Document And Entity Information
Document And Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Mar. 09, 2018 | Jun. 30, 2017 | |
Document And Entity Information | |||
Entity Registrant Name | FUSION TELECOMMUNICATIONS INTERNATIONAL INC | ||
Entity Central Index Key | 1,071,411 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 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 | 35,579,756 | ||
Entity Public Float | $ 19,148,262 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,017 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 2,530,388 | $ 7,221,910 |
Accounts receivable, net of allowance for doubtful accounts of approximately $700,000 and $427,000, respectively | 12,963,068 | 9,359,876 |
Prepaid expenses and other current assets | 2,091,244 | 1,084,209 |
Total current assets | 17,584,700 | 17,665,995 |
Property and equipment, net | 12,856,534 | 14,248,915 |
Security deposits | 615,585 | 630,373 |
Restricted cash | 27,153 | 27,153 |
Goodwill | 34,773,629 | 35,689,215 |
Intangible assets, net | 56,156,023 | 63,617,471 |
Other assets | 43,937 | 77,117 |
TOTAL ASSETS | 122,057,561 | 131,956,239 |
Current liabilities: | ||
Term loan - current portion | 6,500,000 | 2,979,167 |
Obligations under asset purchase agreements - current portion | 227,760 | 546,488 |
Equipment financing obligations | 1,206,773 | 1,002,578 |
Accounts payable and accrued expenses | 25,089,046 | 19,722,838 |
Total current liabilities | 33,023,579 | 24,251,071 |
Long-term liabilities: | ||
Notes payable - non-related parties, net of discount | 31,953,163 | 31,431,602 |
Notes payable - related parties | 928,081 | 875,750 |
Term Loan | 54,222,668 | 60,731,204 |
Indebtedness under revolving credit facility | 1,500,000 | 3,000,000 |
Obligations under asset purchase agreements | 222,240 | 890,811 |
Equipment financing obligations | 590,601 | 1,237,083 |
Derivative liabilities | 872,900 | 348,650 |
Total liabilities | 123,313,232 | 122,766,171 |
Commitments and contingencies | ||
Stockholders' equity (deficit): | ||
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 14,216 and 17,299 shares issued and outstanding | 142 | 174 |
Common stock, $0.01 par value, 90,000,000 shares authorized, 22,471,133 and 20,642,028 shares issued and outstanding | 224,712 | 206,422 |
Capital in excess of par value | 195,865,425 | 192,233,032 |
Accumulated deficit | (197,264,083) | (183,249,560) |
Total Fusion Telecommunications International, Inc. stockholders' (deficit) equity | (1,173,804) | 9,190,068 |
Noncontrolling interest | (81,867) | 0 |
Total stockholders' (deficit) equity | (1,255,671) | 9,190,068 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ 122,057,561 | $ 131,956,239 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Current assets: | ||
Allowance for doubtful accounts | $ 700,000 | $ 427,000 |
Stockholders' equity (deficit): | ||
Preferred Stock, Par Value | $ 0.01 | $ 0.01 |
Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 |
Preferred Stock, Shares Issued | 14,216 | 17,299 |
Preferred Stock, Shares Outstanding | 14,216 | 17,299 |
Common Stock, Par Value | $ 0.01 | $ 0.01 |
Common Stock, Shares Authorized | 90,000,000 | 90,000,000 |
Common Stock, Shares Issued | 22,471,133 | 20,642,028 |
Common Stock, Shares Outstanding | 22,471,133 | 20,642,028 |
Consolidated Statements Of Oper
Consolidated Statements Of Operations - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Consolidated Statements Of Operations | ||
Revenues | $ 150,530,557 | $ 124,654,270 |
Cost of revenues, exclusive of depreciation and amortization, shown separately below | 83,033,401 | 70,667,382 |
Gross profit | 67,497,156 | 53,986,888 |
Depreciation and amortization | 14,521,047 | 13,096,587 |
Selling, general and administrative expenses | 57,724,202 | 48,524,923 |
Asset impairment charge | 641,260 | 0 |
Total operating expenses | 72,886,508 | 61,621,510 |
Operating loss | (5,389,352) | (7,634,622) |
Other (expenses) income: | ||
Interest expense | (8,648,600) | (6,742,143) |
(Loss) gain on change in fair value of derivative liabilities | (909,272) | 265,383 |
Loss on disposal of property and equipment | (311,707) | (129,119) |
Loss on extinguishment of debt | 0 | (214,294) |
Gain on change in fair value of contingent liability | 1,011,606 | 0 |
Other income, net | 209,235 | 128,987 |
Total other expenses | (8,648,738) | (6,691,186) |
Loss before income taxes | (14,038,090) | (14,325,808) |
(Provision) benefit for income taxes | (61,511) | 1,609,485 |
Net loss | (14,099,601) | (12,716,323) |
Less: Net income attributable to non-controlling interest | 85,078 | 0 |
Net loss attributable to Fusion Telecommunications International, Inc. | (14,014,523) | (12,716,323) |
Preferred stock dividends | (1,837,527) | (2,388,007) |
Net loss attributable to common stockholders | $ (15,852,050) | $ (15,104,330) |
Basic and diluted loss per common share | $ (0.72) | $ (0.98) |
Weighted average common shares outstanding: | ||
Basic and diluted | 21,969,601 | 15,406,184 |
Consolidated Statements of Chan
Consolidated Statements of Changes in Stockholders' Deficit (USD $) - USD ($) | Preferred Stock | Common Stock | Capital in Excess of Par | Retained Earnings / Accumulated Deficit | Total Fusion Telecommunications International, Inc. Equity (Deficit) | Non-controlling Interest | Total |
Begining Balance, Shares at Dec. 31, 2015 | 23,324 | 12,788,971 | |||||
Begining Balance, Amount at Dec. 31, 2015 | $ 234 | $ 127,890 | $ 184,859,082 | $ (170,533,237) | $ 14,453,969 | $ 0 | $ 14,453,969 |
Net loss | (12,716,323) | (12,716,323) | (12,716,323) | ||||
Conversion of preferred stock into common stock, Shares | (6,025) | 1,205,000 | |||||
Conversion of preferred stock into common stock, Amount | $ (60) | $ 12,050 | (11,990) | 0 | 0 | ||
Non-controlling interest (40%) in FGS | 0 | ||||||
Dividends on preferred stock, Shares | 1,140,568 | ||||||
Dividends on preferred stock, Amount | $ 11,406 | (11,406) | 0 | 0 | |||
Proceeds from the sale of common stock, Shares | 2,213,700 | ||||||
Proceeds from the sale of common stock, Amount | $ 22,137 | 2,323,009 | 2,345,146 | 2,345,146 | |||
Conversion of related party note to common stock, Shares | 217,391 | ||||||
Conversion of related party note to common stock, Amount | $ 2,174 | 247,826 | 250,000 | 250,000 | |||
Adjustment for prior issuances and conversions of warrants | 338,972 | 338,972 | 338,972 | ||||
Adjustment for fractional shares, Shares | 685 | ||||||
Adjustment for fractional shares, Amount | $ 8 | (8) | 0 | 0 | |||
Cancellation of common stock issued to PingTone Sellers, Shares | (51,380) | ||||||
Cancellation of common stock issued to PingTone Sellers, Amount | $ (514) | (179,830) | (180,344) | (180,344) | |||
Stock-based compensation | 853,458 | 853,458 | 853,458 | ||||
Issuance of common stock - Apptix acquisition, Shares | 2,997,926 | ||||||
Issuance of common stock - Apptix acquisition, Amount | $ 29,979 | 3,597,511 | 3,627,490 | 3,627,490 | |||
Issuance of restricted stock, Amount | $ 550 | 99,000 | 99,550 | 99,550 | |||
Issuance of restricted stock, Shares | 55,000 | ||||||
Issuance of common stock for services rendered, Shares | 74,167 | ||||||
Issuance of common stock for services rendered, Amount | $ 742 | 117,408 | 118,150 | 118,150 | |||
Ending Balance, Shares at Dec. 31, 2016 | 17,299 | 20,642,028 | |||||
Ending Balance, Amount at Dec. 31, 2016 | $ 174 | $ 206,422 | 192,233,032 | (183,249,560) | 9,190,068 | 0 | 9,190,068 |
Net loss | (14,014,523) | (14,014,523) | (85,078) | (14,099,601) | |||
Conversion of preferred stock into common stock, Shares | (3,083) | 11,011,955 | |||||
Conversion of preferred stock into common stock, Amount | $ (32) | $ 10,119 | (10,087) | 0 | |||
Non-controlling interest (40%) in FGS | 3,211 | 3,211 | |||||
Dividends on preferred stock, Shares | 256,706 | ||||||
Dividends on preferred stock, Amount | $ 2,567 | (2,567) | 0 | 0 | |||
Exercise of common stock purchase warrants, Shares | 686,318 | ||||||
Exercise of common stock purchase warrants, Amount | $ 6,862 | 967,214 | 974,076 | 974,076 | |||
Stock-based compensation | 2,483,714 | 2,483,714 | 2,483,714 | ||||
Issuance of common stock - Apptix acquisition, Amount | 0 | ||||||
Issuance of common stock for services rendered, Shares | 125,870 | ||||||
Issuance of common stock for services rendered, Amount | $ 1,259 | 178,191 | 179,450 | 179,450 | |||
Reclassification of derivative liability | 385,022 | 385,022 | 385,022 | ||||
Forfeiture of common stock award by employee, Shares | (5,938) | ||||||
Forfeiture of common stock award by employee, Amount | $ 59 | 8,552 | (8,611) | (8,611) | |||
Cancellation of common stock issued in 2016 acquisition, Shares | (300,000) | ||||||
Cancellation of common stock issued in 2016 acquisition, Amount | $ (3,000) | (360,000) | (363,000) | (363,000) | |||
Cashless exercise of warrants, Shares | 54,194 | ||||||
Cashless exercise of warrants, Amount | $ 542 | (542) | 0 | 0 | |||
Ending Balance, Shares at Dec. 31, 2017 | 14,216 | 22,471,133 | |||||
Ending Balance, Amount at Dec. 31, 2017 | $ 142 | $ 224,712 | $ 195,865,425 | $ (197,264,083) | $ (1,173,804) | $ (81,867) | $ (1,255,671) |
Condensed Consolidated Interim
Condensed Consolidated Interim Statements of Cash Flows - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Cash flows from operating activities: | ||
Net loss | $ (14,099,601) | $ (12,716,323) |
Adjustments to reconcile net loss to net cash provided by operating activities | ||
Depreciation and amortization | 14,521,047 | 13,096,587 |
Deferred taxes | 0 | (1,669,485) |
Asset impairment charge | 641,260 | 0 |
Gain on change in fair value of contingent liability | (1,011,606) | 0 |
Loss on disposal of property and equipment | 311,707 | 129,119 |
Stock-based compensation | 2,483,714 | 878,343 |
Issuance of common stock for services rendered | 179,450 | 118,150 |
Loss on extinguishment on debt | 0 | 214,294 |
Amortization of debt discount and deferred financing fees | 836,189 | 663,046 |
Loss (gain) on the change in fair value of derivative liability | 909,272 | (265,383) |
Changes in operating assets and liabilities: | ||
Accounts receivable | (3,331,828) | 578,134 |
Prepaid expenses and other current assets | (1,501,871) | 585,928 |
Other assets | 33,180 | (31,678) |
Accounts payable and accrued expenses | 5,350,183 | (1,254,445) |
Net cash used in operating activities | 5,321,096 | 326,287 |
Cash flows from investing activities: | ||
Purchase of property and equipment | (4,345,358) | (4,766,214) |
Proceeds from the sale of property and equipment | 167,245 | 234,753 |
Contribution from noncontrolling interest | 3,211 | 0 |
Payment for acquisitions, net of cash acquired | (558,329) | (23,273,892) |
Refunds of purchase price from acquisitions | 150,000 | 262,683 |
Return (payment) of security deposits | 14,788 | (55,335) |
Net cash (used in) investing activities | (4,568,443) | (27,598,005) |
Cash flows from financing activities: | ||
Proceeds from the exercise of common stock purchase warrants | 974,076 | 0 |
Proceeds from sale of common stock, net of offering costs | 0 | 2,345,146 |
Proceeds from term loan | 0 | 65,000,000 |
Repayments of notes payable | 0 | (571,484) |
Repayments of term loan | (3,250,000) | (25,000,000) |
(Repayments) proceeds from revolving debt, net | (1,500,000) | (12,000,000) |
Payment of financing fees | 0 | (1,323,250) |
Payments for obligations under asset purchase agreements | (548,892) | (641,665) |
Payments on equipment financing obligations | (1,119,359) | (993,632) |
Net cash used in financing activities | (5,444,175) | 26,815,115 |
Net change in cash and cash equivalents | (4,691,522) | (456,603) |
Cash and cash equivalents, including restricted cash, beginning of year | 7,249,063 | 7,705,666 |
Cash and cash equivalents, including restricted cash, end of year | $ 2,557,541 | $ 7,249,063 |
1. Nature Of Operations
1. Nature Of Operations | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Nature Of Operations | Fusion Telecommunications International, Inc. is a Delaware corporation incorporated in September 1997 (“Fusion” and together with its subsidiaries, the “Company,” “we,” “us” and “our”). The Company is a provider of integrated cloud solutions, including cloud voice, cloud connectivity, cloud infrastructure, cloud computing, and managed cloud-based applications to businesses of all sizes, and voice over IP (“VoIP”) - based voice services to carriers. The Company currently operates in two business segments, Business Services and Carrier Services. |
2. Significant Accounting Polic
2. Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Significant Accounting Policies | Principles of Consolidation and Basis of Presentation The accompanying consolidated financial statements include the consolidated accounts of Fusion and its wholly-owned and partially owned subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with Regulation S-X of the Securities and Exchange Commission (the “SEC”). All intercompany balances and transactions have been eliminated in consolidation. Effective September 1, 2017, Fusion transferred 40% of its membership interests in Fusion Global Services LLC (“FGS”) to XcomIP, LLC (“XcomIP”), in exchange for which XcomIP contributed assets of its carrier business to FGS. In connection with this transaction, Fusion and XcomIP also executed a members agreement under which Fusion has agreed to provide up to $750,000 in working capital to FGS. The Company has determined that, based on the terms of the members agreement, it has a controlling financial interest in FGS under the guidance set forth in Accounting Standards Codification (“ASC”) 810, Consolidation, therefore the accounts of FGS are consolidated into Fusion’s consolidated financial statements as of and for the year ended December 31, 2017. Prior to the transfer of membership interests to XcomIP, Fusion transferred its Carrier Services business to FGS. 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 for these fees and surcharges 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 years ended December 31, 2017 and 2016 include $3.3 million and $2.6 million, respectively, of federal and state universal service fees and surcharges. Use of Estimates The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the year. 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. These changes in estimates are recognized in the period they are realized. Reclassifications Certain reclassifications have been made to the prior year’s financial statements in order to conform to the current year’s presentation. Specifically, approximately $76,000 due from the counterparty to the Company’s purchase of customer bases (see note 5) has been reclassified as a reduction to the liability due to the same counterparty. The reclassification had no impact on results of operations as previously reported. Cash and Cash Equivalents Cash and cash equivalents include cash on deposit and short-term, highly-liquid investments with maturities of three months or less at the date of purchase. As of December 31, 2017 and 2016, the carrying value of cash and cash equivalents approximates fair value due to the short period of time to maturity. Restricted Cash Restricted cash consists of certificates of deposit that serve to collateralize outstanding letters of credit. Restricted cash is recorded as current or non-current assets in the consolidated balance sheets depending on the duration of the restriction and the purpose for which the restriction exists. At December 31, 2017 and 2016, the Company had certificates of deposit collateralizing a letter of credit aggregating approximately $27,000. The letter of credit is required as security for one of the Company’s non-cancelable operating leases for office facilities. Revenue Recognition The Company recognizes revenue when persuasive evidence of a sale arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed and determinable, and collectability is reasonably assured. The Company records provisions against revenue for billing adjustments, which are based upon estimates derived from factors that include, but are not limited to, historical results, analysis of credits issued and current economic trends. The provisions for revenue adjustments are recorded as a reduction of revenue when the revenue is recognized. Below is a summary of the changes in the provisions against revenue for the years ended December 31, 2017 and 2016: Balance at Beginning of Period Additions to Reserve Posted Credits and other Adjustments Balance at End of Period Year ended December 31, 2017 $ 389,257 2,118,418 (1,918,155 ) $ 589,520 Year ended December 31, 2016 $ 223,045 2,582,163 (2,415,951 ) $ 389,257 The Company’s Business Services revenue includes fixed revenue earned from monthly recurring services provided to customers, for whom charges are contracted for over a specified period of time, and from variable usage fees charged to customers that purchase the Company’s Business Services products and services. Revenue recognition commences after the provisioning, testing and acceptance of the service by the customer. The recurring customer charges continue until the expiration of the contract, or until cancellation of the service by the customer. To the extent that payments received from a customer are related to a future period, the payment is recorded as deferred revenue until the service is provided or the usage occurs. Carrier Services revenue is primarily derived from usage fees charged to other carriers that terminate voice traffic over the Company’s network. Variable revenue is earned based on the length of a call, as measured by the number of minutes of duration. It is recognized upon completion of the call, and is adjusted to reflect the Company’s allowance for billing adjustments. Revenue for each customer is calculated from information received through the Company’s network switches. The Company’s customized software tracks the information from the switches and analyzes the call detail records against stored detailed information about revenue rates. This software provides the Company with the ability to complete a timely and accurate analysis of revenue earned in a period. The Company believes that the nature of this process is such that recorded revenues are unlikely to be revised in future periods. Cost of Revenues Cost of revenues for the Company’s Business Services segment consist of fixed expenses which include monthly recurring charges associated with certain platform services purchased from other service providers, monthly recurring costs associated with private line services and the cost of broadband Internet access used to provide service to business customers. For the Company’s Carrier Services segment, cost of revenues is comprised primarily of costs incurred from other carriers to originate, transport, and terminate voice calls for the Company’s carrier customers. Thus, the majority of the Company’s cost of revenues for this segment is variable, based upon the number of minutes actually used by the Company’s customers and the destinations they are calling. Call activity is tracked and analyzed with customized software that analyzes the traffic flowing through the Company’s network switch. During each period, the call activity is analyzed and an accrual is recorded for the costs associated with minutes not yet invoiced. This cost accrual is calculated using minutes from the system and the variable cost of revenue based upon predetermined contractual rates. Fixed expenses reflect the costs associated with connectivity between the Company’s network infrastructure, including its New Jersey switching facility, and certain large carrier customers and vendors. