||||||
Carrier Services | Business Services | Corporate and Unallocated | Consolidated | ||||||
Revenues | $ 7,026,589 | $ 7,785,239 | $ - | $ 14,811,828 | |||||
Cost of revenues (exclusive of | |||||||||
depreciation and amortization) | 6,167,706 | 3,786,028 | - | 9,953,734 | |||||
Gross profit | 858,883 | 3,999,211 | - | 4,858,094 | |||||
Depreciation and amortization | 61,401 | 827,947 | 22,265 | 911,613 | |||||
Selling, general and administrative expenses | 707,975 | 2,631,550 | 972,983 | 4,312,508 | |||||
Interest expense | - | (581,072) | (82,617) | (663,689) | |||||
Loss on extinguishment of debt | (291,995) | (291,995) | |||||||
Gain on change in fair value of derivative liability | (838,142) | (838,142) | |||||||
Other (expenses) income | (49,124) | 17,156 | 24,939 | (7,029) | |||||
(Loss) gain on extinguishment of accounts payable | - | (25,222) | (25,222) | ||||||
Net (loss) income | $ 40,383 | $ (24,202) | $ (2,208,285) | $ (2,192,104) | |||||
Nine Months Ended September 30, 2013 | |||||||||
Carrier Services | Business Services | Corporate and Unallocated | Consolidated | ||||||
Revenues | $ 22,458,404 | $ 22,752,023 | $ - | $ 45,210,427 | |||||
Cost of revenues (exclusive of | |||||||||
depreciation and amortization) | 20,088,181 | 11,222,683 | - | 31,310,864 | |||||
Gross profit | 2,370,223 | 11,529,340 | - | 13,899,563 | |||||
Depreciation and amortization | 157,832 | 2,411,370 | 64,910 | 2,634,112 | |||||
Selling, general and administrative expenses | 2,325,927 | 7,683,266 | 3,004,761 | 13,013,954 | |||||
Interest expense | - | (1,729,894) | (263,045) | (1,992,939) | |||||
Loss on extinguishment of debt | (442,574) | (442,574) | |||||||
Gain on change in fair value of derivative liability | (732,875) | (732,875) | |||||||
Other (expenses) income | (176,355) | (469,713) | 576,688 | (69,380) | |||||
Gain on extinguishment of accounts payable | - | 2,883,660 | 2,883,660 | ||||||
Net (loss) income | $ (289,891) | $ (764,903) | $ (1,047,817) | $ (2,102,611) | |||||
Capital expenditures | $ 142,937 | $ 777,996 | $ 17,497 | $ 938,430 | |||||
The Company employs executive, administrative, human resources, and finance resources that service both the Carrier Services and Business Services business 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. The Company’s total assets for each business segment is as follows: | |||||||||
Carrier Services | Business Services | Corporate and Unallocated | Consolidated | ||||||
As of September 30, 2014 | $ 3,599,981 | $ 58,126,589 | $ 5,250,339 | $ 66,976,909 | |||||
As of December 31, 2013 | $ 3,021,463 | $ 58,487,324 | $ 7,441,874 | $ 68,950,661 | |||||
As of September 30, 2013 | $ 2,862,749 | $ 22,918,730 | $ 897,478 | $ 26,678,957 |
12_Supplemental_Disclosure_of_
12. Supplemental Disclosure of Cash Flow Information | 9 Months Ended | ||||||
Sep. 30, 2014 | |||||||
Notes to Financial Statements | ' | ||||||
12. Supplemental Disclosure of Cash Flow Information | ' | ||||||
Nine months ended September 30, | |||||||
2014 | 2013 | ||||||
Cash paid for interest | $ 3,948,533 | $ 1,395,799 | |||||
Cash paid for income taxes | $ 71,495 | $ - | |||||
Supplemental schedule of non-cash financing and investing activities: | |||||||
Conversion of notes and interest payable - related parties to common stock | $ - | $ 895,000 | |||||
Conversion of accounts payable - related parties to common stock | $ - | $ 126,858 | |||||
Assets acquired under capital leases | $ 1,423,257 | $ 359,675 |
13_Related_Party_Transactions
13. Related Party Transactions | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | ' |
13. Related Party Transactions | ' |
Upon the closing of the acquisition of NBS on October 29, 2012, the purchase price was adjusted for an additional amount payable to the sellers of NBS of approximately $1.1 million following the application of certain working capital adjustments as set forth in the purchase agreements. Approximately $226,000 remained outstanding to the sellers of NBS as of December 31, 2013, which was repaid during the nine months ended September 30, 2014. |
14_Gain_on_Extinguishment_of_D
14. Gain on Extinguishment of Debt | 9 Months Ended |
Sep. 30, 2014 | |
Gain On Extinguishment Of Debt | ' |
14. Gain on extinguishment of debt | ' |
In June 2013, pursuant to the advice of counsel and based on applicable laws, the Company determined that it no longer had any liability pertaining to an international trade payable in the amount $2,908,882. As a result, the Company derecognized the payable from its consolidated balance sheet at September 30, 2013 and recorded a corresponding gain on the extinguishment of debt, net of legal fees of $25,322. |
15_Subsequent_Events
15. Subsequent Events | 9 Months Ended |
Sep. 30, 2014 | |
Notes to Financial Statements | ' |
15. Subsequent Events | ' |
On October 31, 2014, the Company, through its recently formed wholly owned subsidiary, Fusion PTC Acquisition, Inc. (“PTC”), completed the acquisition of all of the outstanding equity securities (and indirectly all of the assets and liabilities) of PingTone Communications, Inc. (“PingTone”). The acquisition of PingTone was accomplished through a merger of PTC with and into PingTone, with PingTone surviving the merger (the “Merger”). As a result of the Merger, PingTone became a wholly owned subsidiary of FNAC. | |
The purchase price paid to the PingTone Shareholders was $10 million (exclusive of cash acquired), consisting of $7.5 million in cash and 712,250 shares of the Company’s common stock valued at $2.5 million. The Purchase Price, is subject to adjustment based on the actual net working capital present at closing, to be determined in accordance with the terms of the Merger agreement. A portion of the purchase price ($1,150,000, comprised of $862,500 in cash and 81,908 in shares of common stock) has been placed into escrow to secure the representations, warranties and covenants made by the PingTone shareholders under the Merger agreement. | |
Contemporaneously with the completion of the Merger, the Company, FNAC, FBVX, NBS and PTC executed a Second Amended and Restated Securities Purchase Agreement and Security Agreement (the “Restated Purchase Agreement”) with the Senior Lenders. The Restated Purchase Agreement amends and restates the terms of the SPA, and reflects the sale by FNAC to the Senior Lenders of five-year Series E senior notes (the “Series E Notes” and together with the Series A, Series B, Series C and Series D Notes, the “Senior Notes”) in an aggregate principal amount of $5.0 million. The Series E Notes bear interest annually at 11.15%. The Restated Purchase Agreement extended the maturity date of all of the Senior Notes to October 31, 2019. Each of the Series E Notes provides for the payment of interest on a monthly basis commencing November 30, 2014. Principal on the Series E Notes is due and payable at maturity. | |
