Fusion Connect, Inc. - FORM 8-K - EX-99.2 - PRO FORMA FINANCIAL INFORMATION - May 25, 2018

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EX-99.1 - UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF BIRCH - Fusion Connect, Inc.fsnn_ex991.htm
8-K - CURRENT REPORT - Fusion Connect, Inc.fsnn_8k.htm
  Exhibit 99.2
 
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED
 CONSOLIDATED FINANCIAL INFORMATION
 
The following unaudited pro forma condensed combined balance sheet as of March 31, 2018 and the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2017 and the three months ended March 31, 2018 are derived from the historical consolidated financial statements of Fusion Connect, Inc. (“Fusion”) after giving effect to the merger transaction with Birch Communications Holdings, Inc. (“BCHI”) and after giving effect to the other transactions contemplated by the Agreement and Plan of Merger, dated as of August 26, 2017, as amended (the “Merger Agreement”), including the issuance of the Merger Shares, the Consumer Spin-off and the Carrier Spin-off (as each such term is defined in the Merger Agreement), and related financing transactions.
 
The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2017 and the three months ended March 31, 2018 give pro forma effect to the business combination and related financing transactions as if it had occurred on January 1, 2017. The unaudited pro forma condensed combined balance sheet as of March 31, 2018 assumes that the business combination and the related financing transactions was effective on March 31, 2018.
 
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2017 was derived from Fusion’s audited consolidated statement of operations and the audited consolidated statement of operations of BCHI, in each case, for the year ended December 31, 2017. The unaudited pro forma condensed combined balance sheet and statement of operations as of and for the three months ended March 31, 2018 were derived from Fusion’s unaudited condensed consolidated financial statements and BCHI’s unaudited consolidated financial statements, in each case, as of and for the three months ended March 31, 2018. In accordance with the terms of the Merger Agreement, the unaudited pro forma combined statements of operations for the year ended December 31, 2017 and the three months ended March 31, 2018 give effect to the Consumer Spin-off and the Carrier Spin-off.
 
The unaudited pro forma condensed financial information has been prepared using the acquisition method of accounting under the provisions of Accounting Standards Codification (referred to as ASC) 805, “Business Combinations.” As the number of shares of Fusion common stock issued to the former shareholders of BCHI at closing resulted in a change in control of Fusion, the transaction has been accounted for as a reverse acquisition and BCHI has been treated as the acquirer in the business combination for accounting purposes. The acquisition accounting is based upon certain valuation and other estimates. The pro forma adjustments have been made solely for the purpose of providing unaudited pro forma condensed financial statements prepared in accordance with the rules and regulations of the Securities and Exchange Commission.
 
 
The following unaudited pro forma financial statements are based on, and should be read in conjunction with:
 
●
The Company’s audited financial statements and the related notes thereto for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed on March 22, 2018.
●
The Company’s unaudited financial statement and the related notes thereto as of and for the three months ended March 31, 2018 included in the Company’s Quarterly Report on Form 10-Q filed on May 15, 2018.
●
The BCHI audited consolidated financial statements and the related notes thereto as of and for the years ended December 31, 2017 and 2016 included in the Company's Current Report on Form 8-K filed on May 10, 2018.
●
The BCHI unauded consolidated financial statements as of and for the three months ended March 31, 2018 filed with this Current Report on Form 8-K.
 
The pro forma financial statements give effect to the following transactions:
 
●
The merger of BCHI with and into a wholly owned subsidiary of Fusion, with the merger subsidiary being the survivor of that merger.
●
The Consumer Spin-off and the Carrier Spin-off.
●
The refinancing of all of the outstanding indebtedness of Fusion and BCHI through new first lien and second lien term loans totaling $650 million with an average interest rate of 9.77%
 
 
-1-
 
 
●
The sale by Fusion at the closing of the merger of $5 million of shares of its common stock and shares of its new series D preferred stock with a face value of $15 million. Does not include the sale by Fusion of an additional $3 million of shares of common stock at the closing of the merger.
  
