Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2016 | Nov. 14, 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 | Sep. 30, 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 | 18,062,879 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,016 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 882,040 | $ 7,540,543 |
Accounts receivable, net of allowance for doubtful accounts of $366,422 and $308,813, respectively | 8,199,522 | 7,650,141 |
Prepaid expenses and other current assets | 2,457,736 | 1,618,603 |
Total current assets | 11,539,298 | 16,809,287 |
Property and equipment, net | 12,929,148 | 14,055,493 |
Other assets: | ||
Security deposits | 548,288 | 575,038 |
Restricted cash | 27,153 | 165,123 |
Goodwill | 28,049,775 | 27,060,297 |
Intangible assets, net | 42,727,552 | 45,824,399 |
Other assets | 302,053 | 281,045 |
Total other assets | 71,654,821 | 73,905,902 |
TOTAL ASSETS | 96,123,267 | 104,770,682 |
Current liabilities: | ||
Notes payable - non-related parties | 685,780 | 685,780 |
Due to RootAxcess seller | 333,334 | 300,000 |
Due to TFB seller | 100,000 | |
Equipment financing obligations | 997,089 | 959,380 |
Accounts payable and accrued expenses | 12,610,885 | 13,129,225 |
Total current liabilities | 14,727,088 | 15,074,385 |
Long-term liabilities: | ||
Notes payable - non-related parties, net of discount | 30,672,580 | 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 | 333,333 | |
Due to TFB seller | 861,606 | |
Notes payable - related parties | 1,112,445 | 1,074,829 |
Equipment financing obligations | 1,492,558 | 2,085,416 |
Derivative liabilities | 233,934 | 953,005 |
Total liabilities | 89,100,211 | 90,316,713 |
Stockholders' equity (deficit): | ||
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 17,299 and 23,324 shares issued and outstanding | 173 | 233 |
Common stock, $0.01 par value, 50,000,000 shares authorized, 15,064,953 and 12,788,971 shares issued and outstanding | 150,650 | 127,889 |
Capital in excess of par value | 185,764,507 | 184,859,084 |
Accumulated deficit | (178,892,274) | (170,533,237) |
Total stockholders' equity | 7,023,056 | 14,453,969 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 96,123,267 | $ 104,770,682 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Current assets: | ||
Allowance for doubtful accounts | $ 366,422 | $ 308,813 |
Stockholders' equity: | ||
Preferred Stock, Par Value | $ 0.01 | $ 0.01 |
Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 |
Preferred Stock, Shares Issued | 17,299 | 23,324 |
Preferred Stock, Shares Outstanding | 17,299 | 23,324 |
Common Stock, Par Value | $ 0.01 | $ 0.01 |
Common Stock, Shares Authorized | 50,000,000 | 50,000,000 |
Common Stock, Shares Issued | 15,064,953 | 12,788,971 |
Common Stock, Shares Outstanding | 15,064,953 | 12,788,971 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Income Statement [Abstract] | ||||
Revenues | $ 29,497,129 | $ 24,530,824 | $ 93,101,835 | $ 74,857,557 |
Cost of revenues (exclusive of depreciation and amortization, shown separately below) | 16,769,587 | 13,533,647 | 53,936,078 | 41,359,955 |
Gross profit | 12,727,542 | 10,997,177 | 39,165,757 | 33,497,602 |
Depreciation and amortization | 2,998,628 | 3,140,427 | 8,946,781 | 9,183,632 |
Selling, general and administrative expenses | 11,408,048 | 9,796,483 | 34,102,847 | 29,379,196 |
Total operating expenses | 14,406,676 | 12,936,910 | 43,049,628 | 38,562,828 |
Operating loss | (1,679,134) | (1,939,733) | (3,883,871) | (5,065,226) |
Other (expenses) income: | ||||
Interest expense | (1,625,195) | (1,434,734) | (4,877,828) | (4,650,286) |
Gain on change in fair value of derivative liability | 152,057 | 1,237,730 | 380,099 | 2,543,878 |
Loss on extinguishment of debt | (2,720,355) | (2,720,355) | ||
Other income (expense), net | 18,069 | (2,399) | 33,514 | 56,369 |
Total other expenses | (1,455,069) | (2,919,758) | (4,464,215) | (4,770,394) |
Loss before income taxes | (3,134,203) | (4,859,491) | (8,348,086) | (9,835,620) |
Provision for income taxes | (10,951) | (10,951) | ||
Net loss | (3,145,154) | (4,859,491) | (8,359,037) | (9,835,620) |
Preferred stock dividends | (285,646) | (379,740) | (2,102,467) | (1,186,826) |
Net loss attributable to common stockholders | $ (3,430,800) | $ (5,239,231) | $ (10,461,504) | $ (11,022,446) |
Basic and diluted loss per common share | $ (0.23) | $ (0.72) | $ (0.72) | $ (1.52) |
Weighted average common shares outstanding: | ||||
Basic and diluted | 14,990,816 | 8,958,815 | 14,536,893 | 8,529,642 |
Condensed Consolidated Stateme5
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) - 9 months ended Sep. 30, 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 | $ 233 | $ 127,889 | $ 184,859,084 | $ (170,533,237) | $ 14,453,969 |
Net loss | (8,359,037) | (8,359,037) | |||
Conversion of preferred stock into common stock, including dividends, Shares | (6,025) | 1,871,667 | |||
Conversion of preferred stock into common stock, including dividends, Amount | $ (60) | $ 18,717 | (18,657) | ||
Dividends on preferred stock, Shares | 343,510 | ||||
Dividends on preferred stock, Amount | $ 3,435 | (3,435) | |||
Adjustment for prior issuances and conversion of warrants | 338,972 | 338,972 | |||
Adjustment for fractional shares, Shares | 685 | ||||
Adjustment for fractional shares, Amount | $ 8 | (8) | |||
Cancellation of common stock issued to PingTone sellers, Shares | (51,380) | ||||
Cancellation of common stock issued to PingTone sellers, Amount | $ (514) | (179,830) | (180,344) | ||
Issuance of restricted stock, Shares | 55,000 | ||||
Issuance of restricted stock, Amount | $ 550 | 99,000 | 99,550 | ||
Issuance of common stock for services rendered, Shares | 56,500 | ||||
Issuance of common stock for services rendered, Amount | $ 565 | 96,385 | 96,950 | ||
Stock based compensation associated with stock incentive plans | 572,996 | 572,996 | |||
Ending Balance, Shares at Sep. 30, 2016 | 17,299 | 15,064,953 | |||
Ending Balance, Amount at Sep. 30, 2016 | $ 173 | $ 150,650 | $ 185,764,507 | $ (178,892,274) | $ 7,023,056 |
Condensed Consolidated Stateme6
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Cash flows from operating activities: | ||
Net loss | $ (8,359,037) | $ (9,835,620) |
Adjustments to reconcile net loss to net cash provided by operating activities: | ||
Depreciation and amortization | 8,946,781 | 9,183,632 |
Loss on extinguishment on debt | 2,720,355 | |
Loss on accounts receivable settlement exchanged for equipment | 111,659 | |
Loss on disposal of property | 86,777 | |
Bad debt expense | 215,000 | 373,034 |
Stock-based compensation | 572,996 | 392,676 |
Stock based compensation issued for services rendered by third parties | 105,256 | 215,611 |
Amortization of debt discount and deferred financing fees | 477,751 | 667,191 |
Gain in the change in fair value of derivative liability | (380,099) | (2,543,878) |
Changes in operating assets and liabilities: | ||
Accounts receivable | (625,771) | (565,227) |
Prepaid expenses and other current assets | (1,373,378) | (83,205) |
Other assets | (317,927) | (203,414) |
Accounts payable and accrued expenses | (1,258,968) | (297,079) |
Net cash (used in) provided by operating activities | (1,910,619) | 135,735 |
Cash flows from investing activities: | ||
Purchase of property and equipment | (3,782,232) | (2,479,335) |
Proceeds from the sale of property and equipment | 28,736 | |
Net cash acquired through acqusition | 16,895 | |
Payments for acquisitions | (500,000) | |
Returns of security deposits | 26,750 | |
Escrow refund - PingTone acquisition | 392,617 | |
Change in restricted cash | 137,970 | 1,000,000 |
Net cash used in investing activities | (3,179,264) | (1,979,335) |
Cash flows from financing activities: | ||
Proceeds from notes payable - non-related parties | 9,000,000 | |
Proceeds from revolving debt | 12,500,000 | |
Proceeds from accounts receivable factoring arrangement | 1,630,045 | |
Repayments of borrowings to accounts receivable factoring arrangement | (1,666,919) | |
Payments on equipment financing obligations | (743,647) | (592,514) |
Repayments of notes payable | (824,973) | (20,835,022) |
Payment of financing fees | (680,828) | |
Net cash used in financing activities | (1,568,620) | (645,238) |
Net change in cash and cash equivalents | (6,658,503) | (2,488,838) |
Cash and cash equivalents, beginning of period | 7,540,543 | 6,444,683 |
Cash and cash equivalents, end of period | $ 882,040 | $ 3,955,845 |
1. Organization and Business
1. Organization and Business | 9 Months Ended |
Sep. 30, 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 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 | 9 Months Ended |
