Document_and_Entity_Informatio
Document and Entity Information | 3 Months Ended | |
Mar. 31, 2015 | 11-May-15 | |
Document And Entity Information | ||
Entity Registrant Name | FUSION TELECOMMUNICATIONS INTERNATIONAL INC | |
Entity Central Index Key | 1071411 | |
Document Type | 10-Q | |
Document Period End Date | 31-Mar-15 | |
Amendment Flag | FALSE | |
Current Fiscal Year End Date | -19 | |
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 | 7,590,499 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2015 |
Condensed_Consolidated_Balance
Condensed Consolidated Balance Sheets (Unaudited) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Current assets: | ||
Cash and cash equivalents | $5,356,408 | $6,444,683 |
Accounts receivable, net of allowance for doubtful accounts of approximately $341,958 and $245,000, respectively | 6,912,131 | 7,087,599 |
Prepaid expenses and other current assets | 1,224,242 | 927,772 |
Total current assets | 13,492,781 | 14,460,054 |
Property and equipment, net | 13,793,733 | 13,478,912 |
Other assets: | ||
Security deposits | 648,998 | 648,998 |
Restricted cash | 1,164,381 | 1,164,381 |
Goodwill | 10,397,460 | 10,397,460 |
Intangible assets, net | 30,580,312 | 32,432,416 |
Other assets | 1,118,079 | 1,165,273 |
Total other assets | 43,909,230 | 45,808,528 |
TOTAL ASSETS | 71,195,744 | 73,747,494 |
Current liabilities: | ||
Notes payable - non-related parties | 1,225,000 | 1,225,000 |
Equipment financing obligations | 896,921 | 662,131 |
Accounts payable and accrued expenses | 10,391,506 | 10,471,514 |
Total current liabilities | 12,513,427 | 12,358,645 |
Long-term liabilities: | ||
Notes payable - non-related parties, net of discount | 41,147,893 | 41,263,934 |
Notes payable - related parties | 1,306,348 | 1,292,878 |
Equipment financing obligations | 1,988,947 | 1,702,704 |
Derivative liability | 5,044,371 | 3,839,569 |
Total liabilities | 62,000,985 | 60,457,730 |
Commitments and contingencies | ||
Stockholders' equity (deficit): | ||
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 26,343 and 26,793 shares issued and outstanding | 263 | 268 |
Common stock, $0.01 par value, 50,000,000 shares authorized, 7,518,900 and 7,345,028 shares issued and outstanding | 75,188 | 73,449 |
Capital in excess of par value | 175,686,442 | 175,519,459 |
Accumulated deficit | -166,567,134 | -162,303,412 |
Total stockholders' equity | 9,194,759 | 13,289,764 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $71,195,744 | $73,747,494 |
Condensed_Consolidated_Balance1
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Current assets: | ||
Allowance for doubtful accounts | $341,958 | $245,000 |
Stockholders' equity: | ||
Preferred Stock, Par Value | $0.01 | $0.01 |
Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 |
Preferred Stock, Shares Issued | 26,343 | 26,793 |
Preferred Stock, Shares Outstanding | 26,343 | 26,793 |
Common Stock, Par Value | $0.01 | $0.01 |
Common Stock, Shares Authorized | 50,000,000 | 50,000,000 |
Common Stock, Shares Issued | 7,518,900 | 7,345,028 |
Common Stock, Shares Outstanding | 7,518,900 | 7,345,028 |
Condensed_Consolidated_Interim
Condensed Consolidated Interim Statements of Operations (Unaudited) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Income Statement [Abstract] | ||
Revenues | $25,263,038 | $22,904,829 |
Cost of revenues (exclusive of depreciation and amortization, shown separately below) | 14,012,692 | 12,229,032 |
Gross profit | 11,250,346 | 10,675,797 |
Depreciation and amortization | 3,003,447 | 2,567,491 |
Selling, general and administrative expenses (including stock-based compensation of approximately $123,000 and $69,000 for the three months ended March 31, 2015 and 2014, respectively) | 9,736,294 | 7,819,397 |
Total operating expenses | 12,739,741 | 10,386,888 |
Operating (loss) income | -1,489,396 | 288,909 |
Other (expenses) income: | ||
Interest expense | -1,606,843 | -1,394,546 |
(Loss) gain on change in fair value of derivative liability | -1,204,802 | 2,609,947 |
Other income (expense), net | 37,319 | -41,074 |
Total other (expenses) income | -2,774,326 | 1,174,327 |
(Loss) income before income taxes | -4,263,722 | 1,463,236 |
Provision for income taxes | 0 | 21,495 |
Net (loss) income | -4,263,722 | 1,441,741 |
Preferred stock dividends in arrears | -418,988 | -442,088 |
Net (loss) income attributable to common stockholders | ($3,968,944) | $92,882 |
Basic and diluted (loss) earnings per common share | ($0.49) | $0.02 |
Weighted average common shares outstanding: | ||
Basic and diluted | 8,159,534 | 6,078,546 |
Condensed_Consolidated_Interim1
Condensed Consolidated Interim Statements of Operations (Unaudited) (Parenthetical) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Income Statement [Abstract] | ||
Share Based Compensation | $123,000 | $69,000 |
Condensed_Consolidated_Interim2
Condensed Consolidated Interim Statement of Stockholders' Equity (USD $) | Preferred Stock | Common Stock | Capital in Excess of Par | Accumulated Deficit | Total |
Begining Balance, Amount at Dec. 31, 2014 | $268 | $73,449 | $175,519,459 | ($162,303,412) | $13,289,764 |
Begining Balance, Shares at Dec. 31, 2014 | 26,793 | 7,345,028 | |||
Net loss | -4,263,722 | -4,263,722 | |||
Conversion of preferred stock into common stock, shares | -450 | 90,000 | |||
Conversion of preferred stock into common stock, amount | -5 | 900 | -895 | ||
Dividends on preferred stock, Shares | 72,205 | ||||
Dividends on preferred stock, Amount | 722 | -722 | |||
Issuance of common stock for services rendered, Shares | 11,667 | 11,667 | |||
Issuance of common stock for services rendered, Amount | 117 | 46,084 | 46,201 | ||
Stock based compensation associated with stock incentive plans | 122,516 | 122,516 | |||
Ending Balance, Amount at Mar. 31, 2015 | $263 | $75,188 | $175,686,442 | ($166,567,134) | $9,194,759 |
Ending Balance, Shares at Mar. 31, 2015 | 26,343 | 7,518,900 |
Condensed_Consolidated_Interim3
Condensed Consolidated Interim Statements of Cash Flows (Unaudited) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Cash flows from operating activities: | ||
Net (loss) income | ($4,263,722) | $1,441,741 |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 3,003,447 | 2,567,491 |
Loss on sale of accounts receivable | 0 | 41,039 |
Bad debt expense | 150,000 | 80,000 |
Stock-based compensation | 122,516 | 68,900 |
Stock and warrants issued for services rendered or in settlement of liabilities | 46,201 | 29,667 |
Amortization of debt discount and deferred financing fees | 250,974 | 196,029 |
Loss (gain) in the change in fair value of derivative liability | 1,204,802 | -2,609,947 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 25,470 | -273,544 |
Prepaid expenses and other current assets | -296,470 | -444,339 |
Other assets | -100 | -2,649 |
Accounts payable and accrued expenses | -80,010 | -1,435,234 |
Other long-term liabilities | 0 | -35,664 |
Net cash provided by (used in) operating activities | 163,108 | -376,510 |
Cash flows from investing activities: | ||
Purchase of property and equipment | -796,304 | -749,582 |
Payment of obligations related to purchase price of acquisitions | 0 | -226,148 |
Net cash used in investing activities | -796,304 | -975,730 |
Cash flows from financing activities: | ||
Proceeds from the sale of preferred stock and warrants, net | 0 | 4,000,898 |
Payments on equipment financing obligations | -148,829 | -90,956 |
Repayments of notes payable - related parties | 0 | -185,714 |
Repayments of notes payable - non-related parties | -306,250 | -156,250 |
Net cash (used in) provided by financing activities | -455,079 | 3,567,978 |
Net change in cash and cash equivalents | -1,088,275 | 2,215,738 |
Cash and cash equivalents, beginning of period | 6,444,683 | 6,176,575 |
Cash and cash equivalents, end of period | $5,356,408 | $8,392,313 |
1_Organization_and_Business
1. Organization and Business | 3 Months Ended |
Mar. 31, 2015 | |
Organization And Business | |
1. Organization and Business | Fusion Telecommunications International, Inc. (“Fusion” and together with its subsidiaries, the “Company”) is a Delaware corporation. The Company is a provider of integrated cloud solutions, including cloud voice, cloud connectivity, cloud storage and security to businesses of all sizes, and IP-based voice services to other carriers. The Company currently operates in two business segments, ‘Business Services’ and ‘Carrier Services’. |
2_Basis_of_Presentation_Consol
2. Basis of Presentation, Consolidation, and Summary of Selected Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2015 | |
Notes to Financial Statements | |
2. Basis of Presentation, Consolidation, and Summary of Selected Significant Accounting Policies | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared in all material respects in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying unaudited condensed consolidated interim financial statements have been prepared on the same basis as the financial statements for the year ended December 31, 2014. | |
