Fusion Connect (FSNN) 10-Q 12 May 17 2017 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 08, 2017
Document And Entity Information
Entity Registrant Name	FUSION TELECOMMUNICATIONS INTERNATIONAL INC
Entity Central Index Key	1,071,411
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
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		22,412,403
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2,017

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 6,642,153	$ 7,221,910
Accounts receivable, net of allowance for doubtful accounts of approximately $690,000 and $427,000, respectively	12,316,401	9,359,876
Prepaid expenses and other current assets	1,590,928	1,084,209
Total current assets	20,549,482	17,665,995
Property and equipment, net	13,520,740	14,248,915
Security deposits	630,373	630,373
Restricted cash	27,153	27,153
Goodwill	35,286,629	35,689,215
Intangible assets, net	63,190,659	63,617,471
Other assets	68,822	77,117
TOTAL ASSETS	133,273,858	131,956,239
Current liabilities:
Term loan - current portion	4,062,500	2,979,167
Obligations under asset purchase agreements - current portion	912,212	546,488
Equipment financing obligations	1,041,466	1,002,578
Accounts payable and accrued expenses	23,347,554	19,722,838
Total current liabilities	29,363,732	24,251,071
Long-term liabilities:
Notes payable - non-related parties, net of discount	31,561,993	31,431,602
Notes payable - related parties	889,413	875,750
Term Loan	58,900,945	60,731,204
Indebtedness under revolving credit facility	3,000,000	3,000,000
Obligations under asset purchase agreements	1,315,811	890,811
Equipment financing obligations	974,701	1,237,083
Derivative liabilities	376,321	348,650
Total liabilities	126,382,916	122,766,171
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 14,341 and 17,299 shares issued and outstanding	143	174
Common stock, $0.01 par value, 90,000,000 and 50,000,000 shares authorized, 22,412,403 and 20,642,028 shares issued and outstanding	224,124	206,422
Capital in excess of par value	193,398,183	192,233,032
Accumulated deficit	(186,731,508)	(183,249,560)
Total stockholders' equity	6,890,942	9,190,068
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 133,273,858	$ 131,956,239

Condensed Consolidated Balance3

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Allowance for doubtful accounts	$ 690,000	$ 427,000
Stockholders' equity:
Preferred Stock, Par Value	$ 0.01	$ 0.01
Preferred Stock, Shares Authorized	10,000,000	10,000,000
Preferred Stock, Shares Issued	14,341	17,299
Preferred Stock, Shares Outstanding	14,341	17,299
Common Stock, Par Value	$ 0.01	$ 0.01
Common Stock, Shares Authorized	90,000,000	50,000,000
Common Stock, Shares Issued	22,412,403	20,642,028
Common Stock, Shares Outstanding	22,412,403	20,642,028

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Income Statement [Abstract]
Revenues	$ 35,811,876	$ 33,794,249
Cost of revenues, exclusive of depreciation and amortization, shown separately below	19,270,913	20,531,511
Gross profit	16,540,963	13,262,738
Depreciation and amortization	3,837,148	2,916,263
Selling, general and administrative expenses (including stock-based compensation of $224,647 and $198,884)	14,134,875	11,424,786
Operating loss	(1,431,060)	(1,078,311)
Other (expenses) income:
Interest expense	(2,092,312)	(1,627,964)
(Loss) gain on change in fair value of derivative liabilities	(40,445)	182,400
Loss on disposal of property and equipment	(26,800)	0
Other income, net	116,480	(9,670)
Total other expenses	(2,043,077)	(1,455,234)
Loss before income taxes	(3,474,137)	(2,533,545)
Provision for income taxes	(7,811)	0
Net loss	(3,481,948)	(2,533,545)
Preferred stock dividends	(1,254,109)	(1,531,982)
Net loss attributable to common stockholders	$ (4,736,057)	$ (4,065,527)
Basic and diluted loss per common share	$ (0.23)	$ (0.30)
Weighted average common shares outstanding:
Basic and diluted	20,707,699	13,741,366

Condensed Consolidated Stateme5

Condensed Consolidated Statements of Operations (Parenthetical) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Income Statement [Abstract]
Stock based compensation	$ 224,647	$ 198,884

Condensed Consolidated Stateme6

Condensed Consolidated Statement of Stockholders' Equity (Unaudited) - 3 months ended Mar. 31, 2017 - USD ($)	Preferred Stock	Common Stock	Capital in Excess of Par Value	Accumulated Deficit	Total
Beginning Balance, Shares at Dec. 31, 2016	17,299	20,642,028
Beginning Balance, Amount at Dec. 31, 2016	$ 174	$ 206,422	$ 192,233,032	$ (183,249,560)	$ 9,190,068
Net loss				(3,481,948)	(3,481,948)
Conversion of preferred stock into common stock, Shares	(2,958)	986,665
Conversion of preferred stock into common stock, Amount	$ (31)	$ 9,866	(9,835)		0
Dividends on preferred stock, Shares		106,876
Dividends on preferred stock, Amount		$ 1,069	(1,069)		$ 0
Proceeds from the exercise of common stock purchase warrants, Shares		561,834			0
Proceeds from the exercise of common stock purchase warrants, Amount		$ 5,617	775,334		$ 780,951
Issuance of common stock for services rendered, Shares		115,000
Issuance of common stock for services rendered, Amount		$ 1,150	163,300		164,450
Reclassification of derivative liability			12,774		12,774
Stock based compensation associated with stock incentive plans			224,647		224,647
Ending Balance, Shares at Mar. 31, 2017	14,341	22,412,403
Ending Balance, Amount at Mar. 31, 2017	$ 143	$ 224,124	$ 193,398,183	$ (186,731,508)	$ 6,890,942

Condensed Consolidated Stateme7

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities:
Net loss	$ (3,481,948)	$ (2,533,545)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	3,837,148	2,916,263
Loss on disposal of property and equipment	26,800	60,822
Stock-based compensation	224,647	198,884
Stock issued for services rendered or in settlement of liabilities	164,450	51,900
Amortization of debt discount and deferred financing fees	209,628	158,878
Gain in the change in fair value of derivative liability	40,445	(182,400)
Changes in operating assets and liabilities:
Accounts receivable	(2,403,196)	(519,098)
Prepaid expenses and other current assets	(874,327)	(930,554)
Other assets	8,295	9,807
Accounts payable and accrued expenses	3,617,302	390,727
Net cash provided by (used in) operating activities	1,369,244	(378,316)
Cash flows from investing activities:
Purchase of property and equipment	(984,642)	(988,768)
Proceeds from the sale of property and equipment	40,680	23,961
Payment for acquisitions, net of cash acquired	(558,329)	16,895
Net cash used in investing activities	(1,502,291)	(947,912)
Cash flows from financing activities:
Proceeds from the exercise of common stock purchase warrants	780,951	0
Repayments of term loan	(812,500)	0
Payments for obligations under asset purchase agreements	(191,668)	0
Repayments of notes payable - related parties	0	(238,111)
Payments on equipment financing obligations	(223,493)	(241,099)
Net cash used in financing activities	(446,710)	(479,210)
Net change in cash and cash equivalents	(579,757)	(1,805,438)
Cash and cash equivalents, including restricted cash, beginning of period	7,249,063	7,705,666
Cash and cash equivalents, including restricted cash, end of period	$ 6,669,306	$ 5,900,228

1. Organization and Business

1. Organization and Business	3 Months Ended
	Mar. 31, 2017
Organization And Business
1. Organization and Business	Fusion Telecommunications International, Inc. is a Delaware corporation incorporated in September 1997 (“Fusion” and together with its subsidiaries, the “Company,” “we,” “us” and “our”). The Company is a provider of integrated cloud solutions, including cloud voice, cloud connectivity, cloud infrastructure, cloud computing, and managed cloud-based applications to businesses of all sizes, and voice over IP (“VoIP”) - based voice services to other carriers. The Company currently operates in two business segments, Business Services and Carrier Services.