Sep. 30, 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 U.S. 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 (the 2015 Form 10-K) 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 and nine months ended September 30, 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 the 2015 Form 10-K. There have been no material changes in our accounting policies during the nine months ended September 30, 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. 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 September 30, 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 September 30, 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 September 30, 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 nine month periods ended September 30, 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 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. At September 30, 2016 and December 31, 2015, goodwill was approximately $28.0 million and $27.0 million, respectively. All of the Companys goodwill is attributable to its Business Services segment. There was no impairment charge recorded for goodwill during the nine months ended September 30, 2016 or 2015, as there were no indicators of impairment. The following table presents the changes in the carrying amounts of goodwill during the nine months ended September 30, 2016: Balance at December 31, 2015 $ 27,060,297 Adjustment to the preliminary purchase price of Fidelity* (10,619 ) Increase in goodwill - Technology for Business Corporation (TFB) acquisition 1,000,097 Balance at September 30, 2016 $ 28,049,775 *Acquisition of Fidelity Access Networks, LLC, Fidelity Connect LLC, Fidelity Voice Services, LLC and Fidelity Access Networks, Inc., (together with Fidelity Telecom, LLC hereinafter collectively referred to as Fidelity) Advertising and Marketing Costs Costs related to advertising and marketing are expensed as incurred and included in selling, general and administrative expenses in the Companys condensed consolidated statements of operations. Our advertising and marketing expense was approximately $154,000 and $145,000 for the three months ended September 30, 2016 and 2015, respectively, and approximately $508,000 and $390,000 for the nine months ended September 30, 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 September 30, 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 September 30, 2016 and December 31, 2015. During the three and nine months ended September 30, 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 March 2016, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation-Stock Compensation (Topic 718). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification of the award as equity or as a liability, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years and interim periods beginning after December 15, 2016, including interim periods within those reporting period. The Company does not expect this guidance to have a material impact on its consolidated financial statements. In February 2016, FASB issued ASU No. 2016-02, Leases 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 Note 11). The adoption of this guidance by the Company resulted in an approximately $1.0 million decrease in other assets, and a decrease of $1.0 million in notes payable as of December 31, 2015. 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. The Company is currently assessing the impact of this guidance on its consolidated financial statements. |
3. Loss per share
3. Loss per share | 9 Months Ended |
Sep. 30, 2016 | |
Earnings Per Share [Abstract] | |
3. Loss per share | Basic and diluted loss per share is computed by dividing (i) loss available to common stockholders, adjusted by an approximately $1.2 million gain on the fair value of the Companys derivative liability for the three months ended September 30, 2015, and $1.9 million gain on the fair value of the Companys derivative liability for the nine months ended September 30, 2015, which was attributable to 728,333 outstanding warrants issued by Fusion with a nominal exercise price that were exercised in August 2015 and dividends paid on Fusions 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 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 and nine months ended September 30, 2016 and 2015: Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Numerator Net loss $ (3,145,154 ) $ (4,859,491 ) $ (8,359,037 ) $ (9,835,620 ) Dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock (101,729 ) (101,730 ) (302,976 ) (301,871 ) Dividends declared on Series B-2 Convertible Preferred Stock (183,917 ) (278,010 ) (1,799,491 ) (884,955 ) Gain on nominal warrants - (1,187,183 ) - (1,930,083 ) Adjusted loss attributable to common stockholders $ (3,430,800 ) $ (6,426,414 ) $ (10,461,504 ) $ (12,952,529 ) Denominator Basic and diluted weighted average common shares outstanding 14,990,816 8,958,815 14,536,893 8,529,642 Loss per share Basic and diluted $ (0.23 ) $ (0.72 ) $ (0.72 ) $ (1.52 ) For the nine months ended September 30, 2016 and 2015, the following were excluded from the calculation of diluted earnings per common share because of their anti-dilutive effects: Nine Months Ended September 30, 2016 2015 Warrants 2,946,948 3,011,760 Convertible preferred stock 2,626,518 3,992,471 Stock options 1,157,512 677,126 6,730,978 7,681,357 The net loss per common share calculation includes a provision for preferred stock dividends on Fusions outstanding Series A-1, A-2 and A-4 preferred stock (the Series A Preferred Stock) of approximately $102,000 for the three months ended September 30, 2016 and 2015, and approximately $302,000 for the nine months ended September 30, 2016 and 2015. Through September 30, 2016, the Board of Directors of Fusion has never declared a dividend on any series of the Series A Preferred Stock, resulting in approximately $4.6 million of accumulated preferred stock dividends. 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 of Fusions common stock to a holder of 5,000 shares of Series B-2 Preferred Stock in connection with their agreement to convert all of their Series B-2 Preferred Stock holdings into shares of Fusions common stock. |
4. Intangible Assets
4. Intangible Assets | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
4. Intangible Assets | Intangible assets as of September 30, 2016 and December 31, 2015 are as follows: September 30, December 31, 2016 2015 Trademarks and tradenames $ 1,093,400 $ 1,093,400 Proprietary technology 6,670,000 5,781,000 Non-compete agreements 10,711,043 10,703,043 Customer relationships 45,000,181 44,888,181 Favorable lease intangible 218,000 218,000 63,692,624 62,683,624 Less: accumulated amortization (20,965,072 ) (16,859,225 ) Intangible assets, net $ 42,727,552 $ 45,824,399 Amortization expense was $1.4 million and $1.9 million for the three months ended September 30, 2016 and 2015, respectively, and for the nine months ended September 30, 2016 and 2015 was $4.1 million and $5.6 million, respectively. Estimated future aggregate amortization expense is expected to be as follows: Year Estimated Annual Amortization Expense Remainder of 2016 $ 2,038,362 2017 6,065,102 2018 5,318,305 2019 4,293,561 2020 4,500,563 and thereafter $ 20,511,659 |
5. Stock-based compensation
5. Stock-based compensation | 9 Months Ended |
Sep. 30, 2016 | |
Stock-based Compensation | |
5. Stock-based compensation | Fusion'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 under Fusion's stock-based compensation plan. The following weighted average assumptions were used to determine the fair value of the stock options granted under Fusions stock-based compensation plan using the Black-Scholes option-pricing model: Nine months ended September 30, 2016 2015 Dividend yield (%)* 0.0 0.0 Expected volatility (%) 92.4 125.4 Average Risk-free interest rate (%) 1.56 1.70 Expected life of stock option term (years) 8.0 7.6 *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 approximately $194,000 and $154,000 for the three months ended September 30, 2016 and 2015, respectively, and $573,000 and $393,000 for the nine months ended September 30, 2016 and 2015, respectively. These amounts are included in selling, general and administrative expenses in the condensed consolidated interim statements of operations. The following table summarizes the stock option activity for the nine months ended September 30, 2016: Number of Options Weighted Average Exercise Price Balance at December 31, 2015 1,158,251 $ 4.96 Shares granted during the period 86,050 1.79 Shares exercised during the period - - Shares forfeited during the period (67,235 ) 2.50 Shares expired during the period (19,554 ) 72.11 Shares outstanding at September 30, 2016 1,157,512 3.73 Shares exercisable at September 30, 2016 421,673 $ 5.77 As of September 30, 2016, the Company had approximately $1.0 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 1.56 years. Restricted Stock During the nine months ended September 30, 2016, Fusion awarded 55,000 shares of its restricted common stock to its Chief Financial Officer. The restricted stock granted was valued at the closing stock price on the day employment commenced and vests in three equal installments on the first, second and third anniversary of employment. For the three and nine months ended September 30, 2016, the Company recognized compensation expense of approximately $8,300 and $17,000, respectively, and has unamortized compensation of $82,960. |
6. Acquisition
6. Acquisition | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
