Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2016 | May. 06, 2016 | |
Document And Entity Information | ||
Entity Registrant Name | FUSION TELECOMMUNICATIONS INTERNATIONAL INC | |
Entity Central Index Key | 1,071,411 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2016 | |
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 | 14,811,602 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,016 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 5,873,075 | $ 7,540,543 |
Accounts receivable, net of allowance for doubtful accounts of approximately $298,000 and $309,000, respectively | 8,227,003 | 7,650,141 |
Prepaid expenses and other current assets | 2,549,157 | 1,618,603 |
Total current assets | 16,649,235 | 16,809,287 |
Property and equipment, net | 13,708,196 | 14,055,493 |
Other assets: | ||
Security deposits | 575,038 | 575,038 |
Restricted cash | 27,153 | 165,123 |
Goodwill | 27,049,678 | 27,060,297 |
Intangible assets, net | 44,433,420 | 45,824,399 |
Other assets | 1,266,523 | 281,045 |
Total other assets | 73,351,812 | 73,905,902 |
TOTAL ASSETS | 103,709,243 | 104,770,682 |
Current liabilities: | ||
Notes payable - non-related parties | 685,780 | 685,780 |
Due to RootAxcess seller | 400,000 | 300,000 |
Equipment financing obligations | 989,636 | 959,380 |
Accounts payable and accrued expenses | 13,716,756 | 13,129,225 |
Total current liabilities | 15,792,172 | 15,074,385 |
Long-term liabilities: | ||
Notes payable - non-related parties, net of discount | 30,754,690 | 30,795,745 |
Term Loan | 25,000,000 | 25,000,000 |
Indebtedness under revolving credit facility | 15,000,000 | 15,000,000 |
Due to RootAxcess Seller | 166,667 | 333,333 |
Due to TFB seller | 1,011,607 | 0 |
Notes payable - related parties | 1,086,995 | 1,074,829 |
Equipment financing obligations | 1,955,301 | 2,085,416 |
Derivative liabilities | 431,633 | 953,005 |
Total liabilities | $ 91,199,065 | $ 90,316,713 |
Commitments and contingencies | ||
Stockholders' equity (deficit): | ||
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 17,324 and 23,324 shares issued and outstanding | $ 174 | $ 234 |
Common stock, $0.01 par value, 50,000,000 shares authorized, 14,810,917 and 12,788,971 shares issued and outstanding | 148,110 | 127,890 |
Capital in excess of par value | 185,428,678 | 184,859,082 |
Accumulated deficit | (173,066,784) | (170,533,237) |
Total stockholders' equity | 12,510,178 | 14,453,967 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 103,709,243 | $ 104,770,682 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Current assets: | ||
Allowance for doubtful accounts | $ 298,000 | $ 309,000 |
Stockholders' equity: | ||
Preferred Stock, Par Value | $ 0.01 | $ 0.01 |
Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 |
Preferred Stock, Shares Issued | 17,324 | 23,324 |
Preferred Stock, Shares Outstanding | 17,324 | 23,324 |
Common Stock, Par Value | $ 0.01 | $ 0.01 |
Common Stock, Shares Authorized | 50,000,000 | 50,000,000 |
Common Stock, Shares Issued | 14,810,917 | 12,788,971 |
Common Stock, Shares Outstanding | 14,810,917 | 12,788,971 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Income Statement [Abstract] | ||
Revenues | $ 33,184,415 | $ 25,263,038 |
Cost of revenues (exclusive of depreciation and amortization, shown separately below) | 19,921,677 | 14,012,692 |
Gross profit | 13,262,738 | 11,250,346 |
Depreciation and amortization | 2,916,263 | 3,003,447 |
Selling, general and administrative expenses (including stock-based compensation of $198,884 and $122,516 for the three months ended March 31, 2016 and 2015, respectively) | 11,424,786 | 9,736,294 |
Total operating expenses | 14,341,049 | 12,739,741 |
Operating loss | (1,078,311) | (1,489,395) |
Other (expenses) income: | ||
Interest expense | (1,627,964) | (1,606,843) |
Gain (loss) on change in fair value of derivative liability | 182,400 | (1,204,802) |
Other income, net | (9,670) | 37,319 |
Total other expenses | (1,455,234) | (2,774,326) |
Loss before income taxes | (2,533,545) | (4,263,722) |
Provision for income taxes | 0 | 0 |
Net loss | (2,533,545) | (4,263,722) |
Preferred stock dividends | (1,531,982) | (418,988) |
Net loss attributable to common stockholders | $ (4,065,527) | $ (4,682,710) |
Basic and diluted loss per common share | $ (0.30) | $ (0.49) |
Weighted average common shares outstanding: | ||
Basic and diluted | 13,741,366 | 8,159,534 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Operations (Unaudited) (Parenthetical) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Income Statement [Abstract] | ||
Share Based Compensation | $ 198,884 | $ 122,516 |
Condensed Consolidated Stateme6
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) - 3 months ended Mar. 31, 2016 - USD ($) | Preferred Stock | Common Stock | Capital in Excess of Par | Accumulated Deficit | Total |
Beginning Balance, Shares at Dec. 31, 2015 | 23,324 | 12,788,971 | |||
Beginning Balance, Amount at Dec. 31, 2015 | $ 234 | $ 127,890 | $ 184,859,082 | $ (170,533,239) | $ 14,453,967 |
Net loss | (2,533,545) | (2,533,545) | |||
Conversion of preferred stock into common stock, shares | (6,000) | 1,866,667 | |||
Conversion of preferred stock into common stock, amount | $ (60) | $ 18,667 | (18,607) | 0 | |
Dividends on preferred stock, Shares | 125,279 | ||||
Dividends on preferred stock, Amount | $ 1,253 | (1,253) | 0 | ||
Adjustment for prior issuances and conversion of warrants | 338,972 | 338,972 | |||
Issuance of common stock for services rendered, Shares | 30,000 | ||||
Issuance of common stock for services rendered, Amount | $ 300 | 51,600 | 51,900 | ||
Stock based compensation associated with stock incentive plans | 198,884 | 198,884 | |||
Ending Balance, Shares at Mar. 31, 2016 | 17,324 | 14,810,917 | |||
Ending Balance, Amount at Mar. 31, 2016 | $ 174 | $ 148,110 | $ 185,428,678 | $ (173,066,784) | $ 12,510,178 |
Condensed Consolidated Stateme7
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Cash flows from operating activities: | ||
Net loss | $ (2,533,545) | $ (4,263,722) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||
Depreciation and amortization | 2,916,263 | 3,003,447 |
Loss on disposal of property | 60,822 | 0 |
Bad debt expense | 65,000 | 150,000 |
Stock-based compensation | 198,884 | 122,516 |
Stock based compensation issued for services rendered by third parties | 51,900 | 46,201 |
Amortization of debt discount and deferred financing fees | 158,878 | 250,974 |
(Gain) loss in the change in fair value of derivative liability | (182,400) | 1,204,802 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (584,098) | 25,470 |
Prepaid expenses and other current assets | (930,554) | (296,470) |
Other assets | 9,807 | (100) |
Accounts payable and accrued expenses | 390,727 | (80,010) |
Net cash (used in) provided by operating activities | (378,316) | 163,108 |
Cash flows from investing activities: | ||
Purchase of property and equipment | (988,768) | (796,304) |
Proceeds from the sale of property and equipment | 23,961 | 0 |
Net cash acquired through acqusition | 16,895 | 0 |
Change in restricted cash | 137,970 | 0 |
Net cash used in investing activities | (809,942) | (796,304) |
Cash flows from financing activities: | ||
Payments on equipment financing obligations | (241,099) | (148,829) |
Repayments of notes payable | (238,111) | (306,250) |
Net cash used in financing activities | (479,210) | (455,079) |
Net change in cash and cash equivalents | (1,667,468) | (1,088,275) |
Cash and cash equivalents, beginning of period | 7,540,543 | 6,444,683 |
Cash and cash equivalents, end of period | $ 5,873,075 | $ 5,356,408 |
1. Organization and Business
1. Organization and Business | 3 Months Ended |
Mar. 31, 2016 | |
Organization And Business | |
1. Organization and Business | Fusion Telecommunications International, Inc. is a Delaware corporation incorporated in September 1997 (Fusion and together with its subsidiaries, the Company, we, us, and our). The Company is a provider of integrated cloud solutions, including cloud voice, cloud connectivity, cloud infrastructure, cloud computing, and managed cloud-based applications to businesses of all sizes, and voice over IP (VoIP) - based voice services to other carriers. The Company currently operates in two business segments: Business Services and Carrier Services. |
