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EX-23.1 - CONSENTS OF EXPERTS AND COUNSEL - Fusion Connect, Inc. | fsnn_ex231.htm |
EX-5.1 - OPINION ON LEGALITY - Fusion Connect, Inc. | fsnn_ex51.htm |
As Filed With the
Securities and Exchange Commission on May 12,
2017
Registration No. 333-_______
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or
Organization)
4813
(Primary Standard Industrial Classification Code
Number)
58-2342021
(I.R.S. Employer Identification No.)
420 Lexington Avenue, Suite 1718
New York, NY 10170
(212) 201-2400
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant’s Principal Executive
Offices)
Gordon Hutchins, Jr.
President and Chief Operating Officer
Fusion Telecommunications International, Inc.
420 Lexington Avenue, Suite 1718
New York, New York 10170
Telephone: (212) 201-2400
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
Copies to:
Steven I. Weinberger, Esq.
|
Steven I. Weinberger, P.A.
|
1200 N. Federal Highway, Suite 200
|
Boca Raton, Florida 33432
|
Telephone: (561) 210-8516
|
Facsimile: (888) 825-6417
|
As soon as possible following the effective date of the
registration statement
(Approximate Date of Commencement of Proposed Sale to the
Public)
If any
of the securities being registered on this Form to be offered on a
delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box.
☒
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. ☐
If this
Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
☐
If this
Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer”, “non-accelerated
filer”, “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filler
|
☐
|
Accelerated
filer
|
☐
|
Non-accelerated
filler
|
☐
|
Smaller
reporting company
|
☒
|
(do not
check if a smaller reporting company)
|
Emerging
growth company
|
☐
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 7(a)(2)(B) of the Securities Act.
☐
CALCULATION OF REGISTRATION FEE
_
Title of each
class of securities to be
registered
|
Amount to be
Registered (1)
|
Proposed maximum
aggregate offering price per unit
(2)
|
Proposed maximum
aggregate offering price (2)
|
Amount of
registration fee (4)
|
Common
stock, par value $.01 per share (3)
|
2,431,091
|
$1.56
|
$3,792,501.96
|
$439.55
|
_______________
(1)
Pursuant to
Rule 416 under the Securities Act of 1933, there are also being
registered such additional number of shares as may be issuable as a
result of stock splits, dividends, reclassifications and similar
adjustment provisions applicable to the securities being
registered.
(2)
Estimated solely for the purpose of
calculating the registration fee.
(3)
Consists of shares of outstanding
common stock.
(4)
Pursuant to
Rule 457(p) under the Securities Act, the registrant is offsetting
the registration fee due under this registration statement by
$400.10, which represents the portion of the registration fee
previously paid with respect to $3,452,149.00 of securities covered
by registration statement on Form S-3 (File No. 333-215287), which
was initially filed on December 22, 2016 and subsequently
withdrawn.
The
registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or
until this registration statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to
said Section 8(a), may determine.
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
Subject to Completion, Dated May 12, 2017
Preliminary Prospectus
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
2,431,091 Shares of Common Stock
This
prospectus covers the resale of a total of 2,431,091 shares of
issued and outstanding common stock of Fusion Telecommunications
International, Inc., which may be offered from time to time by
certain selling stockholders identified elsewhere in this
prospectus.
We are
registering these shares of common stock for resale by the selling
stockholders named in this prospectus, or their respective
successors and permitted assigns. We will not receive any proceeds
from the sale of these shares by the selling stockholders. These
shares are being registered to permit the selling stockholders to
sell shares from time to time, in amounts, at prices and on terms
determined at the time of sale. The selling stockholders may sell
these shares through ordinary brokerage transactions, directly to
market makers of our shares or through any other means described
elsewhere in this prospectus under the caption “Plan of
Distribution.”
Our
common stock is currently quoted on The Nasdaq Capital Market and
trades under the symbol “FSNN.” On May 5, 2017, the
closing bid price for our common stock on The Nasdaq Capital Market
was $1.56 per share.
This investment involves a high degree of risk. You should purchase
these securities only if you can afford a complete loss of your
investment. See “Risk Factors” beginning at page
4.
Neither the Securities and Exchange Commission (the
“SEC”) nor any state securities commission has approved
or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a
criminal offense.
The
date of this prospectus is __________, 2017.
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all the information
about us that may be important to you and that you should consider
in making your investment decision. To understand this offering
fully, you should read this summary together with the additional
detailed information included elsewhere in this prospectus, or
incorporated by reference into this prospectus, including our
financial statements and the related notes. You should carefully
consider, among other things, the matters discussed herein under
“Risk Factors.”
As more fully described elsewhere in this prospectus, we have
incorporated certain reports and other information we previously
filed with the SEC into this prospectus. To the extent that this
prospectus includes information as of a later date than the
information incorporated by reference, the information in this
prospectus shall update and supersede such previous filed
information.
Our Company
|
Fusion
Telecommunications International, Inc. (“Fusion”),
either directly or through its various subsidiaries (collectively,
“we,” “us,” “our” or the
“Company”), offers a comprehensive suite of cloud
communications, cloud connectivity, cloud infrastructure, cloud
computing and managed cloud-based applications solutions to small,
medium and large businesses, and offers domestic and international
voice services to telecommunications carriers
worldwide. Our advanced, proprietary cloud services
platforms, as well as our state-of-the art switching systems,
enable the integration of leading edge solutions in the cloud,
increasing customer collaboration and productivity by seamlessly
connecting employees, partners, customers and
vendors. We currently operate our business in two
distinct business segments: Business Services and Carrier
Services.
In the
Business Services segment, Fusion is focused on becoming our
business customers’ single source for leveraging the
increasing power of the cloud, providing a robust package of what
we believe to be the essential services that form the foundation
for their successful migration to, and efficient use of, the cloud.
Our core Business Services products and services include cloud
voice and unified communications as a service
(“UCaaS”), improving communications and collaboration
on virtually any device, virtually anywhere, and cloud connectivity
services, securely and reliably connecting customers to the cloud
with managed network solutions that are designed to increase
quality and optimize network efficiency. Our cloud computing
and infrastructure as a service (“IaaS”) solutions are
designed to provide our business customers with a platform on which
additional cloud services can be layered. Complemented by our
software as a service (“SaaS”) solutions, such as
security and business continuity, our advanced cloud offerings,
including private and hybrid cloud, storage, backup and recovery,
and secure file sharing that allow our customers to experience the
increased efficiencies and agility delivered by the cloud.
Fusion’s cloud-based services are flexible, scalable and can
be rapidly deployed, reducing our customers’ cost of
ownership while increasing their productivity.
Through
our Carrier Services segment, we have agreements with
approximately 370 carrier customers and vendors and sell our voice
services to other communications service providers throughout the
world. Customers include U.S.-based carriers sending voice traffic
to international destinations, and foreign carriers sending voice
traffic to the U.S. and internationally. We also purchase domestic
and international voice services from many of our Carrier Services
customers. Our carrier-grade network, advanced switching platform
and interconnections with global carriers on six continents also
reduce the cost of global voice traffic, thereby increasing
profitability and expanding the service delivery capabilities for
our Business Services segment.
As a
result of the acquisition of a number of cloud services businesses
over the past five years, Fusion has expanded its business customer
base to over 13,000 customer accounts, increased its distribution
network to over 500 active distribution partners and added a
significant number of network facilities and points of presence,
thus expanding its geographic reach. Through these acquisitions, we
acquired advanced systems and infrastructure and augmented our
management team and employee base with talented, experienced,
well-trained professionals, and further developed a strong platform
for further acquisitions.
|
2
Common
Stock
Number Outstanding Prior to Offering:
|
On May
5, 2017, 22,412,403 shares of our common stock are issued and
outstanding, without giving effect to the issuance of (a) 2,690,530
shares in the event of exercise of outstanding common stock
purchase warrants exercisable at prices ranging from $4.25 to
$10.15 per share, (b) 2,151,073 shares in the event of exercise of
outstanding options at a weighted average price of $2.38 per share,
and (c) 2,063,125 shares issuable upon conversion of outstanding
preferred stock.
|
Number Outstanding Subsequent to
Offering:
|
Assuming
the issuance of no additional shares, resale of the shares offered
hereby will have no effect on the number of shares of common stock
outstanding immediately following this offering.
|
Trading Symbol (NASDAQ):
|
FSNN
|
3
FORWARD-LOOKING STATEMENTS
The SEC
encourages companies to disclose forward-looking information so
that investors can better understand a company’s future
prospects and make informed investment decisions. This prospectus
supplement, the accompanying prospectus and the documents we have
filed with the SEC that are incorporated herein and therein by
reference contain such “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995.
Words
such as “anticipates,”
“expects,” “intends,” “may,”
“should,” “plans,” “believes,”
“predicts,” “potential” and words
and terms of similar substance used in connection with any
discussion of future operating or financial performance, identify
forward-looking statements. Forward-looking statements represent
management’s current judgment regarding future events and are
subject to a number of risks and uncertainties that could cause
actual results to differ materially from those described in the
forward-looking statements. Please see the discussion of risks and
uncertainties under “Risk Factors” below and contained
in our most recent annual report on Form 10-K, any amendments
thereto and as such information may be further revised or
supplemented by our subsequent quarterly reports on Form 10-Q,
as well as any amendments thereto, as filed with the SEC, all of
which are incorporated herein by reference.
In
light of these assumptions, risks and uncertainties, the results
and events discussed in the forward-looking statements contained in
this prospectus supplement, the accompanying prospectus or in any
document incorporated herein or therein by reference might not
occur. Investors are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the respective
dates of this prospectus supplement, the accompanying prospectus or
the date of the document incorporated by reference in this
prospectus supplement or the accompanying prospectus. We expressly
disclaim any obligation to update or alter any forward-looking
statements, whether as a result of new information, future events
or otherwise, except as required by federal securities
laws.
RISK
FACTORS
An investment in our securities involves a high degree of risk. You
should carefully consider the risk factors described below in
evaluating our future prospects. In particular, keep
these risk factors in mind when you read
“forward-looking” statements elsewhere in this report.
Forward-looking statements relate to our expectations for future
events and time periods. Generally, the words
“anticipates,” “expects,”
“intends,” “may,” “should,”
“plans,” “believes,”
“predicts,” “potential” and similar
expressions identify forward-looking statements. Forward-looking
statements involve risks and uncertainties, and future events and
circumstances could differ significantly from those anticipated in
the forward-looking statements. Any of the following risks could
harm our business, operating results or financial condition and
could result in a complete loss of your investment. Additional
risks and uncertainties that are not yet identified or that we
currently think are immaterial may also harm our business and
financial condition in the future.
Risks Relating to Our Business
Failure to comply with the financial and other covenants contained
in our senior debt facilities is an event of default under these
agreements.
Our
acquisitions have been financed primarily through the issuance of
secured debt with an aggregate principal amount outstanding of
approximately $101.6 million at March 31, 2017. Currently, all
assets of Fusion and its subsidiaries are pledged as collateral
under its senior debt facilities. These facilities contain a number
of affirmative and negative covenants, including but not limited
to, restrictions on the payment of subordinate indebtedness,
incurring additional indebtedness, making capital expenditures,
paying dividends and cash distributions by subsidiaries.