Because certain information and footnote disclosures have been condensed or omitted, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report or Form 10-K for the fiscal year ended December 31, 2014 as filed with the SEC. In management’s opinion, all normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included. Management believes that the disclosures made in these unaudited condensed consolidated interim financial statements are adequate to make the information not misleading. The results for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the full year. | |
Significant Accounting Policies | |
For a detailed discussion of significant accounting policies, please refer to our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2014. There have been no material changes in our accounting policies during the quarter ended March 31, 2015. | |
Principles of Consolidation | |
The condensed consolidated interim financial statements include the accounts of Fusion and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. | |
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 amounts reported. Key estimatesinclude: the recognition of revenue, allowance for doubtful accounts; asset lives used in computing depreciation and amortization; valuation of intangible assets; accounting for stock options and other equity awards, particularly related to fair value estimates; accounting for income taxes; contingencies; and litigation. While management believes that such estimates are reasonable when considered in conjunction with the financial position and results of operations taken as a whole, actual results could differ from those estimates, and such differences may be material. | |
Reclassifications | |
Certain reclassifications have been made to the prior years’ financial statements in order to conform to the current year’s presentation. The reclassifications had no impact on net earnings previously reported. | |
Cash and Cash Equivalents | |
Cash and cash equivalents include cash on deposit and short-term, highly-liquid investments with maturities of three months or less at the date of purchase. As of March 31, 2015 and December 31, 2014, the carrying value of cash and cash equivalents approximates fair value due to the short period of time to maturity. | |
Restricted Cash | |
Restricted cash consists primarily of cash held in reserve as required by the terms of our senior lending agreement and certificates of deposit that serve to collateralize outstanding letters of credit for one of our non-cancellable operating leases. Restricted cash is recorded as current or non-current assets in the consolidated balance sheets depending on the duration of the restriction and the purpose for which the restriction exists. Restricted cash at March 31, 2015 and December 31, 2014 includes $1,000,000 of cash held in reserve as required by the terms of the Company’s senior lending agreement, and certificates of deposit collateralizing a letter of credit in the aggregate amount of $163,872. The letter of credit is required as security for one of the Company’s non-cancelable operating leases for office facilities. | |
Fair value of Financial Instruments | |
At March 31, 2015 and December 31, 2014, the carrying value of the Company’s accounts receivable, accounts payable and accrued expenses approximates its fair value due to the short term nature of these financial instruments. | |
Long-Lived Asset Impairment | |
The Company periodically reviews long-lived assets, including intangible assets subject to amortization, for possible impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying amount of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by such asset or asset group. If the undiscounted cash flows are less than the carrying amount of the asset or asset group, an impairment loss is recognized for the amount by which the carrying amount of the asset or asset group exceeds its fair value. The Company did not record any impairment charges during the three months ended March 31, 2015 or 2014, as there were no indicators of impairment. | |
Goodwill | |
Goodwill represents the excess of consideration paid over the fair value of net assets acquired in business combinations. Goodwill is not amortized and is tested for impairment on an annual basis in the fourth quarter of each fiscal year and whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators include, but are not limited to, deterioration in general economic conditions, adverse changes in the markets in which a company operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods. | |
In testing goodwill for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If the Company elects to perform a qualitative assessment and determines that an impairment is more likely than not, it is then required to perform a quantitative impairment test, otherwise no further analysis is required. The Company also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. | |
Under the goodwill two-step quantitative impairment test, the Company reviews for impairment the fair value of each reporting unit to its carrying value. The Company has determined that its reporting units are its operating segments (See Note 15). The first step compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step would be conducted; otherwise, no further steps are necessary as no potential impairment exists. The second step compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. Any excess of the reporting unit goodwill carrying value over the respective implied fair value is recognized as an impairment loss. Goodwill at March 31, 2015 and December 31, 2014 was approximately $10.4 million. All of the Company’s goodwill is attributable to its ‘Business Services’ segment. There was no change in goodwill as a result of adjustments to purchase price allocations of previous acquisitions during the quarter ended March 31, 2015. There was no impairment charge recorded for goodwill during the three months ended March 31, 2015 or 2014, as there were no indicators of impairment. | |
Advertising and Marketing Costs | |
Costs related to advertising and marketing are expensed as incurred and included in selling, general and administrative expenses in our condensed consolidated statements of operations. Our advertising and marketing expense was approximately $112,079 and $44,000 for the three months ended March 31, 2015 and 2014, respectively. | |
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 March 31, 2015 and December 31, 2014. 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 March 31, 2015 and December 31, 2014. During the three month ended March 31, 2015 and 2014, the Company recognized no adjustments for uncertain tax positions. | |
Stock-Based Compensation | |
The Company recognizes expense for its employee stock-based compensation based on the fair value of the awards that are granted. The fair values of stock options are estimated at the date of grant using the Black-Scholes option valuation model. The use of the Black-Scholes option valuation model requires the input of subjective assumptions. Measured compensation cost, net of estimated forfeitures, is recognized ratably over the vesting period of the related stock-based compensation award. | |
New and Recently Adopted Accounting Pronouncements | |
In May 2014, the Financial Accounting Standards Board the (“FASB”) issued authoritative guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most recent current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for certain incremental costs of obtaining a contract and costs to fulfill a contract with a customer. Entities have the option of applying either a full retrospective approach to all periods presented or a modified approach that reflects differences prior to the date of adoption as an adjustment to equity. In April 2015, the FASB deferred the effective date of this guidance by one year. As such, this guidance will be effective on January 1, 2018 and the Company is currently assessing the impact of this guidance on its consolidated financial statements. |
3_Earnings_per_share
3. Earnings per share | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Earnings Per Share [Abstract] | |||||||||
3. Earnings per share | Basic and diluted (loss) earnings per share for the three months ended March 31, 2015 and 2014 is computed by dividing (i) (loss) income available to common stockholders, adjusted by approximately $0.7 million loss and $0.9 million gain for the loss or gain on the fair value of the Company’s derivative liability in the first quarter of 2015, and 2014, respectively that is attributable to 728,333 outstanding warrants with a nominal exercise price and dividends on preferred stock, by (ii) the weighted-average number of common shares outstanding during the period, increased by the number of common shares underlying such warrants with a nominal exercise price as if such exercise had occurred at the beginning of the year. | ||||||||
The following table sets forth the computation for basic and diluted net income per share for the three months ended March 31, 2015 and 2014: | |||||||||
Three Months Ended | |||||||||
March 31, | March 31, | ||||||||
2015 | 2014 | ||||||||
Numerator | |||||||||
(Loss) income available to common stockholders | $ | (4,263,722 | ) | $ | 1,441,741 | ||||
Dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock | -99,518 | -99,518 | |||||||
Dividends declared on Series B-2 Convertible Preferred Stock | -319,470 | -342,570 | |||||||