2. Basis of Presentation and Su

2. Basis of Presentation and Summary of Significant Accounting Policies	3 Months Ended
	Mar. 31, 2017
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 accounting principles generally accepted in the United States of America (“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. 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, 2016, as amended (the “2016 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 of operations for the interim periods presented are not necessarily indicative of the results for the entire year. Effective January 1, 2017, the Company changed the manner in which it accounts for federal and state universal service fees and surcharges in its consolidated statement of operations. The Company now includes the amounts collected in revenues, and reports the associated costs in cost of revenues, and this change has been applied retrospectively in the Company’s consolidated financial statements for all periods presented. As a result, both the Company’s revenues and cost of revenues for the three months ended March 31, 2017 and 2016 include $0.7 million and $0.6 million, respectively, of governmental fees and surcharges. During the three months ended March 31, 2017 and 2016, comprehensive loss was equal to the net loss amounts presented for the respective periods in the accompanying condensed consolidated interim statements of operations. Also, as discussed further below, effective January 1, 2017 the Company early adopted Accounting Standards Update (“ASU”) 2016-18, Restricted Cash. Liquidity Since inception, the Company has incurred significant net losses. At March 31, 2017, the Company had a working capital deficit of $8.8 million and stockholders’ equity of $6.9 million. At December 31, 2016, the Company had a working capital deficit of $6.6 million and stockholders’ equity of $9.2 million. The Company’s consolidated cash balance at March 31, 2017 was $6.6 million. While the Company believes it has sufficient cash to fund its operations and meet its operating and debt obligations for the next twelve months, it may be required to either raise additional capital, limit its discretionary capital expenditures or borrow amounts available under its revolving credit facility to support its business plan. There is currently no commitment for any additional funding and there can be no assurances that funds will be available on terms that are acceptable to the Company, or at all. 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated interim financial statements and the reported amounts of revenues and expenses during the reporting periods. On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to recognition of revenue, allowance for doubtful accounts; fair value measurements of its financial instruments; useful lives of its long-lived assets used in computing depreciation and amortization; impairment assessment of goodwill and intangible assets; accounting for stock options and other equity awards, particularly related to fair value estimates, accounting for income taxes, contingencies and litigation. Changes in the facts or circumstances underlying these estimates could result in material changes and actual results could differ from those estimates. Cash Equivalents Cash and cash equivalents include cash on deposit and short-term, highly-liquid investments with maturities of three months or less on the date of purchase. As of March 31, 2017 and December 31, 2016, the carrying value of cash and cash equivalents approximates fair value due to the short period to maturity. Fair Value of Financial Instruments At March 31, 2017, 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. Impairment of Long-Lived Assets The Company periodically reviews long-lived assets, including intangible assets, for possible impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an impairment indicator is present, the Company evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the carrying value of the asset exceeds the projected undiscounted cash flows, the Company is required to estimate the fair value of the asset and recognize an impairment charge to the extent that the carrying value of the asset exceeds its estimated fair value. The Company did not record any impairment charges during the three months ended March 31, 2017 and 2016, as there were no indicators of impairment. Goodwill Goodwill is the excess of the acquisition cost of a business combination over the fair value of the identifiable net assets acquired. Goodwill at March 31, 2017 and December 31, 2016 was $35.3 million and $35.7 million, respectively. All of the Company’s goodwill is attributable to its Business Services segment. The following table presents the changes in the carrying amounts of goodwill during the three months ended March 31, 2017: Balance at December 31, 2016 $ 35,689,215 Increase in goodwill associated with a 2016 acquisition 7,414 Adjustment to goodwill associated with acquisition of customer bases (see note 3) (410,000 ) Balance at March 31, 2017 $ 35,286,629 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. The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit level. The Company has determined that its reporting units are its operating segments (see note 15) since that is the lowest level at which discrete, reliable financial and cash flow information is available. Step one compares the fair value of the reporting unit (calculated using a market approach and/or a discounted cash flow method) to its carrying value. If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed. Step two compares the carrying value of the reporting unit’s goodwill to its implied fair value, which is the fair value of the reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets. If the implied fair value of goodwill is less than its carrying amount, an impairment is recognized. 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. The Company also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. The Company did not record any impairment charges related to goodwill during the three months ended March 31, 2017 and 2016. Advertising and Marketing Costs Advertising and marketing expense includes cost for promotional materials and trade show expenses for the marketing of the Company’s products and services. Advertising and marketing expenses were $0.1 million and $0.7 million for the three months ended March 31, 2017 and 2016, respectively, and are reflected in selling, general and administrative expenses in the Company’s condensed consolidated statements of operations. Income Taxes The accounting and reporting requirements with respect to accounting for income taxes require an asset and liability approach. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. In accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of March 31, 2017 and December 31, 2016. The Company is subject to income tax examinations by major taxing authorities for all tax years since 2013 and its tax returns may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. No interest expense or penalties have been recognized as of March 31, 2017 and December 31, 2016. During the three months ended March 31, 2017 and 2016, 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 at the date of grant. 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. 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 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 more readily determinable. New and Recently Adopted Accounting Pronouncements In November 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Restricted Cash In February 2016, the FASB issued ASU No. 2016-2, Leases In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation In May 2014, FASB issued guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most recent current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for certain incremental costs of obtaining a contract and costs to fulfill a contract with a customer. Entities have the option of applying either a full retrospective approach to all periods presented or a modified approach that reflects differences prior to the date of adoption as an adjustment to equity. In April 2015, FASB deferred the effective date of this guidance until January 1, 2018 and the Company is currently assessing the impact of this guidance on its consolidated financial statements.

3. Acquisitions

3. Acquisitions	3 Months Ended
	Mar. 31, 2017
Acquisitions
3. Acquisitions	On November 18, 2016, the Company entered into an asset purchase agreement pursuant to which the Company assumed obligations to provide services to a customer base. In connection with that transaction, the Company recognized goodwill and a corresponding obligation to the seller in the amount of $0.4 million. In such agreement, the Company also agreed to pay additional consideration to the seller if it was able to facilitate the assignment of certain additional customers to the Company. On March 1, 2017, the Company entered into an additional asset purchase agreement with another party pursuant to which the Company assumed obligations to provide services to a customer base and also purchased the outstanding accounts receivables associated with that customer base of approximately $0.6 million . The aggregate amount for the November 2016 and March 2017 agreements totaled $2.3 million, comprised of the $0.6 million paid for the accounts receivable and the $1.7 million of contingent consideration related to the customer base which was valued at a multiple of monthly revenue and that will be paid over a period of 18 months. These agreements did not have a material effect on the Company’s results of operations or financial condition.

4. Loss per share

4. Loss per share	3 Months Ended
	Mar. 31, 2017
Earnings Per Share [Abstract]
4. Loss per share	Basic and diluted loss per share is computed by dividing the loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. The following table sets forth the computation for basic and diluted net income per share for the three months ended March 31, 2017 and 2016: Three Months Ended March 31, 2017 2016 Numerator Net loss $ (3,481,948 ) $ (2,533,545 ) Undeclared dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock ( 99,518 ) ( 100,623 ) Conversion price reduction on Series B-2 Preferred Stock (see note 13) ( 623,574 ) - Series B-2 warrant exchange (see note 13) ( 347,190 ) - Dividends declared on Series B-2 Convertible Preferred Stock ( 183,827 ) ( 1,431,359 ) Net loss attributable to common stockholders $ (4,736,057 ) $ (4,065,527 ) Denominator Basic and diluted weighted average common shares outstanding 20,707,699 13,741,366 Loss per share Basic and diluted $ (0.23 ) $ (0.30 ) For the three months ended March 31, 2017 and 2016, the following were excluded from the calculation of diluted earnings per common share because of their anti-dilutive effects: For the Three Months Ended March 31, 2017 2016 Warrants 2,697,679 3,005,337 Convertible preferred stock 2,063,125 2,627,795 Stock options 2,151,073 1,123,508 6,911,877 6,756,640 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 $0.1 million for the three months ended March 31, 2017 and 2016. Through March 31, 2017, the Board of Directors of Fusion has never declared a dividend on any series of the Series A Preferred Stock, resulting in approximately $4.8 million of accumulated preferred stock dividends.

5. Intangible Assets

5. Intangible Assets	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
5. Intangible Assets	Intangible assets as of March 31, 2017 and December 31, 2016 are as follows: March 31, 2017 December 31, 2016 Gross Carrying Amount Accumulated Amortization Total Gross Carrying Amount Accumulated Amortization Total Trademarks and tradename $ 1,093,400 $ (544,565 ) $ 548,835 $ 1,093,400 $ (501,982 ) $ 591,418 Proprietary technology 6,670,000 (4,367,392 ) 2,302,608 6,670,000 (4,036,915 ) 2,633,085 Non-compete agreement 12,128,043 (10,391,130 ) 1,736,913 12,128,043 (9,891,892 ) 2,236,151 Customer relationships 67,713,181 (9,136,312 ) 58,576,869 65,948,181 (7,827,697 ) 58,120,484 Favorable lease intangible 218,000 (192,566 ) 25,434 218,000 (181,667 ) 36,333 Total acquired intangibles $ 87,822,624 $ (24,631,965 ) $ 63,190,659 $ 86,057,624 $ (22,440,153 ) $ 63,617,471 Amortization expense was $2.2 million and $1.4 million for the three months ended March 31, 2017 and 2016, respectively. Estimated future aggregate amortization expense is expected to be as follows: Year Amortization Expense remainder of 2017 $ 8,583,253 2018 6,559,942 2019 5,576,211 2020 5,535,827 2021 5,361,460