The pro forma adjustments are based on the information currently available and the assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. The unaudited pro forma financial statements are for informational purposes only, are not indications of future performance, and should not be considered indicative of actual results that would have been achieved had the forgoing transactions actually been consummated on the dates or at the beginning of the periods presented.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-2-
 
 
 
Fusion Connect, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of March 31, 2018
(in thousands, except share data)
 
 
 
 
 
 
 
 
Pro Forma Adjustments
 
 
 
Fusion
 
Birch
 
New Debt Financing
 
Repayment of existing indebtedness
 
Consumer Spin-Off
 
Additional Equity
 
Merger Adjustments
 
Pro Forma Combined
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 $ 31,000
 
 $ 5,177
 
 $ 596,003
 (a)
 $ (533,930)
 (e,f)
 $ (177)
 
            19,158
 (h)
 $ -
 
 $ 117,231
 
Accounts receivable, net of allowance for doubtful accounts
                           9,175
 
                       29,929
 
                              -
 
                                      -
 
                    (6,365)
 
 
 
 
 
                          32,739
 
Inventory
 
 
                          1,052
 
 
 
 
 
                       (414)
 
 
 
 
 
                                638
 
Prepaid expenses and other current assets
                           1,871
 
                       11,766
 
                              -
 
                                      -
 
                    (2,454)
 
 
 
 
 
                          11,183
 
Deferred installation costs - current portion
                              798
 
 
 
 
 
 
 
 
 
 
 
 
 
                                798
 
Current assetes of discontinued operations
                           4,270
 
 
 
 
 
 
 
 
 
 
 
 
 
                            4,270
 
Accounts receivable - employees/stockholders
                                  -
 
                             919
 
                              -
 
                                (919)
 
                             -
 
 
 
                             -
 
                                    -
 
Total current assets
                        47,114
 
                       48,843
 
                  596,003
 
                       (534,849)
 
                    (9,410)

            19,158
 
                             -
 
                       166,859
 
Property and equipment, net
                        11,115
 
                       81,173
 
                              -
 
                                      -
 
                    (1,619)
 
 
 
                     5,753
 (c,d)
                          96,422
 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                    -
 
Security deposits
                              612
 
                                 -
 
                              -
 
                                      -
 
                             -
 
 
 
                             -
 
                                612
 
Restricted cash
                                 27
 
                                 -
 
                              -
 
                                      -
 
                             -
 
 
 
                             -
 
                                  27
 
Goodwill
                        35,182
 
                       93,356
 
                              -
 
                                      -
 
                    (3,547)
 
 
 
                   46,780
 (c)
                       171,771
 
Intangible assets, net
                        55,688
 
                       99,135
 
                              -
 
                                      -
 
                 (14,041)
 
 
 
                   36,422
 (c,d)
                       177,204
 
Deferred installation costs - net of current portion
                           1,103
 
 
 
 
 
 
 
 
 
 
 
 
 
                            1,103
 
Non-current assets of discontinued operations
                                 20
 
 
 
 
 
 
 
 
 
 
 
 
 
                                  20
 
Other assets
                                 36
 
                          4,780
 
                              -
 
                                      -
 
                    (2,272)
 
 
 
                             -
 
                            2,544
 
Total other assets
                        92,668
 
                     197,271
 
                              -
 
                                      -
 
                 (19,860)
 
                      -
 
                   83,202
 
                       353,281
 
TOTAL ASSETS
 $ 150,897
 
 $ 327,287
 
 $ 596,003
 
 $ (534,849)
 
 $ (30,889)
 
 $ 19,158
 
 $ 88,955
 
 $ 616,562
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
                           6,500
 
                       30,000
 
                    27,750
 (a)
                          (36,500)
 (e)
                             -
 
 
 
                             -
 
                          27,750
 
Obligations under asset purchase agreements - current portion
                              723
 
                                 -
 
                              -
 
                                      -
 
                             -
 
 
 
                             -
 
                                723
 
Equipment financing obligation
                           1,075
 
                          2,539
 
                              -
 
                                      -
 
                             -
 
 
 
 
 
                            3,614
 
Accounts payable and accrued expenses
                        20,165
 
                       90,812
 
                              -
 
                                      -
 
                    (7,240)
 
 
 
                             -
 
                       103,737
 
Deferred install revenue - current portion
                              797
 
 
 
 
 
 
 
 
 
 
 
 
 
                                797
 
Current liabilities from discontinued operations
                           4,661
 
 
 
 
 
 
 
 
 
 
 
 
 
                            4,661
 
Deferred Revenue
                                  -
 
                       12,287
 
                              -
 
                                      -
 
                    (2,170)
 
 
 
                             -
 
                          10,117
 
Line of credit
                                  -
 
                                 -
 
                              -
 
                                      -
 
                             -
 
 
 
                             -
 
                                    -
 
Total Current liabilities
                        33,921
 
                     135,638
 
                    27,750
 
                          (36,500)
 
                    (9,410)
 