Loss (gain) on nominal warrants | 713,766 | (906,771 | ) | ||||||
Net (loss) income attributable to common stockholders | $ | (3,968,944 | ) | $ | 92,882 | ||||
Denominator | |||||||||
Basic and diluted weighted average common shares outstanding | 8,159,534 | 6,078,546 | |||||||
(Loss) earnings per share | |||||||||
Basic and diluted | $ | (0.49 | ) | $ | 0.02 | ||||
Securities excluded from diluted per share calculation | 8,504,283 | 3,916,265 | |||||||
For the three months ended March 31, 2015 and 2014, the following were excluded from the calculation of diluted earnings per common share because of their anti-dilutive effects: | |||||||||
2015 | 2014 | ||||||||
Warrants | 3,391,324 | 3,540,999 | |||||||
Convertible preferred stock | 4,424,147 | - | |||||||
Stock options | 688,812 | 375,266 | |||||||
8,504,283 | 3,916,265 | ||||||||
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 $100,000 for the three months ended March 31, 2015 and 2014. As of March 31, 2015, the Board of Directors had not declared any dividends on the Series A Preferred Stock, and the Company had accumulated approximately $4,032,834 of preferred stock dividends. The Board of Directors has declared a dividend of $319,470 and $342,570 for the three months ended March 31, 2015 and 2014, related to 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 72,205 and 66,327 shares of the Company’s common stock. |
4_Intangible_Assets
4. Intangible Assets | 3 Months Ended | ||||||
Mar. 31, 2015 | |||||||
Notes to Financial Statements | |||||||
4. Intangible Assets | Intangible assets as of March 31, 2015 and December 31, 2014 are as follows: | ||||||
March 31, | December 31, | ||||||
2015 | 2014 | ||||||
Trademarks and tradename | $ | 1,093,400 | $ | 1,093,400 | |||
Proprietary technology | 5,781,000 | 5,781,000 | |||||
Non-compete agreements | 9,852,100 | 9,852,100 | |||||
Customer relationships | 24,897,800 | 24,897,800 | |||||
Favorable lease intangible | 218,000 | 218,000 | |||||
41,842,300 | 41,842,300 | ||||||
Less: accumulated amortization | -11,261,988 | -9,409,884 | |||||
Intangible assets, net | $ | 30,580,312 | $ | 32,432,416 | |||
Amortization expense was $1.9 million and $1.7 million for the three months ended March 31, 2015 and 2014, respectively. Estimated future aggregate amortization expense is expected to be as follows: | |||||||
Remainder of | 2015 | $5,375,365 | |||||
2016 | $3,587,246 | ||||||
2017 | $3,454,097 | ||||||
2018 | $2,729,701 | ||||||
2019 | $1,895,455 |
5_Stockbased_compensation
5. Stock-based compensation | 3 Months Ended | |||||
Mar. 31, 2015 | ||||||
Stock-based Compensation | ||||||
5. Stock-based compensation | The Company's stock-based compensation plan provides for the issuance of stock options to our employees, officers, and directors. The Compensation Committee of the Board of Directors (the "Compensation Committee") approves all awards that are granted under the Company's stock-based compensation plan. | |||||
The Company recognizes expense for its stock-based compensation based on the fair value of the awards that are granted. The fair values of stock options are estimated at the date of grant using the Black-Scholes option valuation model. The use of the Black-Scholes option valuation model requires the input of subjective assumptions such as expected life, volatility, risk-free interest rate, dividend yield and forfeiture rates. The expected life of stock-based awards granted represents the period of time that they are expected to be outstanding and is estimated using historical data. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of our common stock. The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. The Company has not paid any cash dividends on its common stock, and it does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes option valuation model. Finally, the company uses historical data to estimate pre-vesting option forfeitures. Stock-based compensation is recorded for only those awards that are expected to vest. | ||||||
The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during the three months ended March 31, 2015 and 2014 using the Black- Scholes Model: | ||||||
2015 | 2014 | |||||
Dividend yield (%) | 0 | 0 | ||||
Expected volatility (%) | 97.2 | 137.16 | ||||
Average Risk-free interest rate (%) | 1.69 | 2.43 | ||||
Expected life of stock option term (years) | 8 | 8.12 | ||||
The Company recognized compensation expense of approximately $123,000 and $69,000 for the three months ended March 31, 2015 and 2014, 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 three months ended March 31, 2015: | ||||||
Number of Options | Weighted Average Exercise Price | |||||
Oustanding at December 31, 2014 | 607,877 | $ | 8 | |||
Granted | 104,900 | $ | 3.72 | |||
Exercised | - | $ | - | |||
Forfeited | -16,140 | $ | 4.58 | |||
Expired | -7,825 | $ | 28.71 | |||
Outstanding at March 31, 2015 | 688,812 | $ | 7.13 | |||
Exercisable at March 31, 2015 | 201,978 | $ | 14.86 | |||
As of March 31, 2015, we had approximately $1.1 million of unrecognized compensation expense, 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 2.3 years. |
6_Supplemental_Disclosure_of_C
6. Supplemental Disclosure of Cash Flow Information | 3 Months Ended | ||||||
Mar. 31, 2015 | |||||||
Notes to Financial Statements | |||||||
6. Supplemental Disclosure of Cash Flow Information | The following table summarizes the Company’s supplemental cash flows information: | ||||||
Three Months Ended March 31, | |||||||
Supplemental Cash Flow Information | 2015 | 2014 | |||||
Cash paid for interest | $ | 1,355,526 | $ | 1,538,150 | |||
Supplemental Non-Cash Investing and Financing Activities | |||||||
Property and equipment acquired under capital leases | $ | 669,863 | $ | - | |||
Dividend on Series B-2 preferred stock paid with the issuance of common stock | $ | 72,205 | $ | 66,327 | |||
Conversion of preferred stock into common stock | $ | 450,000 | $ | - |
7_Prepaid_Expenses_and_Other_C
7. Prepaid Expenses and Other Current Assets | 3 Months Ended | |||||
Mar. 31, 2015 | ||||||
Notes to Financial Statements | ||||||
7. Prepaid Expenses and Other Current Assets | The following table sets forth the items in prepaid expenses and other current assets: | |||||
March 31, | December 31, | |||||
2015 | 2014 | |||||
Insurance | $ | 103,871 | $ | 61,004 | ||
Rent | 97,514 | 54,209 | ||||
Marketing | 29,864 | 34,482 | ||||
Software subscriptions | 745,071 | 502,696 | ||||
Real estate taxes and other taxes | 61,833 | - | ||||
Commissions | 22,305 | 23,015 | ||||
Other | 163,784 | 252,366 | ||||
$ | 1,224,242 | $ | 927,772 |
8_Accounts_Payable_and_Accrued
8. Accounts Payable and Accrued Expenses | 3 Months Ended | |||||
Mar. 31, 2015 | ||||||
Notes to Financial Statements | ||||||
8. Accounts Payable and Accrued Expenses | The following table sets forth the items in accounts payable and accrued expenses: | |||||
March 31, | December 31, | |||||
2015 | 2014 | |||||
Trade accounts payable | $ | 2,303,845 | $ | 3,028,902 | ||
Bonus | 596,875 | 575,000 | ||||
Professional and consulting fees | 178,390 | 132,521 | ||||
Property and other taxes | 349,350 | 238,368 | ||||
Accrued network costs | 1,904,569 | 1,384,159 | ||||
Rent | 164,903 | 131,627 | ||||
Accrued USF fees | 789,061 | 538,302 | ||||
Customer deposit | 377,286 | - | ||||
Accrued payroll and vacation | 255,812 | 250,574 | ||||
Accrued sales and federal excise taxes | 1,695,501 | 1,722,554 | ||||
Accrued sales commissions | 758,494 | 864,928 | ||||
Interest payable | 33,684 | 33,341 | ||||
Deferred revenue | 686,481 | 729,618 | ||||
Other | 297,255 | 841,620 | ||||
$ | 10,391,506 | $ | 10,471,514 |
9_Equipment_Financing_Obligati
9. Equipment Financing Obligations | 3 Months Ended | |||||
Mar. 31, 2015 | ||||||
Equipment Financing Obligations | ||||||
9. Equipment Financing Obligations | From time to time, the Company enters into equipment financing or capital lease arrangements to finance the purchase of network hardware and software utilized in its operations. These arrangements require monthly payments over a period of 24 to 48 months with interest rates ranging between 4% and 11%. The Company’s equipment financing obligations are as follows: | |||||
March 31, | December 31, | |||||
2015 | 2014 | |||||
Equipment financing obligations | $ | 2,885,868 | $ | 2,364,835 | ||
Less: current portion | -896,921 | -662,131 | ||||
Long-term portion | $ | 1,988,947 | $ | 1,702,704 |
10_Notes_Payable_NonRelated_Pa
10. Notes Payable Non-Related Parties | 3 Months Ended | |||||
Mar. 31, 2015 | ||||||
Notes to Financial Statements | ||||||
10. Notes Payable - Non-Related Parties | Notes payable – non-related at March 31, 2015 and December 31, 2014 is as follows: | |||||
March 31, | December 31, | |||||
2015 | 2014 | |||||
Senior Notes | $ | 45,860,382 | $ | 46,166,667 | ||
Discount on Senior Notes | -3,487,488 | -3,677,733 | ||||
Total notes payable - non-related parties | 42,372,893 | 42,488,934 | ||||
Less: current portion | -1,225,000 | -1,225,000 | ||||
Long-term portion | $ | 41,147,893 | $ | 41,263,934 | ||
The Company’s Senior Notes were sold under a Securities Purchase Agreement (“SPA”)to several Lenders (“Senior Lenders”) as follows: | ||||||