Under these senior facilities, we are also 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, or EBITDA. Failure
to comply with any of the restrictive or financial covenants
contained in these facilities could result in an event of default
and accelerated demand for repayment of our outstanding debt. We do
not have the financial resources to repay our senior debt if
it is accelerated.
4
At
various times during the first six months of 2015, we were not in
compliance with some of the financial covenants contained in our
senior credit facility, particularly with respect to the minimum
EBITDA and Fixed Charge Coverage Ratio covenants, and we failed to
raise additional equity within the time frame committed in the
facility. Our noncompliance with these covenants was waived by the
note holders. In addition, as of September 30, 2016, we were not in
compliance with the leverage ratio covenants contained in our
senior credit facilities, and we received waivers and amendments
from the lenders as of September 30, 2016.
After
giving effect to these waivers, we were in compliance with all of
the financial covenants contained in our credit agreements for the
years ended December 31, 2016 and 2015. We were also in compliance
with all of these financial covenants as of March 31, 2017. There
can be no assurances, however, that we will continue to be able to
obtain such waivers in the future if we do not comply with the
financial covenants contained in our credit
facilities.
We have a history of operating losses and net losses. There can be
no assurance that we will ever achieve profitability or have
sufficient funds to execute our business strategy.
At
March 31, 2017, we had a working capital deficit of $8.8 million
and stockholders equity of $6.9 million. At December 31, 2016, we
had a working capital deficit of $6.6 million and
stockholders’ equity of $9.2 million. In addition, for the
three months ended March 31, 2017, we incurred net losses
applicable to common stockholders of $4.7 million and we incurred
net losses applicable to common stockholders of $15.1 million for
the year ended December 31, 2016. We may not be able to generate
profits in the future and may not be able to support our operations
or otherwise establish a return on invested capital. In
addition, we may not have sufficient funds to execute our business
strategy, requiring us to raise additional funds from the equity
markets or other sources, resulting in further dilution to our
equity holders. These losses, among other things, have
had, and may continue to have, an adverse effect on our working
capital, total assets and stockholders’ equity.
Our recent acquisitions do not provide assurance that the acquired
operations will be accretive to our earnings or otherwise improve
our results of operations.
Acquisitions, such
as our November 2016 acquisition of Apptix, Inc.
(“Apptix”), as well as our previously completed
acquisitions, involve the integration of previously separate
businesses into a common enterprise in which it is envisioned that
synergistic operations and economies of scale will result in
improved financial performance. However, realization of
these desired results are subject to numerous risks and
uncertainties including, but not limited to, the
following:
●
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diversion
of management time and attention from daily
operations;
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●
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difficulties
integrating the acquired business, technologies and personnel into
the existing business;
|
●
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potential
loss of key employees, key contractual relationships or key
customers of the acquired businesses; and
|
●
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in the
case of a stock acquisition, exposure to unforeseen
liabilities.
|
Notwithstanding
consummation of our acquisitions, there is no assurance that these
acquisitions will be or will continue to be accretive to our
earnings or otherwise improve our results of
operations.
5
If we are unable to successfully manage the integration of our
acquisitions, we may not benefit from our acquisition
strategy.
A
significant part of our growth strategy is to supplement internal
growth with targeted acquisitions. We may not be
successful in integrating newly acquired businesses into our
day-to-day operations for a number of reasons, including if we are
unable to (a) retain skilled managerial, technical, and sales
personnel; (b) retain customers acquired; (c) integrate the
services offered by acquired businesses with our existing services
to achieve a single package of service offerings; (d) establish and
maintain uniform standards, controls, policies and procedures
throughout the Company; or (e) devote the management time required
to successfully integrate the acquired businesses.
The cloud services industry is highly competitive and we may be
unable to compete effectively.
The
cloud services industry is highly competitive, rapidly evolving and
subject to constant technological change. In
addition, many of our current cloud services competitors are
significantly larger and have substantially greater market
presence; greater financial, technical, operational and marketing
resources; and more experience. In the event that any
competitor expends significant sales and marketing resources in one
or several markets where we compete with them, we may not be able
to compete successfully in those markets. We also
believe that competition will continue to increase, placing
downward pressure on prices. Such pressure could
adversely affect our gross margins if we are unable to reduce our
costs commensurate with the price reductions of our
competitors. In addition, the pace of technological
change makes it impossible for us to predict whether we will face
new competitors using different technologies to provide the same or
similar services offered or proposed to be offered by
us. If our competitors were to provide better and more
cost effective services, we may not be able to increase our
revenues or capture any significant market share.
Our business is capital intensive, and we do not currently generate
sufficient revenue to offset our operating expenses. If
we are unable to obtain additional funding when required, we may
have to significantly curtail or possibly terminate some of our
operations.
We may
require future capital in order to continue to fund our operating
expenses and to continue to otherwise execute our business plan and
growth strategy. If we are unable to obtain the required
funding or generate revenue sufficient to sustain our operations,
we could be forced to significantly curtail or suspend our
operations, including laying-off employees and selling assets.
Additional capital may not be available to us when needed or on
terms that are acceptable to us, or at all.
We have
historically funded our working capital requirements through the
sale of common stock or preferred stock of Fusion. The
sale of equity securities to fund operations is dilutive to our
existing stockholders. The terms of our debt facilities
limit our ability to utilize cash flows generated from our Business
Services segment to fund the Company’s other operations,
including corporate overhead expenses. In the event we
are unable to substantially increase our revenue to fund our
operating expenses, we may be required to continue to fund
operations through additional sales of Fusion’s equity
securities. In the past, limited cash resources
restricted our Carrier Services segment’s ability to purchase
termination capacity with longer payment terms than the terms under
which it is able to sell services to its
customers. Should this trend continue, it could limit
our ability to grow our revenues and/or margins, or limit our
ability to achieve our revenue and/or margin targets in Carrier
Services segment.
If we are unable to manage our growth or implement our expansion
strategy, we may increase our costs without increasing our
revenue.
We may
not be able to expand our product offerings, customer base and
markets, or implement the other features of our business strategy
at the rate, or to the extent, planned. Our projected
growth will place a significant strain on our administrative,
operational and financial resources and may increase our
costs. If we are unable to successfully manage our
future growth, continue to upgrade our operating and financial
control systems, recruit and hire necessary personnel or
effectively manage unexpected expansion difficulties, we may not be
able to maximize revenue or achieve
profitability.
6
Our ability to grow our business is dependent upon market
developments and traffic patterns, which may lead us to make
expenditures that do not result in increased revenue.
Our
purchase of network equipment and software will be based, in part,
upon our expectations concerning future revenue growth and market
developments. As we expand our network, we will be
required to make significant capital expenditures, including the
purchase of additional network equipment and
software. To a lesser extent, our fixed costs will also
increase from the ownership and maintenance of a greater amount of
network equipment including our switching systems, gateways,
routers and other related systems. If our traffic volume
were to decrease, or fail to increase to the extent expected or
necessary to make efficient use of our network, our costs as a
percentage of revenue would increase significantly.
Changes in technology and service offerings could affect the
ability of our Business Services segment to compete in the
marketplace for cloud communications services.
Our
Business Services segment is subject to rapid and significant
changes in technology, particularly in the emerging areas of cloud
voice, cloud connectivity, cloud storage and cloud
computing. Our industry has evolved significantly in
these areas over the past few years, and is expected to continue to
evolve. Emerging technologies could lead to the
development of newer, more convenient, more cost-effective or
otherwise more attractive services. In addition, the
preferences and requirements of business customers are changing
rapidly. Our ability to retain current customers and
attract new customers may be highly dependent on whether we choose
the technologies that will ultimately have the greatest customer
acceptance, are able to adopt these new technologies and offer
competitive new services when appropriate, or can compete
successfully against other service providers that use these new
technologies, many of whom are larger or possess greater financial
or technical resources than we do. The development,
introduction and marketing of such new services in response to new
technologies or new customer demands may require us to increase our
capital expenditures significantly. In addition, new
technologies may be protected by patents or other intellectual
property laws and therefore may only be available to our
competitors and not to us.
Some of our services are dependent upon multiple service platforms,
network elements, and back-office systems that are reliant on third
party providers.
We have
deployed back-office systems and services platforms that enable us
to offer our customers a wide-array of services and features.
Sophisticated back office information and processing systems are
vital to our growth and our ability to monitor costs, invoice
customers, provision client orders, and achieve operating
efficiencies. Some of these systems are dependent upon
license agreements with third party vendors. These third
party vendors may cancel or refuse to renew some of these
agreements, and the cancellation or non-renewal of these agreements
may harm our ability to invoice customers and provide services
efficiently.
Our business could be materially and adversely affected in the
event of accusations of infringement of third-party intellectual
rights.
There
has been substantial litigation in the areas in which we operate
regarding intellectual property rights. Regardless of the merits,
accusations and lawsuits concerning claims of infringement or
misuse of another party’s proprietary rights may negatively
affect customer relationships, may divert management’s
attention from other aspects of our operations and, upon resolution
may have a material adverse effect on our business, results of
operations, financial condition and cash flows.
If we
were found to be infringing the intellectual property rights of a
third party, we could be subject to liability, which could be
material. We could also be prohibited from selling
certain services or required to redesign certain services, each of
which could have a material adverse effect on our business and
results of operations. These and other outcomes may
result in the loss of a substantial number of existing customers or
prevent our acquisition of new customers; cause us to pay license
fees for intellectual property we are found to have infringed;
cause our costs to increase; materially and adversely affect our
brand in the marketplace and cause a substantial loss of good will;
and cause us to cease certain services or offering certain
features.
7
We rely upon certain proprietary rights in our technology, systems
and business processes. If our protection of these
rights were to be compromised, it could negatively affect our
ability to compete or to achieve our projected business and
financial results.
Our
ability to compete depends, in part, upon our proprietary rights in
our technology, systems and business processes. In
general, our technology is based on the integration and use of
publicly available hardware components, and is therefore afforded
little protection under existing patent law. Some of our
software and systems, while developed by us, are generally not
unique in such a manner as to allow protection under existing
patent law. As a result, we generally rely on a
combination of contractual restrictions and the general protection
afforded by copyright, trademark and trade secret laws to establish
and protect our proprietary rights. Such limited
protection could prove insufficient and thereby subject us to
increased competition or impact the business or financial results
of our operations.
It is
the Company’s policy to require employees, consultants and,
when warranted, certain customers and vendors to execute
confidentiality agreements with us. These agreements
provide that confidential information developed or made known
during the course of the relationship must be kept confidential and
not disclosed to third parties except under certain limited
circumstances. If such arrangements were to prove
ineffective in protecting our confidential information, our
business or financial performance could be negatively
impacted.
The
U.S. Patent and Trademark Office has granted Fusion federal
registration for eight trademarks, and Federal registration of
those trademarks will be effective for as long as we continue to
use them and renew their registrations. We may register
additional trademarks and other intellectual property rights in the
future, although there can be no assurance that our effort to
register these trademarks will be successful. Fusion
generally does not register any of its copyrights with the U.S.
Copyright Office, but relies on the protection afforded to such
copyrights by the U.S. Copyright Act, which provides protection to
authors of original works whether published or unpublished and
whether registered or unregistered.
Breaches in our network security systems may hurt our ability to
deliver services and our reputation and may result in
liability.