6. Acquisition | On March 31, 2016, the Company completed the acquisition of certain assets from TFB, a provider of industry leading contact center solutions for an estimated purchase price of approximately $1.3 million consisting of $277,281 in cash and a royalty fee equal to ten percent of the collected monthly recurring revenues derived from sales of the cloud version of the proprietary call center software and maintenance services. The estimated royalty fee of $1,011,606 was recognized as a non-current liability in the condensed consolidated balance sheet and will be paid on a quarterly basis, commencing as of the first full calendar quarter following the second anniversary of the closing date of the TFB acquisition. The aggregate purchase price has been allocated to the fair value of the assets acquired and liabilities assumed as follows: Covenant not to compete $ 8,000 Customer contracts/relationships 99,000 Proprietary technology 889,000 Accounts receivable 80,845 Prepaid asset 5,535 Line of credit (100,000 ) Deferred liability (693,590 ) Goodwill 1,000,097 Purchase price $ 1,288,887 The amount of goodwill recognized is primarily attributable to the expected contributions of TFB to the overall corporate strategy in the cloud based call center solutions and synergies of the acquired business. None of the goodwill recognized is expected to be deductible for income tax purposes. The intangible assets subject to amortization consist of proprietary technology, customer relationships and non-compete agreements, with an estimated useful life of 8, 3 and 2 years, respectively. |
7. Supplemental Disclosure of C
7. Supplemental Disclosure of Cash Flow Information | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
7. Supplemental Disclosure of Cash Flow Information | The following table summarizes the Companys supplemental cash flows information: Nine Months Ended September 30, Supplemental Cash Flow Information 2016 2015 Cash paid for interest $ 4,233,527 $ 3,961,498 Supplemental Non-Cash Investing and Financing Activities Property and equipment acquired under capital leases 188,497 1,440,816 Dividends on Series B-2 preferred stock paid with the issuance of common stock 599,491 884,955 Due to Seller of RootAxcess - 700,000 Equipment received in exchange for settlement of accounts receivable - 105,570 Exercise of lenders warrants - 364,167 Assets acquired under earn-out liability $ 961,606 $ - |
8. Prepaid Expenses and Other C
8. Prepaid Expenses and Other Current Assets | 9 Months Ended |
Sep. 30, 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: September 30, December 31, 2016 2015 Insurance $ 380,359 $ 93,040 Rent 81,731 101,916 Marketing 140,397 109,455 Software subscriptions 670,614 498,078 Due from seller of Fidelity - 425,963 Due from factoring party - 26,018 Commissions 104,273 20,805 Escrow receivable - Fidelity 500,829 50,759 Other 579,533 292,569 $ 2,457,736 $ 1,618,603 |
9. Accounts Payable and Accrued
9. Accounts Payable and Accrued Expenses | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
9. Accounts Payable and Accrued Expenses | The following table sets forth the items in accounts payable and accrued expenses: September 30, December 31, 2016 2015 Trade accounts payable $ 3,699,791 $ 1,101,393 Accrued bonus 336,259 700,000 Accrued professional and consulting fees 225,878 274,205 Accrued property and other taxes 629,247 534,388 Accrued network costs 1,692,959 3,423,483 Accrued rent 117,252 82,894 Accrued universal service fund fees 730,205 494,852 Customer deposits 384,597 358,227 Accrued credit card 160,596 384,257 Accrued payroll, employee benefits and vacation 349,997 555,493 Accrued sales and federal excise taxes 1,686,636 2,204,098 Accrued sales commissions 789,322 981,121 Accrued interest payable 12,452 32,221 Deferred revenue 1,444,423 1,157,036 Other 351,271 845,557 $ 12,610,885 $ 13,129,225 |
10. Equipment Financing Obligat
10. Equipment Financing Obligations | 9 Months Ended |
Sep. 30, 2016 | |
Equipment Financing Obligations Details 1 | |
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: September 30, December 31, 2016 2015 Equipment financing obligations $ 2,489,647 $ 3,044,796 Less: current portion (997,089 ) (959,380 ) Long-term portion $ 1,492,558 $ 2,085,416 The Companys payment obligations under the capital leases are as follows: Year Principal Payments Remainder of 2016 $ 247,693 2017 1,002,084 2018 958,846 2019 268,044 2020 $ 12,980 |
11. Debt
11. Debt | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
11. Debt | As of September 30, 2016 and December 31, 2015, long-term debt was as follows: 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 on December 8, 2015 (the Opus Facility). The Opus Facility consists of a $15.0 million revolving 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. At September 30, 2016, the Company had borrowed $15.0 million under the revolver and $25.0 million under the term loan. For the three and nine months ended September 30, 2016, under the Opus Facility the Company recognized interest expense of approximately $0.5 million and $1.5 million, respectively, at a monthly 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 Pursuant to the Opus Facility, the Company must satisfy various 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 and nine months ended September 30, 2016, the Company exceeded its leverage and senior leverage ratio covenants. On November 7, 2016, Opus Bank waived these covenants breaches. As a result of this waiver, we were in compliance with our obligations under this facility as of September 30, 2016. Praesidian Facility On December 8, 2015, the Company entered into the Fourth Amended and Restated Securities Purchase Agreement and Security Agreement (the Fourth Amended SPA) with the Companys subordinated lenders (which, collectively with its prior versions is hereinafter referred to as the Praesidian Facility). Under the Praesidian Facility, the Company is required to satisfy financial covenants similar to those required under the Opus Facility. For the three and nine months ended September 30, 2016, the Company was not in compliance with the leverage ratio covenant under this facility. On November 7, 2016, Praesidian waived our events of default with respect to non-compliance with the leverage ratio. As a result of this waiver, we were in compliance with our obligations under the as of September 30, 2016. During the three and nine months ended September 30, 2016, the Company paid interest expense of approximately $0.9 million and $2.8 million, at an annual interest rate of 10.8%. September 30, December 31, 2016 2015 Subordinated Notes $ 33,645,865 $ 34,160,200 Unamortized discount on Subordinated Notes (1,450,745 ) (1,697,091 ) Unamortized debt issuance costs (836,760 ) (981,584 ) Total notes payable - non-related parties 31,358,360 31,481,525 Less: current portion (685,780 ) (685,780 ) Long-term portion $ 30,672,580 $ 30,795,745 The note payable to Marvin Rosen, the Chairman of Fusions Board is subordinated to borrowings under the Opus Facility and the Fourth Amended SPA. This note is unsecured, pays interest monthly at an annual rate of 7%, and matures 120 days after amounts borrowed under the Opus Facility and the Fourth Amended SPA are paid in full. September 30, December 31, 2016 2015 Notes payable to Marvin Rosen $ 1,178,082 $ 1,178,082 Discount on note (65,637 ) (103,253 ) Total notes payable - related parties $ 1,112,445 $ 1,074,829 For the nine months ended September 30, 2016, the Company recognized interest expense on the Rosen note of approximately $64,000 and amortization discount of approximately $38,000. Note Payable to RootAxcess Seller In connection with its 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 installments of $66,667 on each of the three, six, nine, twelve, fifteen and eighteen month anniversary of the closing date. The remaining $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 RootAxcess 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 September 30, 2016, the Company made a payment of $127,306 net of an adjustment of $39,360 to the seller in connection with the terms of the asset purchase agreement. At September 30, 2016, the remaining balance due is $333,334. Note Due to TFB Seller In connection with the purchase of the assets of TFB in March 2016, the Company recorded a contingent liability of $1,011,606 (see Note 6). The contingent liability was based on a royalty fee payable to the sellers equal to ten percent of the collected monthly recurring revenues to be derived from the sale of the cloud version of the proprietary call center software and maintenance services. In accordance with the terms of the asset purchase agreement, the royalty fees will be paid on a quarterly basis, commencing as of the first full calendar quarter following the second anniversary of the closing date of the TFB acquisition or March 31, 2018 and will continue for a period of 31 calendar quarters. In addition, a portion of the salary paid to the sellers for a period of two years following the acquisition date constitutes an advancement against any royalty fee owed to the sellers. At September 30, 2016, the outstanding balance is $961,606, net of a salary advance of $50,000. There were no changes to the contingent liability based on the Companys evaluation of the factors used to determine the fair value of the purchase price. |
12. Derivative Liability
12. Derivative Liability | 9 Months Ended |
Sep. 30, 2016 | |
Derivative Liability | |
