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 consolidated financial statements of Fusion Telecommunications International, Inc. (“Fusion” or the “Company”) after giving effect to the acquisition of the assets and liabilities of Apptix, Inc. (“Apptix”) under the terms of the Stock Purchase and Sale Agreement dated November 14, 2016 and the related financing transactions.
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 and the related financing transactions 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 and the related financing transactions 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 statement of operations of Apptix, 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 audited financial statements of Apptix, in each case, as of and for the nine months ended September 30, 2016.
The unaudited pro forma condensed financial information has been prepared by the Company using the acquisition method of accounting under the provisions of Accounting Standards Codification (“ASC”) 805, “Business Combinations.” The Company has been treated as the acquirer in the business combination for accounting purposes. The acquisition accounting is based upon certain valuation and other studies that were performed in conjunction with the preparation of Fusion’s audited consolidated financial statements as of December 31, 2016. The pro forma adjustments 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 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, 2016 included in the Company’s Annual Report on Form 10-K filed on March 20, 2017.
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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 Apptix audited financial statements as of and for the nine months and year ended September 30, 2016 and December 31, 2015 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 pro forma adjustments are based on the information currently available and the assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. 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
(in thousands, except share data)
| | | | | | |
| | | | East West Credit Agreement | | Repayment of existing indebtedness | | | | |
| ASSETS | | | | | | | | | |
| Current assets: | | | | | | | | | |
| Cash and cash equivalents | $882 | $4,034 | $63,353 | (a) | $(40,069) | (a) | $(27,030) | (b), (c) | $1,170 |
| Accounts receivable, net of allowance for doubtful accounts | 8,200 | 1,743 | - | | - | | 464 | (c), (d) | 10,407 |
| Prepaid expenses and other current assets | 2,457 | 879 | - | | - | | (259) | (c), (d) | 3,077 |
| Total current assets | 11,539 | 6,656 | 63,353 | | (40,069) | | (26,825) | | 14,654 |
| Property and equipment, net | 12,929 | 4,869 | - | | - | | (1,990) | (c), (d) | 15,808 |
| Other assets: | | | | | | | | | |
| Security deposits | 548 | - | - | | - | | - | | 548 |
| Restricted cash | 27 | - | - | | - | | - | | 27 |
| Goodwill | 28,050 | 10,777 | - | | - | | (3,686) | (c), (d) | 35,141 |
| Intangible assets, net | 42,728 | - | - | | - | | 22,365 | (d) | 65,093 |
| Other assets | 302 | - | - | | (214) | (a) | - | | 88 |
| Total other assets | 71,655 | 10,777 | - | | (214) | | 18,679 | | 100,897 |
| TOTAL ASSETS | $96,123 | $22,302 | $63,353 | | $(40,283) | | $(10,136) | | $131,359 |
| | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | | |
| Current liabilities: | | | | | | | | | |
| Notes payable - non-related parties | $686 | $- | $- | | $- | | $- | | $686 |
| Current portion of long-term debt | - | 705 | - | | - | | (705) | (c) | - |
| Due to Root Axcess seller | 333 | - | - | | - | | - | | 333 |
| Due to TFB seller | 100 | - | - | | - | | - | | 100 |
| Equipment financing obligation | 997 | 2,015 | - | | - | | (2,015) | (c) | 997 |
| Accounts payable and accrued expenses | 12,610 | 5,919 | - | | (69) | (a) | 986 | (c) | 19,446 |
| Deferred Revenue | - | - | - | | - | | - | | - |
| Line of credit | - | - | - | | - | | - | | - |
| Total current liabilities | 14,726 | 8,639 | - | | (69) | | (1,734) | | 21,562 |
| Long-term liabilities: | | | | | | | | | |
| Notes payable - non-related parties, net of discount | 30,673 | - | - | | - | | - | | 30,673 |
| Long-term debt | | 3,642 | - | | - | | (3,642) | (c) | - |
| Term loan | 25,000 | - | 64,165 | (a) | (25,000) | (a) | - | | 64,165 |
| Indebtedness under revolving credit facility | 15,000 | - | | | (15,000) | (a) | - | | - |