2. Basis of Presentation and Su
2. Basis of Presentation and Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
2. Basis of Presentation and Summary of 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 fiscal year ended December 31, 2015. 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 Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2015 as filed with the SEC. In managements 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, 2016 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, 2015. There have been no material changes in our accounting policies during the quarter ended March 31, 2016. Principles of Consolidation The condensed consolidated interim financial statements include the accounts of Fusion and each of 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 estimates include: 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 of the Company taken as a whole, actual results could differ from those estimates, and such differences could be material. Reclassifications Certain reclassifications have been made to the prior years financial statements in order to conform to the current years 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 on the date of purchase. As of March 31, 2016 and December 31, 2015, the carrying value of cash and cash equivalents approximates fair value due to the short period to maturity. Restricted Cash Restricted cash consists primarily of cash held in reserve pursuant to the terms of financing arrangements and certificates of deposit that serve to collateralize outstanding letters of credit. Restricted cash is recorded as current or non-current assets in the consolidated balance sheets depending on the duration of the restriction and the purpose for which the restriction exists. At March 31, 2016 and December 31, 2015, the Company had certificates of deposit collateralizing a letter of credit in the aggregate amount of approximately $27,000 and $165,000, respectively. The letter of credit is required as security for one of the Companys non-cancelable operating leases for office facilities. Fair value of Financial Instruments At March 31, 2016 and December 31, 2015, the carrying value of the Companys 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 managements 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, 2016 or 2015, 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 18). 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. At March 31, 2016 and December 31, 2015, respectively, goodwill was approximately $27.0 million. All of the Companys 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, 2016. There was no impairment charge recorded for goodwill during the three months ended March 31, 2016 or 2015, 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 $172,000 and $115,000 for the three months ended March 31, 2016 and 2015, 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, 2016 and December 31, 2015. The Company is subject to income tax examinations by major taxing authorities for all tax years since 2011 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, 2016 and December 31, 2015. During the three month ended March 31, 2016 and 2015, 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. For transactions in which goods or services are the consideration received from non-employees in return for the issuance of equity instruments, the expense is recognized in the period when the goods and services are received at the fair value of the consideration received or the fair value of the equity instrument issued, whichever is determined to be a more reliable measurement. New and Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) No. 2016-2, Leases, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. Under ASU 2016-02, lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessees obligation to make lease payments arising from a lease measured on a discounted basis, and a rightto-use asset, which is an asset that represents the lessees right to use or control the use of a specified asset for the lease term. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures. In November 2015, FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes In September 2015, FASB issued guidance that eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. This guidance is effective for interim and annual reporting periods beginning after December 15, 2015. The adoption of this guidance did not have a material impact on the Companys consolidated financial statements. In April 2015, FASB issued guidance requiring an entity to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance was effective for interim and annual reporting periods beginning after December 15, 2015. The Company adopted this guidance as of January 1, 2016 and applied the provision retrospectively for fiscal 2015 (See to Note 11). The impact of adopting this guidance on the Company's consolidated balance sheet as of December 31, 2015 was a decrease to other assets of approximately $1.0 million, and a decrease to notes payable non-related party of $1.0 million. In May 2014, FASB issued guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most recent current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for certain incremental costs of obtaining a contract and costs to fulfill a contract with a customer. Entities have the option of applying either a full retrospective approach to all periods presented or a modified approach that reflects differences prior to the date of adoption as an adjustment to equity. In April 2015, FASB deferred the effective date of this guidance until January 1, 2018 and the Company is currently assessing the impact of this guidance on its consolidated financial statements. |
3. Loss per share
3. Loss per share | 3 Months Ended |
Mar. 31, 2016 | |
Earnings Per Share [Abstract] | |
3. Loss per share | Basic and diluted loss per share for the three months ended March 31, 2016 and 2015 is computed by dividing (i) loss available to common stockholders, adjusted by $0.0 million and $0.7 million, respectively, on the fair value of the Companys derivative liability that was attributable to 728,333 outstanding warrants with a nominal exercise price that were exercised in August 2015 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, 2016 and 2015: Three Months Ended March 31, 2016 2015 Numerator Net loss $ (2,533,545 ) $ (4,263,722 ) Dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock (100,623 ) (99,518 ) Dividends declared on Series B-2 Convertible Preferred Stock (1,431,359 ) (319,470 ) Loss on nominal warrants - 713,766 Adjusted loss attributable to common stockholders $ (4,065,527 ) $ (3,968,944 ) Denominator Basic and diluted weighted average common shares outstanding 13,741,366 8,159,534 Loss per share Basic and diluted $ (0.30 ) $ (0.49 ) For the three months ended March 31, 2016 and 2015, the following were excluded from the calculation of diluted earnings per common share because of their anti-dilutive effects: Three Months Ended March 31, 2016 2015 Warrants 3,005,337 3,391,324 Convertible preferred stock 2,627,795 4,424,147 Stock options 1,123,508 688,812 6,756,640 8,504,283 The net loss per common share calculation includes a provision for preferred stock dividends on the Companys outstanding Series A-1, A-2 and A-4 Preferred Stock (the Series A Preferred Stock) of approximately $101,000 and $100,000 for the three months ended March 31, 2016 and 2015. Through March 31, 2016, the Board of Directors of Fusion has never declared a dividend on any series of the Series A Preferred Stock, resulting in approximately $4.4 million of accumulated preferred stock dividends. The Board of Directors has declared a dividend of $231,359 and $319,470 for the three months ended March 31, 2016 and 2015, respectively, on its Series B-2 Preferred Stock, which, as permitted by the terms of that series, was paid in the form of 125,279 and 72,205 shares of the Companys common stock, respectively. In addition, during the three months ended March 31, 2016, the Board of Directors paid an additional $1.2 million in dividends in the form of 666,667 shares in Fusions common stock to a holder of 5,000 shares of Series B-2 Preferred Stock for the conversion of their Series B-2 Preferred Stock holdings into Fusions common stock. |