                      -
 
                             -
 
                       151,399
 
Long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes payable - non-related parties, net of discount
                        32,084
 
                                 -
 
                              -
 
                          (32,084)
 (e)
                             -
 
 
 
                             -
 
                                    -
 
Long-term debt
 
 
                     417,179
 
                              -
 
                       (413,913)
 (e)
                             -
 
 
 
 
 
                            3,266
 
Term loan
                        47,663
 
                                 -
 
                  568,253
 (a)
                          (47,663)
 (e)
                             -
 
 
 
                             -
 
                       568,253
 
Indebtedness under revolving credit facility
                                  -
 
                                 -
 
 
 
                                      -
 
                             -
 
 
 
 
 
                                    -
 
Obligations under asset purchase agreements
                              477
 
                                 -
 
                              -
 
                                      -
 
                             -
 
 
 
                             -
 
                                477
 
Other non-current liabilities
                                  -
 
                       10,389
 
                              -
 
                                      -
 
                       (303)
 
 
 
                             -
 
                          10,086
 
Notes payable - related parties
                              928
 
                                 -
 
                              -
 
                                (928)
 (e)
                             -
 
 
 
                             -
 
                                    -
 
Deferred installation revenue - net of current portion
                           1,030
 
 
 
 
 
 
 
 
 
 
 
 
 
                            1,030
 
Equipment financing obligations
                              409
 
                          3,343
 
                              -
 
                                      -
 
                             -
 
 
 
                             -
 
                            3,752
 
Derivative liabilities
                              586
 
                                 -
 
                              -
 
                                      -
 
                             -
 
 
 
                             -
 
                                586
 
Total liabilities
                      117,098
 
                     566,549
 
                  596,003
 
                       (531,088)
 
                    (9,713)
 
 
 
                             -
 
                       738,849
 
Total stockholders' equity
                        33,799
 
                   (239,262)
 
                              -
 (a)
                            (3,761)
 (e,f)
                 (21,175)
 
            19,158
 (h)
                   88,955
 (b)
                     (122,286)
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 $ 150,897
 
 $ 327,287
 
 $ 596,003
 
 $ (534,849)
 
 $ (30,889)
 
 $ 19,158
 
 $ 88,955
 
 $ 616,562
 
 
 
-3-
 
 
(a)
Record estimated net proceeds from anticipated financing:
 
Net proceeds comprised of the following:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                              
 
Term Loan
 $ 650,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Facility fee
                      (53,998)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                  -
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $ 596,003
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The proposed term note will include $555M First Lien an $85M Second Lien and a $10M subordinated Seller Note. It will also include a $40M revolver (undrawn at close). The term loan will bear a blended interest at LIBOR rate plus margin for a total of 9.7% per annum payable according to the terms of the payment schedule.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(b)
To adjust for the fair value of Fusion shares issued in the transaction, as adjusted for the Fusion stockholders' deficit at the date of the transaction, as follows:                    
 
Fair value of Fusion shares acquired (post-split) - 25,336,313 shares (including shares issuable upon conversion of preferred stock and in-the-money warrants)
 
 
Shares O/S at 3/31/18
 
 
 
                   23,847,138
 
 
 
 
 
 Shares O/S
 
                    1,285,529
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 In-the-money stock warrants at 3/31/18    
 
                         203,647
 
 
 
 
 
 
 
 
 
 
 Share Issuable upon conversion of PS at 3/31/18  
                      1,285,529
 
 
 
 
 
 
 
 
 
 
 Total
 
 
 
 
 
                   25,336,313
 
 
 
 
 
 
 
 
 
 
 Stock price at 3/31/18
 
 $ 4.85
 
 $ 122,754
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares outstanding represent a number of shares issued and outstanding at 3/31/18. In-the-money warrants represents warrants with an exercise price of $4.85 or less at 3/31/18. Shares issuable upon conversion of preferred stock as of 3/31/18 were based upon a conversion calculation as listed in the preferred stock agreements.
 
