Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of
Report (Date of earliest event reported) January 24,
2018
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FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
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Delaware
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001-32421
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58-2342021
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(State or other jurisdiction of incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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420 Lexington Avenue, Suite 1718, New York, NY
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10170
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(Address of principal executive offices)
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(Zip Code)
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Registrant's
telephone number, including area code:
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(212) 201-2400
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Not Applicable
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(Former name or former address, if changed since last
report)
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Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2.
below):
☐
Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under
the Exchange Act (17 CFR 240.14a-12)
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Indicate
by check mark whether the registrant is an emerging growth company
as defined in Rule 405 of the Securities Act of 1933 (§230.405
of this chapter) or Rule 12b-2 of the Securities Exchange Act of
1934 (§240.12b-2 of this chapter).
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 13(a) of the Exchange Act. ☐
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Item 1.01
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Entry into a Material Definitive Agreement.
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On January 24, 2018, Fusion Telecommunications
International, Inc., a Delaware corporation
(“Fusion”), entered into a Fourth Amendment (the
“Fourth Amendment”) to the Agreement and Plan of Merger (the
“Merger
Agreement”), dated August
26, 2017, by and between Fusion, Fusion BCHI Acquisition LLC
(“BCHI”) and Birch Communications Holdings, Inc.
(“Birch”). The
Fourth Amendment further extended the date by which either Fusion
or Birch may terminate the Merger Agreement due to an inability to
secure commitments for the required financing from 120 days from
the date of the Merger Agreement to 220 days from the date thereof
(i.e., April 3, 2018). Under the Fourth Amendment, the parties also
agreed to exclude up to 300,000 shares of common stock of Fusion
(the “Common Stock”) to be issued in connection with the IQmax
Asset Acquisition (as defined below) from the calculation of the
number of shares to be issued to BCHI Holding, LLC at the closing
under the Merger Agreement, as consideration in connection
therewith. In addition, the Fourth Amendment also revised Exhibit D
to the Merger Agreement (which exhibit described the proposed
spin-off of the Birch consumer business required as a condition
precedent to closing) to exclude references to the Canadian
business of Birch as the parties have agreed that such assets and
customers will transfer to Fusion at closing.
On January 25, 2018, Fusion, BCHI and Birch entered into a Fifth
Amendment (the “Fifth
Amendment”) to the Merger
Agreement. Under the Fifth Amendment, the parties agreed to
increase the dollar amount of cash that Fusion could raise by
issuing equity or debt securities in connection with capital
raising activities prior to the closing of the Merger from $10.0
million to $40.0 million (net proceeds) and also agreed any shares
of Common Stock issued by Fusion in such an offering in amount of
up to such $40.0 million (net proceeds) would be excluded in
determining the number of shares to be issued to BCHI
Holding, LLC at the closing under
the Merger Agreement as consideration in connection
therewith.
On
January 26, 2018, Fusion obtained a waiver (the “East West Waiver”) from
the lenders under its senior secured
credit facility with East West Bank, as administrative agent, and
the other lenders parties thereto (the “Credit
Facility”), that
permits Fusion to sell up to approximately $30,000,000 (net
proceeds) of Common Stock without having to use any of those
proceeds to prepay amounts outstanding under the Credit Facility.
Prior to receiving this waiver, Fusion was obligated under the
Credit Facility to use any net proceeds from any sale of its equity
securities that are in excess of $4.0 million to pay down
outstanding borrowings thereunder.
The
foregoing description of the Fourth Amendment, the Fifth Amendment,
and the East West Waiver are not complete and are qualified in
their entirety by reference to the full text of each such document,
all of which are filed hereto as Exhibits 10.1, 10.2, and 10.3, and
which are incorporated by reference herein in their
entirety.
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Item 2.02.
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Results of Operations and Financial Condition
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In
connection with the Offering (defined below), Fusion is filing a
preliminary prospectus supplement dated January 29, 2018 that
includes current and preliminary expectations of financial results
for Fusion and Birch for the fourth quarter ended December 31,
2017. Such financial results are furnished under the heading
“Prospectus Supplement Summary – Recent Developments
– Preliminary Fourth Quarter 2017 Financial Results”
and are set forth in their entirety below.
Preliminary Fourth Quarter 2017 Financial Results
The
following information reflects our current and preliminary
expectations of financial results for Fusion and Birch for the
fourth quarter ended December 31, 2017. These numbers remain
subject to adjustment in connection with the pending audit of our
financial statement and those of Birch.
For the
fourth quarter of 2017, we estimate that our revenues overall and
attributable to our Business Services segment will be approximately
$40.2 million and $29.5 million, respectively. For the fourth
quarter of 2017, we estimate that our net loss overall will be in
the range of $3.6 million to $3.2 million, and our adjusted EBITDA
overall will be in the range of $3.9 million to $4.3 million.