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable is recorded net of an allowance for doubtful accounts. On a periodic basis, the Company evaluates accounts receivable and records an allowance for doubtful accounts based on the Company’s history of past write-offs, collections experience and current credit conditions. Specific customer accounts are written off as uncollectible when collection efforts have been exhausted and payments are not expected to be received. During the periods presented, the Company has not experienced any significant defaults on its accounts receivable. Below is a summary of the changes in allowance for doubtful accounts for the years ended December 31, 2017 and 2016 (in thousands): Balance at Beginning of Period Additions - Charged to Expense Deductions - Write-offs, Payments and other Adjustments Balance at End of Period Year ended December 31, 2017 $ 427 1,135 (862 ) $ 700 Year ended December 31, 2016 $ 309 388 (270 ) $ 427 Business Combinations Business combinations are accounted for using the purchase method of accounting, whereby the purchase price of the acquisition, including the fair value of contingent consideration, is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. The results of operations of all business acquisitions are included in our Consolidated Financial Statements from the date of acquisition. Goodwill as of the acquisition date, if any, is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, to the extent the Company identifies adjustments to the purchase price or the purchase price allocation, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. All transaction costs incurred in connection with a business combination are expensed as incurred and are reflected in selling, general and administrative expense in the accompanying consolidated statements of operations. 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 December 31, 2017 and 2016 was $34.8 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 years ended December 31, 2017 and 2016: Balance at December 31, 2015 $ 27,060,297 Fidelity purchase price adjustment* 134,216 TFB acquisition* 993,637 Apptix acquisition 7,091,065 Customer base acquisition* 410,000 Balance at December 31, 2016 35,689,215 Increase in goodwill associated with a 2016 acquisition 7,414 Settlement of litigation with Apptix sellers (see note 16) (513,000 ) Adjustment to goodwill associated with acquisition of customer bases (410,000 ) Balance at December 31, 2017 $ 34,773,629 * - See note 5 for discussion of acquisitions 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 reportable segments are its reporting units (see Note 23) 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, otherwise no further analysis is required. The Company also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. The Company performed a quantitative impairment analysis on its goodwill as of December 31, 2017 and 2016 and determined that goodwill was not impaired. Impairment of Long-Lived Assets The Company reviews long-lived assets, including intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully 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 recorded an impairment charge related to its intangible assets in the amount of $0.6 million in the year ended December 31, 2017 and did not record any impairment charges for the year ended December 31, 2016. Property and Equipment Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets as follows: Asset Estimated Useful Lives Network equipment 5 - 7 Years Furniture and fixtures 3 - 7 Years Computer equipment and software 3 - 5 Years Customer premise equipment 2 - 3 Years Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the term of the associated lease. Maintenance and repairs are recorded as a period expense, while betterments and improvements are capitalized. The Company capitalizes a portion of its payroll and related costs for the development of software for internal use and amortizes these costs over three years. During the years ended December 31, 2017 and 2016, the Company capitalized costs pertaining to the development of internally used software in the amount of $2.0 million and $1.2 million, respectively. Fair Value of Financial Instruments The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: ● Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. ● Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets). ● Level 3 applies to assets or liabilities for which fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including the Company's own assumptions. The estimated fair value of financial instruments is determined by the Company using available market information and valuation methodologies considered to be appropriate. At December 31, 2017 and 2016, the carrying value of the Company’s accounts receivable, accounts payable and accrued expenses approximate their fair values due to their short maturities. Derivative Financial Instruments The Company accounts for equity and equity indexed instruments with down round provisions issued in conjunction with the issuance of debt or equity securities of the Company in accordance with the guidance contained in Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging Stock-Based Compensation The Company recognizes expense for its employee stock-based compensation based on the fair value of the award at the date of grant. The fair values of stock options are estimated using the Black-Scholes option valuation model. The use of the Black-Scholes option valuation model requires the input of subjective assumptions. Measured compensation cost, net of estimated forfeitures, is recognized ratably over the vesting period of the related stock-based compensation award. For transactions in which goods or services are the consideration received from non-employees in return for the issuance of equity instruments, the expense is recognized in the period when the goods and services are received at the fair value of the consideration received or the fair value of the equity instrument issued, whichever is determined to be a more reliable measurement. Advertising and Marketing 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 $0.5 million and $0.7 million for the years ended December 31, 2017 and 2016, respectively. Income Taxes The accounting and reporting requirements with respect to 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 December 31, 2017 and 2016. No interest expense or penalties have been recognized as of December 31, 2017 and 2016. During the years ended December 31, 2017 and 2016, the Company recognized no adjustments for uncertain tax positions. Recently Issued Accounting Pronouncements In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures. During the first quarter of 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this update eliminate the requirement to perform step two of the goodwill impairment test, which requires a hypothetical purchase price allocation when an impairment is determined to have occurred. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard update is effective as of the first quarter of 2020; however, early adoption is permitted for any interim or annual impairment tests performed after January 1, 2017. Fusion will adopt this standard on January 1, 2018. The adoption of this standard update will not have a significant impact on Company’s financial statements. In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which clarifies guidance and presentation related to restricted cash in the statement of cash flows, including stating that restricted cash should be included within cash and cash equivalents in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, with early adoption permitted, and is to be applied retrospectively. The Company early adopted ASU 2016-18 effective January 1, 2017. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. Under ASU 2016-02, lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right to-use asset, which is an asset that represents the lessee’s right to use or control the use of a specified asset for the lease term. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The updated standard became effective as of January 1, 2017. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Under ASU 2016-09, all excess tax benefits and tax deficiencies related to share-based payment awards are to be recognized as income tax expense or income tax benefit in the statement of operations. In addition, the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur and excess tax benefits should be recognized regardless of whether the benefit reduces taxes payable in the current period. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In May 2014, the FASB issued new guidance related to revenue recognition, ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”), which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new guidance requires a company to recognize revenue upon transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. ASC 606 defines a five-step approach for recognizing revenue: (i) identification of the contract, (ii) identification of the performance obligations, (iii) determination of the transaction price, (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue as the entity satisfies the performance obligations. The new criteria for revenue recognition may require a company to use more judgment and make more estimates than under the current guidance. The new guidance becomes effective in calendar year 2018 and early adoption in calendar year 2017 is permitted. Two methods of adoption are permitted: (a) full retrospective adoption, meaning the standard is applied to all periods presented; or (b) modified retrospective adoption, meaning the cumulative effect of applying the new guidance is recognized at the date of initial application as an adjustment to the opening retained earnings balance. In March 2016, April 2016 and December 2016, the FASB issued ASU No. 2016-08, Revenue From Contracts with Customers (ASC 606): Principal Versus Agent Considerations, ASU No. 2016-10, Revenue From Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing, and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue From Contracts with Customers, respectively, which further clarify the implementation guidance on principal versus agent considerations contained in ASU No. 2014-09. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers, narrow-scope improvements and practical expedients which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts at transition. These standards will be effective for the Company beginning in the first quarter of 2018. Early adoption is permitted. The Company will adopt the new standard and related updates effective January 1, 2018, using the modified retrospective method of adoption. The Company estimates that, based on available information, both the impact of the adjustment to opening retained earnings and the ongoing impact from the deferral of acquisition costs and activation and installation revenues will not be material to the Company’s financial statements. |
3. Loss per Share
3. Loss per Share | 12 Months Ended |
Dec. 31, 2017 | |
Loss Per Share | |
Loss per Share | Basic and diluted loss per share is computed by dividing (i) loss available to common stockholders by (ii) the weighted-average number of shares of common stock outstanding during the period, increased by the number of shares underlying such warrants with a nominal exercise price as if such exercise had occurred at the beginning of the year. The following table sets forth the computation of the Company’s basic and diluted net loss per share during the years ended December 31, 2017 and 2016: Years Ended December 31, 2017 2016 Numerator Net loss attributable to Fusion Telecommunications International, Inc. $ (14,014,523 ) $ (12,716,323 ) Undeclared dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock ( 403,600 ) ( 404,706 ) Conversion price reduction on Series B-2 Preferred Stock (see note 16) ( 623,574 ) - Series B-2 warrant exchange (see note 16) ( 347,191 ) - Dividends declared on Series B-2 Convertible Preferred Stock ( 463,162 ) ( 1,983,301 ) Net loss attributable to common stockholders $ (15,852,050 ) $ (15,104,330 ) Denominator Basic and diluted weighted average common shares outstanding 21,969,601 15,406,184 Loss per share Basic and diluted $ (0.72 ) $ (0.98 ) For the years ended December 31, 2017 and 2016, the following outstanding securities were excluded from the calculation of diluted earnings per common share because of their anti-dilutive effects: For the Years Ended December 31, 2017 2016 Warrants 2,000,988 2,902,862 Convertible preferred stock 2,045,979 2,628,389 Stock options 3,017,927 2,183,723 7,064,894 7,714,974 The net loss per common share calculation includes a provision for preferred stock dividends on the Company’s outstanding Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series A-4 Preferred Stock (collectively, the “Series A Preferred Stock”) of $0.4 million for the years ended December 31, 2017 and 2016. As of December 31, 2017, Fusion’s Board of Directors had not declared any dividends on the Series A Preferred Stock, and the Company had accumulated $5.1 million of preferred stock dividends. Fusion’s Board of Directors declared dividends in the aggregate of $1.4 million and $2.0 million for the years ended December 31, 2017 and 2016, respectively, related to the Company’s Series B-2 Convertible Preferred Stock (the “Series B-2 Preferred Stock”), which, as permitted by the terms of the Series B-2 Preferred Stock, was paid in the form of 256,706 and 1,140,568 shares of Fusion’s common stock for the years ended December 31, 2017 and 2016, respectively. No dividends were declared or paid on the Series B-2 Preferred Stock for the quarter ended December 31, 2017. The dividends paid in 2016 include an additional $1.2 million in dividends paid in the form of 666,667 shares of Fusion’s common stock to a holder of 5,000 shares of Series B-2 Preferred Stock in connection with the holder’s agreement to convert all of its Series B-2 Preferred Stock holdings into shares of Fusion’s common stock. |
4. Stock-Based Compensation
4. Stock-Based Compensation | 12 Months Ended |
Dec. 31, 2017 | |
Stock-based Compensation | |
Stock-Based Compensation | The Company's stock-based compensation plan provides for the issuance of stock options to the Company’s employees, officers, and directors. The Compensation Committee of Fusion’s Board of Directors approves all awards that are granted under the Company's stock-based compensation plan. The Company's 2016 Equity Incentive Plan, ratified by the Company’s stockholders on October 28, 2016, reserves a number of shares of common stock equal to 10% of the Company’s shares outstanding from time to time on a fully diluted basis. The plan provides for the grant of incentive stock options, stock appreciation rights, restricted stock, restricted stock units, stock grants, stock units, performance shares and performance share units to employees, officers, non-employee directors of, and consultants to the Company. Options under the plan typically vest in annual increments over a three or four year period, expire ten years from the date of grant and are issued at exercise prices no less than 100% of the fair market value at the time of grant. The following table summarizes the stock option activity under the Company’s stock plans for the years ended December 31, 2017 and 2016: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contract Term Outstanding at December 31, 2015 1,158,251 $ 4.96 8.43 years Granted 1,135,650 1.31 Exercised - - Forfeited (89,826 ) 2.51 Expired (20,352 ) 69.46 Outstanding at December 31, 2016 2,183,723 2.56 8.56 years Granted 949,298 2.37 Exercised - - Forfeited ( 85,802 ) 1.65 Expired ( 29,292 ) 17.32 Outstanding at December 31, 2017 3,017,927 2.38 8.26 years Exercisable at December 31, 2017 1,860,667 2.81 7.82 years The Company recognized compensation expense of $2.5 million and $0.9 million related to stock options for the years ended December 31, 2017 and 2016, respectively. These amounts are included in selling, general, and administrative expenses in the accompanying consolidated statements of operations. The following range of assumptions were used to determine the fair value of the stock options granted under the Company’s stock-based compensation plan using the Black-Scholes option-pricing model: Year Ended December 31, 2017 2016 Dividend yield 0.0 % 0.0 % Expected volatility 92.40 % 92.40 % Average Risk-free interest rate (%) 2.00-2.43 1.21-2.23 Expected life of stock option term (years) 8.00 6.86-8.00 The following table summarizes additional information regarding outstanding and exercisable options under the stock option plans at December 31, 2017: Stock Options Outstanding Stock Options Exercisable Range of Exercise Prices Options Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Aggregate intrinsic Value Options Exercisable Weighted Average Remaining Contractual Life (Years) Weighted Average Price Aggregate intrinsic Value $ 1.14 - $1.72 1,116,100 8.74 $ 1.29 346,148 8.57 $ 1.27 $ 1.74 - $2.67 1,268,898 9.10 2.34 918,715 8.96 2.33 $ 2.72 - $4.24 327,395 6.82 3.48 291,989 6.74 3.48 $ 4.25 - $7.00 290,364 4.77 4.83 288,645 4.76 4.83 $ 7.50 - $15.50 15,170 0.24 15.40 15,170 0.24 15.44 3,017,927 8.26 2.38 $4,620,526 1,860,667 7.82 2.81 $2,243,741 The weighted-average estimated fair value of stock options granted was $1.96 and $1.08 during the years ended December 31, 2017 and 2016, respectively. No stock options were exercised during the years ended December 31, 2017 and 2016. As of December 31, 2017, there was approximately $1.2 million of total unrecognized compensation cost related to stock options granted under the Company’s stock incentive plans, which is expected to be recognized over a weighted-average period of 1.52 years. During the year ended December 31, 2016, the Company issued 55,000 shares of restricted stock to an employee valued at $99,950, which vests over a three year period. The Company recognized compensation expense in connection with this grant in the approximate amount of $33,000 for the year ended December 31, 2017. |
5. Acquisitions