4. Intangible Assets
4. Intangible Assets | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
4. Intangible Assets | Intangible assets as of March 31, 2016 and December 31, 2015 are as follows: March 31, December 31, 2016 2015 Trademarks and tradenames $ 1,093,400 $ 1,093,400 Proprietary technology 5,781,000 5,781,000 Non-compete agreements 10,703,043 10,703,043 Customer relationships 44,901,181 44,888,181 Favorable lease intangible 218,000 218,000 62,696,624 62,683,624 Less: accumulated amortization (18,263,204 ) (16,859,225 ) Intangible assets, net $ 44,433,420 $ 45,824,399 Amortization expense was $1.4 million and $1.9 million for the three months ended March 31, 2016 and 2015, respectively. Estimated future aggregate amortization expense is expected to be as follows: Remainder of 2016 $ 4,578,104 2017 $ 5,848,934 2018 $ 5,105,126 2019 $ 4,212,644 2020 and thereafter $ 24,688,612 |
5. Stock-based compensation
5. Stock-based compensation | 3 Months Ended |
Mar. 31, 2016 | |
Stock-based Compensation | |
5. Stock-based compensation | The Company's stock-based compensation plan provides for the issuance of stock options to the Companys employees, officers, and directors. The Compensation Committee of Fusions Board of Directors (the "Compensation Committee") approves all awards that are granted under the Fusion's stock-based compensation plan. The following weighted average assumptions were used to determine the fair value of the stock options granted under the Companys stock-based compensation plan using the Black-Scholes option-pricing model: Three months ended March 31, 2016 2015 Dividend yield (%)* 0.0 0.0 Expected volatility (%) 96.70 97.20 Average Risk-free interest rate (%) 1.78 1.69 Expected life of stock option term (years) 8.0 8.0 *The dividend yield is zero as the Company has never paid and does not expect to pay dividends on its common stock. The Company recognized compensation expense of $198,884 and $122,516 for the three months ended March 31, 2016 and 2015, respectively. These amounts are included in selling, general, and administrative expenses in our condensed consolidated interim statements of operations. The following table summarizes the stock option activity for the three months ended March 31, 2016: Number of Options Weighted Average Exercise Price Balance at December 31, 2015 1,158,251 $ 4.96 Shares granted during the period 3,800 $ 2.24 Shares exercised during the period - $ - Shares forfeited during the period (29,035 ) $ 2.57 Shares expired during the period (9,508 ) $ 103.76 Shares outstanding at March 31, 2016 1,123,508 $ 4.17 Shares exercisable at March 31, 2016 373,292 $ 6.99 As of March 31, 2016, we had approximately $1.4 million of unrecognized compensation expense, net of estimated forfeitures, related to stock options granted under the Companys stock-based compensation plan, which is expected to be recognized over a weighted-average period of 1.85 years. |
6. Acquisition
6. Acquisition | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
6. Acquisition | On March 31, 2016, the Company completed the acquisition of Technology for Business Corporation (TFB), a provider of industry leading contact center solutions for an estimated purchase price of $1.0 million based on a royalty fee equal to ten percent of the collected monthly recurring revenues derived from sales of the cloud version of the proprietary call center software and maintenance services. The royalty fee was recognized as a non-current liability in the condensed consolidated balance sheet and will be paid on a quarterly basis, commencing as of the first full calendar quarter following the second anniversary of the closing date of this acquisition. The management of the Company is still evaluating the fair value of the assets acquired and liabilities assumed with the acquisition of TFB. |
7. Supplemental Disclosure of C
7. Supplemental Disclosure of Cash Flow Information | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
7. Supplemental Disclosure of Cash Flow Information | The following table summarizes the Companys supplemental cash flows information: Three Months Ended March 31, Supplemental Cash Flow Information 2016 2015 Cash paid for interest $ 1,460,306 $ 1,355,526 Supplemental Non-Cash Investing and Financing Activities Property and equipment acquired under capital leases $ 141,240 $ 669,863 Dividends on Series B-2 preferred stock paid with the issuance of common stock $ 231,358 $ 319,470 Due to seller of TFB $ 1,011,607 $ - |
8. Prepaid Expenses and Other C
8. Prepaid Expenses and Other Current Assets | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
8. Prepaid Expenses and Other Current Assets | The following table sets forth the items in prepaid expenses and other current assets: March 31, December 31, 2016 2015 Insurance $ 136,276 $ 93,040 Rent 132,594 101,916 Marketing 58,827 109,455 Sofware subscriptions 1,017,104 498,078 Due from seller of Fidelity 425,963 425,963 Due from factoring party - 26,018 Commissions 70,633 20,805 Escrow receivable 311,917 50,759 Other 395,843 292,569 $ 2,549,157 $ 1,618,603 |
9. Accounts Payable and Accrued
9. Accounts Payable and Accrued Expenses | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
9. Accounts Payable and Accrued Expenses | The following table sets forth the items in accounts payable and accrued expenses: March 31, December 31, 2016 2015 Trade accounts payable $ 3,658,630 $ 1,101,393 Accrued bonus 546,454 700,000 Accrued professional and consulting fees 232,128 274,205 Accrued property and other taxes 586,953 534,388 Accrued network costs 2,216,437 3,423,483 Accrued rent 95,765 82,894 Accrued universal service fund fees 327,871 494,852 Customer deposits 372,650 358,227 Accrued credit card 446,287 384,257 Accrued payroll and vacation 403,217 555,493 Accrued sales and federal excise taxes 2,259,766 2,204,098 Accrued sales commissions 847,696 981,121 Accrued interest payable 21,701 32,221 Deferred revenue 1,124,095 1,157,036 Other 577,106 845,557 $ 13,716,756 $ 13,129,225 |
10. Equipment Financing Obligat
10. Equipment Financing Obligations | 3 Months Ended |
Mar. 31, 2016 | |
Equipment Financing Obligations | |
10. 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 5.3% and 6.6%. The Companys equipment financing obligations are as follows: March 31, December 31, 2016 2015 Equipment financing obligations $ 2,944,937 $ 3,044,796 Less: current portion (989,636 ) (959,380 ) Long-term portion $ 1,955,301 $ 2,085,416 |
11. Notes Payable - Non-Related
11. Notes Payable - Non-Related Parties | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
11. Notes Payable - Non-Related Parties | Notes payable non-related parties at March 31, 2016 and December 31, 2015 is as follows: 2016 2015 Subordinated Notes $ 33,988,756 $ 34,160,200 Unamortized discount on Subordinated Notes (1,614,976 ) (1,697,091 ) Unamortized debt issuance costs (933,310 ) (981,584 ) Total notes payable - non-related parties 31,440,470 31,481,525 Less: current portion (685,780 ) (685,780 ) Long-term portion $ 30,754,690 $ 30,795,745 As required and defined in the amended credit facility entered into by the Company on December 8, 2015 (the Secured Credit Facility) and the fourth amended credit agreement (the Praesidian Facility), the Company must satisfy customary financial covenants such as: borrower leverage ratio, fixed charge coverage ratio, capital expenditures annual limit, minimum adjusted EBITDA, and maximum senior leverage ratio. For the three months ended March 31, 2016, the Company was in compliance with all the financial covenants. During the quarter ended March 31, 2016, the Company paid interest expense of approximately $0.9 million at an annual interest rate of 10.8%. |
12. Due to RootAxcess Seller
12. Due to RootAxcess Seller | 3 Months Ended |
Mar. 31, 2016 | |
Due To Rootaxcess Seller | |