The obligations to the Lenders under the Restated Purchase Agreement are secured by a first priority security interest on all of the assets of FNAC, FBVX, NBS and PingTone, as well as the capital stock of each of the Company’s subsidiaries, and by a second lien on the accounts receivable and other assets of the Company’s Carrier Services business segment. In addition, subject to certain limitations, the Company, FBVX, NBS and PingTone have guaranteed FNAC’s obligations under the Restated Purchase Agreement, including FNAC’s obligations to repay the Notes. | |
1_Basis_of_Presentation_Consol1
1. Basis of Presentation, Consolidation, and Summary of Selected Significant Accounting Policies (Policies) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Notes to Financial Statements | ' | ||||||||||||||||
Basis of Presentation, Consolidation | ' | ||||||||||||||||
The accompanying unaudited condensed consolidated interim financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 for Fusion Telecommunications International, Inc. (“Fusion”) and its subsidiaries (collectively, the “Company”). These condensed consolidated interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”) and therefore omit or condense certain footnotes and other information normally included in consolidated interim financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All material intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the condensed consolidated interim financial statements have been made. The results of operations for an interim period are not necessarily indicative of the results for the entire year. | |||||||||||||||||
During the three and nine months ended September 30, 2014 and 2013, comprehensive loss was equal to the net loss amounts presented for the respective periods in the accompanying condensed consolidated interim statements of operations. In addition, certain prior year balances have been reclassified to conform to the current presentation. | |||||||||||||||||
Reverse split of common stock | ' | ||||||||||||||||
On April 9, 2014, the Company’s Board of Directors approved amendments to the Company’s Certificate of Incorporation to (a) effect a reverse stock split of all of the outstanding shares of the Company’s common stock at a ratio (the “Reverse Split Ratio”) of one for fifty (the “Reverse Stock Split”) and (b) a corresponding reduction in the number of shares of common stock that the Company is authorized to issue from 900,000,000 to 18,000,000. The Certificate of Amendment, which was approved by the Company’s stockholders on March 28, 2014, became effective on May 13, 2014, and at that time the Reverse Stock Split took place and each 50 shares of outstanding common stock of the Company was combined and automatically converted into one share of the Company’s common stock, with a par value of $0.01 per share. In addition, the conversion and exercise prices of all of the Company’s outstanding preferred stock, common stock purchase warrants and options to purchase common stock were proportionately adjusted at the Reverse Split Ratio consistent with the terms of such instruments. No fractional shares were issued as a result of the Reverse Stock Split, and any fractional share to which a stockholder may have been entitled as a result of the Reverse Stock Split was rounded up to the nearest whole share. | |||||||||||||||||
As a result of the Reverse Stock Split, all share and per share amounts as of December 31, 2013, as well as for the three and nine months ended September 30, 2013, have been restated at the Reverse Split Ratio to give effect to the Reverse Stock Split. | |||||||||||||||||
Income taxes | ' | ||||||||||||||||
The Company complies with accounting and reporting requirements with respect to accounting for income taxes, which require an asset and liability approach to financial accounting and reporting for income taxes. 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 September 30, 2014 and December 31, 2013. The Company is subject to income tax examinations by major taxing authorities for all tax years since 2010 and its tax returns may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. No interest expense or penalties have been recognized as of September 30, 2014 and December 31, 2013. During the three and nine month periods ended September 30, 2014 and 2013, the Company recognized no adjustments for uncertain tax positions. | |||||||||||||||||
Earnings per share | ' | ||||||||||||||||
Basic earnings per share excludes dilution and is computed by dividing earnings attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of common stock that then shared in the income of the Company. For the three and nine months ended September 30, 2014, the diluted loss per share computation reflects an increase in the loss attributable to common stockholders of approximately $1.2 million and $1.9 million, respectively, for the gain on fair value of the Company’s derivative liability that was attributable to outstanding in-the-money warrants (see note 6). | |||||||||||||||||
For the nine months ended September 30, 2014 and 2013, the following securities were excluded in the calculation of diluted loss per share because their inclusion would be antidilutive: | |||||||||||||||||
2014 | 2013 | ||||||||||||||||
Warrants | 3,509,205 | 2,289,919 | |||||||||||||||
Stock options | 376,863 | 353,252 | |||||||||||||||
Convertible preferred stock | 4,525,443 | 153,397 | |||||||||||||||
8,411,511 | 2,796,568 | ||||||||||||||||
The net loss per common share calculation includes a provision for preferred stock dividends on the Company’s outstanding Series A-1, A-2 and A-4 Preferred Stock (the “Series A Preferred Stock”) of approximately $102,000 for the three months ended September 30, 2014 and 2013, and approximately $302,000 for the nine months ended September 30, 2014 and 2013. As of September 30, 2014, the Board of Directors had not declared any dividends on the Company’s Series A Preferred Stock, and the Company had accumulated approximately $3,832,000 of preferred stock dividends. The Board of Directors has declared dividends for the three and nine months ended September 30, 2014 of approximately $331,000 and $1,016,000, respectively, in connection with the Company’s Series B-2 Preferred Stock which, in accordance with the terms of the Series B-2 Preferred Stock, was paid in the form of 78,202 and 201,035 shares, respectively, of the Company’s common stock. | |||||||||||||||||
Sale of accounts receivable | ' | ||||||||||||||||
