Exhibit 99.2
Pro Forma Financial Information
The following unaudited pro forma condensed combined balance sheet as of September 30, 2016 and the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2015 and the nine months ended September 30, 2016 are derived from the historical financial statements of the Fusion after giving effect to the acquisition of the assets and liabilities of the Apptix under the terms of the Apptix Purchase Agreement.
The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2015 and the nine months ended September 30, 2016 give pro forma effect to the business combination as if it had occurred on January 1, 2015. The unaudited pro forma condensed combined balance sheet as of September 30, 2016 assumes that the business combination was effective on September 30, 2016.
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 was derived from Fusion's audited consolidated statement of operations and the audited consolidated statement of operations of the Seller, in each case, for the year ended December 31, 2015. The unaudited pro forma condensed combined balance sheet and statement of operations as of and for the nine months ended September 30, 2016 were derived from Fusion's unaudited condensed consolidated financial statements and the unaudited financial statements of the Seller, in each case, as of and for the nine months ended September 30, 2016.
The unaudited pro forma condensed combined statements of operations and the unaudited pro forma condensed combined balance sheet contain certain adjustments to (i) convert the Seller’s historical financial statements from International Financial Reporting Standards (“IFRS”) to accounting principles generally accepted in the United States of America (“U.S. GAAP”); and (ii) remove the assets, liabilities, income and expenses of the Seller, as these items are excluded from the Apptix Purchase Agreement.
The unaudited pro forma condensed financial information has been prepared by the Company using the acquisition method of accounting in accordance with U.S. GAAP. The Company has been treated as the acquirer in the business combination for accounting purposes. The acquisition accounting is dependent upon certain valuation and other studies that have yet to be completed, therefore valuation of the acquired intangibles and other acquired assets and liabilities are preliminary and subject to change. The assets and liabilities of the Apptix have been measured based on various preliminary estimates using assumptions that the Company believes are reasonable based on information that is currently available. Differences between these preliminary estimates and the final acquisition accounting will occur, and those differences could have a material impact on the accompanying unaudited pro forma condensed financial statements and the combined company’s future results of operations and financial position. The pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed financial statements prepared in accordance with the rules and regulations of the Securities and Exchange Commission.
The Company has commenced the necessary valuation and other studies required to complete the acquisition accounting and intends to finalize the acquisition accounting as soon as practicable within the required measurement period in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, but in no event later than one year following completion of the transaction.
The following unaudited pro forma financial statements are based on, and should be read in conjunction with:
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The Company’s audited financial statements and the related notes thereto for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed on March 28, 2016.
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The Company’s unaudited financial statements and the related notes thereto as of and for the nine months ended September 30, 2016 included in the Company’s Quarterly Report on Form 10-Q filed on November 14, 2016.
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The Seller’s audited financial statements for the years ended December 31, 2015 and 2014 and the Seller’s unaudited financial statements as of and for the nine months ended September 30, 2016 appearing elsewhere in this report.
The pro forma financial statements give effect to the following transactions:
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The acquisition of Apptix as described in Item 2.01 of this report.
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The consummation of the transactions contemplated by the East West Credit Agreement as described in item 2.03 of this report.
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The repayment of indebtedness to Opus Bank as described in Item 2.03 of this report.
The unaudited pro forma financial statements are for informational purposes only, are not indications of future performance, and should not be considered indicative of actual results that would have been achieved had the forgoing transactions actually been consummated on the dates or at the beginning of the periods presented.