We
could lose customers or expose ourselves to liability if there are
any breaches to our network security systems that jeopardize or
result in the loss of confidential information stored in our
systems. Since our inception, we have experienced two
known breaches of network security, which resulted in a temporary
failure of certain network operations, but did not result in the
loss of any confidential customer information or material
financial losses. However, a future network security breach
could harm our ability to deliver certain services, damage our
reputation or subject us to liability.
Our revenue growth is dependent upon our ability to build new
distribution relationships and to acquire new
customers.
Our
ability to grow through efficient and cost effective deployment of
our cloud services is, in part, dependent upon our ability to
identify and contract with local, regional and national entities
that will assist in the distribution of our products and
services. If we are unable to identify, contract with or
maintain such distribution relationships, or if the efforts of
these agents are not successful, we may not grow the customer base
or achieve the revenue level currently envisioned and our results
of operations will be adversely impacted.
8
We are dependent upon our ability to obtain the necessary
regulatory approvals and licenses to enter new domestic and
international markets in which such approvals are
required. Such approvals may or may not occur as planned
and could be delayed.
Our
ability to enter into new domestic and international markets may,
in certain cases, rely upon our ability to obtain licenses or other
approvals to operate in those markets, our ability to establish
good working relationships with the relevant regulatory authorities
in those jurisdictions, or our ability to interconnect to the local
telephone networks in those markets. If we are not able
to obtain the necessary licenses, approvals or interconnections,
our ability to enter these new markets may be delayed or
prevented.
Industry consolidation could make it more difficult for us to
compete.
Companies offering
cloud voice, UCaaS, cloud connectivity, SaaS, IaaS and other cloud
services are, in some circumstances, consolidating. We
may not be able to compete successfully with businesses that have
combined, or will combine, to produce companies with substantially
greater financial, technical, or sales and marketing resources, or
with larger client bases, more extensive network assets or more
established relationships with vendors and
distributors. If we were to experience such heightened
competitive pressures, there is a risk that our revenues may not
grow as expected and the value of our equity securities could
decline.
Our ability to provide services is often dependent on our suppliers
and other service providers who may not prove to be
reliable.
A
majority of the voice calls made by our customers are connected
through other communication carriers, which provide us with
transmission capacity through a variety of
arrangements. Our ability to terminate voice traffic in
our targeted markets is an essential component of our ongoing
operations. If we do not secure or maintain operating and
termination arrangements with other carriers, our ability to
increase services to our existing markets, and gain entry into new
markets, will be limited. Therefore, our ability to
maintain and expand our business is dependent, in part, upon our
ability to maintain satisfactory relationships with other domestic
carriers, Internet service providers, international carriers, fiber
optic cable providers and other service providers, many of which
are our competitors, and upon our ability to obtain their services
on a cost-effective basis. In addition, if a carrier
with whom we interconnect does not carry the traffic routed to it,
or does not provide the required capacity, we may be forced to
route our traffic to, or buy capacity from, a different carrier on
less advantageous terms, which could reduce our profit margins or
degrade our network service quality. In the event
network service quality is degraded, it may result in a loss of
customers. To the extent that any of the service
providers with whom we interconnect raise their rates, change their
pricing structure or reduce the amount of capacity they make
available to us, our revenues and profitability may be adversely
affected.
We rely on third party equipment suppliers who may not be able to
provide us the equipment necessary to deliver the services that we
seek to provide.
We are
dependent on third party equipment suppliers for equipment,
software and hardware components, including Cisco, BroadSoft, Acme
Packet and Sonus. If these suppliers fail to continue product
development and research and development or fail to deliver quality
products or support services on a timely basis, or if we are unable
to develop alternative sources of supply if and as required, such a
failure could result in an inability to deliver the services that
we currently provide or intend to provide, and our financial
condition and results of operations may be adversely
affected.
9
Our Carrier Services business relies on the cooperation of other
international carriers and incumbent service providers, who may not
always cooperate with us in our attempt to serve a specific country
or market.
In some
cases, the growth of our Carrier Services business requires the
cooperation of other international carriers and/or the incumbent
service provider in order to provide services to or from specific
countries or markets. In the event the incumbent, or
another in-country international carrier, does not cooperate with
us or support us in our efforts to serve that country, our ability
to provide service to or from that country may be delayed, or the
costs to provide service might increase should we be forced to use
another more expensive carrier. If we are unable to develop
and maintain successful relationships with other international
carriers and incumbent operators, our ability to cost-effectively
service an important market could be adversely
affected.
Because we do business on an international level, we are subject to
an increased risk of tariffs, sanctions and other uncertainties
that may hurt our revenue.
There
are certain risks inherent in doing business internationally,
especially in emerging markets, such as unexpected changes in
regulatory requirements, the imposition of tariffs or sanctions,
licenses, customs, duties, other trade barriers, political risks,
currency devaluations, high inflation, corporate law requirements
and civil unrest. The economies of many of the emerging
markets are weak and volatile. We may not be able to
mitigate the effect of inflation on our operations in those
countries by price increases, even over the
long-term. Also, deregulation of the communications
markets in developing countries may or may not
continue. Incumbent service providers, trade unions and
others may resist legislation directed toward deregulation and may
resist allowing us to interconnect with their
networks. The legal systems in emerging markets also
frequently have insufficient experience with commercial
transactions between private parties, therefore we may not be able
to protect or enforce our rights in some emerging market countries.
Governments and regulations may change, thus impacting the
availability of new licenses or the cancellation or suspension of
existing operating licenses. The instability of the laws
and regulations applicable to our Carrier Services business, as
well as their interpretation and enforcement, could materially
impact our business in those countries and adversely affect our
financial condition or results of operations.
The
regulatory treatment of VoIP services outside the United States
varies from country to country. Some countries are
considering subjecting VoIP services to the regulations applied to
traditional telecommunications services and they may assert that we
are required to register as a telecommunications carrier in that
country or impose other more onerous regulations. In
such cases, our failure to register could subject us to fines,
penalties or forfeiture of our right to do business in that
country. Regulatory developments such as these could
have a material adverse effect on our ability to grow our
international operations.
Additional taxation and government regulation of the cloud
communications industry may slow our growth, resulting in decreased
demand for our products and services and increased costs of doing
business.
As a
result of changes in regulatory policy, we could be forced to pay
additional taxes on the products and services we provide. We
structure our operations and our pricing based on assumptions about
various domestic and international tax laws, tax treaties and other
relevant laws. Taxation authorities or other regulatory
authorities might not reach the same conclusions about taxation
that we have reached in formulating our assumptions. We
could suffer adverse tax and other financial consequences if our
assumptions about these matters are incorrect or the relevant laws
are changed or modified. In the U.S., our products and services are
subject to varying degrees of federal, state and local regulation,
including regulation by the Federal Communications Commission and
various state public utility commissions. We may also be
subject to similar regulation by foreign governments and their
telecommunications and/or regulatory agencies. While
these regulatory agencies grant us the authority to operate our
business, they typically exercise minimal control over our services
and pricing. However, they do require the filing of
various reports, compliance with public safety and consumer
protection standards, and the payment of certain regulatory fees
and assessments.
10
We can
provide no assurance that applicable U.S. and foreign regulatory
agencies will grant us the required authority to operate, will
allow us to maintain existing authority so we can continue to
operate or that such agencies will refrain from taking action
against us if we are found to have provided services without
obtaining the necessary authority. Similarly, if our
pricing and/or terms and conditions of service are not properly
filed or updated with the applicable agencies, or if we are
otherwise not fully compliant with the rules of the various
regulatory agencies, regulators or other third parties could
challenge our actions and we could be subject to forfeiture of our
authority to provide service, or to penalties, fines, fees or other
costs.
We also
hold various state licenses authorizing us to provide intrastate
services to our carrier and end-user customers, and we comply with
state reporting, fee payment, tariffing, and other obligations with
respect to these services. However, in several states
where we provide de minimus
intrastate services we may not have fully complied with applicable
licensing requirements. Should we fail at any time to hold the
licenses required to provide our intrastate services, we could be
subject to fines or other penalties.
In addition to new regulations being adopted, existing laws may be
applied to the Internet, which could hinder our
growth.
New and
existing laws may cover issues that include: sales and other taxes;
user privacy; pricing controls; characteristics and quality of
products and services; consumer protection; cross-border commerce;
copyright, trademark and patent infringement; and other claims
based on the nature and content of Internet
materials. Changes to existing regulations or the
adoption of new regulations could delay growth in demand for our
products and services and limit the growth of our
revenue.
The effects of natural disasters such as hurricanes or other events
over which we have no control could significantly disrupt our
operations and could have a material adverse impact on our
business.
In late
October 2012, our Carrier Services operations were impacted by
Hurricane Sandy in the Northeast region of the United
States. The severe weather conditions directly affected
the ability of many of our carrier customers and vendors to connect
to us. As a result, we did not generate the same levels
of revenues and gross profit that we believe we would have
generated absent these abnormal conditions. Any future
disruptions to the operation of our network, including acts of war,
terrorism or other force majeure events, could have a material
adverse impact on our liquidity, financial condition and results of
operations. Although we do carry business interruption
insurance, we can provide no assurance that losses we incur from a
natural disaster or other force majeure event would be completely
covered by insurance.
If we do not retain our executive officers and senior management,
or if we do not continue to attract and retain qualified personnel
and independent sales agents, our ability to execute our business
plan could be adversely affected.
Our
existing executive officers and senior management have extensive
experience in the communications industry, as well as many years of
working together as an integrated management team directing our
day-to-day operations. As a result, we are dependent on
those individuals and the loss of the services of one or more of
these individuals could impair our ability to execute our strategy
or achieve our business and financial objectives.
We do
not have written employment agreements with any of our executive
officers or members of senior management team other than Matthew
Rosen, our Chief Executive Officer.
We face
competition for qualified personnel, including management,
technical, financial and sales personnel. We also rely
on independent sales agents to market and sell our
services. If we are unable to attract and retain
experienced and motivated personnel, including independent sales
agents, the growth of our business or the effectiveness of our
day-to-day operations may be negatively impacted and we may not be
able to grow our customer base or to achieve our business or
financial objectives.
11
Risks Related to Ownership of our Common Stock
We are unlikely to pay cash dividends on our common stock in the
foreseeable future.
We have
never declared or paid any cash dividends on our common
stock. We intend to retain any future earnings to
finance our operations and expand our business and therefore do not
expect to pay any cash dividends in the foreseeable
future. Holders of our outstanding preferred stock are
entitled to receive dividends prior to the payment of any dividends
on our common stock. The payment of dividends is also subject to
provisions of Delaware law prohibiting the payment of dividends
except out of surplus and certain other limitations, as well as the
provisions contained in our senior credit facilities.
Our common stock is subject to price volatility unrelated to our
operations.
The
market price of our common stock has fluctuated substantially and
will likely continue to do so due to a variety of factors,
including market perception of our ability to achieve planned
growth, quarterly operating results of other companies in our
industry, trading volume in our common stock, changes in general
conditions in the economy and the financial markets or other
developments affecting our competitors or us. In
addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had, and will likely
continue to have, a significant effect on the market price of our
common stock and the securities issued by many other companies for
reasons unrelated to operating performance.