 

 
 
 
 
 
 
 
 
 
 
 
(c)
To assign fair values to Fusion assets acquired and record goodwill                                76,008,940                
 
Fair value of consideration effectively transferred
 $ 122,754
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets (less goodwill) acquired
                      157,890
 
 
 
 
 
                   76,008,940
 
 
 
 
 
 
 
 
 
Liabilities assumed
                    (117,098)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net assets acquired
                        40,792
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 $ 81,962
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of consideration was calculated by multiplying stock price of $4.85 per share by a total of 25,336,313 shares (post-split) at 3/31/18. The number of shares included shares outstanding, in-the money stock warrant sand shares issuable upon conversion of preferred stock as of 3/31/18. Assets acquired excluded carrier services assets and included a step up in value based upon a third party valuation. Liability acquired excluded carrier services liabilities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(d)
Reflects adjustments to recognize the estimated fair value of Fusion assets as follows:                            
 
Customer relationships
                        53,400
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trademark
                        34,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Developed technology
                           4,710
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property and equipment
                        16,868
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The company engaged a third party to complete the analysis of purchase consideration and fair value of assets acquired. The analysis has been completed in accordance with ASC 805, business combinations, to arrive at estimated fair value of Fusion assets.
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(e)
Retire existing Fusion and Birch debt, including write-off of unamortized debt discount of $17.5M.  Fusion debt consists of $62M and $34M of subordinated notes.  It also includes approximately $1M of related party debt.  Fusion’s portion of debt discount is $2.5M. Birch debt consists of $417M of term loan and $45M revolver.  The Birch debt discount is $15M. The remaining $3.3M of related party notes will be paid over three quarters.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(f)
Denotes payment of stock repurchase obligation by Birch shareholders in the amount of $13.7 million. In 2016, Birch entered into an installment purchase agreement to repurchase 148 shares of common stock from a former employee for $13.7M. Installments were scheduled as follows: $1M on 12/31/16, $1.5M on 5/1/17, $1M on 12/31/17, $3M on 5/1/18, and $7.2M on 5/1/19. No payment had been made due to covenant restrictions. Unpaid balance will accrete interest at 4% per year.    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(h)
Represents additional equity that consist of (1) $5M of common stock and (2) series D preferred stock with a face value of $15M, net of fees which ammounted to $542 and a discount of $300K on the Series D preferred. Does not include an additional $3M of common sotck that was also sold at the closing of the merger.               
 
 
-4-
 
 
Fusion Connect, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
As of March 31, 2018
(in thousands, except share and per share data)
 
 
 
 
 
 

 
Pro Forma Adjustments
 
 
 
Fusion
 
Birch
 
Refinancing of Existing Indebtedness
 
 
Consumer Spin-Off
 
Merger Adjustments
 
Pro Forma Combined
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 $ 29,038
 
 $ 125,831
 
 $ -
 
 
 $ (23,040)
 
 $ -
 
 $ 131,829
 
Cost of revenues (exclusive of depreciation and amortization shown separately below)
                         12,919
 
                    70,573
 
                             -
 
 
                              (14,225)
 
                              -
 
                    69,267
 
Gross Profit
                         16,118
 
                    55,258
 
                             -
 
 
                                 (8,815)
 
                              -
 
                    62,562
 
Depreciation and amortization
                           3,136
 
                    16,237
 
 
 
 
                                 (1,370)
 
                       1,588
 (e)
                    19,591
 
Impairment charges
                           1,196
 
                      7,689
 
                             -
 
 
                                 (5,374)
 
                              -
 
                       3,511
 
Restructuring charges
 
 
                              -
 
 
 
 
 
 
 
 
                              -
 
Selling, general and administration expenses, including stock-based compensation
                         13,948
 
                    31,752
 
 
 
 
                                 (6,996)
 
                     (1,002)
 (f)
                    37,702
 
Total operating expenses
                         18,280
 
                    55,678
 
                             -
 
 
                              (13,740)
 
                          586
 
                    60,804
 
Operating loss
                         (2,162)
 
                        (420)
 
                             -
 
 
                                   4,925
 
                        (586)
 
                       1,758
 
Other (expenses) income:
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
                         (2,148)
 
                  (13,325)
 
                    (2,942)
(b)
 
                                           3
 
 
 
                  (18,412)
 
Gain on change in fair value of derivative liability
                               194
 
                              -
 
                             -
 
 
                                          -
 
                              -
 
                          194
 
Loss on extinguishment of debt
                                   -
 
                              -
 
 
 
 
                                          -
 
                              -
 
                              -
 
Loss on extinguishment of property and equipment
                                  (3)
 
 
 
 
 
 
 
 
 
 
                             (3)
 
Gain on change in fair value of contingent liability
                                   -
 
 
 
 
 
 
 
 
 
 
                              -
 
Other income, net of other expenses
                                 91
 
                        (231)
 
 
 
 
                                         (8)
 
 
 
                        (148)
 
Total other (expenses) income
                         (1,866)
 
                  (13,556)
 
                    (2,942)
 
 
                                         (5)
 