6. Supplemental Disclosure of C

6. Supplemental Disclosure of Cash Flow Information	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
6. Supplemental Disclosure of Cash Flow Information	Supplemental cash flow information for the three months ended March 31, 2017 and 2016 is as follows: Three Months Ended March 31, Supplemental Cash Flow Information 2017 2016 Cash paid for interest $ 2,186,314 $ 1,460,306 Cash paid for income taxes $ - $ - Supplemental Non-Cash Investing and Financing Activities Property and equipment acquired under capital leases $ - $ 141,240 Conversion of preferred stock into common stock $ 2,958,000 $ - Dividend on Series B-2 preferred stock paid with the issuance of Fusion common stock $ 183,827 $ 1,431,359 Obligations under asset purchase agreements $ 1,350,000 $ 1,011,607

7. Prepaid Expenses and Other C

7. Prepaid Expenses and Other Current Assets	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
7. Prepaid Expenses and Other Current Assets	Prepaid expenses and other current assets at March 31, 2017 and December 31, 2016 are as follows: March 31, 2017 December 31, 2016 Insurance $ 180,523 $ 160,262 Rent - 5,389 Marketing 189,905 74,665 Software subscriptions 786,018 419,431 Comisssions 132,097 159,146 Other 302,385 265,316 Total $ 1,590,928 $ 1,084,209

8. Accounts Payable and Accrued

8. Accounts Payable and Accrued Expenses	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
8. Accounts Payable and Accrued Expenses	Accounts payable and accrued expenses at March 31, 2017 and December 31, 2016 are as follows: March 31, 2017 December 31, 2016 Trade accounts payable $ 5,068,040 $ 6,358,548 Accrued license fees 2,881,331 2,881,331 Accrued sales and federal excise taxes 2,647,773 2,863,363 Deferred revenue 1,923,870 1,874,641 Accrued network costs 6,362,545 1,416,000 Accrued sales commissions 841,928 819,106 Property and other taxes 814,236 581,956 Accrued payroll and vacation 379,683 421,733 Customer deposits 368,285 365,249 Interest payable 12,025 304,409 Credit card payable 53,890 265,985 Accrued USF fees 244,121 249,825 Accrued bonus 657,282 249,361 Professional and consulting fees 128,777 164,878 Rent 129,164 127,781 Other 834,603 778,672 Total $ 23,347,553 $ 19,722,838

9. Equipment Financing Obligati

9. Equipment Financing Obligations	3 Months Ended
	Mar. 31, 2017
Equipment Financing Obligations Details 1
9. 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: March 31, December 31, 2017 2016 Equipment financing obligations $ 2,016,167 $ 2,239,661 Less: current portion (1,041,466 ) (1,002,578 ) Long-term portion $ 974,701 $ 1,237,083 The Company’s payment obligations under its capital leases are as follows: Year ending December 31: Principal 2017 $ 779,084 2018 958,845 2019 268,044 2020 10,194 $ 2,016,167

10. Long-Term Debt

10. Long-Term Debt	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
10. Long-Term Debt	Secured Credit Facilities As of March 31, 2017 and December 31, 2016, secured credit facilities consists of the following: March 31, December 31, 2017 2016 Term loan $ 64,187,500 $ 65,000,000 Less: Deferred financing fees (1,224,055 ) (1,289,629 ) Current portion (4,062,500 ) (2,979,167 ) Term loan - long-term portion $ 58,900,945 $ 60,731,204 Indebtedness under revolving credit facility $ 3,000,000 $ 3,000,000 On November 14, 2016, Fusion NBS Acquisition Corp. (“FNAC”), a wholly-owned subsidiary of Fusion, entered into a new credit agreement (the “East West Credit Agreement”) with East West Bank, as administrative agent and the lenders identified therein (collectively with East West Bank, the “East West Lenders”). Under the East West Credit Agreement, the East West Lenders extended FNAC (i) a $65.0 million term loan and (ii) a $5.0 million revolving credit facility (which includes up to $4 million in “swingline” loans that may be accessed on a short-term basis). The proceeds of the term loan were used to retire the $40 million outstanding under a previously existing credit facility, and to fund the cash portion of the purchase price of the Company’s acquisition of Apptix, Inc. (“Apptix”). Borrowings under the East West Credit Agreement are evidenced by notes bearing interest at rates computed based upon either the then current “prime” rate of interest or “LIBOR” rate of interest, as selected by FNAC. Interest on borrowings that FNAC designates as “base rate” loans bear interest at the greater of the prime rate published by the Wall Street Journal or 3.25% per annum, in each case plus 2% per annum. Interest on borrowings that FNAC designates as “LIBOR rate” loans bear interest at the LIBOR rate of interest published by the Wall Street Journal, plus 5% per annum. The Company is required to repay the term loan in equal monthly payments of $270,833 from January 1, 2017 through January 1, 2018, when monthly payments increase to $541,667, until the maturity date of the term loan on November 12, 2021, when the remaining $36.8 million of principal is due. Borrowings under the revolving credit facility are also payable on the November 12, 2021 maturity date of the facility. At March 31, 2017 and December 31, 2016, $3.0 million was outstanding under the revolving credit facility. In conjunction with the execution of the East West Credit Agreement, the Company and the East West Lenders also entered into (i) an IP security agreement under which the Company has pledged intellectual property to the East West Lenders to secure payment of the East West Credit Agreement, (ii) subordination agreements under which certain creditors of the Company and the East West Lenders have established priorities among them and reached certain agreements as to enforcing their respective rights against the Company, and (iii) a pledge and security agreement under which Fusion and FNAC have each pledged its equity interest in its subsidiaries to the East West Lenders. Under the East West Credit Agreement: ● The Company is subject to a number of affirmative and negative covenants, including but not limited to, restrictions on paying indebtedness subordinate to its obligations to the East West Lenders, incurring additional indebtedness, making capital expenditures, dividend payments and cash distributions by subsidiaries. ● The Company is required to comply with various financial covenants, including leverage ratio, fixed charge coverage ratio and minimum levels of earnings before interest, taxes, depreciation and amortization; and its failure to comply with any of the restrictive or financial covenants could result in an event of default and accelerated demand for repayment of amounts outstanding. ● The Company granted the lenders security interests on all of its assets, as well as the capital stock of FNAC and each of its subsidiaries. ● Fusion and its subsidiaries (and future subsidiaries of both) other than FNAC have guaranteed FNAC’s obligations, including FNAC’s repayment obligations thereunder. At March 31, 2017 and December 31, 2016, the Company was in compliance with all of the financial covenants contained in the East West Credit Agreement. Notes Payable – Non-Related Parties At March 31, 2017 and December 31, 2016, notes payable – non-related parties consists of the following: March 31, December 31, 2017 2016 Subordinated notes $ 33,588,717 $ 33,588,717 Discount on subordinated notes (1,286,514 ) (1,368,629 ) Deferred financing fees (740,210 ) (788,486 ) Total notes payable - non-related parties 31,561,993 31,431,602 Less: current portion - - Long-term portion $ 31,561,993 $ 31,431,602 On November 14, 2016, FNAC, Fusion and Fusion’s subsidiaries other than FNAC entered into the Fifth Amended and Restated Securities Purchase Agreement (the “Praesidian Facility”) with Praesidian Capital Opportunity Fund III, L.P., Praesidian Capital Opportunity Fund III-A, LP and United Insurance Company of America (collectively, the “Praesidian Lenders”). The Praesidian Facility amends and restates a prior facility, pursuant to which FNAC previously sold its Series A, Series B, Series C, Series D, Series E and Series F senior notes in an aggregate principal amount of $33.6 million (the “SPA Notes”). Under the terms of the Praesidian Facility, the maturity date of the SPA Notes is May 12, 2022, no payments of principal are due until the maturity date, and the financial covenants contained in the Restated Purchase Agreement are substantially similar to those contained in the East West Credit Agreement. In connection with the execution of the Praesidian Facility, the Praesidian Lenders entered into a subordination agreement with the East West Lenders pursuant to which the Praesidian Lenders have subordinated their right to payment under the Restated Purchase Agreement and the SPA Notes to repayment of the Company’s obligations under the East West Credit Agreement. At March 31, 2017 and December 31, 2016, the Company was in compliance with all of the financial covenants contained in the Praesidian Facility. Notes Payable – Related Parties At March 31, 2017 and December 31, 2016, notes payable – related parties consists of the following: March 31, December 31, 2017 2016 Notes payable to Marvin Rosen $ 928,081 $ 928,081 Discount on notes (38,668 ) (52,331 ) Total notes payable - related parties $ 889,413 $ 875,750 The notes payable to Marvin Rosen, Fusion’s Chairman of the Board, are subordinated to borrowings under the East West Credit Agreement and the Restated Purchase Agreement. This note is unsecured, pays interest monthly at an annual rate of 7%, and matures 120 days after the Company’s obligations under the East West Credit Agreement and the Restated Purchase Agreement are paid in full.