| Due to TFB seller | 862 | - | - | | - | | - | | 862 |
| Deferred tax liability | - | - | - | | - | | 1,634 | (c) | 1,634 |
| Notes payable - related parties | 1,112 | - | - | | - | | - | | 1,112 |
| Equipment financing obligation | 1,493 | 297 | - | | - | | (297) | (c) | 1,493 |
| Derivative liabilities | 234 | - | - | | - | | - | | 234 |
| Total liabilities | 89,100 | 12,578 | 64,165 | | (40,069) | | (4,039) | | 121,735 |
| Commitments and contingencies | | | | | | | | | |
| Stockholders' equity (deficit) | | | | | | | | | |
Preferred stock
| - | - | - | | - | | - | | - |
| Common stock | 151 | - | - | | - | | 30 | (b) | 181 |
| Capital in excess of par value | 185,765 | 132,817 | - | | - | | (129,220) | (b), (c) | 189,362 |
| Accumulated deficit | (178,893) | (123,093) | (812) | (a) | (214) | (a) | 123,093 | (c) | (179,919) |
| Total stockholders' equity | 7,023 | 9,724 | (812) | | (214) | | (6,097) | | 9,624 |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $96,123 | $22,302 | $63,353 | | $(40,283) | | $(10,136) | | $131,359 |
(a)
Represents a $65,000 term loan with East West Bank, less a transaction fee of $835 paid to East West Bank at closing. The proceeds of the term loan were used to retire FNAC's obligations under a $40,000 credit facility with Opus Bank (including $69 of accrued interest and the write off of $214 of deferred financing costs), to fund the cash portion of the Apptix purchase price and to pay for transaction expenses related to the financing in the amount of $812.
(b)
Represents consideration paid in the amount of $23,000 in cash and 2,997,926 shares of the Fusion's common stock valued at $1.21 per share.
(c)
Represents (i) the exclusion of assets and liabilities not acquired by Fusion under the terms of the Apptix Purchase Agreement, (ii) 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 | $23,063 |
| Fusion stock | 3,628 |
| Purchase price | $26,691 |
| | |
| Estimated preliminary fair value of net assets acquired: | |
| | |
| Cash | $67 |
| Accounts receivable, net | 2,207 |
| Prepaid expenses and other current assets | 620 |
| Deferred tax liability | (1,634) |
| Property and equipment | 2,879 |
| Intangible assets | 22,365 |
| Current liabilities | (6,904) |
| | 19,600 |
| Estimated goodwill | 7,091 |
| | |
| Purchase price | $26,691 |
Fusion Telecommunications International, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2015
(in thousands, except share and per share data)
| | | | | | |
| | | | | | |
| Revenues | $101,695 | $34,416 | $- | | $136,111 |
| Cost of revenues (exclusive of depreciation and amortization shown separately below) | 56,725 | 10,299 | - | | 67,024 |
| Gross profit | 44,970 | 24,117 | - | | 69,087 |
| Depreciation and amortization | 12,976 | 2,687 | 3,145 | (a) | 18,808 |
| Impairment charges | | 4,018 | - | | 4,018 |
| Restructuring charges | | 1,524 | | | 1,524 |
| Selling, general and administration expenses, including stock-based compensation | 41,009 | 22,138 | | | 63,147 |
| Total operating expenses | 53,985 | 30,367 | 3,145 | | 87,497 |
| Operating loss | (9,015) | (6,250) | (3,145) | | (18,410) |
| Other (expenses) income: | | | | | |
| Interest expense | (6,063) | (2,748) | 656 | (b), (c) | (8,155) |
| Gain on change in fair value of derivative liability | 1,844 | - | - | | 1,844 |
| Loss on extinguishment of debt | (2,720) | - | - | | (2,720) |
| Other income, net of other expenses | 63 | 20,159 | | | 20,222 |
| Total other (expenses) income | (6,876) | 17,411 | 656 | | 11,191 |
| (Loss) income before income taxes | (15,891) | 11,161 | (2,489) | | (7,219) |
| Benefit (provision) for income taxes | 7,661 | (180) | | | 7,481 |
| Net (loss) income | (8,230) | 10,981 | (2,489) | | 262 |
| Preferred stock dividends in arrears | (1,578) | - | - | | (1,578) |
| Net (loss) income attributable to common stockholders | $(9,808) | $10,981 | $(2,489) | | $(1,316) |
| Basic and diluted loss per common share | $(1.32) | | | | $(0.27) |
| Weighted average common shares outstanding: | | | | | |
| Basic and diluted | 8,873,766 | | 2,997,926 | (d) | 11,871,692 |
(a)
Reflects the amortization expense associated with the acquired intangible assets, comprised of a non-compete agreement valued at approximately $1,417 with a useful life of 1.125 years, and customer contracts valued at $17,284 with a useful life of 15 years, and an additional customer contract valued at $3,664 with a useful life of 5 years.