· | Series A and B Notes. On October 29, 2012, the Company sold (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 Network Billing Systems, LLC and the assets of its affiliate, Interconnect Services Group II LLC (collectively, “NBS”). | |||||
· | Series C Notes. On December 15, 2013, the Company sold 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 Company’s proposed acquisition of substantially all of the cloud services of Broadvox Go! LLC and its affiliate Cypress Communications, LLC (the “Broadvox Transaction”). | |||||
· | Series D Notes. On December 31, 2013, the Company sold Series D Senior Notes (the “Series D Notes”) in the aggregate principal amount of $25.0 million. The proceeds from the sale of the Series D Notes were used to finance the Broadvox Transaction. | |||||
· | Series E Notes. On October 31, 2014, contemporaneously with the completion of its acquisition of PingTone, the Company sold five-year Series E senior notes (the “Series E Notes” and together with the Series A Notes, Series B Notes, Series C Notes and Series D Notes, the “Senior Notes”)to the Senior Lenders in an aggregate principal amount of $5.0 million. | |||||
In accordance with the terms of the amended and restated Securities Purchase Agreement, the Senior Notes bear interest at an annual rate of 11.15%, with monthly principal payments of approximately $102,083 from January 2015 through October 2019 with the outstanding principal balance on all the Senior Notes payable at maturity on October 31, 2019. | ||||||
Expenses incurred in connection with the amended and restated Securities Purchase Agreement and its predecessor agreements and the sale of the Notes, which include Lenders’ fees of $0.1 million and 0.3 million for the years ended December 31, 2014 and 2013, respectively, are reflected in ‘Other assets’ on the Company’s consolidated balance sheet. For the quarter ended March 31, 2015, the Company has an unamortized amount of approximately $1.0 million which is being amortized as interest expense over the life of the Senior Notes. | ||||||
In connection with the sale of the Notes to the Lenders, the Company issued nominal warrants to purchase an aggregate of 728,333 shares of its 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 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 Notes, and was $3.5 million and $3.7 million at March 31, 2015 and December 31, 2014, respectively. |
11_Derivative_Liability
11. Derivative Liability | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Derivative Liability | |||||||||
11. Derivative Liability | As part of various debt and equity financing transactions and other agreements, the Company has issued warrants to purchase shares of Fusion’s common stock. These warrants are accounted for in accordance with the guidance contained in ASC Topic 815, ‘Derivatives and Hedging’ (“ASC 815”). For warrant instruments that are not deemed to be indexed to the Company’s own stock, it classifies the warrant instrument as a liability at its fair value and adjust the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The fair values of the warrants have been estimated using Black-Scholes and other valuation models, and the quoted market price of the Company’s common stock. | ||||||||
The following assumptions were used to determine the fair value of the warrants for the three months ended March 31, 2015 and 2014: | |||||||||
Three months ended March 31, | |||||||||
2015 | 2014 | ||||||||
Stock price | $ | 4.13 | $ | 5 | |||||
Exercise price | $ | 0 - 6.25 | $ | 0 - 6.25 | |||||
Risk-free interest rate (%) | 1.71 - 1.94 | 2.7 | |||||||
Expected volatility (%) | 106.4 | 111.8 | |||||||
Time to maturity (years) | 7.6 - 8.6 | 8.6 - 9.6 | |||||||
At March 31, 2015 and December 31, 2014, the fair value of the derivative was $5.0 million and $3.8 million, respectively. The Company recognized a loss on the change in the fair value of this derivative of approximately $1.2 million in the quarter ended March 31, 2015, and a gain of $2.6 million in the quarter ended March 31, 2014. |
12_Notes_PayableRelated_Partie
12. Notes Payable-Related Parties | 3 Months Ended | |||||
Mar. 31, 2015 | ||||||
Notes to Financial Statements | ||||||
12. Notes Payable-Related Parties | Notes payable – related parties at March 31, 2015 and December 31, 2014 is as follows: | |||||
March 31, | December 31, | |||||
2015 | 2014 | |||||
Notes payable to Marvin Rosen | $ | 1,478,081 | $ | 1,478,081 | ||
Discount on note | (171,733) | (185,203) | ||||
Total notes payable - non-related parties | $ | 1,306,348 | $ | 1,292,878 | ||
The Note to Marvin Rosen, the Company’s Chairman of the Board of Directors, is subordinated to the Senior Notes and the Company’s other obligations to the Lenders. This Note is unsecured, pays interest monthly at an annual rate of 7%, and matures 60 days after the Senior Notes are paid in full. The Note replaced a prior Note that the Company had issued to Mr. Rosen. | ||||||
For the quarter ended March 31, 2015, the Company recognized interest expense on the note of approximately $27,000, and amortization on the discount of approximately $13,000. |
13_Equity_Transactions
13. Equity Transactions | 3 Months Ended |
Mar. 31, 2015 | |
Notes to Financial Statements | |
13. Equity Transactions | Common Stock |
The Company isauthorized to issue 50,000,000 shares of common stock.As of March 31, 2015 and December 31, 2014, 7,518,900 and 7,345,028 shares of common stock were issued and outstanding, respectively. | |
During the quarter ended March 31, 2015, the Company issued an aggregate of 11,667 shares of common stock to a third party for services rendered valued at $46,201. In addition, the Board of Directors declared a dividend of $319,470 related to 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 72,205 shares of common stock. Also, certain holders of our Series B-2 Preferred Stock elected to convert their 450 shares of preferred stock into an aggregate of 90,000 shares of the Company’s common stock. | |
Preferred Stock | |
The Company is authorized to issue up to 10,000,000 shares of preferred stock. As of March 31, 2015 and December 31, 2014 there were 5,045 shares of our Series A-1, A-2 and A-4 Cumulative Convertible Preferred Stock issued and outstanding. In addition, there were 21,298 and 21,748 shares of Series B-2 Preferred Stock issued and outstanding as of March 31, 2105 and December 31, 2014, respectively. | |
The holders of the Series A Preferred Stock are entitled to receive cumulative dividends of 8% per annum payable in arrears, when and if declared by the Company’s Board of Directors, on January 1 of each year.As of March 31, 2015, no dividend had been declared by the Board of Directors with respect to the Series A Preferred Stock, and the Company had accumulated approximately $4,032,834 of preferred stock dividends. | |
Starting on 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 its common stock is at least $12.50 for ten consecutive trading days. In addition, shares of Series B-2 Preferred Stock bear a cumulative 6% annual dividend payable quarterly in arrears, in cash or shares of common stock, at the option of the Company. |
14_Commitments_and_Contingenci
14. Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2015 | |
Notes to Financial Statements | |
14. Commitments and Contingencies | Legal matters |
From time to time, the Company may be involved in a variety of claims, lawsuits, investigations and proceedings relating to contractual disputes, employment matters, regulatory and compliance matters, intellectual property rights and other litigation arising in the ordinary course of business. Defending such proceedings can be costly and can impose a significant burden on management and employees. The Company does not expect that the outcome of any such claims or actions will have a material adverse effect on the Company’s liquidity, results of operations or financial condition. As of March 31, 2015, the Company did not have any significant ongoing legal matters. |
15_Segment_Information
15. Segment Information | 3 Months Ended | |||||||||||
Mar. 31, 2015 | ||||||||||||
Notes to Financial Statements | ||||||||||||
15. Segment Information | Operating segments are defined under U.S. GAAP as components of an enterprise for which separate financial information is available and evaluated regularly by a company's chief operating decision maker ("CODM") in deciding how to allocate resources and assess performance. | |||||||||||
The Company has two reportable segments– “Carrier Services” and “Business Services”. These segments are organized by the products and services that are sold and the customers that are served. The Company measures and evaluates its reportable segments based on revenues and gross profit margins. The Company’s measurement of segment profit exclude the Company’s executive, administrative and support costs. The accounting policies of the segments are the same as those described in Note 2, Summary of Significant Accounting Policies, of the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014. 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 | ||||||||||||
Through this operating segment, the Company provides 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 of the Broadvox acquisition effective as of January 1, 2014 and of the PingTone acquisition effective as of November 1, 2014. | ||||||||||||