The Company has an agreement to sell certain of its accounts receivable under an arrangement with a third party. The Company records a loss on sale of accounts receivable at the time the receivables are sold for the difference between the book value of the receivables transferred and their respective purchase price. During the year ended December 31, 2013, the Company accounted for the sales of its accounts receivable as sales of financial assets and derecognized them from its consolidated balance sheet as of the date of sale. In connection with the preparation of its June 30, 2014 consolidated financial statements, the Company determined that although the rights, title and interest of these receivables belong to the transferee, these transfers do not meet all of the criteria outlined in Accounting Standards Codification Topic (“ASC”) 860, Transfers and Servicing. The Company had derecognized $0.9 million of such receivables as of December 31, 2013, and the Company believes this difference was not material to its consolidated balance sheet as of that date. At June 30, 2014 the Company recorded accounts receivable and recognized a note payable to unrelated parties in the amount of $1.1 million (see note 6) for the amount of uncollected receivables that had been transferred. As of September 30, 2014 all of the receivables have been collected and the note has been repaid. As of September 30, 2014, the Company did not have any outstanding accounts receivable that had been sold under this arrangement. | |||||||||||||||||
The Company recognized losses on the sale of accounts receivable in the three and nine months ended September 30, 2014 of approximately $3,000 and $97,000, respectively. For the three and nine months ended September 30, 2013, the Company recognized losses on the sale of accounts receivable of approximately $47,000 and $176,000, respectively. These amounts are recorded in Other income (expenses) in the accompanying consolidated statements of operations. The Company’s obligations to the purchaser of the receivables under the agreement are secured by a first priority lien on the accounts receivable of the Company’s Carrier Services business segment, and by a subordinated security interest on the other assets of the Company’s Carrier Services business segment. Based on the Company’s evaluation of the creditworthiness of the customers whose receivables the Company sells under this arrangement, the Company does not believe that there is any significant credit risk related to those receivables. | |||||||||||||||||
Goodwill | ' | ||||||||||||||||
Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired, and consists of $2.6 million of goodwill recognized in the acquisition of Network Billing Systems, LLC (“NBS”) on October 29, 2012, with the remainder resulting from the Broadvox Transaction described more fully in note 2. Goodwill at September30, 2014 and December 31, 2013 was approximately $5.2 million and $5.1 million, respectively. Goodwill is not amortized but is instead tested annually for impairment. All of the Company’s goodwill is attributable to its Business Services business segment. The following table presents the change in goodwill during the nine months ended September 30, 2014. | |||||||||||||||||
Balance at January 1, 2014 | Additions | Other (a) | Balance at September 30, 2014 | ||||||||||||||
$ | 5,124,130 | - | 97,958 | $ | 5,222,088 | ||||||||||||
(a) - Amount relates to adjustments to the preliminary purchase price for the acquisition completed on December 31, 2013. | |||||||||||||||||
The change to the Company’s goodwill during the nine months ending September 30, 2013 was as follows: | |||||||||||||||||
Balance at January 1, 2013 | Additions | Other (a) | Balance at September 30, 2013 | ||||||||||||||
$ | 2,406,269 | - | 197,256 | $ | 2,603,525 | ||||||||||||
(a) - Amount relates to adjustments to the preliminary purchase price for the acquisition completed on October 29, 2012. | |||||||||||||||||
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 nine months ended September 30, 2014 and 2013. | |||||||||||||||||
Impairment testing for goodwill is performed annually in the Company’s fourth fiscal quarter. 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 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. | |||||||||||||||||
Stock based compensation | ' | ||||||||||||||||
The Company accounts for stock-based compensation by recognizing the fair value of the compensation cost for all stock awards over their respective service periods, which are generally equal to the vesting period. This compensation cost is determined using option pricing models intended to estimate the fair value of the awards at the date of grant using the Black-Scholes option-pricing model. An offsetting increase to stockholders' equity is recorded equal to the amount of the compensation expense charge. | |||||||||||||||||
Stock-based compensation expense recognized in the condensed consolidated interim statements of operations for the three and nine months ended September 30, 2014 and 2013 includes compensation expense for stock-based payment awards granted prior to September 30, 2014 but not yet vested, based on the estimated grant date fair value. As stock-based compensation expense recognized in the condensed consolidated statements of operations is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. When estimating forfeitures, the Company considers historical forfeiture rates as well as ongoing trends for actual option forfeiture. | |||||||||||||||||
The impact of stock-based compensation expense on the Company’s results of operations for the three and nine months ended September 30, 2014 was approximately $111,000 and $253,000, respectively. Stock-based compensation expense for the three and nine months ended September 30, 2013 was approximately $51,000 and $107,000, respectively. These amounts are included in selling, general, and administrative expenses in the condensed consolidated interim statements of operations. | |||||||||||||||||
The following table summarizes the stock option activity for the nine months ended September 30, 2014: | |||||||||||||||||
(unaudited) | |||||||||||||||||
Number of Options | Weighted Average Exercise Price | ||||||||||||||||
Balance at December 31, 2013 | 351,439 | $ 16.29 | |||||||||||||||
Shares granted during the period | 38,440 | $ 6.63 | |||||||||||||||
Shares exercised during the period | - | $ - | |||||||||||||||
Shares forfeited during the period | (2,539) | $ 6.19 | |||||||||||||||
Shares expired during the period | (10,477) | $ 179.29 | |||||||||||||||
Shares outstanding at September 30, 2014 | 376,863 | $ 10.84 | |||||||||||||||
Shares exercisable at September 30, 2014 | 182,609 | $ 17.12 | |||||||||||||||
The Company calculated the fair value of each common stock option grant on the date of grant using the Black-Scholes option-pricing model method with the following assumptions: | |||||||||||||||||
(unaudited) | |||||||||||||||||
Nine Months Ended September 30, | |||||||||||||||||
2014 | 2013 | ||||||||||||||||
Dividend yield | 0 | % | 0 | % | |||||||||||||