12. Derivative Liability | Fusion has issued warrants to purchase shares of its common stock in connection with certain debt and equity financing transactions. These warrants are accounted for in accordance with the guidance contained in ASC Topic 815 Derivatives and Hedging (ASC 815). For warrant instruments that do not meet an exclusion from derivative accounting, the Company classifies such instruments as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the warrant is exercised or expires, and any change in fair value is common stock at an issuance price, or issue convertible debt or equity securities with an exercise price, that is less than the exercise price of these warrants. In addition, in connection with the sale of certain notes under the original Praesidian Facility, Fusion issued nominal warrants to the original lenders to purchase an aggregate of 728,333 shares of Fusions common stock. The nominal warrants were exercised in August 2015. The fair values of these warrants have been estimated using option pricing and other valuation models, and the quoted market price of Fusions common stock. The following assumptions were used to determine the fair value of the warrants for the nine months ended September 30, 2016 and 2015: Nine months ended September 30, 2016 2015 Stock price ($) 1.65 1.88 Exercise price ($) 6.25 0 - 6.25 Risk-free interest rate (%) 1.56 1.75 - 2.06 Expected volatility (%) 92.4 125.4 Time to maturity (years) 2.25 7.08 - 8.25 At September 30, 2016 and December 31, 2015, the fair value of the derivative was $233,934 and $953,005, respectively. For the three months ended September 30, 2016 and 2015, the Company recognized a gain on the change in the fair value of this derivative of approximately $152,000 and $1.2 million, respectively, and a gain of approximately $380,000 and $2.5 million for the nine months ended September 30, 2016 and 2015, respectively. During the nine months ended September 30, 2016, the Company adjusted the valuation of its derivative liability for warrants issued in December 2013 and January 2014 and its valuation of certain warrants exercised during 2015. The amount of the adjustment was a net $772,022 impact on the condensed consolidated statements of operations resulting from the loss on the change in the fair value of the derivative and an additional $338,972 impact to capital in excess of par and $433,050 increase in derivative liability in the condensed consolidated balance sheets (see Note 17). 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. |
13. Equity Transactions
13. Equity Transactions | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
13. Equity Transactions | Common Stock Fusion is authorized to issue 50,000,000 shares of its common stock. As of September 30, 2016 and December 31, 2015, 15,064,953 and 12,788,971 shares of its common stock, respectively, were issued and outstanding, respectively. During the nine months ended September 30, 2016, Fusion issued 26,500 shares of its common stock to a third party consultant for services rendered, and 30,000 shares of common stock to an employee in lieu of a cash bonus On May 9, 2016, the Company received a staff determination letter from 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 resulted from the 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 the Companys Series B Preferred Stock held by an affiliate of Unterberg in February 2016, caused the amount owned by Unterberg affiliates to exceed the level allowed by Nasdaq without a prior shareholder vote. The Nasdaq letter indicated that the Company had forty-five (45) calendar days to submit a plan to regain compliance. On July 19, 2016, Fusion entered into a Standstill Agreement with Unterberg, and notified Nasdaq of it plans to hold an annual stockholders meeting to obtain the requisite approval for the transactions. Consequently, Nasdaq granted the Company an extension of time to regain compliance with the Rule 5635(b). On October 28, 2016, Fusions shareholders approved the transaction with Unterberg and its affiliates and on November 2, 2016, Nasdaq notified Fusion that it has regained compliance with Rule 5635(b). Restricted Stock During the nine months ended September 30, 2016, the Company awarded 55,000 shares of restricted common stock to its Chief Financial Officer. Preferred Stock Fusion is authorized to issue up to 10,000,000 shares of preferred stock. As of September 30, 2016 and December 31, 2015 there was 5,045 shares of Series A Preferred Stock issued and outstanding. In addition, there were 12,254 and 18,279 shares of Series B-2 Preferred Stock issued and outstanding as of September 30, 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, on January 1 of each year. As of September 30, 2016, no dividend had been declared by Fusions Board with respect to the Series A Preferred Stock, and the Company had accumulated approximately $4.6 million of preferred stock dividends. The holders of the shares of Series B-2 Preferred Stock are entitled to receive a cumulative 6% annual dividend payable quarterly in arrears when and if declared by the Fusion Board, in cash or shares of Fusion common stock, at the option of the Company. Since 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. |
14. Commitments and Contingenci
14. Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2016 | |
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 Companys liquidity, results of operations or financial condition. As of September 30, 2016, the Company did not have any ongoing legal matters. |
15. Segment Information
15. Segment Information | 9 Months Ended |
Sep. 30, 2016 | |
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 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 2015 Form 10-K. The Companys segments and their principal activities consist of the following: Business Services Through this operating segment, the Company provides cloud voice, cloud connectivity, cloud infrastructure, cloud computing and managed cloud-based applications to businesses of all sizes. These services are sold through the Companys direct sales force and its partner sales channel, which utilizes the efforts of independent third-party agents to sell the Companys products and services. Carrier Services Carrier Services includes the termination of domestic and international carrier traffic utilizing primarily VoIP technology. 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 and nine months ended September 30, 2016 and 2015 is summarized in the following tables: Three months ended September 30, 2016 Carrier Services Business Services Corporate Consolidated Revenues $ 8,864,791 $ 20,632,338 $ - $ 29,497,129 Cost of revenues (exclusive of depreciation and amortization) 8,487,912 8,281,675 - 16,769,587 Gross profit 376,879 12,350,663 - 12,727,542 Depreciation and amortization 38,094 2,747,822 212,712 2,998,628 Selling, general and administrative expenses 653,462 9,547,547 1,207,039 11,408,048 Interest expense - 1,551,534 73,661 1,625,195 Gain on change in fair value of derivative liability - - (152,057 ) (152,057 ) Other expenses (income) - 247,070 (265,139 ) (18,069 ) Provision for income taxes - 10,951 - 10,951 Net loss $ (314,677 ) $ (1,754,261 ) $ (1,076,216 ) $ (3,145,154 ) Total assets $ 3,783,321 $ 90,027,291 $ 2,312,655 $ 96,123,267 Nine months ended September 30, 2016 Carrier Services Business Services Corporate Consolidated Revenues $ 30,711,086 62,390,749 $ - $ 93,101,835 Cost of revenues (exclusive of depreciation and amortization) 29,341,982 24,594,096 - 53,936,078 Gross profit 1,369,104 37,796,653 - 39,165,757 Depreciation and amortization 116,102 8,128,378 702,301 8,946,781 Selling, general and administrative expenses 2,119,119 28,052,965 3,930,763 34,102,847 Interest expense - 4,647,847 229,981 4,877,828 Gain on change in fair value of derivative liability - - (380,099 ) (380,099 ) Other expenses (income) - 764,308 (797,822 ) (33,514 ) Provision for income taxes 10,951 10,951 Net loss $ (866,117 ) $ (3,807,796 ) $ (3,685,124 ) $ (8,359,037 ) Capital expenditures $ 41,584 $ 3,740,648 $ - $ 3,782,232 Three months ended September 30, 2015 Carrier Services Business Services Corporate Consolidated Revenues $ 8,269,529 $ 16,261,295 $ - $ 24,530,824 Cost of revenues (exclusive of depreciation and amortization) 7,642,008 5,891,639 - 13,533,647 Gross profit 627,521 10,369,656 - 10,997,177 Depreciation and amortization 48,022 2,898,068 194,337 3,140,427 Selling, general and administrative expenses 885,769 7,953,958 956,756 9,796,483 Interest expense - 1,332,719 102,015 1,434,734 Gain on change in fair value of derivative liability - - (1,237,730 ) (1,237,730 ) Loss on extinguishment of debt - 2,538,272 182,083 2,720,355 Other expenses (income) - 243,420 (241,021 ) 2,399 Net (loss) income $ (306,270 ) $ (4,596,781 ) $ 43,560 $ (4,859,491 ) Total assets $ 4,639,835 $ 59,128,769 $ 3,128,866 $ 66,897,470 Nine months ended September 30, 2015 Carrier Services Business Services Corporate Consolidated Revenues $ 25,767,099 $ 49,090,458 $ - $ 74,857,557 Cost of revenues (exclusive of depreciation and amortization) 23,540,573 17,819,382 - 41,359,955 Gross profit 2,226,526 31,271,076 - 33,497,602 Depreciation and amortization 138,944 8,809,670 235,018 9,183,632 Selling, general and administrative expenses 2,619,818 23,684,671 3,074,707 29,379,196 Interest expense - 4,457,080 193,206 4,650,286 Gain on change in fair value of derivative liability - - (2,543,878 ) (2,543,878 ) Loss on extinguishment of debt - 2,538,272 182,083 2,720,355 Other expenses (income) - 591,691 (648,060 ) (56,369 ) Net loss $ (532,236 ) $ (8,810,308 ) $ (493,076 ) $ (9,835,620 ) Capital expenditures $ 69,905 $ 2,409,430 $ - $ 2,479,335 |