Operating segment information for the three months ended March 31, 2015 and 2014 is summarized as follows: | ||||||||||||
Three months ended March 31, 2015 | ||||||||||||
Carrier Services | Business Services | Corporate and Unallocated* | Consolidated | |||||||||
Revenues | $ | 8,477,121 | $ | 16,785,917 | $ | - | $ | 25,263,038 | ||||
Cost of revenues (exclusive of depreciation and amortization) | 7,926,667 | 6,086,026 | - | 14,012,692 | ||||||||
Gross profit | 550,454 | 10,699,891 | - | 11,250,346 | ||||||||
Depreciation and amortization | 44,997 | 2,934,094 | 24,356 | 3,003,447 | ||||||||
Selling, general and administrative expenses | 735,480 | 8,008,448 | 992,366 | 9,736,294 | ||||||||
Interest expense | - | (1,562,227) | (44,616) | (1,606,843) | ||||||||
Loss on change in fair value of derivative liability | - | - | (1,204,802) | (1,204,802) | ||||||||
Other (expenses) income | (185,158) | 222,477 | 37,319 | |||||||||
(Benefit) provision for income taxes | - | - | ||||||||||
Net loss | $ | (230,023) | $ | (1,990,036) | $ | (2,043,664) | $ | (4,263,722) | ||||
- | - | - | ||||||||||
Total assets | $ | 5,223,717 | $ | 64,265,798 | $ | 1,706,229 | $ | 71,195,744 | ||||
Capital expenditures | $ | 5,366 | $ | 790,938 | $ | - | $ | 796,304 | ||||
Three months ended March 31, 2014 | ||||||||||||
Carrier Services | Business Services | Corporate and Unallocated* | Consolidated | |||||||||
Revenues | $ | 7,162,496 | $ | 15,742,333 | $ | - | $ | 22,904,829 | ||||
Cost of revenues (exclusive of depreciation and amortization) | 6,318,738 | 5,910,294 | - | 12,229,032 | ||||||||
Gross profit | 843,758 | 9,832,039 | - | 10,675,797 | ||||||||
Depreciation and amortization | 62,695 | 2,482,630 | 22,166 | 2,567,491 | ||||||||
Selling, general and administrative expenses | 715,848 | 5,962,265 | 1,141,284 | 7,819,397 | ||||||||
Interest expense | - | (1,353,792) | (40,754) | (1,394,546) | ||||||||
Gain on change in fair value of derivative liability | 2,609,947 | 2,609,947 | ||||||||||
Other (expenses) income | (41,039) | (101) | 66 | (41,074) | ||||||||
(Benefit) provision for income taxes | - | (25,000) | 46,495 | 21,495 | ||||||||
Net income | $ | 24,176 | $ | 58,251 | $ | 1,359,314 | $ | 1,441,741 | ||||
Total assets | $ | 3,117,947 | $ | 58,560,013 | $ | 8,019,989 | $ | 69,697,949 | ||||
Capital expenditures | $ | 24,829 | $ | 724,753 | $ | - | $ | 749,582 | ||||
* The Company employs executive, administrative, human resources, and finance resources that service both the Carrier Services and Business Services segments. The amounts reflected as Corporate and Unallocated represent those operating expenses, assets and capital expenditures that were not allocated to a business segment or product line. |
16_Related_Party_Transactions
16. Related Party Transactions | 3 Months Ended |
Mar. 31, 2015 | |
Notes to Financial Statements | |
16. Related Party Transactions | Since March 6, 2014, the Company has engaged a third party to prepare its tax returns and to provide related tax advisory services. Larry Blum a member of our Board of Directors is a Senior Advisor and a former partner of the company we are using to provide the tax advisory services. |
17_Fair_Value_Disclosures
17. Fair Value Disclosures | 3 Months Ended | ||||||||||||
Mar. 31, 2015 | |||||||||||||
Notes to Financial Statements | |||||||||||||
17. Fair Value Disclosures | 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 liability measured at fair value on a recurring basis: | |||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||
As of March 31, 2015 | |||||||||||||
Non-current liabilities: | |||||||||||||
Derivative liability (see note 11) | $ | - | $ | - | $ | 5,044,371 | $ | 5,044,371 | |||||
As of December 31, 2014 | |||||||||||||
Non-current liabilities: | |||||||||||||
Derivative liability (see note 11) | $ | - | $ | - | $ | 3,839,569 | $ | 3,839,569 |
1_Basis_of_Presentation_Consol
1. Basis of Presentation, Consolidation, and Summary of Selected Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2015 | |
Notes to Financial Statements | |
Basis of Presentation | The accompanying unaudited condensed consolidated financial statements have been prepared in all material respects in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying unaudited condensed consolidated interim financial statements have been prepared on the same basis as the financial statements for the year ended December 31, 2014. |
Because certain information and footnote disclosures have been condensed or omitted, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report or Form 10-K for the fiscal year ended December 31, 2014 as filed with the SEC. In management’s opinion, all normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included. Management believes that the disclosures made in these unaudited condensed consolidated interim financial statements are adequate to make the information not misleading. The results for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the full year. | |
Principles of Consolidation | The condensed consolidated interim financial statements include the accounts of Fusion and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. |
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 amounts reported. Key estimatesinclude: the recognition of revenue, allowance for doubtful accounts; asset lives used in computing depreciation and amortization; valuation of intangible assets; accounting for stock options and other equity awards, particularly related to fair value estimates; accounting for income taxes; contingencies; and litigation. While management believes that such estimates are reasonable when considered in conjunction with the financial position and results of operations taken as a whole, actual results could differ from those estimates, and such differences may be material. |
Reclassifications | Certain reclassifications have been made to the prior years’ financial statements in order to conform to the current year’s presentation. The reclassifications had no impact on net earnings previously reported. |
Cash and Cash Equivalents | Cash and cash equivalents include cash on deposit and short-term, highly-liquid investments with maturities of three months or less at the date of purchase. As of March 31, 2015 and December 31, 2014, the carrying value of cash and cash equivalents approximates fair value due to the short period of time to maturity. |
Restricted Cash | Restricted cash consists primarily of cash held in reserve as required by the terms of our senior lending agreement and certificates of deposit that serve to collateralize outstanding letters of credit for one of our non-cancellable operating leases. Restricted cash is recorded as current or non-current assets in the consolidated balance sheets depending on the duration of the restriction and the purpose for which the restriction exists. Restricted cash at March 31, 2015 and December 31, 2014 includes $1,000,000 of cash held in reserve as required by the terms of the Company’s senior lending agreement, and certificates of deposit collateralizing a letter of credit in the aggregate amount of $163,872. The letter of credit is required as security for one of the Company’s non-cancelable operating leases for office facilities. |
Fair value of Financial Instruments | At March 31, 2015 and December 31, 2014, the carrying value of the Company’s accounts receivable, accounts payable and accrued expenses approximates its fair value due to the short term nature of these financial instruments. |
Long-Lived Asset Impairment | The Company periodically reviews long-lived assets, including intangible assets subject to amortization, for possible impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying amount of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by such asset or asset group. If the undiscounted cash flows are less than the carrying amount of the asset or asset group, an impairment loss is recognized for the amount by which the carrying amount of the asset or asset group exceeds its fair value. The Company did not record any impairment charges during the three months ended March 31, 2015 or 2014, as there were no indicators of impairment. |
Goodwill | Goodwill represents the excess of consideration paid over the fair value of net assets acquired in business combinations. Goodwill is not amortized and is tested for impairment on an annual basis in the fourth quarter of each fiscal year and whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators include, but are not limited to, deterioration in general economic conditions, adverse changes in the markets in which a company operates, increases in input costs that have negative effects on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods. |
In testing goodwill for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If the Company elects to perform a qualitative assessment and determines that an impairment is more likely than not, it is then required to perform a quantitative impairment test, otherwise no further analysis is required. The Company also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. | |
