Fusion Connect (FSNN) 10-Q 14 Nov 16 2016 Q3 Quarterly report Financial data

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 Company’s 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 management’s opinion, all normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included. Management believes that the disclosures made in these unaudited condensed consolidated interim financial statements are adequate to make the information not misleading. The results for the three 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 Company’s 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 Company’s accounts receivable, accounts payable and accrued expenses approximates its fair value due to the short term nature of these financial instruments. Long-Lived Asset Impairment The Company periodically reviews long-lived assets, including intangible assets subject to amortization, for possible impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying amount of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by such asset or asset group. If the undiscounted cash flows are less than the carrying amount of the asset or asset group, an impairment loss is recognized for the amount by which the carrying amount of the asset or asset group exceeds its fair value. The Company did not record any impairment charges during the 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 Company’s 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 Company’s 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 Company’s 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 Company’s derivative liability for the three months ended September 30, 2015, and $1.9 million gain on the fair value of the Company’s 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 Fusion’s 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 Fusion’s outstanding Series A-1, A-2 and A-4 preferred stock (the “Series A Preferred Stock”) of approximately $102,000 for the three months ended September 30, 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 Fusion’s 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 Fusion’s 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 Company’s employees, officers, and directors. The Compensation Committee of Fusion’s 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 Fusion’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Fusion’s 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 Company’s reasonable discretion, be reduced by the amount in dispute under the claim notice and such amount will continue to be held by the Company until 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 Company’s 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 Fusion’s 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 Fusion’s 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 Company’s common stock by Unterberg Technology Partners, L.P. (“Unterberg”) in December 2015, which when aggregated with the common shares underlying the Company’s 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, Fusion’s 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 Fusion’s Board, on January 1 of each year. As of September 30, 2016, no dividend had been declared by Fusion’s 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 Company’s 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 Company’s measurement of segment profit exclude the Company’s executive, administrative and support costs. The accounting policies of the segments are the same as those described in Note 2, Summary of Significant Accounting Policies, of the audited consolidated financial statements included in the 2015 Form 10-K. The Company’s 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 Company’s direct sales force and its partner sales channel, which utilizes the efforts of independent third-party agents to sell the Company’s 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 Fusion’s 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 1—Quoted prices in active markets for identical assets or liabilities Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities Level 3—No observable pricing inputs in the market The following table represents the fair value of the liability measured at fair value on a recurring basis: Level 1 Level 2 Level 3 Total As of 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 Company’s 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 management’s opinion, all normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included. Management believes that the disclosures made in these unaudited condensed consolidated interim financial statements are adequate to make the information not misleading. The results for the three 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 Company’s 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 Company’s accounts receivable, accounts payable and accrued expenses approximates its fair value due to the short term nature of these financial instruments.
Long-Lived Asset Impairment	The Company periodically reviews long-lived assets, including intangible assets subject to amortization, for possible impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying amount of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by such asset or asset group. If the undiscounted cash flows are less than the carrying amount of the asset or asset group, an impairment loss is recognized for the amount by which the carrying amount of the asset or asset group exceeds its fair value. The Company did not record any impairment charges during the 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 Company’s 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 Company’s 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 Company’s 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