In
addition, the market price of our common stock may continue to
fluctuate significantly in response to a number of other factors,
many of which are beyond our control including, but not limited to,
the following:
●
|
ability
to obtain and retain analyst coverage;
|
●
|
changes
in analysts’ recommendations or estimates of our financial
performance;
|
●
|
changes
in the market valuations of companies similar to us;
|
●
|
announcements
by us or our competitors of significant contracts, new offerings,
acquisitions, commercial relationships, joint ventures, or capital
commitments; and
|
●
|
failure
to meet analysts’ expectations regarding financial
performance.
|
Furthermore,
companies that have experienced volatility in the market price of
their stock have been subject to securities class action
litigation. A securities class action lawsuit against
us, regardless of its merit, could result in substantial costs and
divert the attention of our management from other business
concerns, which, in turn, could harm our business.
We are a smaller reporting company and we cannot be certain if the
reduced disclosure requirements applicable to smaller reporting
companies will make our common stock less attractive to
investors.
We are
currently a “smaller reporting company” as defined in
the Exchange Act, and are thus allowed to provide simplified
executive compensation disclosures in our filings, are exempt from
the provisions of Section 404(b) of the Sarbanes-Oxley Act
requiring that an independent registered public accounting firm
provide an attestation report on the effectiveness of internal
control over financial reporting and have certain other decreased
disclosure obligations in our SEC filings. We cannot predict
whether investors will find our common stock less attractive
because of our reliance on any of these exemptions. If some
investors find our common stock less attractive as a result, there
may be a less active trading market for our common stock and our
stock price may be more volatile.
Our common stock may become subject to the “penny
stock” rules of the SEC, which will make transactions in our
shares cumbersome and may reduce the value of an investment in our
shares.
For so
long as the trading price of our common stock is less than $5.00
per share, our common stock may be considered a "penny stock," and
in such event trading in our common stock would be subject to the
requirements of Rule 15g-9 under the Securities Exchange Act of
1934, as amended (the “Exchange Act”). Under this rule,
broker/dealers who recommend low-priced securities to persons other
than established customers and accredited investors must satisfy
special sales practice requirements. The broker/dealer
must make an individualized written suitability determination for
the purchaser and receive the purchaser's written consent prior to
the transaction.
12
SEC
regulations also require additional disclosure in connection with
trades involving a "penny stock," including the delivery, prior to
any penny stock transaction, of a disclosure schedule explaining
the penny stock market and its associated risks. These
requirements severely limit the liquidity of securities in the
secondary market because few brokers or dealers are willing to
undertake these compliance activities. In addition to
the applicability of the penny stock rules, other risks associated
with trading in penny stocks include price fluctuations and the
lack of a liquid market.
To
date, we have not been considered a “penny stock” due
to an exemption from Rule 15g-9 for companies with average annual
audited revenues for the prior three years of in excess of
$6,000,000 per year. However, should the exclusions from
the definition of a “penny stock” change, or should our
annual revenues fall dramatically, we may become subject to rules
applicable to “penny stocks” and the market for our
shares may be adversely affected.
The elimination of monetary liability against our directors,
officers and employees under our certificate of incorporation and
the existence of indemnification rights in favor of our directors,
officers and employees may result in substantial expenditures by us
and may discourage lawsuits against our directors, officers and
employees.
Our
amended and restated certificate of incorporation, as amended,
contains provisions which eliminate the liability of our directors
for monetary damages to the Company and its stockholders to the
maximum extent permitted by Delaware corporate law. Our
by-laws also require us to indemnify our directors to the maximum
extent permitted by Delaware corporate law. We may also
have contractual indemnification obligations under our agreements
with our directors, officers and employees. These
indemnification obligations could result in us incurring
substantial expenditures to cover the cost of settlement or damage
awards against directors, officers and employees, which we may be
unable to recoup. These provisions and resultant costs
may also discourage the Company from bringing a lawsuit against
directors, officers and employees for breaches of their fiduciary
duties, and may similarly discourage the filing of derivative
litigation by our stockholders against our directors, officers and
employees even though such actions, if successful, might otherwise
benefit the Company and its stockholders.
We are subject to limitations on our use of Securities Act of 1933
registration statements until December 2017.
In
February 2017, we were advised by the Corporate Finance Staff (the
“Staff”) of the SEC that, in the Staff’s opinion,
the financial statements of Apptix included as an exhibit to our
Current Report on Form 8-K originally filed on November 18, 2016
(the “Apptix Form 8-K”), did not comply with applicable
SEC auditing standards (the “Deficiency”). Although we
have filed a further amendment to the Apptix Form 8-K correcting
the Deficiency, we remain ineligible to use Form S-3 under the
Securities Act of 1933, as amended (the “Securities Act of
1933”) for registration of our securities until December 1,
2017.
Our use of equity to fund operations is dilutive to existing
stockholders and, depending upon the market price for our shares at
the time of issuance, we may be required to issue shares at
depressed prices.
Historically, we
have funded a vast majority of our working capital requirements
through the sale of Fusion equity securities. The use of
Fusion equity to fund operations is dilutive to our existing
stockholders. Unless we are able to generate substantial
revenues to fund our operating expenses, we may be required to
continue to fund operations through the sale of additional equity.
Moreover, the dilutive effect on our stockholders caused by the
issuance of new equity is directly impacted by the market price for
our shares at the time of issuance. If we are required
to issue shares at a time when the market price for our equity
securities is depressed, we will need to issue more shares than if
the market price was higher, and the dilutive effect on our
stockholders will be greater.
13
The issuance of our common stock upon the exercise of options or
warrants or the conversion of outstanding convertible securities
may cause significant dilution to our stockholders and may have an
adverse impact on the market price of our common
stock.
As of
May 5, 2017, we had 22,412,403 common shares outstanding and
approximately 2,063,125 shares reserved for issuance upon
conversion of outstanding preferred stock, 2,690,530 shares
reserved for the exercise of outstanding warrants, and 2,151,073
shares reserved for the exercise of outstanding stock
options. The issuance of our common shares upon the
exercise of stock options or warrants, or conversion of preferred
stock, will increase the number of our publicly traded shares,
which could depress the market price of our common
stock.
The
perceived risk of dilution may cause our common stockholders to
sell their shares, which would contribute to a downward movement in
the stock price of our common stock. Moreover, the
perceived risk of dilution and the resulting downward pressure on
our common stock price could encourage investors to engage in short
sales of our common stock. By increasing the number of
shares offered for sale, material amounts of short selling could
further contribute to progressive price declines in our common
stock.
We could use preferred stock to fund operations or resist
takeovers, and the issuance of preferred stock may cause additional
dilution.
Our
amended and restated certificate of incorporation, as amended,
authorizes Fusion to issue up to 10,000,000 shares of preferred
stock, of which 5,045 shares of Series A-1, A-2 and A-4 Preferred
Stock (the “Series A Preferred”) are currently issued
and outstanding, and 9,296 shares of our Series B-2 Preferred Stock
(the “Series B-2 Preferred”) are currently issued and
outstanding. Our certificate of incorporation gives the
Fusion board of directors the authority to issue preferred stock
without any further approval of our stockholders. We may
issue additional shares of preferred stock to raise money to
finance our operations. We may authorize the issuance of
the preferred stock in one or more series. In addition, we may set
the terms of preferred stock, including:
●
|
dividend
and liquidation preferences;
|
●
|
voting
rights;
|
●
|
conversion
privileges;
|
●
|
redemption
terms; and
|
●
|
other
privileges and rights of the shares of each authorized
series.
|
The
issuance of large blocks of Fusion’s preferred stock could
have a dilutive effect on our existing stockholders. It
can also negatively impact our existing stockholders’
liquidation preferences. In addition, while we include
preferred stock in our capitalization to improve our financial
flexibility, we could also issue preferred stock to friendly third
parties to preserve control by present management. This
could occur if we become subject to a hostile takeover that could
ultimately benefit our stockholders.
USE OF PROCEEDS
We
will not receive any proceeds from the sale of shares by the
selling stockholders hereunder.
14
DESCRIPTION OF SECURITIES
General
We are
currently authorized under our amended and restated certificate of
incorporation, as amended, to issue 90,000,000 shares of common
stock, par value $0.01 per share, and 10,000,000 shares of
preferred stock, par value $0.01 per share. As of May 5, 2017,
there were:
●
|
22,412,403
shares of common stock issued and outstanding; and
|
●
|
an
aggregate of 5,045 shares of Series A-1, A-2 and A-4 preferred
stock issued and outstanding; and
|
●
|
9,296
shares of Series B-2 preferred stock issue and
outstanding.
|
The
following is a summary of the rights of our common stock and our
preferred stock (including our Series A Preferred and Series B
Preferred). It does not purport to be complete. For more detailed
information about the terms of our capital stock, please see our
amended and restated certificate of incorporation, as amended,
including the certificate of designations for each of the Series A
Preferred and the Series B Preferred, and our by-laws.
Holders
of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders.
Holders of our common stock are entitled to share in all dividends
that our Board of Directors, in its discretion, declares from
legally available funds. Our common stock has no preemptive or
other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions associated with our common
stock. We have received full payment for all outstanding shares of
our common stock and cannot require our stockholders to make any
further payments on the stock. To the extent that additional shares
of common stock are issued in the future, the relative interests of
the then existing stockholders will be diluted. The rights,
preferences and privileges of our common stock are subject to the
rights, preferences and privileges of holder of our issued and
outstanding preferred stock, as described below.
Preferred Stock
Pursuant to our
amended and restated certificate of incorporation, as amended, our
Board is authorized, without further approval of our stockholders
but, subject to any limitations prescribed by law, to issue up to
an aggregate of 10,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and
restrictions granted to, or imposed upon, the preferred stock,
including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences.
The
rights of the holders of our common stock, Series A Preferred and
Series B Preferred (with the prior approval of the holders of a
majority of the issued and outstanding shares of Series A Preferred
and Series B Preferred) will be subject to, and may be adversely
affected by, the rights of holders of any preferred stock that may
be issued in the future. Our Board could authorize the issuance of
shares of preferred stock with terms and conditions more favorable
than our common stock, Series A Preferred and Series B Preferred
and with rights that could adversely affect the voting power or
other rights of holders of our common stock, Series A Preferred and
Series B Preferred. Prior to the issuance of shares of each series
of undesignated preferred stock, our Board is required by the
Delaware corporate laws and our amended and restated certificate of
incorporation, as amended, to adopt resolutions and to file a
certificate of designations with the Secretary of State Delaware
fixing for each such series the designations, powers, preferences,
rights, qualifications, limitations and restrictions of the shares
of such series. If such new series of preferred stock has rights
that are senior or equal to those of the Series A Preferred and
Series B Preferred with respect to dividends or liquidation
proceeds, then the terms of such new series must be approved by
holders of a majority of the issued and outstanding shares of
Series A Preferred and Series B Preferred. Issuance of preferred
stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of
Fusion.
15
Series B Preferred Stock
Between
December 31, 2013 and January 31, 2014 we issued an aggregate of
22,838 shares of Series B-2 Preferred. Each share of Series B-2
Preferred has a stated value of $1,000; and is senior to all of our
Series A Preferred and common stock. As of May 5, 2017, there were
9,296 shares of Series B Preferred outstanding.