Fusion Telecommunications International, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2016
| | | | | | | |
| | | Apptix Historical (IFRS) | Conversion from IFRS to U.S. GAAP | Excluded Assets and Liabilities of Apptix ASA (Parent) | East West Credit Agreement |
| Repayment of existing indebtedness |
| |
| |
| ASSETS | | | | | | | | | | | |
| Current assets: | | | | | | | | | | | |
| Cash an cash equivalents | 882,040 | 4,053,991 | - | (19,893) | 63,352,750 | (a) | (40,068,671) | (a) | (26,997,583) | (b), (c) | 1,202,634 |
| Accounts receivable, net of allowance for doubtful accounts | 8,199,522 | 1,789,356 | -
| - | - | | - | | - | | 9,988,878 |
| Prepaid expenses and other current assets | 2,457,736 | 911,302 | - | (32,391) | - | | - | | - | | 3,336,647 |
| Total current assets | 11,539,298 | 6,754,649 | - | (52,284) | 63,352,750 | | (40,068,671) | | (26,997,583) | | 14,528,159 |
| Property and equipment, net | 12,929,148 | 3,214,366 | 1,575,000 | - | - | | - | | (1,910,489) | | 15,808,025 |
| Other assets: | | | | | | | | | | | |
| Security deposits | 548,288 | - | - | - | - | | - | | - | | 548,288 |
| Restrictred cash | 27,153 | - | - | - | - | | - | | - | | 27,153 |
| Goodwill | 28,049,775 | 9,966,907 | 810,000 | - | - | | - | | (8,783,382) | (c), (d) | 30,043,300 |
| Intangible assets, net | 42,727,552 | 79,392 | - | - | - | | - | | 25,546,889 | (d) | 68,353,833 |
| Other assets | 302,053 | - | - | - | 1,647,250 | (a) | (214,294) | | - | | 1,735,009 |
| Total other assets | 71,654,821 | 10,046,299 | 810,000 | - | 1,647,250 | | (214,294) | | 16,763,507 | | 100,707,583 |
| TOTAL ASSETS | 96,123,267 | 20,015,314 | 2,385,000 | (52,284) | 65,000,000 | | (40,282,965) | | (12,144,565) | | 131,043,767 |
| | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | |
| Notes payable - non-related parties | 685,780 | - | - | - | - | | - | | - | | 685,780 |
| Current portion of long-term debt | - | 2,720,286 | - | - | - | | - | | (2,720,286) | (c) | - |
| Due to Root Axcess seller | 333,334 | - | - | - | - | | - | | - | | 333,334 |
| Due to TFB seller | 100,000 | - | - | - | - | | - | | - | | 100,000 |
| Equipment financing obligation | 997,089 | - | - | - | - | | - | | - | | 997,089 |
| Accounts payable and accrued expenses | 12,610,885 | 4,461,794 | - | (30,071) | - | | - | | 735,226 | (c) | 17,777,834 |
| Deferred Revenue | - | - | - | - | - | | - | | - | | - |
| Line of credit | - | - | - | - | - | | - | | - | | - |
| Total Current liabilities | 14,727,088 | 7,182,080 | - | (30,071) | - | | - | | (1,985,060) | | 19,894,037 |
| Long-term liabilities: | | | | | | | | | | | |
| Notes payable - non-related parties, net of discount | 30,672,580 | - | - | | - | | - | | - | | 30,672,580 |
| Long-term debt | | 3,940,000 | - | - | - | | - | | (3,940,000) | (c) | - |
| Term loan | 25,000,000 | - | - | - | 65,000,000 | (a) | (25,000,000) | (a) | - | | 65,000,000 |
| Indebtedness under revolving credit facility | 15,000,000 | - | - | - | | | (15,000,000) | (a) | - | | - |
| Due to TFB seller | 861,606 | - | - | - | - | | - | | - | | 861,606 |
| Notes payable - related parties | 1,112,445 | - | - | - | - | | - | | - | | 1,112,445 |
| Equipment financing obligation | 1,492,558 | - | - | - | - | | - | | - | | 1,492,558 |
| Derivative liabilities | 233,934 | - | - | - | - | | - | | - | | 233,934 |
| Total liabilities | 89,100,211 | 11,122,080 | - | (30,071) | 65,000,000 | | (40,000,000) | | (5,925,060) | | 119,267,160 |
| Commitments and contingencies | | | | | | | | | | | |
| Stockholders' equity (deficit) | | | | | | | | | | | |
| Preferred stock, $0.01 par value, 10,000,000 shares authorized | 173 | - | - | - | - | | - | | - | | 173 |
| Common stock, $0.01 par value, 50,000,000 shares authorized | 150,650 | - | - | - | - | | - | | 29,979 | (b) | 180,629 |
| Common Stock | - | 4,666,000 | - | (4,665,875) | - | | - | | (125) | (c) | - |
| Capital in excess of par value | 185,764,507 | 69,523,048 | - | 6,073,323 | - | | - | | (70,589,834) | (b), (c) | 190,771,044 |
| Accumulated deficit | (178,892,274) | (65,295,814) | 2,385,000 | (1,429,661) | - | | (282,965) | (a) | 64,340,475 | (c) | (179,175,239) |