11. Obligations Under Asset Pur

11. Obligations Under Asset Purchase Agreements	3 Months Ended
	Mar. 31, 2017
Obligations Under Asset Purchase Agreements
11. Obligations Under Asset Purchase Agreements	In connection with certain acquisitions and asset purchases completed by the Company during 2015, 2016 and 2017, the Company has various obligations to the sellers, mainly for payments of portions of the purchase price that have been deferred under the terms of the respective purchase and sale agreements. Such obligations to sellers or other parties associated with these transactions as of March 31, 2017 and December 31, 2016 are as follows: March 31, December 31, 2017 2016 Root Axcess $ - $ 166,668 Customer base acquisitions 1,316,417 334,025 Technology For Business, Inc. 911,606 936,606 2,228,023 1,437,299 Less: current portion (912,212 ) (546,488 ) Long-term portion $ 1,315,811 $ 890,811

12. Derivative Liability

12. Derivative Liability	3 Months Ended
	Mar. 31, 2017
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 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. Three months ended March 31, 2017 2016 Stock price ($) 1.58 1.79 Adjusted Exercise price ($) 1.54 6.25 Risk-free interest rate (%) 2.23 1.78 Expected volatility (%) 74.40 96.70 Time to maturity (years) 1.75 3.0 At March 31, 2017 and December 31, 2016, the fair value of the derivative was $0.4 million and $0.3 million, respectively. For the three months ended March 31, 2017, the Company recognized a loss on the change in fair value of the derivative of approximately $28,000, and for the three months ended March 31, 2016, the Company recognized a gain on the change in the fair value of this derivative of $0.2 million.

13. Equity Transactions

13. Equity Transactions	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
13. Equity Transactions	Common Stock Fusion is authorized to issue 90,000,000 shares of its common stock. As of March 31, 2017 and December 31, 2016, 22,412,403 and 20,642,028 shares of its common stock, respectively, were issued and outstanding. Effective as of March 31, 2017, the Company entered into exchange agreements with certain holders of Fusion’s outstanding warrants whereby the outstanding warrants were exchanged for new warrants (the “2017 Warrants”), which warrants permitted the holders to exercise and purchase, for a limited period of 60 days, unregistered shares of Fusion’s common stock at a discount of up to 10% below the closing bid price of the common stock at the time of exercise but in no event at a price of less than $1.30 per share. In connection with these exchange agreements, the warrant holders exercised warrants to purchase 561,834 shares of common stock on March 31, 2017 at an exercise price of $1.39 per share. The Company received proceeds from the exercise of the 2017 Warrants in the amount of $0.8 million, which will be used for general corporate purposes. All of the 2017 Warrants were immediately exercised and none remained outstanding as of March 31, 2017. As a result of the exchange, the Company recorded a preferred stock dividend in the amount of $0.3 million for the difference in fair value of the warrants that were exchanged (see note 4). On February 23, 2017, Fusion issued 115,000 shares of its common stock valued at approximately $0.2 million for services rendered. During the three months ended March 31, 2017, Fusion’s Board of Directors declared a dividend on the Series B-2 Preferred Stock that was paid in the form of 106,876 shares of Fusion common stock (see note 4). Preferred Stock Fusion is authorized to issue up to 10,000,000 shares of preferred stock. As of March 31, 2017 and December 31, 2016 there were 5,045 shares of Series A Preferred Stock issued and outstanding. In addition, there were 9,296 and 12,254 shares of Series B-2 Preferred Stock issued and outstanding as of March 31, 2017 and December 31, 2016, respectively. On March 31, 2017, the Company agreed with certain holders of its Series B-2 Preferred Stock to convert their shares of Series B-2 Preferred Stock into shares of Fusion common stock at a conversion price of $3.00 per share (the conversion price for such preferred stock otherwise being $5.00 per share). As a result, 2,958 shares of Series B-2 Preferred Stock were converted into a total of 986,665 shares of common stock, and the Company recorded a preferred stock dividend of $0.6 million for the value of the incremental number of common shares issued in connection with the reduction in the Series B-2 conversion price (see note 4). 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 March 31, 2017, no dividend had been declared with respect to the Series A Preferred Stock (see note 4). The holders of the 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 (see note 4). Stock Options Fusion's The following assumptions were used to determine the fair value of the stock options granted under Fusion’s stock-based compensation plans using the Black-Scholes option-pricing model: Three Months Ended March 31, 2017 2016 Dividend yield 0.0 % 0.0 % Expected volatility 92.40 % 96.70 % Average Risk-free interest rate (%) 2.27 1.78 Expected life of stock option term (years) 8.00 8.00 The Company recognized compensation expense of $0.2 million for the three months ended March 31, 2017 and 2016. These amounts are included in selling, general and administrative expenses in the condensed consolidated interim statements of operations. The following table summarizes stock option activity for the three months ended March 31, 2017: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contract Term Outstanding at December 31, 2016 2,183,723 $ 2.56 8.56 years Granted 14,000 1.48 Exercised - - Forfeited ( 33,700 ) 1.73 Expired ( 12,950 ) 33.72 Outstanding at March 31, 2017 2,151,073 2.38 8.33 years Exercisable at March 31, 2017 698,821 3.97 6.66 years As of March 31, 2017, the Company had approximately $1.6 million of unrecognized compensation expense, net of estimated forfeitures, related to stock options granted under the Company’s stock-based compensation plans, which is expected to be recognized over a weighted-average period of 2.1 years.

14. Commitments and Contingenci

14. Commitments and Contingencies	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
14. Commitments and Contingencies	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 March 31, 2017, the Company did not have any ongoing legal matters that would have a material adverse effect on its liquidity, results of operations or financial condition. Recently, Apptix underwent a compliance audit relating to its resale of certain software licenses. The audit covers periods prior to November 14, 2016, the date on which the Company acquired Apptix. Based on preliminary findings from this audit, as of March 31, 2017 the Company has accrued approximately $2.9 million as part of the Apptix purchase price allocation. On May 3, 2017, FNAC commenced a lawsuit against the seller and certain of its and Apptix’s officers seeking to recover all amounts that it may be required to pay to the software vendor as well as to recoup a portion of the purchase price paid. This suit, which was filed in the United States District Court for the Southern District of New York, currently seeks a total of approximately $18.0 million in damages. There can be no assurances, however, that the Company will be able to recover all or any portion of the amount it seeks to recover. On May 9, 2017, the Company received formal notification from the software vendor asserting that the total amount owed is approximately $3.7 million. The Company is reviewing the materials provided and is evaluating whether a further accrual may be required. FNAC intends to amend its suit to increase the amount of damages claimed by an additional $1.0 million.

15. Segment Information

15. Segment Information	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
15. Segment Information	Operating segments are defined under U.S. GAAP as components of an enterprise for which discrete financial information is available and evaluated regularly by a company's chief operating decision maker 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 2016 Form 10-K. The Company’s segments and their principal activities consist of the following: Business Services Through this operating segment, the Company provides a comprehensive suite of cloud communications, cloud connectivity, cloud computing and managed cloud-based applications to small, medium and large businesses. These services are sold through both the Company’s direct sales force and its partner sales channel, which utilizes the efforts of independent third-party distributors 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. VoIP permits a less costly and more rapid interconnection between the Company and international telecommunications carriers, and generally provides better profit margins for the Company than other technologies. The Company currently interconnects with approximately 370 carrier customers and vendors, and is working to expand its interconnection relationships, particularly with carriers in emerging markets. Operating segment information for the three months ended March 31, 2017 and 2016 is summarized in the following tables: Three Months Ended March 31, 2017 Carrier Services Business Services Corporate and Unallocated Consolidated Revenues $ 7,330,836 $ 28,481,040 $ - $ 35,811,876 Cost of revenues (exclusive of depreciation and amortization) 7,130,207 12,140,706 - 19,270,913 Gross profit 200,629 16,340,334 - 16,540,963 Depreciation and amortization 39,253 3,586,979 210,916 3,837,148 Selling, general and administrative expenses 521,213 12,191,174 1,422,488 14,134,875 Interest expense - (2,023,552 ) (68,760 ) (2,092,312 ) Loss on change in fair value of derivative liability - - (40,445 ) (40,445 ) Other (expenses) income (39 ) 170,322 (80,603 ) 89,680 Income tax provision - (7,811 ) - (7,811 ) Net loss $ (359,876 ) $ (1,298,860 ) $ (1,823,212 ) $ (3,481,948 ) Total assets $ 6,367,811 $ 125,088,903 $ 1,817,144 $ 133,273,858 Capital expenditures $ 21,443 $ 963,199 $ - $ 984,642 Three Months Ended March 31, 2016 Carrier Services Business Services Corporate and Unallocated Consolidated Revenues $ 12,231,665 $ 21,562,584 $ - $ 33,794,249 Cost of revenues (exclusive of depreciation and amortization) 11,699,547 8,831,964 - 20,531,511 Gross profit 532,118 12,730,620 - 13,262,738 Depreciation and amortization 31,310 2,675,521 209,432 2,916,263 Selling, general and administrative expenses 1,381,688 9,011,989 1,031,109 11,424,786 Interest expense (1,566 ) (1,551,141 ) (75,257 ) (1,627,964 ) Gain on change in fair value of derivative liability - - 182,400 182,400 Other income (expenses) 13 (289,018 ) 279,335 (9,670 ) Net loss $ (882,433 ) $ (797,049 ) $ (854,063 ) $ (2,533,545 ) Total assets $ 7,740,286 $ 93,789,887 $ 2,179,070 $ 103,709,243 Capital expenditures $ 16,244 $ 972,524 $ - $ 988,768

16. Related Party Transactions

16. Related Party Transactions	3 Months Ended
	Mar. 31, 2017
Related Party Transaction, Due from (to) Related Party [Abstract]
16. Related Party Transactions	Since March 6, 2014, the Company has engaged a tax advisor to prepare its tax returns and to provide related tax advisory services. The Company was billed approximately $30,000 and $34,000 for the three months ended March 31, 2017 and 2016, respectively, by this firm. Larry Blum, a member of Fusion’s Board of Directors, is a Senior Advisor and a former partner of this firm.