                              -
 
                  (18,369)
 
(Loss) income before income taxes
                         (4,028)
 
                  (13,976)
 
                    (2,942)
 
 
                                   4,920
 
                        (586)
 
                  (16,611)
 
Benefit (provision) for income taxes
                               (14)
 
                          997
 
 
 
 
                                    (225)
 
 
 
                          758
 
Net (loss) income
                         (4,042)
 
                  (12,979)
 
                    (2,942)
 
 
                                   4,695
 
                        (586)
 
                  (15,853)
 
 
Less: Net income attributable to noncontrolling interest
                             (166)
 
 
 
 
 
 
 
 
 
 
                        (166)
 
Net loss attributable to Fusion Connect, Inc.
                         (4,208)
 
                  (12,979)
 
                    (2,942)
 
 
                                   4,695
 
                        (586)
 
                  (16,019)
 
Less: Net loss attributable to non-controlling interest
                                 66
 
 
 
 
 
 
 
 
                           (66)
 
                              -
 
Net loss attributable to Fusion Connect, Inc.
                         (4,142)

                  (12,979)
 
                    (2,942)
 
 
                                   4,695
 
                        (652)
 
                  (16,019)
 
Preferred stock dividends in arrears
                             (244)
 
                              -
 
                             -
 
 
                                          -
 
                          244
 (c)
                              -
 
Net (loss) income attributable to common stockholders
 $ (4,386)

 $ (12,979)
 
 $ (2,942)
 
 
 $ 4,695
 
 $ (408)
 
 $ (16,019)
 
Basic and diluted loss per common share
 $ (0.21)
 
 
 
 
 
 
 
 
 
 
 $ (0.16)
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted
                20,682,262
 
 
 
 
 
 
 
 
            81,615,373
 (d)
         102,297,635
 
 
 
-5-
 
 
(a)
Denotes redemption premium and write off of unamortized debt discount for indebtedness being refinanced
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(b)
Increase in interest rate based on refinancing, including discount amortization resulting from facility fee and deferred loan costs of $54 million related to the refinancing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(c)
Remove preferred dividends as all preferred stock is converted prior to merger
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(d)
Shares (post-split) issued to Birch in merger transaction include 23,847,138 of Fusion shares issued and outstanding, 203,647 of Fusion in-the-money warrants, 1,285.529 of Fusion shares issuable upon conversion of preferred stock and 76,008,940 of new shares to be issued as part of the transaction, and additional shares of 952,382 related to the additional equity.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(e)
To record amortization expense for additional $36 million of intangibles acquired based on a 7 year useful life and the increased book basis of property and equipment of $5.7 million based on a 5 year expected life.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(f)
To remove merger-related transaction fees incurred in 2018 and accounted for in the December 2017 pro forma statement of operations which include $.2M for Fusion and $.8M for BCHI.
 
 
 
-6-
 
 
Fusion Connect, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaudited Pro Forma Condensed Combined Statement of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Year Ended December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands, except share and per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pro Forma Adjustments
 
 
 
 
Fusion
 
Birch
 
Refinancing of Existing Indebtedness
 
Carrier Services Spin-Off
 
Consumer Spin-Off
 
Merger Adjustments
 
Asset Impairment
 
Pro Forma Combined
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 $ 150,531
 
 $ 550,324
 
 $ -
 
 $ (33,189)
 
 $ (100,357)
 
 $ -
 
 $ -
 
 $ 567,309
 
 
Cost of revenues (exclusive of depreciation and amortization shown separately below)
                83,033
 
         307,959
 
                           -
 
                          (31,982)
 
               (62,372)
 
                          -
 
 
 
               296,638
 
 
Gross Profit
                67,497
 
         242,365
 
                           -
 
                             (1,207)
 
               (37,985)
 
                          -
 
 
 
               270,671
 
 
Depreciation and amortization
                14,521
 
           83,793
 
 
 
                                (341)
 
               (13,582)
 
                  5,942
 (e)
                5,371
 (g)
                 95,704
 
 
Impairment charges
                      641
 
           52,783
 
                           -
 
 
 
                  (1,328)
 
                          -
 
                1,780
 (g)
                 53,876
 
 
Restructuring charges
 
 
                     -
 
 
 
 
 
 
 
 
 
 
 
                           -
 
 
Selling, general and administration expenses, including stock-based compensation
                57,724
 
         139,595
 
 
 
                             (2,315)
 
               (29,857)
 
                14,725
 (f)
 