Stock volatility | 137.2 | % | 137.2 | % | |||||||||||||
Average Risk-free interest rate | 2.31 | % | 0.68 | % | |||||||||||||
Average option term (years) | 7.8 | 3 | |||||||||||||||
As of September 30, 2014, there was approximately $625,000 of total unrecognized compensation cost, net of estimated forfeitures, related to stock options granted under the Company’s Stock Incentive Plans, which is expected to be recognized over a weighted-average period of 1.96 years. | |||||||||||||||||
Advertising and Marketing | ' | ||||||||||||||||
Advertising and marketing expense includes cost for promotional materials and trade show expenses for the marketing of the Company’s business products and services. Advertising and marketing expenses were approximately $52,000 and $9,000 for the three months ended September 30, 2014 and 2013, and approximately $130,000 and $25,000 for the nine months ended September 30, 2014 and 2013, respectively. | |||||||||||||||||
Fair value of financial instruments | ' | ||||||||||||||||
At September 30, 2014 and December 31, 2013 the carrying value for the Company's accounts receivable, accounts payable and accrued expenses approximates its fair value due to the short term nature of these financial instruments. Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows: | |||||||||||||||||
Level 1—Quoted prices in active markets for identical assets or liabilities | |||||||||||||||||
Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities | |||||||||||||||||
Level 3—No observable pricing inputs in the market | |||||||||||||||||
The following table represents the fair value of the Company's derivative liabilities measured at fair value on a recurring basis: | |||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
As of September 30, 2014 | |||||||||||||||||
Non-current liabilities: | |||||||||||||||||
Derivative liability (see notes 6 and 8 ) | $ | - | $ | - | $ | 4,693,198 | $ | 4,693,198 | |||||||||
As of December 31, 2013 | |||||||||||||||||
Non-current liabilities: | |||||||||||||||||
Derivative liability | $ | - | $ | 10,515,472 | $ | - | $ | 10,515,472 | |||||||||
The following table reconciles the changes in the derivative liability categorized within Level 3 of the fair value hierarchy. | |||||||||||||||||
Balance at December 31, 2013 | $ | - | |||||||||||||||
Transfer of Level 2 balance (a) | 10,515,472 | ||||||||||||||||
Issuance of additional warrants | 1,301,607 | ||||||||||||||||
Gains for the period: | |||||||||||||||||
Included in earnings (loss) | -4,308,272 | ||||||||||||||||
Included in other comprehensive income (loss) | - | ||||||||||||||||
Modification of warrant contracts (see note 8) | -2,815,609 | ||||||||||||||||
Balance at September 30, 2014 | $ | 4,693,198 | |||||||||||||||
(a) - In the course of preparing its financial statements as of June 30, 2014, the Company determined that all of its derivative liabilities | |||||||||||||||||
contained unobsoverable inputs and should therefore be reported in the Level 3 fair value hierarchy | |||||||||||||||||
Use of estimates | ' | ||||||||||||||||
The preparation of condensed consolidated interim 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 condensed consolidated interim financial statements and the reported amounts of revenues and expenses during the periods. Actual results could be affected by the accuracy of those estimates. | |||||||||||||||||
Restricted cash | ' | ||||||||||||||||
Restricted cash at September 30, 2014 and December 31, 2013 includes $1,000,000 of cash held in reserve as required by the terms of the Company’s senior lending agreement (see note 6), and certificates of deposit collateralizing a letter of credit in the aggregate amount of approximately $164,000. The letter of credit is required as security for one of the Company’s non-cancelable operating leases for office facilities. |
1_Basis_of_Presentation_Consol2
1. Basis of Presentation, Consolidation, and Summary of Selected Significant Accounting Policies (Tables) | 9 Months Ended | ||||||||||||||
Sep. 30, 2014 | |||||||||||||||
Notes to Financial Statements | ' | ||||||||||||||
Following securities were excluded in the calculation of diluted loss per share | ' | ||||||||||||||
2014 | 2013 | ||||||||||||||
Warrants | 3,509,205 | 2,289,919 | |||||||||||||
Stock options | 376,863 | 353,252 | |||||||||||||
Convertible preferred stock | 4,525,443 | 153,397 | |||||||||||||
8,411,511 | 2,796,568 | ||||||||||||||
Change in goodwill | ' | ||||||||||||||
Balance at January 1, 2014 | Additions | Other (a) | Balance at September 30, 2014 | ||||||||||||
$ | 5,124,130 | - | 97,958 | $ | 5,222,088 | ||||||||||
(a) - Amount relates to adjustments to the preliminary purchase price for the acquisition completed on December 31, 2013. | |||||||||||||||
Balance at January 1, 2013 | Additions | Other (a) | Balance at September 30, 2013 | ||||||||||||
$ | 2,406,269 | - | 197,256 | $ | 2,603,525 | ||||||||||
(a) - Amount relates to adjustments to the preliminary purchase price for the acquisition completed on October 29, 2012. | |||||||||||||||
The following table summarizes the stock option activity | ' | ||||||||||||||
(unaudited) | |||||||||||||||
Number of Options | Weighted Average Exercise Price | ||||||||||||||
Balance at December 31, 2013 | 351,439 | $ 16.29 | |||||||||||||
Shares granted during the period | 38,440 | $ 6.63 | |||||||||||||
Shares exercised during the period | - | $ - | |||||||||||||
Shares forfeited during the period | (2,539) | $ 6.19 | |||||||||||||
Shares expired during the period | (10,477) | $ 179.29 | |||||||||||||
Shares outstanding at September 30, 2014 | 376,863 | $ 10.84 | |||||||||||||
Shares exercisable at September 30, 2014 | 182,609 | $ 17.12 | |||||||||||||
Calculated the fair value of each common stock option grant on the date of grant using the Black-Scholes option-pricing model | ' | ||||||||||||||
(unaudited) | |||||||||||||||
Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | ||||||||||||||
Dividend yield | 0 | % | 0 | % | |||||||||||
Stock volatility | 137.2 | % | 137.2 | % | |||||||||||
Average Risk-free interest rate | 2.31 | % | 0.68 | % | |||||||||||
Average option term (years) | 7.8 | 3 |
3_Prepaid_Expenses_and_Other_C1
3. Prepaid Expenses and Other Current Assets (Tables) | 9 Months Ended | |||
Sep. 30, 2014 | ||||
Notes to Financial Statements | ' | |||
Prepaid expenses and other current assets | ' | |||
30-Sep-14 | 31-Dec-13 | |||
(unaudited) | ||||
Prepaid insurance | $ 93,089 | $ 63,737 | ||
Due from purchaser of accounts receivable | - | 236,232 | ||
Escrowed funds – senior lenders | - | 2,000,000 | ||
Other prepaid expenses | 822,354 | 404,818 | ||
Total | $ 915,443 | $ 2,704,787 |
4_Intangible_Assets_Tables
4. Intangible Assets (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Notes to Financial Statements | ' | ||||||||