17. Fair Value Disclosures

17. Fair Value Disclosures	3 Months Ended
	Mar. 31, 2017
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 liabilities measured at fair value on a recurring basis: Level 1 Level 2 Level 3 Total As of March 31, 2017 Current liabilities: Contingent purchase price liability - - $ 912,212 $ 912,212 Non-current liabilities: Contingent purchase price liability - - $ 1,315,811 $ 1,315,811 Derivative liability (see note 12) - - $ 376,321 $ 376,321 As of December 31, 2016 Current liabilities: Contingent purchase price liability - - $ 546,488 $ 546,488 Non-current liabilities: Contingent purchase price liability - - $ 890,811 $ 890,811 Derivative liability (see note 12) - - $ 348,650 $ 348,650 Changes in the derivative warrant liability for the three months ended March 31, 2017 are as follows: Balance at December 31, 2016 $ 348,650 Change for the period: Change in fair value included in net loss 40,445 Warrant exchange (see note 12) (12,774 ) Balance at March 31, 2017 $ 376,321 Changes in the contingent purchase price liability for the three months ended March 31, 2017 are as follows: Balance at December 31, 2016 $ 1,437,299 Change for the period: Acquired customer base 1,350,000 Increase in amounts due from Technology Opportunity Group (367,608 ) Payments made (191,668 ) Balance at March 31, 2017 $ 2,228,023

2. Basis of Presentation and 25

2. Basis of Presentation and Summary of Significant Accounting Policies (Policies)	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Basis of Presentation	The accompanying unaudited condensed consolidated financial statements have been prepared in all material respects in accordance with accounting principles generally accepted in the United States of America (“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. 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, 2016, as amended (the “2016 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 of operations for the interim periods presented are not necessarily indicative of the results for the entire year. Effective January 1, 2017, the Company changed the manner in which it accounts for federal and state universal service fees and surcharges in its consolidated statement of operations. The Company now includes the amounts collected in revenues, and reports the associated costs in cost of revenues, and this change has been applied retrospectively in the Company’s consolidated financial statements for all periods presented. As a result, both the Company’s revenues and cost of revenues for the three months ended March 31, 2017 and 2016 include $0.7 million and $0.6 million, respectively, of governmental fees and surcharges. During the three months ended March 31, 2017 and 2016, comprehensive loss was equal to the net loss amounts presented for the respective periods in the accompanying condensed consolidated interim statements of operations. Also, as discussed further below, effective January 1, 2017 the Company early adopted Accounting Standards Update (“ASU”) 2016-18, Restricted Cash.
Liquidity	Since inception, the Company has incurred significant net losses. At March 31, 2017, the Company had a working capital deficit of $8.8 million and stockholders’ equity of $6.9 million. At December 31, 2016, the Company had a working capital deficit of $6.6 million and stockholders’ equity of $9.2 million. The Company’s consolidated cash balance at March 31, 2017 was $6.6 million. While the Company believes it has sufficient cash to fund its operations and meet its operating and debt obligations for the next twelve months, it may be required to either raise additional capital, limit its discretionary capital expenditures or borrow amounts available under its revolving credit facility to support its business plan. There is currently no commitment for any additional funding and there can be no assurances that funds will be available on terms that are acceptable to the Company, or at all.
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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated interim financial statements and the reported amounts of revenues and expenses during the reporting periods. On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to recognition of revenue, allowance for doubtful accounts; fair value measurements of its financial instruments; useful lives of its long-lived assets used in computing depreciation and amortization; impairment assessment of goodwill and intangible assets; accounting for stock options and other equity awards, particularly related to fair value estimates, accounting for income taxes, contingencies and litigation. Changes in the facts or circumstances underlying these estimates could result in material changes and actual results could differ from those estimates.
Cash Equivalents	Cash and cash equivalents include cash on deposit and short-term, highly-liquid investments with maturities of three months or less on the date of purchase. As of March 31, 2017 and December 31, 2016, the carrying value of cash and cash equivalents approximates fair value due to the short period to maturity.
Fair Value of Financial Instruments	At March 31, 2017, 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.
Impairment of Long-Lived Assets	The Company periodically reviews long-lived assets, including intangible assets, for possible impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an impairment indicator is present, the Company evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the carrying value of the asset exceeds the projected undiscounted cash flows, the Company is required to estimate the fair value of the asset and recognize an impairment charge to the extent that the carrying value of the asset exceeds its estimated fair value. The Company did not record any impairment charges during the three months ended March 31, 2017 and 2016, as there were no indicators of impairment.
Goodwill	Goodwill is the excess of the acquisition cost of a business combination over the fair value of the identifiable net assets acquired. Goodwill at March 31, 2017 and December 31, 2016 was $35.3 million and $35.7 million, respectively. All of the Company’s goodwill is attributable to its Business Services segment. The following table presents the changes in the carrying amounts of goodwill during the three months ended March 31, 2017: Balance at December 31, 2016 $ 35,689,215 Increase in goodwill associated with a 2016 acquisition 7,414 Adjustment to goodwill associated with acquisition of customer bases (see note 3) (410,000 ) Balance at March 31, 2017 $ 35,286,629 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. The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit level. The Company has determined that its reporting units are its operating segments (see note 15) since that is the lowest level at which discrete, reliable financial and cash flow information is available. Step one compares the fair value of the reporting unit (calculated using a market approach and/or a discounted cash flow method) to its carrying value. If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed. Step two compares the carrying value of the reporting unit’s goodwill to its implied fair value, which is the fair value of the reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets. If the implied fair value of goodwill is less than its carrying amount, an impairment is recognized. 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. The Company also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. The Company did not record any impairment charges related to goodwill during the three months ended March 31, 2017 and 2016.
Advertising and Marketing Costs	Advertising and marketing expense includes cost for promotional materials and trade show expenses for the marketing of the Company’s products and services. Advertising and marketing expenses were $0.1 million and $0.7 million for the three months ended March 31, 2017 and 2016, respectively, and are reflected in selling, general and administrative expenses in the Company’s condensed consolidated statements of operations.
Income Taxes	The accounting and reporting requirements with respect to accounting for income taxes require an asset and liability approach. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. In accordance with U.S. GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Derecognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of March 31, 2017 and December 31, 2016. The Company is subject to income tax examinations by major taxing authorities for all tax years since 2013 and its tax returns may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. No interest expense or penalties have been recognized as of March 31, 2017 and December 31, 2016. During the three months ended March 31, 2017 and 2016, 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 at the date of grant. 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. 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 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 more readily determinable.
New and Recently Adopted Accounting Pronouncements	In November 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Restricted Cash In February 2016, the FASB issued ASU No. 2016-2, Leases In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation In May 2014, FASB issued guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most recent current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for certain incremental costs of obtaining a contract and costs to fulfill a contract with a customer. Entities have the option of applying either a full retrospective approach to all periods presented or a modified approach that reflects differences prior to the date of adoption as an adjustment to equity. In April 2015, FASB deferred the effective date of this guidance until January 1, 2018 and the Company is currently assessing the impact of this guidance on its consolidated financial statements.