12. Due to RootAxcess Seller | In connection with the purchase of the assets of RootAxcess, LLC (RootAxcess) in September 2015, the Company held back $0.7 million against potential claims arising from breaches of representation and warranties. Of such amount, $0.4 million is to be paid to the seller in six equal monthly installments of $66,667 on the three, six, nine, twelve, fifteen and eighteen month anniversary of the closing date. In addition, the Company held back $0.3 million to be paid in three equal installments of $100,000 on each of the twelve, fifteen, and eighteen month anniversary of the closing date. To the extent there is a unresolved claim notice pending (as defined in the asset purchase agreement), the monthly installment payable to seller immediately following the delivery of such claim notice may, at the Companys reasonable discretion, be reduced by the amount in dispute under the claim notice and such amount will continue to be held by the Company until resolved, at which point, the Company will disburse the withheld amount in accordance with such resolution.. On March 31, 2016, the Company made a payment of $66,667 to the sellers in connection with the terms of the holdback agreement. At March 31, 2016, the remaining balance due is $566,667. |
13. Secured Credit Facility
13. Secured Credit Facility | 3 Months Ended |
Mar. 31, 2016 | |
Line of Credit Facility [Abstract] | |
13. Secured Credit Facility | In August 2015, the Company entered into a $40.0 million credit facility with Opus Bank, which facility was amended and restated by the Secured Credit Facility. The Secured Credit Facility consists of a $15.0 million, four-year credit facility, and a $25.0 million, five-year term loan. The maturity date of amounts borrowed under the revolving facility is August 28, 2019, and the maturity date of amounts borrowed under the term loan is August 28, 2020. For the three months ended March 31, 2016, the Company had outstanding $15.0 million under the revolver and $25.0 million under the term loan. For the three months ended March 31, 2016, the Company recognized interest expense of approximately $480,278 at a monthy interest rate of 4.75%. The interest rate is calculated as the higher of (a) the rate of interest in effect for such day as publicly announced from time to time by the Wall Street Journal as its prime rate plus plus |
14. Derivative Liability
14. Derivative Liability | 3 Months Ended |
Mar. 31, 2016 | |
Derivative Liability | |
14. Derivative Liability | The Company has issued warrants to purchase shares of Fusions common stock in connection with certain debt and equity financing transactions. These warrants are accounted for in accordance with the guidance contained in ASC Topic 815 Derivatives and Hedging The following assumptions were used to determine the fair value of the warrants for the three months ended March 31, 2016 and 2015: March 31, March 31, 2016 2015 Stock price ($) 1.79 4.13 Exercise price ($) 6.25 0 - 6.25 Risk-free interest rate (%) 1.78 1.71 - 1.94 Expected volatility (%) 96.70 97.20 Time to maturity (years) 3.00 7.6 - 8.6 At March 31, 2016 and December 31, 2015, the fair value of the derivative was $431,633 and $953,005, respectively. During the quarter ended March 31, 2016, the Company recognized a gain on the change in the fair value of this derivative of approximately $1.0 million offset by a loss of approximately $0.8 million as a result of the adjustment discussed below, and a loss of $1.2 million in the quarter ended March 31, 2015. During the three months ended March 31, 2016, the Company adjusted the valuation of its derivative liability for warrants issued in December 2013 and January 2014 and for changes to its valuation of warrants exercised during 2015. The amount of the adjustment was $772,022 impact on the condensed consolidated statements of operations resulting from the loss on the change in the fair value of the derivative and $338,972 impact to capital in excess of par in the condensed consolidated balance sheets (see Note 20). The Company has evaluated these adjustments in accordance with ASC 250-10-S99, SEC Materials (formerly SEC Staff Accounting Bulletin 99, Materiality) and concluded that both quantitatively and qualitatively the adjustments were not material. These adjustments were also evaluated by management in their assessment of internal controls over financial reporting. |
15. Notes Payable-Related Parti
15. Notes Payable-Related Parties | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
15. Notes Payable-Related Parties | Notes payable related parties at March 31, 2016 and December 31, 2015 is as follows: March 31, December 31, 2016 2015 Notes payable to Marvin Rosen $ 1,178,082 $ 1,178,082 Discount on note (91,087 ) (103,253 ) Total notes payable - related parties $ 1,086,995 $ 1,074,829 The note payable to Marvin Rosen, the Companys Chairman of the Board, is subordinated to borrowings under the Amended Credit Facility and the Fourth Amended SPA. This note is unsecured, pays interest monthly at an annual rate of 7%, and matures 120 days after the Companys obligations under the Amended Credit Facility and the Fourth Amended SPA are paid in full. For the three months ended March 31, 2016, the Company recognized interest expense on the Rosen note of approximately $21,300, and amortization on the discount of approximately $12,000. |
16. Equity Transactions
16. Equity Transactions | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
16. Equity Transactions | Common Stock The Company is authorized to issue 50,000,000 shares of its common stock. As of March 31, 2016 and December 31, 2015, 14,810,917 and 12,788,971 shares of its common stock were issued and outstanding, respectively. During the quarter ended March 31, 2016, the Company issued an aggregate of 30,000 shares of common stock to an employee in lieu of a cash bonus valued at $51,900. In addition, the Board of Directors declared a dividend of $231,359 related to the Companys Series B-2 Preferred Stock, which, in accordance with the terms of the Series B-2 Preferred Stock, was paid in the form of 125,279 shares of common stock. Also, certain holders of our Series B-2 Preferred Stock elected to convert their 6,000 shares of preferred stock into an aggregate of 1,866,667 shares of Fusions common stock, including 666,667 shares of common stock which were issued as a payment of additional dividends for the conversion of their Series B-2 Preferred Stock holdings into Fusions common stock. The additional shares issued were valued at the closing market price at the date of issuance of $1.80 per share or $1.2 million. On May 9, 2016, the Company received a staff determination letter from Nasdaq (Nasdaq) stating that the Company was not in compliance with its rules for continued listing, Rule 5635(b), because it violated the shareholder approval requirement. The technical violation results from the recent purchase of 1,834,862 shares of the Companys common stock by Unterberg Technology Partners, L.P. (Unterberg) in December 2015, which when aggregated with the common shares underlying of the Companys Series B Preferred Stock held by Unterberg (the common shares were ultimately issued in February 2016, see note 3), the amount owned by Unterberg exceeded the level allowed by Nasdaq without a prior shareholder vote. The Nasdaq letter indicates that the Company has forty-five (45) calendar days to submit a plan to regain compliance. If such a plan is timely submitted by the Company, the Nasdaq Staff may grant the Company up to 180 calendar days from May 9, 2016 to regain compliance. The Nasdaq notification has no current effect on the listing of the Companys common stock. The Company is reviewing various ways to correct the technical violation, including seeking approval of the transaction in question by its shareholders. The Company has available options to resolve this technical violation which will not require a cash redemption. Preferred Stock The Company is authorized to issue up to 10,000,000 shares of preferred stock. As of March 31, 2016 and December 31, 2015 there was 5,045 shares of Series A Preferred Stock issued and outstanding, respectively. In addition, there were 12,279 and 18,279 shares of Series B-2 Preferred Stock issued and outstanding as of March 31, 2016 and December 31, 2015, 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 Fusions Board of Directors, on January 1 of each year. As of March 31, 2016, no dividend had been declared by Fusions Board with respect to the Series A Preferred Stock, and the Company had accumulated approximately $4.4 million of preferred stock dividends. Commencing January 1, 2016, Fusion has the right to force the conversion of the Series B-2 Preferred Stock into Fusion common stock at a conversion price of $5.00 per share; provided that the volume weighted average price for its common stock is at least $12.50 for ten consecutive trading days. |