Each
share of Series B-2 Preferred is convertible into shares of our
common stock at a conversion price of $5.00 per share, subject to
adjustment. Subject to the other terms of the Series B-2
Preferred, the 9,296 shares of outstanding Series B-2 Preferred are
convertible into an aggregate of 1,859,200 shares of our
common stock. In conjunction with the original issuance of the
Series B-2 Preferred, we also issued warrants to purchase shares of
our common stock at an exercise price of $6.25 per share, as
adjusted for stock splits, combinations and reclassifications. The
remaining warrants may be exercised for five (5) years from the
date of issuance. A registration statement was filed with, and
declared effective by, the SEC registering the resale of the shares
of our common stock issuable upon exercise of these warrants but at
this time the prospectus included in such registration statement is
not current due to the Deficiency. The Company intends to
file an S-4 registration statement with the SEC offering holders of
all of its outstanding warrants the right to receive new warrants.
Any B-2 warrant holder that participates will receive registered
shares of Fusion's common stock.
Commencing
January 1, 2016, we have the right to force the conversion of the
Series B-2 Preferred into common stock at a price of $5.00 per
share; provided that the volume weighted average price of our
common stock is at least $12.50 for ten (10) consecutive trading
days. In addition, shares of our Series B-2 Preferred
stock bear a cumulative six percent (6%) annual dividend payable
quarterly in arrears from March 31, 2014, payable in cash or shares
of common stock, at our option. To date, all quarterly dividends on
the Series B-2 Preferred have been paid in common
shares.
Series A Preferred Stock
We have
issued shares of Series A Preferred in four designated classes, as
follows:
Designation
|
Number of
Shares
Authorized
|
Number of
Shares
Outstanding as
May 3, 2017
|
Conversion Price
as of
May 3,
2017
|
A-1
|
3,875
|
2,375
|
$73.47
|
A-2
|
3,375
|
2,625
|
$36.51
|
A-3
|
700
|
0
|
N/A
|
A-4
|
45
|
45
|
$34.75
|
Each
“A” series of preferred stock has a stated value of
$1,000 per share and is entitled to cumulative dividends on the
outstanding stated value of the preferred stock at the rate of
eight percent (8%) per annum, payable in arrears, when and if
declared by our Board, in cash or, in certain instances, in shares
of our common stock. Upon a liquidation of the Company, and after
the payment of all amounts due to creditors and senior preferred
stock holders, the holders of Series A preferred stock are entitled
to a liquidation preference equal to the greater of the stated
value of the preferred stock and the amount the holders would have
received had they converted their Series A Preferred into common
stock prior to liquidation.
Each
share of Series A Preferred may be converted (a) by the registered
holder into shares of our common stock at the conversion price set
forth in the above table, subject to further adjustment, and (b) by
the Company, in the event our common stock trades at an average
price of at least 220% of the applicable conversion price over a
consecutive ninety (90) day period.
16
The
consent of holders of a majority of each class of our Series A
Preferred is required in order to (a) amend our amended and
restated certificate of incorporation, as amended, or by-laws to
change any of the rights, preferences or privileges of the
preferred stock, to reduce the dividend rate, reduce the
liquidation preference or make the Series A Preferred redeemable,
(b) permit any subsidiary to issue or sell any of its securities
(except to Fusion or a wholly-owned subsidiary of Fusion) or sell
any of their respective assets, other than at arms’ length at
fair market value, or (c) increase or decrease the number of shares
of each class of the Series A Preferred. The consent of holders of
each class of Series A Preferred was obtained in connection with
the creation and sale of the Series B-2 Preferred.
Common Stock Purchase Warrants
We
have, from time to time, issued common stock purchase warrants,
primarily in connection with prior offerings of our equity
securities and our senior debt. The following table provides
information concerning our common stock purchase warrants
outstanding at May 5, 2017:
Event Requiring
Issuance
|
Total Number
of
Shares
Issuable
upon Exercise
of
Warrants
|
Term of
Warrant
|
Expiration
Date
|
Per
Share
Exercise
Price
(subject
to
adjustment)
|
Offering of Series
B-2 preferred stock
|
1,512,514
|
5
Years
|
December 31, 2018
and January 24, 2019
|
$6.25
|
July 2013 offering
of common stock and warrants
|
242,635
|
5
Years
|
Various dates
through October 12, 2018
|
$5.45-$8.50
|
March 2013 offering
of common stock and warrants
|
408,066
|
5
Years
|
Various dates
through July 18, 2018
|
$4.25-$5.50
|
October 2012
offering of Series B-1 preferred stock
|
518,989
|
5
Years
|
October 22, 2017
and October 24, 2017
|
$6.83-$7.62
|
Other
warrants
|
31,312
|
5-7.5
Years
|
Various dates
through October 15, 2018
|
$4.25-$10.15
|
Stock Options
As of
May 5, 2017, we have reserved 3,519,790 shares of our common stock
for issuance under our equity compensation plans.
Listing
Our
common stock is listed on The Nasdaq Capital Market under the
trading symbol “FSNN.”
Transfer Agent and Registrar
Continental Stock
Transfer & Trust Co., New York, New York acts as transfer agent
and registrar for our common stock and preferred stock. Its address and telephone number are One State
Street, New York, New York 10004 and (212) 509-4000,
respectively.
17
Anti-takeover Provisions
Our
amended and restated certificate of incorporation, as amended, our
by-laws and Delaware corporate law contain provisions that could
delay or make more difficult an acquisition of control of our
company not approved by our Board, whether by means of a tender
offer, open market purchases, proxy contests or otherwise. These
provisions have been implemented to enable us to develop our
business in a manner that will foster our long-term growth without
disruption caused by the threat of a takeover not deemed by our
Board to be in the best interest of our company and our
stockholders. These provisions could have the effect of
discouraging third parties from making proposals involving an
acquisition or change of control of our company even if such a
proposal, if made, might be considered desirable by a majority of
our stockholders. These provisions may also have the effect of
making it more difficult for third parties to cause the replacement
of our current management without the concurrence of our
Board.
Set
forth below is a description of the provisions contained in our
amended and restated certificate of incorporation, as amended,
by-laws and Delaware corporate law that could impede or delay an
acquisition of control of our company that our Board has not
approved. This description is intended as a summary only and is
qualified in its entirety by reference to our amended and restated
certificate of incorporation, as amended, and by-laws, forms of
each of which are included as exhibits to the registration
statement of which this prospectus forms a part.
Authorized But Unissued Preferred Stock
Fusion
is currently authorized to issue a total of 10,000,000 shares of
preferred stock. Our amended and restated certificate of
incorporation, as amended, provides that the Board may issue
preferred stock by resolutions, without any action of the
stockholders. In the event of a hostile takeover, the Board could
potentially use this preferred stock to preserve
control.
Number of Directors
Our
amended and restated certificate of incorporation, as amended, and
by-laws provide that the number of directors shall be no less than
one, as fixed from time to time by resolution of the
Board.
Filling Vacancies
Our
by-laws establish that the Board shall be authorized to fill any
vacancies arising due to the death, resignation or removal of any
director. The Board is also authorized to fill vacancies if the
stockholders fail to elect the full authorized number of directors
to be elected at any annual or special meeting of stockholders.
Vacancies on the Board may be filled by a majority of the remaining
directors then in office, even through less than a quorum of the
Board, or by a sole remaining director.
Board Action Without Meeting
Our
by-laws provide that the board may take action without a meeting if
all the members of the Board consent to the action in writing or by
electronic transmission. Board action through written consent
allows the Board to make swift decisions, including in the event
that a hostile takeover threatens current management.
No Cumulative Voting
Our
by-laws provide that there is no right to cumulate votes in the
election of directors. This provision means that the holders of a
plurality of the shares voting for the election of directors can
elect all of the directors. Non-cumulative voting makes it more
difficult for an insurgent minority stockholder to elect a person
to the Board.
18
Stockholder Proposals
Except
to the extent required by applicable laws, we are not required to
include on our proxy card, or describe in our proxy statement, any
information relating to any stockholder proposal and disseminated
in connection with any meeting of our stockholders.
Amendments to Certificate of Incorporation and By-laws
Our
amended and restated certificate of incorporation, as amended,
gives both the directors and the stockholders the power to power to
adopt, alter or repeal the by-laws of the corporation. Any
adoption, alteration, amendment, change or repeal of the by-laws
requires an affirmative vote by a majority of the outstanding stock of the corporation. Any
by-law that has been adopted, amended, or repealed by the
stockholders may be amended or repealed by the Board, unless the
resolution of the stockholders adopting such by-laws expressly
reserves to the stockholders the right to amend or repeal it. Any
proposal to amend, alter, change or repeal any provision of our
amended and restated certificate of incorporation, as amended,
requires approval by the affirmative vote of a majority of the
voting power of all of the classes of our capital stock entitled to
vote on such amendment or repeal, voting together as a single
class, at a duly constituted meeting of stockholders called
expressly for that purpose as well as the affirmative vote of a
majority of the voting power of our common
stock.
Delaware Law Provisions
We are
subject to the provisions of Section 203 of the Delaware
corporate law regulating corporate takeovers. This section prevents
Delaware corporations, under certain circumstances, from engaging
in a “business combination” with:
●
a
stockholder who owns 15% or more of its outstanding voting stock
(otherwise known as an interested stockholder);
●
an
affiliate of an interested stockholder; or
●
an
associate of an interested stockholder;
for
three years following the date that the stockholder became an
interested stockholder. A “business combination”
includes a merger or sale of more than 10% of a company’s
assets.
However, the above
provisions of Section 203 do not apply if:
●
the
company’s board of directors approves either the business
combination or the transaction that made the stockholder an
interested stockholder, prior to the date of that
transaction;
●
after
the completion of the transaction that resulted in the stockholder
becoming an interested stockholder, that stockholder owned at least
85% of that company’s voting stock outstanding at the time
the transaction commenced, excluding the shares owned by its
officers and directors and the shares contained in employee stock
plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or
●
on or
subsequent to the date of the transaction, the business combination
is approved by that company’s board of directors and
authorized at a meeting of its stockholders by an affirmative vote
of at least two-thirds of the outstanding voting stock not owned by
the interested stockholder.
This
statute could prohibit or delay mergers or other change in control
attempts, and thus may discourage attempts to acquire
us.
19
SELLING STOCKHOLDERS
Background of the Offering
On
behalf of the selling stockholders named in the table below
(including their respective successors or permitted assigns, who
receive any of the shares covered by this prospectus), we are
registering, pursuant to the registration statement of which this
prospectus forms a part, 2,431,091 shares of our issued and
outstanding common stock.
We are
registering the shares being offered under this prospectus pursuant
to commitments made by us under the terms of a common stock
purchase agreement we executed with the selling stockholders in
connection with the private placement described below.
We are
registering the shares to permit the selling stockholders to offer
these shares for resale from time to time. The selling stockholders
may sell all, some or none of the shares covered by this
prospectus. Additional information relating to sales of the shares
offered by the selling stockholders is contained elsewhere in this
prospectus under the caption “Plan of
Distribution.”
The
shares of common stock being offered under this prospectus may be
offered for sale from time to time during the period the
registration statement of which this prospectus forms a part
remains effective, by or for the account of the selling
stockholders. After the date of effectiveness of the registration
statement of which this prospectus forms a part, the selling
stockholders may have sold or transferred, in transactions covered
by this prospectus or in transactions exempt from the registration
requirements of the Securities Act of 1933, some or all of their
common stock. Information about the selling stockholders may change
over time. Any changed information will be set forth in an
amendment to the registration statement or supplement to this
prospectus, to the extent required by law.