5. Acquisitions | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Acquisitions | Apptix On November 14, 2016, Fusion NBS Acquisition Corp. (“FNAC”), a subsidiary of Fusion, entered into a Stock Purchase and Sale Agreement (the “Apptix Purchase Agreement”) with Apptix, ASA (the “Seller”), pursuant to which FNAC acquired all of the issued and outstanding capital stock of Apptix, Inc., a wholly-owned subsidiary of the Seller (“Apptix”). Apptix provided cloud-based communications, collaboration, virtual desktop, compliance, security and cloud computing solutions to approximately 1,500 business customers across the U.S. The purchase price paid by FNAC for Apptix was $26.7 million, including an adjustment for the closing date cash on hand. The purchase price was paid with (i) $23,063,484 in cash, and (ii) 2,997,926 shares of Fusion’s common stock (the “Seller Shares”), valued at $1.21 per share. The cash portion of the purchase price was funded through a new senior secured facility entered into simultaneously with the Apptix acquisition (see note 14). Upon acquisition, Apptix became a wholly-owned subsidiary of FNAC. The acquisition was accounted for as a business combination. The preliminary allocation of the purchase price as of the acquisition date is as follows: Cash $ 67,071 Accounts receivable 2,207,024 Prepaid expenses and other current assets 620,270 Property and equipment 2,878,877 Deferred tax liability (1,633,853 ) Covenant not to compete 1,417,000 Customer contracts 20,948,000 Accrued liabilities (6,904,479 ) Goodwill 7,091,065 Total purchase price $ 26,690,975 The customer relationship intangible assets have estimated useful lives of 5 to 15 years, and the non-compete agreement has a useful life of one year. In August 2017, in connection with the settlement of litigation with Apptix, FNAC was paid $150,000 in cash and Apptix surrendered 300,000 shares of Fusion common stock valued at $0.4 million, resulting in a reduction to goodwill of $0.5 million. In November 2017, the Company changed its estimate of property tax liabilities assumed in the acquisition as of the acquisition date, resulting in a $0.2 million reduction to goodwill. The Company underwent a compliance audit for the use of certain software licenses by one of the Company’s recently acquired businesses. The Company is negotiating with the software vendor with regard to a settlement and based upon the initial meeting with the vendor, the Company has recorded an estimate for the accrual in accounts payable and accrued expenses in the accompanying consolidated balance sheet. There can be no assurances that this matter will be settled and, if settled, the amount that would be paid in any such settlement. The results of operations of Apptix are reflected in the Company’s consolidated statement of operations effective November 14, 2016. The following table provides certain unaudited pro forma financial information for the Company for the year ended December 31, 2016 as if the acquisition of Apptix had been consummated effective as of January 1, 2016 (in millions): 2016 Revenues $ 141.3 Net loss $ (16.5 ) Technology for Business On March 31, 2016, the Company completed the acquisition of substantially all of the assets of Technology for Business Corporation (“TFB”), a provider of contact center solutions, for an estimated purchase price of $1.3 million consisting of $0.3 million in cash and a royalty fee equal to ten percent of the collected monthly recurring revenues derived from sales of the cloud version of the proprietary call center software and maintenance services. The estimated royalty fee of $1.1 million was recognized as a non-current liability in the condensed consolidated balance sheet as of December 31, 2016. Accounts receivable, net $ 80,845 Prepaid expenses and other current assets 5,535 Proprietary technology 889,000 Covenant not to compete 8,000 Customer contracts 99,000 Current liabilities ( 687,130 ) Accrued royalty (1,111,606 ) Goodwill 993,637 Total cash purchase price $ 277,281 The acquisition of the assets of TFB did not have a material effect on the Company’s results of operations or financial condition. At December 31, 2017, the Company determined that all of the intangible assets related to TFB were fully impaired, and that the Company would not be required to pay any royalties under the terms of the purchase agreement. As a result the Company recognized an impairment charge of $0.6 million to write-off the remaining book value of the acquired intangible assets and derecognized the royalty liability of $1.1 million, which is reflected in the accompanying consolidated statement of operations for the year ended December 31, 2017. Customer Base Acquisitions In a two-step transaction, the Company completed customer base acquisitions on November 18, 2016 and March 1, 2017 with two related parties. On November 18, 2016, the Company entered into a purchase agreement pursuant to which the Company assumed obligations to provide services to the seller’s 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. 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 having a value of approximately $0.6 million. As this customer base is within the scope of the November 2016 agreement, the Company is required to pay consideration to the seller in an estimated aggregate amount of $1.7 million. The March 2017 agreement also provides for a management period during which the Company will be responsible for all aspects of the customer relationship with respect to the acquired customer base until such time as all regulatory approvals have been obtained, and the Company’s consolidated statement of operations includes the revenue associated with the customer base acquisition effective March 1, 2017. The March 2017 agreement also provides for a transition period during which the seller thereunder will provide certain services and assistance to the Company. The transition period related to the March 2017 Agreement ended in February 2018 and on February 23, 2018, the Company purchased the remaining assets related to this customer base for a de minimis amount. The aggregate amount payable by the Company under the November 2016 and March 2017 agreements totals $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, as provided for in the November 2016 agreement, was valued at a multiple of monthly revenue and will be paid over a period of 18 months. The March 2017 agreement resulted in a reduction to the goodwill in the amount of $0.4 million. These agreements did not have a material effect on the Company’s results of operations or financial condition. Fidelity In a two-step transaction completed in December 2015 and February 2016, FNAC acquired all of the outstanding equity securities of Fidelity Access Networks, LLC, Fidelity Connect LLC, Fidelity Voice Services, LLC, Fidelity Access Networks, Inc., and Fidelity Telecom, LLC (hereinafter collectively referred to as “Fidelity”). Fidelity provides customers with a suite of cloud based services, including cloud voice, cloud connectivity, cloud computing and cloud storage. The purchase price paid to Fidelity shareholders was $29.9 million, consisting of $28.4 million in cash and 696,508 shares of Fusion’s common stock valued at $1.5 million (based upon the volume weighted average price of the common stock over a ten trading day period ending four trading days prior to the closing date). The acquisition was funded through borrowings under a credit facility of approximately $27.5 million and cash on hand of approximately $0.9 million. At closing, $1.5 million of the cash portion of the purchase price was placed into escrow to protect the Company against any breaches in the sellers’ representations, warranties and covenants in the purchase agreement, to be released in accordance with the terms of the related escrow agreement. The allocation of the purchase price as of the acquisition date is as follows: Cash $ 503,059 Accounts receivable, net 273,809 Prepaids 44,735 Property and equipment 1,111,699 Covenant not to compete 618,000 Customer contracts 19,243,000 Accrued liabilities (692,606 ) Deferred tax liability (7,710,536 ) Goodwill 16,502,971 Total purchase price $ 29,894,133 The amount of goodwill recognized is primarily attributable to the expected contributions of Fidelity to the overall corporate strategy in addition to synergies and acquired workforce of the acquired business. None of the goodwill or intangible assets recognized is expected to be deductible for income tax purposes. The intangible assets subject to amortization consist of customer relationships and non-compete agreements, with an estimated useful life of 14 and 5 years, respectively. During the year ended December 31, 2016, $0.4 million of the foregoing escrowed portion of the purchase price was remitted back to the Company, resulting in a decrease in the purchase price and a corresponding reduction in goodwill. Also during the year ended December 31, 2016, the Company increased goodwill by $0.5 million due to changes in the estimated fair values of assets and liabilities at acquisition. All of the forgoing acquisitions are included as part of the Business Services business segment (See Note 12). |
6. Intangible Assets
6. Intangible Assets | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Intangible Assets | All of the Company’s identifiable intangible assets are associated with its Business Services segment and as of December 31, 2017 and 2016 are comprised of: December 31, 2017 December 31, 2016 Gross Carrying Amount Accumulated Amortization Total Gross Carrying Amount Accumulated Amortization Total Trademarks and tradename $ 1,093,400 $ (672,314 ) $ 421,086 $ 1,093,400 $ (501,982 ) $ 591,418 Proprietary technology 5,781,000 (5,005,400 ) 775,600 6,670,000 (4,036,915 ) 2,633,085 Non-compete agreement 12,120,043 (11,701,307 ) 418,736 12,128,043 (9,891,892 ) 2,236,151 Customer relationships 67,614,181 (13,073,580 ) 54,540,601 65,948,181 (7,827,697 ) 58,120,484 Favorable lease 218,000 (218,000 ) - 218,000 (181,667 ) 36,333 Total acquired intangibles $ 86,826,624 $ (30,670,601 ) $ 56,156,023 $ 86,057,624 $ (22,440,153 ) $ 63,617,471 Aggregate amortization expense for each of the five years subsequent to December 31, 2017 is expected to be as follows: Year Amortization Expense 2018 $ 6,361,523 2019 5,469,042 2020 5,458,742 2021 5,284,375 2022 4,612,642 |
7. Prepaid Expenses and Other C
7. Prepaid Expenses and Other Current Assets | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Prepaid Expenses and Other Current Assets | Prepaid expenses and other current assets at December 31, 2017 and 2016 are as follows: December 31, 2017 December 31, 2016 Insurance $ 18,639 $ 160,262 Rent 16,326 5,389 Marketing 55,801 74,665 Software subscriptions 610,191 419,431 Commissions 46,755 159,146 Network costs 817,704 - Other 525,828 265,316 Total $ 2,091,244 $ 1,084,209 |
8. Accounts Payable and Accrued
8. Accounts Payable and Accrued Expenses | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Accounts Payable and Accrued Expenses | Accounts payable and accrued expenses consist of the following at December 31, 2017 and 2016: December 31, 2017 December 31, 2016 Trade accounts payable $ 9,336,838 $ 6,358,548 Accrued license fees 2,881,331 2,881,331 Accrued sales and federal excise taxes 3,496,697 2,863,363 Deferred revenue 1,283,969 1,874,641 Accrued network costs 2,151,271 1,416,000 Accrued sales commissions 911,192 819,106 Property and other taxes 759,770 581,956 Accrued payroll and vacation 422,097 421,733 Customer deposits 383,032 365,249 Interest payable 7,263 304,409 Credit card payable 114,209 265,985 Accrued USF fees 728,826 249,825 Accrued bonus 333,337 249,361 Professional and consulting fees 171,163 164,878 Rent 163,030 127,781 Other 1,945,021 778,672 Total $ 25,089,046 $ 19,722,838 |
9. Property And Equipment
9. Property And Equipment | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Property And Equipment | At December 31, 2017 and 2016, property and equipment is comprised of the following: December 31, 2017 December 31, 2016 Network equipment $ 20,350,334 $ 13,716,468 Furniture and fixtures 436,697 421,689 Computer equipment and software 1,934,984 5,868,370 Customer premise equipment 7,650,496 9,695,643 Vehicles 55,884 55,884 Leasehold improvements 1,069,670 1,188,207 Assets in progress - 383,137 Total 31,498,065 31,329,398 Less: accumulated depreciation (18,641,531 ) (17,080,483 ) Total $ 12,856,534 $ 14,248,915 Depreciation expense was $5.9 million and $7.5 million for the years ended December 31, 2017 and 2016, respectively. For the years ended December 31, 2017 and 2016, $2.2 million and $3.2 million, respectively, of the Company’s property and equipment were financed under equipment financing obligations. |
10. Equipment Financing Obligat
10. Equipment Financing Obligations | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Equipment Financing Obligations | During the years ended December 31, 2017 and 2016, the Company entered into several equipment financing or capital lease arrangements to finance the purchase of network hardware and software utilized in the Company’s 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 at December 31, 2017 and 2016 are as follows: December 31, December 31, 2017 2016 Equipment financing obligations $ 1,797,374 $ 2,239,661 Less: current portion (1,206,773 ) (1,002,578 ) Long-term portion $ 590,601 $ 1,237,083 The estimated principal payments under capital lease agreements for the years ending subsequent to December 31, 2017 are as follows: Year ending December 31: Principal 2018 $ 1,206,773 2019 502,589 2020 88,012 $ 1,797,374 |
11. Supplemental Disclosure of
11. Supplemental Disclosure of Cash Flow Information | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Supplemental Disclosure of Cash Flow Information | Supplemental cash flow information for the years ended December 31, 2017 and 2016 is as follows: Years Ended December 31, Supplemental Cash Flow Information 2017 2016 Cash paid for interest $ 7,756,230 $ 5,806,910 Cash paid for income taxes $ - $ - Supplemental Non-Cash Investing and Financing Activities Property and equipment acquired under capital leases or equipment financing obligations $ 677,071 $ 188,497 Conversion of preferred stock into common stock $ 3,083,000 $ - Dividend on Series B-2 preferred stock paid with the issuance of Fusion common stock $ 463,162 $ 1,983,301 Common stock issued for acquisitions $ - $ 3,627,490 Obligations under asset purchase agreements $ 968,035 $ 1,521,606 |
12. Obligations Under Asset Pur
12. Obligations Under Asset Purchase Agreements | 12 Months Ended |
Dec. 31, 2017 | |
Obligations Under Asset Purchase Agreements | |
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 asset purchase agreements. Such obligations to sellers or other parties associated with these transactions as of December 31, 2017 and December 31, 2016 are as follows: December 31, December 31, 2017 2016 Root Axcess $ - $ 166,668 Customer base acquisitions 450,000 334,025 Technology For Business, Inc. - 936,606 450,000 1,437,299 Less: current portion (227,760 ) (546,488 ) Long-term portion $ 222,240 $ 890,811 In connection with the purchase of the assets of TFB in March 2016, the Company recorded a contingent liability of $1.1 million (see Note 5). The contingent liability was based on an estimated royalty fee based on future revenues. At December 31, 2017, the Company determined that it would not be required to pay any royalties under the terms of the purchase agreement. As a result, the Company reduced its obligations under asset purchase agreements by this amount, and this reduction is reflected in the accompanying consolidated statement of operations for the year ended December 31, 2017. |
13. Secured Credit Facility
13. Secured Credit Facility | 12 Months Ended |
Dec. 31, 2017 | |
Secured Credit Facility | |
Secured Credit Facility | At December 31, 2017 and 2016, secured credit facilities are comprised of the following: December 31, December 31, 2017 2016 Term loan $ 61,750,000 $ 65,000,000 Less: Deferred financing fees (1,027,332 ) (1,289,629 ) Current portion (6,500,000 ) (2,979,167 ) Term loan - long-term portion $ 54,222,668 $ 60,731,204 Indebtedness under revolving credit facility $ 1,500,000 $ 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 $40 million that was outstanding under a previously existing credit facility, and to fund the cash portion of the purchase price of FNAC’s acquisition Apptix (see note 5). In connection with the retirement of the previous credit facility, FNAC recognized a loss on the extinguishment of debt in the amount of $0.2 million in the year ended December 31, 2016. Borrowings under the East West Credit Agreement are evidenced by promissory 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, and the rate of interest on the term loan ranged from 6.02% to 6.61% for the year ended December 31, 2017. From January 1, 2017 through January 1, 2018, the Company is required to repay the term loan in equal monthly payments of $270,833 and thereafter the 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 December 31, 2017 and 2016, $1.5 million and $3.0 million, respectively, 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 its indebtedness. ● The Company granted the East West Lenders security interests in all of our assets, as well as our 60% membership interest in FGS and the capital stock of our Fusion NBS Acquisition Corp. subsidiary (“FNAC”) and each of its subsidiaries. ● Fusion and its subsidiaries (and future subsidiaries of both) have guaranteed FNAC’s obligations, including FNAC’s repayment obligations thereunder. At December 31, 2017, the Company was in compliance with all of the financial covenants contained in the East West Credit Agreement. On January 26, 2018, the Company obtained a waiver under its senior secured credit facility with East West Bank (the “East West Bank Credit Facility”) permitting the Company to sell up to approximately $30.0 million (net proceeds) of its common stock without having to use any of those proceeds to prepay amounts outstanding under that facility (the "January 2018 EWB Waiver"). Prior to receiving the January 2018 EWB Waiver, the Company was obligated under the East West Bank Credit Facility to use any net proceeds for any sale of its equity securities that are in excess of $4.0 million to pay down outstanding borrowings thereunder. In addition, on February 23, 2018 the Company obtained an additional waiver under the East West Bank Credit Facility permitting the Company to retain the entire amount of the net proceeds. |
14. Notes Payable-Non-Related P
14. Notes Payable-Non-Related Parties | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Notes Payable-Non-Related Parties | At December 31, 2017 and 2016, notes payable – non-related parties are comprised of the following: December 31, December 31, 2017 2016 Subordinated notes $ 33,588,717 $ 33,588,717 Discount on subordinated notes (1,040,167 ) (1,368,629 ) Deferred financing fees (595,387 ) (788,486 ) Total notes payable - non-related parties 31,953,163 31,431,602 Less: current portion - - Long-term portion $ 31,953,163 $ 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 “Restated Purchase Agreement”) 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 Restated Purchase Agreement amends the previous purchase agreement, 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”). The Company pays interest monthly at a rate of 10.8% and recognized interest expense of approximately $3.6 million and $3.7 million during 2017 and 2016, respectively. The Restated Purchase Agreement amends the previous purchase agreement to (i) provide the Praesidian Lenders’ consent to the acquisition of Apptix, (ii) join Apptix as a guarantor and credit party under the Restated Purchase Agreement, (iii) modify certain financial covenants such that the covenants are now substantially similar to those contained in the East West Credit Agreement, and (iv) extend the maturity date of the SPA Notes to May 12, 2022. The Praesidian Lenders also 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. For the year ended December 31, 2017, the Company was in compliance with all of the financial covenants contained in the Restated Purchase Agreement. |
15. Notes Payable-Related Parti