Identifiable intangible assets | ' | ||||||||
September 30, 2014 | 31-Dec-13 | ||||||||
Gross Carrying Amount | Accumulated Amortization | Total | Gross Carrying Amount | Accumulated Amortization | Total | ||||
Intangibles associated with the acquisition of NBS: | |||||||||
Trademarks and tradename | $ 563,000 | $ (123,156) | $ 439,844 | $ 563,000 | $ (65,683) | $ 497,317 | |||
Proprietary technology | 1,903,000 | (729,483) | 1,173,517 | 1,903,000 | (444,033) | 1,458,967 | |||
Non-compete agreement | 3,257,000 | (2,080,861) | 1,176,139 | 3,257,000 | (1,266,611) | 1,990,389 | |||
Customer relationships | 9,824,000 | (1,240,269) | 8,583,731 | 9,824,000 | (754,988) | 9,069,012 | |||
Favorable lease intangible | 218,000 | (83,567) | 134,433 | 218,000 | (50,867) | 167,133 | |||
Total acquired intangibles | 15,765,000 | (4,257,336) | 11,507,664 | 15,765,000 | (2,582,182) | 13,182,818 | |||
Intangibles associated with the Broadvox Transaction: | |||||||||
Proprietary technology | 3,878,000 | (581,700) | 3,296,300 | 3,878,000 | - | 3,878,000 | |||
Non-compete agreements | 5,471,000 | (2,051,625) | 3,419,375 | 5,471,000 | - | 5,471,000 | |||
Customer relationships | 12,517,000 | (722,135) | 11,794,865 | 12,517,000 | - | 12,517,000 | |||
Total acquired intangibles | 21,866,000 | (3,355,460) | 18,510,540 | 21,866,000 | - | 21,866,000 | |||
Total | $ 37,631,000 | $ (7,612,796) | $ 30,018,204 | $ 37,631,000 | $ (2,582,182) | $ 35,048,818 | |||
Estimated future aggregate amortization expense | ' | ||||||||
($000's) | |||||||||
Remainder of the year | 2014 | $ 1,687 | |||||||
Year ending December 31: | 2015 | 6,567 | |||||||
2016 | 2,927 | ||||||||
2017 | 2,856 | ||||||||
2018 | 2,444 |
5_Accounts_Payable_and_Accrued1
5. Accounts Payable and Accrued Expenses (Tables) | 9 Months Ended | |||||
Sep. 30, 2014 | ||||||
Notes to Financial Statements | ' | |||||
Accounts payable and accrued expenses | ' | |||||
30-Sep-14 | 31-Dec-13 | |||||
(unaudited) | ||||||
Trade accounts payable | $ 2,829,305 | $ 5,933,736 | ||||
Accrued expenses | 1,768,285 | 3,101,103 | ||||
Accrued payroll and vacation | 245,340 | 102,898 | ||||
Interest payable | 87,013 | 421,632 | ||||
Sales and communications taxes payable | 2,045,910 | 691,350 | ||||
Deferred revenue | 771,732 | 407,426 | ||||
Other | 1,487,898 | 503,405 | ||||
Total accounts payable and accrued expenses | $ 9,235,483 | $ 11,161,550 |
6_Notes_Payable_NonRelated_Par1
6. Notes Payable Non-Related Parties (Tables) | 9 Months Ended | |||||
Sep. 30, 2014 | ||||||
Notes to Financial Statements | ' | |||||
Components of notes payable non-related parties | ' | |||||
30-Sep-14 | 31-Dec-13 | |||||
Senior Notes | $ 41,322,917 | $ 41,791,667 | ||||
Discount on Senior Notes | (3,862,917) | (4,377,680) | ||||
Total notes payable - non-related parties | 37,460,000 | 37,413,987 | ||||
Less: | ||||||
Current portion | (1,075,000) | (625,000) | ||||
Non-current portion notes payable - non-related parties | $ 36,385,000 | $ 36,788,987 |
7_Notes_Payable_Related_Partie
7. Notes Payable Related Parties (Tables) | 9 Months Ended | |||||
Sep. 30, 2014 | ||||||
Notes Payable Related Parties Tables | ' | |||||
Component of notes payable related party | ' | |||||
30-Sep-14 | 31-Dec-13 | |||||
NBS Sellers Notes | $ - | $ 85,714 | ||||
Notes payable to Marvin Rosen | 1,478,081 | 1,578,081 | ||||
Discount on notes payable to Marvin Rosen | (198,278) | - | ||||
Other notes payable - related parties | 125,000 | 125,000 | ||||
Total notes payable - related parties | 1,404,803 | 1,788,795 | ||||
Less: | ||||||
Current portion of NBS Sellers Notes | - | (85,714) | ||||
Current portion of notes payable to Marvin Rosen | - | (100,000) | ||||
Current portion of other notes payable - related parties | (125,000) | (125,000) | ||||
Non-current portion notes payable - related parties | $ 1,279,803 | $ 1,478,081 |
11_Segment_Information_Tables
11. Segment Information (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
Notes to Financial Statements | ' | ||||||||
Operating segment information | ' | ||||||||
Three months ended September 30, 2014 | |||||||||
Carrier Services | Business Services | Corporate and Unallocated | Consolidated | ||||||
Revenues | $ 7,253,220 | $ 15,233,311 | $ - | $ 22,486,531 | |||||
Cost of revenues (exclusive of | |||||||||
depreciation and amortization) | 6,525,201 | 5,786,987 | - | 12,312,188 | |||||
Gross profit | 728,019 | 9,446,324 | - | 10,174,343 | |||||
Depreciation and amortization | 164,153 | 2,642,797 | 23,777 | 2,830,727 | |||||
Selling, general and administrative expenses | 752,911 | 6,051,105 | 1,333,352 | 8,137,368 | |||||
Interest expense | - | (1,396,038) | (46,470) | (1,442,508) | |||||
Gain on change in fair value of derivative liability | 2,389,203 | 2,389,203 | |||||||
Other (expenses) income | (3,449) | 12,784 | 304 | 9,639 | |||||
Income tax benefit | - | - | (147,341) | (147,341) | |||||
Net (loss) income | $ (192,494) | $ (630,832) | $ 1,133,249 | $ 309,923 | |||||
Total assets | $ 3,599,981 | $ 58,126,589 | $ 5,250,339 | $ 66,976,909 | |||||
Nine months ended September 30, 2014 | |||||||||
Carrier Services | Business Services | Corporate and Unallocated | Consolidated | ||||||
Revenues | $ 21,926,591 | $ 46,605,742 | $ - | $ 68,532,333 | |||||
Cost of revenues (exclusive of | |||||||||
depreciation and amortization) | 19,558,258 | 17,730,403 | - | 37,288,661 | |||||
Gross profit | 2,368,333 | 28,875,339 | - | 31,243,672 | |||||
Depreciation and amortization | 280,351 | 7,647,899 | 67,946 | 7,996,196 | |||||
Selling, general and administrative expenses | 2,194,143 | 17,891,406 | 3,696,710 | 23,782,259 | |||||
Interest expense | - | (4,150,106) | (284,163) | (4,434,269) | |||||
Gain on change in fair value of derivative liability | 4,308,272 | 4,308,272 | |||||||
Other (expenses) income | (97,486) | (13,871) | 80,641 | (30,716) | |||||
Provision for income taxes | - | 25,737 | 25,737 | ||||||
Net (loss) income | $ (203,647) | $ (827,943) | $ 314,357 | $ (717,233) | |||||
Capital expenditures | $ 100,403 | $ 2,854,388 | $ - | $ 2,954,791 | |||||
Three Months Ending September 30, 2013 | |||||||||
Carrier Services | Business Services | Corporate and Unallocated | Consolidated | ||||||
Revenues | $ 7,026,589 | $ 7,785,239 | $ - | $ 14,811,828 | |||||
Cost of revenues (exclusive of | |||||||||
depreciation and amortization) | 6,167,706 | 3,786,028 | - | 9,953,734 | |||||
Gross profit | 858,883 | 3,999,211 | - | 4,858,094 | |||||
Depreciation and amortization | 61,401 | 827,947 | 22,265 | 911,613 | |||||
Selling, general and administrative expenses | 707,975 | 2,631,550 | 972,983 | 4,312,508 | |||||
Interest expense | - | (581,072) | (82,617) | (663,689) | |||||
Loss on extinguishment of debt | (291,995) | (291,995) | |||||||
Gain on change in fair value of derivative liability | (838,142) | (838,142) | |||||||