November 2016 Offering of Common Stock
On
November 16, 2016, Fusion sold an aggregate of 2,431,091 shares of
its common stock for an aggregate purchase price of $2,795,755, or
$1.15 per share. These shares were sold pursuant to the terms of a
common stock purchase agreement, dated as of November 14, 2016,
with 22 separate investors, each of whom is an accredited investor
(as such term is defined in Rule 501(a) of Regulation D under the
Securities Act of 1933).
The
Company agreed that, not later than December 28, 2016, it would
file a registration statement under the Securities Act of 1933 to
register resale of the shares on behalf of the selling
stockholders. This prospectus forms a part of that registration
statement. The common stock purchase agreement requires us to pay
liquidated damages to the selling stockholders, in an amount not to
exceed 12% of the purchase price of the shares, in the event the
registration statement is not timely filed, or if it is not
declared effective by the SEC within the prescribed time, or if we
fail to maintain the effectiveness of the registration statement
during the prescribed period, or if there ceases to be
“current public information” about the Company, within
the meaning of Rule 144 under the Securities Act of 1933, during
the required time period. The Company originally filed a
registration statement on Form S-3 to cover the resale of the
shares offered hereby but withdrew such registration statement due
to the Deficiency. As a result, the Company was obligated to accrue
and pay liquidated damages to the selling stockholders during the
prescribed period that there was no effective registration
statement under which the selling stockholders could resell their
shares. Under the common stock purchase agreement, we also agreed
to certain limitations on issuing shares of our common stock, or
securities convertible or exchangeable into our common stock,
during the period from the date of execution of the common stock
purchase agreement until 45 days following the effective date of
the required registration statement.
20
Selling Stockholders
The
following table sets forth as of the date of this prospectus
the:
●
name
of each selling stockholder;
●
amount
of common stock owned beneficially by each selling
stockholder;
●
number
of shares that may be offered by each selling stockholder pursuant
to this prospectus;
●
number
of shares to be owned by each selling stockholder following sale of
the shares covered by this prospectus; and
●
percentage of our
common stock to be owned by each selling stockholder following sale
of the shares covered by this prospectus.
Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to
outstanding voting securities, as well as any voting securities
which the person has the right to acquire within 60 days, through
the conversion or exercise of any security or other right. The
information as to the number of shares of our common stock owned by
each selling stockholder is based upon our books and records, the
information provided by our transfer agent and other information
that we have determined to be reliable.
Because
the selling stockholders identified in the following table may sell
some or all of the shares owned by them which are included in this
prospectus, and because there are currently no agreements,
arrangements or understandings with respect to the sale of any of
the shares, no estimate can be given as to the number of shares
available for resale hereby that will be held by the selling
stockholders upon termination of this offering. We have, therefore,
assumed for the purposes of the following table, that the selling
stockholders will sell all of the shares owned beneficially by them
that are covered by this prospectus, but will not sell any other
shares of our common stock that they presently own. Unless
otherwise indicated in the footnotes, shares in the table refer to
shares of outstanding common stock. All of the shares reflected in
the table under “Number of Shares Available Pursuant to this
Prospectus” are owned directly by the named selling
stockholder, and we are advised that no other person (including any
person identified in the notes to the table) has any beneficial
interest therein.
Name of Selling
Stockholder
|
Number of Shares
Owned Beneficially
|
|
Number of Shares
Available Pursuant to this Prospectus
|
Number of Shares
Owned After Offering
|
Percent of Class
After Offering
|
Alfaro,
Henry
|
28,986
|
(1)
|
28,986
|
0
|
**
|
Block, Dennis
J.
|
130,435
|
|
130,435
|
0
|
**
|
Brumberger,
Alan
|
266,235
|
(2)
|
86,957
|
179,278
|
1.2%
|
DelGiudice,
Michael*
|
65,852
|
(3)
|
21,739
|
41,113
|
**
|
DV-FT Holdings,
LLC
|
334,985
|
|
86,957
|
248,028
|
1.5%
|
Ferentinos, Peter
A.
|
168,589
|
(4)
|
86,957
|
81,632
|
**
|
Flecker,
David
|
40,781
|
(5)
|
21,739
|
19,042
|
**
|
Francine M. Blum
Revocable Trust
|
64,799
|
(6)
|
13,044
|
51,755
|
**
|
Harris,
Kevin
|
28,986
|
(7)
|
28,986
|
0
|
**
|
Hartfiel III,
William F.
|
28,986
|
(8)
|
28,986
|
0
|
**
|
Korman, Bernard
J.
|
222,864
|
(9)
|
21,739
|
201,125
|
**
|
Mill Road Capital
II, L.P.
|
826,087
|
|
826,087
|
0
|
3.7%
|
Murphy,
Thomas
|
116,805
|
(10)
|
45,000
|
71,805
|
**
|
O’Brien, Paul
C.*
|
219,781
|
(11)
|
86,957
|
132,824
|
**
|
Rosen
Matthew*
|
377,187
|
(12)
|
21,739
|
355,448
|
1.7%
|
Rosen,
Marvin*
|
2,053,377
|
(13)
|
195,652
|
1,857,725
|
9.0%
|
Rubin,
William*
|
207,087
|
(14)
|
4,348
|
202,739
|
**
|
Shapo,
Ronald
|
157,188
|
(15)
|
21,739
|
135,449
|
**
|
Stern, Jolyon
F.
|
299,884
|
(16)
|
173,913
|
125,971
|
1.3%
|
Technology
Opportunity Partners, LP
|
434,783
|
|
434,783
|
0
|
1.9%
|
Turits,
Philip*
|
117,458
|
(17)
|
4,348
|
113,110
|
**
|
Volpert,
Barry
|
250,675
|
(18)
|
60,000
|
190,675
|
1.1%
|
__________________________________________
*
Denotes an affiliate of the Company.
**
Denotes less than 1% of shares outstanding
21
(1)
Henry
Alfaro is an affiliate of Craig-Hallum Capital Group, LLC, a
registered broker-dealer. Mr. Alfaro acquired the shares he is
offering hereby in the ordinary course of business and, at the time
of the acquisition he had no agreements, understandings or
arrangements with any other persons, either directly or indirectly,
to dispose of the shares.
(2)
Alan
Brumberger is an affiliate of Emerald Capital Partners, LLC, a
registered broker-dealer. Mr. Brumberger acquired the shares he is
offering hereby in the ordinary course of business and, at the time
of the acquisition he had no agreements, understandings or
arrangements with any other persons, either directly or indirectly,
to dispose of the shares. Includes (i) 172 shares of common stock
held by trusts for which his wife serves as trustee, (ii) 5,020
shares of common stock issuable upon the exercise of options, (iii)
10,064 shares of common stock issuable upon the exercise of common
stock purchase warrants; (iv) 20,000 shares of common stock
issuable upon conversion of 100 shares of Series B-2 preferred, and
(v) 410 shares of common stock issuable upon conversion of 10
shares of Series A-1 preferred stock and 10 shares of Series A-2
preferred stock. Until October 28, 2016, Mr. Brumberger served as a
director of Fusion.
(3)
Includes (i) 5,020
shares of common stock issuable upon the exercise of options, (ii)
3,984 shares of common stock issuable upon the exercise of common
stock purchase warrants, of which 3,664 shares are held in the name
of Catskill Investor Group, LLC, (iii) 11,381 shares of common
stock held in the name of Catskill Investor Group, LLC, (iv) 1,000
shares of common stock issuable upon conversion of 5 shares of
Series B-2 preferred stock and (v) 4,776 shares issuable upon
conversion of 200 shares of Series A-1 preferred stock and 75
shares of Series A-2 preferred stock owned by Catskill Investor
Group, LLC.
(4)
Includes
(i) 60,000 shares of common stock issuable upon conversion of 300
shares of Series B-2 preferred stock, (ii) 19,200 shares issuable
upon exercise of common stock purchase warrants, and (iii) 2,432
shares issuable upon conversion of 64 shares of Series A-1
preferred stock and 57 shares of Series A-2 preferred
stock.
(5)
Includes
8,231 shares of common stock issuable upon exercise of common stock
purchase warrants.
(6)
Includes
(i) 5,922 shares of common stock issuable upon exercise of common
stock purchase warrants, (ii) 4,170 shares issuable to Larry Blum,
a director of the Company, upon the exercise of options, and (iii)
6,600 shares of common stock issuable upon conversion of 33 shares
of Series B-2 preferred stock.
(7)
Kevin
Harris is an affiliate of Craig-Hallum Capital Group, LLC, a
registered broker-dealer. Mr. Harris acquired the shares he is
offering hereby in the ordinary course of business and, at the time
of the acquisition he had no agreements, understandings or
arrangements with any other persons, either directly or indirectly,
to dispose of the shares.
(8)
William
F. Hartfiel III is an affiliate of Craig-Hallum Capital Group, LLC,
a registered broker-dealer. Mr. Hartfiel acquired the shares he is
offering hereby in the ordinary course of business and, at the time
of the acquisition he had no agreements, understandings or
arrangements with any other persons, either directly or indirectly,
to dispose of the shares.
22
(9)
Includes
100,631 shares of common stock issuable upon exercise of common
stock purchase warrants.
(10)
Includes
14,761 shares of common stock issuable upon exercise of common
stock purchase warrants.
(11)
Includes
(i) 5,020 shares of common stock issuable upon the exercise of
options, (ii) 3,200 shares of common stock issuable upon the
exercise of common stock purchase warrants, (iii) 10,000 shares of
common stock issuable upon conversion of 50 shares of Series B-2
preferred stock and (iv) 1,361 shares of common stock issuable upon
conversion of 100 shares of Series A-1 preferred
stock.
(12)
Includes (i)
216,334 shares of common stock issuable upon the exercise of
options, (ii) 24,591 shares of common stock issuable upon the
exercise of common stock purchase warrants, (iii) 15,200 shares of
common stock issuable upon conversion of 76 shares of Series B-2
preferred stock, and (iv) 817 shares of common stock issuable upon
conversion of 50 shares of Series A-1 preferred stock and 5 shares
of Series A-2 preferred stock.
(13)
Includes
(i) 286,539 shares of common stock issuable upon the exercise of
common stock purchase warrants, (ii) 5,500 shares of common stock
issuable upon the exercise of options, (iii) 144,400 shares of
common stock issuable upon conversion of 722 shares of Series B-2
preferred stock, (iv) 1,610 shares of common stock held by a
Delaware Trust Custodian IRA of Mr. Rosen, and (v) 1,366 shares of
common stock issuable upon conversion of 50 shares of Series A-1
preferred stock and 25 shares of Series A-2 preferred
stock.
(14)
Includes
(i) 4,650 shares of common stock issuable upon the exercise of
options, (ii) 40,000 shares of common stock issuable upon
conversion of 200 shares of Series B-2 preferred stock, and (iii)
31,513 shares of common stock issuable upon the exercise of common
stock purchase warrants.
(15)
Includes
(i) 2,805 shares of common stock issuable upon conversion of 25
shares of Series A-1 preferred stock and 90 shares of Series A-2
preferred stock of which 23 shares are owned by his wife, and (ii)
19,305 shares of common stock issuable upon exercise of stock
purchase warrants.