16. Related Party Transactions
16. Related Party Transactions | 9 Months Ended |
Sep. 30, 2016 | |
Related Party Transaction, Due from (to) Related Party [Abstract] | |
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 Fusions Board, is a Senior Advisor and a former partner of that company. Since 2015, the Company has an operating agreement with XcomIP, LLC a telecommunications carrier in Hoboken, New Jersey, whose CEO Jay Adams is the brother of John Adams Vice President of our Carrier Services division. For the three and nine months ended September 30, 2016, we recognized revenues of approximately $0.5 million and $2.0 million, respectively. For the nine months ended September 30, 2016, the outstanding balance of accounts receivable from XcomIP and accounts payable owed to XcomIP was approximately $98,000 and $14,000, respectively. |
17. Fair Value Disclosures
17. Fair Value Disclosures | 9 Months Ended |
Sep. 30, 2016 | |
Fair Value Disclosures [Abstract] | |
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 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: Level 1 Level 2 Level 3 Total As of September 30, 2016 Current liabilities: Contingent liability (see note 11) $ - $ - $ 100,000 100,000 Non-current liabilities: Contingent liability (see note 11) - 861,606 861,606 Derivative liability (see note 12) - - 233,934 233,934 Total non-current liabilities $ 0 $ - $ 1,095,540 $ 1,095,540 As of December 31, 2015 Non-current liabilities: Derivative liability (see note 12) $ - $ - $ 953,005 $ 953,005 Changes in the derivative warrant liability for the nine months ended September 30, 2016 are as follows: Balance at December 31, 2015 $ 953,005 Gain for the period: Included in net loss (1,152,121 ) Adjustment for prior issuances and conversion of warrants (see note 12) 433,050 Balance at September 30, 2016 $ 233,934 |
18.Subsequent Events
18.Subsequent Events | 9 Months Ended |
Sep. 30, 2016 | |
Subsequent Events [Abstract] | |
18. Subsequent Events | On November 14, 2016, the Company entered into a $70.0 million senior secured credit facility with East West Bank consisting of a $65.0 million, five-year term loan and a $5.0 million five-year revolver. The proceeds from the term loan were used to fund the acquisition of Apptix, Inc., pay in full the Opus Facility, and for general corporate purposes. On November 14, 2016, the Company completed the acquisition of Apptix, Inc. a cloud solutions provider based in Herndon, Virginia for a total purchase price of $28.0 million, consisting of approximately $23.0 million in cash and $5.0 million in Fusion’s restricted common stock. On November 14, 2016, the Company completed an offering of $2.0 million of Fusion common stock in a private placement offering which is expected to fund on November 16, 2016. The proceeds will be used for general corporate purposes including working capital and capital expenditures. |
2. Basis of Presentation and 25
2. Basis of Presentation and Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 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 U.S. 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 (the 2015 Form 10-K) 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 and nine months ended September 30, 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. |
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 September 30, 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 September 30, 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 September 30, 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 nine month periods ended September 30, 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 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. At September 30, 2016 and December 31, 2015, goodwill was approximately $28.0 million and $27.0 million, respectively. All of the Companys goodwill is attributable to its Business Services segment. There was no impairment charge recorded for goodwill during the nine months ended September 30, 2016 or 2015, as there were no indicators of impairment. The following table presents the changes in the carrying amounts of goodwill during the nine months ended September 30, 2016: Balance at December 31, 2015 $ 27,060,297 Adjustment to the preliminary purchase price of Fidelity* (10,619 ) Increase in goodwill - Technology for Business Corporation (TFB) acquisition 1,000,097 Balance at September 30, 2016 $ 28,049,775 *Acquisition of Fidelity Access Networks, LLC, Fidelity Connect LLC, Fidelity Voice Services, LLC and Fidelity Access Networks, Inc., (together with Fidelity Telecom, LLC hereinafter collectively referred to as Fidelity) |
Advertising and Marketing Costs | Costs related to advertising and marketing are expensed as incurred and included in selling, general and administrative expenses in the Companys condensed consolidated statements of operations. Our advertising and marketing expense was approximately $154,000 and $145,000 for the three months ended September 30, 2016 and 2015, respectively, and approximately $508,000 and $390,000 for the nine months ended September 30, 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 September 30, 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 September 30, 2016 and December 31, 2015. During the three and nine months ended September 30, 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 March 2016, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation-Stock Compensation (Topic 718). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification of the award as equity or as a liability, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years and interim periods beginning after December 15, 2016, including interim periods within those reporting period. The Company does not expect this guidance to have a material impact on its consolidated financial statements. In February 2016, FASB issued ASU No. 2016-02, Leases 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 Note 11). The adoption of this guidance by the Company resulted in an approximately $1.0 million decrease in other assets, and a decrease of $1.0 million in notes payable as of December 31, 2015. 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. The Company is currently assessing the impact of this guidance on its consolidated financial statements. |
2. Basis of Presentation and 26
2. Basis of Presentation and Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Business acquisition cost for goodwill | Balance at December 31, 2015 $ 27,060,297 Adjustment to the preliminary purchase price of Fidelity* (10,619 ) Increase in goodwill - Technology for Business Corporation (TFB) acquisition 1,000,097 Balance at September 30, 2016 $ 28,049,775 |
3. Loss per share (Tables)
3. Loss per share (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Computation for basic and diluted net income per share | Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Numerator Net loss $ (3,145,154 ) $ (4,859,491 ) $ (8,359,037 ) $ (9,835,620 ) Dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock (101,729 ) (101,730 ) (302,976 ) (301,871 ) Dividends declared on Series B-2 Convertible Preferred Stock (183,917 ) (278,010 ) (1,799,491 ) (884,955 ) Gain on nominal warrants - (1,187,183 ) - (1,930,083 ) Adjusted loss attributable to common stockholders $ (3,430,800 ) $ (6,426,414 ) $ (10,461,504 ) $ (12,952,529 ) Denominator Basic and diluted weighted average common shares outstanding 14,990,816 8,958,815 14,536,893 8,529,642 Loss per share Basic and diluted $ (0.23 ) $ (0.72 ) $ (0.72 ) $ (1.52 ) |
Excluded from calculation of diluted earnings per common share | Nine Months Ended September 30, 2016 2015 Warrants 2,946,948 3,011,760 Convertible preferred stock 2,626,518 3,992,471 Stock options 1,157,512 677,126 6,730,978 7,681,357 |
4. Intangible Assets (Tables)
4. Intangible Assets (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Identifiable intangible assets | September 30, December 31, 2016 2015 Trademarks and tradenames $ 1,093,400 $ 1,093,400 Proprietary technology 6,670,000 5,781,000 Non-compete agreements 10,711,043 10,703,043 Customer relationships 45,000,181 44,888,181 Favorable lease intangible 218,000 218,000 63,692,624 62,683,624 Less: accumulated amortization (20,965,072 ) (16,859,225 ) Intangible assets, net $ 42,727,552 $ 45,824,399 |
Estimated future aggregate amortization expense | Year Estimated Annual Amortization Expense Remainder of 2016 $ 2,038,362 2017 6,065,102 2018 5,318,305 2019 4,293,561 2020 4,500,563 and thereafter $ 20,511,659 |
5. Stock-based compensation (Ta
5. Stock-based compensation (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Fair value of stock options granted | Nine months ended September 30, 2016 2015 Dividend yield (%)* 0.0 0.0 Expected volatility (%) 92.4 125.4 Average Risk-free interest rate (%) 1.56 1.70 Expected life of stock option term (years) 8.0 7.6 |