Please note, however, that we have yet to calculate the extent of
our derivative warrant liability or income tax liability for 2017,
both of which could have a significant effect on our net losses,
but neither of which will have an effect on our adjusted EBITDA. A
reconciliation of net (loss) income to adjusted EBITDA for Fusion
is set forth below.
We have
been advised by Birch that it estimates that for the fourth quarter
of 2017, business segment revenue of its North America (U.S. and
Canada) nonconsumer business will be approximately $106
million. We have further been advised by Birch that it estimates
that, for the fourth quarter of 2017, net loss for this business
segment will be in the range of $2.3 million to $0.4 million, and
adjusted EBITDA for this business segment will be in the range of
$31 million to $33 million. The adjusted EBITDA for Birch consists
of gross margin (i.e., total revenue less cost of goods sold) less
selling, general and administrative expenses, restructuring
charges, transaction charges and certain onetime legal
charges. A reconciliation of net (loss) income to adjusted EBITDA
for Birch is set forth below.
Fusion Telecommunications International, Inc.
Adjusted EBITDA Unaudited Reconciliation
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For the Three
Months Ended December 31,2017
(in
millions)
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Net
(loss) income
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$(3.6)
– (3.2)
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Interest expense
and other financing costs
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2.2
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Provision (benefit)
for income taxes
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-
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Depreciation and
amortization
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3.6
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EBITDA
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2.6
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Acquisition and
transaction expenses
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0.7
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Change in fair
value of derivative liability
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-
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(Gain)/Loss on
disposal of property and equipment, extinguishment of debt,
impairment
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(0.7)
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Stock based
compensation expense
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1.7
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Adjusted
EBITDA
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$3.9
– 4.3
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Birch
Communications Holdings, Inc.
Adjusted EBITDA Unaudited Reconciliation
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For the Three
Months Ended December 31,2017
(in
millions)
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Net
(loss) income
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$(2.3)
– (0.4)
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Interest
expense
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12.6
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Provision for
income taxes
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0.3
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Depreciation and
amortization
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18.6
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Foreign Currency
Loss
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0.1
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Other
Income
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1.2
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EBITDA
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28.0
– 30.0
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Acquisition and
Transaction Expenses
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1.5
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Non-Recurring
Employment Related Expenses
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1.0
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Legal
Settlements
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0.5
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Adjusted
EBITDA
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$31.0
– 33.0
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The
Company believes that EBITDA (earnings before interest, taxes,
depreciation and amortization) is useful to investors because it is
commonly used in the cloud communications industry to evaluate
companies on the basis of operating performance and leverage.
Adjusted EBITDA provides an adjusted view of EBITDA that takes into
account certain significant nonrecurring transactions, if
any, such as impairment losses and expenses associated with pending
acquisitions, which vary significantly between periods and are not
recurring in nature, as well as certain recurring noncash
charges such as changes in fair value of the Company’s
derivative liabilities and stockbased compensation. The
Company also believes that Adjusted EBITDA provides investors with
a measure of the Company’s operational and financial progress
that corresponds with the measurements used by management as a
basis for allocating resources and making other operating
decisions. Although the Company uses Adjusted EBITDA as one of
several financial measures to assess its operating performance, its
use is limited as it excludes certain significant operating
expenses. EBITDA and Adjusted EBITDA are not intended to represent
cash flows for the periods presented, nor have they been presented
as an alternative to operating income or as an indicator of
operating performance and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance
with accounting principles generally accepted in the United States
of America (“GAAP”). In accordance with SEC Regulation
G, the nonGAAP measurements in this presentation have been
reconciled to the nearest GAAP measurement.
Note Regarding Preliminary Results. The
preliminary financial results presented above are subject to the
completion of our and Birch’s financial closing procedures,
which have not yet been completed. Our and Birch’s actual
results for the fourth quarter will not be available until after
this offering is completed and may differ materially from these
estimates. Therefore, you should not place undue reliance upon
these preliminary financial results. For instance, during the
course of the preparation of the respective financial statements
and related notes, additional items that would require material
adjustments to be made to the preliminary estimated financial
results presented above may be identified. The preliminary
financial data included in this prospectus supplement relating to
Fusion has been prepared by and is the responsibility of our
management, and the preliminary financial data included in this
prospectus supplement relating to Birch was provided to us by
Birch’s management. Neither EisnerAmper LLP, Fusion’s
independent registered public accounting firm, nor McNair,
McLemore, Middlebrooks & Co., LLC, Birch’s independent
public accounting firm, has audited, reviewed, compiled or
performed any procedures with respect to the preliminary financial
data set forth above. Accordingly, neither EisnerAmper LLP nor
McNair, McLemore, Middlebrooks & Co., LLC expresses an opinion
or any other form of assurance with respect to these financial
figures. The preliminary estimated financial results were not
prepared with the view to complying with published guidelines of
the SEC or the guidelines established by the American Institute of
Certified Public Accountants for preparation and presentation of
preliminary estimated results of operations.