(16)
Includes 1,394
shares of common stock issuable upon conversion of 36 shares of
Series A-1 preferred stock and 33 shares of Series A-2 preferred
stock.
(17)
Includes
(i) 29 shares of common stock held by his wife, (ii) 1,450 shares
of common stock issuable upon the exercise of common stock purchase
warrants, (iii) 24,550 shares of common stock issuable upon the
exercise of options, (iv) 1,000 shares of common stock issuable
upon conversion of 5 shares of Series B-2 preferred stock, and (v)
1,162 shares of common stock issuable upon conversion of 25 shares
of Series A-1 preferred stock and 30 shares of Series A-2 preferred
stock.
(18)
Includes
(i) 40,000 shares of common stock issuable upon conversion of 200
shares of Series B-2 preferred stock, and (ii) 42,416 shares of
common stock issuable upon the exercise of common stock purchase
warrants.
Except
as disclosed in the footnotes to the foregoing table, none of the
selling stockholders has had any position, office or other material
relationship with us in the past three years.
The
selling stockholders and intermediaries through whom such
securities are sold may be deemed “underwriters” within
the meaning of the Securities Act of 1933 with respect to the
shares offered by this prospectus, and any profits realized or
commissions received may be deemed underwriting
compensation.
23
PLAN OF DISTRIBUTION
We
are registering for resale by the selling stockholders and certain
transferees a total of 2,431,091 shares of issued and outstanding
common stock. We will not receive any proceeds from the sale by the
selling stockholders of these shares of common stock. We will bear
all fees and expenses incident to our obligation to register these
shares of common stock. If these shares of common stock are sold
through broker-dealers or agents, the selling stockholder will be
responsible for any compensation to such broker-dealers or
agents.
The
selling stockholders may pledge or grant a security interest in
some or all of the shares of common stock owned by them and, if
they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common
stock from time to time pursuant to this prospectus.
The
selling stockholders also may transfer and donate the shares of
common stock in other circumstances in which case the transferees,
donees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this
prospectus.
The
selling stockholders will sell their shares of common stock subject
to the following:
●
all or a portion of the shares of common stock beneficially owned
by the selling stockholders or their perspective pledgees, donees,
transferees or successors in interest, may be sold on the OTC
Bulletin Board Market, any national securities exchange or
quotation service on which the shares of our common stock may be
listed or quoted at the time of sale, in the over-the-counter
market, in privately negotiated transactions, through the writing
of options, whether such options are listed on an options exchange
or otherwise, short sales or in a combination of such
transactions;
●
each sale may be made at market price prevailing at the time of
such sale, at negotiated prices, at fixed prices or at carrying
prices determined at the time of sale;
●
some or all of the shares of common stock may be sold through one
or more broker-dealers or agents and may involve crosses, block
transactions or hedging transactions. The selling stockholders may
enter into hedging transactions with broker-dealers or agents,
which may in turn engage in short sales of the common stock in the
course of hedging in positions they assume. The selling
stockholders may also sell shares of common stock short and deliver
shares of common stock to close out short positions or loan or
pledge shares of common stock to broker-dealers or agents that in
turn may sell such shares;
●
in connection with such sales through one or more broker-dealers or
agents, such broker-dealers or agents may receive compensation in
the form of discounts, concessions or commissions from the selling
stockholders and may receive commissions from the purchasers of the
shares of common stock for whom they act as broker-dealer or agent
or to whom they sell as principal (which discounts, concessions or
commissions as to particular broker-dealers or agents may be in
excess of those customary in the types of transaction involved).
Any broker-dealer or agent participating in any such sale may be
deemed to be an “underwriter” within the meaning of the
Securities Act of 1933 and will be required to deliver a copy of
this prospectus to any person who purchases any share of common
stock from or through such broker-dealer or agent. We have been
advised that, as of the date hereof, none of the selling
stockholders have made any arrangements with any broker-dealer or
agent for the sale of their shares of common stock;
and
●
in connection with any other sales or transfers of common stock not
prohibited by law.
24
The
selling stockholder and any broker-dealer participating in the
distribution of the shares of common stock may be deemed to be
“underwriters” within the meaning of the Securities Act
of 1933 and any profits realized by the selling stockholders and
any commissions paid, or any discounts or concessions allowed to
any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act of 1933. In addition, any
shares of common stock covered by this prospectus which qualify for
sale pursuant to Rule 144 of the Securities Act of 1933
(“Rule 144”) may be sold under Rule 144 rather than
pursuant to this prospectus. A selling stockholder may also
transfer, devise or gift the shares of common stock by other means
not covered in this prospectus in which case the transferee,
devisee or giftee will be the selling stockholder under this
prospectus.
If
required at the time a particular offering of the shares of common
stock covered hereby is made, a prospectus supplement or, if
appropriate, a post-effective amendment to the registration
statement of which this prospectus forms a part, will be
distributed which will set forth the aggregate amount of shares of
common stock being offered and the terms of the offering, including
the name or names of any broker-deals or agents, any discounts,
commissions or concessions allowed or re-allowed or paid to
broker-dealers.
Under
the securities laws of some states, the shares of common stock may
be sold in such states only through registered or licensed brokers
or dealers. In addition, in some states the shares of common stock
may not be sold unless such shares have been registered or
qualified for sale in such state or an exemption from registration
or qualification is available and is complied with. There can be no
assurance that any selling stockholder will sell any or all of the
shares of common stock registered pursuant to the registration
statement of which this prospectus forms a part.
The
selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including,
without limitation, Regulation M of the Exchange Act, which may
limit the timing of purchases and sales of any of the shares of
common stock by the selling stockholders and any other
participating person. Regulation M may also restrict the ability of
any person engaged in the distribution of the shares of common
stock to engage in market-making activities with respect to the
shares of common stock. All of the foregoing may affect the
marketability of the shares of common stock and the ability of any
person or entity to engage in market-making activities with respect
to the shares of common stock.
We will
bear all expenses of the registration of the shares of common stock
covered by this prospectus including, without limitation, SEC
filing fees and expenses of compliance with the state securities of
“blue sky” laws. The selling stockholders will pay all
underwriting discounts and selling commissions and expenses,
brokerage fees and transfer taxes, as well as the fees and
disbursements of counsel to and experts for the selling
stockholders, if any. We will indemnify the selling stockholders
against liabilities, including some liabilities under the
Securities Act of 1933, in accordance with the registration rights
agreement or the selling stockholder will be entitled to
contribution. We will be indemnified by the selling stockholders
against civil liabilities, including liabilities under the
Securities Act of 1933 that may arise from any written information
furnished to us by the selling stockholders for use in this
prospectus, in accordance with the related securities purchase
agreement or will be entitled to contribution. Once sold under the
registration statement of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of
persons other than our affiliates.
LEGAL MATTERS
Steven
I. Weinberger, P.A., Boca Raton, Florida, will review the validity
of the issuance of the shares of common stock, the resale of which
is covered by this prospectus.
25
EXPERTS
The
consolidated balance sheets of Fusion Telecommunications
International, Inc. as of December 31, 2016 and 2015, and the
related consolidated statements of operations, changes in
stockholders’ equity, and cash flows for each of the years in
the two-year period ended December 31, 2016, have been audited by
EisnerAmper LLP, independent registered public accounting firm, as
stated in their report which is incorporated herein by reference.
Such financial statements have been incorporated herein by
reference in reliance on the report of such firm given upon their
authority as experts in accounting and auditing.
The
balance sheets of Apptix, Inc. as of September 30, 2016 and
December 31, 2015, and the related statements of operations,
changes in stockholder’s equity, and cash flows for the
period from January 1, 2016 through September 30, 2016 and the year
ended December 31, 2015, have been audited by EisnerAmper LLP,
independent registered public accounting firm, as stated in their
report which is incorporated herein by reference. Such financial
statements have been incorporated herein by reference in reliance
on the report of such firm given upon their authority as experts in
accounting and auditing.
No
expert or counsel named in this prospectus as having prepared or
certified any part thereof or having given an opinion upon the
validity of the securities being registered or upon other legal
matters in connection with the registration or offering of our
common stock was employed on a contingency basis or had or is to
receive, in connection with the offering, a substantial interest,
directly or indirectly, in us. Additionally, no such expert or
counsel was connected with us as a promoter, managing or principal
underwriter, voting trustee, director, officer or
employee.
WHERE YOU CAN FIND MORE INFORMATION
We have
filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933 covering the resale of the common stock
offered by this prospectus. This prospectus, which forms a part of
the registration statement, does not contain all of the information
in the registration statement and the exhibits filed with it,
portions of which have been omitted as permitted by SEC rules and
regulations. For further information concerning us and the
securities offered by this prospectus, we refer to the registration
statement and the exhibits filed with it. Statements contained in
this prospectus as to the content of any contract or other
documents are not necessarily complete. Where a contract or other
document is an exhibit to the registration statement, you should
review the provisions of the exhibit to which reference is made.
You may obtain these exhibits from the SEC, as discussed
below.
We are
required to file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and
copy these filings, as well as the registration statement of which
this prospectus forms a part, at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, D.C. 20549. You may request
copies of these documents by writing to the SEC and paying the
required fee for copying. Please call the SEC at 1-800-SEC-0330 for
more information about the operation of the Public Reference Room.
The SEC also maintains an Internet site that contains reports,
proxy and information statements and other information filed
electronically with the SEC. The address of that site is
www.sec.gov.
The information on this website is not and should not be considered
part of this prospectus and is not incorporated by reference in
this document, other than that information specifically
incorporated by reference below. This website is and is only
intended to be an inactive textual reference.
26
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference
information from other documents that we file with it, which means
that we can disclose important information to you by referring you
to those documents. The information incorporated by reference is
considered to be part of this prospectus. Information in this
prospectus supersedes information incorporated by reference that we
filed with the SEC prior to the date of this prospectus, while
information that we file later with the SEC will automatically
update and supersede the information in this prospectus. We
incorporate by reference into this prospectus and the registration
statement of which this prospectus is a part the information or
documents listed below that we have filed with the SEC (Commission
File No. 001-32421):
●
Our
Annual Report on Form 10-K for the fiscal year ended December 31,
2016 filed with the SEC on March 20, 2017.
●
Amendment No. 1 to
our Annual Report on Form 10-K/A for the fiscal year ended December
31, 2016 filed with the SEC on April 11, 2017.
●
Amendment No. 2 to
our Annual Report on Form 10-K/A for the fiscal year ended December
31, 2016 filed with the SEC on April 28, 2017.
●
Our
Current Reports on Form 8-K filed with the SEC on November 18,
2016, as amended by Current Reports on Form 8-K/A filed with the
SEC on November 23, 2016, January 27, 2017 and April 17,
2017.
●
Our Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2017
filed with the SEC on May 12, 2017.
We
also incorporate by reference any future filings (other than
current reports furnished under Item 2.02 or Item 7.01 of Form 8-K
and exhibits filed on such form that are related to such items
unless such Form 8-K expressly provides to the contrary) made with
the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act, including those made after the date of the initial
filing of the registration statement of which this prospectus is a
part and prior to effectiveness of such registration statement,
until we file a post-effective amendment that indicates the
termination of the offering of the securities made by this
prospectus, which will become a part of this prospectus from the
date that such documents are filed with the SEC. Information in
such future filings updates and supplements the information
provided in this prospectus. Any statements in any such future
filings will automatically be deemed to modify and supersede any
information in any document we previously filed with the SEC that
is incorporated or deemed to be incorporated herein by reference to
the extent that statements in the later-filed document modify or
replace such earlier statements.