Under the goodwill two-step quantitative impairment test, the Company reviews for impairment the fair value of each reporting unit to its carrying value. The Company has determined that its reporting units are its operating segments (See Note 15). The first step compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step would be conducted; otherwise, no further steps are necessary as no potential impairment exists. The second step compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. Any excess of the reporting unit goodwill carrying value over the respective implied fair value is recognized as an impairment loss. Goodwill at March 31, 2015 and December 31, 2014 was approximately $10.4 million. All of the Company’s goodwill is attributable to its ‘Business Services’ segment. There was no change in goodwill as a result of adjustments to purchase price allocations of previous acquisitions during the quarter ended March 31, 2015. There was no impairment charge recorded for goodwill during the three months ended March 31, 2015 or 2014, as there were no indicators of impairment. | |
Advertising and Marketing | Costs related to advertising and marketing are expensed as incurred and included in selling, general and administrative expenses in our condensed consolidated statements of operations. Our advertising and marketing expense was approximately $112,079 and $44,000 for the three months ended March 31, 2015 and 2014, respectively. |
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 March 31, 2015 and December 31, 2014. 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 March 31, 2015 and December 31, 2014. During the three month ended March 31, 2015 and 2014, the Company recognized no adjustments for uncertain tax positions. | |
Stock-Based Compensation | The Company recognizes expense for its employee stock-based compensation based on the fair value of the awards that are granted. The fair values of stock options are estimated at the date of grant using the Black-Scholes option valuation model. The use of the Black-Scholes option valuation model requires the input of subjective assumptions. Measured compensation cost, net of estimated forfeitures, is recognized ratably over the vesting period of the related stock-based compensation award. |
New and Recently Adopted Accounting Pronouncements | In May 2014, the Financial Accounting Standards Board the (“FASB”) issued authoritative guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most recent current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for certain incremental costs of obtaining a contract and costs to fulfill a contract with a customer. Entities have the option of applying either a full retrospective approach to all periods presented or a modified approach that reflects differences prior to the date of adoption as an adjustment to equity. In April 2015, the FASB deferred the effective date of this guidance by one year. As such, this guidance will be effective on January 1, 2018 and the Company is currently assessing the impact of this guidance on its consolidated financial statements. |
3_Earnings_per_share_Tables
3. Earnings per share (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Notes to Financial Statements | |||||||||
Computation for basic and diluted net income per share | Three Months Ended | ||||||||
March 31, | March 31, | ||||||||
2015 | 2014 | ||||||||
Numerator | |||||||||
(Loss) income available to common stockholders | $ | (4,263,722 | ) | $ | 1,441,741 | ||||
Dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock | -99,518 | -99,518 | |||||||
Dividends declared on Series B-2 Convertible Preferred Stock | -319,470 | -342,570 | |||||||
Loss (gain) on nominal warrants | 713,766 | (906,771 | ) | ||||||
Net (loss) income attributable to common stockholders | $ | (3,968,944 | ) | $ | 92,882 | ||||
Denominator | |||||||||
Basic and diluted weighted average common shares outstanding | 8,159,534 | 6,078,546 | |||||||
(Loss) earnings per share | |||||||||
Basic and diluted | $ | (0.49 | ) | $ | 0.02 | ||||
Securities excluded from diluted per share calculation | 8,504,283 | 3,916,265 | |||||||
Excluded from calculation of diluted earnings per common share | 2015 | 2014 | |||||||
Warrants | 3,391,324 | 3,540,999 | |||||||
Convertible preferred stock | 4,424,147 | - | |||||||
Stock options | 688,812 | 375,266 | |||||||
8,504,283 | 3,916,265 |
4_Intangible_Assets_Tables
4. Intangible Assets (Tables) | 3 Months Ended | ||||||
Mar. 31, 2015 | |||||||
Notes to Financial Statements | |||||||
Identifiable intangible assets | March 31, | December 31, | |||||
2015 | 2014 | ||||||
Trademarks and tradename | $ | 1,093,400 | $ | 1,093,400 | |||
Proprietary technology | 5,781,000 | 5,781,000 | |||||
Non-compete agreements | 9,852,100 | 9,852,100 | |||||
Customer relationships | 24,897,800 | 24,897,800 | |||||
Favorable lease intangible | 218,000 | 218,000 | |||||
41,842,300 | 41,842,300 | ||||||
Less: accumulated amortization | -11,261,988 | -9,409,884 | |||||
Intangible assets, net | $ | 30,580,312 | $ | 32,432,416 | |||
Estimated future aggregate amortization expense | Remainder of | 2015 | $5,375,365 | ||||
2016 | $3,587,246 | ||||||
2017 | $3,454,097 | ||||||
2018 | $2,729,701 | ||||||
2019 | $1,895,455 |
5_Stockbased_compensation_Tabl
5. Stock-based compensation (Tables) | 3 Months Ended | |||||
Mar. 31, 2015 | ||||||
Notes to Financial Statements | ||||||
Fair value of stock options granted | Three months ended March 31, | |||||
2015 | 2014 | |||||
Dividend yield (%) | 0 | 0 | ||||
Expected volatility (%) | 97.2 | 137.16 | ||||
Average Risk-free interest rate (%) | 1.69 | 2.43 | ||||
Expected life of stock option term (years) | 8 | 8.12 | ||||
Stock option activity | Number of Options | Weighted Average Exercise Price | ||||
Oustanding at December 31, 2014 | 607,877 | $ | 8 | |||
Granted | 104,900 | $ | 3.72 | |||
Exercised | - | $ | - | |||
Forfeited | -16,140 | $ | 4.58 | |||
Expired | -7,825 | $ | 28.71 | |||
Outstanding at March 31, 2015 | 688,812 | $ | 7.13 | |||
Exercisable at March 31, 2015 | 201,978 | $ | 14.86 |
6_Supplemental_Disclosure_of_C1
6. Supplemental Disclosure of Cash Flow Information (Tables) | 3 Months Ended | ||||||
Mar. 31, 2015 | |||||||
Supplemental Disclosure Of Cash Flow Information Tables | |||||||
Supplemental Disclosure of Cash Flow Information | Three Months Ended March 31, | ||||||
Supplemental Cash Flow Information | 2015 | 2014 | |||||
Cash paid for interest | $ | 1,355,526 | $ | 1,538,150 | |||
Supplemental Non-Cash Investing and Financing Activities | |||||||
Property and equipment acquired under capital leases | $ | 669,863 | $ | - | |||
Dividend on Series B-2 preferred stock paid with the issuance of common stock | $ | 72,205 | $ | 66,327 | |||
Conversion of preferred stock into common stock | $ | 450,000 | $ | - |
7_Prepaid_Expenses_and_Other_C1
7. Prepaid Expenses and Other Current Assets (Tables) | 3 Months Ended | |||||
Mar. 31, 2015 | ||||||
Notes to Financial Statements | ||||||
Prepaid expenses and other current assets | March 31, | December 31, | ||||
2015 | 2014 | |||||
Insurance | $ | 103,871 | $ | 61,004 | ||
Rent | 97,514 | 54,209 | ||||
Marketing | 29,864 | 34,482 | ||||
Software subscriptions | 745,071 | 502,696 | ||||
Real estate taxes and other taxes | 61,833 | - | ||||
Commissions | 22,305 | 23,015 | ||||
Other | 163,784 | 252,366 | ||||
$ | 1,224,242 | $ | 927,772 |
8_Accounts_Payable_and_Accrued1
8. Accounts Payable and Accrued Expenses (Tables) | 3 Months Ended | |||||
Mar. 31, 2015 | ||||||
Notes to Financial Statements | ||||||
Accounts payable and accrued expenses | March 31, | December 31, | ||||
2015 | 2014 | |||||
Trade accounts payable | $ | 2,303,845 | $ | 3,028,902 | ||
Bonus | 596,875 | 575,000 | ||||
Professional and consulting fees | 178,390 | 132,521 | ||||
Property and other taxes | 349,350 | 238,368 | ||||
Accrued network costs | 1,904,569 | 1,384,159 | ||||
Rent | 164,903 | 131,627 | ||||
Accrued USF fees | 789,061 | 538,302 | ||||
Customer deposit | 377,286 | - | ||||
Accrued payroll and vacation | 255,812 | 250,574 | ||||
Accrued sales and federal excise taxes | 1,695,501 | 1,722,554 | ||||
Accrued sales commissions | 758,494 | 864,928 | ||||
Interest payable | 33,684 | 33,341 | ||||
Deferred revenue | 686,481 | 729,618 | ||||
Other | 297,255 | 841,620 | ||||
$ | 10,391,506 | $ | 10,471,514 |
9_Equipment_Financing_Obligati1
9. Equipment Financing Obligations (Tables) | 3 Months Ended | |||||
Mar. 31, 2015 | ||||||
Equipment Financing Obligations | ||||||
Equipment financing obligations | March 31, | December 31, | ||||
2015 | 2014 | |||||
Equipment financing obligations | $ | 2,885,868 | $ | 2,364,835 | ||
Less: current portion | -896,921 | -662,131 | ||||
Long-term portion | $ | 1,988,947 | $ | 1,702,704 |
10_Notes_Payable_NonRelated_Pa1
10. Notes Payable Non-Related Parties (Tables) | 3 Months Ended | |||||
Mar. 31, 2015 | ||||||
Notes to Financial Statements | ||||||
Components of notes payable non-related parties | March 31, | December 31, | ||||
2015 | 2014 | |||||
Senior Notes | $ | 45,860,382 | $ | 46,166,667 | ||
Discount on Senior Notes | -3,487,488 | -3,677,733 | ||||
Total notes payable - non-related parties | 42,372,893 | 42,488,934 | ||||