15. Notes Payable-Related Parties | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Notes Payable-Related Parties | At December 31, 2017 and 2016, components of notes payable – related parties are comprised of the following: December 31, December 31, 2017 2016 Notes payable to Marvin Rosen $ 928,081 $ 928,081 Discount on notes - (52,331 ) Total notes payable - related parties $ 928,081 $ 875,750 The note payable to Marvin Rosen, Fusion’s Chairman of the Board, is 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. For the years ended December 31, 2017 and 2016, the Company paid interest on the notes payable to Mr. Rosen in the amount of $0.1 million. During the year ended December 31, 2016, Mr. Rosen converted $250,000 of the outstanding notes into 217,391 shares Fusion’s common stock in conjunction with Fusion’s private placement of common stock in November of 2016 (see note 16). |
16. Equity Transactions
16. Equity Transactions | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Equity Transactions | Common Stock On October 28, 2016, Fusion’s Stockholders ratified an amendment to the Company’s Certificate of incorporation to increase the number of authorized common shares to 90,000,000. At December 31, 2017 and 2016, there were 22,471,133 and 20,642,028 shares of common stock outstanding, respectively. In March 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 Fusion’s 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 exchanged outstanding warrants and thereafter exercised 2017 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 were used for general corporate purposes. In connection with the exchange agreements, all of the 2017 Warrants were immediately exercised and none remained outstanding as of December 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 3). In October of 2017, warrants to issue 124,484 shares of common stock were exercised, and the Company received cash proceeds of $0.2 million. During the year ended December 31, 2017, 104,000 warrants were exercised on a cashless basis and, as a result, the Company issued 54,194 shares of common stock to the holders of those warrants. During the year ended December 31, 2017, Fusion issued 125,870 shares of its common stock valued at approximately $0.2 million for services rendered. Also during year ended December 31, 2017, (i) Fusion’s Board of Directors declared dividends on the Series B-2 Preferred Stock that were paid in the form of 256,706 shares of Fusion common stock (see note 4), and (ii) an officer of the Company forfeited a portion of his 2016 restricted stock award and 5,938 shares of common stock were returned to the Company. On November 14, 2016, Fusion issued 2,997,926 shares of common stock as partial consideration in the Apptix acquisition transaction. In August 2017, in connection with the settlement of litigation with Apptix, FNAC was paid $150,000 in cash and Apptix surrendered 300,000 shares of Fusion common stock valued at $363,000 to the Company. On November 16, 2016, Fusion sold an aggregate of 2,213,700 shares of common stock to 20 accredited investors in a private placement transaction, and received net proceeds of $2.3 million. In connections with this transaction, Mr. Rosen converted $250,000 of his outstanding notes into 217,391 shares of common stock. During the year ended December 31, 2016, 6,025 shares of Series B-2 Preferred Stock were converted into 1,205,000 shares of common stock. Also during the year ended December 31, 2016, the Fusion’s Board of Directors declared dividends of $2.0 million on outstanding shares of Series B-2 Preferred Stock, which were paid in the form of 1,140,568 shares of common stock as permitted by the terms of the Series B-2 Preferred Stock. During the year ended December 31, 2016, 51,380 shares of common stock previously issued to the sellers in a 2014 business acquisition were cancelled by mutual agreement between the Company and the sellers. Also during the year ended December 31, 2016, 55,000 shares of restricted common stock valued at $0.1 million were issued to one of Fusion’s executive officers and 74,167 shares of common stock valued at $0.1 million were issued to a third party for services rendered. Preferred Stock Fusion is authorized to issue up to 10,000,000 shares of preferred stock. At December 31, 2017 and 2016, there were 5,045 shares of Series A Preferred Stock issued and outstanding. In addition, as of December 31 2017 and 2016, there were 9,171 and 12,254 shares of Series B-2 Preferred Stock issued and outstanding, respectively. The holders of the Series A Preferred Stock are entitled to receive cumulative dividends of 8% per annum payable in arrears, when and if declared by Fusion’s Board of Directors. As of December 31, 2017, no dividend had been declared by the Fusion Board of Directors with respect to any series of Series A Preferred Stock, and the Company had accumulated approximately $5.1 million of preferred stock dividends. The Series A Preferred Stock is convertible at the option of the holder at any time at conversion prices ranging from $34.50 per share to $72.94 per share. The Company is not permitted to pay dividends on its Series A Preferred Stock without the consent of the holders or in case of a forced conversion. At December 31, 2017, if the Series A Preferred Stock were convertible into the Company's common stock, such shares would convert into an aggregate of2l 1,800 shares of common stock (inclusive of accrued and unpaid dividends). The holders of the shares of Series B-2 Preferred Stock are entitled to receive a cumulative 6% annual dividend payable quarterly in arrears when and if declared by the Fusion Board of Directors, in cash or shares of Fusion common stock, at the option of the Company. Commencing January 1, 2016, Fusion has the right to force the conversion of the Series B-2 Preferred Stock into Fusion common stock at a conversion price of $5.00 per share; provided that the volume weighted average price for its common stock is at least $12.50 for ten consecutive trading days. 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 (a two dollar reduction from the specified conversion price). As a result, 2,958 shares of Series B-2 Preferred Stock were converted into a total of 986,665 shares of Fusion common stock, and the Company recorded a preferred stock dividend of $0.6 million for the value of the incremental number of shares of Fusion common stock issued in connection with the reduction in the conversion price of the Series B-2 Preferred Stock (see note 3). In December of 2017, 125 shares of Series B Preferred Stock were converted into 25,290 shares of common stock. The following table summarizes the activity in the Company’s various classes of preferred stock for the years ended December 31, 2017 and 2016: Series A-1 Series A-2 Series A-4 Series B-2 Total Shares $ Shares $ Shares $ Shares $ Shares $ Balance at December 31, 2015 2,375 $ 24 2,625 $ 26 45 $ - 18,279 $ 184 23,324 $ 234 Conversion of preferred stock into common stock - - - - - - (6,025 ) (60 ) (6,025 ) (60 ) Balance at December 31, 2016 2,375 24 2,625 26 45 - 12,254 124 17,299 174 Conversion of preferred stock into common stock - - - - - - (3,083 ) (32 ) (3,083 ) (32 ) Balance at December 31, 2017 2,375 $ 24 2,625 $ 26 45 $ - 9,171 $ 92 14,216 $ 142 Each share of Series B-2 Preferred Stock has a stated value of $1,000, and is convertible into shares of Fusion’s common stock at the option of the holder at a conversion price of $5.00 per share, subject to adjustment. At December 31, 2017, the Series B-2 Preferred Stock is convertible into an aggregate of 1,834,200 shares of Fusion’s common stock. The holders of Series B-2 Preferred Stock have liquidation rights that are senior to those afforded to holders of the Company’s other equity securities, and are entitled to vote as one group with holders of Fusion’s common stock on all matters brought to a vote of such holders (with each share of Series B-2 Preferred Stock being entitled to that number of votes into which the registered holder could have converted the Series B-2 Preferred Stock on the record date for the meeting at which the vote will be cast). Holders of common stock are also entitled to vote as a separate class on all matters adversely affecting (within the meaning of Delaware law) such class. Warrants In connection with various debt and equity financing transactions and other agreements, the Company has issued warrants to purchase shares of Fusion’s common stock. All of the outstanding warrants are fully exercisable as of December 31, 2017. The following table summarizes the information relating to warrants issued and the activity during the years ended December 31, 2017 and 2016: Number of Warrants Per share Exercise Price Weighted Average Exercise Price Outstanding at December 31, 2015 3,011,764 $ 3.95 to $10.15 $ 6.14 Granted in 2016 - - Exercised in 2016 - - Expired in 2016 (108,902 ) $ 4.00-$7.00 $ 5.00 Outstanding at December 31, 2016 2,902,862 $ 4.25-$10.15 $ 6.18 Granted in 2017 65,000 $ 1.50 $ 1.50 Exercised in 2017 (359,067 ) $ 1.39-$1.56 $ 1.48 Expired in 2017 (607,807 ) $ 4.50-$10.15 $ 6.81 Outstanding at December 31, 2017 2,000,988 $ 5.06 |
17. Derivative Liability
17. Derivative Liability | 12 Months Ended |
Dec. 31, 2017 | |
Derivative Liability | |
Derivative Liability | The Company has issued warrants to purchase shares of Fusion’s 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 following assumptions were used to determine the fair value of the warrants for the year ended December 31, 2017 and 2016: Year ended December 31, 2017 2016 Stock price ($) 3.75 1.50 Adjusted exercise price ($) 1.55 1.65 Expected volatility (%) 84.10 71.40 Time to maturity (years) 1.25 2.0 During the year ended December 31, 2016, the Company adjusted the valuation of its derivative liability for warrants issued in December 2013 and January 2014 and its valuation of certain warrants exercised during 2015. The amount of the adjustment was a net $772,022 impact on the condensed consolidated statements of operations resulting from the loss on the change in the fair value of the derivative and an additional $0.3 million impact to capital in excess of par and a $0.4 million increase in derivative liability in the condensed consolidated balance sheets (see Note 18). The Company has evaluated these adjustments in accordance with ASC 250-10-S99, SEC Materials (formerly SEC Staff Accounting Bulletin 99, Materiality) and concluded that both quantitatively and qualitatively the adjustments were not material. These adjustments were also evaluated by management in their assessment of internal controls over financial reporting. During the year ended December 31, 2017 $0.4 million of the derivative liability was reclassified into equity as a result of warrant exercises. At December 31, 2017 and 2016, the fair value of the derivative was $0.9 million and $0.3 million, respectively. For the year ended December 31, 2017, the Company recognized a loss on the change in fair value of the derivative liability in the amount of $0.9 million, and the Company recognized a gain on the change in the fair value of this derivative of $0.3 million for the year ended December 31, 2016. |
18. Fair Value Disclosures
18. Fair Value Disclosures | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Fair Value Disclosures | The following table represents the fair value of the liability measured at fair value on a recurring basis, by level within the fair value hierarchy: Level 1 Level 2 Level 3 Total As of December 31, 2017 Current liabilities: Contingent purchase price liability (see note 12) - - $ 227,760 $ 227,760 Non-current liabilities: Contingent purchase price liability - - $ 222,240 $ 222,240 Derivative liability (see note 17) - - $ 872,900 $ 872,900 As of December 31, 2016 Current liabilities: Contingent purchase price liability - - $ 100,000 $ 100,000 Non-current liabilities: Contingent purchase price liability - - $ 836,606 $ 836,606 Derivative liability (see note 17) - - $ 348,650 $ 348,650 The following table reconciles the changes in the derivative liability categorized within Level 3 of the fair value hierarchy for the years ended December 31, 2017 and 2016: Balance at December 31, 2015 $ 953,005 Change in fair value included in net loss (1,037,405 ) Adjustment for prior issuances and exercise of warrants 433,050 Balance at December 31, 2016 348,650 Change in fair value included in net loss 909,272 Warrant exercises (see note 12) (385,022 ) Balance at December 31, 2017 $ 872,900 |
19. Income Taxes
19. Income Taxes | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Income Taxes | The provision (benefit) for income taxes for the years ending December 31, 2017 and 2016 consists of the following: 2017 2016 Current Federal - - State $ 61,511 $ 60,000 61,511 60,000 Deferred Federal - (1,493,485 ) State - (176,000 ) - (1,669,485 ) Tax provision (benefit) $ 61,511 $ (1,609,485 ) For the year ended December 31, 2016, the Company recorded deferred tax liabilities of $1.7 million as a result of intangible assets subject to amortization acquired in business acquisitions that are not amortizable for income tax purposes. As a result of these business combinations, the recording of the deferred tax liabilities resulted in a release of the valuation allowance against the Company’s deferred tax assets of $1.7 for the year ended December 31, 2016, with a corresponding income tax benefit. The tax benefit will be realized as the Company amortizes the intangible assets over their estimated useful lives (see Note 5). The following reconciles the Federal statutory tax rate to the effective income tax rate for the years ended December 31, 2017 and 2016: 2017 2016 % % Federal statutory rate (34.0 ) (34.0 ) State net of federal tax (2.9 ) (3.4 ) Permanent and other items 4.9 1.2 Effect of change in tax rate 98.5 - Change in valuation allowance (66.0 ) 25.0 0.5 (11.2 ) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realizability of deferred tax assets, management evaluates whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on management’s evaluation, it is more likely than not that the net deferred tax assets will not be realized and as such a valuation allowance has been recorded as of December 31, 2017 and 2016. The components of the Company's deferred tax assets and liabilities consist of the following at December 31, 2017 and 2016: 2017 2016 Deferred income tax assets: Net operating losses $ 29,447,000 $ 43,292,000 Allowance for doubtful accounts 105,000 99,000 Derivative liability 500,000 391,000 Accrued liabilities 1,016,000 910,000 Other 55,000 83,000 31,123,000 44,775,000 Deferred income tax liabilities: Intangible assets 5,700,000 9,943,000 Property and equipment 718,000 761,000 6,418,000 10,704,000 Deferred tax asset, net 24,705,000 34,071,000 Less: valuation allowance (24,705,000 ) (34,071,000 ) Net deferred tax assets $ - $ - At December 31, 2017 and 2016, the Company had federal net operating loss carryforwards of approximately $127.0 million and $122.0 million, respectively, which expire in varying amounts through December 31, 2037. Pursuant to Code Sec. 382 of the Internal Revenue Code (“the Code”), the utilization of net operating loss carryforwards may be limited as a result of a cumulative change in stock ownership of more than 50% over a three-year period. The Company underwent such a change and consequently, the utilization of a portion of the net operating loss carryforwards is subject to certain limitations. Impact of 2017 Tax Reform On December 22, 2017 the Tax Cuts and Jobs Act (the “Tax Act”) was enacted in the United States. Among its many provisions, the Tax Act reduces the U.S. corporate income tax rate from 35% to 21%; requires companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; eliminates the corporate alternative minimum tax (AMT); creates a new limitation on deductible interest expense; and changes rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. As a result of the Tax Act, the Company remeasured its deferred tax assets and liabilities to reflect the new statutory federal rate of 21% which resulted in a net adjustment of approximately $13.8 million to deferred income tax expense for the year ended December 31, 2017. This adjustment was offset by a reduction in the valuation allowance. |
20. Commitments and Contingenci
20. Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Commitments and Contingencies | Operating Leases The Company has various non-cancelable operating lease agreements for office facilities. A summary of the approximate lease commitments under non-cancelable leases for years ending subsequent to December 31, 2017 are as follows: Year ending December 31: 2018 $ 1,200,000 2019 1,246,000 2020 1,104,000 2021 500,000 2022 417,000 Thereafter 1,397,000 Rent expense for all operating leases was $1.5 million and $1.6 million for the years ended December 31, 2017 and 2016, respectively. Certain of the Company’s leases include fixed rent escalation schedules or rent escalations based upon a fixed percentage. The Company recognizes rent expense (including escalations) on a straight-line basis over the lease term. Legal Matters The Company is from time to time involved in claims and legal actions arising in the ordinary course of business. Management does not expect that the outcome of any such claims or actions will have a material effect on the Company’s liquidity, results of operations or financial condition. In addition, due to the regulatory nature of the communications industry, the Company periodically receives and responds to various inquiries from state and federal regulatory agencies. Management does not expect the outcome of any such claims, legal actions or regulatory inquiries to have a material impact on the Company’s liquidity, results of operations or financial condition. |
21. Profit Sharing Plan
21. Profit Sharing Plan | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Profit Sharing Plan | On June 1, 1997, the Company adopted a defined contribution profit sharing plan, which covers all employees who meet certain eligibility requirements. Contributions to the plan are made at the discretion of the Board of Directors. No contributions to the profit sharing plan were made for the years ended December 31, 2017 and 2016. |
22. Concentrations
22. Concentrations | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Concentrations | Major Customers For the years ended December 31, 2017 and 2016, no single customer accounted for more than 10% of the Company’s consolidated revenues or consolidated accounts receivable. Geographic Concentrations The Company’s operations are significantly influenced by economic factors and risks inherent in conducting business in foreign countries, including government regulations, currency restrictions and other factors that may significantly affect management’s estimates and the Company’s performance. For the years ended December 31, 2017 and 2016, the Company generated approximate revenues from customers as follows: 2017 2016 United States $ 138,212,257 $ 111,863,657 International Customers 12,318,300 12,790,613 $ 150,530,557 $ 124,654,270 Revenues by geographic area are based upon the location of the customers. Credit Risk The Company maintains its cash balances in high credit quality financial institutions. The Company’s cash balances may, at times, exceed the deposit insurance limits provided by the Federal Deposit Insurance Corp. |