We will
deliver without charge a copy of all of the information
incorporated by reference in this prospectus to each person
receiving a copy of this prospectus. If you need an additional copy
of these documents, or if you would like to receive a copy of the
other items referenced above, you may request copies, at no cost,
by writing or telephoning us at the following address and
number:
Philip
Turits
Secretary
and Treasurer
Fusion
Telecommunications International, Inc.
420
Lexington Avenue, Suite
1718
New
York, NY 10170
(212)
201-2400
Copies
of our SEC filings and other information about us are also
available free of charge on our website at www.fusionconnect.com.
The information on our website is neither incorporated into, nor a
part of, this prospectus and should not be considered in making a
decision about the investment in the shares of our common stock
offered for resale pursuant to this prospectus.
27
No
dealer, sales representative or any other person has been
authorized to give any information or to make any representations
other than those contained in or incorporated by reference into
this prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by
Fusion Telecommunications International, Inc. This prospectus does
not constitute an offer of any securities other than those to which
it relates or an offer to sell, or a solicitation of any offer to
buy, to any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that the information set forth
herein is correct as of any time subsequent to the date
hereof.
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
2,431,091 Shares of Common Stock
TABLE OF CONTENTS
|
|
|
Page
|
Prospectus
Summary
|
2
|
|
|
Forward-Looking
Statements
|
4
|
|
|
Risk
Factors
|
4
|
|
|
Use of
Proceeds
|
14
|
|
|
Description of
Securities
|
15
|
|
|
Selling
Stockholders
|
20
|
|
|
Plan of
Distribution
|
24
|
|
|
Legal
Matters
|
25
|
|
|
Experts
|
26
|
|
|
Where
You Can Find Additional Information
|
26
|
|
|
Incorporation of
Certain Information by Reference
|
27
|
_____________, 2017
28
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution.
The
following table sets forth the expenses payable in connection with
the registration of the common stock described in this registration
statement. All such expenses are estimates except for the SEC
registration fee. These expenses will be borne by the
registrant.
Item
|
Expense
|
SEC registration
fee
|
$439.55
|
Printing and
engraving expenses
|
0.00
|
Legal fees and
expenses
|
10,000.00
|
Accounting fees and
expenses
|
10,000.00
|
Miscellaneous
|
3,000.00
|
Total
|
$23,439.55
|
Item 14. Indemnification of Directors and
Officers.
Section 145 of
the General Corporation Law of Delaware allows a corporation to
indemnify any person who was or is a party, or is threatened to be
made a party to any threatened, pending, or completed action, suit
or proceeding. This applies whether the matter is civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation) because he or she is or was a director,
officer, employee or agent of the corporation.
A
corporation may indemnify against expenses, including
attorney’s fees, and against judgments, fines and amounts
paid in settlement as part of the suit or proceeding. This applies
only if the person indemnified acted in good faith and in a manner
he or she reasonably believed to be in the best interest of the
corporation and with respect to any criminal action or proceeding,
the person had no reasonable cause to believe his or her conduct
was unlawful.
In the
case of an action by or in the name of the corporation, no
indemnification of expenses may be made for any claim, issue or
matter as to which the person has been found to be liable to the
corporation. The exception is if the court in which this action was
brought determines that the person is reasonably entitled to
indemnity for expenses which the court deems proper.
Section 145 of
the General Corporation Law of Delaware further provides that if a
director, officer, employee or agent of the corporation has been
successful on the merits or otherwise in the defense of any action,
suit, claim or proceeding described above, he or she will be
indemnified for expenses, including attorney’s fees, actually
and reasonably incurred by him or her.
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions,
the registrant has been informed that in the opinion of the
Securities and Exchange Commission, indemnification is against
public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for
indemnification against these liabilities, other than the payment
by the registrant in the successful defense of any action, suit or
proceeding, is asserted, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether indemnification by it is against public policy.
The registrant will be governed by the final adjudication of this
issue.
II-1
Item 15. Recent Sales of Unregistered
Securities.
In
connection with the registrant’s acquisition of PingTone
Communications, Inc. in October 2014, the registrant issued an
aggregate of 712,250 shares of its common stock (valued at $2.5
million) to the selling shareholders.
In each
of October 2014 and May 2015, the registrant issued 26,500 shares
of its common stock to Vista Partners LLC (“Vista”) and
in May 2016 the registrant issued an additional 30,917 shares. All
of these shares were issued in exchange for Vista’s agreement
to provide investor communications services.
In May
of 2015, the registrant issued a total of 20,000 shares of its
common stock to Excelsior Global Advisors, LLC in exchange for its
agreement to provide certain services to the
registrant.
In
connection with the registrant’s acquisition of Fidelity
Telecom Inc. and affiliated companies in December 2015, the
registrant issued 696,508 shares of its common stock (valued at
$1.5 million), to the three selling shareholders.
In
March 2016 the registrant issued 30,000 shares of its common stock
to James Prenetta, Jr., its corporate counsel, in exchange for his
provision of legal services to the registrant during
2015.
In July
2016, the registrant issued 55,000 shares of its common stock to
Michael Bauer, the registrant then newly appointed Chief Financial
Officer.
In
connection with the registrant’s acquisition of Apptix, Inc.
in November 2016, the registrant issued an aggregate of 2,997,926
shares of its common stock (10.0% of which was held in escrow
pending receipt of required regulatory approvals) to Apptix,
ASA.
In November
2016, the registrant sold an aggregate of 2,431,091 shares of its
common for an aggregate purchase price of $2,795,754, or $1.15 per
share, to 22 accredited investors. The registrant paid a placement
agent fee equal to 7% of the proceeds from the sale of these shares
to Craig-Hallum Capital Group LLC, a licensed
broker-dealer.
In
February 2017, the registrant issued 115,000 shares of its common
stock to James Prenetta, Jr., its corporate counsel, in exchange
for his provision of legal services to the registrant during
2016.
On
March 31, 2017, the registrant issued an aggregate of 561,834
shares of its common stock to eight warrantholders who exchanged
their existing warrants for new warrants to purchase shares of the
registrant’s common stock at a purchase price of $1.39 per
share. All of the new warrants were exercised and the Company
received a total of $781,000 in proceeds upon
exercise.
The
sales and issuances described above were made in reliance on the
exemptions from registration provided by Section 4(2) under the
Securities Act of 1933 and/or Regulation D thereunder as sales to
accredited investors; except that the March 31, 2017 exchange of
warrants was conducted under the exemption provided by Rule 3(a)(9)
of the Securities Act. The purchasers in these transactions
represented to us that they were accredited investors and were
acquiring the shares for investment purposes and not with a view
to, or for sale in connection with, any distribution thereof. The
certificates evidencing the shares issued in each of the above
transactions bear a legend restricting their transferability absent
registration under the Securities Act or the availability of an
applicable exemption therefrom.
Item 16. Exhibits
and Financial Statement Schedules.
(a)
Exhibits
The
exhibits to the registration statement are listed in the Exhibit
Index attached hereto and incorporated by reference
herein.
(b)
Financial Statements
Schedules
No
financial statement schedules are provided, because the information
called for is not required or is shown either in the financial
statements or the notes thereto.
II-2
Item 17. Undertakings.
The
undersigned Registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
(i) To
include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To
reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b)
(§230.424(b) of this chapter) if, in the aggregate, the
changes in volume and price represent no more than 20% change in
the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the
effective registration statement.
(iii)
To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
Provided, however,
that paragraphs (1)(i), (1)(ii) and (1)(iii) do not apply
if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to section 13 or section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement, or is contained in a form
of prospectus filed pursuant to Rule 424(b) that is part of the
registration statement.
(2)
That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling
persons of the registrant, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
II-3
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly
caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of New York,
State of New York, on May 12, 2017.
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. | ||
|
|
|
|
By:
|
/s/
Matthew Rosen
|
|
|
Matthew
Rosen
|
|
|
Chief
Executive Officer
|
|
By:
|
/s/
Michael Bauer
|
|
|
Michael
Bauer
|
|
|
Chief
Financial Officer and Principal Financial Officer
|
|
By:
|
/s/
Lisa Taranto
|
|
|
Lisa
Taranto
|
|
|
Vice
President – Finance and Principal Accounting
Officer
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints jointly and
severally, Gordon Hutchins, Jr., acting singly, as the person's
true and lawful attorneys-in-fact and agents, with full power of
substitution and re-substitution, for the person and in the
person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to
this registration statement and any additional registration
statements filed pursuant to Rule 462(b) under the Securities
Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in connection therewith, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE
|
TITLE
|
DATE
|
|
|||
|
|
|
|
|||
/s/
Marvin S. Rosen
|
Chairman of the
Board of Directors
|
May 12,
2017
|
|
|||
Marvin S. Rosen |
|
|
|
|||
|
|
|
|
|||
/s/
Matthew D. Rosen
|
Chief
Executive Officer, Principal Executive Officer and
Director
|
May 12,
2017
|
|
|||
Matthew D.
Rosen
|
|
|
|
|||
|
|
|
|
|||
/s/
Philip D. Turits
|
Secretary,
Treasurer and Director
|
May 12,
2017
|
|
|||
Philip D. Turits |
|
|
|
|||
|
|
|
|
|||
|
Director
|
|
|
|||
Jack Rosen |
|
|
|
|
||
|
|
|
|
|||
|
Director
|
|
|
|||
Paul C. O’Brien |
|
|
|
|||
|
|
|
||||
/s/
Michael J. Del Giudice
|
Director
|
May 12,
2017
|
|
|||
Michael J. Del Giudice |
|
|
|
|||
|
|
|
||||
/s/ Larry Blum |
Director
|
May 12, 2017 |
|
|||
Larry Blum |
|
|
|
|||
|
|
|
||||
/s/ William Rubin |
Director
|
May 12, 2017 |
|
|||
William Rubin |
|
|
|
INDEX TO EXHIBITS
Exhibit
Number
|
|
Description
|
|
|
|
3.1.1
|
|
Amended
and Restated Certificate of Incorporation (1)
|
3.1.2
|
|
Amendment No.1 to
the Amended and Restated Certificate of Incorporation
(2)
|
3.2
|
|
By-Laws
(1)
|
|
Opinion
and Consent of Steven I. Weinberger, P.A. (includes Exhibit
23.3)*
|
|
10.1
|
|
Common
Stock Purchase Agreement, dated as of November 16, 2016, by and
among Fusion Telecommunications International, Inc. and the several
purchasers of its common stock (3)
|
|
Consent
of EisnerAmper LLP, Independent Registered Public Accounting
Firm*
|
|
|
Consent
of Steven I. Weinberger, P.A. (included in Exhibit
5.1)*
|
*
Filed herewith.
(1)
Originally filed as an Exhibit to Registration Statement No.
33-120412.
(2)
Incorporated by reference to Exhibit 10.59 to the Quarterly Report
on Form 10-Q filed on November 14, 2016.
(3)
Incorporated by reference to Exhibit 10.4 to the Current Report on
Form 8-K/A filed on January 27, 2017.