17. Commitments and Contingenci
17. Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
17. 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 Companys liquidity, results of operations or financial condition. As of March 31, 2016, the Company did not have any significant ongoing legal matters. |
18. Segment Information
18. Segment Information | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
18. 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 Business Services and Carrier 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 Companys measurement of segment profit exclude the Companys 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, 2015. The Companys segments and their principal activities consist of the following: Business Services Through this operating segment, the Company provides cloud communications, cloud connectivity, cloud storage and cloud security solutions to small, medium and large businesses. These services are sold through the Companys direct sales force and its partner sales channel, which utilizes the efforts of independent third-party distributors to sell the Companys products and services. Carrier Services Carrier Services includes the termination of domestic and international carrier traffic utilizing primarily VoIP technology. VoIP permits a less costly and more rapid interconnection between the Company and international telecommunications carriers, and generally provides better profit margins for the Company than other technologies. The Company currently interconnects with approximately 370 carriers and vendors, and is working to expand its interconnection relationships, particularly with carriers in emerging markets. Operating segment information for the three months ended March 31, 2016 and 2015 is summarized as follows: Three months ended March 31, 2016 Carrier Services Business Services Corporate and Unallocated* Consolidated Revenues $ 12,231,665 $ 20,952,750 $ - $ 33,184,415 Cost of revenues (exclusive of depreciation and amortization) 11,699,547 8,222,130 - 19,921,677 Gross profit 532,118 12,730,620 - 13,262,738 Depreciation and amortization 31,310 2,675,521 209,432 2,916,263 Selling, general and administrative expenses 1,381,688 9,011,989 1,031,109 11,424,786 Interest expense (1,566 ) (1,551,141 ) (75,257 ) (1,627,964 ) Gain on change in fair value of derivative liability - - 182,400 182,400 Other income (expenses) 13 (289,018 ) 279,335 (9,670 ) Net loss $ (882,432 ) $ (797,049 ) $ (854,063 ) $ (2,533,545 ) Total assets $ 7,740,286 $ 93,789,887 $ 2,179,070 $ 103,709,243 Capital expenditures $ 16,244 $ 972,524 $ - $ 988,768 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) 7,926,666 6,086,026 - 14,012,692 Gross profit 550,455 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 Net loss $ (230,022 ) $ (1,990,037 ) $ (2,043,663 ) $ (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 *The Company employs executive, administrative, human resources, and finance resources that service both the Carrier Services and Business Services segments. The amounts reflected in the column titled Corporate and Unallocated represent those operating expenses, assets and capital expenditures that have not been allocated to a business segment or product line. |
19. Related Party Transactions
19. Related Party Transactions | 3 Months Ended |
Mar. 31, 2016 | |
Related Party Transaction, Due from (to) Related Party [Abstract] | |
19. 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 that company. |
20. Fair Value Disclosures
20. Fair Value Disclosures | 3 Months Ended |
Mar. 31, 2016 | |
Fair Value Disclosures [Abstract] | |
20. 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 1Quoted prices in active markets for identical assets or liabilities Level 2Observable inputs other than quoted prices in active markets for identical assets and liabilities Level 3No observable pricing inputs in the market The following table represents the fair value of the liability measured at fair value on a recurring basis: [Missing Graphic Reference] Changes in the derivative liability for the three months ended March 31, 2016 are as follows: Balance at December 31, 2015 $ 953,005 Gain for the period: Included in net loss (954,422 ) Adjustment for prior issuances and conversion of warrants 433,050 Balance at March 31, 2016 $ 431,633 |
2. Basis of Presentation and 28
2. Basis of Presentation and Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2016 | |
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 fiscal year ended December 31, 2015. 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 Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2015 as filed with the SEC. In managements 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, 2016 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 each of 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 estimates include: 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 of the Company taken as a whole, actual results could differ from those estimates, and such differences could be material. |
Reclassifications | Certain reclassifications have been made to the prior years financial statements in order to conform to the current years 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 on the date of purchase. As of March 31, 2016 and December 31, 2015, the carrying value of cash and cash equivalents approximates fair value due to the short period to maturity. |
Restricted Cash | Restricted cash consists primarily of cash held in reserve pursuant to the terms of financing arrangements and certificates of deposit that serve to collateralize outstanding letters of credit. Restricted cash is recorded as current or non-current assets in the consolidated balance sheets depending on the duration of the restriction and the purpose for which the restriction exists. At March 31, 2016 and December 31, 2015, the Company had certificates of deposit collateralizing a letter of credit in the aggregate amount of approximately $27,000 and $165,000, respectively. The letter of credit is required as security for one of the Companys non-cancelable operating leases for office facilities. |
Fair value of Financial Instruments | At March 31, 2016 and December 31, 2015, the carrying value of the Companys 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 managements 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, 2016 or 2015, 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 18). 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. At March 31, 2016 and December 31, 2015, respectively, goodwill was approximately $27.0 million. All of the Companys 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, 2016. There was no impairment charge recorded for goodwill during the three months ended March 31, 2016 or 2015, 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 $172,000 and $115,000 for the three months ended March 31, 2016 and 2015, 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, 2016 and December 31, 2015. The Company is subject to income tax examinations by major taxing authorities for all tax years since 2011 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, 2016 and December 31, 2015. During the three month ended March 31, 2016 and 2015, 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. For transactions in which goods or services are the consideration received from non-employees in return for the issuance of equity instruments, the expense is recognized in the period when the goods and services are received at the fair value of the consideration received or the fair value of the equity instrument issued, whichever is determined to be a more reliable measurement. |