23. Segment Information
23. Segment Information | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Segment Information | Operating segments are defined under U.S. GAAP as components of an enterprise for which separate financial information is available and evaluated regularly by a company's chief operating decision maker in determining how to allocate resources and assess performance. The Company has two reportable segments – “Carrier Services” and “Business 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 gross profit exclude the Company’s executive, administrative and support costs. The Company’s segments and their principal activities consist of the following: 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. Since September 1, 2017, the Company has operated its Carrier Services business segment through FGS (see note 2). 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. Operating segment information for the years ended December 31, 2017 and 2016 is summarized as follows: Year ended December 31, 2017 Carrier Services Business Services Corporate and Unallocated Consolidated Revenues $ 33,188,930 $ 117,341,627 $ - $ 150,530,557 Cost of revenues (exclusive of depreciation and amortization) 31,981,586 51,051,815 - 83,033,401 Gross profit 1,207,344 66,289,812 - 67,497,156 Depreciation and amortization 340,835 13,568,673 611,538 14,521,046 Selling, general and administrative expenses 2,314,530 48,566,229 6,843,443 57,724,202 Interest expense - (8,385,595 ) (263,005 ) (8,648,600 ) Loss on change in fair value of derivative liability - - (909,272 ) (909,272 ) Asset impairment charge - 641,260 - 641,260 Gain on change in fair value of contingent liability - 1,011,606 - 1,011,606 Loss on disposal of property and equipment - (311,707 ) - (311,707 ) Other (expenses) income, net (9,454 ) 329,855 (111,166 ) 209,235 Income tax provision - (61,511 ) - (61,511 ) Net loss $ (1,457,475 ) $ (3,903,702 ) $ (8,738,424 ) $ (14,099,601 ) Capital expenditures $ 35,442 $ 4,986,988 $ - $ 5,022,430 Total assets $ 2,888,933 $ 116,807,604 $ 2,361,024 $ 122,057,561 Year ended December 31, 2016 Carrier Services Business Services Corporate and Unallocated Consolidated Revenues $ 35,484,101 $ 89,170,169 $ - $ 124,654,270 Cost of revenues (exclusive of depreciation and amortization) 33,783,130 36,884,252 - 70,667,382 Gross profit 1,700,971 52,285,917 - 53,986,888 Depreciation and amortization 153,567 12,033,551 909,469 13,096,587 Selling, general and administrative expenses 2,710,880 40,331,439 5,482,604 48,524,923 Loss on disposal of property and equipment - (129,119 ) - (129,119 ) Interest expense - (6,442,224 ) (299,919 ) (6,742,143 ) Gain on change in fair value of derivative liability - - 265,383 265,383 Loss on extinguishment of debt - (214,294 ) - (214,294 ) Other income (expenses) - 165,882 (36,895 ) 128,987 Income tax benefit - 1,609,485 - 1,609,485 Net loss $ (1,163,476 ) $ (5,089,343 ) $ (6,463,504 ) $ (12,716,323 ) Total assets $ 6,265,402 $ 125,690,837 $ - $ 131,956,239 Capital expenditures $ - $ 4,954,711 $ - $ 4,954,711 |
24. Related Party Transactions
24. Related Party Transactions | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Related Party Transactions | Since March 6, 2014, the Company has engaged a third party tax advisor to prepare its tax returns and to provide related tax advisory services. The Company paid this firm approximately $0.2 million and $0.1 million for the years ended December 31, 2017 and 2016, respectively. Larry Blum, a member of Fusion’s Board of Directors, is a Senior Advisor and a former partner of this tax advisor. |
25. Proposed Merger Transaction
25. Proposed Merger Transaction | 12 Months Ended |
Dec. 31, 2017 | |
Proposed Merger Transaction | |
Proposed Merger Transaction | On August 26, 2017, Fusion and its wholly owned subsidiary, Fusion BCHI Acquisition LLC, a Delaware limited liability company (“Merger Sub”), entered into an Agreement and Plan of Merger, as subsequently amended (the “Merger Agreement”) with Birch Communications Holdings, Inc., a Georgia corporation (“Birch”). The Merger Agreement, provides, among other things, that upon the terms and conditions set forth therein, Birch will merge with and into Merger Sub (the “Merger”), with Merger Sub surviving such merger. On the effective date of the Merger, the outstanding shares of common stock, par value $0.01 per share, of Birch (other than treasury shares or shares owned of record by any Birch subsidiary) will be cancelled and converted into the right to receive, in the aggregate, that number of shares of Fusion common stock equal to three times the number of shares of (i) Fusion common stock issued and outstanding immediately prior to the Effective Time (as defined in the Merger Agreement) (but excluding the shares of our common stock issued by us in a public offering of our shares of common stock completed in February 2018 (see note 26) as well as certain other issued and outstanding shares of our common stock, plus (ii) the number of shares of our common stock issued or issuable upon the conversion of all classes or series of our preferred stock outstanding immediately prior to the closing of the Merger, plus (iii) the number of shares of Fusion common stock issuable upon the exercise of all in-the-money Fusion warrants (the “Merger Shares”). Pursuant to subscription agreements executed by each of the stockholders of Birch, the Merger Shares will be issued in the name of, and held by BCHI Holdings, LLC (“BCHI”), a limited liability company owned by the stockholders of Birch. On the closing date of the Merger, BCHI and Fusion will enter into a Registration Rights Agreement governing the registration rights of the BCHI in respect of the Merger Shares and pursuant to which Fusion will agree, among other things, to use reasonable best efforts to cause a shelf registration statement covering the resale of the Merger Shares to be declared effective by the SEC within 120 days of the closing of the Merger. Fusion, Birch and Merger Sub each made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants by each of Fusion and Birch to, subject to certain exceptions, (a) conduct its business in the ordinary course, (b) preserve intact its business organization and significant business relationships, preserve satisfactory relationships with its officers and key employees and maintain its current rights and franchises, (c) maintain insurance on material assets, and (d) maintain all permits, each during the interim period between the execution of the Merger Agreement and the earlier of the consummation of the Merger or termination of the Merger Agreement. Closing of the Merger is subject to numerous conditions, including (i) receipt of the requisite approval of Fusion’s voting shares, which approval was secured by the Company on February 21, 2018, (ii) Fusion obtaining financing for the transaction, which will be used to retire existing senior debt facilities at Birch and Fusion, (iii) all existing shares of our preferred stock being converted into shares of our common stock, and (iv) Fusion using its reasonable best efforts to cause the Merger Shares to be approved for listing on The Nasdaq Stock Market, LLC (“Nasdaq”), including, if necessary, in order to comply with Nasdaq listing requirements, amending Fusion’s existing certificate of incorporation prior to the effective time of the Merger to effect a reverse stock split of our common stock to satisfy Nasdaq’s minimum pricing requirements (the “Reverse Stock Split”). If the Reverse Stock Split must be completed prior to the closing of the Merger, it will be in a range of up to 5:1, with the final ratio to be determined by our existing board. In addition, prior to the closing of the Merger, Birch is required to spin-off to the existing Birch stockholders, its US-based consumer business, which consists of (i) the residential customer base, life line and consumer wireless business in the United States, and (ii) its single-line business customer base in the United States. In addition, as discussed above, we have agreed that on or prior to the consummation of the Merger, we will use our reasonable best efforts to either (i) divest our 60% ownership interest in FGS or (ii) dissolve FGS. On the effective date of the Merger, the certificate of incorporation of Fusion will be amended and restated, which amendments will, among other things, (i) increase the number of authorized shares of Fusion common stock to 150,000,000 and (ii) change the name of Fusion to “Fusion Connect, Inc.” The Merger is currently expected to be completed mid-April 2018. The terms of the Merger Agreement are such that the Merger, if consummated, will result in a change in control. As a result, the transaction will be accounted for as a reverse acquisition and recapitalization, with Birch as the acquirer for accounting purposes, and the historical financial statements of Birch will become the historical financial statements of the Company. |
26. Subsequent Events
26. Subsequent Events | 12 Months Ended |
Dec. 31, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events | (a) On February 5, 2018, the Company closed an underwritten public offering of 12,937,500 shares of its common stock, including 1,687,500 shares for which the underwriters exercised their over-allotment option in full, at a price to the public of $3.20 per share for gross proceeds of $41.4 million. The net proceeds, after underwriting discounts and commissions, but before estimated expenses of the offering payable by the Company, were $38.7 million. Pursuant to the terms of the Merger Agreement, the shares sold in the offering will not be counted as issued and outstanding for purposes of calculating the number of shares of Fusion common stock to be issued as consideration to the Birch shareholders in connection with the closing of the Merger. As a result, on a post-closing basis, the dilutive effect of this offering will be shared pro rata by current Fusion and Birch shareholders with current Fusion stockholders bearing approximately 25% of the dilution and current Birch shareholders bearing approximately 75% of the dilution from this offering. (b) In January 2018, the Company acquired substantially all of the assets of IQMax, a provider of secure messaging, enterprise data integration and advanced cloud communications solutions. The total consideration for this transaction is $1.0 million, which will paid in shares of the Company’s common stock. These shares will remain in escrow until 12 months following the closing of the transaction. This acquisition is not expected to have a material effect on the Company’s consolidated financial statements. |
2. Significant Accounting Pol33
2. Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2017 | |
Significant Accounting Policies Policies | |
Principles of Consolidation and Basis of Presentation | The accompanying consolidated financial statements include the consolidated accounts of Fusion and its wholly-owned and partially owned subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with Regulation S-X of the Securities and Exchange Commission (the “SEC”). All intercompany balances and transactions have been eliminated in consolidation. Effective September 1, 2017, Fusion transferred 40% of its membership interests in Fusion Global Services LLC (“FGS”) to XcomIP, LLC (“XcomIP”), in exchange for which XcomIP contributed assets of its carrier business to FGS. In connection with this transaction, Fusion and XcomIP also executed a members agreement under which Fusion has agreed to provide up to $750,000 in working capital to FGS. The Company has determined that, based on the terms of the members agreement, it has a controlling financial interest in FGS under the guidance set forth in Accounting Standards Codification (“ASC”) 810, Consolidation, therefore the accounts of FGS are consolidated into Fusion’s consolidated financial statements as of and for the year ended December 31, 2017. Prior to the transfer of membership interests to XcomIP, Fusion transferred its Carrier Services business to FGS. 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 for these fees and surcharges 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 years ended December 31, 2017 and 2016 include $3.3 million and $2.6 million, respectively, of federal and state universal service fees and surcharges. |
Use of estimates | The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the year. 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. These changes in estimates are recognized in the period they are realized. |
Reclassifications | Certain reclassifications have been made to the prior year’s financial statements in order to conform to the current year’s presentation. Specifically, approximately $76,000 due from the counterparty to the Company’s purchase of customer bases (see note 5) has been reclassified as a reduction to the liability due to the same counterparty. The reclassification had no impact on results of operations as previously reported. |
Cash and Cash Equivalents | Cash and cash equivalents include cash on deposit and short-term, highly-liquid investments with maturities of three months or less at the date of purchase. As of December 31, 2017 and 2016, the carrying value of cash and cash equivalents approximates fair value due to the short period of time to maturity. |
Restricted Cash | Restricted cash consists of certificates of deposit that serve to collateralize outstanding letters of credit. Restricted cash is recorded as current or non-current assets in the consolidated balance sheets depending on the duration of the restriction and the purpose for which the restriction exists. At December 31, 2017 and 2016, the Company had certificates of deposit collateralizing a letter of credit aggregating approximately $27,000. The letter of credit is required as security for one of the Company’s non-cancelable operating leases for office facilities. |
Revenue Recognition | The Company recognizes revenue when persuasive evidence of a sale arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed and determinable, and collectability is reasonably assured. The Company records provisions against revenue for billing adjustments, which are based upon estimates derived from factors that include, but are not limited to, historical results, analysis of credits issued and current economic trends. The provisions for revenue adjustments are recorded as a reduction of revenue when the revenue is recognized. Below is a summary of the changes in the provisions against revenue for the years ended December 31, 2017 and 2016: Balance at Beginning of Period Additions to Reserve Posted Credits and other Adjustments Balance at End of Period Year ended December 31, 2017 $ 389,257 2,118,418 (1,918,155 ) $ 589,520 Year ended December 31, 2016 $ 223,045 2,582,163 (2,415,951 ) $ 389,257 The Company’s Business Services revenue includes fixed revenue earned from monthly recurring services provided to customers, for whom charges are contracted for over a specified period of time, and from variable usage fees charged to customers that purchase the Company’s Business Services products and services. Revenue recognition commences after the provisioning, testing and acceptance of the service by the customer. The recurring customer charges continue until the expiration of the contract, or until cancellation of the service by the customer. To the extent that payments received from a customer are related to a future period, the payment is recorded as deferred revenue until the service is provided or the usage occurs. Carrier Services revenue is primarily derived from usage fees charged to other carriers that terminate voice traffic over the Company’s network. Variable revenue is earned based on the length of a call, as measured by the number of minutes of duration. It is recognized upon completion of the call, and is adjusted to reflect the Company’s allowance for billing adjustments. Revenue for each customer is calculated from information received through the Company’s network switches. The Company’s customized software tracks the information from the switches and analyzes the call detail records against stored detailed information about revenue rates. This software provides the Company with the ability to complete a timely and accurate analysis of revenue earned in a period. The Company believes that the nature of this process is such that recorded revenues are unlikely to be revised in future periods. |
Cost of Revenues | Cost of revenues for the Company’s Business Services segment consist of fixed expenses which include monthly recurring charges associated with certain platform services purchased from other service providers, monthly recurring costs associated with private line services and the cost of broadband Internet access used to provide service to business customers. For the Company’s Carrier Services segment, cost of revenues is comprised primarily of costs incurred from other carriers to originate, transport, and terminate voice calls for the Company’s carrier customers. Thus, the majority of the Company’s cost of revenues for this segment is variable, based upon the number of minutes actually used by the Company’s customers and the destinations they are calling. Call activity is tracked and analyzed with customized software that analyzes the traffic flowing through the Company’s network switch. During each period, the call activity is analyzed and an accrual is recorded for the costs associated with minutes not yet invoiced. This cost accrual is calculated using minutes from the system and the variable cost of revenue based upon predetermined contractual rates. Fixed expenses reflect the costs associated with connectivity between the Company’s network infrastructure, including its New Jersey switching facility, and certain large carrier customers and vendors. |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts receivable is recorded net of an allowance for doubtful accounts. On a periodic basis, the Company evaluates accounts receivable and records an allowance for doubtful accounts based on the Company’s history of past write-offs, collections experience and current credit conditions. Specific customer accounts are written off as uncollectible when collection efforts have been exhausted and payments are not expected to be received. During the periods presented, the Company has not experienced any significant defaults on its accounts receivable. Below is a summary of the changes in allowance for doubtful accounts for the years ended December 31, 2017 and 2016 (in thousands): Balance at Beginning of Period Additions - Charged to Expense Deductions - Write-offs, Payments and other Adjustments Balance at End of Period Year ended December 31, 2017 $ 427 1,135 (862 ) $ 700 Year ended December 31, 2016 $ 309 388 (270 ) $ 427 |
Business Combinations | Business combinations are accounted for using the purchase method of accounting, whereby the purchase price of the acquisition, including the fair value of contingent consideration, is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. The results of operations of all business acquisitions are included in our Consolidated Financial Statements from the date of acquisition. Goodwill as of the acquisition date, if any, is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, to the extent the Company identifies adjustments to the purchase price or the purchase price allocation, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. All transaction costs incurred in connection with a business combination are expensed as incurred and are reflected in selling, general and administrative expense in the accompanying consolidated statements of operations. |
