Annual report pursuant to section 13 and 15(d)

4. Acquisitions

v2.4.0.6
4. Acquisitions
12 Months Ended
Dec. 31, 2012
Business Combinations [Abstract]  
4. Acquisitions

On October 29, 2012, the Company, through its wholly-owned subsidiary, Fusion NBS Acquisition Corp. (“FNAC”), completed the acquisition of all of the issued and outstanding membership interests of Network Billing Systems, LLC (“NBS”) and substantially all of the assets of NBS’ affiliate, Interconnect Services Group II LLC (“ISG”), and thereby acquired the business operated by NBS and ISG (“NBS” or the “Acquired Business”). Definitive agreements to purchase the Acquired Business had been entered into on January 30, 2012, and were amended on June 6, 2012, August 20, 2012, September 21, 2012 and October 24, 2012 (the “Purchase Agreements”).

 

The Acquired Business is a Unified Communications and cloud services provider offering a wide range of hosted voice and data services, Internet and data network solutions to small, medium and large businesses in the United States. The acquisition of NBS added approximately 4,500 customer locations to the Company’s Business Services segment, and is part of the Company’s strategy to increase the percentage of the Company’s total revenues contributed by the Business Services business segment, which generally operates at higher profit margins than does the Company’s Carrier Services business segment. In accordance with the terms of the Purchase Agreements, the Company purchased the Acquired Business, including approximately $496,000 of cash and the assumption of certain related liabilities.  The aggregate purchase price for the outstanding membership interests of NBS and the assets of ISG, net of the assumed liabilities, was $19.6 million (the “Purchase Price”), consisting of $17.75 million in cash, $0.6 million to be evidenced by promissory notes payable to the sellers of the NBS membership interests (the “Seller Notes”) and 11,363,636 shares of restricted common stock of Fusion valued at $1.25 million. The purchase price has also been adjusted for an additional amount payable to the sellers of approximately $1,129,000 following the application of certain working capital measurements described in the Purchase Agreements. This amount is reflected in Related party payable on the Company’s consolidated balance sheet as of December 31, 2012. The Seller Notes bear interest at the rate of 3% per annum and are payable in 14 equal monthly installments commencing January 31, 2013, and 10% of the cash portion of the Purchase Price is being held in escrow for a period of up to one year as collateral to secure the accuracy of the sellers’ representations, warranties and covenants contained in the Purchase Agreements. The Sellers Notes are payable to Jonathan Kaufman,the founder and principal operating officer of the Acquired Business, and his affiliates. Payment of the Seller Notes has been subordinated to payment of certain senior secured debt (see note 12). The aggregate purchase price was allocated to the fair value of the net assets acquired as follows:

 

Cash  $                   496,352
Accounts receivable                    2,215,172
Inventory                       320,034
Other current assets                       214,463
Property and equipment                    1,463,322
Other assets                           2,600
Intangible assets subject to amortization                  15,765,000
Goodwill                    2,381,301
Current liabilities                  (3,258,244)
   $              19,600,000

 

The Company’s consolidated financial statements include the assets, liabilities and results of operations of NBS effective as of the October 29, 2012 acquisition date. The Company’s statement of operations for the year ended December 31, 2012 includes revenues of approximately $4.5 million and net loss of approximately $73,000 related to NBS. The following table provides certain pro forma financial information for the Company as if the acquisition of NBS had been consummated effective as of January 1, 2011:

 

    For the year ended December 31,
    2012   2011
Revenues    $            66,836,708    $         68,881,318
Net loss    $             (6,101,129)    $         (5,955,968)

 

The Company recognized goodwill of $2,381,000 in connection with the acquisition of NBS. Subsequent to the acquisition in December 2012, the working capital payment due to the sellers was adjusted by approximately $25,000 resulting in a corresponding increase in goodwill.

 

Concurrently with the acquisition of NBS, the Company entered into an Employment and Restrictive Covenant Agreement with Mr. Kaufman, under which Mr. Kaufman became the President of the Company’s combined Business Services business segment.