New and Recently Adopted Accounting Pronouncements | In February 2016, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) No. 2016-2, Leases, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. Under ASU 2016-02, lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessees obligation to make lease payments arising from a lease measured on a discounted basis, and a rightto-use asset, which is an asset that represents the lessees right to use or control the use of a specified asset for the lease term. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures. In November 2015, FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes In September 2015, FASB issued guidance that eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. This guidance is effective for interim and annual reporting periods beginning after December 15, 2015. The adoption of this guidance did not have a material impact on the Companys consolidated financial statements. In April 2015, FASB issued guidance requiring an entity to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance was effective for interim and annual reporting periods beginning after December 15, 2015. The Company adopted this guidance as of January 1, 2016 and applied the provision retrospectively for fiscal 2015 (See to Note 11). The impact of adopting this guidance on the Company's consolidated balance sheet as of December 31, 2015 was a decrease to other assets of approximately $1.0 million, and a decrease to notes payable non-related party of $1.0 million. In May 2014, FASB issued guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most recent current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for certain incremental costs of obtaining a contract and costs to fulfill a contract with a customer. Entities have the option of applying either a full retrospective approach to all periods presented or a modified approach that reflects differences prior to the date of adoption as an adjustment to equity. In April 2015, FASB deferred the effective date of this guidance until January 1, 2018 and the Company is currently assessing the impact of this guidance on its consolidated financial statements. |
3. Loss per share (Tables)
3. Loss per share (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
Computation for basic and diluted net income per share | Three Months Ended March 31, 2016 2015 Numerator Net loss $ (2,533,545 ) $ (4,263,722 ) Dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock (100,623 ) (99,518 ) Dividends declared on Series B-2 Convertible Preferred Stock (1,431,359 ) (319,470 ) Loss on nominal warrants - 713,766 Adjusted loss attributable to common stockholders $ (4,065,527 ) $ (3,968,944 ) Denominator Basic and diluted weighted average common shares outstanding 13,741,366 8,159,534 Loss per share Basic and diluted $ (0.30 ) $ (0.49 ) |
Excluded from calculation of diluted earnings per common share | Three Months Ended March 31, 2016 2015 Warrants 3,005,337 3,391,324 Convertible preferred stock 2,627,795 4,424,147 Stock options 1,123,508 688,812 6,756,640 8,504,283 |
4. Intangible Assets (Tables)
4. Intangible Assets (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
Identifiable intangible assets | March 31, December 31, 2016 2015 Trademarks and tradenames $ 1,093,400 $ 1,093,400 Proprietary technology 5,781,000 5,781,000 Non-compete agreements 10,703,043 10,703,043 Customer relationships 44,901,181 44,888,181 Favorable lease intangible 218,000 218,000 62,696,624 62,683,624 Less: accumulated amortization (18,263,204 ) (16,859,225 ) Intangible assets, net $ 44,433,420 $ 45,824,399 |
Estimated future aggregate amortization expense | Remainder of 2016 $ 4,578,104 2017 $ 5,848,934 2018 $ 5,105,126 2019 $ 4,212,644 2020 and thereafter $ 24,688,612 |
5. Stock-based compensation (Ta
5. Stock-based compensation (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
Fair value of stock options granted | Three months ended March 31, 2016 2015 Dividend yield (%)* 0.0 0.0 Expected volatility (%) 96.70 97.20 Average Risk-free interest rate (%) 1.78 1.69 Expected life of stock option term (years) 8.0 8.0 *The dividend yield is zero as the Company has never paid and does not expect to pay dividends on its common stock. |
Stock option activity | Number of Options Weighted Average Exercise Price Balance at December 31, 2015 1,158,251 $ 4.96 Shares granted during the period 3,800 $ 2.24 Shares exercised during the period - $ - Shares forfeited during the period (29,035 ) $ 2.57 Shares expired during the period (9,508 ) $ 103.76 Shares outstanding at March 31, 2016 1,123,508 $ 4.17 Shares exercisable at March 31, 2016 373,292 $ 6.99 |
7. Supplemental Disclosure of32
7. Supplemental Disclosure of Cash Flow Information (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Supplemental Disclosure Of Cash Flow Information Tables | |
Supplemental Disclosure of Cash Flow Information | Three Months Ended March 31, Supplemental Cash Flow Information 2016 2015 Cash paid for interest $ 1,460,306 $ 1,355,526 Supplemental Non-Cash Investing and Financing Activities Property and equipment acquired under capital leases $ 141,240 $ 669,863 Dividends on Series B-2 preferred stock paid with the issuance of common stock $ 231,358 $ 319,470 Due to seller of TFB $ 1,011,607 $ - |
8. Prepaid Expenses and Other33
8. Prepaid Expenses and Other Current Assets (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
Prepaid expenses and other current assets | March 31, December 31, 2016 2015 Insurance $ 136,276 $ 93,040 Rent 132,594 101,916 Marketing 58,827 109,455 Sofware subscriptions 1,017,104 498,078 Due from seller of Fidelity 425,963 425,963 Due from factoring party - 26,018 Commissions 70,633 20,805 Escrow receivable 311,917 50,759 Other 395,843 292,569 $ 2,549,157 $ 1,618,603 |
9. Accounts Payable and Accru34
9. Accounts Payable and Accrued Expenses (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
Accounts payable and accrued expenses | March 31, December 31, 2016 2015 Trade accounts payable $ 3,658,630 $ 1,101,393 Accrued bonus 546,454 700,000 Accrued professional and consulting fees 232,128 274,205 Accrued property and other taxes 586,953 534,388 Accrued network costs 2,216,437 3,423,483 Accrued rent 95,765 82,894 Accrued universal service fund fees 327,871 494,852 Customer deposits 372,650 358,227 Accrued credit card 446,287 384,257 Accrued payroll and vacation 403,217 555,493 Accrued sales and federal excise taxes 2,259,766 2,204,098 Accrued sales commissions 847,696 981,121 Accrued interest payable 21,701 32,221 Deferred revenue 1,124,095 1,157,036 Other 577,106 845,557 $ 13,716,756 $ 13,129,225 |
10. Equipment Financing Oblig35
10. Equipment Financing Obligations (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Equipment Financing Obligations | |
Equipment financing obligations | March 31, December 31, 2016 2015 Equipment financing obligations $ 2,944,937 $ 3,044,796 Less: current portion (989,636 ) (959,380 ) Long-term portion $ 1,955,301 $ 2,085,416 |
11. Notes Payable - Non-Relat36
11. Notes Payable - Non-Related Parties (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
Components of notes payable non-related parties | 2016 2015 Subordinated Notes $ 33,988,756 $ 34,160,200 Unamortized discount on Subordinated Notes (1,614,976 ) (1,697,091 ) Unamortized debt issuance costs (933,310 ) (981,584 ) Total notes payable - non-related parties 31,440,470 31,481,525 Less: current portion (685,780 ) (685,780 ) Long-term portion $ 30,754,690 $ 30,795,745 |
14. Derivative Liability (Table
14. Derivative Liability (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Derivative Liability Tables | |
Assumptions used to determine the fair value of the warrants | March 31, March 31, 2016 2015 Stock price ($) 1.79 4.13 Exercise price ($) 6.25 0 - 6.25 Risk-free interest rate (%) 1.78 1.71 - 1.94 Expected volatility (%) 96.70 97.20 Time to maturity (years) 3.00 7.6 - 8.6 |
15. Notes Payable-Related Par38
15. Notes Payable-Related Parties (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Notes Payable-related Parties Tables | |
Component of notes payable related party | March 31, December 31, 2016 2015 Notes payable to Marvin Rosen $ 1,178,082 $ 1,178,082 Discount on note (91,087 ) (103,253 ) Total notes payable - related parties $ 1,086,995 $ 1,074,829 |
18. Segment Information (Tables
18. Segment Information (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Notes to Financial Statements | |