(b)
Reflects net increase in interest expense of $2,092 resulting from the $65,000 term loan with East West Bank of $3,493, amortization of the related deferred financing fees of $329, less interest expense incurred in connection with $40,000 of indebtedness to Opus Bank of $1,715 and amortization of the related deferred financing fees of $15, as such indebtedness was retired on the date of the acquisition of Apptix.
(c)
Reflects the exclusion of interest expense on t he Apptix debt in the amount of $2,748 not assumed by Fusion under the terms of the Apptix Purchase Agreement.
(d)
Reflects shares of Fusion common stock valued at $3,628 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
(in thousands, except share and per share data)
| | | | | | |
| | | | | | |
| Revenues | $93,102 | $19,268 | $- | | $112,370 |
| Cost of revenues (exclusive of depreciation and amortization shown separately below) | 53,936 | 7,089 | - | | 61,025 |
| Gross profit | 39,166 | 12,179 | - | | 51,345 |
| Depreciation and amortization | 8,947 | 1,651 | 1,571 | (a) | 12,169 |
| Selling, general and administration expenses including stock-based compensation | 34,103 | 11,859 | | | 45,962 |
| Total operating expenses | 43,050 | 13,510 | 1,571 | | 58,131 |
| Operating loss | (3,884) | (1,331) | (1,571) | | (6,786) |
| Other (expenses) income: | | | | | |
| Interest expense | (4,878) | (593) | (631) | (b), (c) | (6,102) |
| Gain on change in fair value of derivative liability | 380 | - | - | | 380 |
| Other (expenses) income, net | 34 | 151 | - | | 185 |
| Total other (expenses) income | (4,464) | (442) | (631) | | (5,537) |
| Loss before income taxes | (8,348) | (1,773) | (2,202) | | (12,323) |
| Benefit (provision) for income taxes | (11) | (21) | | | (32) |
| Net loss | (8,359) | (1,794) | (2,202) | | (12,355) |
| Preferred stock dividends in arrears | (2,102) | - | - | | (2,102) |
| Net loss attributable to common stockholders | $(10,461) | $(1,794) | $(2,202) | | $(14,457) |
| Basic and diluted loss per common share | $(0.72) | | | | $(0.82) |
| 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, comprised of the remaining unamortized portion of the non-compete agreement valued at $1,417 with a useful life of 1.125 years, customer contracts valued at $17,284 with a useful life of 15 years and an additional customer contract valued at $3,664 with a useful life of 5 years.
(b)
Reflects net increase in interest expense of $1,224 resulting from the $65,000 term loan with East West Bank of $2,451, amortization of the related deferred financing fees of $247, less interest expense incurred in connection with $40,000 of indebtedness to Opus Bank of $1,425 and amortization of the related deferred financing fees of $49, as such indebtedness was retired on the date of the acquisition of Apptix.
(c)
Reflects the exclusion of interest expense on the Apptix debt in the amount of $593 not assumed by Fusion under the terms of the Apptix Purchase Agreement.
(d)
Reflects shares of Fusion common stock issued to the Apptix Sellers as part of the purchase price.