Other (expenses) income | (49,124) | 17,156 | 24,939 | (7,029) | |||||
(Loss) gain on extinguishment of accounts payable | - | (25,222) | (25,222) | ||||||
Net (loss) income | $ 40,383 | $ (24,202) | $ (2,208,285) | $ (2,192,104) | |||||
Nine Months Ended September 30, 2013 | |||||||||
Carrier Services | Business Services | Corporate and Unallocated | Consolidated | ||||||
Revenues | $ 22,458,404 | $ 22,752,023 | $ - | $ 45,210,427 | |||||
Cost of revenues (exclusive of | |||||||||
depreciation and amortization) | 20,088,181 | 11,222,683 | - | 31,310,864 | |||||
Gross profit | 2,370,223 | 11,529,340 | - | 13,899,563 | |||||
Depreciation and amortization | 157,832 | 2,411,370 | 64,910 | 2,634,112 | |||||
Selling, general and administrative expenses | 2,325,927 | 7,683,266 | 3,004,761 | 13,013,954 | |||||
Interest expense | - | (1,729,894) | (263,045) | (1,992,939) | |||||
Loss on extinguishment of debt | (442,574) | (442,574) | |||||||
Gain on change in fair value of derivative liability | (732,875) | (732,875) | |||||||
Other (expenses) income | (176,355) | (469,713) | 576,688 | (69,380) | |||||
Gain on extinguishment of accounts payable | - | 2,883,660 | 2,883,660 | ||||||
Net (loss) income | $ (289,891) | $ (764,903) | $ (1,047,817) | $ (2,102,611) | |||||
Capital expenditures | $ 142,937 | $ 777,996 | $ 17,497 | $ 938,430 | |||||
Carrier Services | Business Services | Corporate and Unallocated | Consolidated | ||||||
As of September 30, 2014 | $ 3,599,981 | $ 58,126,589 | $ 5,250,339 | $ 66,976,909 | |||||
As of December 31, 2013 | $ 3,021,463 | $ 58,487,324 | $ 7,441,874 | $ 68,950,661 | |||||
As of September 30, 2013 | $ 2,862,749 | $ 22,918,730 | $ 897,478 | $ 26,678,957 |
12_Supplemental_Disclosure_of_1
12. Supplemental Disclosure of Cash Flow Information (Tables) | 9 Months Ended | ||||||
Sep. 30, 2014 | |||||||
Supplemental Disclosure Of Cash Flow Information Tables | ' | ||||||
Supplemental Disclosure of Cash Flow Information | ' | ||||||
Nine months ended September 30, | |||||||
2014 | 2013 | ||||||
Cash paid for interest | $ 3,948,533 | $ 1,395,799 | |||||
Cash paid for income taxes | $ 71,495 | $ - | |||||
Supplemental schedule of non-cash financing and investing activities: | |||||||
Conversion of notes and interest payable - related parties to common stock | $ - | $ 895,000 | |||||
Conversion of accounts payable - related parties to common stock | $ - | $ 126,858 | |||||
Assets acquired under capital leases | $ 1,423,257 | $ 359,675 |
14_Fair_Value_Disclosures_Tabl
14. Fair Value Disclosures (Tables) | 9 Months Ended | |||||||||
Sep. 30, 2014 | ||||||||||
Fair Value Disclosures Tables | ' | |||||||||
Fair value of the liability measured at fair value on a recurring basis | ' | |||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||
As of June 30, 2014 | ||||||||||
Non-current liabilities: | ||||||||||
Derivative liability (see notes 6 and 8 ) | $ - | $ - | $ 4,693,198 | $ 4,693,198 | ||||||
As of December 31, 2013 | ||||||||||
Non-current liabilities: | ||||||||||
Derivative liability | $ - | $ 10,515,472 | $ - | $ 10,515,472 | ||||||
Changes in the derivative liability categorized within Level 3 of the fair value hierarchy | ' | |||||||||
Balance at December 31, 2013 | $ - | |||||||||
Transfer of Level 2 balance (a) | 10,515,472 | |||||||||
Issuance of additional warrants | 1,301,607 | |||||||||
Gains for the period: | ||||||||||
Included in earnings (loss) | (4,308,272) | |||||||||
Included in other comprehensive income (loss) | - | |||||||||
Modification of warrant contracts (see note 8) | (2,815,609) | |||||||||
Balance at June 30, 2014 | $ 4,693,198 | |||||||||
(a) - In the course of preparing its financial statements as of June 30, 2014, the Company determined that all of its derivative liabilities | ||||||||||
contained unobsoverable inputs and should therefore be reported in the Level 3 fair value hierarchy |
1_Basis_of_Presentation_Consol3
1. Basis of Presentation, Consolidation, and Summary of Selected Significant Accounting Policies (Details 1) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ' | ' |
Antidilutive securities | 8,411,511 | 2,796,568 |
Warrant | ' | ' |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ' | ' |
Antidilutive securities | 3,509,205 | 2,289,919 |
Stock Options | ' | ' |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ' | ' |
Antidilutive securities | 376,863 | 353,252 |
Convertible Preferred | ' | ' |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ' | ' |
Antidilutive securities | 4,525,443 | 153,397 |
1_Basis_of_Presentation_Consol4
1. Basis of Presentation, Consolidation, and Summary of Selected Significant Accounting Policies (Details 2) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
Notes to Financial Statements | ' | ' |
Balance at January 1, 2014 | $5,124,130 | $2,406,269 |
Additions | 0 | 0 |
Other | 97,958 | 197,256 |
Balance at March 31, 2014 | $5,222,088 | $2,603,525 |
1_Basis_of_Presentation_Consol5
1. Basis of Presentation, Consolidation, and Summary of Selected Significant Accounting Policies (Details 3) (USD $) | 9 Months Ended |
Sep. 30, 2014 | |
Summarizes the stock option activity | ' |
Outstanding Beginning Balance, Number of Options | 351,439 |
Shares granted during the period, Number of Options | 38,440 |
Shares exercised during the period, Number of Options | 0 |
Shares forfeited during the period, Number of Options | -2,539 |
Shares expired during the period, Number of Options | -10,477 |
Shares outstanding at June 30, 2014, Number of Options | 376,863 |
Shares exercisable at June 30, 2014, Number of Options | 182,609 |
Outstanding Beginning Balance, Weighted Average Exercise Price | $16.29 |
Shares granted during the period, Weighted Average Exercise Price | $6.63 |
Shares exercis during the period, Weighted Average Exercise Price | $0 |
Shares forfeited during the period, Weighted Average Exercise Price | $6.19 |
Shares expired during the period, Weighted Average Exercise Price | $179.29 |
Shares outstanding at June 30, 2014, Weighted Average Exercise Price | $10.84 |
Shares exercisable at June 30, 2014, Weighted Average Exercise Price | $17.12 |
1_Basis_of_Presentation_Consol6
1. Basis of Presentation, Consolidation, and Summary of Selected Significant Accounting Policies (Deatils 4) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
Black-Scholes option-pricing model method with the following assumptions | ' | ' |
Dividend yield | 0.00% | 0.00% |
Stock volatility | 137.20% | 137.20% |
Average Risk-free interest rate | 2.31% | 0.68% |
Average option term (years) | '7 years 9 months 18 days | '3 years |
1_Basis_of_Presentation_Consol7
1. Basis of Presentation, Consolidation, and Summary of Selected Significant Accounting Policies (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | Dec. 31, 2012 | |