Operating segment information | Three months ended March 31, 2016 Carrier Services Business Services Corporate and Unallocated* Consolidated Revenues $ 12,231,665 $ 20,952,750 $ - $ 33,184,415 Cost of revenues (exclusive of depreciation and amortization) 11,699,547 8,222,130 - 19,921,677 Gross profit 532,118 12,730,620 - 13,262,738 Depreciation and amortization 31,310 2,675,521 209,432 2,916,263 Selling, general and administrative expenses 1,381,688 9,011,989 1,031,109 11,424,786 Interest expense (1,566 ) (1,551,141 ) (75,257 ) (1,627,964 ) Gain on change in fair value of derivative liability - - 182,400 182,400 Other income (expenses) 13 (289,018 ) 279,335 (9,670 ) Net loss $ (882,432 ) $ (797,049 ) $ (854,063 ) $ (2,533,545 ) Total assets $ 7,740,286 $ 93,789,887 $ 2,179,070 $ 103,709,243 Capital expenditures $ 16,244 $ 972,524 $ - $ 988,768 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) 7,926,666 6,086,026 - 14,012,692 Gross profit 550,455 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 Net loss $ (230,022 ) $ (1,990,037 ) $ (2,043,663 ) $ (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 *The Company employs executive, administrative, human resources, and finance resources that service both the Carrier Services and Business Services segments. The amounts reflected in the column titled Corporate and Unallocated represent those operating expenses, assets and capital expenditures that have not been allocated to a business segment or product line. |
20. Fair Value Disclosures (Tab
20. Fair Value Disclosures (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Fair Value Disclosures [Abstract] | |
Changes in the derivative liability | Balance at December 31, 2015 $ 953,005 Gain for the period: Included in net loss (954,422 ) Adjustment for prior issuances and conversion of warrants 433,050 Balance at March 31, 2016 $ 431,633 |
2. Basis of Presentation and 41
2. Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | ||
Mar. 31, 2016 | Mar. 31, 2015 | Dec. 31, 2015 | |
Notes to Financial Statements | |||
Certificate of deposit collateralizing a letter of credit | $ 27,000 | $ 165,000 | |
Goodwill | 27,049,678 | $ 27,060,297 | |
Advertising and marketing expenses | 172,000 | $ 115,000 | |
Decrease in Notes payable - non-related parties | 1,000,000 | ||
Decrease in Other assets | $ 1,000,000 |
3. Loss per share (Details)
3. Loss per share (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Numerator | ||
Net loss | $ (2,533,545) | $ (4,263,722) |
Dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock | (100,623) | (99,518) |
Dividends declared on Series B-2 Convertible Preferred Stock | (1,431,359) | (319,470) |
Loss on nominal warrants | 0 | 713,766 |
Adjusted loss attributable to common stockholders | $ (4,065,527) | $ (3,968,944) |
Denominator | ||
Basic and diluted weighted average common shares outstanding | 13,741,366 | 8,159,534 |
Loss per share | ||
Basic and diluted | $ (0.30) | $ (0.49) |
3. Loss per share (Details 1)
3. Loss per share (Details 1) - shares | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Antidilutive securities excluded from the calculation of diluted earnings per common share | 6,756,640 | 8,504,283 |
Warrants [Member] | ||
Antidilutive securities excluded from the calculation of diluted earnings per common share | 3,005,337 | 3,391,324 |
Convertible preferred stock [Member] | ||
Antidilutive securities excluded from the calculation of diluted earnings per common share | 2,627,795 | 4,424,147 |
Stock options | ||
Antidilutive securities excluded from the calculation of diluted earnings per common share | 1,123,508 | 688,812 |
3. Loss Per Share (Details Narr
3. Loss Per Share (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Income (loss) available to common stockholders | $ 0 | $ 700,000 |
Outstanding warrants | 728,333 | |
Preferred stock dividends | $ 0 | |
Preferred stock dividends declared | 231,359 | $ 319,470 |
Preferred stock dividends accumulated | 4,400,000 | |
Series B-2 Preferred Stock [Member] | ||
Preferred stock dividends | $ 1,200,000 | |
Preferred stock dividends paid | 125,279 | 72,205 |
Series B-2 Preferred Stock [Member] | Board of Directors [Member] | ||
Preferred stock dividends paid | 666,667 | |
Series A Preferred Stock [Member] | ||
Preferred stock dividends | $ 101,000 | $ 100,000 |
4. Intangible Assets (Details)
4. Intangible Assets (Details) - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Gross intangible assets | $ 62,696,624 | $ 62,683,624 |
Less: accumulated amortization | (18,263,204) | (16,859,225) |
Intangible assets, net | 44,433,420 | 45,824,399 |
Trademarks and tradename [Member] | ||
Gross intangible assets | 1,093,400 | 1,093,400 |
Proprietary technology [Member] | ||
Gross intangible assets | 5,781,000 | 5,781,000 |
Non-compete agreement [Member] | ||
Gross intangible assets | 10,703,043 | 10,703,043 |
Customer relationships [Member] | ||
Gross intangible assets | 44,901,181 | 44,888,181 |
Favorable lease intangible [Member] | ||
Gross intangible assets | $ 218,000 | $ 218,000 |
4. Intangible Assets (Details 1
4. Intangible Assets (Details 1) | Mar. 31, 2016USD ($) |
Notes to Financial Statements | |
Remainder of 2016 | $ 4,578,104 |
2,017 | 5,848,934 |
2,018 | 5,105,126 |
2,019 | 4,212,644 |
2020 and thereafter | $ 24,688,612 |
4. Intangible Assets (Details N
4. Intangible Assets (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Notes to Financial Statements | ||
Amortization expense | $ 1,400,000 | $ 1,900,000 |
5. Stock-based compensation (De
5. Stock-based compensation (Details) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Dividend yield (%) | 0.00% | 0.00% |
Expected volatility (%) | 96.70% | 97.20% |
Average Risk-free interest rate (%) | 1.78% | 1.69% |
Expected life of stock option term (years) | 8 years | 8 years |
5. Stock-based compensation (49
5. Stock-based compensation (Details 1) | 3 Months Ended |
Mar. 31, 2016$ / sharesshares | |
Number of Options | |
Balance at December 31, 2015 | shares | 1,158,251 |
Shares granted | shares | 3,800 |
Shares exercised | shares | 0 |
Shares forfeited | shares | (29,035) |
Shares expired | shares | (9,508) |
Shares outstanding at March 31, 2016 | shares | 1,123,508 |
Shares exercisable at March 31, 2016 | shares | 373,292 |
Weighted Average Exercise Price | |
Balance at December 31, 2015 | $ / shares | $ 4.96 |
Shares granted | $ / shares | 2.24 |
Shares exercised | $ / shares | 0 |
Shares forfeited | $ / shares | 2.57 |
Shares expired | $ / shares | 103.76 |
Shares outstanding at March 31, 2016 | $ / shares | 4.17 |
Shares exercisable at March 31, 2016 | $ / shares | $ 6.99 |
5. Stock-based compensation (50
5. Stock-based compensation (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Compensation expense | $ 198,884 | $ 122,516 |
Unrecognized compensation expense, net of estimated forfeitures | $ 1,400,000 | |
Weighted-average period recognized | 1 year 10 months 6 days |
6. Acquisition (Details Narrati
6. Acquisition (Details Narrative) | Mar. 31, 2016USD ($) |
Acquisition Details Narrative | |
Acquisition of assets | $ 1,000,000 |
7. Supplemental Disclosure of52
7. Supplemental Disclosure of Cash Flow Information (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Supplemental Cash Flow Information | ||
Cash paid for interest | $ 1,460,306 | $ 1,355,526 |
Supplemental Non-Cash Investing and Financing Activities | ||
Property and equipment acquired under capital leases | 141,240 | 669,863 |
Dividend on Series B-2 preferred stock paid with the issuance of common stock | 231,358 | 319,470 |
Due to seller of TFB | $ 1,011,607 | $ 0 |
8. Prepaid Expenses and Other53
8. Prepaid Expenses and Other Current Assets (Details) - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Prepaid expenses and other current assets | ||
Insurance | $ 136,276 | $ 93,040 |
Rent | 132,594 | 101,916 |
Marketing | 58,827 | 109,455 |
Software subscriptions | 1,017,104 | 498,078 |
Due from seller of Fidelity | 425,963 | 425,963 |
Due from factoring party | 0 | 26,018 |
Commissions | 70,633 | 20,805 |
Escrow receivable | 311,917 | 50,759 |
Other | 395,843 | 292,569 |
Total | $ 2,549,157 | $ 1,618,603 |
9. Accounts Payable and Accru54
9. Accounts Payable and Accrued Expenses (Details) - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Notes to Financial Statements | ||
Trade accounts payable | $ 3,658,630 | $ 1,101,393 |
Accrued bonus | 546,454 | 700,000 |
Accrued professional and consulting fees | 232,128 | 274,205 |
Accrued property and other taxes | 586,953 | 534,388 |
Accrued network costs | 2,216,437 | 3,423,483 |