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 86,050 1.79 Shares exercised during the period - - Shares forfeited during the period (67,235 ) 2.50 Shares expired during the period (19,554 ) 72.11 Shares outstanding at September 30, 2016 1,157,512 3.73 Shares exercisable at September 30, 2016 421,673 $ 5.77 |
6. Acquisition (Tables)
6. Acquisition (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Purchase price allocated to the fair value of the net assets | The aggregate purchase price has been allocated to the fair value of the assets acquired and liabilities assumed as follows: Covenant not to compete $ 8,000 Customer contracts/relationships 99,000 Proprietary technology 889,000 Accounts receivable 80,845 Prepaid asset 5,535 Line of credit (100,000 ) Deferred liability (693,590 ) Goodwill 1,000,097 Purchase price $ 1,288,887 |
7. Supplemental Disclosure of31
7. Supplemental Disclosure of Cash Flow Information (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Supplemental Disclosure Of Cash Flow Information Tables | |
Supplemental Disclosure of Cash Flow Information | Nine Months Ended September 30, Supplemental Cash Flow Information 2016 2015 Cash paid for interest $ 4,233,527 $ 3,961,498 Supplemental Non-Cash Investing and Financing Activities Property and equipment acquired under capital leases 188,497 1,440,816 Dividends on Series B-2 preferred stock paid with the issuance of common stock 599,491 884,955 Due to Seller of RootAxcess - 700,000 Equipment received in exchange for settlement of accounts receivable - 105,570 Exercise of lenders warrants - 364,167 Assets acquired under earn-out liability $ 961,606 $ - |
8. Prepaid Expenses and Other32
8. Prepaid Expenses and Other Current Assets (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Prepaid expenses and other current assets | September 30, December 31, 2016 2015 Insurance $ 380,359 $ 93,040 Rent 81,731 101,916 Marketing 140,397 109,455 Software subscriptions 670,614 498,078 Due from seller of Fidelity - 425,963 Due from factoring party - 26,018 Commissions 104,273 20,805 Escrow receivable - Fidelity 500,829 50,759 Other 579,533 292,569 $ 2,457,736 $ 1,618,603 |
9. Accounts Payable and Accru33
9. Accounts Payable and Accrued Expenses (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Accounts payable and accrued expenses | September 30, December 31, 2016 2015 Trade accounts payable $ 3,699,791 $ 1,101,393 Accrued bonus 336,259 700,000 Accrued professional and consulting fees 225,878 274,205 Accrued property and other taxes 629,247 534,388 Accrued network costs 1,692,959 3,423,483 Accrued rent 117,252 82,894 Accrued universal service fund fees 730,205 494,852 Customer deposits 384,597 358,227 Accrued credit card 160,596 384,257 Accrued payroll, employee benefits and vacation 349,997 555,493 Accrued sales and federal excise taxes 1,686,636 2,204,098 Accrued sales commissions 789,322 981,121 Accrued interest payable 12,452 32,221 Deferred revenue 1,444,423 1,157,036 Other 351,271 845,557 $ 12,610,885 $ 13,129,225 |
10. Equipment Financing Oblig34
10. Equipment Financing Obligations (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Equipment Financing Obligations Details 1 | |
Equipment financing obligations | September 30, December 31, 2016 2015 Equipment financing obligations $ 2,489,647 $ 3,044,796 Less: current portion (997,089 ) (959,380 ) Long-term portion $ 1,492,558 $ 2,085,416 |
Principal payment under the capital lease agreements | Year Principal Payments Remainder of 2016 $ 247,693 2017 1,002,084 2018 958,846 2019 268,044 2020 $ 12,980 |
11. Debt (Tables)
11. Debt (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Components of notes payable non-related parties | September 30, December 31, 2016 2015 Subordinated Notes $ 33,645,865 $ 34,160,200 Unamortized discount on Subordinated Notes (1,450,745 ) (1,697,091 ) Unamortized debt issuance costs (836,760 ) (981,584 ) Total notes payable - non-related parties 31,358,360 31,481,525 Less: current portion (685,780 ) (685,780 ) Long-term portion $ 30,672,580 $ 30,795,745 |
Related Party Note Payable | September 30, December 31, 2016 2015 Notes payable to Marvin Rosen $ 1,178,082 $ 1,178,082 Discount on note (65,637 ) (103,253 ) Total notes payable - related parties $ 1,112,445 $ 1,074,829 |
12. Derivative Liability (Table
12. Derivative Liability (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Derivative Liability Tables | |
Assumptions used to determine the fair value of the warrants | Nine months ended September 30, 2016 2015 Stock price ($) 1.65 1.88 Exercise price ($) 6.25 0 - 6.25 Risk-free interest rate (%) 1.56 1.75 - 2.06 Expected volatility (%) 92.4 125.4 Time to maturity (years) 2.25 7.08 - 8.25 |
15. Segment Information (Tables
15. Segment Information (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Operating segment information | Three months ended September 30, 2016 Carrier Services Business Services Corporate Consolidated Revenues $ 8,864,791 $ 20,632,338 $ - $ 29,497,129 Cost of revenues (exclusive of depreciation and amortization) 8,487,912 8,281,675 - 16,769,587 Gross profit 376,879 12,350,663 - 12,727,542 Depreciation and amortization 38,094 2,747,822 212,712 2,998,628 Selling, general and administrative expenses 653,462 9,547,547 1,207,039 11,408,048 Interest expense - 1,551,534 73,661 1,625,195 Gain on change in fair value of derivative liability - - (152,057 ) (152,057 ) Other expenses (income) - 247,070 (265,139 ) (18,069 ) Provision for income taxes - 10,951 - 10,951 Net loss $ (314,677 ) $ (1,754,261 ) $ (1,076,216 ) $ (3,145,154 ) Total assets $ 3,783,321 $ 90,027,291 $ 2,312,655 $ 96,123,267 Nine months ended September 30, 2016 Carrier Services Business Services Corporate Consolidated Revenues $ 30,711,086 62,390,749 $ - $ 93,101,835 Cost of revenues (exclusive of depreciation and amortization) 29,341,982 24,594,096 - 53,936,078 Gross profit 1,369,104 37,796,653 - 39,165,757 Depreciation and amortization 116,102 8,128,378 702,301 8,946,781 Selling, general and administrative expenses 2,119,119 28,052,965 3,930,763 34,102,847 Interest expense - 4,647,847 229,981 4,877,828 Gain on change in fair value of derivative liability - - (380,099 ) (380,099 ) Other expenses (income) - 764,308 (797,822 ) (33,514 ) Provision for income taxes 10,951 10,951 Net loss $ (866,117 ) $ (3,807,796 ) $ (3,685,124 ) $ (8,359,037 ) Capital expenditures $ 41,584 $ 3,740,648 $ - $ 3,782,232 Three months ended September 30, 2015 Carrier Services Business Services Corporate Consolidated Revenues $ 8,269,529 $ 16,261,295 $ - $ 24,530,824 Cost of revenues (exclusive of depreciation and amortization) 7,642,008 5,891,639 - 13,533,647 Gross profit 627,521 10,369,656 - 10,997,177 Depreciation and amortization 48,022 2,898,068 194,337 3,140,427 Selling, general and administrative expenses 885,769 7,953,958 956,756 9,796,483 Interest expense - 1,332,719 102,015 1,434,734 Gain on change in fair value of derivative liability - - (1,237,730 ) (1,237,730 ) Loss on extinguishment of debt - 2,538,272 182,083 2,720,355 Other expenses (income) - 243,420 (241,021 ) 2,399 Net (loss) income $ (306,270 ) $ (4,596,781 ) $ 43,560 $ (4,859,491 ) Total assets $ 4,639,835 $ 59,128,769 $ 3,128,866 $ 66,897,470 Nine months ended September 30, 2015 Carrier Services Business Services Corporate Consolidated Revenues $ 25,767,099 $ 49,090,458 $ - $ 74,857,557 Cost of revenues (exclusive of depreciation and amortization) 23,540,573 17,819,382 - 41,359,955 Gross profit 2,226,526 31,271,076 - 33,497,602 Depreciation and amortization 138,944 8,809,670 235,018 9,183,632 Selling, general and administrative expenses 2,619,818 23,684,671 3,074,707 29,379,196 Interest expense - 4,457,080 193,206 4,650,286 Gain on change in fair value of derivative liability - - (2,543,878 ) (2,543,878 ) Loss on extinguishment of debt - 2,538,272 182,083 2,720,355 Other expenses (income) - 591,691 (648,060 ) (56,369 ) Net loss $ (532,236 ) $ (8,810,308 ) $ (493,076 ) $ (9,835,620 ) Capital expenditures $ 69,905 $ 2,409,430 $ - $ 2,479,335 |
17. Fair Value Disclosures (Tab
17. Fair Value Disclosures (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Fair Value Disclosures [Abstract] | |
Fair value of the liability measured at fair value on a recurring basis | Level 1 Level 2 Level 3 Total As of September 30, 2016 Current liabilities: Contingent liability (see note 11) $ - $ - $ 100,000 100,000 Non-current liabilities: Contingent liability (see note 11) - 861,606 861,606 Derivative liability (see note 12) - - 233,934 233,934 Total non-current liabilities $ 0 $ - $ 1,095,540 $ 1,095,540 As of December 31, 2015 Non-current liabilities: Derivative liability (see note 12) $ - $ - $ 953,005 $ 953,005 |
Changes in the derivative liability | Balance at December 31, 2015 $ 953,005 Gain for the period: Included in net loss (1,152,121 ) Adjustment for prior issuances and conversion of warrants (see note 12) 433,050 Balance at September 30, 2016 $ 233,934 |
2. Basis of Presentation and 39
2. Basis of Presentation and Summary of Significant Accounting Policies (Details) | 9 Months Ended | |