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Item 8.01
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Other Events
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On
January 29, 2018, Fusion issued a press release announcing the
launch of its underwritten public offering of Common Stock (the
“Offering”). A copy of the press release is attached
hereto as Exhibit 99.1 and is incorporated herein by
reference.
The
press release shall not constitute an offer to sell or the
solicitation of an offer to buy any of the securities described
herein, nor shall there be any sale of these securities in any
state or jurisdiction in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such state or jurisdiction.
On January 8, 2018, Fusion obtained the consent
(the “East West
Consent”) from the
lenders under the Credit Facility that permitted Fusion to acquire
substantially all of the assets of IQMax, Inc. on January 25, 2018
(the “IQMax Asset
Acquisition”), for total
consideration of $1 million, payable in Common
Stock.
On January 8, 2018, Fusion obtained the consent
(the “Praesidian
Consent”) from the
lenders under our loan facility with Praesidian Capital Opportunity
Fund III, L.P., Praesidian Capital Opportunity Fund III-A, LP and
United Insurance Company of America that permitted Fusion to
consummate the IQMax Asset Acquisition on January 25,
2018.
The
foregoing description of the East West Consent and the Praesidian
Consent are not complete and are qualified in their entirety by
reference to the full text of each such document, all of which are
filed hereto as Exhibits 99.2 and 99.3, respectively, and which are
incorporated by reference herein in their entirety.
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Item 9.01
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Financial Statements and Exhibits.
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(d)
Exhibits.
EXHIBIT INDEX
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Exhibit No.
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Description of Exhibit
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Fourth Amendment dated as of January 24, 2018 to Agreement and Plan
of Merger by and among Fusion Telecommunications International,
Inc., Fusion BCHI Acquisition LLC and Birch Communications
Holdings, Inc.
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Fifth Amendment dated as of January 25, 2018 to Agreement and Plan
of Merger by and among Fusion Telecommunications International,
Inc., Fusion BCHI Acquisition LLC and Birch Communications
Holdings, Inc.
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Waiver dated January 26, 2018 to Credit Agreement, dated as of
November 14, 2016, as amended, by and among Fusion NBS Acquisition
Corp., Fusion Telecommunications International, Inc., Network
Billing Systems, L.L.C., Fusion BVX LLC, Pingtone Communications,
Inc., Fidelity Telecom, LLC, Fidelity Access Networks, Inc.,
Fidelity Access Networks, LLC, Fidelity Connect LLC, Fidelity Voice
Services, LLC, Apptix, Inc., Fusion BCHI Acquisition LLC, East West
Bank, as Administrative Agent, Swingline Lender, an Issuing Bank
and a Lender and each other Lender from time to time party to the
Credit Agreement.
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Press Release dated January 29, 2018.
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Consent
dated January 8, 2018 to Credit Agreement, dated as of November 14,
2016, as amended, by and among Fusion NBS Acquisition Corp., Fusion
Telecommunications International, Inc., Network Billing Systems,
L.L.C., Fusion BVX LLC, Pingtone Communications, Inc., Fidelity
Telecom, LLC, Fidelity Access Networks, Inc., Fidelity Access
Networks, LLC, Fidelity Connect LLC, Fidelity Voice Services, LLC,
Apptix, Inc., Fusion BCHI Acquisition LLC, East West Bank, as
Administrative Agent, Swingline Lender, an Issuing Bank and a
Lender and each other Lender from time to time party to the Credit
Agreement.
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Consent
dated January 8, 2018 to Fifth Amended and Restated Securities
Purchase Agreement and Security Agreement, dated as of November 14,
2016, as amended, by and among Fusion NBS Acquisition Corp., Fusion
Telecommunications International, Inc., Network Billing Systems,
L.L.C., Fusion BVX LLC, Pingtone Communications, Inc., Fidelity
Telecom, LLC, Fidelity Access Networks, Inc., Fidelity Access
Networks, LLC, Fidelity Connect LLC, Fidelity Voice Services, LLC,
Apptix, Inc., Fusion BCHI Acquisition LLC, Praesidian Capital
Opportunity Fund III, LP, Praesidian Capital Opportunity Fund
III-A, LP, and United Insurance Company of America.
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SIGNATURE
Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report on Form 8-K to be signed
on its behalf by the undersigned thereunto duly
authorized.
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FUSION TELECOMMUNICATIONS
INTERNATIONAL, INC.
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By: /s/ James P. Prenetta,
Jr.
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James P. Prenetta, Jr.
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January 29, 2018
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EVP and General Counsel
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