2. Basis of Presentation and 26

2. Basis of Presentation and Summary of Significant Accounting Policies (Tables)	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Goodwill	Balance at December 31, 2016 $ 35,689,215 Increase in goodwill associated with a 2016 acquisition 7,414 Adjustment to goodwill associated with acquisition of customer bases (see note 3) (410,000 ) Balance at March 31, 2017 $ 35,286,629

4. Loss per share (Tables)

4. Loss per share (Tables)	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Computation for basic and diluted net income per share	Three Months Ended March 31, 2017 2016 Numerator Net loss $ (3,481,948 ) $ (2,533,545 ) Undeclared dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock ( 99,518 ) ( 100,623 ) Conversion price reduction on Series B-2 Preferred Stock (see note 13) ( 623,574 ) - Series B-2 warrant exchange (see note 13) ( 347,190 ) - Dividends declared on Series B-2 Convertible Preferred Stock ( 183,827 ) ( 1,431,359 ) Net loss attributable to common stockholders $ (4,736,057 ) $ (4,065,527 ) Denominator Basic and diluted weighted average common shares outstanding 20,707,699 13,741,366 Loss per share Basic and diluted $ (0.23 ) $ (0.30 )
Excluded from calculation of diluted earnings per common share	For the Three Months Ended March 31, 2017 2016 Warrants 2,697,679 3,005,337 Convertible preferred stock 2,063,125 2,627,795 Stock options 2,151,073 1,123,508 6,911,877 6,756,640

5. Intangible Assets (Tables)

5. Intangible Assets (Tables)	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Identifiable intangible assets	March 31, 2017 December 31, 2016 Gross Carrying Amount Accumulated Amortization Total Gross Carrying Amount Accumulated Amortization Total Trademarks and tradename $ 1,093,400 $ (544,565 ) $ 548,835 $ 1,093,400 $ (501,982 ) $ 591,418 Proprietary technology 6,670,000 (4,367,392 ) 2,302,608 6,670,000 (4,036,915 ) 2,633,085 Non-compete agreement 12,128,043 (10,391,130 ) 1,736,913 12,128,043 (9,891,892 ) 2,236,151 Customer relationships 67,713,181 (9,136,312 ) 58,576,869 65,948,181 (7,827,697 ) 58,120,484 Favorable lease intangible 218,000 (192,566 ) 25,434 218,000 (181,667 ) 36,333 Total acquired intangibles $ 87,822,624 $ (24,631,965 ) $ 63,190,659 $ 86,057,624 $ (22,440,153 ) $ 63,617,471
Estimated future aggregate amortization expense	Year Amortization Expense remainder of 2017 $ 8,583,253 2018 6,559,942 2019 5,576,211 2020 5,535,827 2021 5,361,460

6. Supplemental Disclosure of29

6. Supplemental Disclosure of Cash Flow Information (Tables)	3 Months Ended
	Mar. 31, 2017
Supplemental Disclosure Of Cash Flow Information Tables
Supplemental Disclosure of Cash Flow Information	Three Months Ended March 31, Supplemental Cash Flow Information 2017 2016 Cash paid for interest $ 2,186,314 $ 1,460,306 Cash paid for income taxes $ - $ - Supplemental Non-Cash Investing and Financing Activities Property and equipment acquired under capital leases $ - $ 141,240 Conversion of preferred stock into common stock $ 2,958,000 $ - Dividend on Series B-2 preferred stock paid with the issuance of Fusion common stock $ 183,827 $ 1,431,359 Obligations under asset purchase agreements $ 1,350,000 $ 1,011,607

7. Prepaid Expenses and Other30

7. Prepaid Expenses and Other Current Assets (Tables)	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Prepaid expenses and other current assets	March 31, 2017 December 31, 2016 Insurance $ 180,523 $ 160,262 Rent - 5,389 Marketing 189,905 74,665 Software subscriptions 786,018 419,431 Comisssions 132,097 159,146 Other 302,385 265,316 Total $ 1,590,928 $ 1,084,209

8. Accounts Payable and Accru31

8. Accounts Payable and Accrued Expenses (Tables)	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Accounts payable and accrued expenses	March 31, 2017 December 31, 2016 Trade accounts payable $ 5,068,040 $ 6,358,548 Accrued license fees 2,881,331 2,881,331 Accrued sales and federal excise taxes 2,647,773 2,863,363 Deferred revenue 1,923,870 1,874,641 Accrued network costs 6,362,545 1,416,000 Accrued sales commissions 841,928 819,106 Property and other taxes 814,236 581,956 Accrued payroll and vacation 379,683 421,733 Customer deposits 368,285 365,249 Interest payable 12,025 304,409 Credit card payable 53,890 265,985 Accrued USF fees 244,121 249,825 Accrued bonus 657,282 249,361 Professional and consulting fees 128,777 164,878 Rent 129,164 127,781 Other 834,603 778,672 Total $ 23,347,553 $ 19,722,838

9. Equipment Financing Obliga32

9. Equipment Financing Obligations (Tables)	3 Months Ended
	Mar. 31, 2017
Equipment Financing Obligations Details 1
Equipment financing obligations	March 31, December 31, 2017 2016 Equipment financing obligations $ 2,016,167 $ 2,239,661 Less: current portion (1,041,466 ) (1,002,578 ) Long-term portion $ 974,701 $ 1,237,083
Principal payment under the capital lease agreements	Year ending December 31: Principal 2017 $ 779,084 2018 958,845 2019 268,044 2020 10,194 $ 2,016,167

10. Long-Term Debt (Tables)

10. Long-Term Debt (Tables)	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Secured credit facilities	March 31, December 31, 2017 2016 Term loan $ 64,187,500 $ 65,000,000 Less: Deferred financing fees (1,224,055 ) (1,289,629 ) Current portion (4,062,500 ) (2,979,167 ) Term loan - long-term portion $ 58,900,945 $ 60,731,204 Indebtedness under revolving credit facility $ 3,000,000 $ 3,000,000
Components of notes payable non-related parties	March 31, December 31, 2017 2016 Subordinated notes $ 33,588,717 $ 33,588,717 Discount on subordinated notes (1,286,514 ) (1,368,629 ) Deferred financing fees (740,210 ) (788,486 ) Total notes payable - non-related parties 31,561,993 31,431,602 Less: current portion - - Long-term portion $ 31,561,993 $ 31,431,602
Related Party Note Payable	March 31, December 31, 2017 2016 Notes payable to Marvin Rosen $ 928,081 $ 928,081 Discount on notes (38,668 ) (52,331 ) Total notes payable - related parties $ 889,413 $ 875,750

11. Obligations Under Asset P34

11. Obligations Under Asset Purchase Agreements (Tables)	3 Months Ended
	Mar. 31, 2017
Obligations Under Asset Purchase Agreements Tables
Obligations Under Asset Purchase Agreements	March 31, December 31, 2017 2016 Root Axcess $ - $ 166,668 Customer base acquisitions 1,316,417 334,025 Technology For Business, Inc. 911,606 936,606 2,228,023 1,437,299 Less: current portion (912,212 ) (546,488 ) Long-term portion $ 1,315,811 $ 890,811

12. Derivative Liability (Table

12. Derivative Liability (Tables)	3 Months Ended
	Mar. 31, 2017
Derivative Liability Tables
Assumptions used to determine the fair value of the warrants	Three months ended March 31, 2017 2016 Stock price ($) 1.58 1.79 Adjusted Exercise price ($) 1.54 6.25 Risk-free interest rate (%) 2.23 1.78 Expected volatility (%) 74.40 96.70 Time to maturity (years) 1.75 3.0

13. Equity Transactions (Tables

13. Equity Transactions (Tables)	3 Months Ended
	Mar. 31, 2017
Equity Transactions Tables
Black-Scholes option-pricing model	Three Months Ended March 31, 2017 2016 Dividend yield 0.0 % 0.0 % Expected volatility 92.40 % 96.70 % Average Risk-free interest rate (%) 2.27 1.78 Expected life of stock option term (years) 8.00 8.00
Stock option activity	Number of Options Weighted Average Exercise Price Weighted Average Remaining Contract Term Outstanding at December 31, 2016 2,183,723 $ 2.56 8.56 years Granted 14,000 1.48 Exercised - - Forfeited ( 33,700 ) 1.73 Expired ( 12,950 ) 33.72 Outstanding at March 31, 2017 2,151,073 2.38 8.33 years Exercisable at March 31, 2017 698,821 3.97 6.66 years

15. Segment Information (Tables

15. Segment Information (Tables)	3 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Operating segment information	Three Months Ended March 31, 2017 Carrier Services Business Services Corporate and Unallocated Consolidated Revenues $ 7,330,836 $ 28,481,040 $ - $ 35,811,876 Cost of revenues (exclusive of depreciation and amortization) 7,130,207 12,140,706 - 19,270,913 Gross profit 200,629 16,340,334 - 16,540,963 Depreciation and amortization 39,253 3,586,979 210,916 3,837,148 Selling, general and administrative expenses 521,213 12,191,174 1,422,488 14,134,875 Interest expense - (2,023,552 ) (68,760 ) (2,092,312 ) Loss on change in fair value of derivative liability - - (40,445 ) (40,445 ) Other (expenses) income (39 ) 170,322 (80,603 ) 89,680 Income tax provision - (7,811 ) - (7,811 ) Net loss $ (359,876 ) $ (1,298,860 ) $ (1,823,212 ) $ (3,481,948 ) Total assets $ 6,367,811 $ 125,088,903 $ 1,817,144 $ 133,273,858 Capital expenditures $ 21,443 $ 963,199 $ - $ 984,642 Three Months Ended March 31, 2016 Carrier Services Business Services Corporate and Unallocated Consolidated Revenues $ 12,231,665 $ 21,562,584 $ - $ 33,794,249 Cost of revenues (exclusive of depreciation and amortization) 11,699,547 8,831,964 - 20,531,511 Gross profit 532,118 12,730,620 - 13,262,738 Depreciation and amortization 31,310 2,675,521 209,432 2,916,263 Selling, general and administrative expenses 1,381,688 9,011,989 1,031,109 11,424,786 Interest expense (1,566 ) (1,551,141 ) (75,257 ) (1,627,964 ) Gain on change in fair value of derivative liability - - 182,400 182,400 Other income (expenses) 13 (289,018 ) 279,335 (9,670 ) Net loss $ (882,433 ) $ (797,049 ) $ (854,063 ) $ (2,533,545 ) Total assets $ 7,740,286 $ 93,789,887 $ 2,179,070 $ 103,709,243 Capital expenditures $ 16,244 $ 972,524 $ - $ 988,768