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 December 31, 2017 and 2016 was $34.8 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 years ended December 31, 2017 and 2016: Balance at December 31, 2015 $ 27,060,297 Fidelity purchase price adjustment* 134,216 TFB acquisition* 993,637 Apptix acquisition 7,091,065 Customer base acquisition* 410,000 Balance at December 31, 2016 35,689,215 Increase in goodwill associated with a 2016 acquisition 7,414 Settlement of litigation with Apptix sellers (see note 16) (513,000 ) Adjustment to goodwill associated with acquisition of customer bases (410,000 ) Balance at December 31, 2017 $ 34,773,629 * - See note 5 for discussion of acquisitions 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 reportable segments are its reporting units (see Note 23) 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, otherwise no further analysis is required. The Company also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. The Company performed a quantitative impairment analysis on its goodwill as of December 31, 2017 and 2016 and determined that goodwill was not impaired. |
Impairment of Long-Lived Assets | The Company reviews long-lived assets, including intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully 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 recorded an impairment charge related to its intangible assets in the amount of $0.6 million in the year ended December 31, 2017 and did not record any impairment charges for the year ended December 31, 2016. |
Property and Equipment | Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets as follows: Asset Estimated Useful Lives Network equipment 5 - 7 Years Furniture and fixtures 3 - 7 Years Computer equipment and software 3 - 5 Years Customer premise equipment 2 - 3 Years Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the term of the associated lease. Maintenance and repairs are recorded as a period expense, while betterments and improvements are capitalized. The Company capitalizes a portion of its payroll and related costs for the development of software for internal use and amortizes these costs over three years. During the years ended December 31, 2017 and 2016, the Company capitalized costs pertaining to the development of internally used software in the amount of $2.0 million and $1.2 million, respectively. |
Fair value of financial instruments | The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: ● Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. ● Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets). ● Level 3 applies to assets or liabilities for which fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including the Company's own assumptions. The estimated fair value of financial instruments is determined by the Company using available market information and valuation methodologies considered to be appropriate. At December 31, 2017 and 2016, the carrying value of the Company’s accounts receivable, accounts payable and accrued expenses approximate their fair values due to their short maturities. |
Derivative Financial Instruments | The Company accounts for equity and equity indexed instruments with down round provisions issued in conjunction with the issuance of debt or equity securities of the Company in accordance with the guidance contained in Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging |
Stock based compensation | The Company recognizes expense for its employee stock-based compensation based on the fair value of the award at the date of grant. The fair values of stock options are estimated using the Black-Scholes option valuation model. The use of the Black-Scholes option valuation model requires the input of subjective assumptions. Measured compensation cost, net of estimated forfeitures, is recognized ratably over the vesting period of the related stock-based compensation award. For transactions in which goods or services are the consideration received from non-employees in return for the issuance of equity instruments, the expense is recognized in the period when the goods and services are received at the fair value of the consideration received or the fair value of the equity instrument issued, whichever is determined to be a more reliable measurement. |
Advertising and Marketing | 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 $0.5 million and $0.7 million for the years ended December 31, 2017 and 2016, respectively. |
Income Taxes | The accounting and reporting requirements with respect to 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 December 31, 2017 and 2016. No interest expense or penalties have been recognized as of December 31, 2017 and 2016. During the years ended December 31, 2017 and 2016, the Company recognized no adjustments for uncertain tax positions. |
Recently Issued Accounting Pronouncements | In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures. During the first quarter of 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this update eliminate the requirement to perform step two of the goodwill impairment test, which requires a hypothetical purchase price allocation when an impairment is determined to have occurred. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard update is effective as of the first quarter of 2020; however, early adoption is permitted for any interim or annual impairment tests performed after January 1, 2017. Fusion will adopt this standard on January 1, 2018. The adoption of this standard update will not have a significant impact on Company’s financial statements. In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which clarifies guidance and presentation related to restricted cash in the statement of cash flows, including stating that restricted cash should be included within cash and cash equivalents in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, with early adoption permitted, and is to be applied retrospectively. The Company early adopted ASU 2016-18 effective January 1, 2017. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. Under ASU 2016-02, lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right to-use asset, which is an asset that represents the lessee’s right to use or control the use of a specified asset for the lease term. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The updated standard became effective as of January 1, 2017. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Under ASU 2016-09, all excess tax benefits and tax deficiencies related to share-based payment awards are to be recognized as income tax expense or income tax benefit in the statement of operations. In addition, the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur and excess tax benefits should be recognized regardless of whether the benefit reduces taxes payable in the current period. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In May 2014, the FASB issued new guidance related to revenue recognition, ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”), which outlines a comprehensive revenue recognition model and supersedes most current revenue recognition guidance. The new guidance requires a company to recognize revenue upon transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. ASC 606 defines a five-step approach for recognizing revenue: (i) identification of the contract, (ii) identification of the performance obligations, (iii) determination of the transaction price, (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue as the entity satisfies the performance obligations. The new criteria for revenue recognition may require a company to use more judgment and make more estimates than under the current guidance. The new guidance becomes effective in calendar year 2018 and early adoption in calendar year 2017 is permitted. Two methods of adoption are permitted: (a) full retrospective adoption, meaning the standard is applied to all periods presented; or (b) modified retrospective adoption, meaning the cumulative effect of applying the new guidance is recognized at the date of initial application as an adjustment to the opening retained earnings balance. In March 2016, April 2016 and December 2016, the FASB issued ASU No. 2016-08, Revenue From Contracts with Customers (ASC 606): Principal Versus Agent Considerations, ASU No. 2016-10, Revenue From Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing, and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue From Contracts with Customers, respectively, which further clarify the implementation guidance on principal versus agent considerations contained in ASU No. 2014-09. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers, narrow-scope improvements and practical expedients which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for non-cash consideration and completed contracts at transition. These standards will be effective for the Company beginning in the first quarter of 2018. Early adoption is permitted. The Company will adopt the new standard and related updates effective January 1, 2018, using the modified retrospective method of adoption. The Company estimates that, based on available information, both the impact of the adjustment to opening retained earnings and the ongoing impact from the deferral of acquisition costs and activation and installation revenues will not be material to the Company’s financial statements. |
2. Significant Accounting Pol34
2. Significant Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Significant Accounting Policies Tables | |
Provisions Against Revenue | Balance at Beginning of Period Additions to Reserve Posted Credits and other Adjustments Balance at End of Period Year ended December 31, 2017 $ 389,257 2,118,418 (1,918,155 ) $ 589,520 Year ended December 31, 2016 $ 223,045 2,582,163 (2,415,951 ) $ 389,257 |
Summary of the changes in allowance for doubtful accounts | Balance at Beginning of Period Additions - Charged to Expense Deductions - Write-offs, Payments and other Adjustments Balance at End of Period Year ended December 31, 2017 $ 427 1,135 (862 ) $ 700 Year ended December 31, 2016 $ 309 388 (270 ) $ 427 |
Business acquisition cost for goodwill | Balance at December 31, 2015 $ 27,060,297 Fidelity purchase price adjustment* 134,216 TFB acquisition* 993,637 Apptix acquisition 7,091,065 Customer base acquisition* 410,000 Balance at December 31, 2016 35,689,215 Increase in goodwill associated with a 2016 acquisition 7,414 Settlement of litigation with Apptix sellers (see note 16) (513,000 ) Adjustment to goodwill associated with acquisition of customer bases (410,000 ) Balance at December 31, 2017 $ 34,773,629 * - See note 5 for discussion of acquisitions |
Estimated useful lives | Asset Estimated Useful Lives Network equipment 5 - 7 Years Furniture and fixtures 3 - 7 Years Computer equipment and software 3 - 5 Years Customer premise equipment 2 - 3 Years |
3. Loss per Share (Tables)
3. Loss per Share (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Loss Per Share Tables | |
Computation of basic and diluted net loss per share | Years Ended December 31, 2017 2016 Numerator Net loss attributable to Fusion Telecommunications International, Inc. $ (14,014,523 ) $ (12,716,323 ) Undeclared dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock ( 403,600 ) ( 404,706 ) Conversion price reduction on Series B-2 Preferred Stock (see note 16) ( 623,574 ) - Series B-2 warrant exchange (see note 16) ( 347,191 ) - Dividends declared on Series B-2 Convertible Preferred Stock ( 463,162 ) ( 1,983,301 ) Net loss attributable to common stockholders $ (15,852,050 ) $ (15,104,330 ) Denominator Basic and diluted weighted average common shares outstanding 21,969,601 15,406,184 Loss per share Basic and diluted $ (0.72 ) $ (0.98 ) |
Shares excluded from the calculation of diluted earnings per share | For the Years Ended December 31, 2017 2016 Warrants 2,000,988 2,902,862 Convertible preferred stock 2,045,979 2,628,389 Stock options 3,017,927 2,183,723 7,064,894 7,714,974 |
4. Stock-Based Compensation (Ta
4. Stock-Based Compensation (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Stock-based Compensation Tables | |
Stock Option Activity | Number of Options Weighted Average Exercise Price Weighted Average Remaining Contract Term Outstanding at December 31, 2015 1,158,251 $ 4.96 8.43 years Granted 1,135,650 1.31 Exercised - - Forfeited (89,826 ) 2.51 Expired (20,352 ) 69.46 Outstanding at December 31, 2016 2,183,723 2.56 8.56 years Granted 949,298 2.37 Exercised - - Forfeited ( 85,802 ) 1.65 Expired ( 29,292 ) 17.32 Outstanding at December 31, 2017 3,017,927 2.38 8.26 years Exercisable at December 31, 2017 1,860,667 2.81 7.82 years |
Black-Scholes option-pricing model | Year Ended December 31, 2017 2016 Dividend yield 0.0 % 0.0 % Expected volatility 92.40 % 92.40 % Average Risk-free interest rate (%) 2.00-2.43 1.21-2.23 Expected life of stock option term (years) 8.00 6.86-8.00 |
Stock Options Outstanding | Stock Options Outstanding Stock Options Exercisable Range of Exercise Prices Options Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Aggregate intrinsic Value Options Exercisable Weighted Average Remaining Contractual Life (Years) Weighted Average Price Aggregate intrinsic Value $ 1.14 - $1.72 1,116,100 8.74 $ 1.29 346,148 8.57 $ 1.27 $ 1.74 - $2.67 1,268,898 9.10 2.34 918,715 8.96 2.33 $ 2.72 - $4.24 327,395 6.82 3.48 291,989 6.74 3.48 $ 4.25 - $7.00 290,364 4.77 4.83 288,645 4.76 4.83 $ 7.50 - $15.50 15,170 0.24 15.40 15,170 0.24 15.44 3,017,927 8.26 2.38 $4,620,526 1,860,667 7.82 2.81 $2,243,741 |
5. Acquisitions (Tables)
5. Acquisitions (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Acquisitions Tables | |
Purchase price allocated to the fair value of the net assets | Apptix Cash $ 67,071 Accounts receivable 2,207,024 Prepaid expenses and other current assets 620,270 Property and equipment 2,878,877 Deferred tax liability (1,633,853 ) Covenant not to compete 1,417,000 Customer contracts 20,948,000 Accrued liabilities (6,904,479 ) Goodwill 7,091,065 Total purchase price $ 26,690,975 Technology for Business Accounts receivable, net $ 80,845 Prepaid expenses and other current assets 5,535 Proprietary technology 889,000 Covenant not to compete 8,000 Customer contracts 99,000 Current liabilities ( 687,130 ) Accrued royalty (1,111,606 ) Goodwill 993,637 Total cash purchase price $ 277,281 Fidelity Cash $ 503,059 Accounts receivable, net 273,809 Prepaids 44,735 Property and equipment 1,111,699 Covenant not to compete 618,000 Customer contracts 19,243,000 Accrued liabilities (692,606 ) Deferred tax liability (7,710,536 ) Goodwill 16,502,971 Total purchase price $ 29,894,133 |
Pro forma financial information | Apptix 2016 Revenues $ 141.3 Net loss $ (16.5 ) |
6. Intangible Assets (Tables)
6. Intangible Assets (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Intangible Assets Tables | |
Identifiable intangible assets | December 31, 2017 December 31, 2016 Gross Carrying Amount Accumulated Amortization Total Gross Carrying Amount Accumulated Amortization Total Trademarks and tradename $ 1,093,400 $ (672,314 ) $ 421,086 $ 1,093,400 $ (501,982 ) $ 591,418 Proprietary technology 5,781,000 (5,005,400 ) 775,600 6,670,000 (4,036,915 ) 2,633,085 Non-compete agreement 12,120,043 (11,701,307 ) 418,736 12,128,043 (9,891,892 ) 2,236,151 Customer relationships 67,614,181 (13,073,580 ) 54,540,601 65,948,181 (7,827,697 ) 58,120,484 Favorable lease 218,000 (218,000 ) - 218,000 (181,667 ) 36,333 Total acquired intangibles $ 86,826,624 $ (30,670,601 ) $ 56,156,023 $ 86,057,624 $ (22,440,153 ) $ 63,617,471 |
Estimated future aggregate amortization expense | Year Amortization Expense 2018 $ 6,361,523 2019 5,469,042 2020 5,458,742 2021 5,284,375 2022 4,612,642 |
7. Prepaid Expenses and Other39
7. Prepaid Expenses and Other Current Assets (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Prepaid Expenses And Other Current Assets Tables | |
Prepaid expenses and other current assets | December 31, 2017 December 31, 2016 Insurance $ 18,639 $ 160,262 Rent 16,326 5,389 Marketing 55,801 74,665 Software subscriptions 610,191 419,431 Commissions 46,755 159,146 Network costs 817,704 - Other 525,828 265,316 Total $ 2,091,244 $ 1,084,209 |
8. Accounts Payable and Accru40
8. Accounts Payable and Accrued Expenses (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Accounts Payable And Accrued Expenses Tables | |
Accounts payable and accrued expenses | December 31, 2017 December 31, 2016 Trade accounts payable $ 9,336,838 $ 6,358,548 Accrued license fees 2,881,331 2,881,331 Accrued sales and federal excise taxes 3,496,697 2,863,363 Deferred revenue 1,283,969 1,874,641 Accrued network costs 2,151,271 1,416,000 Accrued sales commissions 911,192 819,106 Property and other taxes 759,770 581,956 Accrued payroll and vacation 422,097 421,733 Customer deposits 383,032 365,249 Interest payable 7,263 304,409 Credit card payable 114,209 265,985 Accrued USF fees 728,826 249,825 Accrued bonus 333,337 249,361 Professional and consulting fees 171,163 164,878 Rent 163,030 127,781 Other 1,945,021 778,672 Total $ 25,089,046 $ 19,722,838 |
9. Property and Equipment (Tabl
9. Property and Equipment (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Property And Equipment Tables | |
Schedule of property and equipment | December 31, 2017 December 31, 2016 Network equipment $ 20,350,334 $ 13,716,468 Furniture and fixtures 436,697 421,689 Computer equipment and software 1,934,984 5,868,370 Customer premise equipment 7,650,496 9,695,643 Vehicles 55,884 55,884 Leasehold improvements 1,069,670 1,188,207 Assets in progress - 383,137 Total 31,498,065 31,329,398 Less: accumulated depreciation (18,641,531 ) (17,080,483 ) Total $ 12,856,534 $ 14,248,915 |
10. Equipment Financing Oblig42
10. Equipment Financing Obligations (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Pro forma financial information | |
Schedule of equipment financing obligations | December 31, December 31, 2017 2016 Equipment financing obligations $ 1,797,374 $ 2,239,661 Less: current portion (1,206,773 ) (1,002,578 ) Long-term portion $ 590,601 $ 1,237,083 |
Principal payments under capital lease agreements | Year ending December 31: Principal 2018 $ 1,206,773 2019 502,589 2020 88,012 $ 1,797,374 |
11. Supplemental Disclosure o43
11. Supplemental Disclosure of Cash Flow Information (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Supplemental Disclosure Of Cash Flow Information Tables | |
Supplemental Disclosure of Cash Flow Information | Years Ended December 31, Supplemental Cash Flow Information 2017 2016 Cash paid for interest $ 7,756,230 $ 5,806,910 Cash paid for income taxes $ - $ - Supplemental Non-Cash Investing and Financing Activities Property and equipment acquired under capital leases or equipment financing obligations $ 677,071 $ 188,497 Conversion of preferred stock into common stock $ 3,083,000 $ - Dividend on Series B-2 preferred stock paid with the issuance of Fusion common stock $ 463,162 $ 1,983,301 Common stock issued for acquisitions $ - $ 3,627,490 Obligations under asset purchase agreements $ 968,035 $ 1,521,606 |