Provision for preferred stock dividends | $102,000 | $102,000 | $302,000 | $302,000 | ' | ' |
Preferred stock dividends | 331,000 | ' | 1,016,000 | ' | ' | ' |
Dividend paid in form of shares | 78,202 | ' | 201,035 | ' | ' | ' |
Loss on sale of accounts receivable | 3,000 | 47,000 | 97,000 | 176,000 | ' | ' |
Outstanding accounts receivable sold | 0 | ' | 0 | ' | 900,000 | ' |
Goodwill | 5,222,088 | 2,603,525 | 5,222,088 | 2,603,525 | 5,124,130 | 2,406,269 |
Stock-based compensation expense | 111,000 | 51,000 | 253,000 | 107,000 | ' | ' |
Total unrecognized compensation cost | 625,000 | ' | 625,000 | ' | ' | ' |
Weighted-average period for Stock Incentive Plans | ' | ' | '1 year 11 months 16 days | ' | ' | ' |
Advertising and marketing expenses | 52,000 | 9,000 | 130,000 | 25,000 | ' | ' |
Cash restricted held in reserve | ' | ' | ' | ' | 1,000,000 | ' |
Certificate of deposit collateralizing a letter of credit | ' | ' | ' | ' | $164,000 | ' |
2_Acquisition_Details_Narrativ
2. Acquisition (Details Narrative) (USD $) | 9 Months Ended |
In Millions, unless otherwise specified | Sep. 30, 2013 |
Acquisition Details Narrative | ' |
Consolidated revenues | $69,700,000 |
Net loss | $6,700,000 |
3_Prepaid_Expenses_and_Other_C2
3. Prepaid Expenses and Other Current Assets (Details) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Prepaid expenses and other current assets | ' | ' |
Prepaid insurance | $93,089 | $63,737 |
Due from purchaser of accounts receivable | 0 | 236,232 |
Escrowed funds - senior lenders | 0 | 2,000,000 |
Other prepaid expenses | 822,354 | 404,818 |
Total | $915,443 | $2,704,787 |
4_Intangible_Assets_Details
4. Intangible Assets (Details) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Gross Carrying Amount | $37,631,000 | $37,631,000 |
Accumulated Amortization | -7,612,796 | -2,582,182 |
Total | 30,018,204 | 35,048,818 |
NBS [Member] | Trademarks and tradename | ' | ' |
Gross Carrying Amount | 563,000 | 563,000 |
Accumulated Amortization | -123,156 | -65,683 |
Total | 439,844 | 497,317 |
NBS [Member] | Proprietary technology | ' | ' |
Gross Carrying Amount | 1,903,000 | 1,903,000 |
Accumulated Amortization | -729,483 | -444,033 |
Total | 1,173,517 | 1,458,967 |
NBS [Member] | Non-compete agreement | ' | ' |
Gross Carrying Amount | 3,257,000 | 3,257,000 |
Accumulated Amortization | -2,080,861 | -1,266,611 |
Total | 1,176,139 | 1,990,389 |
NBS [Member] | Customer relationships | ' | ' |
Gross Carrying Amount | 9,824,000 | 9,824,000 |
Accumulated Amortization | -1,240,269 | -754,988 |
Total | 8,583,731 | 9,069,012 |
NBS [Member] | Favorable lease intangible | ' | ' |
Gross Carrying Amount | 218,000 | 218,000 |
Accumulated Amortization | -83,567 | -50,867 |
Total | 134,433 | 167,133 |
NBS [Member] | Total acquired intangibles | ' | ' |
Gross Carrying Amount | 15,765,000 | 15,765,000 |
Accumulated Amortization | -4,257,336 | -2,582,182 |
Total | 11,507,664 | 13,182,818 |
Broadvox [Member] | Proprietary technology | ' | ' |
Gross Carrying Amount | 3,878,000 | 3,878,000 |
Accumulated Amortization | -581,700 | 0 |
Total | 3,296,300 | 3,878,000 |
Broadvox [Member] | Non-compete agreement | ' | ' |
Gross Carrying Amount | 5,471,000 | 5,471,000 |
Accumulated Amortization | -2,051,625 | 0 |
Total | 3,419,375 | 5,471,000 |
Broadvox [Member] | Customer relationships | ' | ' |
Gross Carrying Amount | 12,517,000 | 12,517,000 |
Accumulated Amortization | -722,135 | 0 |
Total | 11,794,865 | 12,517,000 |
Broadvox [Member] | Total acquired intangibles | ' | ' |
Gross Carrying Amount | 21,866,000 | 21,866,000 |
Accumulated Amortization | -3,355,460 | 0 |
Total | $18,510,540 | $21,866,000 |
4_Intangible_Assets_Details_1
4. Intangible Assets (Details 1) (USD $) | Sep. 30, 2014 |
Notes to Financial Statements | ' |
Year ending December 31: 2014 | $1,687,000,000 |
2015 | 6,567,000,000 |
2016 | 2,927,000,000 |
2017 | 2,856,000,000 |
2018 | $2,444,000,000 |
4_Intangible_Assets_Details_Na
4. Intangible Assets (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Notes to Financial Statements | ' | ' | ' | ' |
Amortization expense | $1,700,000 | $600,000 | $5,000,000 | $1,700,000 |
5_Accounts_Payable_and_Accrued2
5. Accounts Payable and Accrued Expenses (Details) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Notes to Financial Statements | ' | ' |
Trade accounts payable | $2,829,305 | $5,933,736 |
Accrued expenses | 1,768,285 | 3,101,103 |
Accrued payroll and vacation | 245,340 | 102,898 |
Interest payable | 87,013 | 421,632 |
Sales and communications taxes payable | 2,045,910 | 691,350 |
Deferred revenue | 771,732 | 407,426 |
Other | 1,487,898 | 503,405 |
Total accounts payable and accrued expenses | $9,235,483 | $11,161,550 |
6_Notes_Payable_NonRelated_Par2
6. Notes Payable - Non-Related Parties (Details) (NonRelatedParty, USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
NonRelatedParty | ' | ' |
Senior Notes | $41,322,917 | $41,791,667 |
Discount on senior notes | -3,862,917 | -4,377,680 |
Total notes payable - non-related parties | 37,460,000 | 37,413,987 |
Less : Current portion | -1,075,000 | -625,000 |
Non-current portion notes payable - non-related parties | $36,385,000 | $36,788,987 |
6_Notes_Payable_Non_Related_Pa
6. Notes Payable - Non Related Parties (Details Narrative) (USD $) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | |
Notes to Financial Statements | ' | ' | ' | ' | ' |
Accreted Discount on senior notes | $3,900,000 | ' | $3,900,000 | ' | $4,400,000 |
Fair value derivative liability | 2,700,000 | ' | 2,700,000 | ' | 4,500,000 |
Recognized gain (loss) on change of fair value | 1,200,000 | -800,000 | 1,900,000 | -700,000 | ' |
Outstanding Advance accounts receivable | $1,000,000 | ' | $1,000,000 | ' | $1,100,000 |
7_Notes_Payable_Related_Party_
7. Notes Payable - Related Party (Details) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Notes Payable - Related Parties | $1,279,803 | $1,478,081 |
RelatedParty | ' | ' |
NBS Sellers Notes | 0 | 85,714 |
Notes payable to Marvin Rosen | 1,478,081 | 1,578,081 |
Discount on notes payable to Marvin Rosen | -198,278 | 0 |
Other notes payable - related parties | 125,000 | 125,000 |
Total notes payable - related parties | 1,404,803 | 1,788,795 |
Current portion of NBS Sellers Notes | 0 | -85,714 |
Current portion of notes payable to Marvin Rosen | 0 | -100,000 |
Current portion of notes payable | -125,000 | -125,000 |
Notes Payable - Related Parties | $1,279,803 | $1,478,081 |
8_Equity_Transactions_Details_
8. Equity Transactions (Details Narrative) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Dec. 31, 2013 | |
Cumulative Convertible Preferred Stock issued to investors, shares | 4,358 | ' |
Warrants to purchase common stock issued to investors | 278,912 | ' |
Shares issued to broker/dealers as compensation | 45,050 | ' |
Cash compensation paid to broker/dealers | $400,000 | ' |