Accrued rent | 95,765 | 82,894 |
Accrued universal service fund fees | 327,871 | 494,852 |
Customer deposits | 372,650 | 358,227 |
Accrued credit card | 446,287 | 384,257 |
Accrued payroll and vacation | 403,217 | 555,493 |
Accrued sales and federal excise taxes | 2,259,766 | 2,204,098 |
Accrued sales commissions | 847,696 | 981,121 |
Accrued interest payable | 21,701 | 32,221 |
Deferred revenue | 1,124,095 | 1,157,036 |
Other | 577,106 | 845,557 |
Total accounts payable and accrued expenses | $ 13,716,756 | $ 13,129,225 |
10. Equipment Financing Oblig55
10. Equipment Financing Obligations (Details) - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Equipment Financing Obligations | ||
Equipment financing obligations | $ 2,944,937 | $ 3,044,796 |
Less: current portion | (989,636) | (959,380) |
Long-term portion | $ 1,955,301 | $ 2,085,416 |
11. Notes Payable - Non-Relat56
11. Notes Payable - Non-Related Parties (Details) - Non Related Party [Member] - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Subordinated Notes | $ 33,988,756 | $ 34,160,200 |
Unamortized discount on Subordinated Notes | (1,614,976) | (1,697,091) |
Unamortized debt issuance costs | (933,310) | (981,584) |
Total notes payable - non-related parties | 31,440,470 | 31,481,525 |
Less: current portion | (685,780) | (685,780) |
Long-term portion | $ 30,754,690 | $ 30,795,745 |
12. Due to RootAxcess Seller (D
12. Due to RootAxcess Seller (Details Narrative) | Mar. 31, 2016USD ($) |
Due To Rootaxcess Seller Details Narrative | |
Payment to the sellers in connection with the terms of the holdback agreement | $ 66,667 |
Due to RootAxcess seller | $ 566,667 |
13. Secured Credit Facility (De
13. Secured Credit Facility (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Dec. 31, 2015 | |
Secured Credit Facility Details Narrative | ||
Revolver credit facility | $ 15,000,000 | $ 15,000,000 |
Term Loan | $ 25,000,000 | $ 25,000,000 |
Interest rate | 4.75% | |
Interest expense | $ 480,278 |
14. Derivative Liability (Detai
14. Derivative Liability (Details) - $ / shares | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Stock price ($) | $ 1.79 | $ 4.13 |
Exercise price ($) | $ 6.25 | |
Risk-free interest rate (%) | 1.78% | |
Expected volatility (%) | 96.70% | 97.20% |
Time to maturity (years) | 3 years | |
Minimum | ||
Exercise price ($) | $ 0 | |
Risk-free interest rate (%) | 1.71% | |
Time to maturity (years) | 7 years 7 months 6 days | |
Maximum | ||
Exercise price ($) | $ 6.25 | |
Risk-free interest rate (%) | 1.94% | |
Time to maturity (years) | 8 years 7 months 6 days |
14. Derivative Liability (Det60
14. Derivative Liability (Details Narrative) - USD ($) | 3 Months Ended | ||
Mar. 31, 2016 | Mar. 31, 2015 | Dec. 31, 2015 | |
Derivative Liability [Abstract] | |||
Fair value derivative liability | $ 431,633 | $ 953,005 | |
Loss on fair value of derivative | 800,000 | $ 1,200,000 | |
Gain on fair value of derivative | $ 1,000,000 |
15. Notes Payable-Related Par61
15. Notes Payable-Related Parties (Details) - RelatedParty - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Notes payable to Marvin Rosen | $ 1,178,082 | $ 1,178,082 |
Discount on note | (91,087) | (103,253) |
Total notes payable - related parties | $ 1,086,995 | $ 1,074,829 |
15. Notes Payable-Related Par62
15. Notes Payable-Related Parties (Details Narrative) | 3 Months Ended |
Mar. 31, 2016USD ($) | |
Notes Payable-related Parties Details Narrative | |
Interest expense | $ 21,300 |
Amortization discount | $ 12,000 |
16. Equity Transactions (Detail
16. Equity Transactions (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Dec. 31, 2015 | |
Common Stock, Shares Issued | 14,810,917 | 12,788,971 |
Common Stock, Shares Outstanding | 14,810,917 | 12,788,971 |
Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 |
Preferred Stock, Shares Issued | 17,324 | 23,324 |
Preferred Stock, Shares Outstanding | 17,324 | 23,324 |
Preferred stock dividends accumulated | $ 4,400,000 | |
Common stock issued for services | 30,000 | |
Common stock issued for services value | $ 51,900 | |
Series B-2 Preferred Stock [Member] | ||
Preferred Stock, Shares Issued | 12,279 | 18,279 |
Preferred Stock, Shares Outstanding | 12,279 | 18,279 |
Series A Preferred Stock [Member] | ||
Preferred Stock, Shares Issued | 5,045 | 5,045 |
Preferred Stock, Shares Outstanding | 5,045 | 5,045 |
18. Segment Information (Detail
18. Segment Information (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2016 | Mar. 31, 2015 | ||
Segment Reporting Information [Line Items] | |||
Revenues | $ 33,184,415 | $ 25,263,038 | |
Cost of revenues (exclusive of depreciation and amortization) | 19,921,677 | 14,012,692 | |
Gross profit | 13,262,738 | 11,250,346 | |
Selling, general and administrative expenses | 11,424,786 | 9,736,294 | |
Interest expense | (1,627,964) | (1,606,843) | |
Gain (loss) on change in fair value of derivative liability | 182,400 | (1,204,802) | |
Carrier Services | |||
Segment Reporting Information [Line Items] | |||
Revenues | 12,231,665 | 8,477,121 | |
Cost of revenues (exclusive of depreciation and amortization) | 11,699,547 | 7,926,666 | |
Gross profit | 532,118 | 550,455 | |
Depreciation and amortization | 31,310 | 44,997 | |
Selling, general and administrative expenses | 1,381,688 | 735,480 | |
Interest expense | (1,566) | 0 | |
Gain (loss) on change in fair value of derivative liability | 0 | 0 | |
Other income (expenses) | 13 | 0 | |
Net loss | (882,432) | (230,022) | |
Total assets | 7,740,286 | 5,223,717 | |
Capital expenditures | 16,244 | 5,366 | |
Business Services | |||
Segment Reporting Information [Line Items] | |||
Revenues | 20,952,750 | 16,785,917 | |
Cost of revenues (exclusive of depreciation and amortization) | 8,222,130 | 6,086,026 | |
Gross profit | 12,730,620 | 10,699,891 | |
Depreciation and amortization | 2,675,521 | 2,934,094 | |
Selling, general and administrative expenses | 9,011,989 | 8,008,448 | |
Interest expense | (1,551,141) | (1,562,227) | |
Gain (loss) on change in fair value of derivative liability | 0 | 0 | |
Other income (expenses) | (289,018) | (185,158) | |
Net loss | (797,049) | (1,990,037) | |
Total assets | 93,789,887 | 64,265,798 | |
Capital expenditures | 972,524 | 790,938 | |
Corporate and Unallocated | |||
Segment Reporting Information [Line Items] | |||
Revenues | [1] | 0 | 0 |
Cost of revenues (exclusive of depreciation and amortization) | [1] | 0 | 0 |
Gross profit | [1] | 0 | 0 |
Depreciation and amortization | [1] | 209,432 | 24,356 |
Selling, general and administrative expenses | [1] | 1,031,109 | 992,366 |
Interest expense | [1] | (75,257) | (44,616) |
Gain (loss) on change in fair value of derivative liability | [1] | 182,400 | (1,204,802) |
Other income (expenses) | [1] | 279,335 | 222,477 |
Net loss | [1] | (854,063) | (2,043,663) |
Total assets | [1] | 2,179,070 | 1,706,229 |
Capital expenditures | [1] | 0 | 0 |
Consolidated | |||
Segment Reporting Information [Line Items] | |||
Revenues | 33,184,415 | 25,263,038 | |
Cost of revenues (exclusive of depreciation and amortization) | 19,921,677 | 14,012,692 | |
Gross profit | 13,262,738 | 11,250,346 | |
Depreciation and amortization | 2,916,263 | 3,003,447 | |
Selling, general and administrative expenses | 11,424,786 | 9,736,294 | |
Interest expense | (1,627,964) | (1,606,843) | |
Gain (loss) on change in fair value of derivative liability | 182,400 | (1,204,802) | |
Other income (expenses) | (9,670) | 37,319 | |
Net loss | (2,533,545) | (4,263,722) | |
Total assets | 103,709,243 | 71,195,744 | |
Capital expenditures | $ 988,768 | $ 796,304 | |
[1] | The Company employs executive, administrative, human resources, and finance resources that service both the Carrier Services and Business Services segments. The amounts reflected in the column titled "Corporate and Unallocated" represent those operating expenses, assets and capital expenditures that have not been allocated to a business segment or product line. |
20. Fair Value Disclosures (Det
20. Fair Value Disclosures (Details) | 3 Months Ended |
Mar. 31, 2016USD ($) | |
Fair Value Disclosures [Abstract] | |
Balance at December 31, 2015 | $ 953,005 |
Gain for the period: | |
Included in net loss | (954,422) |
Adjustment for prior issuances and conversion of warrants | 433,050 |
Balance at March 31, 2016 | $ 431,633 |