12. Obligations Under Asset P44
12. Obligations Under Asset Purchase Agreements (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Obligations Under Asset Purchase Agreements Tables | |
Obligations Under Asset Purchase Agreements | December 31, December 31, 2017 2016 Root Axcess $ - $ 166,668 Customer base acquisitions 450,000 334,025 Technology For Business, Inc. - 936,606 450,000 1,437,299 Less: current portion (227,760 ) (546,488 ) Long-term portion $ 222,240 $ 890,811 |
13. Secured Credit Facilities (
13. Secured Credit Facilities (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Secured Credit Facilities Tables | |
Secured credit facilities | December 31, December 31, 2017 2016 Term loan $ 61,750,000 $ 65,000,000 Less: Deferred financing fees (1,027,332 ) (1,289,629 ) Current portion (6,500,000 ) (2,979,167 ) Term loan - long-term portion $ 54,222,668 $ 60,731,204 Indebtedness under revolving credit facility $ 1,500,000 $ 3,000,000 |
14. Notes Payable Non-Related P
14. Notes Payable Non-Related Parties (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Notes Payable Non-related Parties Tables | |
Components of notes payable non-related parties | December 31, December 31, 2017 2016 Subordinated notes $ 33,588,717 $ 33,588,717 Discount on subordinated notes (1,040,167 ) (1,368,629 ) Deferred financing fees (595,387 ) (788,486 ) Total notes payable - non-related parties 31,953,163 31,431,602 Less: current portion - - Long-term portion $ 31,953,163 $ 31,431,602 |
15. Notes Payable Related Parti
15. Notes Payable Related Parties (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Debt discount | |
Component of notes payable related party | December 31, December 31, 2017 2016 Notes payable to Marvin Rosen $ 928,081 $ 928,081 Discount on notes - (52,331 ) Total notes payable - related parties $ 928,081 $ 875,750 |
16. Equity Transactions (Tables
16. Equity Transactions (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Equity Transactions Tables | |
Schedule of preferred stock | Series A-1 Series A-2 Series A-4 Series B-2 Total Shares $ Shares $ Shares $ Shares $ Shares $ Balance at December 31, 2015 2,375 $ 24 2,625 $ 26 45 $ - 18,279 $ 184 23,324 $ 234 Conversion of preferred stock into common stock - - - - - - (6,025 ) (60 ) (6,025 ) (60 ) Balance at December 31, 2016 2,375 24 2,625 26 45 - 12,254 124 17,299 174 Conversion of preferred stock into common stock - - - - - - (3,083 ) (32 ) (3,083 ) (32 ) Balance at December 31, 2017 2,375 $ 24 2,625 $ 26 45 $ - 9,171 $ 92 14,216 $ 142 |
Schedule of warrants | Number of Warrants Per share Exercise Price Weighted Average Exercise Price Outstanding at December 31, 2015 3,011,764 $ 3.95 to $10.15 $ 6.14 Granted in 2016 - - Exercised in 2016 - - Expired in 2016 (108,902 ) $ 4.00-$7.00 $ 5.00 Outstanding at December 31, 2016 2,902,862 $ 4.25-$10.15 $ 6.18 Granted in 2017 65,000 $ 1.50 $ 1.50 Exercised in 2017 (359,067 ) $ 1.39-$1.56 $ 1.48 Expired in 2017 (607,807 ) $ 4.50-$10.15 $ 6.81 Outstanding at December 31, 2017 2,000,988 $ 5.06 |
17. Derivative Liability (Table
17. Derivative Liability (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Derivative Liability Tables | |
Assumptions were used to determine the fair value of the warrants | Year ended December 31, 2017 2016 Stock price ($) 3.75 1.50 Adjusted exercise price ($) 1.55 1.65 Expected volatility (%) 84.10 71.40 Time to maturity (years) 1.25 2.0 |
18. Fair Value Disclosures (Tab
18. Fair Value Disclosures (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Abandonment of common stock, Amount | |
Fair value of the liability measured at fair value on a recurring basis | Level 1 Level 2 Level 3 Total As of December 31, 2017 Current liabilities: Contingent purchase price liability (see note 12) - - $ 227,760 $ 227,760 Non-current liabilities: Contingent purchase price liability - - $ 222,240 $ 222,240 Derivative liability (see note 17) - - $ 872,900 $ 872,900 As of December 31, 2016 Current liabilities: Contingent purchase price liability - - $ 100,000 $ 100,000 Non-current liabilities: Contingent purchase price liability - - $ 836,606 $ 836,606 Derivative liability (see note 17) - - $ 348,650 $ 348,650 |
Changes in the derivative liability | Balance at December 31, 2015 $ 953,005 Change in fair value included in net loss (1,037,405 ) Adjustment for prior issuances and exercise of warrants 433,050 Balance at December 31, 2016 348,650 Change in fair value included in net loss 909,272 Warrant exercises (see note 12) (385,022 ) Balance at December 31, 2017 $ 872,900 |
19. Income Taxes (Tables)
19. Income Taxes (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Income Taxes Tables | |
Schedule of provision for income taxes | 2017 2016 Current Federal - - State $ 61,511 $ 60,000 61,511 60,000 Deferred Federal - (1,493,485 ) State - (176,000 ) - (1,669,485 ) Tax provision (benefit) $ 61,511 $ (1,609,485 ) |
Schedule of Federal statutory tax rate | 2017 2016 % % Federal statutory rate (34.0 ) (34.0 ) State net of federal tax (2.9 ) (3.4 ) Permanent and other items 4.9 1.2 Effect of change in tax rate 98.5 - Change in valuation allowance (66.0 ) 25.0 0.5 (11.2 ) |
Schedule of deferred tax assets and liability | 2017 2016 Deferred income tax assets: Net operating losses $ 29,447,000 $ 43,292,000 Allowance for doubtful accounts 105,000 99,000 Derivative liability 500,000 391,000 Accrued liabilities 1,016,000 910,000 Other 55,000 83,000 31,123,000 44,775,000 Deferred income tax liabilities: Intangible assets 5,700,000 9,943,000 Property and equipment 718,000 761,000 6,418,000 10,704,000 Deferred tax asset, net 24,705,000 34,071,000 Less: valuation allowance (24,705,000 ) (34,071,000 ) Net deferred tax assets $ - $ - |
20. Commitments and Contingen52
20. Commitments and Contingencies (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Commitments And Contingencies Tables | |
Schedule of Commitments and Contingencies | Year ending December 31: 2018 $ 1,200,000 2019 1,246,000 2020 1,104,000 2021 500,000 2022 417,000 Thereafter 1,397,000 |
22. Concentrations (Tables)
22. Concentrations (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Concentrations Tables | |
Schedule of Geographic Concentrations | 2017 2016 United States $ 138,212,257 $ 111,863,657 International Customers 12,318,300 12,790,613 $ 150,530,557 $ 124,654,270 |
23. Segment Information (Tables
23. Segment Information (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Segment Information Tables | |
Operating segment information | Year ended December 31, 2017 Carrier Services Business Services Corporate and Unallocated Consolidated Revenues $ 33,188,930 $ 117,341,627 $ - $ 150,530,557 Cost of revenues (exclusive of depreciation and amortization) 31,981,586 51,051,815 - 83,033,401 Gross profit 1,207,344 66,289,812 - 67,497,156 Depreciation and amortization 340,835 13,568,673 611,538 14,521,046 Selling, general and administrative expenses 2,314,530 48,566,229 6,843,443 57,724,202 Interest expense - (8,385,595 ) (263,005 ) (8,648,600 ) Loss on change in fair value of derivative liability - - (909,272 ) (909,272 ) Asset impairment charge - 641,260 - 641,260 Gain on change in fair value of contingent liability - 1,011,606 - 1,011,606 Loss on disposal of property and equipment - (311,707 ) - (311,707 ) Other (expenses) income, net (9,454 ) 329,855 (111,166 ) 209,235 Income tax provision - (61,511 ) - (61,511 ) Net loss $ (1,457,475 ) $ (3,903,702 ) $ (8,738,424 ) $ (14,099,601 ) Capital expenditures $ 35,442 $ 4,986,988 $ - $ 5,022,430 Total assets $ 2,888,933 $ 116,807,604 $ 2,361,024 $ 122,057,561 Year ended December 31, 2016 Carrier Services Business Services Corporate and Unallocated Consolidated Revenues $ 35,484,101 $ 89,170,169 $ - $ 124,654,270 Cost of revenues (exclusive of depreciation and amortization) 33,783,130 36,884,252 - 70,667,382 Gross profit 1,700,971 52,285,917 - 53,986,888 Depreciation and amortization 153,567 12,033,551 909,469 13,096,587 Selling, general and administrative expenses 2,710,880 40,331,439 5,482,604 48,524,923 Loss on disposal of property and equipment - (129,119 ) - (129,119 ) Interest expense - (6,442,224 ) (299,919 ) (6,742,143 ) Gain on change in fair value of derivative liability - - 265,383 265,383 Loss on extinguishment of debt - (214,294 ) - (214,294 ) Other income (expenses) - 165,882 (36,895 ) 128,987 Income tax benefit - 1,609,485 - 1,609,485 Net loss $ (1,163,476 ) $ (5,089,343 ) $ (6,463,504 ) $ (12,716,323 ) Total assets $ 6,265,402 $ 125,690,837 $ - $ 131,956,239 Capital expenditures $ - $ 4,954,711 $ - $ 4,954,711 |
2. Significant Accounting Pol55
2. Significant Accounting Policies (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Significant Accounting Policies Details | ||
Provision against revenue, beginning | $ 389,257 | $ 223,045 |
Additions - charged to reserve | 2,118,418 | 2,582,163 |
Posted Credits and other adjustments | (1,918,155) | (2,415,951) |
Provision against revenue, ending | $ 589,520 | $ 389,257 |
2. Significant Accounting Pol56
2. Significant Accounting Policies (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Significant Accounting Policies Details 1 | ||
Allowance for doubtful accounts, beginning | $ 427 | $ 309 |
Additions - charged to expense | 1,135 | 388 |
Deductions - Write-offs, Payments and Other Adjustments | (862) | (270) |
Allowance for doubtful accounts, ending | $ 700 | $ 427 |
2. Significant Accounting Pol57
2. Significant Accounting Policies (Details 2) - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | ||
Significant Accounting Policies Details 2 | |||
Beginning balance, goodwill | $ 35,689,215 | $ 27,060,297 | |
Fidelity purchase price adjustment | [1] | 134,216 | |
TFB acquisition | [1] | 993,637 | |
Apptix acquisition | 7,091,065 | ||
Customer base acquisition | [1] | 410,000 | |
Increase in goodwill associated with a 2016 acquisition | 7,414 | ||
Settlement of litigation with Apptix sellers (see note 16) | (513,000) | ||
Adjustment to goodwill associated with acquisition of customer bases | (410,000) | ||
Ending balance, goodwill | $ 34,773,629 | $ 35,689,215 | |
[1] | See note 5 for discussion of acquisitions |
2. Significant Accounting Pol58
2. Significant Accounting Policies (Details 3) | 12 Months Ended |
Dec. 31, 2017 | |
Network equipment [Member] | Minimum [Member] | |
Estimated useful lives of property and equipment | 5 years |
Network equipment [Member] | Maximum [Member] | |
Estimated useful lives of property and equipment | 7 years |
Furniture and fixtures [Member] | Minimum [Member] | |
Estimated useful lives of property and equipment | 3 years |
Furniture and fixtures [Member] | Maximum [Member] | |
Estimated useful lives of property and equipment | 7 years |
Computer equipment and software [Member] | Minimum [Member] | |
Estimated useful lives of property and equipment | 3 years |
Computer equipment and software [Member] | Maximum [Member] | |
Estimated useful lives of property and equipment | 5 years |
Customer premise equipment [Member] | Minimum [Member] | |
Estimated useful lives of property and equipment | 2 years |
Customer premise equipment [Member] | Maximum [Member] | |
Estimated useful lives of property and equipment | 3 years |
2. Significant Accounting Pol59
2. Significant Accounting Policies (Details Narrative ) - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Significant Accounting Policies Details Narrative | |||
Certificate of deposit collateralizing a letter of credit | $ 27,000 | $ 27,000 | |
Goodwill | 34,773,629 | 35,689,215 | $ 27,060,297 |
Impairment charge related to its intangible assets | 600,000 | 0 | |
Capitalized costs pertaining to development of software | 2,000,000 | 1,200,000 | |
Advertising and marketing expenses | $ 500,000 | $ 700,000 |
3. Loss Per Share (Details)
3. Loss Per Share (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Numerator | ||
Net loss | $ (14,099,601) | $ (12,716,323) |
Undeclared dividends on Series A-1, A-2 and A-4 Convertible Preferred Stock | (403,600) | (404,706) |
Conversion price reduction on Series B-2 Preferred Stock (see note 16) | (623,574) | 0 |
Series B-2 warrant exchange (see note 16) | (347,191) | 0 |
Dividends declared on Series B-2 Convertible Preferred Stock | (463,162) | (1,983,301) |
Net loss attributable to common stockholders | $ (15,852,050) | $ (15,104,330) |
Denominator | ||
Basic and diluted weighted average common shares outstanding | 21,969,601 | 15,406,184 |
Loss per share | ||
Basic and diluted | $ (0.72) | $ (0.98) |
3. Loss Per Share (Details 1)
3. Loss Per Share (Details 1) - shares | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Antidilutive Shares | 7,064,894 | 7,714,974 |
Warrant | ||
Antidilutive Shares | 2,000,988 | 2,902,862 |
Convertible Preferred Stock | ||
Antidilutive Shares | 2,045,979 | 2,628,389 |
Stock Options | ||
Antidilutive Shares | 3,017,927 | 2,183,723 |
3. Loss Per Share (Details Narr
3. Loss Per Share (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Loss Per Share Details Narrative | ||
Declared dividend | $ 1,400,000 | $ 2,000,000 |
4. Stock-Based Compensation (De
4. Stock-Based Compensation (Details) - $ / shares | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Summarizes the stock option activity | |||
Outstanding Beginning Balance, Number of Options | 2,183,723 | 1,158,251 | |
Granted, Number of Options | 949,298 | 1,135,650 | |
Exercises, Number of Options | 0 | 0 | |
Forfeitures, Number of Options | (85,802) | (89,826) | |
Expirations, Number of Options | (29,292) | (20,352) | |
Outstanding Ending Balance, Number of Options | 3,017,927 | 2,183,723 | 1,158,251 |
Exercisable Ending Balance, Number of Options | 1,860,667 | ||
Outstanding Beginning Balance, Weighted Average Exercise Price | $ 2.56 | $ 4.96 | |
Granted, Weighted Average Exercise Price | 2.37 | 1.31 | |
Exercises, Weighted Average Exercise Price | 0 | 0 | |
Forfeitures, Weighted Average Exercise Price | 1.65 | 2.51 | |
Cancelled or expired, Weighted Average Exercise Price | 17.32 | 69.46 | |
Outstanding Ending Balance, Weighted Average Exercise Price | 2.38 | $ 2.56 | $ 4.96 |
Exercisable Ending Balance, Weighted Average Exercise Price | $ 2.81 | ||
Weighted Average Remaining Contractual Life (in years) Outstanding | 8 years 3 months 4 days | 8 years 6 months 22 days | 8 years 5 months 5 days |
Weighted Average Remaining Contractual Life (in years) Exercisable | 7 years 9 months 25 days |
4. Stock-Based Compensation (64
4. Stock-Based Compensation (Details 1) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Dividend yield (%) | 0.00% | 0.00% |
Expected volatility (%) | 92.40% | 92.40% |
Average Risk-free interest rate (%), minimum | 2.00% | 1.21% |
Average Risk-free interest rate (%), maximum | 2.43% | 2.23% |
Expected life of stock option term (years) | 8 years | |
Minimum [Member] | ||
Expected life of stock option term (years) | 6 years 10 months 10 days | |
Maximum [Member] | ||
Expected life of stock option term (years) | 8 years |
4. Stock-Based Compensation (65
4. Stock-Based Compensation (Details 2) - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Outstanding Ending Balance, Number of Options | 3,017,927 | 2,183,723 | 1,158,251 |
Weighted Average Life (Years) | 8 years 3 months 4 days | 8 years 6 months 22 days | 8 years 5 months 5 days |
Outstanding Ending Balance, Weighted Average Exercise Price | $ 2.38 | $ 2.56 | $ 4.96 |
Aggregate intrinsic Value | $ 4,620,526 | ||
Exercisable Ending Balance, Number of Options | 1,860,667 | ||
Weighted Average Life (Years) | 7 years 9 months 25 days | ||
Exercisable Ending Balance, Weighted Average Exercise Price | $ 2.81 | ||
Aggregate intrinsic Value | $ 2,243,741 | ||
$1.14 - $1.72 | |||
Outstanding Ending Balance, Number of Options | 1,116,100 | ||
Weighted Average Life (Years) | 8 years 8 months 27 days | ||
Outstanding Ending Balance, Weighted Average Exercise Price | $ 1.29 | ||
Exercisable Ending Balance, Number of Options | 346,148 | ||
Weighted Average Life (Years) | 8 years 6 months 25 days | ||
Exercisable Ending Balance, Weighted Average Exercise Price | $ 1.27 | ||
$1.74 - $2.67 | |||
Outstanding Ending Balance, Number of Options | 1,268,898 | ||
Weighted Average Life (Years) | 9 years 1 month 6 days | ||
Outstanding Ending Balance, Weighted Average Exercise Price | $ 2.34 | ||
Exercisable Ending Balance, Number of Options | 918,715 | ||
Weighted Average Life (Years) | 8 years 11 months 16 days | ||
Exercisable Ending Balance, Weighted Average Exercise Price | $ 2.33 | ||
$2.72 - $4.24 | |||
Outstanding Ending Balance, Number of Options | 327,395 | ||
Weighted Average Life (Years) | 6 years 9 months 25 days | ||
Outstanding Ending Balance, Weighted Average Exercise Price | $ 3.48 | ||
Exercisable Ending Balance, Number of Options | 291,989 | ||
Weighted Average Life (Years) | 6 years 8 months 27 days | ||
Exercisable Ending Balance, Weighted Average Exercise Price | $ 3.48 | ||
$4.25 - $7.00 | |||
Outstanding Ending Balance, Number of Options | 290,364 | ||
Weighted Average Life (Years) | 4 years 9 months 7 days | ||
Outstanding Ending Balance, Weighted Average Exercise Price | $ 4.83 | ||
Exercisable Ending Balance, Number of Options | 288,645 | ||
Weighted Average Life (Years) | 4 years 9 months 4 days | ||
Exercisable Ending Balance, Weighted Average Exercise Price | $ 4.83 | ||
$7.50 - $15.50 | |||
Outstanding Ending Balance, Number of Options | 15,170 | ||
Weighted Average Life (Years) | 2 months 26 days | ||
Outstanding Ending Balance, Weighted Average Exercise Price | $ 15.40 | ||
Exercisable Ending Balance, Number of Options | 15,170 | ||
Weighted Average Life (Years) | 2 months 26 days | ||
Exercisable Ending Balance, Weighted Average Exercise Price | $ 15.44 |
5. Acquisitions (Details)
5. Acquisitions (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 |
Goodwill | $ 34,773,629 | $ 35,689,215 | $ 27,060,297 |
Apptix [Member] | |||
Cash | 67,071 | ||
Accounts receivable, net | 2,207,024 | ||
Prepaid expenses and other current assets | 620,270 | ||
Property and equipment | 2,878,877 | ||
Deferred tax liability | (1,633,853) | ||
Covenant not to compete | 1,417,000 | ||
Customer contracts/relationships | 20,948,000 | ||
Accrued liabilities | (6,904,479) | ||
Goodwill | 7,091,065 | ||
Total purchase price | 26,690,975 | ||
Technology for Business [Member] | |||
Accounts receivable, net | 80,845 | ||
Prepaid expenses and other current assets | 5,535 | ||
Proprietary technology | 889,000 | ||
Covenant not to compete | 8,000 | ||
Customer contracts/relationships | 99,000 | ||
Current liabilities | (687,130) | ||
Accrued Royalty | (1,111,606) | ||
Goodwill | 993,637 | ||
Total purchase price | 277,281 | ||
Fidelity [Member] | |||
Cash | 503,059 | ||
Accounts receivable, net | 273,809 | ||
Prepaid expenses and other current assets | 44,735 | ||
Property and equipment | 1,111,699 | ||
Deferred tax liability | (7,710,536) | ||
Covenant not to compete | 618,000 | ||
Customer contracts/relationships | 19,243,000 | ||
Accrued liabilities | (692,606) | ||
Goodwill | 16,502,971 | ||
Total purchase price | $ 29,894,133 |
5. Acquisitions (Details 1)
5. Acquisitions (Details 1) - Apptix [Member] | 12 Months Ended |
Dec. 31, 2016USD ($) | |
Revenues | $ 141,300,000 |
Net loss | $ (16,500,000) |
5. Acquisitions (Details Narrat
5. Acquisitions (Details Narrative) | 12 Months Ended |
Dec. 31, 2017 | |
Minimum [Member] | |