| Total stockholders' equity | 7,023,056 | 8,893,234 | 2,385,000 | (22,213) | - | | (282,965) | | (6,219,505) | | 11,776,607 |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | 96,123,267 | 20,015,314 | 2,385,000 | (52,284) | 65,000,000 | | (40,282,965) | | (12,144,565) | | 131,043,767 |
| (a) | Represents a $65 million term loan with East West Bank, less a transaction fee of $835,000 paid to East West Bank at closing. The proceeds of the term loan were used to retire FNAC's obligations under a $40 million credit facility with Opus Bank (including $68,000 of accrued interest and the write off of $214,000 of deferred financing costs), to fund the cash portion of the Apptix purchase price and to pay for transaction expenses in the amount of $812,250. |
| | | | | | | | | | | | | | | | | |
| (b) | Represents consideration paid in the amout of $23 million in cash and 2,997,926 shares of the Fusion's common stock valued at $1.68 per share. |
| | | | | | | | | | | | | | | | | |
| (c) | Represents (i) the exclusion of assets and liabilities not acquired by Fusion under the terms of the Apptix Purchase Agreement, (ii) preliminary adjustments to the fair value of assets acquired and liabilities assumed and (iii) the elimination of Apptix's equity. |
| | | | | | | | | | | | | | | | | |
| (d) | The excess of the purchase price over the estimated fair value of Apptix's assets and liabilities acquired is as follows: |
| Cash | 22,963,485 |
| Fusion Stock | 5,036,515 |
| Purchase Price | 28,000,000 |
| | |
| Estimated preliminary fair value of net assets acquired: | |
| | |
| Accounts receivable, net | 1,789,356 |
| Prepaids | 878,911 |
| Property and equipment | 2,878,877 |
| Intangible Assets | 25,626,281 |
| Current liabilities | (5,166,950) |
| | |
| | 26,006,475 |
| Estimated Goodwill | 1,993,525 |
Fusion Telecommunications International, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2015
| | | Apptix Adjustments | | | |
| | | Apptix Historical (IFRS) | | Excluded income and expenses of Apptix ASA (Parent) | |
| |
| | | | | | | | |
| Revenues | 101,694,516 | 34,415,746 | - | - | - | | 136,110,262 |
| Cost of revenues (exclusive of depreciation and amortization shown separtely below) | 56,724,121 | 10,298,470 | - | - | - | | 67,022,591 |
| Gross Profit | 44,970,395 | 24,117,276 | - | - | - | | 69,087,671 |
| Depreciation and amortization | 12,975,981 | 2,687,000 | - | - | 3,077,980 | (a) | 18,740,961 |
| Impairment charges | | 10,000,000 | (5,982,000) | | (4,018,000) | (b) | - |
| Selling, general and administration expenses, including stock-based compensation | 41,009,107 | 23,385,138 | 1,122,000 | (377,721) | | | 65,138,524 |
| Total operating expenses | 53,985,088 | 36,072,138 | (4,860,000) | (377,721) | (940,020) | | 83,879,485 |
| Operating (loss) income | (9,014,693) | (11,954,862) | 4,860,000 | 377,721�� | 940,020 | | (14,791,814) |
| Other (expenses) income: | | | | | | | |
| Interest expense | (6,062,923) | (1,071,163) | - | (1,677,093) | 655,883 | (c), (d) | (8,155,296) |
| Gain on change in fair value of deriviative liability | 1,843,997 | - | - | - | - | | 1,843,997 |
| Loss on extinguisment of debt | (2,720,355) | - | - | - | - | | (2,720,355) |
| Other income, net of other expenses | 63,613 | 20,166,477 | - | 30,946 | (20,166,477) | (e) | 94,559 |
| Total other (expenses) income | (6,875,668) | 19,095,314 | - | (1,646,147) | (19,510,594) | | (8,937,095) |
| (Loss) income before income taxes | (15,890,361) | 7,140,452 | 4,860,000 | (1,268,426) | (18,570,574) | | (23,728,909) |
| Benefit (provision) for income taxes | 7,660,536 | (288,000) | | | | | 7,372,536 |
| Net (loss) income | (8,229,825) | 6,852,452 | 4,860,000 | (1,268,426) | (18,570,574) | | (16,356,373) |
| Preferred stock dividends in arrears | (1,578,220) | - | - | - | - | | (1,578,220) |
| Net loss attributable to common stockholders | (9,808,045) | 6,852,452 | 4,860,000 | (1,268,426) | (18,570,574) | | (17,934,593) |
| Basic and diluted loss per common share | (1.32) | | | | | | (1.51) |
| Weighted average common shares outstanding: | | | | | | | |