Less: current portion | -1,225,000 | -1,225,000 | ||||
Long-term portion | $ | 41,147,893 | $ | 41,263,934 |
11_Derivative_Liability_Tables
11. Derivative Liability (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Derivative Liability Tables | |||||||||
Assumptions used to determine the fair value of the warrants | Three months ended March 31, | ||||||||
2015 | 2014 | ||||||||
Stock price | $ | 4.13 | $ | 5 | |||||
Exercise price | $ | 0 - 6.25 | $ | 0 - 6.25 | |||||
Risk-free interest rate (%) | 1.71 - 1.94 | 2.7 | |||||||
Expected volatility (%) | 106.4 | 111.8 | |||||||
Time to maturity (years) | 7.6 - 8.6 | 8.6 - 9.6 |
12_Notes_Payable_Related_Parti
12. Notes Payable Related Parties (Tables) | 3 Months Ended | |||||
Mar. 31, 2015 | ||||||
Notes Payable Related Parties Tables | ||||||
Component of notes payable related party | March 31, | December 31, | ||||
2015 | 2014 | |||||
Notes payable to Marvin Rosen | $ | 1,478,081 | $ | 1,478,081 | ||
Discount on note | (171,733) | (185,203) | ||||
Total notes payable - non-related parties | $ | 1,306,348 | $ | 1,292,878 |
15_Segment_Information_Tables
15. Segment Information (Tables) | 3 Months Ended | |||||||||||
Mar. 31, 2015 | ||||||||||||
Notes to Financial Statements | ||||||||||||
Operating segment information | Three months ended March 31, 2015 | |||||||||||
Carrier Services | Business Services | Corporate and Unallocated* | Consolidated | |||||||||
Revenues | $ | 8,477,121 | $ | 16,785,917 | $ | - | $ | 25,263,038 | ||||
Cost of revenues (exclusive of depreciation and amortization) | 7,926,667 | 6,086,026 | - | 14,012,692 | ||||||||
Gross profit | 550,454 | 10,699,891 | - | 11,250,346 | ||||||||
Depreciation and amortization | 44,997 | 2,934,094 | 24,356 | 3,003,447 | ||||||||
Selling, general and administrative expenses | 735,480 | 8,008,448 | 992,366 | 9,736,294 | ||||||||
Interest expense | - | (1,562,227) | (44,616) | (1,606,843) | ||||||||
Loss on change in fair value of derivative liability | - | - | (1,204,802) | (1,204,802) | ||||||||
Other (expenses) income | (185,158) | 222,477 | 37,319 | |||||||||
(Benefit) provision for income taxes | - | - | - | - | ||||||||
Net loss | $ | (230,023) | $ | (1,990,036) | $ | (2,043,664) | $ | (4,263,722) | ||||
Total assets | $ | 5,223,717 | $ | 64,265,798 | $ | 1,706,229 | $ | 71,195,744 | ||||
Capital expenditures | $ | 5,366 | $ | 790,938 | $ | - | $ | 796,304 | ||||
Three months ended March 31, 2014 | ||||||||||||
Carrier Services | Business Services | Corporate and Unallocated* | Consolidated | |||||||||
Revenues | $ | 7,162,496 | $ | 15,742,333 | $ | - | $ | 22,904,829 | ||||
Cost of revenues (exclusive of depreciation and amortization) | 6,318,738 | 5,910,294 | - | 12,229,032 | ||||||||
Gross profit | 843,758 | 9,832,039 | - | 10,675,797 | ||||||||
Depreciation and amortization | 62,695 | 2,482,630 | 22,166 | 2,567,491 | ||||||||
Selling, general and administrative expenses | 715,848 | 5,962,265 | 1,141,284 | 7,819,397 | ||||||||
Interest expense | - | (1,353,792) | (40,754) | (1,394,546) | ||||||||
Gain on change in fair value of derivative liability | 2,609,947 | 2,609,947 | ||||||||||
Other (expenses) income | (41,039) | (101) | 66 | (41,074) | ||||||||
(Benefit) provision for income taxes | - | (25,000) | 46,495 | 21,495 | ||||||||
Net income | $ | 24,176 | $ | 58,251 | $ | 1,359,314 | $ | 1,441,741 | ||||
Total assets | $ | 3,117,947 | $ | 58,560,013 | $ | 8,019,989 | $ | 69,697,949 | ||||
Capital expenditures | $ | 24,829 | $ | 724,753 | $ | - | $ | 749,582 |
17_Fair_Value_Disclosures_Tabl
17. Fair Value Disclosures (Tables) | 3 Months Ended | ||||||||||||
Mar. 31, 2015 | |||||||||||||
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 March 31, 2015 | |||||||||||||
Non-current liabilities: | |||||||||||||
Derivative liability (see note 11) | $ | - | $ | - | $ | 5,044,371 | $ | 5,044,371 | |||||
As of December 31, 2014 | |||||||||||||
Non-current liabilities: | |||||||||||||
Derivative liability (see note 11) | $ | - | $ | - | $ | 3,839,569 | $ | 3,839,569 |
2_Basis_of_Presentation_and_Su
2. Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) (USD $) | 3 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2014 | |
Notes to Financial Statements | |||
Loss on sale of accounts receivable | $0 | $41,000 | |
Outstanding accounts receivable sold | 3,800,000 | ||
Goodwill | 10,397,460 | 10,397,460 | |
Stock-based compensation expense | 123,000 | 69,000 | |
Advertising and marketing expenses | 112,079 | 44,000 | |
Cash restricted held in reserve | 1,000,000 | 1,000,000 | |
Certificate of deposit collateralizing a letter of credit | $163,872 |
3_Earnings_Per_Share_Details
3. Earnings Per Share (Details) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Numerator | ||
(Loss) income available to common stockholders | ($4,263,722) | $1,441,741 |
Dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock | -99,518 | -99,518 |
Dividends declared on Series B-2 Convertible Preferred Stock | -319,470 | -342,570 |
Loss (gain) on nominal warrants | 713,766 | -906,771 |
Net (loss) income attributable to common stockholders | ($3,968,944) | $92,882 |
Denominator | ||
Basic and diluted weighted average common shares outstanding | 8,159,534 | 6,078,546 |
Basic and diluted | ($0.49) | $0.02 |
Securities excluded from diluted per share calculation | 8,504,283 | 3,916,265 |
3_Earnings_Per_Share_Details_1
3. Earnings Per Share (Details 1) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Antidilutive securities excluded from the calculation of diluted earnings per common share | 8,504,283 | 3,916,265 |
Warrant | ||
Antidilutive securities excluded from the calculation of diluted earnings per common share | 3,391,324 | 3,540,999 |
Convertible Preferred Stock [Member] | ||
Antidilutive securities excluded from the calculation of diluted earnings per common share | 4,424,147 | |
Stock Options | ||
Antidilutive securities excluded from the calculation of diluted earnings per common share | 688,812 | 375,266 |
3_Earnings_Per_Share_Details_N
3. Earnings Per Share (Details Narrative) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Income loss available to common stockholders | $700,000 | $900,000 |
Outstanding warrants | 728,333 | 728,333 |
Preferred stock dividends | 100,000 | 100,000 |
Preferred stock dividends accumulated | 4,032,834 | |
Series B-2 Preferred Stock [Member] | ||
Preferred stock dividends accumulated | 4,032,834 | |
Preferred stock dividends paid | 72,205 | 66,327 |
Board of Directors [Member] | ||
Preferred stock dividends | $319,470 | $342,570 |
4_Intangible_Assets_Details
4. Intangible Assets (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Gross Intangible assets | $41,842,300 | $41,842,300 |
Accumulated Amortization | -11,261,988 | -9,409,884 |
Intangible assets, net | 30,580,312 | 32,432,416 |
Trademarks and tradename | ||
Gross Intangible assets | 1,093,400 | 1,093,400 |
Proprietary technology | ||
Gross Intangible assets | 5,781,000 | 5,781,000 |
Non-compete agreement | ||
Gross Intangible assets | 9,852,100 | 9,852,100 |
Customer relationships | ||
Gross Intangible assets | 24,897,800 | 24,897,800 |
Favorable lease intangible | ||
Gross Intangible assets | $218,000 | $218,000 |
4_Intangible_Assets_Details_1
4. Intangible Assets (Details 1) (USD $) | Mar. 31, 2015 |
Notes to Financial Statements | |
Remainder of 2015 | $5,375,365 |
2016 | 3,587,246 |
2017 | 3,454,097 |
2018 | 2,729,701 |
2019 | $1,895,455 |
4_Intangible_Assets_Details_Na
4. Intangible Assets (Details Narrative) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Notes to Financial Statements | ||
Amortization expense | $1,900,000 | $1,700,000 |
5_Stockbased_compensation_Deta
5. Stock-based compensation (Details) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Dividend yield (%) | 0.00% | 0.00% |
Expected volatility (%) | 97.20% | 137.16% |
Average Risk-free interest rate (%) | 1.69% | 2.43% |
Expected life of stock option term (years) | 8 years | 8 years 1 month 13 days |
5_Stockbased_compensation_Deta1
5. Stock-based compensation (Details 1) (USD $) | 3 Months Ended |
Mar. 31, 2015 | |
Number of Options | |
Oustanding at December 31, 2014 | 607,877 |
Granted | 104,900 |
Exercised | 0 |
Forfeited | -16,140 |
Expired | -7,825 |
Outstanding at March 31, 2015 | 688,812 |
Exercisable at March 31, 2015 | 201,978 |
Weighted Average Exercise Price | |
Oustanding at December 31, 2014 | $8 |
Granted | $3.72 |
Exercised | $0 |
Forfeited | $4.58 |
Expired | $28.71 |
Outstanding at March 31, 2015 | $7.13 |
Exercisable at March 31, 2015 | $14.86 |
5_Stockbased_compensation_Deta2
5. Stock-based compensation (Details Narrative) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Compensation expense | $123,000 | $69,000 |
Unrecognized compensation expense, net of estimated forfeitures | $1,100,000 | |
Weighted-average period recognized | 2 years 3 months 18 days |
6_Supplemental_Disclosure_of_C2
6. Supplemental Disclosure of Cash Flow Information (Details) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Supplemental Cash Flow Information | ||
Cash paid for interest | $1,355,526 | $1,538,150 |
Supplemental Non-Cash Investing and Financing Activities | ||
Property and equipment acquired under capital leases | 669,863 | |