Sep. 30, 2016USD ($) | ||
Basis Of Presentation And Summary Of Significant Accounting Policies Details | ||
Balance at December 31, 2015 | $ 27,060,297 | |
Adjustment to the preliminary purchase price of Fidelity | (10,619) | [1] |
Increase in goodwill - Technology for Business Corporation (“TFB”) acquisition | 1,000,097 | |
Balance at September 30, 2016 | $ 28,049,775 | |
[1] | Acquisition of Fidelity Access Networks, LLC, Fidelity Connect LLC, Fidelity Voice Services, LLC and Fidelity Access Networks, Inc., (together with Fidelity Telecom, LLC hereinafter collectively referred to as "Fidelity") |
2. Basis of Presentation and 40
2. Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 | |
Notes to Financial Statements | |||||
Certificate of deposit collateralizing a letter of credit | $ 27,000 | $ 27,000 | $ 165,000 | ||
Goodwill | 28,049,775 | 28,049,775 | 27,060,297 | ||
Advertising and marketing expenses | $ 154,000 | $ 145,000 | $ 508,000 | $ 390,000 | |
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 | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Numerator | ||||
Net loss | $ (3,145,154) | $ (4,859,491) | $ (8,359,037) | $ (9,835,620) |
Dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock | (101,729) | (101,730) | (302,976) | (301,871) |
Dividends declared on Series B-2 Convertible Preferred Stock | (183,917) | (278,010) | (1,799,491) | (884,955) |
Gain on nominal warrants | (1,187,183) | (1,930,083) | ||
Adjusted loss attributable to common stockholders | $ (3,430,800) | $ (6,426,414) | $ (10,461,504) | $ (12,952,529) |
Denominator | ||||
Basic and diluted weighted average common shares outstanding | 14,990,816 | 8,958,815 | 14,536,893 | 8,529,642 |
Loss per share | ||||
Basic and diluted | $ (0.23) | $ (0.72) | $ (0.72) | $ (1.52) |
3. Loss per share (Details 1)
3. Loss per share (Details 1) - shares | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Antidilutive securities excluded from the calculation of diluted earnings per common share | 6,730,978 | 7,681,357 |
Warrants [Member] | ||
Antidilutive securities excluded from the calculation of diluted earnings per common share | 2,946,948 | 3,011,760 |
Convertible preferred stock [Member] | ||
Antidilutive securities excluded from the calculation of diluted earnings per common share | 2,626,518 | 3,992,471 |
Stock options [Member] | ||
Antidilutive securities excluded from the calculation of diluted earnings per common share | 1,157,512 | 677,126 |
3. Loss Per Share (Details Narr
3. Loss Per Share (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Income (loss) available to common stockholders | $ 1,200,000 | $ 1,900,000 | ||
Outstanding warrants | 728,333 | 728,333 | ||
Preferred stock dividends accumulated | $ 4,600,000 | $ 4,600,000 | ||
Series B-2 Preferred Stock [Member] | ||||
Preferred stock dividends | $ 183,917 | $ 599,491 | ||
Preferred stock dividends paid | 122,601 | 343,510 | ||
Series A Preferred Stock [Member] | ||||
Preferred stock dividends | $ 102,000 | $ 102,000 | $ 302,000 | $ 302,000 |
4. Intangible Assets (Details)
4. Intangible Assets (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Gross intangible assets | $ 63,692,624 | $ 62,683,624 |
Less: accumulated amortization | (20,965,072) | (16,859,225) |
Intangible assets, net | 42,727,552 | 45,824,399 |
Trademarks and tradename [Member] | ||
Gross intangible assets | 1,093,400 | 1,093,400 |
Proprietary technology [Member] | ||
Gross intangible assets | 6,670,000 | 5,781,000 |
Non-compete agreement [Member] | ||
Gross intangible assets | 10,711,043 | 10,703,043 |
Customer relationships [Member] | ||
Gross intangible assets | 45,000,181 | 44,888,181 |
Favorable lease intangible [Member] | ||
Gross intangible assets | $ 218,000 | $ 218,000 |
4. Intangible Assets (Details 1
4. Intangible Assets (Details 1) | Sep. 30, 2016USD ($) |
Notes to Financial Statements | |
Remainder of 2016 | $ 2,038,362 |
2,017 | 6,065,102 |
2,018 | 5,318,305 |
2,019 | 4,293,561 |
2,020 | 4,500,563 |
And thereafter | $ 20,511,659 |
4. Intangible Assets (Details N
4. Intangible Assets (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Notes to Financial Statements | ||||
Amortization expense | $ 1,400,000 | $ 1,900,000 | $ 4,100,000 | $ 5,600,000 |
5. Stock-based compensation (De
5. Stock-based compensation (Details) | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | ||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||
Dividend yield (%) | [1] | 0.00% | 0.00% |
Expected volatility (%) | 92.40% | 125.40% | |
Average Risk-free interest rate (%) | 1.56% | 1.70% | |
Expected life of stock option term (years) | 8 years | 7 years 7 months 6 days | |
[1] | The dividend yield is zero as the Company has never paid and does not expect to pay dividends on its common stock. |
5. Stock-based compensation (48
5. Stock-based compensation (Details 1) | 9 Months Ended |
Sep. 30, 2016$ / sharesshares | |
Number of Options | |
Balance at December 31, 2015 | shares | 1,158,251 |
Shares granted during the period | shares | 86,050 |
Shares exercised during the period | shares | |
Shares forfeited during the period | shares | (67,235) |
Shares expired during the period | shares | (19,554) |
Shares outstanding at September 30, 2016 | shares | 1,157,512 |
Shares exercisable at September 30, 2016 | shares | 421,673 |
Weighted Average Exercise Price | |
Balance at December 31, 2015 | $ / shares | $ 4.96 |
Shares granted during the period | $ / shares | 1.79 |
Shares exercised during the period | $ / shares | |
Shares forfeited during the period | $ / shares | 2.50 |
Shares expired during the period | $ / shares | 72.11 |
Shares outstanding at September 30, 2016 | $ / shares | 3.73 |
Shares exercisable at September 30, 2016 | $ / shares | $ 5.77 |
5. Stock-based compensation (49
5. Stock-based compensation (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Compensation expense | $ 194,000 | $ 154,000 | $ 573,000 | $ 393,000 |
Unrecognized compensation expense, net of estimated forfeitures | 1,000,000 | $ 1,000,000 | ||
Weighted-average period recognized | 1 year 6 months 22 days | |||
Restricted Stock [Member] | ||||
Compensation expense | 8,300 | $ 17,000 | ||
Unamortized compensation | $ 82,960 | $ 82,960 |
6. Acquisition (Details)
6. Acquisition (Details) | Sep. 30, 2016USD ($) |
Acquisition Details | |
Covenant not to compete | $ 8,000 |
Customer contracts/relationships | 99,000 |
Proprietary technology | 889,000 |
Accounts receivable | 80,845 |
Prepaid asset | 5,535 |
Line of credit | (100,000) |
Deferred liability | (693,590) |
Goodwill | 1,000,097 |
Purchase Price | $ 1,288,887 |
7. Supplemental Disclosure of51
7. Supplemental Disclosure of Cash Flow Information (Details) - USD ($) | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Supplemental Cash Flow Information | ||
Cash paid for interest | $ 4,233,527 | $ 3,961,498 |
Supplemental Non-Cash Investing and Financing Activities | ||
Property and equipment acquired under capital leases | 188,497 | 1,440,816 |
Dividends on Series B-2 preferred stock paid with the issuance of common stock | 599,491 | 884,955 |
Due to Seller of RootAxcess | 700,000 | |
Equipment received in exchange for settlement of accounts receivable | 105,570 | |
Exercise of lenders warrants | 364,167 | |
Assets acquired under earn-out liability | $ 961,606 |
8. Prepaid Expenses and Other52
8. Prepaid Expenses and Other Current Assets (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Prepaid expenses and other current assets | ||
Insurance | $ 380,359 | $ 93,040 |
Rent | 81,731 | 101,916 |
Marketing | 140,397 | 109,455 |
Software subscriptions | 670,614 | 498,078 |
Due from seller of Fidelity | 425,963 | |
Due from factoring party | 26,018 | |
Commissions | 104,273 | 20,805 |
Escrow receivable - Fidelity | 500,829 | 50,759 |
Other | 579,533 | 292,569 |
Total | $ 2,457,736 | $ 1,618,603 |
9. Accounts Payable and Accru53
9. Accounts Payable and Accrued Expenses (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Notes to Financial Statements | ||
Trade accounts payable | $ 3,699,791 | $ 1,101,393 |
Accrued bonus | 336,259 | 700,000 |
Accrued professional and consulting fees | 225,878 | 274,205 |
Accrued property and other taxes | 629,247 | 534,388 |
Accrued network costs | 1,692,959 | 3,423,483 |
Accrued rent | 117,252 | 82,894 |
Accrued universal service fund fees | 730,205 | 494,852 |
Customer deposits | 384,597 | 358,227 |
Accrued credit card | 160,596 | 384,257 |
Accrued payroll, employee benefits and vacation | 349,997 | 555,493 |
Accrued sales and federal excise taxes | 1,686,636 | 2,204,098 |
Accrued sales commissions | 789,322 | 981,121 |
Accrued interest payable | 12,452 | 32,221 |
Deferred revenue | 1,444,423 | 1,157,036 |
Other | 351,271 | 845,557 |
Total accounts payable and accrued expenses | $ 12,610,885 | $ 13,129,225 |
10. Equipment Financing Oblig54
10. Equipment Financing Obligations (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Equipment Financing Obligations Details 1 | ||
Equipment financing obligations | $ 2,489,647 | $ 3,044,796 |
Less: current portion | (997,089) | (959,380) |
Long-term portion | $ 1,492,558 | $ 2,085,416 |
10. Equipment Financing Oblig55
10. Equipment Financing Obligations (Details 1) | Sep. 30, 2016USD ($) |