17. Fair Value Disclosures (Tab

17. Fair Value Disclosures (Tables)	3 Months Ended
	Mar. 31, 2017
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 March 31, 2017 Current liabilities: Contingent purchase price liability - - $ 912,212 $ 912,212 Non-current liabilities: Contingent purchase price liability - - $ 1,315,811 $ 1,315,811 Derivative liability (see note 12) - - $ 376,321 $ 376,321 As of December 31, 2016 Current liabilities: Contingent purchase price liability - - $ 546,488 $ 546,488 Non-current liabilities: Contingent purchase price liability - - $ 890,811 $ 890,811 Derivative liability (see note 12) - - $ 348,650 $ 348,650
Changes in the derivative liability	Balance at December 31, 2016 $ 348,650 Change for the period: Change in fair value included in net loss 40,445 Warrant exchange (see note 12) (12,774 ) Balance at March 31, 2017 $ 376,321 Balance at December 31, 2016 $ 1,437,299 Change for the period: Acquired customer base 1,350,000 Increase in amounts due from Technology Opportunity Group (367,608 ) Payments made (191,668 ) Balance at March 31, 2017 $ 2,228,023

2. Basis of Presentation and 39

2. Basis of Presentation and Summary of Significant Accounting Policies (Details)	3 Months Ended
	Mar. 31, 2017USD ($)
Basis Of Presentation And Summary Of Significant Accounting Policies Details
Balance at December 31, 2016	$ 35,689,215
Increase in goodwill associated with a 2016 acquisition	7,414
Adjustment to goodwill associated with acquisition of customer bases (see note 3)	(410,000)
Balance at March 31, 2017	$ 35,286,629

2. Basis of Presentation and 40

2. Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Notes to Financial Statements
Working capital deficit	$ 8,800,000
Stockholders' equity	6,890,942		$ 9,190,068
Cash	6,642,153		7,221,910
Goodwill	35,286,629		$ 35,689,215
Advertising and marketing expenses	$ 100,000	$ 700,000

4. Loss per share (Details)

4. Loss per share (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Numerator
Net Loss	$ (3,481,948)	$ (2,533,545)
Undeclared dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock	(99,518)	(100,623)
Conversion price reduction on Series B-2 Preferred Stock (see note 13)	(623,574)	0
Series B-2 warrant exchange (see note 13)	(347,190)	0
Dividends declared on Series B-2 Convertible Preferred Stock	(183,827)	(1,431,359)
Net loss attributable to common stockholders	$ (4,736,057)	$ (4,065,527)
Denominator
Basic and diluted weighted average common shares outstanding	20,707,699	13,741,366
Loss per share
Basic and diluted	$ (0.23)	$ (0.30)

4. Loss per share (Details 1)

4. Loss per share (Details 1) - shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Antidilutive securities excluded from the calculation of diluted earnings per common share	6,911,877	6,756,640
Warrants [Member]
Antidilutive securities excluded from the calculation of diluted earnings per common share	2,697,679	3,005,337
Convertible preferred stock [Member]
Antidilutive securities excluded from the calculation of diluted earnings per common share	2,063,125	2,627,795
Stock options [Member]
Antidilutive securities excluded from the calculation of diluted earnings per common share	2,151,073	1,123,508

4. Loss Per Share (Details Narr

4. Loss Per Share (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Preferred stock dividends accumulated	$ 4,800,000
Series B-2 Preferred Stock [Member]
Preferred stock dividends declared	$ 200,000	$ 1,400,000
Preferred stock dividends paid	106,876	791,946

5. Intangible Assets (Details)

5. Intangible Assets (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Gross intangible assets	$ 87,822,624	$ 86,057,624
Less: accumulated amortization	(24,631,965)	(22,440,153)
Intangible assets, net	63,190,659	63,617,471
Trademarks and tradename [Member]
Gross intangible assets	1,093,400	1,093,400
Less: accumulated amortization	(544,565)	(501,982)
Intangible assets, net	548,835	591,418
Proprietary technology [Member]
Gross intangible assets	6,670,000	6,670,000
Less: accumulated amortization	(4,367,392)	(4,036,915)
Intangible assets, net	2,302,608	2,633,085
Non-compete agreement [Member]
Gross intangible assets	12,128,043	12,128,043
Less: accumulated amortization	(10,391,130)	(9,891,892)
Intangible assets, net	1,736,913	2,236,151
Customer relationships [Member]
Gross intangible assets	67,713,181	65,948,181
Less: accumulated amortization	(9,136,312)	(7,827,697)
Intangible assets, net	58,576,869	58,120,484
Favorable lease intangible [Member]
Gross intangible assets	218,000	218,000
Less: accumulated amortization	(192,566)	(181,667)
Intangible assets, net	$ 25,434	$ 36,333

5. Intangible Assets (Details 1

5. Intangible Assets (Details 1)	Mar. 31, 2017USD ($)
Notes to Financial Statements
Remainder of 2017	$ 8,583,253
2,018	6,559,942
2,019	5,576,211
2,020	5,535,827
2,021	$ 5,361,460

5. Intangible Assets (Details N

5. Intangible Assets (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Notes to Financial Statements
Amortization expense	$ 2,200,000	$ 1,400,000

6. Supplemental Disclosure of47

6. Supplemental Disclosure of Cash Flow Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Supplemental Cash Flow Information
Cash paid for interest	$ 2,186,314	$ 1,460,306
Cash paid for income taxes	0	0
Supplemental Non-Cash Investing and Financing Activities
Property and equipment acquired under capital leases	0	141,240
Conversion of preferred stock into common stock	2,958,000	0
Dividend on Series B-2 preferred stock paid with the issuance of Fusion common stock	183,827	1,431,359
Obligations under asset purchase agreements	$ 1,350,000	$ 1,011,607

7. Prepaid Expenses and Other48

7. Prepaid Expenses and Other Current Assets (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Prepaid expenses and other current assets
Insurance	$ 180,523	$ 160,262
Rent	0	5,389
Marketing	189,905	74,665
Software subscriptions	786,018	419,431
Commissions	132,097	159,146
Other	302,385	265,316
Total	$ 1,590,928	$ 1,084,209

8. Accounts Payable and Accru49

8. Accounts Payable and Accrued Expenses (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Notes to Financial Statements
Trade accounts payable	$ 5,068,040	$ 6,358,548
Accrued license fees	2,881,331	2,881,331
Accrued sales and federal excise taxes	2,647,773	2,863,363
Deferred revenue	1,923,870	1,874,641
Accrued network costs	6,362,545	1,416,000
Accrued sales commissions	841,928	819,106
Property and other taxes	814,236	581,956
Accrued payroll and vacation	379,683	421,733
Customer deposits	368,285	365,249
Interest payable	12,025	304,409
Credit card payable	53,890	265,985
Accrued USF fees	244,121	249,825
Accrued bonus	657,282	249,361
Professional and consulting fees	128,777	164,878
Rent	129,164	127,781
Other	834,603	778,672
Total accounts payable and accrued expenses	$ 23,347,553	$ 19,722,838

9. Equipment Financing Obliga50

9. Equipment Financing Obligations (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Equipment Financing Obligations Details 1
Equipment financing obligations	$ 2,016,167	$ 2,239,661
Less: current portion	(1,041,466)	(1,002,578)
Long-term portion	$ 974,701	$ 1,237,083

9. Equipment Financing Obliga51

9. Equipment Financing Obligations (Details 1)	Mar. 31, 2017USD ($)
Equipment Financing Obligations Details 1
2,017	$ 779,084
2,018	958,845
2,019	268,044
2,020	10,194
Total	$ 2,016,167

10. Long-Term Debt (Details)

10. Long-Term Debt (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Long-term Debt Details
Term loan	$ 64,187,500	$ 65,000,000
Less: Deferred financing fees	(1,224,055)	(1,289,629)
Less: Current Portion	(4,062,500)	(2,979,167)
Term loan - long-term portion	58,900,945	60,731,204
Indebtedness under revolving credit facility	$ 3,000,000	$ 3,000,000