Dividend on Series B-2 preferred stock paid with the issuance of common stock | 72,205 | 66,327 |
Conversion of preferred stock into common stock | $450,000 |
7_Prepaid_Expenses_and_Other_C2
7. Prepaid Expenses and Other Current Assets (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Prepaid expenses and other current assets | ||
Insurance | $103,871 | $61,004 |
Rent | 97,514 | 54,209 |
Marketing | 29,864 | 34,482 |
Software subscriptions | 745,071 | 502,696 |
Real estate taxes and other taxes | 61,833 | 0 |
Commissions | 22,305 | 23,015 |
Other prepaid expenses | 163,784 | 252,366 |
Total | $1,224,242 | $927,772 |
8_Accounts_Payable_and_Accrued2
8. Accounts Payable and Accrued Expenses (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Notes to Financial Statements | ||
Trade accounts payable | $2,303,845 | $3,028,902 |
Bonus | 596,875 | 575,000 |
Professional and consulting fees | 178,390 | 132,521 |
Property and other taxes | 349,350 | 238,368 |
Accrued network costs | 1,904,569 | 1,384,159 |
Rent | 164,903 | 131,627 |
Accrued USF fees | 789,061 | 538,302 |
Customer deposit | 377,286 | 0 |
Accrued payroll and vacation | 255,812 | 250,574 |
Accrued sales and federal excise taxes | 1,695,501 | 1,722,554 |
Accrued sales commissions | 758,494 | 864,928 |
Interest payable | 33,684 | 33,341 |
Deferred revenue | 686,481 | 729,618 |
Other | 297,255 | 841,620 |
Total accounts payable and accrued expenses | $10,391,506 | $10,471,514 |
9_Equipment_Financing_Obligati2
9. Equipment Financing Obligations (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Equipment Financing Obligations Details | ||
Equipment financing obligations | $2,885,868 | $2,364,835 |
Less: current portion | -896,921 | -662,131 |
Long-term portion | $1,988,947 | $1,702,704 |
10_Notes_Payable_NonRelated_Pa2
10. Notes Payable - Non-Related Parties (Details) (NonRelatedParty, USD $) | Mar. 31, 2015 | Mar. 31, 2014 |
NonRelatedParty | ||
Senior Notes | $45,860,382 | $46,166,667 |
Discount on senior notes | -3,487,488 | -3,677,733 |
Total notes payable - non-related parties | 42,372,893 | 42,488,934 |
Less : Current portion | -1,225,000 | -1,225,000 |
Long-term portion | $41,147,893 | $41,263,934 |
10_Notes_Payable_Non_Related_P
10. Notes Payable - Non Related Parties (Details Narrative) (USD $) | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Notes to Financial Statements | |||
Accreted Discount on senior notes | $3,500,000 | $3,700,000 | |
Predecessor agreements and the sale of the Notes | 100,000 | 300,000 | |
Unamortized amount being amortized as interest expense | $1,000,000 |
11_Derivative_Liability_Detail
11. Derivative Liability (Details) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Stock price | $4.13 | $5 |
Risk-free interest rate | 2.70% | |
Expected volatility (%) | 106.40% | 111.80% |
Minimum | ||
Exercise price | $0 | $0 |
Risk-free interest rate | 1.71% | |
Time to maturity (years) | 7 years 7 months 6 days | 8 years 7 months 6 days |
Maximum | ||
Exercise price | $6.25 | $6.25 |
Risk-free interest rate | 1.94% | |
Time to maturity (years) | 8 years 7 months 6 days | 9 years 7 months 6 days |
11_Derivative_Liability_Detail1
11. Derivative Liability (Details Narrative) (USD $) | 3 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2014 | |
Derivative Liability [Abstract] | |||
Fair value derivative liability | $5,000,000 | $3,800,000 | |
Loss gain on fair value of derivative | $1,200,000 | $2,600,000 |
12_Notes_PayableRelated_Partie1
12. Notes Payable-Related Parties (Details) (RelatedParty, USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
RelatedParty | ||
Notes payable to Marvin Rosen | $1,478,081 | $1,478,081 |
Discount on notes | -171,733 | -185,203 |
Total notes payable - related parties | $1,306,348 | $1,292,878 |
12_Notes_PayableRelated_Partie2
12. Notes Payable-Related Parties (Details Narrative) (USD $) | 3 Months Ended |
Mar. 31, 2015 | |
Notes Payable-related Parties Details Narrative | |
Interest expense | $27,000 |
Amortization discount | $13,000 |
13_Equity_Transactions_Details
13. Equity Transactions (Details Narrative) (USD $) | 3 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2014 | |
Common Stock, Shares Authorized | 50,000,000 | 50,000,000 | |
Common Stock, Shares Issued | 7,518,900 | 7,345,028 | |
Common Stock, Shares Outstanding | 7,518,900 | 7,345,028 | |
Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 | |
Preferred Stock, Shares Issued | 26,343 | 26,793 | |
Preferred Stock, Shares Outstanding | 26,343 | 26,793 | |
Series A-1, A-2 and A-4 Preferred Stock outstanding, Shares | 5,045 | 5,045 | |
Preferred stock dividends accumulated | $4,032,834 | ||
Common stock issued for services | 11,667 | ||
Common stock issued for services value | 46,201 | ||
Preferred stock dividends | 100,000 | 100,000 | |
Common Stock | |||
Common stock issued for services | 11,667 | ||
Common stock issued for services value | 117 | ||
Series B-2 Preferred Stock converted into common stock | 90,000 | ||
Board Of Directors | |||
Preferred stock dividends | 319,470 | ||
Series B-2 Preferred Stock [Member] | |||
Preferred Stock, Shares Issued | 21,298 | 21,748 | |
Preferred Stock, Shares Outstanding | 21,298 | 21,748 | |
Preferred stock dividends accumulated | $4,032,834 | ||
Preferred stock dividends paid | 72,205 | 66,327 | |
Series B-2 Preferred Stock converted into common stock | 450 |
15_Segment_Information_Details
15. Segment Information (Details) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Segment Reporting Information [Line Items] | ||
Revenues | $25,263,038 | $22,904,829 |
Cost of revenues (exclusive of depreciation and amortization) | 14,012,692 | 12,229,032 |
Gross profit | 11,250,346 | 10,675,797 |
Depreciation and amortization | 3,003,447 | 2,567,491 |
Selling, general and administrative expenses | 9,736,294 | 7,819,397 |
Interest expense | -1,606,843 | -1,394,546 |
Loss on change in fair value of derivative liability | -1,204,802 | 2,609,947 |
(Benefit) Provision for income taxes | 0 | 21,495 |
Carrier Services | ||
Segment Reporting Information [Line Items] | ||
Revenues | 8,477,121 | 7,162,496 |
Cost of revenues (exclusive of depreciation and amortization) | 7,926,667 | 6,318,738 |
Gross profit | 550,454 | 843,758 |
Depreciation and amortization | 44,997 | 62,695 |
Selling, general and administrative expenses | 735,480 | 715,848 |
Interest expense | ||
Gain on change in fair value of derivative liability | ||
Loss on change in fair value of derivative liability | ||
Other (expenses) income | -41,039 | |
(Benefit) Provision for income taxes | ||
Net income loss | -230,023 | 24,176 |
Total assets | 5,223,717 | 3,117,947 |
Capital expenditures | 5,366 | 24,829 |
Business Services | ||
Segment Reporting Information [Line Items] | ||
Revenues | 16,785,917 | 15,742,333 |
Cost of revenues (exclusive of depreciation and amortization) | 6,086,026 | 5,910,294 |
Gross profit | 10,699,891 | 9,832,039 |
Depreciation and amortization | 2,934,094 | 2,482,630 |
Selling, general and administrative expenses | 8,008,448 | 5,962,265 |
Interest expense | -1,562,227 | -1,353,792 |
Gain on change in fair value of derivative liability | ||
Loss on change in fair value of derivative liability | ||
Other (expenses) income | -185,158 | -101 |
(Benefit) Provision for income taxes | -25,000 | |
Net income loss | -1,990,036 | 58,251 |
Total assets | 64,265,798 | 58,560,013 |
Capital expenditures | 790,938 | 724,753 |
Corporate and Unallocated | ||
Segment Reporting Information [Line Items] | ||
Revenues | ||
Cost of revenues (exclusive of depreciation and amortization) | ||
Gross profit | ||
Depreciation and amortization | 24,356 | 22,166 |
Selling, general and administrative expenses | 992,366 | 1,141,284 |
Interest expense | -44,616 | -40,754 |
Gain on change in fair value of derivative liability | 2,609,947 | |
Loss on change in fair value of derivative liability | -1,204,802 | |
Other (expenses) income | 222,477 | 66 |
(Benefit) Provision for income taxes | 46,495 | |
Net income loss | -2,043,664 | 1,359,314 |
Total assets | 1,706,229 | 8,019,989 |
Capital expenditures | ||
Consolidated | ||
Segment Reporting Information [Line Items] | ||
Revenues | 25,263,038 | 22,904,829 |
Cost of revenues (exclusive of depreciation and amortization) | 14,012,692 | 12,229,032 |
Gross profit | 11,250,346 | 10,675,797 |
Depreciation and amortization | 3,003,447 | 2,567,491 |
Selling, general and administrative expenses | 9,736,294 | 7,819,397 |
Interest expense | -1,606,843 | -1,394,546 |
Gain on change in fair value of derivative liability | 2,609,947 | |
Loss on change in fair value of derivative liability | -1,204,802 | |
Other (expenses) income | 37,319 | -41,074 |
(Benefit) Provision for income taxes | 21,495 | |
Net income loss | -4,263,722 | 1,441,741 |
Total assets | 71,195,744 | 69,697,949 |
Capital expenditures | $796,304 | $749,582 |
17_Fair_Value_Disclosures_Deta
17. Fair Value Disclosures (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Non-current liabilities: | ||
Derivative liability | $5,044,371 | $3,839,569 |
Level 1 | ||
Non-current liabilities: | ||
Derivative liability | ||
Level 2 | ||
Non-current liabilities: | ||
Derivative liability | ||
Level 3 | ||
Non-current liabilities: | ||
Derivative liability | $5,044,371 | $3,839,569 |