Equipment Financing Obligations Details 1 | |
Remainder of 2016 | $ 247,693 |
2,017 | 1,002,084 |
2,018 | 958,846 |
2,019 | 268,044 |
2,020 | $ 12,980 |
11. Debt (Details)
11. Debt (Details) - Non Related Party [Member] - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Subordinated Notes | $ 33,645,865 | $ 34,160,200 |
Unamortized discount on Subordinated Notes | (1,450,745) | (1,697,091) |
Unamortized debt issuance costs | (836,760) | (981,584) |
Total notes payable - non-related parties | 31,358,360 | 31,481,525 |
Less: current portion | (685,780) | (685,780) |
Long-term portion | $ 30,672,580 | $ 30,795,745 |
11. Debt (Details 1)
11. Debt (Details 1) - RelatedParty - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Notes payable to Marvin Rosen | $ 1,178,082 | $ 1,178,082 |
Discount on note | (65,637) | (103,253) |
Total notes payable - related parties | $ 1,112,445 | $ 1,074,829 |
11. Debt (Details Narrative)
11. Debt (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 | |
Revolver credit facility | $ 15,000,000 | $ 15,000,000 | $ 15,000,000 | |
Term Loan | $ 25,000,000 | $ 25,000,000 | 25,000,000 | |
Interest rate | 4.75% | 4.75% | ||
Interest expense | $ 500,000 | $ 1,500,000 | ||
Payment to the sellers in connection with the terms of the holdback agreement | 127,306 | 127,306 | ||
Due to RootAxcess seller | $ 100,000 | 100,000 | ||
Due to seller of TFB | $ 700,000 | |||
Interest expense | 64,000 | |||
Amortization discount | 38,000 | |||
Fourth Amended SPA [Member] | ||||
Interest rate | 10.80% | |||
Interest expense | $ 900,000 | $ 2,800,000 |
12. Derivative Liability (Detai
12. Derivative Liability (Details) - $ / shares | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Stock price ($) | $ 1.65 | $ 1.88 |
Exercise price ($) | $ 6.25 | |
Risk-free interest rate (%) | 1.56% | |
Expected volatility (%) | 92.40% | 125.40% |
Time to maturity (years) | 2 years 3 months | |
Minimum | ||
Exercise price ($) | $ 0 | |
Risk-free interest rate (%) | 1.75% | |
Time to maturity (years) | 7 years 29 days | |
Maximum | ||
Exercise price ($) | $ 6.25 | |
Risk-free interest rate (%) | 2.06% | |
Time to maturity (years) | 8 years 3 months |
12. Derivative Liability (Det60
12. Derivative Liability (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 | |
Derivative Liability [Abstract] | |||||
Fair value derivative liability | $ 233,934 | $ 233,934 | $ 953,005 | ||
Change In fair value of derivative | $ 152,000 | $ 1,200,000 | |||
Gain on fair value of derivative | $ 380,000 | $ 2,500,000 |
13. Equity Transactions (Detail
13. Equity Transactions (Details Narrative) - USD ($) | 9 Months Ended | |
Sep. 30, 2016 | Dec. 31, 2015 | |
Common Stock, Shares Issued | 15,064,953 | 12,788,971 |
Common Stock, Shares Outstanding | 15,064,953 | 12,788,971 |
Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 |
Preferred Stock, Shares Issued | 17,299 | 23,324 |
Preferred Stock, Shares Outstanding | 17,299 | 23,324 |
Preferred stock dividends accumulated | $ 4,600,000 | |
Common stock issued for services | 26,500 | |
Common stock issued for services value | $ 96,950 | |
Series B-2 Preferred Stock [Member] | ||
Preferred Stock, Shares Issued | 12,254 | 18,279 |
Preferred Stock, Shares Outstanding | 12,254 | 18,279 |
Series A Preferred Stock [Member] | ||
Preferred Stock, Shares Issued | 5,045 | 5,045 |
Preferred Stock, Shares Outstanding | 5,045 | 5,045 |
15. Segment Information (Detail
15. Segment Information (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Segment Reporting Information [Line Items] | ||||
Revenues | $ 29,497,129 | $ 24,530,824 | $ 93,101,835 | $ 74,857,557 |
Cost of revenues (exclusive of depreciation and amortization) | 16,769,587 | 13,533,647 | 53,936,078 | 41,359,955 |
Gross profit | 12,727,542 | 10,997,177 | 39,165,757 | 33,497,602 |
Selling, general and administrative expenses | 11,408,048 | 9,796,483 | 34,102,847 | 29,379,196 |
Interest expense | 1,625,195 | 1,434,734 | 4,877,828 | 4,650,286 |
Gain (loss) on change in fair value of derivative liability | 380,099 | 2,543,878 | ||
Loss on extinguishment of debt | (2,720,355) | (2,720,355) | ||
Provision for income taxes | 10,951 | 10,951 | ||
Carrier Services | ||||
Segment Reporting Information [Line Items] | ||||
Revenues | 8,864,791 | 8,269,529 | 30,711,086 | 25,767,099 |
Cost of revenues (exclusive of depreciation and amortization) | 8,487,912 | 7,642,008 | 29,341,982 | 23,540,573 |
Gross profit | 376,879 | 627,521 | 1,369,104 | 2,226,526 |
Depreciation and amortization | 38,094 | 48,022 | 116,102 | 138,944 |
Selling, general and administrative expenses | 653,462 | 885,769 | 2,119,119 | 2,619,818 |
Interest expense | ||||
Gain (loss) on change in fair value of derivative liability | ||||
Loss on extinguishment of debt | ||||
Other income (expenses) | ||||
Provision for income taxes | ||||
Net loss | (314,677) | (306,270) | (866,117) | (532,236) |
Total assets | 3,783,321 | 4,639,835 | ||
Capital expenditures | 41,584 | 69,905 | ||
Business Services | ||||
Segment Reporting Information [Line Items] | ||||
Revenues | 20,632,338 | 16,261,295 | 62,390,749 | 49,090,458 |
Cost of revenues (exclusive of depreciation and amortization) | 8,281,675 | 5,891,639 | 24,594,096 | 17,819,382 |
Gross profit | 12,350,663 | 10,369,656 | 37,796,653 | 31,271,076 |
Depreciation and amortization | 2,747,822 | 2,898,068 | 8,128,378 | 8,809,670 |
Selling, general and administrative expenses | 9,547,547 | 7,953,958 | 28,052,965 | 23,684,671 |
Interest expense | 1,551,534 | 1,332,719 | 4,647,847 | 4,457,080 |
Gain (loss) on change in fair value of derivative liability | ||||
Loss on extinguishment of debt | 2,538,272 | 2,538,272 | ||
Other income (expenses) | 247,070 | 243,420 | 764,308 | 591,691 |
Provision for income taxes | 10,951 | 10,951 | ||
Net loss | (1,754,261) | (4,596,781) | (3,807,796) | (8,810,308) |
Total assets | 90,027,291 | 59,128,769 | ||
Capital expenditures | 3,740,648 | 2,409,430 | ||
Corporate and Unallocated | ||||
Segment Reporting Information [Line Items] | ||||
Revenues | ||||
Cost of revenues (exclusive of depreciation and amortization) | ||||
Gross profit | ||||
Depreciation and amortization | 212,712 | 194,337 | 702,301 | 235,018 |
Selling, general and administrative expenses | 1,207,039 | 956,756 | 3,930,763 | 3,074,707 |
Interest expense | 73,661 | 102,015 | 229,981 | 193,206 |
Gain (loss) on change in fair value of derivative liability | (152,057) | (1,237,730) | (380,099) | (2,543,878) |
Loss on extinguishment of debt | 182,083 | 182,083 | ||
Other income (expenses) | (265,139) | (241,021) | (797,822) | (648,060) |
Provision for income taxes | ||||
Net loss | (1,076,216) | 43,560 | (3,685,124) | (493,076) |
Total assets | 2,312,655 | 3,128,866 | ||
Capital expenditures | ||||
Consolidated | ||||
Segment Reporting Information [Line Items] | ||||
Revenues | 29,497,129 | 24,530,824 | 93,101,835 | 74,857,557 |
Cost of revenues (exclusive of depreciation and amortization) | 16,769,587 | 13,533,647 | 53,936,078 | 41,359,955 |
Gross profit | 12,727,542 | 10,997,177 | 39,165,757 | 33,497,602 |
Depreciation and amortization | 2,998,628 | 3,140,427 | 8,946,781 | 9,183,632 |
Selling, general and administrative expenses | 11,408,048 | 9,796,483 | 34,102,847 | 29,379,196 |
Interest expense | 1,625,195 | 1,434,734 | 4,877,828 | 4,650,286 |
Gain (loss) on change in fair value of derivative liability | (152,057) | (1,237,730) | (380,099) | (2,543,878) |
Loss on extinguishment of debt | 2,720,355 | 2,720,355 | ||
Other income (expenses) | (18,069) | 2,399 | (33,514) | (56,369) |
Provision for income taxes | 10,951 | 10,951 | ||
Net loss | (3,145,154) | (4,859,491) | (8,359,037) | (9,835,620) |
Total assets | $ 96,123,267 | $ 66,897,470 | ||
Capital expenditures | $ 3,782,232 | $ 2,479,335 |
17. Fair Value Disclosures (Det
17. Fair Value Disclosures (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Current liabilities: | ||
Contingent liability (see note 11) | $ 100,000 | |
Non-current liabilities: | ||
Contingent liability (see note 11) | 861,606 | |
Derivative liability (see note 12) | 233,934 | $ 953,005 |
Total non-current liabilities | 1,095,540 | |
Level 1 | ||
Current liabilities: | ||
Contingent liability (see note 11) | ||
Non-current liabilities: | ||
Derivative liability (see note 12) | ||
Total non-current liabilities | 0 | |
Level 2 | ||
Current liabilities: | ||
Contingent liability (see note 11) | ||
Non-current liabilities: | ||
Contingent liability (see note 11) | ||
Derivative liability (see note 12) | ||
Total non-current liabilities | ||
Level 3 | ||
Current liabilities: | ||
Contingent liability (see note 11) | 100,000 | |
Non-current liabilities: | ||
Contingent liability (see note 11) | 861,606 | |
Derivative liability (see note 12) | 233,934 | $ 953,005 |
Total non-current liabilities | $ 1,095,540 |
17. Fair Value Disclosures (D64
17. Fair Value Disclosures (Details 1) | 9 Months Ended |
Sep. 30, 2016USD ($) | |
Fair Value Disclosures [Abstract] | |
Balance at December 31, 2015 | $ 953,005 |
Gain for the period: | |
Included in net loss | (1,152,121) |
Adjustment for prior issuances and conversion of warrants (see note 12) | 433,050 |
Balance at September 30, 2016 | $ 233,934 |