 
               179,872
 
 
Total operating expenses
                72,886
 
         276,171
 
                           -
 
                             (2,656)
 
               (44,767)
 
                20,667
 
                7,151
 
               329,452
 
 
Operating loss
                (5,389)
 
         (33,806)
 
                           -
 
                               1,449
 
                    6,782
 
              (20,667)
 
              (7,151)
 
               (58,781)
 
 
Other (expenses) income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
                (8,649)
 
         (50,920)
 
               (14,344)
(b)
                                      -
 
 
 
 
 
 
 
               (73,913)
 
 
Gain on change in fair value of derivative liability
                    (909)
 
                     -
 
                           -
 
                                      -
 
                           -
 
                          -
 
 
 
                     (909)
 
 
Loss on extinguishment of debt
                          -
 
                     -
 
               (21,771)
(a)
                                      -
 
                           -
 
                          -
 
 
 
               (21,771)
 
 
Loss on extinguishment of property and equipment
                    (312)
 
 
 
 
 
 
 
 
 
 
 
 
 
                     (312)
 
 
Gain on change in fair value of contingent liability
                  1,012
 
 
 
 
 
 
 
 
 
 
 
 
 
                    1,012
 
 
Other income, net of other expenses
                      209
 
              1,658
 
 
 
                                      -
 
                          (9)
 
 
 
 
 
                    1,858
 
 
Total other (expenses) income
                (8,649)
 
         (49,262)
 
               (36,115)
 
                                      -
 
                          (6)
 
                          -
 
                        -
 
               (94,035)
 
 
(Loss) income before income taxes
              (14,038)
 
         (83,068)
 
               (36,115)
 
                               1,449
 
                    6,776
 
              (20,667)
 
              (7,151)
 
             (152,817)
 
 
Benefit (provision) for income taxes
                      (62)
 
            (2,543)
 
 
 
                                      -
 
                          96
 
 
 
 
 
                  (2,509)
 
 
Net (loss) income
              (14,100)
 
         (85,611)
 
               (36,115)
 
                               1,449
 
                    6,872
 
              (20,667)
 
              (7,151)
 
             (155,326)
 
 
 
Less: Net income attributable to noncontrolling interest
                        86
 
 
 
 
 
                                   (86)
 
 
 
 
 
 
 
                           -
 
 
Net loss attributable to Fusion Connect, Inc.
              (14,014)
 
         (85,611)
 
               (36,115)
 
                               1,363
 
                    6,872
 
              (20,667)
 
              (7,151)
 
             (155,326)
 
 
Preferred stock dividends in arrears
                (1,838)
 
                     -
 
                           -
 
                                      -
 
                           -
 
                  1,838
 (c)
 
 
                           -
 
 
Net (loss) income attributable to common stockholders
 $ (15,852)
 
 $ (85,611)
 
 $ (36,115)
 
 $ 1,363
 
 $ 6,872
 
 $ (18,829)
 
 $ (7,151)
 
 $ (155,326)
 
 
Basic and diluted loss per common share
 $ (0.72)
 
 
 
 
 
 
 
 
 
 
 
 
 
 $ (2.31)
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted
       21,969,601
 
 
 
 
 
 
 
 
 
       45,391,480
 (d)
 
 
         67,361,081
 
 
 
 
-7-
 
 
(a)
Denotes redemption premium and write off of unamortized debt discount for indebtedness being refinanced
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(b)
Increase in interest rate based on refinancing, including discount amortization resulting from facility fee and deferred loan costs of $54 million related to the refinancing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(c)
Remove preferred dividends as all preferred stock is converted prior to merger
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(d)
Shares (post-split) issued to Birch in merger transaction include 14,980,755 of Fusion shares issued and outstanding, 257,433 of Fusion in-the-money warrants, 1,363,986 of Fusion shares issuable upon conversion of preferred stock and 49,806,524 of new shares to be issued as part of the transaction, and additioanl shares of 952,382 related to the additional equity.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(e)
To record amortization expense for additional $36 million of intangibles acquired based on a 7 year useful life and the increased book basis of property and equipment of $4.0 million based on a 5 year expected life.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(f)
To record merger-related transaction fees of $14.7M consisting of bonus awards, and other deal related expenses.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(g)
To record impairment of a Fusion back-office platform which will no longer be in use post acquisition. Reflects accelerated Amorization of trade names, Birch Communications $1.2M and Cbeyond $4.6M, for BCHI that will be phased out over the balance of the year.                                  
 
 
 
 
-8-

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Fusion Connect, Inc. Reports