Derivative liability related to investor warrants | 1,300,000 | ' |
Fair value of derivative liability | 2,800,000 | 600,000 |
Change in fair value of derivative liability due to gain | $2,400,000 | ' |
11_Segment_Information_Details
11. Segment Information (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Segment Reporting Information [Line Items] | ' | ' | ' | ' |
Revenues | $22,486,531 | $14,811,828 | $68,532,333 | $45,210,427 |
Cost of revenues (exclusive of depreciation and amortization) | 12,312,188 | 9,953,734 | 37,288,661 | 31,310,864 |
Gross profit | 10,174,343 | 4,858,094 | 31,243,672 | 13,899,563 |
Depreciation and amortization | 2,830,727 | 911,613 | 7,996,196 | 2,634,112 |
Selling, general and administrative expenses | 8,137,368 | 4,312,508 | 23,782,259 | 13,013,954 |
Interest expense | -1,442,508 | -663,689 | -4,434,269 | -1,992,939 |
Loss on extinguishment of debt | 0 | -291,995 | 0 | -442,574 |
Loss on change in fair value of derivative liability | ' | ' | 4,308,272 | -732,875 |
Gain on extinguishment of accounts payable | ' | ' | 0 | 2,883,660 |
(Benefit) Provision for income taxes | -147,341 | 0 | 25,737 | 0 |
Carrier Services | ' | ' | ' | ' |
Segment Reporting Information [Line Items] | ' | ' | ' | ' |
Revenues | 7,253,220 | 7,026,589 | 21,926,591 | 22,458,404 |
Cost of revenues (exclusive of depreciation and amortization) | 6,525,201 | 6,167,706 | 19,558,258 | 20,088,181 |
Gross profit | 728,019 | 858,883 | 2,368,333 | 2,370,223 |
Depreciation and amortization | 164,153 | 61,401 | 280,351 | 157,832 |
Selling, general and administrative expenses | 752,911 | -707,975 | -2,194,143 | -2,325,927 |
Interest expense | 0 | 0 | 0 | 0 |
Gain on change in fair value of derivative liability | 0 | ' | ' | ' |
Other (expenses) income | -3,449 | -49,124 | -97,486 | -176,355 |
(Benefit) Provision for income taxes | 0 | ' | 0 | ' |
Net income (loss) | -192,494 | 40,383 | -203,647 | -289,891 |
Total assets (Capital Expenditures) | 3,599,981 | ' | -100,403 | -142,937 |
Business Services And Other | ' | ' | ' | ' |
Segment Reporting Information [Line Items] | ' | ' | ' | ' |
Revenues | 15,233,311 | 7,785,239 | 46,605,742 | 22,752,023 |
Cost of revenues (exclusive of depreciation and amortization) | 5,786,987 | 3,786,028 | 17,730,403 | 11,222,683 |
Gross profit | 9,446,324 | 3,999,211 | 28,875,339 | 11,529,340 |
Depreciation and amortization | 2,642,797 | 827,947 | 7,647,899 | 2,411,370 |
Selling, general and administrative expenses | 6,051,105 | -2,631,550 | -17,891,406 | -7,683,266 |
Interest expense | 1,396,038 | -581,072 | -4,150,106 | -1,729,894 |
Gain on change in fair value of derivative liability | 0 | ' | ' | ' |
Other (expenses) income | 12,784 | 17,156 | -13,871 | -469,713 |
Gain on extinguishment of accounts payable | ' | 0 | ' | 0 |
(Benefit) Provision for income taxes | 0 | ' | ' | ' |
Net income (loss) | -630,832 | -24,202 | -827,943 | -764,903 |
Total assets (Capital Expenditures) | 58,126,589 | ' | -2,854,388 | -777,996 |
Corporate and Unallocated | ' | ' | ' | ' |
Segment Reporting Information [Line Items] | ' | ' | ' | ' |
Revenues | 0 | 0 | 0 | 0 |
Cost of revenues (exclusive of depreciation and amortization) | 0 | 0 | 0 | 0 |
Gross profit | 0 | 0 | 0 | 0 |
Depreciation and amortization | 23,777 | 22,265 | 67,946 | 64,910 |
Selling, general and administrative expenses | 1,333,352 | -972,983 | -3,696,710 | -3,004,761 |
Interest expense | 46,470 | -82,617 | -284,163 | -263,045 |
Loss on extinguishment of debt | ' | -291,995 | ' | -442,574 |
Gain on change in fair value of derivative liability | 2,389,203 | -838,142 | 4,308,272 | -732,875 |
Other (expenses) income | 304 | 24,939 | 80,641 | 576,688 |
Gain on extinguishment of accounts payable | -147,341 | -25,222 | ' | 2,883,660 |
(Benefit) Provision for income taxes | ' | ' | 25,737 | ' |
Net income (loss) | 1,133,249 | -2,208,285 | 314,357 | -1,047,817 |
Total assets (Capital Expenditures) | 5,250,339 | ' | 0 | -17,497 |
Consolidated | ' | ' | ' | ' |
Segment Reporting Information [Line Items] | ' | ' | ' | ' |
Revenues | 22,486,531 | 14,811,828 | 68,532,333 | 45,210,427 |
Cost of revenues (exclusive of depreciation and amortization) | 12,312,188 | 9,953,734 | 37,288,661 | 31,310,864 |
Gross profit | 10,174,343 | 4,858,094 | 31,243,672 | 13,899,563 |
Depreciation and amortization | 2,830,727 | 911,613 | 7,996,196 | 2,634,112 |
Selling, general and administrative expenses | 8,137,368 | -4,312,508 | -23,782,259 | -13,013,954 |
Interest expense | 1,442,508 | -663,689 | -4,434,269 | -1,992,939 |
Loss on extinguishment of debt | ' | -291,995 | ' | -442,574 |
Gain on change in fair value of derivative liability | 2,389,203 | -838,142 | 4,308,272 | -732,875 |
Other (expenses) income | 9,639 | -7,029 | -30,716 | -69,380 |
Gain on extinguishment of accounts payable | -147,341 | -25,222 | ' | 2,883,660 |
(Benefit) Provision for income taxes | ' | ' | 25,737 | ' |
Net income (loss) | 309,923 | -2,192,104 | -717,233 | -2,102,611 |
Total assets (Capital Expenditures) | $66,976,909 | ' | ($2,954,791) | ($938,430) |
12_Supplemental_Disclosure_of_2
12. Supplemental Disclosure of Cash Flow Information (Details) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
Supplemental Disclosure Of Cash Flow Information Details | ' | ' |
Cash paid for interest | $3,948,533 | $1,395,799 |
Cash paid for income taxes | 71,495 | 0 |
Supplemental schedule of non-cash financing activities: | ' | ' |
Conversion of notes and interest payable - related parties to common stock | 0 | 895,000 |
Conversion of accounts payable - related parties to common stock | 0 | 126,858 |
Assets acquired under capital leases | $1,423,257 | $359,675 |
13_Related_Party_Transactions_
13. Related Party Transactions (Details Narrative) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Notes to Financial Statements | ' | ' |
Related party payable | $0 | $226,000 |
14_Fair_Value_Disclosures_Deta
14. Fair Value Disclosures (Details) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Non-current liabilities: | ' | ' |
Derivative liability | $4,693,198 | $10,515,472 |
Level 1 | ' | ' |
Non-current liabilities: | ' | ' |
Derivative liability | 0 | 0 |
Level 2 | ' | ' |
Non-current liabilities: | ' | ' |
Derivative liability | 0 | 10,515,472 |
Level 3 | ' | ' |
Non-current liabilities: | ' | ' |
Derivative liability | $4,693,198 | $0 |
14_Fair_Value_Disclosures_Deta1
14. Fair Value Disclosures (Details 1) (USD $) | 9 Months Ended |
Sep. 30, 2014 | |
Fair Value Disclosures Tables | ' |
Balance at December 31, 2013 | $0 |
Transfer of Level 2 balance (a) | 10,515,472 |
Issuance of additional warrants | 1,301,607 |
Gains for the period: | ' |
Included in earnings (loss) | -4,308,272 |
Included in other comprehensive income (loss) | 0 |
Modification of warrant contracts (see note 8) | -2,815,609 |
Balance at June 30, 2014 | $4,693,198 |