Intangible assets estimated useful lives | 5 years |
Maximum [Member] | |
Intangible assets estimated useful lives | 15 years |
6. Intangible Assets (Details)
6. Intangible Assets (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Gross Carrying Amount | $ 86,826,624 | $ 86,057,624 |
Accumulated Amortization | (30,670,601) | (22,440,153) |
Total | 56,156,023 | 63,617,471 |
Trademarks and tradename | ||
Gross Carrying Amount | 1,093,400 | 1,093,400 |
Accumulated Amortization | (672,314) | (501,982) |
Total | 421,086 | 591,418 |
Proprietary technology | ||
Gross Carrying Amount | 5,781,000 | 6,670,000 |
Accumulated Amortization | (5,005,400) | (4,036,915) |
Total | 775,600 | 2,633,085 |
Non-compete agreement | ||
Gross Carrying Amount | 12,120,043 | 12,128,043 |
Accumulated Amortization | (11,701,307) | (9,891,892) |
Total | 418,736 | 2,236,151 |
Customer contracts | ||
Gross Carrying Amount | 67,614,181 | 65,948,181 |
Accumulated Amortization | (13,073,580) | (7,827,697) |
Total | 54,540,601 | 58,120,484 |
Favorable lease intangible | ||
Gross Carrying Amount | 218,000 | 218,000 |
Accumulated Amortization | (218,000) | (181,667) |
Total | $ 0 | $ 36,333 |
6. Intangible Assets (Details 1
6. Intangible Assets (Details 1) | Dec. 31, 2017USD ($) |
Intangible Assets Details 1 | |
2,018 | $ 6,361,523 |
2,019 | 5,469,042 |
2,020 | 5,458,742 |
2,021 | 5,284,375 |
2,022 | $ 4,612,642 |
7. Prepaid Expenses and Other71
7. Prepaid Expenses and Other Current Assets (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Prepaid expenses and other current assets | ||
Insurance | $ 18,639 | $ 160,262 |
Rent | 16,326 | 5,389 |
Marketing | 55,801 | 74,665 |
Software subscriptions | 610,191 | 419,431 |
Commisions | 46,755 | 159,146 |
Network costs | 817,704 | 0 |
Other | 525,828 | 265,316 |
Total | $ 2,091,244 | $ 1,084,209 |
8. Accounts Payable and Accru72
8. Accounts Payable and Accrued Expenses (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Accounts Payable And Accrued Expenses Details | ||
Trade accounts payable | $ 9,336,838 | $ 6,358,548 |
Accrued license fees | 2,881,331 | 2,881,331 |
Accrued sales and federal excise taxes | 3,496,697 | 2,863,363 |
Deferred revenue | 1,283,969 | 1,874,641 |
Accrued network costs | 2,151,271 | 1,416,000 |
Accrued sales commissions | 911,192 | 819,106 |
Property and other taxes | 759,770 | 581,956 |
Accrued payroll and vacation | 422,097 | 421,733 |
Customer deposits | 383,032 | 365,249 |
Interest payable | 7,263 | 304,409 |
Credit card payable | 114,209 | 265,985 |
Accrued USF fees | 728,826 | 249,825 |
Accrued bonus | 333,337 | 249,361 |
Professional and consulting fees | 171,163 | 164,878 |
Rent | 163,030 | 127,781 |
Other | 1,945,021 | 778,672 |
Total accounts payable and accrued expenses | $ 25,089,046 | $ 19,722,838 |
9. Property and Equipment (Deta
9. Property and Equipment (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Property and Equipment | $ 31,498,065 | $ 31,329,398 |
Less: accumulated depreciation | (18,641,531) | (17,080,483) |
Total | 12,856,534 | 14,248,915 |
Network equipment [Member] | ||
Property and Equipment | 20,350,334 | 13,716,468 |
Furniture and fixtures [Member] | ||
Property and Equipment | 436,697 | 421,689 |
Computer equipment and software [Member] | ||
Property and Equipment | 1,934,984 | 5,868,370 |
Customer premise equipment [Member] | ||
Property and Equipment | 7,650,496 | 9,695,643 |
Vehicles [Member] | ||
Property and Equipment | 55,884 | 55,884 |
Leasehold improvements [Member] | ||
Property and Equipment | 1,069,670 | 1,188,207 |
Assets in progress [Member] | ||
Property and Equipment | $ 0 | $ 383,137 |
9. Property and Equipment (De74
9. Property and Equipment (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Property And Equipment Details Narrative | ||
Depreciation expense | $ 5,900,000 | $ 7,500,000 |
10. Equipment Financing Oblig75
10. Equipment Financing Obligations (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Equipment Financing Obligations Details | ||
Equipment financing obligations | $ 1,797,374 | $ 2,239,661 |
Less: current portion | (1,206,773) | (1,002,578) |
Long-term portion | $ 590,601 | $ 1,237,083 |
10. Equipment Financing Oblig76
10. Equipment Financing Obligations (Details 1) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Equipment Financing Obligations Details | ||
2,018 | $ 1,206,773 | $ 1,002,578 |
2,019 | 502,589 | |
2,020 | 88,012 | |
Total | $ 1,797,374 | $ 2,239,661 |
11. Supplemental Disclosure o77
11. Supplemental Disclosure of Cash Flow Information (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Supplemental Cash Flow Information | ||
Cash paid for interest | $ 7,756,230 | $ 5,806,910 |
Cash paid for income taxes | 0 | 0 |
Supplemental Non-Cash Investing and Financing Activities | ||
Property and equipment acquired under capital leases or equipment financing obligations | 677,071 | 188,497 |
Conversion of preferred stock into common stock | 3,083,000 | 0 |
Dividend on Series B-2 preferred stock paid with the issuance of Fusion common stock | 463,162 | 1,983,301 |
Common stock issued for acquisitions | 0 | 3,627,490 |
Obligations under asset purchase agreements | $ 968,035 | $ 1,521,606 |
12. Obligations Under Asset P78
12. Obligations Under Asset Purchase Agreements (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Obligations Under Asset Purchase Agreements Details | ||
Root Axcess | $ 0 | $ 166,668 |
Customer base acquisitions | 450,000 | 334,025 |
Technology For Business, Inc. | 0 | 936,606 |
Total | 450,000 | 1,437,299 |
Less: current portion | (227,760) | (546,488) |
Long-term portion | $ 222,240 | $ 890,811 |
13. Secured Credit Facilities79
13. Secured Credit Facilities (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Secured Credit Facilities Tables | ||
Term loan | $ 61,750,000 | $ 65,000,000 |
Less Deferred financing fees | (1,027,332) | (1,289,629) |
Less Current portion | (6,500,000) | (2,979,167) |
Term loan - long-term portion | 54,222,668 | 60,731,204 |
Indebtedness under revolving credit facility | $ 1,500,000 | $ 3,000,000 |
13. Secured Credit Facilities80
13. Secured Credit Facilities (Details Narrative) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Secured Credit Facilities Details Narrative | ||
Outstanding Amount Under Revolving Credit Facility | $ 1,500,000 | $ 3,000,000 |
14. Notes Payable - Non-Related
14. Notes Payable - Non-Related Parties (Details) - NonRelatedParty - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Subordinated Notes | $ 33,588,717 | $ 33,588,717 |
Discount on Subordinated Notes | (1,040,167) | (1,368,629) |
Defererd Financing Fees | (595,387) | (788,486) |
Total notes payable - non-related parties | 31,953,163 | 31,431,602 |
Less: Current portion | 0 | 0 |
Long-term portion | $ 31,953,163 | $ 31,431,602 |
15. Notes Payable - Related Par
15. Notes Payable - Related Party (Details) - RelatedParty - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Notes payable to Marvin Rosen | $ 928,081 | $ 928,081 |
Discount on notes | 0 | (52,331) |
Total notes payable - non-related parties | $ 928,081 | $ 875,750 |
15. Notes Payable - Related P83
15. Notes Payable - Related Party (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Notes Payable - Related Party Details Narrative | ||
Interest rate | 7.00% | 7.00% |
Interest expense | $ 100,000 | $ 100,000 |
Convertible preferred Shares issued on conversion of New Rosen Notes | 217,391 | |
Convertible Shares issued on conversion of New Rosen Notes, Amount | 250,000 |
16. Equity Transactions (Detail
16. Equity Transactions (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Series A-1 Preferred Stock | ||
Balance, Shares | 2,375 | 2,375 |
Balance, Amount | $ 24 | $ 24 |
Balance, Shares | 2,375 | 2,375 |
Balance, Amount | $ 24 | $ 24 |
Series A-2 Preferred Stock | ||
Balance, Shares | 2,625 | 2,625 |
Balance, Amount | $ 26 | $ 26 |
Balance, Shares | 2,625 | 2,625 |
Balance, Amount | $ 26 | $ 26 |
Series A-4 Preferred Stock | ||
Balance, Shares | 45 | 45 |
Balance, Amount | $ 0 | $ 0 |
Balance, Shares | 45 | 45 |
Balance, Amount | $ 0 | $ 0 |
Series B-2 Preferred Stock | ||
Balance, Shares | 12,254 | 18,279 |
Balance, Amount | $ 124 | $ 184 |
Conversion of preferred stock into common stock, Shares | (3,083) | (6,025) |
Conversion of preferred stock into common stock, Amount | $ (32) | $ (60) |
Balance, Shares | 9,171 | 12,254 |
Balance, Amount | $ 92 | $ 124 |
Preferred Stock | ||
Balance, Shares | 17,299 | 23,324 |
Balance, Amount | $ 174 | $ 234 |
Conversion of preferred stock into common stock, Shares | (3,083) | (6,025) |
Conversion of preferred stock into common stock, Amount | $ (32) | $ (60) |
Balance, Shares | 14,216 | 17,299 |
Balance, Amount | $ 142 | $ 174 |
16. Equity Transactions (Deta85
16. Equity Transactions (Details 1) - $ / shares | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Outstanding Beginning Balance, Number of Warrants | 2,902,862 | 3,011,764 |
Granted, Number of Warrants | 65,000 | 0 |
Exercised, Number of Warrants | (359,067) | 0 |
Expired, Number of Warrants | (607,807) | (108,902) |
Outstanding Ending Balance, Number of Warrants | 2,000,988 | 2,902,862 |
Granted, Warrants Per Share Exercise Price | $ 1.50 | $ 0 |
Exercised, Warrants Per Share Exercise Price | 0 | |
Outstanding Beginning Balance, Weighted Average Exercise Price | 6.18 | 6.14 |
Granted, Weighted Average Exercise Price | 1.50 | |
Exercised, Weighted Average Exercise Price | 1.48 | |
Expired, Weighted Average Exercise Price | 6.81 | 5 |
Outstanding Ending Balance, Weighted Average Exercise Price | 5.06 | 6.18 |
Minimum [Member] | ||
Outstanding Beginning Balance, Warrants Per Share Exercise Price | 4.25 | 3.95 |
Exercised, Warrants Per Share Exercise Price | 1.39 | |
Expired, Warrants Per Share Exercise Price | 4.50 | 4 |
Outstanding Ending Balance, Warrants Per Share Exercise Price | 4.25 | |
Maximum [Member] | ||
Outstanding Beginning Balance, Warrants Per Share Exercise Price | 10.15 | 10.15 |
Exercised, Warrants Per Share Exercise Price | 1.56 | |
Expired, Warrants Per Share Exercise Price | $ 10.15 | 7 |
Outstanding Ending Balance, Warrants Per Share Exercise Price | $ 10.15 |
16. Equity Transactions (Deta86
16. Equity Transactions (Details Narrative) - $ / shares | Dec. 31, 2017 | Dec. 31, 2016 |
Common Stock, Par Value | $ 0.01 | $ 0.01 |
Common Stock, Shares Authorized | 90,000,000 | 90,000,000 |
Common Stock, Shares Issued | 22,471,133 | 20,642,028 |
Common Stock, Shares Outstanding | 22,471,133 | 20,642,028 |
Preferred Stock, Par Value | $ 0.01 | $ 0.01 |
Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 |
Preferred Stock, Shares Issued | 14,216 | 17,299 |
Preferred Stock, Shares Outstanding | 14,216 | 17,299 |
Series A-1 Preferred Stock | ||
Preferred Stock, Shares Issued | 5,045 | 5,045 |
Preferred Stock, Shares Outstanding | 5,045 | 5,045 |
Series B-2 Preferred Stock | ||
Preferred Stock, Shares Issued | 9,171 | 12,254 |
Preferred Stock, Shares Outstanding | 9,171 | 12,254 |
17. Derivative Liability (Detai
17. Derivative Liability (Details) - Warrant [Member] - $ / shares | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Stock price ($) | $ 3.75 | $ 1.50 |
Adjusted exercise price ($) | $ 1.55 | $ 1.65 |
Expected volatility (%) | 84.10% | 71.40% |
Time to maturity (years) | 1 year 3 months | 2 years |
18. Fair Value Disclosures (Det
18. Fair Value Disclosures (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Current liabilities: | ||
Contingent liability | $ 227,760 | $ 100,000 |
Non-current liabilities: | ||
Contingent liability | 222,240 | 836,606 |
Derivative liability (see note 17) | 872,900 | 348,650 |
Level 1 | ||
Current liabilities: | ||
Contingent liability | 0 | 0 |
Non-current liabilities: | ||
Contingent liability | 0 | 0 |
Derivative liability (see note 17) | 0 | 0 |
Level 2 | ||
Current liabilities: | ||
Contingent liability | 0 | 0 |
Non-current liabilities: | ||
Contingent liability | 0 | 0 |
Derivative liability (see note 17) | 0 | 0 |
Level 3 | ||
Current liabilities: | ||
Contingent liability | 227,760 | 100,000 |
Non-current liabilities: | ||
Contingent liability | 222,240 | 836,606 |
Derivative liability (see note 17) | $ 872,900 | $ 348,650 |
18. Fair Value Disclosures (D89
18. Fair Value Disclosures (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Pro forma financial information | ||
Beginning Balance | $ 348,650 | $ 953,005 |
Change in fair value included in net loss | 909,272 | (1,037,405) |
Adjustment for prior issuances and conversion of warrants | 433,050 | |
Warrant exercises (see note 12) | (385,022) | |
Ending Balance | $ 872,900 | $ 348,650 |
19. Income Taxes (Details)
19. Income Taxes (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Current | ||
Federal | $ 0 | $ 0 |
State | 61,511 | 60,000 |
Total | 61,511 | 60,000 |
Deferred | ||
Federal | 0 | (1,493,485) |
State | 0 | (176,000) |
Total | 0 | (1,669,485) |
Total deferred benefit | $ 61,511 | $ (1,609,485) |
19. Income Taxes (Details 1)
19. Income Taxes (Details 1) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Taxes Details 1 | ||
Federal statutory rate | (34.00%) | (34.00%) |
State net of federal tax | (2.90%) | (3.40%) |
Permanent and other items | 4.90% | 1.20% |
Effect of change in tax rate | 98.50% | 0.00% |
Change in valuation allowance | (66.00%) | 25.00% |
Effective income tax rate | 0.50% | (11.20%) |
19. Income Taxes (Details 2)
19. Income Taxes (Details 2) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Deferred income tax assets: | ||
Net operating losses | $ 29,447,000 | $ 43,292,000 |
Allowance for doubtful accounts | 105,000 | 99,000 |
Derivative liability | 500,000 | 391,000 |
Accrued liabilities | 1,016,000 | 910,000 |
Other | 55,000 | 83,000 |
Deferred Tax Assets | 31,123,000 | 44,775,000 |
Deferred income tax liabilities: | ||
Intangible assets | 5,700,000 | 9,943,000 |
Property and equipment | 718,000 | 761,000 |
Total | 6,418,000 | 10,704,000 |
Deferred tax asset, net | 24,705,000 | 34,071,000 |
Less: Valuation Allowance | (24,705,000) | (34,071,000) |
Net Deferred Tax Assets | $ 0 | $ 0 |
19. Income Taxes (Details Narra
19. Income Taxes (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Taxes Details Narrative | ||
Net operating loss carry forwards | $ 127,000,000 | $ 122,000,000 |
Expiry year | Dec. 31, 2037 |
20. Commitments and Contingen94
20. Commitments and Contingencies (Details) | Dec. 31, 2017USD ($) |
Commitments And Contingencies Details | |
2,018 | $ 1,200,000 |
2,019 | 1,246,000 |
2,020 | 1,104,000 |
2,021 | 500,000 |
2,022 | 417,000 |
Thereafter | $ 1,397,000 |
20. Commitments and Contingen95
20. Commitments and Contingencies (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Commitments And Contingencies Details Narrative | ||
Rent expense for all operating leases | $ 1,500,000 | $ 1,600,000 |
22. Concentrations (Details)
22. Concentrations (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Revenue | $ 150,530,557 | $ 124,654,270 |
United States | ||
Revenue | 138,212,257 | 111,863,657 |
International Customers | ||
Revenue | $ 12,318,300 | $ 12,790,613 |
23. Segment Information (Detail
23. Segment Information (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Segment Reporting Information [Line Items] | ||
Revenues | $ 150,530,557 | $ 124,654,270 |
Cost of revenues (exclusive of depreciation and amortization) | 83,033,401 | 70,667,382 |
Gross profit | 67,497,156 | 53,986,888 |
Depreciation and amortization | 14,521,047 | 13,096,587 |
Selling, general and administrative expenses | 57,724,202 | 48,524,923 |
Interest expense | (8,648,600) | (6,742,143) |
Gain (loss) on change in fair value of derivative liability | (909,272) | 265,383 |
Asset impairment charge | 641,260 | 0 |
Gain on change in fair value of contingent liability | 1,011,606 | 0 |
Loss on disposal of property and equipment | (311,707) | (129,119) |
Loss on extinguishment of debt | 0 | (214,294) |
Other income (expenses) | (8,648,738) | (6,691,186) |
Income tax benefit (provision) | 61,511 | (1,609,485) |
Total assets | 122,057,561 | 131,956,239 |
Carrier Services | ||
Segment Reporting Information [Line Items] | ||
Revenues | 33,188,930 | 35,484,101 |
Cost of revenues (exclusive of depreciation and amortization) | 31,981,586 | 33,783,130 |
Gross profit | 1,207,344 | 1,700,971 |
Depreciation and amortization | 340,835 | 153,567 |
Selling, general and administrative expenses | 2,314,530 | 2,710,880 |
Interest expense | 0 | 0 |
Gain (loss) on change in fair value of derivative liability | 0 | 0 |
Asset impairment charge | 0 | |
Gain on change in fair value of contingent liability | 0 | |
Loss on disposal of property and equipment | 0 | 0 |
Loss on extinguishment of debt | 0 | |
Other income (expenses) | (9,454) | 0 |
Income tax benefit (provision) | 0 | 0 |
Net loss | (1,457,475) | (1,163,476) |
Total assets | 2,888,933 | 6,265,402 |
Capital expenditures | 35,442 | 0 |
Business Services And Other | ||
Segment Reporting Information [Line Items] | ||
Revenues | 117,341,627 | 89,170,169 |
Cost of revenues (exclusive of depreciation and amortization) | 51,051,815 | 36,884,252 |
Gross profit | 66,289,812 | 52,285,917 |
Depreciation and amortization | 13,568,673 | 12,033,551 |
Selling, general and administrative expenses | 48,566,229 | 40,331,439 |
Interest expense | (8,385,595) | (6,442,224) |
Gain (loss) on change in fair value of derivative liability | 0 | 0 |
Asset impairment charge | 641,260 | |
Gain on change in fair value of contingent liability | 1,011,606 | |
Loss on disposal of property and equipment | (311,707) | (129,119) |
Loss on extinguishment of debt | (214,294) | |
Other income (expenses) | 329,855 | 165,882 |
Income tax benefit (provision) | (61,511) | 1,609,485 |
Net loss | (3,903,702) | (5,089,343) |
Total assets | 116,807,604 | 125,690,837 |
Capital expenditures | 4,986,988 | 4,954,711 |
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 | 611,538 | 909,469 |
Selling, general and administrative expenses | 6,843,443 | 5,482,604 |
Interest expense | (263,005) | (299,919) |
Gain (loss) on change in fair value of derivative liability | (909,272) | 265,383 |
Asset impairment charge | 0 | |
Gain on change in fair value of contingent liability | 0 | |
Loss on disposal of property and equipment | 0 | 0 |
Loss on extinguishment of debt | 0 | |
Other income (expenses) | (111,166) | (36,895) |
Income tax benefit (provision) | 0 | 0 |
Net loss | (8,738,424) | (6,463,504) |
Total assets | 2,361,024 | 0 |
Capital expenditures | 0 | 0 |
Consolidated | ||
Segment Reporting Information [Line Items] | ||
Revenues | 150,530,557 | 124,654,270 |
Cost of revenues (exclusive of depreciation and amortization) | 83,033,401 | 70,667,382 |
Gross profit | 67,497,156 | 53,986,888 |
Depreciation and amortization | 14,521,046 | 13,096,587 |
Selling, general and administrative expenses | 57,724,202 | 48,524,923 |
Interest expense | (8,648,600) | (6,742,143) |
Gain (loss) on change in fair value of derivative liability | (909,272) | 265,383 |
Asset impairment charge | 641,260 | |
Gain on change in fair value of contingent liability | 1,011,606 | |
Loss on disposal of property and equipment | (311,707) | (129,119) |
Loss on extinguishment of debt | (214,294) | |
Other income (expenses) | 209,235 | 128,987 |
Income tax benefit (provision) | (61,511) | 1,609,485 |
Net loss | (14,099,601) | (12,716,323) |
Total assets | 122,057,561 | 131,956,239 |
Capital expenditures | $ 5,022,430 | $ 4,954,711 |