10. Long-Term Debt (Details 1)

10. Long-Term Debt (Details 1) - Non Related Party [Member] - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Subordinated Notes	$ 33,588,717	$ 33,588,717
Discount on subordinated notes	(1,286,514)	(1,368,629)
Deferred financing fees	(740,210)	(788,486)
Total notes payable - non-related parties	31,561,993	31,431,602
Less: current portion	0	0
Long-term portion	$ 31,561,993	$ 31,431,602

10. Long-Term Debt (Details 2)

10. Long-Term Debt (Details 2) - RelatedParty - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Notes payable to Marvin Rosen	$ 928,081	$ 928,081
Discount on note	(38,668)	(52,331)
Total notes payable - related parties	$ 889,413	$ 875,750

10. Long-Term Debt (Details Nar

10. Long-Term Debt (Details Narrative) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Long-term Debt Details Narrative
Revolver credit facility	$ 3,000,000	$ 3,000,000

11. Obligations Under Asset P56

11. Obligations Under Asset Purchase Agreements (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Obligations Under Asset Purchase Agreements Details
Root Axcess	$ 0	$ 166,668
Customer base acquisitions	1,316,417	334,025
Technology For Business, Inc.	911,606	936,606
Total	2,228,023	1,437,299
Less: current portion	912,212	546,488
Long-term portion	$ 1,315,811	$ 890,811

12. Derivative Liability (Detai

12. Derivative Liability (Details) - $ / shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Derivative Liability Tables
Stock price ($)	$ 1.58	$ 1.79
Exercise price ($)	$ 1.54	$ 6.25
Risk-free interest rate (%)	2.23%	1.78%
Expected volatility (%)	74.40%	96.70%
Time to maturity (years)	1 year 9 months	3 years

12. Derivative Liability (Det58

12. Derivative Liability (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Derivative Liability [Abstract]
Fair value derivative liability	$ 400,000		$ 300,000
Gain (loss) on fair value of derivative	$ (28,000)	$ 200,000

13. Equity Transactions (Detail

13. Equity Transactions (Details)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Dividend yield (%)	0.00%	0.00%
Expected volatility (%)	92.40%	96.70%
Average Risk-free interest rate (%)	2.27%	1.78%
Expected life of stock option term (years)	8 years	8 years

13. Equity Transactions (Deta60

13. Equity Transactions (Details 1)	3 Months Ended
	Mar. 31, 2017$ / sharesshares
Number of Options
Balance at December 31, 2016 | shares	2,183,723
Shares granted during the period | shares	14,000
Shares exercised during the period | shares	0
Shares forfeited during the period | shares	(33,700)
Shares expired during the period | shares	(12,950)
Shares outstanding at March 31, 2017 | shares	2,151,073
Shares exercisable at March 31, 2017 | shares	698,821
Weighted Average Exercise Price
Balance at December 31, 2016 | $ / shares	$ 2.56
Shares granted during the period | $ / shares	1.48
Shares exercised during the period | $ / shares	0
Shares forfeited during the period | $ / shares	1.73
Shares expired during the period | $ / shares	33.72
Shares outstanding at March 31, 2017 | $ / shares	2.38
Shares exercisable at March 31, 2017 | $ / shares	$ 3.97
Weighted Average Remaining Contract Term
Outstanding at December 31, 2016	8 years 6 months 22 days
Outstanding at March 31, 2017	8 years 3 months 29 days
Exercisable at March 31, 2017	6 years 7 months 28 days

13. Equity Transactions (Deta61

13. Equity Transactions (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Common Stock, Shares Authorized	90,000,000		50,000,000
Common Stock, Shares Issued	22,412,403		20,642,028
Common Stock, Shares Outstanding	22,412,403		20,642,028
Preferred Stock, Shares Authorized	10,000,000		10,000,000
Preferred Stock, Shares Issued	14,341		17,299
Preferred Stock, Shares Outstanding	14,341		17,299
Stock based compensation	$ 224,647	$ 198,884
Unrecognized compensation expense	$ 1,600,000
Series A Preferred Stock [Member]
Preferred Stock, Shares Issued	5,045		5,045
Preferred Stock, Shares Outstanding	5,045		5,045
Series B-2 Preferred Stock [Member]
Preferred Stock, Shares Issued	9,296		12,254
Preferred Stock, Shares Outstanding	9,296		12,254

15. Segment Information (Detail

15. Segment Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Segment Reporting Information [Line Items]
Revenues	$ 35,811,876	$ 33,794,249
Cost of revenues (exclusive of depreciation and amortization)	19,270,913	20,531,511
Gross profit	16,540,963	13,262,738
Selling, general and administrative expenses	14,134,875	11,424,786
Interest expense	(2,092,312)	(1,627,964)
Gain (loss) on change in fair value of derivative liability	(40,445)	182,400
Income tax (provision) benefit	7,811	0
Carrier Services
Segment Reporting Information [Line Items]
Revenues	7,330,836	12,231,665
Cost of revenues (exclusive of depreciation and amortization)	7,130,207	11,699,547
Gross profit	200,629	532,118
Depreciation and amortization	39,253	31,310
Selling, general and administrative expenses	521,213	1,381,688
Interest expense	0	(1,566)
Gain (loss) on change in fair value of derivative liability	0	0
Other income (expenses)	(39)	13
Income tax (provision) benefit	0
Net loss	(359,876)	(882,433)
Total assets	6,367,811	7,740,286
Capital expenditures	21,443	16,244
Business Services
Segment Reporting Information [Line Items]
Revenues	28,481,040	21,562,584
Cost of revenues (exclusive of depreciation and amortization)	12,140,706	8,831,964
Gross profit	16,340,334	12,730,620
Depreciation and amortization	3,586,979	2,675,521
Selling, general and administrative expenses	12,191,174	9,011,989
Interest expense	(2,023,552)	(1,551,141)
Gain (loss) on change in fair value of derivative liability	0	0
Other income (expenses)	170,322	(289,018)
Income tax (provision) benefit	(7,811)
Net loss	(1,298,860)	(797,049)
Total assets	125,088,903	93,789,887
Capital expenditures	963,199	972,524
Corporate and Unallocated
Segment Reporting Information [Line Items]
Revenues	0	0
Cost of revenues (exclusive of depreciation and amortization)	0	0
Gross profit	0	0
Depreciation and amortization	210,916	209,432
Selling, general and administrative expenses	1,422,488	1,031,109
Interest expense	(68,760)	(75,257)
Gain (loss) on change in fair value of derivative liability	(40,445)	182,400
Other income (expenses)	(80,603)	279,335
Income tax (provision) benefit	0
Net loss	(1,823,212)	(854,063)
Total assets	1,817,144	2,179,070
Capital expenditures	0	0
Consolidated
Segment Reporting Information [Line Items]
Revenues	35,811,876	33,794,249
Cost of revenues (exclusive of depreciation and amortization)	19,270,913	20,531,511
Gross profit	16,540,963	13,262,738
Depreciation and amortization	3,837,148	2,916,263
Selling, general and administrative expenses	14,134,875	11,424,786
Interest expense	(2,092,312)	(1,627,964)
Gain (loss) on change in fair value of derivative liability	(40,445)	182,400
Other income (expenses)	89,680	(9,670)
Income tax (provision) benefit	(7,811)
Net loss	(3,481,948)	(2,533,545)
Total assets	133,273,858	103,709,243
Capital expenditures	$ 984,642	$ 988,768

17. Fair Value Disclosures (Det

17. Fair Value Disclosures (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Current liabilities:
Contingent purchase price liability	$ 912,212	$ 546,488
Non-current liabilities:
Contingent purchase price liability	1,315,811	890,811
Derivative liability (see note 12)	376,321	348,650
Level 1
Current liabilities:
Contingent purchase price liability	0	0
Non-current liabilities:
Contingent purchase price liability	0	0
Derivative liability (see note 12)	0	0
Level 2
Current liabilities:
Contingent purchase price liability	0	0
Non-current liabilities:
Contingent purchase price liability	0	0
Derivative liability (see note 12)	0	0
Level 3
Current liabilities:
Contingent purchase price liability	912,212	546,488
Non-current liabilities:
Contingent purchase price liability	1,315,811	890,811
Derivative liability (see note 12)	$ 376,321	$ 348,650

17. Fair Value Disclosures (D64

17. Fair Value Disclosures (Details 1)	3 Months Ended
	Mar. 31, 2017USD ($)
Derivative Warrant Liability
Beginning Balance	$ 348,650
Change in fair value included in net loss	40,445
Warrant exchange (see note 12)	(12,774)
Ending Balance	376,321
Contingent Purchase Price Liability
Beginning Balance	1,437,299
Acquired customer base	1,350,000
Increase in amounts due from Technology Opportunity Group	(367,608)
Payments made	(191,668)
Ending Balance	$ 2,228,023