| Basic and diluted | 8,873,766 | | | | 2,997,926 | (f) | 11,871,692 |
| (a) | Reflects the amortization expense associated with the acquired intangible assets. |
| | |
| (b) | Reflects removal of the impairment charges which occured prior to the date of acquisition and which would not have been incurred by Apptix had the transaction taken place on January 1, 2015 |
| | |
| (c) | Reflects interest expense on the $65 million term loan with East West Bank and amortization of the related deferred financing fees, less interest expense incurred in connection with $40 million of indebtedness to Opus Bank and amortization of the related deferred financing fees, as such indebtedness was retired on the date of the acquisition of Apptix. |
| | |
| (d) | Reflects the exclusion of interest expense on the Apptix debt not assumed by Fusion under the terms of the Apptix Purchase Agreement. |
| | |
| (e) | Reflects the removal of the gain on the sale of Apptix's public cloud customer base, as this gain would not be included in Fusion's consolidated statement of operations had the acquisition taken place January 1, 2015. |
| | |
| (f) | Reflects shares of Fusion common stock valued at $5 million issued to the Apptix Sellers as part of the purchase price. |
Fusion Telecommunications International, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2016
| | | | | | | |
| | | Apptix Historical (IFRS) | | Excluded income and expenses of Apptix ASA (Parent) | |
| |
| | | | | | | | |
| Revenues | 93,101,835 | 19,267,747 | - | - | - | | 112,369,582 |
| Cost of revenues (exclusive of depreciation and amortization shown separtely below) | 53,936,078 | 7,088,521 | - | - | - | | 61,024,599 |
| Gross Profit | 39,165,757 | 12,179,226 | - | - | - | | 51,344,983 |
| Depreciation and amortization | 8,946,781 | 1,126,355 | 525,000 | - | 1,440,152 | (a) | 12,038,288 |
| Selling, general and administration expenses including stock-based compensation | 34,102,847 | 9,863,262 | 1,300,000 | (217,342) | | | 45,048,767 |
| Total operating expenses | 43,049,628 | 10,989,617 | 1,825,000 | (217,342) | 1,440,152 | | 57,087,055 |
| Operating loss | (3,883,871) | 1,189,609 | (1,825,000) | 217,342 | (1,440,152) | | (5,742,072) |
| Other (expenses) income: | | | | | | | |
| Interest expense | (4,877,828) | (592,496) | | (64) | (631,233) | (b), (c) | (6,101,621) |
| Gain on change in fair value of deriviative liability | 380,099 | - | - | - | - | | 380,099 |
| Other (expenses) income, net | 33,514 | 151,003 | - | - | - | | 184,517 |
| Total other (expenses) income | (4,464,215) | (441,493) | - | (64) | (631,233) | | (5,537,005) |
| (Loss) income before income taxes | (8,348,086) | 748,116 | (1,825,000) | 217,278 | (2,071,385) | | (11,279,077) |
| Benefit (provision) for income taxes | (10,951) | - | | | | | (10,951) |
| Net (loss) income | (8,359,037) | 748,116 | (1,825,000) | 217,278 | (2,071,385) | | (11,290,028) |
| Preferred stock dividends in arrears | (2,102,467) | - | - | - | - | | (2,102,467) |
| Net loss attributable to common stockholders | (10,461,504) | 748,116 | (1,825,000) | 217,278 | (2,071,385) | | (13,392,495) |
| Basic and diluted loss per common share | (0.72) | | | | | | (0.76) |
| Weighted average common shares outstanding: | | | | | | | |
| Basic and diluted | 14,536,893 | | | | 2,997,926 | (d) | 17,534,819 |
| (a) | Reflects the amortization expense associated with the acquired intangible assets. |
| | |
| (b) | Reflects interest expense on the $65 million term loan with East West Bank and amortization of the related deferred financing fees, less interest expense incurred in connection with $40 million of indebtedness to Opus Bank and amortization of the related deferred financing fees, as such indebtedness was retired on the date of the acquisition of Apptix. |
| | |
| (c) | Reflects the exclusion of interest expense on the Apptix debt not assumed by Fusion under the terms of the Apptix Purchase Agreement. |
| | |
| (d) | Reflects shares of Fusion common stock valued at $5 million issued to the Apptix Sellers as part of the purchase price. |
